As filed with the Securities and Exchange Commission on March 7, 1997
Registration No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
U.S. PLASTIC LUMBER CORP.
(Name of small business issuer in its charter)
Nevada 3080 87-0404343
(State or other jurisdiction of (Primary S.I.C. (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431 (561) 394-3511
(Address & phone number of principal executive office & place of business)
Harold H. Gebert
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431 (561) 394-3511
(Name, address & telephone number of agent for service)
Copies to:
Thomas G. Kimble & Van L. Butler
THOMAS G. KIMBLE & ASSOCIATES
311 South State Street, #440
Salt Lake City, Utah 84111
(801) 531-0066
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
CALCULATION OF REGISTRATION FEE
______________________________________________________________________________
CALCULATION OF REGISTRATION FEE
Title of Each Class|Amount to be|Proposed Maximum |Proposed Maximum|Amount
of Securities to be|Registered |Offering Price/Unit|Aggregate Price |of fee
Registered
______________________________________________________________________________
Common Stock 950,000 $ 2.50 $2,375,000 $719.70
(underlying Series
A Warrants)
- ------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
PAGE
<PAGE>
U.S. PLASTIC LUMBER CORP.
950,000 Shares of Common Stock
Underlying Series A Common Stock Purchase Warrants
U.S. Plastic Lumber Corp. (the "Company"), has registered, for sale to the
holders of outstanding Series A Common Stock Purchase Warrants (the "Series A
Warrants"), 950,000 shares of its $.0001 par value common stock, (the "Common
Stock" or the "Shares") which are issuable upon exercise of the Series A
Warrants, at a price of $2.50 per share. Each Series A Warrant entitles the
holder to purchase one share of Common Stock of the Company. The Series A
Warrants were distributed as a dividend with respect to the Common Stock of
the Company to shareholders of record as of March 18, 1996. By their terms,
the Series A Warrants were not exerciseable and did not constitute an offer by
the Company to sell the Shares prior to the effective date of the registration
statement, of which this prospectus is part, which registers the Shares
issuable upon such exercise. The Series A Warrants are exerciseable until
June 30, 1998. The Series A Warrants are callable and can be redeemed by the
Company for $.01 per Series A Warrant on 30 days notice at any time after the
effective date of this Prospectus if the closing bid price of the Common Stock
equals or exceeds $4.00 for 20 consecutive trading days. The Company's common
stock is quoted on the NASD Electronic Bulletin Board under the Symbol "ECPL"
and the current bid price quotation is $ . In the event management
calls for redemption of the Series A Warrants at any time in the future,
Series A Warrantholders would have 30 days to exercise, after which they would
be compelled to accept the nominal redemption price. The exercise and
redemption prices of the Series A Warrants were arbitrarily determined by the
Company and bear no relationship to assets, shareholders equity or any other
recognized criteria of value. Prior to this offering, there has been only a
limited public market for the Shares of Common Stock and there is no assurance
that such market will continue in the future.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE
DILUTION AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD TO RISK THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
Price to Commissions & Proceeds to
Public(1) Discounts(1)(2) Company(2)(3)
Per Share $2.50 $.00 $2.50
Total Maximum $2,375,000 $.00 $2,375,000
- ------------------------------------------------------------------------------
(1) The Shares are being offered by the Company only to the holders of
outstanding Series A Warrants, and will be sold by the Company without
any discounts or other commissions. The offering price is payable in
cash upon exercise of the Series A Warrants. No minimum number of
Series A Warrants must be exercised, and no assurance exists that any
Series A Warrants will be exercised. The Company will retain any
proceeds from Series A Warrant exercises, regardless of the number
exercised. See "Plan of Distribution."
(2) Proceeds to the Company are shown before deducting offering expenses
payable by the Company for legal and accounting fees and printing costs.
The date of this Prospectus is , 1997
<PAGE> 1<PAGE>
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2, under the
Securities Act of 1933, as amended (the "Securities Act), with respect to the
securities offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained
in the Registration Statement. For further information regarding both the
Company and the Securities offered hereby, reference is made to the
Registration Statement, including all exhibits and schedules thereto, which
may be inspected without charge at the public reference facilities of the
Commission's Washington, D.C. office, 450 Fifth Street, N.W., Washington, D.C.
20549. Copies may be obtained from the Washington, D.C. office upon request
and payment of the prescribed fee.
As of the date of this Prospectus, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(The "Exchange Act") and, in accordance therewith, will file reports and other
information with the Commission. Reports and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act will be available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 75 Park Place, New York, New York
10007; Chicago Regional Office, 500 West Madison Street, Chicago, Illinois
60661. 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.
Copies of the Company's Annual, Quarterly and other Reports which will be
filed by the Company with the Commission commencing with the Quarterly Report
for the first quarter ended after the date of this Prospectus (due 45 days
after the end of such quarter) will also be available upon request, without
charge, by writing U.S. Plastic Lumber Corp., 2300 W. Glades Road, Suite 440
W, Boca Raton, Florida 33431.
UNTIL [90 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 WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE SECURITIES
COMMISSION OR OTHER STATE REGULATORY AUTHORITY, AND NO SUCH REGULATORY
AUTHORITY HAS PASSED UPON THE TERMS OF THIS OFFERING OR APPROVED THE MERITS
THEREOF. INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE
TERMS OF THIS OFFERING IN EVALUATING THE MERITS AND RISKS OF THE OFFERING AND
MAKING AN INVESTMENT DECISION.
THIS PROSPECTUS SHOULD BE READ IN ITS ENTIRETY BY ANY PROSPECTIVE INVESTOR
PRIOR TO HIS OR HER INVESTMENT.
<PAGE> 2<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
appearing elsewhere in the Prospectus.
The Company
U.S. Plastic Lumber Corporation (the "Company") is a manufacturer and marketer
of recycled plastic lumber products and other recycling services. The Company
was originally incorporated under the laws of the State of Utah on July 26,
1983, under the name of Front Street Energy, Inc., and completed an initial
public offering of its securities in 1983. The Company changed its corporate
domicile to the State of Nevada in June 1992 and changed its name to Front
Street, Inc. In 1994, the Company changed its name to Educational Storybooks
International, Inc. when it acquired all the outstanding stock of Educational
Storybooks, Inc. The Company subsequently divested itself of Educational
Storybooks, Inc. and another subsidiary, and had no significant assets or
business until March, 1996, when the Company acquired Earth Care Global
Holdings, Inc. ("Earth Care") as a wholly owned subsidiary, through the
acquisition of all the issued and outstanding stock of Earth Care in a stock
for stock exchange (the "Acquisition") and changed its name to U.S. Plastic
Lumber Corporation. The mailing address of the Company's principal executive
offices is 2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431. The
Company's telephone number is (561) 394-3511.
The Company presently owns and operates four manufacturing, processing and
fabrication facilities in the U.S. The primary product produced in three of
these plants is lumber made from recycled waste plastic. Recycled plastic
lumber is manufactured in a variety of colors, profiles and shapes including
standard lumber dimensions and many custom engineered profiles and shapes.
The plastic lumber is then sold as an end product, value added decking
products, or fabricated into park and site amenities such as benches, picnic
tables and trash receptacles. Plastic lumber's principal intended use is as
an environmentally friendly and non-toxic alternative to pressure treated
lumber or rain forest hardwoods, which is suitable for and provides superior
performance in most nonstructural, outdoor applications. The Company's fourth
plant operates a process for decontaminating and recycling soil that has been
contaminated with petroleum hydrocarbons and similar compounds. See
"Business."
The Offering
Securities offered 950,000 Shares of Common Stock, $.0001 par value
("Common Stock") of the Company underlying outstanding
Series A Warrants. See "Description of Securities".
Offering Prices $2.50 per share.
Plan of Distribution The Shares are offered and will be sold by the
Company, without any discounts or other commissions,
to the holders of the Series A Warrants upon the
exercise thereof. See "Plan of Distribution."
Use of Proceeds The Company could potentially receive gross proceeds
of as much as $2,375,000 from sale of the 950,000
Shares of Common Stock issuable upon exercise of the
Series A Warrants, if and to the extent such Warrants
are exercised. Any such proceeds will be used
generally to provide additional working capital, but
have not been specifically allocated, inasmuch as
there is no assurance any of the Series A Warrants
will be exercised.
<PAGE> 3
Securities Outstanding The Company is authorized to issue up to 50,000,000
shares of Common Stock and presently has 13,163,898
shares of Common Stock issued and outstanding. The
Company has reserved from its authorized capital
950,000 shares of Common Stock for issuance upon
exercise of the Series A Warrants. In addition, the
Company also has Series B and other warrants or
options outstanding which give the holders thereof the
right, subject to certain conditions, to acquire an
additional 2,710,379 shares of Common Stock. The
Company is also authorized to issue up to 5,000,000
shares of Preferred Stock in one or more series with
such rights and preferences as the Board of Directors
may designate. The Board of Directors has designated
one series of Preferred Stock (Series A) and 193,970
Series A preferred shares are presently issued and
outstanding, which are convertible into 1,357,790
shares of Common Stock of the Company. See
"Description of Securities."
Series A Warrants Each Series A Warrant entitles the holder to purchase
one share of Common Stock at any time during the
period commencing on the date of this Prospectus and
ending June 30, 1998. The Series A Warrants are
callable and can be redeemed by the Company for $.01
per Series A Warrant on 30 days notice at any time
after the date of this Prospectus if the closing bid
price of the Common Stock equals or exceeds $4.00 for
20 consecutive trading days. In the event management
calls for redemption of the Series A Warrants at any
time in the future, Series A Warrantholders would then
have 30 days in which to decide whether to exercise
their warrants, after which time they would be
compelled to accept the nominal redemption price. The
exercise price is $2.50 per share for the Series A
Warrants, subject to adjustment in certain events.
See "Description of Securities - Series A and B
Warrants."
Transfer Agent Interwest Transfer Company, Inc., 1981 East 4800
South, Suite 100, Salt Lake City, Utah 84117, (801)
272-9294, serves as transfer agent and registrar for
the Company's outstanding securities.
Risk Factors An investment in the Company is highly speculative.
Investors will suffer substantial dilution in the book
value per share of the Common Stock compared to the
purchase price. The Company incurred net operating
losses during the development stage and has
accumulated a substantial deficit. If substantial
funds are not received from exercise of the Series A
Warrants, of which there is no assurance, the Company
may require additional funding for which it has no
commitments. No person should invest in the Company
who cannot afford to risk loss of the entire
investment. See "Risk Factors."
<PAGE> 4<PAGE>
RISK FACTORS
The securities being offered hereby involve a high degree of risk.
Prospective investors should carefully consider the following risk factors
before investing in the Company.
Risks Inherent in a New Start Up Company
Accumulated Deficit and Operating Losses. At December 31, 1996, the Company
had incurred an net loss of $3,551,144 for the year then ended, and had an
accumulated deficit of $7,349,139. The Company expects to continue to incur
losses for at least the next quarter or two and the success of its operations
thereafter will be largely dependent upon its ability to substantially
increase its sales revenue, and complete certain acquisitions, as to which
there is no assurance. See financial statements attached hereto.
Dependence on Management. The development of the Company's business and
operations is dependent upon the efforts and talents of its executive
officers. The loss of the services of one or more of these officers could
have a material adverse effect on the Company's business. See "Management".
No Cash Dividends. The Company does not currently intend to pay cash
dividends on its Common Stock and does not anticipate paying such dividends at
any time in the foreseeable future. At present, the Company will follow a
policy of retaining all of its earnings, if any, to finance development and
expansion of its business. The Company does intend to pay dividends in stock
on its outstanding Series A Preferred Stock. See "Dividend Policy."
Limited Liability of Management. The Company has adopted provisions to its
Articles of Incorporation and Bylaws which limit the liability of Officers and
Directors and provides for indemnification by the Company of Officers and
Directors to the full extent permitted by Nevada law, which provides that
officers and directors shall have no personal liability to a Company or its
stockholders for monetary damages for breach of fiduciary duties as directors,
except for a breach of their duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law,
unlawful payment of dividends or unlawful stock purchases or redemptions, or
any transaction from which a director derives an improper personal benefit.
Such provisions substantially limit the shareholders' ability to hold officers
and directors liable for breaches of fiduciary duty, and may require the
Company to indemnify its officers and directors. See "Certain Transactions -
Conflicts of Interest".
Risks Related to the Nature of the Proposed Business
Newly Developing Industry. The reclamation and recycling of plastic waste and
the manufacture of plastic lumber for use in construction, and other composite
materials containing recycled waste plastics, are relatively new industries.
There is a general reluctance in the construction industry to use new
materials before they have been extensively tested, particularly in certain
segments which have exacting performance standards for component materials.
In the case of the Company's plastic lumber and composite materials in
particular, such testing may be extensive for each prospective customer and
may require substantial additional time and resources. In addition, the
Company may experience resistance from prospective customers who are
accustomed to more conventional, non-artificial wood materials. Moreover, the
Company may not have sufficient financial and other resources to undertake
extensive marketing and advertising activities or to afford the cost of the
necessary marketing and sales personnel at such time as it becomes appropriate
to broaden its marketing efforts. See "Business".
Availability of Raw Materials. The availability of low-cost raw materials,
<PAGE> 5
namely consumer and industrial plastic waste products, is a material factor in
the Company's costs of operations. Historically, suppliers have provided
adequate quantities of such raw materials at favorable costs. The Company
generally maintains raw material inventories of approximately one half million
pounds, which is adequate for approximately two months of production. The
Company believes that its current sources of raw materials will continue to be
available on commercially reasonably terms. However, unavailability, scarcity
or increased cost of such raw materials would have a material adverse effect
upon the Company's business. The Company purchases most of its raw materials
through brokers. Disruption of these supply sources could have a material
adverse effect on the Company's business. The Company does not rely on
contractual arrangements with its raw materials suppliers and has no long-term
supply contracts; however, management is currently negotiating for long term
supply contracts.
Competition and Marketing. The Company's plastic lumber business faces
competition from other producers of recycled plastic lumber as well as
producers of vinyl and aluminum decking, and traditional wood lumber,
especially pressure treated wood lumber. The Company competes against other
makers of recycled plastic lumber principally on the basis of price and
quality as well as the immediate availability of its product, and competes
against other products such as pressure treated lumber by emphasizing the
superior suitability characteristics of recycled plastic lumber for certain
applications, as well as appealing to the environmental consciousness of
consumers. The Company's Clean Earth division has several local competitors
which provide similar services within a 150 mile radius. The Company's
products and services involve newly developing technologies, and there is no
assurance the Company will be able to compete effectively in developing and
marketing such products and services.
Lack of Industry Standards. ASTM (American Society for Testing and Materials)
and certain industry trade organizations have established general standards
and methods for measuring the characteristics of specific building materials.
Users of building materials (and frequently, issuers of building codes)
generally specify that the building materials comply with such standards
relative to the proposed applications. Since no uniform, recognized standards
or methods have yet been established for measuring the characteristics of
plastic lumber, potential users cannot readily judge whether or not plastic
lumber may be suitable for their particular requirements without conducting
their own testing or relying on the tests results provided by the plastic
lumber supplier from its own tests or from independent laboratories. The lack
of such accepted standards (and the assurance of extensive testing, quality
control and performance capability which compliance with accepted standards
typically provide) may limit the market potential of the Company's building
materials and make potential purchasers of such building materials reluctant
to use them. The Plastic Lumber Trade Association, of which the Company is a
member, is pursuing establishment of such standards with the ASTM, but no
assurance can be given that standards or methods will be established in the
future or, if established, that the Company's products will satisfy any such
standards.
Regulatory Matters. The Company's businesses are subject to laws and
regulations designed to protect the environment from toxic wastes and
hazardous substances or emissions and to provide a safe workplace for its
employees. In particular, the business of decontaminating or otherwise
handling toxic or hazardous waste materials is fraught with potential
liability to such handlers if the handling and tracking of such wastes is not
properly done. The Company believes it is either in material compliance with
all currently applicable laws and regulations or is operating in accordance
with appropriate variances or similar arrangements, but there is no assurance
that it will always be deemed in compliance, nor any assurance that compliance
with current laws and regulations will not require significant capital
<PAGE> 6
expenditures that could have a material adverse effect on its operations.
Such laws and regulations are always subject to change and could become more
stringent in the future. Although state and federal legislation currently
provide for certain procurement preferences for recycled materials, such
preferences for materials containing waste plastics are dependent upon the
eventual promulgation of product or performance standard guidelines by state
or federal regulatory agencies. Such guidelines for recycled plastic building
materials may not be released or, if released, the product performance
standards required by such guidelines may be incompatible with the Company's
manufacturing capabilities.
Protection of Technology. The Company's composite materials manufacturing
process and its waste plastics reclamation technologies involve many
proprietary trade secrets, as well as certain methods, processes and equipment
designs for which the the Company has not sought patent protection. Although
the Company has taken measures to safeguard its trade secrets by limiting
access to manufacturing facilities and requiring confidentiality and
nondisclosure agreements with third parties, there is no assurance that its
trade secrets will not be disclosed or that others will not independently
develop comparable or superior technology. Rather than rely on patent
protection, the Company has generally chosen to rely on the unique and
proprietary nature of its processes. However, the Company is currently
seeking to obtain exclusive worldwide licensing rights with respect to patent
pending technology related to railroad crossties and the process to
manufacture them, but there is no assurance it will obtain such rights, and
even if such rights are obtained there is no assurance the Company will be
able to maintain such rights for any specific length of time.
Risks Related to the Offering
No Assurance of Warrant Exercise and No Escrow of Funds. There is no
assurance that any proceeds will be received from exercise of Series A
Warrants in this offering. Proceeds may be insufficient to defray offering
expenses. There is no minimum number of Series A Warrants that must be
exercised and no escrow of funds received upon exercise. Any proceeds
received will immediately be retained by the Company to be used in its
business. The amount of capital currently available to the Company is
limited. In the event that any proceeds from this offering and the Company's
existing capital are not sufficient to enable the Company to develop and
expand its business and generate a profit, the Company may need to seek
additional financing from commercial lenders or other sources, for which it
presently has no commitments or arrangements. This creates an increased risk
to persons who do exercise their Series A Warrants, because there is no
assurance that additional Series A Warrants will be exercised or that the
Company will receive any further funding.
Risks of Warrant Exercise. Although the market price of the Common Stock
currently exceeds the exercise price of the Series A Warrants, there is no
assurance that exercising Series A Warrantholders will be able to sell their
Common Stock in the future at a price which equals or exceeds such exercise
price.
Outstanding Warrants, Options and Other Rights. In addition to the 950,000
Series A Warrants, the Company has outstanding 950,000 Series B Warrants, and
other warrants and options to purchase up to 1,760,379 shares, and Earn-out
rights to acquire 4,873,686 shares. The Company will also have other options
granted in the future in connection with an employee incentive stock option
program. The holders of such options, warrants or rights are given an
opportunity during the term of such rights to profit from a rise in the market
price of the Company's common stock, with a resultant dilution of the
interests of all other stockholders. The holders thereof are likely to
exercise them only if the then prevailing market price exceeds such exercise
<PAGE> 7
prices, which would be at a time when, in all likelihood, the Company would
otherwise be able to obtain funds from the sale of its securities on terms
more favorable than those provided by the options and warrants. Accordingly,
the Company may find it more difficult to raise additional capital while the
options and warrants are outstanding.
Current Prospectus and Registration Required for Exercise. Holders of the
Series A Warrants will only be able to exercise such securities to acquire the
underlying Common Stock if a current prospectus relating to the Common Stock
is then in effect and such exercise is qualified or exempt from qualification
under applicable securities laws of the states in which such holders of the
Series A Warrants reside. Although the Company intends to use its best
efforts to update this prospectus as necessary to maintain a current
prospectus and federal and state registration/qualification for such exercise,
there is no assurance that the Company will be able to do so at such time as
such persons may wish to exercise such securities. The value of the Series A
Warrants may be greatly diminished if the ability to exercise such securities
is not maintained. If a current prospectus is in effect, the Series A
Warrants are redeemable for nominal consideration at any time after the date
hereof upon 30 days notice, if the bid price of the common stock equals or
exceeds $4.00 for 20 consecutive trading days. If redeemed, warrantholders
would have 30 days to exercise the Series A Warrants, after which they would
be compelled to accept the nominal redemption price.
Dilution. Series A Warrantholders who exercise their Series A Warrants to
purchase the underlying Shares of Common Stock will suffer substantial
dilution in the purchase price of the Shares compared to the net tangible book
value per share immediately after the purchase. The exact amount of dilution
will vary depending upon the total number of Series A Warrants exercised, and
will be greater if less than all the Series A Warrants are exercised. The
fewer Series A Warrants exercised, the greater dilution will be with respect
to the Series A Warrants that are exercised. See "Dilution."
Potential Issuance of Additional Common and Preferred Stock. The Company is
authorized to issue up to 50,000,000 shares of Common Stock. To the extent of
such authorization, the Board of Directors of the Company will have the
ability, without seeking shareholder approval, to issue additional shares of
Common Stock in the future for such consideration as the Board of Directors
may consider sufficient. The issuance of additional Common Stock in the
future will reduce the proportionate ownership and voting power of the Common
Stock offered hereby. The Company is also authorized to issue up to 5,000,000
shares of preferred stock, the rights and preferences of which may be
designated in series by the Board of Directors. To the extent of such
authorization, such designations may be made without shareholder approval.
The Board of Directors has designated one series of Preferred Stock (Series A)
and issued 193,970 shares of Series A Preferred Stock. The designation and
issuance of series of preferred stock creates additional securities which have
dividend and liquidation preferences over the Common Stock offered hereby.
See "Description of Securities."
Arbitrary Determination of Offering Price. The exercise price of the Series A
Warrants was arbitrarily determined by management of the Company and was set
at a level substantially in excess of prices recently paid for securities of
the same class. The price bears no relationship to the Company's assets, book
value, net worth or other economic or recognized criteria of value. In no
event should the exercise prices be regarded as an indicator of any future
market price for the Company's securities.
No Assurance of a Liquid Public Market for Securities. Although the Company's
shares of common stock are eligible for quotation on the Electronic Bulletin
Board maintained by the NASD, there can be no assurance that a regular and
established market will continue for the securities upon completion of this
<PAGE> 8
offering. There can also be no assurance as to the depth or liquidity of any
market for common stock or the prices at which holders may be able to sell the
Shares. As a result, an investment in the Shares may be totally illiquid and
investors may not be able to liquidate their investment readily or at all when
they need or desire to sell.
Volatility of Stock Prices. In the event that an established public market
does develop for the Shares, market prices will be influenced by many factors,
and will be subject to significant fluctuation in response to variations in
operating results of the Company and other factors such as investor
perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, international
political conditions, developments with regard to the Company's activities,
future financial condition and management. See "Plan of Distribution."
Shares Eligible for Future Sale. Of the 13,163,898 shares of the Company's
common stock outstanding prior to the exercise of any Series A Warrants,
1,949,999 shares are freely tradeable or are eligible to be sold in the public
market, and the 950,000 shares of Common Stock underlying the Series A
Warrants will also be freely tradeable immediately upon issuance. All the
remaining shares of Common Stock presently outstanding are restricted and/or
affiliate securities which are not presently, but may in the future be sold
into any public market that may exist for the Common Stock, pursuant to Rule
144 promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). Future sales by current shareholders of substantial
amounts of this common stock into the public market could depress the market
prices of the Common Stock in any such market. See "Shares Eligible for
Future Sale".
Applicability of Low Priced Stock Risk Disclosure Requirements. The common
stock of the Company may be considered a low priced security under rules
promulgated under the Exchange Act. Under these rules, broker-dealers
participating in transactions in low priced securities must first deliver a
risk disclosure document which describes the risks associated with such
stocks, the broker-dealer's duties, the customer's rights and remedies, and
certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the
customer's financial situation, investment experience and objectives. Broker-
dealers must also disclose these restrictions in writing and provide monthly
account statements to the customer, and obtain specific written consent of the
customer. With these restrictions, the likely effect of designation as a low
priced stock is to decrease the willingness of broker-dealers to make a market
for the stock, to decrease the liquidity of the stock and increase the
transaction cost of sales and purchases of such stocks compared to other
securities.
DILUTION
Dilution is the difference between the Series A Warrant exercise price of
$2.50 per share for the Common Stock underlying the Series A Warrants, and the
net tangible book value per share of the Common Stock immediately after its
purchase. The Company's net tangible book value per share of Common Stock is
calculated by subtracting the Company's total liabilities and the amount of
the liquidation preferences of its outstanding preferred equity, from its
total assets less any intangible assets, and then dividing by the number of
shares of Common Stock then outstanding.
Based on the December 31, 1996, consolidated financial statements of the
Company, the net tangible book value attributable to the Common Stock of the
Company at that date was $419,055. After adjusting for the acquisition of RPI
in January, 1997, the acquisition of ARDT in February, 1997, and other
issuances of additional Common and Preferred Stock subsequent to December 31,
<PAGE> 9
1996, and receipt of the net proceeds therefrom, but without taking into
consideration any changes in operating results or other changes in net
tangible book value subsequent to December 31, 1996, the Company has
13,163,898 shares of Common Stock outstanding prior to the exercise of any
Series A Warrants, with an estimated negative net tangible book value
attributable to the Common Stock of $(125,389) or approximately $(.01) per
common share.
If all the Series A Warrants were to be exercised (of which there is no
assurance), upon the exercise thereof, but prior to exercise of any Series B
Warrants or exercise or conversion of any other outstanding convertible
securities, options or stock rights, the Company would then have 14,113,898
Shares of Common Stock outstanding. The estimated post offering net tangible
book value of the Company (which gives effect to receipt of the estimated net
proceeds from such exercise and issuance of the underlying Shares of Common
Stock, but does not take into consideration any other changes in net tangible
book value of the Company subsequent to December 31, 1996), would then be
$2,174,611 or approximately $.15 per share. This would result in dilution to
persons exercising Series A Warrants of $2.35 per share, or 94% of the
exercise price of $2.50 per share. Net tangible book value per share would
increase to the benefit of present stockholders from $(.01) prior to the
offering to $.15 after the offering, or an increase of $.16 per share
attributable to the exercise of the Series A Warrants.
The following table sets forth the estimated net tangible book value ("NTBV")
per share after exercise of all Series A Warrants and the dilution to persons
purchasing the underlying Shares of Common Stock.
Exercise of all Series A Warrants:
Series A Warrant exercise price/share $2.50
NTBV/share prior to exercise $(.01)
Increase attributable to Series A Warrant exercise .16
Pro forma NTBV/share after exercise .15
Dilution $2.35
If less than all the Series A Warrants are exercised, dilution to the
exercising Series A Warrantholders will be greater than the amount shown. The
fewer Series A Warrants exercised, the greater dilution will be to those who
do exercise.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares of Common Stock
underlying the Series A Warrants at the exercise price of $2.50 per Share for
Series A Warrants will vary depending upon the total number of Series A
Warrants exercised. If all Series A Warrants were to be exercised (of which
there is absolutely no assurance, nor any assurance that any Series A Warrants
will be exercised), the Company would receive gross proceeds of $2,375,000
from Series A Warrants. Regardless of the number of Series A Warrants
exercised, the Company expects to incur offering expenses estimated at $75,000
for legal, accounting, printing and other costs in connection with the
offering. Inasmuch as there is no assurance that all Series A Warrants will
be exercised nor any requirement that any minimum amount of the Series A
Warrants be exercised, there are no escrow provisions and any proceeds that
are received will be immediately available to the Company to provide
additional working capital to be used for general corporate purposes.
Proceeds have not been specifically allocated, except that the Company agreed
<PAGE> 10
to use the first proceeds (if any are received), to repay a bank loan from
Union Bank of Lake Odessa, Michigan, which was assumed by the Company as part
of the Duratech acquisition. The approximate loan balance is $132,000. The
exact uses of any other proceeds will depend on the amounts received and the
timing of receipt. Management's general intent is to use whatever additional
funds may be generated from Series A Warrant exercise to finance further
development and expansion of the Company's business.
MARKET INFORMATION & DIVIDEND POLICY
The common stock of the Company has traded in the over-the-counter market on a
limited and sporadic basis, and is quoted on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board under the symbol ECPL.
The following table sets forth the high and low bid price quotations for each
calendar quarter during the last two fiscal years. The Company reverse split
its common stock on a 1 for 16 basis in March, 1996. Quotations for periods
prior to such split have been restated to reflect post split amounts
throughout.
Quarter Ended High Bid Low Bid
March 31, 1995 $ 1.76 $ 1.12
June 30, 1995 $ 1.60 $ 1.12
September 30, 1995 $ 1.60 $ 1.44
December 31, 1995 $ 3.20 $ 1.92
March 31, 1996 $ 3.50 $ 2.88
June 30, 1996 $ 4.75 $ 4.13
September 30, 1996 $ 5.13 $ 4.63
December 31, 1996 $ 4.75 $ 3.00
The above prices represent interdealer quotations, without retail markup,
markdown or commissions, and may not represent actual transactions. As of
December 31, 1996, there were approximately 262 record holders of the
Company's common stock.
Dividend Policy
The Company has not previously paid any cash dividends on its common stock and
does not anticipate or contemplate paying dividends on common stock in the
foreseeable future. Certain divisions or subsidiaries recently acquired by
the Company have in the past (prior to their acquisition by the Company) paid
cash dividends, but it is the present intention of management of the Company
to utilize all available funds for the development of the Company's business.
The Company does intend to pay stock dividends on its outstanding Series A
Preferred Stock in accordance with the terms thereof. The only restrictions
that limit the ability to pay dividends on common or preferred equity or that
are likely to do so in the future, are those restrictions imposed by law.
Under Nevada corporate law, no dividends or other distributions may be made
which would render the Company insolvent or reduce assets to less than the sum
of its liabilities plus the amount needed to satisfy outstanding liquidation
preferences.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes associated with them
contained elsewhere in this prospectus. The financial statements of the
Company referred to in this discussion include and reflect the financial
condition and operating results of U.S. Plastic Lumber Corp. and its
consolidated subsidiaries for the period since its acquisition of Earth Care
Global Holdings, Inc. in March, 1996, through the year ended December 31,
<PAGE> 11
1996, and of Earth Care Global Holdings, Inc. and its consolidated
subsidiaries for the period prior to such acquisition back until the beginning
of 1995. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future.
Results of Operations.
Prior Fiscal Year. After deduction of interest, general and administrative
expenses, the Company incurred a net loss of $(1,445,903) during the fiscal
year ended December 31, 1995. The Company's total revenues for the period
were $7,257,995. The Company's costs of sales for the year were $5,225,689.
The Company's general and administrative expenses were $3,081,023 for the
fiscal year ended December 31, 1995, which continues to be high due primarily
to the issuance of stock to management in lieu of cash compensation and the
associated charge to earnings resulting therefrom. The amount includes a
charge of $975,800 representing the valuation of 97,580 shares of stock based
on contemporaneous sales of stock for cash. 95,080 shares were issued to
management as compensation; 2,500 shares were issued as payment for $25,000 of
interest.
Current Fiscal Year compared to Prior Fiscal Year. Total sales decreased
($630,753) or (8.7%) in 1996 from $7,257,995 in 1995 to $6,627,242. The
reduction in sales was due to a decrease in revenue of ($1,302,024) in the
environmental recycling division offset by an increase in revenue of $671,271
in the recycled plastic lumber division. In the plastic lumber division,
sales increased $671,271 or 55.3% from $1,214,032 in 1995 to $l,885,303. This
increase was primarily due to the contribution sales from the DuraTech
Industries acquisition in April, 1996 (not present in 1995). In the
environmental recycling division, sales decreased by ($1,302,024) or (21.5%)
primarily due to a fire in the operating facility which occurred in March of
1996 and interrupted business for a period of several months resulting in lost
processing capacity during the retrofit process. In addition, there was a
decrease in revenue primarily due to the extraordinary harsh weather
conditions in the Northeast during first quarter of 1996 compared to 1995
which interfered with the ability to access soil requiring recycling. In
January, 1997, the Company acquired Recycled Plastics Industries, Inc. (RPI),
a manufacturer of specialty profile, recycled plastic lumber. In February
1997, the Company acquired Advanced Remediation and Disposal Technologies,
Inc. (ARDT), an environmental consulting firm which cleans up contaminated
sites primarily involving water.
Cost of Goods Sold increased $672,369 or 12.9% from $5,225,689 in 1995 to
$5,898,058 in 1996. Cost of goods sold increased in the plastic lumber
division by $1,273,805 offset by a cost of sales decrease of ($601,436) in the
environmental recycling division. In the plastic lumber division, the
DuraTech acquisition contributed $806,833 or 63.3% of the $1,273,805 increase
related to the nine months of sales generated by that facility in 1996. In
order to improve finished product quality the Tennessee manufacturing facility
upgraded its raw material quality during 1996. As a result, the Company
incurred charges to cost of goods sold of $165,000 relating to reduced
valuation and scrap of second quality raw material and finished goods
remaining in inventory at the end of the third quarter in 1996. The Tennessee
manufacturing facility was staffed to accommodate increased capacity from 1995
levels and incurred an increase in indirect labor costs of $96,000 (including
fringe benefits) over 1995. The remaining increase was primarily due to
increase in raw material prices due to the upgrade in quality of raw material
and colorant price increases. In the environmental recycling division the
decrease to cost of sales was primarily due to the decrease in sales which
reduced cost of sales by an estimated $360,000 with the remaining $241,000
primarily due to incremental expenses relating to the facility fire.
<PAGE> 12
Gross Profit declined ($1,303,122) or (64.1%) from $2,032,306 in 1995 to
$729,184 in 1996. Gross profit margin decreased in the recycled plastic
lumber division primarily due the increase in raw material prices coupled with
management's focus on raising capital and closing acquisitions as opposed to
organizing and funding programs in sales and marketing to increase production
capacity in the Tennessee facility. Gross profit margins decreased in the
environmental recycling division by (5.6%) from 1995 primarily due to
incremental operating expenses of $241,000 related to the facility fire.
General and Administrative Expenses increased $1,107,493 or 35.9% from
$3,081,023 in 1995 to $4,188,516 in 1996. Both divisions recognized
administrative expense increases with $604,633 increase in the plastic lumber
division and $502,860 in the environmental recycling division. In the plastic
lumber division, the DuraTech acquisition accounted for an increase of
$160,557 representing nine months of expenses for 1996. An additional
$256,005 of administrative expenses were incurred in 1996 with the acquisition
of Earth Care Partners (the plastic lumber division's largest distributor of
the Company's products) which became the Company's national sales office in
February 1996. The Company also incurred additional legal and accounting fees
of S87,000 associated with four mergers and acquisitions that occurred in
1996. An additional $75,000 in amortization was recognized in 1996 due to
capitalized costs related to the Magellan Finance Co. loan which was
completely amortized by the end of 1996. In the environmental recycling
division, the $502,860 increase in administrative expenses is primarily due to
administrative and management fees charged by a former related company.
During 1996 the Company abandoned efforts to complete the establishment of its
Camden New Jersey facility due to difficulties in negotiations with the local
government. As a result the Company recognized a loss of $199,807 consisting
primarily of leasehold improvements and estimated lease termination costs.
Interest income of $56,272 was earned in 1996 over and above 1995 as short
term interest bearing accounts were established for cash generated from
operations and sales of capital stock. The Company recognized a gain on
involuntary conversion in the amount of $66,859 related to fire damaged
equipment at the environmental recycling plant (Clean Earth). The gain
represents the excess of insurance proceeds received over the loss incurred.
The Company and the insurance carrier have reached a pending final settlement
in the amount of an additional $455,000. This amount has not been recognized
in the December 31, 1996 statement as the settlement is subject to adjustment
and review by other affected third parties.
Net Income (Loss) increased ($2,105,241) or (146%) from ($1,445,903) in 1995
to ($3,551,144) in 1996. The net income (loss) increase in the plastic lumber
division was ($1,384,927) and was primarily due to the Tennessee facility not
operating at full capacity due to management's focus in raising capital and
closing acquisitions. The lack of capital funding impaired efforts in
advertising and marketing which limited sales and production growth. In
addition the Company absorbed additional administrative costs with the
establishment of a national sales force as well as a substantial increase in
legal and professional fees related to four mergers and acquisitions completed
in 1996, In the environmental recycling division, the decrease in net income
of ($720,314) was due to the lower sales volume and additional operating costs
associated with the facility fire previously mentioned. The existing
facilities at Clean Earth were substantially depreciated as of the end of 1996
and consequently an additional estimated $400,000 of depreciation expense on
these facilities will not burden net income in 1997.
Liquidity and Capital Resources.
Prior Fiscal Year. Cash proceeds from the issuance of stock during 1995
amounted to $1,414,070 and were the principal source of capital during this
period. The Company also received additional cash proceeds of $144,510 from
<PAGE> 13
the issuance of notes payable and $300,306 cash proceeds from stockholder
loans. However, the cash provided by these financing activities was offset to
some extent by other financing activities which used cash, including payments
on stockholder loans of $102,000 and cash dividends of $400,000 paid by one of
the Company's recently acquired subsidiaries, prior to the time it was
acquired by the Company, so that the net cash provided by financing activities
was $1,456,886. Operating activities used net cash of $1,163,980 mainly
because of the net loss generated by the Company from its operations. and
mainly because of capital expenditures. During this period investing
activities used net cash of $137,361, primarily capital expenditures for
additional equipment.
Fiscal Year Ended December 31, 1996. Cash proceeds from the issuance of stock
amounted to $2,747,491 and continued to be the principal source of capital
during this period. The Company also received additional cash proceeds of
$500,824 from the issuance of notes payable and $120,000 cash proceeds from
stockholder loans. However, the cash provided by these financing activities
was offset to some extent by other financing activities which used cash,
including payments for the purchase of treasury stock of $1,100,000, principal
payments of notes payable of $639,100 and cash dividends of $948,000 paid by
one of the Company's recently acquired subsidiaries, prior to the time it was
acquired by the Company, so that the net cash provided by financing activities
was only $681,215. Operating activities used net cash of $606,685 due mainly
to the net loss generated by the Company from its operations.
Possible Future Acquisitions. The Company is in the process of negotiating
with several acquisition candidates. The Company believes it has
substantially come to terms with three companies subject to the results of due
diligence performed on them. The companies include an environmental recycling
consulting service located in the Northeast U.S., a plastic lumber marketing
organization located on the West coast of the U.S., and a plastic lumber
manufacturer in the Midwest U.S. There can be no guarantees or assurances
that any of these acquisitions will be completed. No definitive agreements
have been executed with regard to any of the proposed acquisitions. It is
management's opinion that the total tangible assets of any of the presently
contemplated acquisitions, when and if consummated, would not exceed 20% of
the Company's total assets on its most recent consolidated financial
statements.
BUSINESS
U.S. Plastic Lumber Corporation is divided into two divisions; the recycled
plastic lumber division (Earth Care) and the environmental recycling division
(Clean Earth). The Earth Care division is comprised of three wholly owned
subsidiaries: Earth Care Products of Tennessee, which operates a
manufacturing plant in Sharon, Tennessee: Earth Care Products of the Midwest,
which operates a sales, manufacturing and assembly facility in Lake Odessa,
Michigan; and RPI, which operates a sales and manufacturing facility in Green
Bay, Wisconsin. The Clean Earth division operates a plant in New Castle,
Delaware.
The Company's Earth Care division manufactures plastic lumber from recycled
waste plastic, to satisfy a growing global demand to protect the environment
by recycling waste to produce a high quality, long lasting alternative to wood
lumber that provides superior performance in outdoor uses and is suitable for
most nonstructural applications. In the current age of environmental
awareness, there is a growing consumer, corporate and governmental demand to
make environmentally sound purchasing decisions. By producing a high quality
recycled plastic lumber product, the Company conserves natural resources by
reducing the need for lumber products made from wood and at the same time
reduces the amount of plastic waste streaming into landfills while providing a
longer lasting, useful product. The Company's plastic lumber products are
<PAGE> 14
intended as an excellent replacement for pressure treated wood lumber, which
is injected with toxic chemicals to retard decay and insect infestation.
Plastic lumber is not subject to decay or insect infestation and so will
outlast wood lumber, especially in applications exposed to moisture. Recycled
plastic lumber is environmentally friendly in that it eliminates potential
pollution from leaching of such toxic chemicals into the environment.
The Company also offers recycling services through its environmental group.
The Company's Clean Earth division operates a low temperature thermal
desorbtion treatment plant, that ensures that contaminated soil is
decontaminated in accordance with local, state and federal regulations. This
thermal treatment process removes petroleum hydrocarbons from the soil and has
been recognized by federal and state agencies (including Delaware, New Jersey,
New York, Maryland and Pennsylvania) as a cost effective technology for
cleaning up the environment. Contaminated solids, soils and construction
debris are recycled and reused in construction and industrial applications.
The Company's recycling center in New Castle, Delaware is in a prime location
for servicing the Northeast and Mid-Atlantic regions, where extensive
remodeling and rebuilding of infrastructure and abandoned industrial property
is ongoing. The demand for recycling and reusing construction debris and
contaminated soil is growing at a rate of 40% annually. Hazardous waste
landfills are expensive and environmentally unfriendly, thereby providing
opportunities for the Company's environmental recycling group.
History and Development of the Company
The Company was incorporated in Utah on July 26, 1983, originally under the
name of Front Street Energy, Inc. The Company completed a public offering of
its securities in 1983, but had no active business for several years. The
Company changed its corporate domicile to the State of Nevada in June 1992 and
changed its name to Front Street, Inc. In 1994, the Company acquired all the
outstanding stock of Educational Storybooks, Inc. and changed its name to
Educational Storybooks International, Inc. The Company subsequently divested
itself of Educational Storybooks, Inc. and another subsidiary and had no
business operations prior to March, 1996.
In March, 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), a
manufacturer and marketer of recycled plastic products and other recycling
services. Pursuant to the Agreement, the Company reverse split its common
stock on a 1 for 16 basis, and then issued 4,196,316 post split shares of its
authorized but previously unissued common stock to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange (the
"Acquisition") which was intended to be a tax free reorganization under
Section 368(a) of the Internal Revenue Code.
Earth Care was incorporated under the laws of the State of Florida in April,
1994. This company was organized as a holding company, to engage in the
business of manufacturing and marketing plastic lumber products made from 100%
recycled plastics, through subsidiaries, including Earth Care Products of
America, Inc. (formerly known as Environmental Plastics of America).
Environmental Plastics of America was founded in April, 1992 by Harold H.
Gebert, Chairman, CEO and David A. Farrow, President. In March, 1993 this
company purchased Earth Care Products of North Carolina, a small recycled
plastic lumber manufacturer located in Statesville, North Carolina. Upon
completion of this acquisition the name was changed to Earth Care Products of
America, Inc. This company then acquired all of the assets of Duraplast
Corporation, a recycled plastic lumber manufacturer located in Upland,
Pennsylvania in April, 1993. Manufacturing equipment from this acquisition
was moved to the Statesville, North Carolina plant to increase production
capacity.
<PAGE> 15
In April, 1994 the Board of Directors of Earth Care Products of America, Inc.
elected to reorganize into a holding company structure. Earth Care Global
Holdings, Inc., was incorporated as a Florida corporation, to be the parent or
holding company, with Earth Care Products of America, Inc. as its subsidiary.
In May, 1994 Earth Care formed another subsidiary called Earth Care Products
of Tennessee, Inc., a Florida corporation, through which it acquired all of
the assets of Jeanell Sales Corporation, a recycled plastic lumber
manufacturer located in Sharon, Tennessee. In January, 1995 it was determined
that significant savings could be achieved by consolidating the Statesville
manufacturing operation into the Sharon, Tennessee plant. As previously
mentioned, in March, 1996 Earth Care was then acquired as a wholly-owned
subsidiary of the Company, which changed its name to U.S. Plastic Lumber
Corporation. (The Company continues to do business using the name Earth Care.)
The Company is a publicly-held Nevada corporation, and the Company's common
stock currently trades under the symbol "ECPL" on the NASD OTC Electronic
Bulletin Board.
In April, 1996 the Company acquired all of the assets of DuraTech Industries.
DuraTech Industries, in operation since 1986, is a manufacturer of recycled
plastic lumber, recycled plastic shapes and value added products located in
Lake Odessa, Michigan. This acquisition doubled the Company's recycled
plastic lumber sales.
In December, 1996, the Company formed the Clean Earth division, that acquired
in a pooling of interest a wholly owned subsidiary, Clean Earth of New Castle,
Inc., which has been in operation since 1991, and has treated over 600,000
tons of soil and construction debris that was contaminated with petroleum
hydrocarbon wastes, such as fuels, lubricating oils, tars and gasoline. Clean
Earth owns and operates a low temperature thermal desorbtion plant that can
treat and recycle up to 30,000 tons per month of petroleum contaminated soil.
In January, 1997, the Company acquired Recycled Plastics Industries, Inc.
(RPI), located in Green Bay, Wisconsin. RPI is a manufacturer of specialty
profile, recycled plastic lumber products that was formed in 1989. RPI's
production process utilizes an automated continuous flow extrusion process
with vacuum calibration forming technology. The special products and
additional dimensional lumber capacity complement the Company's existing
products manufactured at the Tennessee and Michigan plants. The recycled
plastic lumber industry is a young, highly fragmented industry with over 30
small manufacturers and many more marketers of recycled plastic lumber
products.
In February, 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting and
clean up of contaminated sites primarily involving water and soils.
Corporate Structure
U.S. Plastic Lumber Corporation, a Nevada corporation, is a holding company
for the Company's wholly owned subsidiaries.
Earth Care Products of the Midwest, a Florida corporation
Earth Care Products of Tennessee, a Florida corporation
RPI Acquisition Corp., a Wisconsin corporation
Clean Earth of New Castle, Delaware, a Delaware corporation
Advance Remediation and Disposal Technologies, Inc., a Pennsylvania
corporation
Physical Facilities and Employees
The Company's principal executive offices are located in Boca Raton, Florida.
The Company leases approximately 3,265 square feet of office space in a four
<PAGE> 16
story office building for which it pays $4,600 per month. The Company has a
total of eight employees at the corporate offices in administration and
finance.
One the Company's manufacturing facilities is located in Sharon, Tennessee.
The Company leases, with an option to purchase, a 35,300 square foot metal
building for $7,000 per month. The Company employs an average of 20 people at
this facility.
The Company also has a manufacturing facility in Lake Odessa, Michigan which
it acquired as part of the DuraTech acquisition. The Company leases, on a
month to month basis, 12,000 square feet of space at $2300 per month, and
employs 26 at this facility.
The Company also has a manufacturing facility in Green Bay, Wisconsin which it
acquired as part of the RPI acquisition. The Company leases approximately
20,000 square feet of space at $4,432 per month on a five year lease which
commenced January 27, 1997, and employs 11 people at this facility.
The Company also has a hazardous waste processing in New Castle, Delaware
which it acquired as part of the Clean Earth acquisition. The Company leases
approximately 7 1/2 acres of ground on which it has erected the soil
decontamination facilities, for a fee of $1 per ton of soil received for
treatment, with an annual minimum of $50,000 and a put under which the
landowner can require the Company to purchase the property for $750,000 at any
time. The Company employs 26 people at this facility.
The Company also previously leased, for $5,000 per month, another
manufacturing facility located in an enterprise zone in Camden, New Jersey.
The Company expended in excess of $100,000 for rent and lease alterations to
this facility. However, because of delays encountered in negotiations with
the City of Camden with respect to Enterprise Zone benefits, the Company
entered into negotiations to acquire an alternate facility and eventually
acquired the DuraTech facility, which rendered the Camden facility redundant.
The Company is presently involved in negotiating a termination of this lease.
EARTH CARE DIVISION - Products
During the past several years, the Company's Earth Care division has
positioned itself to be a leading manufacturer in the emerging recycled
plastic lumber industry in North America. Recycled plastic lumber is
manufactured in a variety of colors, profiles and shapes including standard
lumber dimensions and many custom engineered profiles and shapes.
The Company's recycled plastic lumber products are made from 100% recycled,
post-consumer and post-industrial plastics and are used for numerous
municipal, commercial and residential applications. This non-toxic material
is an environmentally friendly alternative to pressure treated lumber and rare
woods and provides superior performance for most nonstructural, outdoor
applications where traditional wood lumber is subject to moisture damage and
rotting. Recycled plastic lumber products offer these unique advantages:
50 year limited warranty
Environmentally friendly and non-toxic
Virtually maintenance free
Saves trees and reduces use of exotic rain forest hardwoods
Can be worked with conventional tools
Aesthetically pleasing wood-like textured surface
Splinter proof - never rots
Not affected by termites, ants or other wood borers
No splitting, cracking or chipping
Holds nails and screws 40% better than wood
<PAGE> 17
Non absorbent and waterproof
No leaching into soil or groundwater
Most graffiti easily washes off
Does not promote organic growth when wet
Products built with the Company's recycled plastic lumber have the appearance
of freshly stained or painted wood but the longevity and maintenance-free
qualities of plastic. Recycled plastic products are an ideal replacement for
wood, metal and concrete in numerous applications, including most non-
structural exterior functions. Some of the potential applications are:
Decking for residential and commercial projects
Commercial, municipal and residential applications such as park
benches, picnic tables, trash receptacles, car stops, planters and
ash urns
Fencing
Highway spacer blocks, guardrail posts, sound attenuation barriers
and speed bumps
Trailer, farm equipment and railroad box car flooring
Industrial applications such as pallets, walkways in chemical
plants, catwalks on factory roofs
Sanitary animal pen flooring
Railroad ties
Engineered products such as pier piling cores
Sea pilings and marine bulkheads
Manufacturing
The Sharon, Tennessee manufacturing facility currently has three closed mold
forming extruders and one continuous flow forming extruder. Most of the
Company's large profiles are manufactured at this facility, including
engineered products such as marine piling cores, retaining wall timbers and
prototype products including the railroad cross tie, highway guardrail posts,
and highway spacer blocks. The facility will also manufacture the regional
demand for the Company's "Carefree Decking Systems".
The manufacturing facility in Lake Odessa, Michigan has two extruders with
closed mold forming and produces a high density polyethylene lumber in
assorted specialty shapes such as bench ends and table legs. Acquisition of
this facility gave the Company an increase in color selection as the facility
produces product in 9 different colors. The Michigan facility currently
supplies table legs, bench ends, and other molded shapes sold in the recycled
plastic lumber industry. This location also houses the assembly line that
fabricates most of the value added products sold by the Company. A regional
sales office is also maintained at this location.
The Green Bay, Wisconsin sales and manufacturing facility operates two
extruders that utilize a vacuum calibration continuous flow forming line.
This process allows for the manufacture of many special profiles, in any
length, that are not able to be produced with conventional roll forming or
closed mold systems. A regional sales office is also maintained in this
location.
The Company's manufacturing process involves proprietary technologies and
specialized manufacturing equipment custom built or modified to the company's
specifications. The manufacturing process utilizes granulated and/or
densified recycled plastic, which in certain cases, contains additives
formulated for desired end use characteristics of the product. A key
advantage of the process is the ability to utilize plentiful, recycled plastic
waste to create a consistent material which can be extruded into a desired
shape. While the end product maintains many of the desirable properties of
traditional wood materials, it also has superior characteristics such as
<PAGE> 18
moisture resistance which give it an advantage over wood for many
applications.
The primary product of the Company's manufacturing process is molded plastic
lumber in various sizes ranging from 3/8" x 1", to 10" diameter profiles in
various lengths. The Company also markets and sells various engineered or
value added products for specific applications, in which the plastic lumber is
used to make the finished product.
The manufacturing process uses 100% recycled plastic raw material and consists
of three stages. First, the recycled plastic materials received at the plant
are identified and categorized by resin type. These materials are processed
through a series of grinding, densifying and other operations to a consistent
particle size. The ground plastic resins are then blended with other
ingredients such as colorant and UV stabilizers to prepare specific mixes for
the products being produced by the plant. Second, the plastics are heated,
mixed and compounded into a thick molten composite which is extruded through
either closed mold, roll forming or vacuum calibration finishing lines into
specified shapes or profiles using equipment specifically designed for
processing recycled materials. Finally, the extruded products are cooled in a
downstream process, and the resulting profiles are inspected and cut to
specific lengths. The product is then ready to be shipped as plastic lumber
in sizes and shapes corresponding to standard lumber dimensions. The Company
utilizes only recycled polyethylenes and does not use plastics with PVC, toxic
chemicals, insecticide or paint residues. The Company's manufacturing process
produces no harmful environmental by-products or hazardous waste.
Raw Materials Supply
At the present time the Company obtains approximately 80% of its mixed
plastics feedstock through brokerage firms who obtain such materials from a
large variety of materials recycling facilities, including municipal recycling
programs as well as plastics discarded in various industrial and manufacturing
processes. Management believes the raw materials feedstock is currently
purchased from sources which it believes are dependable and adequate for at
least short term manufacturing requirements. Generally the company attempts
to maintain raw materials inventory sufficient to supply its manufacturing
requirements for approximately two months, and management believes that
suitable alternative sources are available in the event of disruption. In the
past, the Company has not experienced any significant disruptions or other
supply problems. However, the cost of recycled plastics has been subject to
significant cyclical market fluctuations over the past several years based on
supply and demand. The Company's long term strategy is to contract directly
with Municipal Recycling Facilities for long term supply to mitigate the
exaggerated fluctuation in pricing and supply that the brokers' influence in
the market promotes. The Company maintains a flexible product pricing policy
that fixes prices only on the amount of product that it has raw material
contracted for. This protects the Company from significant losses from raw
material market fluctuations. However, no assurances can be given that raw
materials will always be available at commercially reasonable prices.
Management is generally of the belief that if significant increases in demand
for recycled plastics of a lasting nature were to occur, the potential supply
of recycled plastics could easily be expanded to meet any lasting increase in
demand. Management believes that both supply and demand will continue to
increase as public awareness of the need to recycle plastic waste increases.
However, any disruption of supply arrangements or significant lasting
increases in raw materials prices could have a material adverse effect on the
company's operations. The Company is presently negotiating for long term
supply contracts for its recycled plastic feedstock. The market for the
Company's products has continued to increase and therefore the sales price per
pound has been increased by the Company over the last three years. The
Company believes this is due to the increased awareness of the market place of
<PAGE> 19
the advantages of plastic lumber and an overall awareness of the public of
environmental concerns. The Company has increased its sales of products in
part due to its increased production capacity.
Research and Development
Extensive testing of recycled plastic lumber has been performed for the past
several years at Rutgers University's Center for Plastics Recycling Research.
The Company has been an active participant along with others in the research
and development process. Since its formation, the Company has also devoted
significant efforts on its own, testing and refining its manufacturing
processes, molds and recipes to improve its finished products.
In May, 1996, after a long period of research and development with the
Company, Rutgers University applied for U.S. Patent Protection for its
recycled plastic composite railroad cross tie and its related manufacturing
technology. These patents, if granted, would be held by Rutgers University,
with the Company being the exclusive worldwide licensee for the sale of this
and related products.
A group of plastic lumber manufacturers founded the Plastic Lumber Trade
Association (PLTA) to promote the benefits of plastic lumber and create proper
testing standards. The PLTA currently has approximately 26 manufacturing
members. Mr. Farrow, the Company's Vice Chairman, was a founding director of
the PLTA and now serves as Committee Chairman for the ASTM Standard Guide to
Plastic Lumber Residential Deck Construction. Mr. Enden, Executive Vice
President of Earth Care Midwest, currently serves as the organization's Vice
President. PLTA holds committee meetings three time a year in conjunction
with the American Society of Testing & Materials (ASTM). Complete ASTM
standards are being established for plastic lumber and preliminary test
results are now available from the following institutions:
Rutgers University's Center for Plastics Recycling Research
University of Massachusetts at Lowell, Dept. of Engineering
Batelle, Engineering Mechanics Dept.
US Army Corps of Engineers Research Laboratories
It is anticipated that a full set of ASTM standards will be developed and
approved for plastic lumber by the end of 1998. This will greatly expand the
potential users who are required to meet specifications and standards known to
the wood industry. Deck boards may be approved as early as July, 1997.
Proprietary Technology
Management is generally of the belief that maintaining state of the art
technology in its recipes, molds and manufacturing processes and maintaining
the proprietary nature of that technology through trade secrecy is more
important to maintaining a competitive position in the industry than seeking
any legal protections that patents may provide. However, patent protection
for technology related to railroad crossties and the process to manufacture
them, is currently being sought by Rutgers University, but there is no
assurance it will obtain any such protection. The Company has entered into an
agreement with Rutgers pursuant to which it has exclusively licensed such
technology.
Competition
There are an over 30 manufacturers of recycled plastic lumber in the United
States, of which approximately 22 are members of the Plastic Lumber Trade
Association (PLTA). The competition is broken down into two separate
categories: plastic lumber manufacturers using strictly high density
polyethylene, and manufacturers that use a mixture of high density and other
<PAGE> 20
polymers to produce a product that is less expensive.
The Company primarily uses only high quality polyethylenes and additives at
all of its plants. The major competitors in this segment of the market
include Eaglebrook Products, Inc., Chicago, Illinois, Bedford Industries,
Worthington, Minnesota; Cycle-Masters, Inc., Sweetster, Indiana and NEW
Plastics Corp., Luxemburg, Wisconsin. Management intends to compete with
these competitors on the basis of price, quality and service. The two major
commingled manufacturers are The Plastic Lumber Company, Inc., Akron, Ohio and
Hammer's Plastics Recycling, Iowa Falls, Iowa.
In all its applications, the plastic lumber manufactured by the Company will
also be in direct competition with conventional wood lumber. At present, the
principal competitive disadvantage of plastic lumber compared to wood lumber
is that it is generally more expensive to purchase. Plastic lumber is
comparable in price to high grade cedar and redwood. Although plastic lumber
can be more expensive to initially purchase than comparable wood lumber,
plastic lumber can substantially outlast wood lumber, particularly in
applications where the lumber is exposed to the elements, and can therefore be
more cost effective in the long run. Furthermore, management believes that
environmental restrictions are presently impeding forestry operations in
United States forests. A second factor impeding the use of pressure treated
lumber is the toxic leaching characteristics. Chemicals injected into
pressure treated lumber contain hazardous constituents which are released into
the soil and create potentially toxic and hazardous conditions. Such factors
may reduce if not eliminate any price advantage that wood lumber presently has
with respect to its initial acquisition cost.
Potential Markets
In the current age of environmental awareness, there is a growing consumer,
corporate and government demand to make environmentally sound purchasing
decisions. By producing a suitable recycled plastic lumber product, the
Company conserves natural resources, reduces the plastic waste streaming into
landfills and provides a useful product that satisfies this growing market.
One of the many major markets for recycled plastic lumber is as a substitute
for pressure treated lumber. There are currently a number of states that have
either passed laws or have on their legislative agenda, restrictions on the
use and disposal of pressure treated lumber. The pressure treating process
injects copper, chromium and arsenic (all carcinogens) into the wood to
provide a defensive barrier against insect attack. Pressure treated wood has
legislative restrictions in some states on its disposal methods which requires
disposal in toxic waste landfills. Plastic lumber is a safe alternative which
is fully recyclable.
Also, plastic lumber's increased resistance to weathering processes,
particularly moisture, makes it an ideal substitute for lumber made from wood
in any application in which the lumber is exposed to the elements. The
resistance to moisture and other weathering processes gives plastic lumber the
ability to outlast wood in such applications by several times.
In July, 1994 the Company was selected to participate in a cooperative venture
with Rutgers University, Norfolk & Southern Railroad, Conrail and the US Army
Corps of Engineers Research Laboratories to develop a prototype railroad
crosstie made from recycled commingled plastic. Rutgers University has
performed extensive tests on many formulas and the Company has developed a
prototype that is superior in many ways to the creosote wood crosstie.
Norfolk & Southern and Conrail are currently track testing the new prototype.
The Company is the only plastic lumber manufacturer participating in this
project.
Presently there are approximately 180,000 miles of railroad track in the
<PAGE> 21
United States, with 3,100 crossties per mile or a total of 558,000,000 ties in
place. In 1993, 11,300,000 crossties were replaced. The expected life of a
creosote wood crosstie is 12 years, creating a tremendous demand for the more
durable recycled plastic crossties that have an estimated useful life in
excess of 50 years. Conditions which shorten tie life are moisture, location
relative to curves and switches. Railroads know from extensive experience
which locations require highest maintenance and these will be the initial
target areas for longer lasting polymer crossties. Based on the replacement
rate of 11 million crossties per year, the total potential market for this
segment of the business is approximately $700 million annually.
The Company is currently in the process of developing new products for a
variety of uses. These new products include component center cores for a
manufacturer of reinforced marine pilings and timbers, flooring for farm
equipment and railroad ties. The Company is also working with a supplier to
produce a recycled plastic highway guard rail spacer block. The project has
received conditional approval from the federal Department of Transportation
(DOT) and several state DOT approvals. The Company is working with Texas A &
M University and the Southwest Research Institute to develop a highway
guardrail post to be marketed to DOT's all over the country. The Company has
been assigned national stock numbers from the U.S. Defense Construction Supply
Center which controls purchasing for all of the U.S. armed forces. Sales to
the General Services Administration have contributed a large portion of total
sales.
Although management believes that plastic lumber products are currently
suitable for many non-load bearing purposes for which conventional wood lumber
is used, the compressive and flexural strength characteristics of plastic
lumber are not as suitable as conventional wood lumber for most load bearing
applications without additional support; therefore the Company does not intend
at present to market its products for structural, framing or general
construction purposes.
Marketing Strategies
The recycled plastic lumber division (Earth Care) of the Company is itself
divided into four distinct classifications. These divisions are (i)
fabricated products, including park and site amenities such as picnic tables,
park benches, and trash receptacles; (ii) building products, including decking
systems, golf course related products, and standard plastic lumber; (iii)
engineered products, including marine piling center cores, highway guardrail
spacer blocks, and other engineered products; and (iv) railroad ties.
Each of these divisions contain a Division Head who reports to a senior
corporate officer in charge of Sales and Marketing. This senior corporate
officer is also in charge of managing and supporting existing Distributor
relationships and developing new Distributor relationships.
Within each division, the Company employs sales representatives to market and
sell its products utilizing traditional sources of sales including but not
limited to attending trade shows, select advertising, cold calling, customer
referrals, and the like. The Company also markets and sells through
Distributor like relationships; however, it is the Company's policy not to
grant any exclusive territory arrangements.
The focus of the Company's selling strategy is the high quality of its product
along with superior customer service. The Company also focuses on the
benefits of its products including such items as being maintenance free, 100%
recycled, environmentally sensitive, aesthetically pleasing in appearance,
free from rot and insect infestation, and durable.
The Company has experienced a seasonal slow-down in the winter months during
<PAGE> 23
the past three years but expects to reduce the seasonality of its sales by
increasing its marketing efforts in warmer climates of the U.S. during winter
months and by adding contracts for custom items which are not as seasonal.
Government Regulation and Environmental Matters
Although the Company's operations do not and are not expected to generate
significant quantities of waste materials nor any hazardous substances or
result in hazardous emissions, operations are and will in the future be
subject to numerous existing and proposed laws and regulations designed to
protect the environment from waste materials generally and particularly
hazardous wastes and emissions. Management does not believe that its waste
disposal practices and manufacturing processes will be in violation of any
existing or presently proposed law or regulation or require special handling
permits or procedures or otherwise result in significant capital expenditures
that would have a material adverse effect on operations. However, there can
be no assurance that regulatory requirements will not in the future adversely
affect operations or require the introduction of costly additional
manufacturing or waste disposal practices.
CLEAN EARTH DIVISION - Background
Clean Earth of New Castle, Inc. ("Clean Earth") was founded in 1991 to provide
a safe, cost effective and final solution to the environmental problem of
dealing with soils contaminated with light distillate petroleum hydrocarbons
such as diesel fuel, heating fuel, kerosene, jet fuel and gasoline, by
decontaminating such soils so they can then be recycled as clean fill. The
process essentially heats the contaminated soils in a controlled environment
to a point that the contaminants are burned or evaporated out. In 1995 Clean
Earth modified its plant to recycle products at higher temperatures (up to
1,100F), and is now capable of treating soils contaminated with heavier
products such as #6 oil, refinery wastes, waste oils and coal distillates such
as coal tar.
Clean Earth holds an air permit and solid waste permit, both of them from the
Department of Natural Resource and Environmental Control (DNREC) of Delaware.
Clean Earth operates a state-of-the-art thermal treatment plant which results
in the reduction of TPH (Total Petroleum Hydrocarbons) and BTEX (Benzene,
Toluene, Ethylbenzene, Xylenes) to non-detectable levels in the treated soils,
while the stack emissions remain below the levels allowable.
This facility was one of the first to be established in the Northeast and
Clean Earth has treated and recycled more than 600,000 tons of soils to the
satisfaction of the original generators, of the regulatory agencies, and the
end-users of the soil. This has been recognized by other States agencies
(such as the New Jersey D.E.P.) and by many major oil companies. Amerada Hess
Corp., Arco Products Company, Exxon, Getty Petroleum, Mobil Oil Co., Shell Oil
Co., Sun Oil Co., BP Oil Co., Citgo Petroleum and Chevron have all included
Clean Earth on their approved vendor list for remediation.
The Process
The 70 ton per hour plant and equipment belong to the most recent generation
of best available demonstrated technology. The system consists of a variable
speed conveyer belt, which feeds contaminated soil into a counterflow rotary
dryer. The moisture and contaminants in the soil and debris are evaporated in
this drum by the heat of a directly fired burner. Heat transfer to the soil
and debris is maximized by the design of the drum's interior.
The gases, which include dust particles in suspension as well as the
evaporated contaminants, are directed to a dual cyclone and baghouse where the
dust is removed. The remaining gases are ultimately purified in a thermal
<PAGE> 23
oxidizer, where they are turned into harmless carbon dioxide and water vapor.
The cleaned soil and debris is mixed back with the baghouse dust through a
system which insures that the dust has been sufficiently decontaminated during
the process, before it is transferred to a cooler system where it is brought
back to a safe level of temperature and a dust controlling moisture content.
Liability Control and Government Regulation
The business of decontaminating or otherwise handling toxic or hazardous waste
materials is fraught with potential liability to such handlers if the handling
and tracking of such wastes is not properly done. Under current federal
regulations (RCRA, Resource Conservation & Recovery-Act & CERCLA,
Comprehensive Environmental Responsibility, Compensation & Liability-Act), the
generator of the waste is financially and legally responsible for that waste
forever. Placing it in a landfill or mixing it with other materials does not
eliminate that liability. Therefore, proper control and tracking of all
wastes materials handled by the Company is essential for the Company to avoid
any liabilities with respect to such wastes. The Company takes great
precaution not only to eliminate, if possible, the liability of its customers,
who are the generators of the contaminated soil and debris, but also to
maintain proper control and tracking of each waste stream brought to the
facility. However, once the waste has successfully been thermally treated by
Clean Earth, the contamination is destroyed and the liability is virtually
eliminated. There is no more waste, it is now a reusable material.
Wastes which are sent to a landfill are merely stored until the landfill needs
to be excavated again for cleanup in the near or distant future. The waste is
still the ultimate responsibility of the generator in all cases. Landfills
are a necessary solution for certain hard to treat wastes; but Clean Earth has
created an environmentally friendly way to recycle petroleum hydrocarbon
contaminated soils, thus saving valuable landfill space for these other needs.
Most "recycling" systems merely dilute the contaminated soil by mixing it with
clean materials. Clean Earth's technology is the only one that thoroughly
cleans the soils before it is made available for reuse. The best illustration
of this crucial point is that all production material to date has been sold as
clean fill. Clean Earth has enough contractual arrangements to provide this
clean fill to offset Clean Earth's output tonnage well into 1997.
Quality Control
The facility is operated with a strict commitment to safety, health and
environmental issues coupled with a rigorous system of controls, which lends
credence to the "Certificate of Destruction and Recycling" issued to each
generator.
The Waste Tracking System process starts before the contaminated soil is
accepted at the plant gate. A comprehensive disclosure testing and
manifesting system ensures that the solids brought to the facility falls well
within the limits of Clean Earth's permits and treatment capacities. This
system mirrors the procedures of hazardous waste facilities. Furthermore,
Clean Earth runs an EOX test (Extractable Organic Halogens) on every load of
material before it is authorized for unloading in the storage buildings. In
addition, management runs several spot checks with the comprehensive on-site
laboratory:
GC (Gas Chromatographer) for PCB's (Poly Chlorinated Biphenyls)
GC for VOC identification (Volatile Organic Compounds)
GC with a high temperature desorber for THC (Total Hydrocarbons) and
Desorption Temperatures EOX analyzer and the screening equipment for
fines content
These tests enable Clean Earth to determine quickly and efficiently that the
<PAGE> 24
materials that are received are in accordance with their characterization by
the generator. This sizable investment in equipment and personnel protects
both the facility and the customers against the possibility of receiving
undesirable wastes.
The storage buildings are large, fully enclosed structures and are built on
continuous concrete slabs. Runoffs from the buildings are collected and
checked regularly. The buildings are divided into small compartments to
maintain a rigorous separation and tracking of each waste stream that
minimizes commingling. This mitigates the potential liability to a small
quantity in the case an undesirable waste is detected after it has been
accepted. This also ties into the sophisticated waste tracking system that
mobilizes a network of eight micro-computers so as to monitor each load of
material from the time of reception to the treatment test results. These
computers function on-line and enables operators to view and analyze, at any
time, all the information relative to a given shipment.
In addition to this set of comprehensive control and recording devices that
insure compliance with the various permit requirements, Clean Earth further
guarantees the facility's performance by testing the production daily. As
recommended in EPA publication #SW846, Clean Earth composites a sample for
every 300 tons of production and tests it for BTEX with a GC and for TPH by
the EPA 418 method, using an independent State certified laboratory. For coal
tars, the treated materials are also tested for PAH's (Polynuclear Aromatic
Hydrocarbons) by the EPA 8270 method. It is management's belief that this
treatment plant is the first in the industry to control its emissions with a
C.E.M. (Continuous Emissions Monitoring) system. Information is collected
minute by minute and stored on computers for control purposes; this
information is available to both customers and regulators. The property
itself is monitored through several monitoring wells, that are tested
quarterly. The test results are reported to DNREC. To the companies
knowledge, it is the only facility that has assembled such an extravagance of
controls to support its warranty of performance.
Liability Insurance
Clean Earth has fully bonded the costs of a closure plan approved by the
DNREC. In addition, Clean Earth has secured a total of $7 million of General
Liability and of Environmental Impairment Liability insurance coverages. The
waste generating companies recycled product is also protected with $1 million
single/$2 million aggregate Products and Completed Operations coverage that
includes a five year tail coverage.
Competition
Clean Earth has several local competitors which provide similar services
within a 150 mile radius. These competitors include R-3 Technologies in
Bristol, Pennsylvania, TPST in Baltimore, Maryland and SRP in Philadelphia,
Pennsylvania. Clean Earth has obtained a permit to clean coal tar materials
from DNREC and believes that this provides a niche market. The nearest
competitor with similar capabilities is R-3 Technologies which is
approximately 50 miles from the facility. It is estimated that approximately
3 million tons of soils contaminated with coal tar exist in the tri-state area
of Delaware, New Jersey and Pennsylvania, which must be cleaned up within the
next 5 to 10 years.
Sales and Marketing
Clean Earth has an established sales force which regularly calls upon
generators, contractors, transporters and consulting engineers. Clean Earth
is on the approved remediation lists of a number of major utilities and
refineries in the area, and is currently exploring new markets for its
<PAGE> 25
services which include the treatment of contaminated water, treatment and
recycling of sewer sludge and wastewater treatment plant sludge, and the
grinding and recycling of previously contaminated rock to sell to local
contractors as fill material. Clean Earth also receives business from a
number of brokers and contractors who have done business with the Company for
a number of years.
MANAGEMENT
Executive Officers, Directors and Significant Employees
The following table sets forth the directors, executive officers and other
significant employees of the Company, their ages, terms of office and all
positions. Directors are divided into classes which are elected for staggered
terms of four years, and serve until the annual meeting of the year in which
the terms expire, or until their successors are duly elected by the
stockholders and qualify. Annual meetings are scheduled to be held the second
Wednesday of April each year in Boca Raton, Florida. Officers and other
employees serve at the will of the Board of Directors.
Term served
Name of Director/Officer Age (Term expires) Positions with the Company
Harold H. Gebert 71 Apr 1992 (1999) Chairman
David A. Farrow 44 Apr 1992 (1998) Vice Chairman & Chief
Operating Officer
Mark S. Alsentzer 41 May 1994 (2000) President & Chief Executive
Officer/Director
Bruce C. Rosetto 39 Jan 1997 Vice President/General Counsel
Raymond F. Darling 48 Apr 1992 (1997) Director
Robert W. Johnson 51 May 1994 (1997) Director
Christopher J. Walter 62 Oct 1993 (1997) Director
Raymond J. Kiernan 72 Dec 1994 (1999) Director
Eugene Arnold, Jr. 73 May 1994 (1998) Director
Louis H. Jullien III 46 Apr 1992 (1998) Director
Lester E. Moody 68 May 1996 (1997) Director
James Blosser 58 Aug 1996 (1999) Director
Roger Zitrin 49 Nov 1996 (1998) Director
August C. Schultes III 50 Feb 1997 (2000) Director
Gary J. Ziegler 49 Feb 1997 (2000) Director
Stephen M. Groth 39 Feb 1997 (1999) Director
Lionel A. Marquis 44 Apr 1996 Chief Financial Officer,
Secretary/Treasurer
Hampton C. Randolph, Jr. 52 May 1995 Executive VP - Sales &
Marketing
Lee Anderson 56 Jan 1997 Executive VP - Manufacturing
John W. O'Donnell 43 Feb 1997 President - ARDT
Kevin G. John 35 Feb 1997 Secretary/Treasurer - ARDT
Messrs. Darling, Johnson, Walter, and Jullien served as directors of the
Company up through the end of 1996, but have subsequently resigned to allow
the appointment as new directors of persons affiliated with various recently
acquired entities. A brief description of these individuals positions,
proposed duties and their background and business experience follows:
HAROLD H. GEBERT, Chairman; Philadelphia, Pennsylvania and Boca Raton,
Florida. Mr. Gebert is also Chairman of the Board of Franklin Realty
Development Corporation and Manor Properties, Ltd.; President of Hagan
Properties, Ltd. Mr. Gebert is responsible for the overall financial
direction and management of the Company and maintaining continuing relations
with the financial and investment community. Mr. Gebert is a graduate of
Pennsylvania State University with a BA Degree in finance. Mr. Gebert has
<PAGE> 26
been the Company's chairman since April, 1992.
DAVID A. FARROW, Vice Chairman and COO; Boca Raton, Florida. Mr. Farrow is a
licensed General Contractor in Florida and founded Farrow Construction in
1978. He oversees all business aspects of the Company including marketing,
management, and product development. Mr. Farrow was a founding Director of
the Plastic Lumber Trade Association (PLTA), and now serves as Committee
Chairman for the ASTM Standard Guide to Plastic Lumber Residential Deck
Construction. He attended Villanova University and Nova University. Mr.
Farrow has been the Company's president since April, 1992.
MARK S. ALSENTZER, President & CEO; Flourtown, Pennsylvania. Mr. Alsentzer
has been a principal in the building of three successful businesses which have
provided excellent returns to shareholders. As former President of Stout
Environmental, Inc. Mr. Alsentzer developed that company from $2 million to
$90 million in revenues and 46 to 700 employees. Stout merged with Republic
Waste Industries, whose Chairman is Wayne Huizenga, and the net return to
Stout's shareholders was $180 million. In addition, Mr. Alsentzer was
Director of Cemtech, a company whch grew from $6 to $21 million and was sold
to Waste Management for $17 million in 1991. Mr. Alsentzer founded Clean
Earth, which is currently a wholly owned subsidiary of the Company and a
leading recycler of contaminated soil and debris located in the northeast.
Mr. Alsentzer is a Chemical Engineer and has an B.S. from Lehigh University
and an MBA from Farleigh Dickenson.
BRUCE C. ROSETTO, Executive Vice-President and General Counsel, Boca Raton,
Florida. Mr. Rosetto was a partner in a New Jersey law firm; Paschon, Feurey,
and Rosetto from 1982-86. In 1986, Mr. Rosetto became Chairman and CEO of
Consolidated Waste Services of America, Inc., a fully integrated environmental
company, building that company primarily through mergers and acquisitions into
one of the largest privately owned environmental companies in New Jersey. In
1994, he became Chairman and CEO of Hemo Biologics International, Inc., a
biologic products company. He joined the Company in January, 1997 and his
primary responsibilities are acting as General Counsel to the Company, mergers
and acquisitions, and providing sales management support. He graduated from
LaSalle University in 1979 with a BA Degree in Political Science, and from
Villanova University School of Law in 1982, with a JD Degree.
RAYMOND F. DARLING, founded the South Florida Insurance Agency in Boca Raton,
Florida serving 28 agents. Mr. Darling attended the University of Vermont.
ROBERT W. JOHNSON, served in various capacities (most recently as Senior Vice
President) for Six Flags Theme Parks Inc., a subsidiary of Time Warner
Enterprises, Inc. from 1979 to 1993. Mr. Johnson is presently Executive
Director of Outdoor Amusement Business Association, Inc., which represents
over 400 Theme and Amusements Parks. Mr. Johnson is a graduate of Parsons
College.
CHRISTOPHER J. WALTER, opened new markets for Avon Products in Latin America -
Panama, Ecuador, Bolivia; Dominican Republic, Peru, Uruguay, Paraguay,
Brazil, Chile, and Venezuela, from 1963 to 1991. Mr. Walter is a graduate of
Westminster College, Buenos Aires, Argentina and Bembridge College, Isle of
Wight, England and is fluent in Spanish and Portuguese.
RAYMOND J. KIERNAN, Director; Bronxville, New York and Ocean Ridge, Florida.
Mr. Kiernan was associated with Merrill Lynch and Co. in various capacities
from 1951-1980, ultimately holding the office of Vice President. He was also
on the board of directors of Merrill Lynch, Pierce Fenner & Smith, it's
predecessor. During his tenure with Merrill Lynch, Mr. Kiernan was an Allied
Member of the NYSE, a Director of Security Traders Association of NY, and was
on the Board of Governors of the National Association of Securities Dealers,
chairing the trading, marketing, and development committees. In 1980 Mr.
<PAGE> 27
Kiernan formed R.J. Kiernan and Associates, a business consulting firm which
he operates presently in the capacity of President. Mr. Kiernan presently
holds Directorships on the boards of Fleet Bank of New York, Fleet Trust
Company of Florida and BCT International. Mr. Kiernan attended Villanova and
is a graduate of Iona College with a BA Degree in Finance.
EUGENE ARNOLD, JR., Director; Berwyn, Pennsylvania. Mr. Arnold served as
Chairman of the Board of Governors for the NASD, Chairman of NASDAQ and
currently serves as arbitrator for the NASD. Mr. Arnold was Governor and Man
of the Year for the Philadelphia Securities Association and Chairman of
Investment Bankers of America for the Mid-Atlantic States. Mr. Arnold is
currently Managing Director for the Philadelphia Corporation and holds a BS in
Economics from the Wharton School at the University of Pennsylvania.
LOUIS H. JULLIEN III, is a Vice President of Bank One in Houston, Texas. Mr.
Jullien is a graduate of the University of Oklahoma with a degree in Finance
and Marketing.
LESTER E. MOODY, Director; Fort Lauderdale, Florida, is a member of the Board
of Directors, Miami Heart Institute, Board of Directors C&S Bank, President
Committee of 100, Board of Directors 100 Club of Fort Lauderdale. He was an
automobile dealer for approximately forty years, was on the General Motors
President's Dealer Advisory Council, and owned 9 different dealerships,
including Pontiac, Cadillac, Buick, Honda and Acura. Mr. Moody attended
Christian Brothers College.
JAMES J. BLOSSER, Director; Fort Lauderdale, Florida, was the former Executive
Vice President and General Counsel of Huizenga Holdings, Inc. In addition,
Mr. Blosser served as special counsel to the Miami Dolphins, Florida Panthers
and the Florida Marlins. He was formerly a partner in Ruden, McClosky, Smith,
Schuster & Russell, P.A., is currently a member of the Florida Bar, New York
Bar and the American Bar Association, and is extremely active in community
affairs. Mr. Blosser received his J.D. from the University of Miami.
ROGER N. ZITRIN, Director; Boca Raton, Florida. Dr. Zitrin was the Founder
and President of the Heart Association of Palm Beach County where he was a
practicing physician specializing in Cardiology until he retired in 1992. He
is presently acting as an independent investor and investment advisor. Dr.
Zitrin is the Founder of Florida Medical Laser Corp. and Gold Coast Specialty
Lab and Co-founder of Physicians Cardiac Imaging. He is presently acting as a
Financial Advisor to Gold Coast Ventures, Inc., and serving as a Board Member
of Associated Home Health. Dr. Zitrin is a graduate of Rutgers College of
Medicine and Dentistry.
AUGUST C. SCHULTES III, Director; Wenonah, New Jersey. Mr. Schultes is
Chairman of the Board and CEO of A.C. Schultes, Inc., a contracting and
service organization specializing in water well drilling, water and waste
water treatment, and pump and motor repair services with offices in Maryland,
Delaware and two (2) locations in New Jersey. He is also the Chairman of the
Board and CEO of Life Care Institute, a medical diagnostic center with
facilities to perform stress tests, CAT scans, MRI scans and physical therapy
located in New Jersey. He was also the founder, Chairman of the Board and CEO
of Stout Environmental, Inc., a full service hazardous waste environmental
company. Stout merged with Republic Waste Industries in 1992. Mr. Schultes
is a graduate of Penn State University and has a BS in Civil Engineering.
GARY J. ZIEGLER, Director; Turnersville, New Jersey. Mr. Ziegler is President
of Consultants and Planners, Inc., which provides operating services to
several water utility companies in New Jersey. Mr. Ziegler is a Professional
Engineer and Professional Planner in New Jersey, a Professional Engineer in
Maryland, Pennsylvania, Ohio and New York and a member of the American Society
of Civil Engineers and the National Society of Professional Engineers. He was
<PAGE> 28
President of W.C. Services, Inc. and Vice President of Stout Environmental,
Inc. Mr. Ziegler is a graduate of Clemson University with a BS degree in
Civil Engineering.
STEPHEN M. GROTH, Director, Green Bay, Wisconsin. In addition to his
responsibilities as Treasurer of Recycled Plastics Industries, Inc., Mr. Groth
is President of Outlet Mall Inc. and CST Investments, Inc., two commercial
real estate development companies located in northeast Wisconsin. Mr. Groth
has extensive background and experience in small business start up and was
instrumental in the start up of Recycled Plastics Industries, Inc. Mr. Groth
served as the Tax Director of Terex Corporation, a Fortune 500 company
headquartered in Green Bay, Wisconsin, and was a Senior Tax Consultant for
Price Waterhouse. Mr. Groth is a graduate of George Washington University
with a BA in Accounting, a JD from Marquette University Law School and a MST
from the University of Wisconsin - Milwaukee.
LIONEL A. MARQUIS, Executive Vice President, CFO and Controller of the
Company, is responsible for the Company's financial reporting, accounting
operations and controls. Mr. Marquis has over 18 years of public and private
accounting experience in diverse manufacturing environments. Prior to joining
the Company, Mr. Marquis served as Controller of RTP Corp., a high tech
manufacturer in Pompano Beach, Florida. RTP Corp. is a wholly owned
subsidiary of Computer Products, Inc., a publicly traded company based in Boca
Raton, Florida. Mr. Marquis has a BS degree in Business Administration from
Bryant College and is a Certified Public Accountant in the State of Florida.
HAMPTON C. RANDOLPH, JR., Executive Vice President - Sales and Marketing;
joined the company with 25 years of sales and marketing experience, and was
responsible for the Company's largest distributor (Pennsylvania, New Jersey
and Delaware). Mr. Randolph currently oversees the entire distribution
network and procurement of new distributors along with national corporate
sales for the Company. He is a graduate of the University of Virginia. Mr.
Randolph has been an executive officer of the Company since May, 1995.
LEE ANDERSON, Executive Vice President - Manufacturing; is responsible for the
overall manufacturing operations of the Company. Mr. Anderson was a co-
founder of Recycled Plastics Industries, Inc. (RPI) in 1989, which was
subsequently purchased by the Company in January, 1997, at which time Mr.
Anderson was named Executive Vice President - Manufacturing. Mr. Anderson
brings a strong engineering and business background to the Company and has
pioneered many of the continuous extrusion methods used in the recycled
plastic lumber industry today. Mr. Anderson developed the recycled plastic
lumber operation at N.E.W. Plastics in Wisconsin and Eaglebrook Plastics in
Illinios. Mr. Anderson is a product of the Milwaukee based Falk Corporation;s
Engineering Program and the Milwaukee School of Engineering. His specialty is
Manufacturing Engineering and Design.
JOHN W. O'DONNELL, President; Advanced Remediation and Disposal Technologies,
Inc; Whitestown, New Jersey. As a National Sales Manager for Republic
Environmental Systems, Inc., Mr. O'Donnell was responsible for the overall
management of the sales force and management of major accounts throughout the
United States. Mr. O'Donnell was formerly a territorial sales manager of
Stout Environmental, Inc. which was merged with Republic in 1992. Mr.
O'Donnell is a graduate of Chaminade University, Oahu, Hawaii and has a BA
degree in English.
KEVIN G. JOHN, Secretary/Treasurer; Advanced Remediation and Disposal
Technology, Inc.; Coopersburg, Pennsylvania. As a Contracting Manager for
Republic Environmental Systems, Inc., Mr. John was responsible for bidding of
projects, overall management of large remedial projects and management of
large government contracts. Mr. John was formerly an operations supervisor of
Stout Environmental, Inc. which was merged with Republic in 1992. Mr. John is
<PAGE> 29
a graduate of Pennsylvania State University with a BS degree in Earth
Sciences.
Executive Compensation
The following table summarizes executive compensation paid or accrued during
the past three fiscal years for the Company's Chief Executive Officer during
that period and the most highly compensated executive officers whose total
annual salary and bonus exceeded $100,000 during those years.
Annual Compensation Long Term Compensation
- -----------------------------------------------------------------------------
Name and Restricted Securities
Principal Stock Underlying All Other
Position Year Salary($) Bonus($) Awards Options/SARS Compensation($)
- -----------------------------------------------------------------------------
CEO - 1996 $ 66,700 118,500(2) $73,342(4)
Harold 1995 $219,000(1) -0- -0-
Gebert 1994 -0- -0- -0-
- -----------------------------------------------------------------------------
COO - 1996 $ 66,700 116,000(3) $73,342(4)
David 1995 $219,000(1) -0- -0-
Farrow 1994 -0- -0- -0-
- -----------------------------------------------------------------------------
VP-Dist 1996
Raymond 1995 $106,800(1) $54,967(5)
Darling 1994
- -----------------------------------------------------------------------------
(1) In 1995 Messrs. Gebert, Farrow, and Darling converted deferred
compensation due for services rendered in their capacities as corporate
officers to common stock which was issued at $1.77 per share. Mr. Gebert and
Mr. Farrow each received 123,729 shares of common stock, and Mr. Darling
received 60,339 shares of common stock.
(2) In 1996 Mr. Gebert received 16,000 shares of common stock options at
$4.75 per share as part of the Company's Incentive Stock Option Plan. Mr.
Gebert also received 100,000 shares of common stock options at $4.00 per share
per his employment agreement with the Company and an additional 5,000 shares
of common stock options at $2.50 per share for converting a personal loan owed
by the Company into preferred stock.
(3) In 1996, Mr. Farrow received 16,000 shares of common stock options at
$4.75 per share as part of the Company's Incentive Stock Option Plan. Mr.
Farrow also received 100,000 shares of common stock options at $4.00 per share
per his employment agreement with the Company.
(4) In 1996, Messrs. Gebert and Farrow each received 18,375 shares at $1.00
per share in exchange for the sale of their own personal shares of the Company
in connection with the acquisition of Earth Care by the Company. In addition,
Messrs. Gebert and Farrow each received 31,055 shares at $1.77 per share in
exchange for their personal guarantees on the Magellan Finance Co. loan.
(5) In 1996, Mr. Darling received 31,055 shares of common stock at $1.77 per
share for his personal guarantee on the Magellan Finance Co. loan.
Stock Option Plan
The Board of Directors of the Company has adopted, with the approval of
stockholders, a Stock Option Plan (the "Plan"). Under the Plan, the Company
has granted options to acquire 120,000 shares of Common Stock to the Company's
key employees and officers. Awards consist of stock options (both non-
<PAGE> 30
qualified options and options intended to qualify as "Incentive" stock options
under Section 422 of the Internal Revenue Code of 1986, as amended),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the Plan. The Plan is administered
by the Board of Directors which has determined the persons to whom awards are
granted, the number of awards granted and the specific terms of each grant,
including the vesting thereof, subject to the provisions of the Plan.
In connection with qualified stock options, the exercise price of each option
may not be less than 100% of the fair market value of the Common Stock on the
date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of the outstanding stock of the Company). The aggregate
fair market value of shares for which qualified stock options are exercisable
for the first time by such employee during any calendar year may not exceed
$100,000. Non-qualified stock options granted under the Plan may be granted
at a price determined by the Board of Directors, not to be less than the fair
market value of the Common Stock on the date of grant.
The Plan may also contain certain change in control provisions which could
cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in
the event any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, including a "group" as defined in
Section 13(d), but excluding certain stockholders of the Company, became the
beneficial owners of more than 25% of the Company's outstanding shares of
Common Stock.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock by each person who is
proposed to serve, currently serves or has served during the past year as a
director of the Company, each person (or group of person whose shares are
required to be aggregated) known to the Company to be the beneficial owner of
more than five percent (5%) of said securities, and all such directors and
executive officers of the Company as a group:
Title of Amount and Nature of Percent
Name and Address Class Beneficial Ownership of Class
Harold Gebert Common 627,256 shares(1) 4.7%
David A. Farrow Common 485,532 shares(2) 3.7%
Mark Alzentzer Common 5,878,155 shares(3) 43.1%
Raymond F. Darling Common 334,283 shares 2.5%
Robert W. Johnson Common 103,468 shares 0.8%
Christopher J. Walter Common 88,589 shares 0.7%
Raymond J. Kiernan Common 161,826 shares(4) 1.2%
Eugene Arnold, Jr. Common 98,124 shares(5) 0.7%
Louis H. Jullien III Common 238,781 shares 1.8%
Lester E. Moody Common 189,096 shares(6) 1.2%
James J. Blosser Common 99,700 shares(7) 0.7%
<PAGE> 31
Roger Zitrin Common 318,738 shares(8) 2.1%
August C. Schultes III Common 5,470,422 shares(9) 41.3%
Gary J. Ziegler Common 5,750,100 shares(10) 42.6%
Stephen M. Groth Common 291,677 shares 2.2%
Lee Anderson Common 291,677 shares 2.2%
John O'Donnell Common 88,000 shares 0.7%
Kevin John Common 88,000 shares 0.7%
All officers & directors
as a group (19 persons) Common 9,865,656 shares(11) 67 %
Stout Partnership Common 5,400,000 shares 41 %
(1) Includes 121,000 shares not presently outstanding which Mr. Gebert
presently has the right to acquire through the exercise of outstanding earned
options.
(2) Includes 116,000 shares not presently outstanding which Mr. Farrow
presently has the right to acquire through the exercise of outstanding earned
options.
(3) Includes 447,000 shares not presently outstanding which Mr. Alsentzer
presently has the right to acquire through the exercise of outstanding earned
options, 42,000 shares not presently outstanding which he has the right to
acquire through conversion of outstanding preferred stock, and 5,400,000
shares as to which Mr. Alsentzer has shared beneficial ownership, which are
held of record by Stout Partnership, a partnership in which Mr. Alsentzer is a
principal partner.
(4) Includes 5,000 shares not presently outstanding which Mr. Kiernan
presently has the right to acquire through the exercise of outstanding earned
options and 7,000 shares not presently outstanding which he has the right to
acquire through conversion of outstanding preferred stock.
(5) Includes 89,695 shares not presently outstanding which Mr. Arnold
presently has the right to acquire through the exercise of outstanding earned
options and 7,000 shares not presently outstanding which he has the right to
acquire through conversion of outstanding preferred stock.
(6) Includes 96,278 shares not presently outstanding which Mr. Moody or his
wife presently has the right to acquire through conversion of outstanding
preferred stock.
(7) Includes 5,000 shares not presently outstanding which Mr. Blosser
presently has the right to acquire through the exercise of outstanding earned
options and 94,500 shares not presently outstanding which he has the right to
acquire through conversion of outstanding preferred stock.
(8) Includes 23,170 shares not presently outstanding which Mr. Zitrin
presently has the right to acquire through conversion of outstanding preferred
stock.
(9) Includes 70,322 shares not presently outstanding which Mr. Schultes
presently has the right to acquire through conversion of outstanding preferred
stock and 5,400,000 shares as to which Mr. Schultes has shared beneficial
ownership, which are held of record by Stout Partnership, a partnership in
<PAGE> 32
which Mr. Schultes is a principal partner.
(10) Includes 350,000 shares of common stock not presently outstanding which
Mr. Ziegler presently has the right to acquire through the conversion of
50,000 shares of outstanding preferred stock and 5,400,000 shares as to which
Mr. Ziegler has shared beneficial ownership, which are held of record by Stout
Partnership, a partnership in which Mr. Ziegler is a principal partner.
(11) Includes 15,000 shares not presently outstanding which 2 other officers
have the right to acquire through the exercise of outstanding options, in
addition to 47,332 shares held by such officers which are presently
outstanding.
The foregoing amounts include all shares these persons are deemed to
beneficially own regardless of the form of ownership. See "Certain
Transactions."
CERTAIN TRANSACTIONS
Sales of approximately $153,000 during 1995 were to Earth Care Partners
("ECP") which is a partnership entity which at the time was controlled by
certain officers/stockholders of the Company. The Company acquired certain
net assets of ECP effective February 1, 1996. The Acquisition was accounted
for as a purchase, however the net effect of the acquisition did not have a
material effect on the balance sheet of the Company.
The Company, has granted warrants to Eugene Arnold to acquire 84,695 shares of
Company common stock at an aggregate exercise price of $150,000. This option
was granted in connection with an earlier extension of a $50,000 note payable
by the Company to Mr. Arnold and in consideration of making the note payable
non-interest bearing. The note is due and the warrants are exercisable on or
before September 15, 1997.
At December 31, 1995, Earth Care converted accounts payable to officers of
$45,662 and amounts due to stockholders of $305,600 into 35,125 shares of
Earth Care common stock.
At December 31, 1995, Earth Care issued 97,580 shares of its common stock to
certain of its officers, directors and employees in satisfaction of $950,800
of compensation and $25,000 of accrued interest. This is not anticipated to
be a recurring expense.
In March, 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), a
manufacturer and marketer of recycled plastic products and other recycling
services. Pursuant to the Agreement, the Company reverse split its common
stock on a 1 for 16 basis, and then issued 4,196,316 post split shares of its
authorized but previously unissued common stock to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange (the
"Acquisition") which was intended to be a tax free reorganization under
Section 368(a) of the Internal Revenue Code. The Company also granted to the
former Earth Care shareholders earn-out rights with respect to an additional
2,000,000 shares of Common Stock, subject to fulfillment of certain conditions
relating to production and net sales. As a condition precedent to the closing
of the Acquisition, the Company raised $1,000,000 of capital through an
offering of its securities. The offering was completed and the Acquisition
closed on or about March 28, 1996. As part of the Acquisition, the Company
completed a distribution to common stockholders of Series A and B Warrants.
The Company has registered the Shares underlying the Series A Warrants by
means of the registration statement of which this prospectus is part. If all
the Series A Warrants registered hereby are exercised, of which there is no
assurance, the Company would receive an additional $2,375,000 of capital.
<PAGE> 33
As a condition to closing the Acquisition of Earth Care, the Company was also
required to retire an existing note payable which at March 15, 1996, had a
balance due of $699,775 reflecting principal and accrued interest. The note
was secured by all assets of Earth Care. The note was retired upon payment of
approximately $200,000 (representing approximately $95,000 principal
reduction) and by issuing a new note which is not convertible to stock, is not
secured by Earth Care assets, was due on December 31, 1996, and was personally
guaranteed by certain officers of Earth Care and their spouses. In
consideration of becoming personal guarantors on the new note, Harold H.
Gebert, David A. Farrow, Raymond F. Darling and Raymond J. Kiernan were issued
an aggregate of 32,000 shares of Earth Care (representing 180,682 shares of
the Company stock included in the 4,196,316 issued in the Acquisition).
The Magellan Option refers to an option which if exercised in full, would
require the payment by the optionee of an aggregate exercise price of
$626,021. The option expires on December 31, 1997. However, in the event the
option is not exercised, the Company is obligated to issue the entire 353,684
shares without additional consideration, to the persons who were formerly
shareholders of Earth Care immediately prior to the Acquisition.
In April, 1996 the Company acquired all of the assets of Duratech Industries.
Duratech Industries, in operation since 1986, is a manufacturer of recycled
plastic lumber, recycled plastic shapes and value added products located in
Lake Odessa, Michigan. The Company paid a total of $41,000 cash and issued a
total of 24,772 shares of common stock, to the shareholders of Duratech, to
acquire such assets. In addition, the Company granted earn out rights to such
persons to acquire 150,000 shares of the Company's Common Stock upon
fulfillment of certain conditions relating the level of net sales volume from
products manufactured at the Michigan facility. One of the shareholders of
Duratech, Allen Cockrum, became the Production Manager for the Company at the
Michigan facility.
In December, 1996, the Company formed the Clean Earth division, and through it
acquired, in a transaction accounted for as a pooling of interest, a wholly
owned subsidiary, Clean Earth of New Castle, Inc., which has been in operation
since 1991, and has treated over 600,000 tons of soil and construction debris
that was contaminated with petroleum hydrocarbon wastes, such as fuels,
lubricating oils, tars and gasoline. Clean Earth owns and operates a low
temperature thermal desorption plant that can treat and recycle up to 30,000
tons per month of petroleum contaminated soil. The Company issued 5,400,000
shares of Common Stock to Stout Partnership, which was the sole shareholder of
Clean Earth, and also granted earn-out rights with respect to 2,573,686 shares
of Company Common Stock on the same basis as the earn-out rights previously
granted to the former Earth Care shareholders as part of that acquisition.
Mark Alsentzer, Gary Ziegler and August Schultes, principals of Stout
Partnership, became directors of the Company and Mr. Alsentzer assumed the
positions of President and Chief Executive Officer.
In January, 1997, the Company acquired Recycled Plastics Industries, Inc.
(RPI), located in Green Bay, Wisconsin. RPI is a manufacturer of specialty
profile, recycled plastic lumber products that was formed in 1989. RPI's
production process utilizes an automated continuous flow extrusion process
with vacuum calibration forming technology. The Company paid $1,200,000 cash
and issued 1,000,000 shares of its Common Stock to acquire RPI.
In February, 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting and
clean up of contaminated sites primarily involving water and soils. The
Company issued 300,000 shares of its Common Stock to the former shareholders
of ARDT.
<PAGE> 34
Conflicts of Interest
Other than as described herein the Company is not expected to have significant
further dealings with affiliates. However, if there are such dealings the
parties will attempt to deal on terms competitive in the market and on the
same terms that either party would deal with a third person. Presently none
of the officers and directors have any transactions which they contemplate
entering into with the Company, aside from the matters described herein.
Management will attempt to resolve any conflicts of interest that may arise in
favor of the Company. Failure to do so could result in fiduciary liability to
management.
Indemnification and Limitation of Liability of Management
The General Corporation Law of Nevada permits provisions in the articles, by-
laws or resolutions approved by shareholders which limit liability of
directors for breach of fiduciary duty to certain specified circumstances,
namely, breaches of their duties of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law,
acts involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper
personal benefit. The Company's by-laws indemnify its Officers and
Directors to the full extent permitted by Nevada law. The by-laws with these
exceptions eliminate any personal liability of a Director to the Company or
its shareholders for monetary damages for the breach of a Director's fiduciary
duty and therefore a Director cannot be held liable for damages to the Company
or its shareholders for gross negligence or lack of due care in carrying out
his fiduciary duties as a Director. The Company's Articles provide for
indemnification to the full extent permitted under law which includes all
liability, damages and costs or expenses arising from or in connection with
service for, employment by, or other affiliation with the Company to the
maximum extent and under all circumstances permitted by law. Nevada law
permits indemnification if a director or officer acts in good faith in a
manner reasonably believed to be in, or not opposed to, the best interest's of
the corporation. A director or officer must be indemnified as to any matter
in which he successfully defends himself. Indemnification is prohibited as to
any matter in which the director or officer is adjudged liable to the
corporation. 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
Act and is, therefore, unenforceable.
DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of the Company's
Articles of Incorporation and Bylaws, copies of which will be furnished to an
investor upon written request therefor. See "Additional Information."
Common Stock
The Company is presently authorized to issue 50,000,000 shares of $.0001 par
value common stock. The Company presently has 13,163,898 shares of common
stock outstanding. The Company has reserved from its authorized but unissued
shares a sufficient number of shares of common stock for issuance of the
Shares offered hereby. The shares of common stock issuable on completion of
the offering will be, when issued in accordance with the terms of the
offering, fully paid and non-assessable.
<PAGE> 35
The holders of common stock, including the Shares offered hereby, are entitled
to equal dividends and distributions, per share, with respect to the common
stock when, as and if declared by the Board of Directors from funds legally
available therefor. No holder of any shares of common stock has a pre-emptive
right to subscribe for any securities of the Company nor are any common shares
subject to redemption or convertible into other securities of the Company.
Upon liquidation, dissolution or winding up of the Company, and after payment
of creditors and preferred stockholders, if any, the assets will be divided
pro-rata on a share-for-share basis among the holders of the shares of common
stock. All shares of common stock now outstanding are fully paid, validly
issued and non-assessable. Each share of common stock is entitled to one vote
with respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote. Holders of the Company's
common stock do not have cumulative voting rights, so that the holders of more
than 50% of the combined shares voting for the election of directors may elect
all of the directors, if they choose to do so and, in that event, the holders
of the remaining shares will not be able to elect any members to the Board of
Directors.
Preferred Stock
The Company is also presently authorized to issue 5,000,000 shares of $.001
par value Preferred Stock. Under the Company's Articles of Incorporation, as
amended, the Board of Directors has the power, without further action by the
holders of the common stock, to designate the relative rights and preferences
of the preferred stock, and issue the preferred stock in such one or more
series as designated by the Board of Directors. The designation of rights and
preferences could include preferences as to liquidation, redemption and
conversion rights, voting rights, dividends or other preferences, any of which
may be dilutive of the interest of the holders of the common stock or the
Preferred Stock of any other series. The issuance of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company
without further shareholder action and may adversely effect the rights and
powers, including voting rights, of the holders of common stock. In certain
circumstances, the issuance of preferred stock could depress the market price
of the common stock. The Board of Directors effects a designation of each
series of Preferred Stock by filing with the Nevada Secretary of State a
Certificate of Designation defining the rights and preferences of each such
series. Documents so filed are matters of public record and may be examined
in accordance with procedures of the Nevada Secretary of State, or copies
thereof may be obtained from the Company.
The Board of Directors of the Company has designated 250,000 shares as Series
A Preferred Stock, with a 10% cumulative stock dividend, payable semiannually
on March 31 and September 30 of each year, commencing on September 30, 1996,
at a rate of 10% per annum. The Company has sold 193,970 shares of Series A
Preferred Stock. Each share of Series A Preferred Stock in convertible: (i)
at the option of the holder into Common Stock of the Company at the rate of
seven (7) shares of Common Stock for each share of Series A Preferred Stock,
and (ii) mandatorily converted into Common Stock on the date on which a
Registration Statement, which is filed with the U.S. Securities and Exchange
Commission and would yield proceeds to the Company in excess of $10 million,
is declared effective by the SEC. The Series A Preferred Stock is subject to
redemption by the Company at its option at any time commencing from the date
of issue of such Series A Preferred Stock at a price of $25.00 per share.
None of the Series A Preferred Stock issued has been converted into Common
Stock of the Company or redeemed by the Company as of the date hereof.
Series A and Series B Warrants
At the same time that the Company distributed the Series A Warrants, it also
distributed Series B Warrants, so the Company now has 950,000 Series A and
<PAGE> 36
950,000 Series B common stock purchase warrants (the "Warrants") outstanding.
The Warrants are exercisable at $2.50 per share for the Series A Warrants and
$4.50 per share for the Series B Warrants, at any time prior to June 30, 1998,
subject to effectiveness of registration of the Warrants and underlying
shares.
(a) The Company may redeem all or a portion of the Warrants, in each
case at $.01 per warrant upon 30 days' prior written notice to the
warrant holders in the event the Closing bid price of the Company's
common stock exceeds or equals $4.00 per share for 20 consecutive
trading days, then the Series A Warrants can be redeemed and if the
price equals or exceeds $6.00 then the Series B Warrants may be
redeemed. The warrants may only be redeemed if a current registration
statement is in effect with respect thereto. Any warrant holder who
does not exercise his Warrants prior to the Redemption Date, as set
forth on the Company's Notice of Redemption, will forfeit his right to
purchase the shares of Common Stock underlying such Warrants, and after
such Redemption Date any outstanding Warrants referred to in such Notice
will become void and be canceled. If the Company does not redeem such
Warrants, such warrants will expire at the conclusion of the exercise
period unless extended by the Company.
(b) The Company may at any time, and from time to time, extend the
exercise period of the Warrants provided that written notice of such
extension is given to the warrant holders prior to the expiration date
thereof. Also, the Company may, at any time, reduce the exercise price
thereof by written notification to the holders thereof. The Company
does not presently contemplate any extensions of the exercise period or
reduction in the exercise price of the Warrants.
(c) The Warrants contain anti-dilution provisions with respect to the
occurrence of certain events, such as stock splits or stock dividends.
The anti-dilution provisions do not apply in the event of a merger or
acquisition. In the event of liquidation, dissolution or winding-up of
the Company, warrant holders will not be entitled to participate in the
assets of the Company. Warrant holders have no voting, preemptive,
liquidation or other rights of a stockholder of a Company, and no
dividends may be declared on the Warrants.
(d) The Warrants may be exercised by surrendering to the Company, a
Warrant certificate evidencing the Warrants to be exercised, with the
exercise form included therein duly completed and executed, and paying
to the Company the exercise price per share in cash or check payable to
the Company. Stock certificates will be issued as soon thereafter as
practicable.
(e) The Warrants are not exercisable until the Warrants and the shares
of Common Stock underlying the Warrants are registered. The Company has
agreed to file with the Commission a registration statement with respect
to the issuance of such shares underlying the Warrants as soon as
practicable following the Acquisition. The effective date of such
registration will be the "Commencement Date" for determining the
exercise period of such Warrants. The Company will also seek to
register or qualify the Common Stock issuable upon the exercise of the
Warrants under the Blue Sky laws of all states in which holders of the
Warrants may reside.
(f) The Warrants are deemed to be "restricted securities" in a manner
similar to the definition of that term used in Rule 144 and will only be
transferable, prior to registration, upon a showing to the satisfaction
of the Company that the transfer is exempt from the registration
provisions of the Securities Act of 1933. The Warrants are stamped with
<PAGE> 37
a restrictive legend.
Transfer Agent
The transfer agent for the Company is Interwest Stock Transfer Co., 1981 East
4800 South, Suite 100, Salt Lake City, Utah 84117.
Annual Reports
The Company intends to furnish annual reports to shareholders which will
contain financial statements audited by independent certified public
accountants and such other interim reports as the Company may determine.
Dividend Policy
The Company has not paid any cash dividends on common stock to date and does
not anticipate paying cash dividends on common stock in the foreseeable
future. The Company intends for the foreseeable future to follow a policy of
retaining all of its earnings, if any, to finance the development and
expansion of its business. The Company does intend to pay stock dividends on
its preferred stock in accordance with the terms thereof.
Other Outstanding Options
The Company has reserved 353,684 shares of the Company's common stock for
issuance upon exercise of an option held by a former creditor of Earth Care
(the "Magellan Option"). The option is exercisable for an aggregate amount of
$626,021 for the 353,684 shares until December 31, 1997. In the event the
Magellan Option is not exercised in whole or in part, then those shares
reserved for the Option shall be issued on a pro rata basis to the persons who
formerly were shareholders of Earth Care, in proportion to the Earth Care
shares they owned immediately prior to closing the Acquisition.
Earn-Out Shares
Pursuant to various agreements entered into between the Company and the former
shareholders of Earth Care, Duratech, Clean Earth and ARDT as part of the
acquisitions of those companies, a total of 4,873,686 shares of the Company's
Common Stock is subject to the right of such shareholders to receive such
stock under certain conditions relating to earnings, sales or production
levels reached by the Company or by the entities which these person were
formerly shareholders of.
The Earth Care Historical Shareholders are entitled to receive on a pro rata
basis an aggregate of 2,000,000 additional shares of the Company's common
stock at any time prior to December 31, 2000, in the event that Earth Care, on
a consolidated basis, reaches production or sales of at least 2,000,000 pounds
of plastic lumber product per month for three consecutive months.
The Duratech Historical Shareholders are entitled to receive on a pro rata
basis an aggregate of 150,000 additional shares of the Company's common stock
at any time prior to April 30, 1999, in the event that Duratech reaches net
sales of products manufactured at the Michigan facility of at least $1,500,000
during any twelve month period.
The Clean Earth Historical Shareholders are entitled to receive on a pro rata
basis an aggregate of 2,573,686 additional shares of the Company's common
stock at any time prior to December 31, 2000, in the event that the Company,
on a consolidated basis, reaches production or net sales of at least 2,000,000
pounds of plastic lumber product per month for three consecutive months.
The ARDT Historical Shareholders are entitled to receive on a pro rata basis
<PAGE> 38
an aggregate of up to 150,000 additional shares of the Company's common stock
during 1997 and 1998 in the event that ARDT reaches certain specified levels
of profits as defined in the agreement during each of those years.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 13,163,898 shares of the Company's common stock outstanding prior to
the exercise of any Warrants, 1,949,999 shares are freely tradeable or
eligible to be sold in the public market that exists for the Common Stock. In
addition, the 950,000 shares of Common Stock underlying the Series A Warrants
will also be freely tradeable into the public market immediately upon
issuance. Sales of substantial amounts of this common stock in the public
market could adversely affect the market price of the common stock.
Furthermore, all of the remaining shares of Common Stock presently outstanding
are restricted and/or affiliate securities which are not presently, but may in
the future be sold into any public market that may exist for the Common Stock,
pursuant to Rule 144 promulgated pursuant to the Securities Act of 1933, as
amended (the "Securities Act").
In general, under Rule 144 as currently in effect, a person (or group of
persons whose shares are aggregated), including affiliates of the Company, can
sell within any three-month period, an amount of restricted securities that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class, or (if the Stock becomes quoted on NASDAQ or a stock
exchange), the reported average weekly trading volume during the four calendar
weeks preceding the sale; provided, that at least two years have elapsed since
the restricted securities being sold were acquired from the Company or any
affiliate of the Company, and provided further that certain other conditions
are also satisfied. If at least three years have elapsed since the restricted
securities were acquired from the Company or an affiliate of the Company, a
person who has not been an affiliate of the Company for at least three months
can sell restricted shares under Rule 144 without regard to any limitations on
the amount. Future sales by current shareholders could depress the market
prices of the Common Stock in any such market.
PLAN OF DISTRIBUTION
This Prospectus and the registration statement of which it is part relate to
the offer and sale of 950,000 shares of Common Stock of the Company underlying
Series A Warrants. The securities registered hereby include 950,000 shares of
Common Stock issuable upon the exercise of the Series A Warrants at an
exercise price of $2.50 per share. The Series A Warrants were recently
distributed as a dividend with respect to the Common Stock of the Company to
shareholders of record as of March 18, 1996. By their terms, the Warrants
were not exerciseable and did not constitute an offer by the Company to sell
the Shares prior to the date of this prospectus. The Warrants are now
exerciseable until June 30, 1998.
The offering will be managed by the Company without an underwriter, and the
Shares will be offered and sold by the Company, without any discount, sales
commissions or other compensation being paid to anyone in connection with the
offering. In connection therewith, the Company will pay the costs of
preparing, mailing and distributing this Prospectus to the holders of the
Warrants. Brokers, nominees, fiduciaries and other custodians will be
requested to forward copies of this Prospectus to the beneficial owners of
securities held of record by them, and such custodians will be reimbursed for
their expenses.
There is no assurance that all or any of the Shares will be sold, nor any
requirement, or escrow provisions to assure that, any minimum amount of
Warrants will be exercised. All funds received upon the exercise of any
Warrants will be immediately available to the Company for its use.
<PAGE> 39
Exercise Procedures
Warrants may be exercised in whole or in part by presentation of the Warrant
Certificate, with the Purchase Form on the reverse side thereof filled out and
signed at the bottom thereof, together with payment of the Exercise Price and
any applicable taxes at the principal office of Interwest Stock Transfer Co.,
1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117. Payment of the
Exercise Price shall be made in lawful money of the United States of America
by wire transfer or check payable to the order of "U.S. Plastic Lumber Corp."
All holders of warrants will be given an independent right to exercise their
purchase rights. If, as and when properly completed and duly executed notices
of exercise are received by the Transfer Agent and/or Warrant Agent, together
with the Certificates being surrendered and full payment of the Exercise Price
in cleared funds, the checks or other funds will be delivered to the Company
and the Transfer Agent and/or Warrant Agent will promptly issue certificates
for the underlying Common Stock. It is presently estimated that certificates
for the shares of Common Stock will be available for delivery in Salt Lake
City, Utah at the close of business on the tenth business day after the
receipt of all required documents and funds.
LEGAL MATTERS
To the knowledge of management, there is no material litigation pending or
threatened against the Company. The validity of the issuance of the Shares
offered hereby will be passed upon for the Company by Thomas G. Kimble &
Associates, Salt Lake City, Utah.
EXPERTS
The December 31, 1996 and 1995 consolidated financial statements of the
Company (formerly known as Earth Care Global Holdings, Inc.), included in this
Prospectus have been audited by Kuntz Lesher Siegrist & Martini, LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance on such report given upon
the authority of that firm as experts in accounting and auditing.
<PAGE> 40
<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
PAGE
<PAGE>
CONTENTS
FINANCIAL STATEMENTS
Independent Accountants' Report Page 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 to 16
PAGE
<PAGE>
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
U.S. Plastic Lumber Corp. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of U.S.
Plastic Lumber Corp. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements based on our audit.
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
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of U.S.
Plastic Lumber Corp. and Subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet and
consolidated statements of operations, changes in stockholders' deficiency and
cash flows of U.S. Plastic Lumber Corp. and Subsidiaries (formerly Earth Care
Global Holdings, Inc. and subsidiaries) for the year ended December 31, 1995,
prior to their restatement for the 1996 pooling of interests. The
contribution of U.S. Plastic Lumber Corp. and Subsidiaries to total assets,
revenues and net loss represented 26%, 17% and 136% of the respective restated
totals. Separate financial statements of the other company included in the
1995 restated consolidated balance sheet and consolidated statements of
operations, changes in stockholders' equity and cash flows were audited and
reported on separately by other auditors. We also audited the combination of
the accompanying consolidated balance sheet and consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1995, after restatement for the 1996 pooling of interests; in our
opinion, such consolidated statements have been properly combined on the basis
described in Note 2 of notes to consolidated financial statements.
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1997 (except as to Note 14
which is as of February 24, 1997)
<PAGE> 1<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 854,290 $1,199,614
Accounts and notes receivable, net of allowance
for doubtful accounts of $262,279 and $102,052
for 1996 and 1995, respectively 1,559,463 2,811,062
Inventories 574,381 509,842
Prepaid expenses and other current assets 99,462 181,800
TOTAL CURRENT ASSETS 3,087,596 4,702,318
Property and equipment, net 1,198,232 1,486,015
Deferred income taxes - 121,300
Goodwill, net of accumulated amortization
of $30,220 in 1996 209,462 -
Deferred expenses and other assets 15,392 125,271
TOTAL ASSETS $4,510,682 $6,434,904
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 707,582 $ 644,510
Accounts payable 1,307,221 1,028,733
Accrued expenses 170,759 299,673
Deferred revenue 162,819 189,055
Other liabilities 27,654 52,796
TOTAL CURRENT LIABILITIES 2,376,035 2,214,767
Notes payable, net of current portion 6,730 -
TOTAL LIABILITIES 2,382,765 2,214,767
STOCKHOLDERS' EQUITY
10% Convertible preferred stock, par value $.001;
authorized 5,000,000 shares; issued and
outstanding 74,970 shares at December 31,
1996 (aggregate liquidation preference of
$1,499,400) 75 -
Common stock par value $.0001, authorized
50,000,000 shares; issued and outstanding
11,672,349 and 9,035,666 shares at December
31, 1996 and 1995, respectively 1,167 903
Additional paid-in capital 9,475,814 7,061,369
Accumulated deficit (7,349,139) (2,842,135)
TOTAL STOCKHOLDERS' EQUITY 2,127,917 4,220,137
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,510,682 $6,434,904
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 2<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
1996 1995
Net sales $ 6,627,242 $ 7,257,995
Cost of goods sold 5,898,058 5,225,689
GROSS PROFIT 729,184 2,032,306
General and administrative expenses 4,188,516 3,081,023
Abandonment loss 199,087 -
OPERATING LOSS (3,658,419) (1,048,717)
Interest income 56,272 -
Interest expense (77,372) (87,186)
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM (3,679,519) (1,135,903)
Provision for income taxes (61,516) 310,000
LOSS BEFORE EXTRAORDINARY ITEM (3,618,003) (1,445,903)
Extraordinary item - gain on involuntary
conversion (net of income taxes of $44,500) 66,859 -
NET LOSS $(3,551,144) $(1,445,903)
Primary loss per share:
Loss before extraordinary item $ (.33) $ (.19)
Extraordinary item .01 -
NET LOSS $ (.32) $ (.19)
Weighted-average number of shares outstanding 11,067,636 7,614,871
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 3<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON
STOCK ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES
AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
<S> <C> <C> <C>
<C> <C> <C> <C>
Balance, December 31, 1994, as originally reported - $ - 365,520
$ 3,655 $1,182,495 $(1,845,194) $ (659,044)
Restatement for new capital structure acquired
with the merger of Educational Storybooks
International, Inc. (see Note 2) 1,698,317
(3,449) 3,449 - -
Restatement for pooling of interests(see Note 2) 5,400,000
540 2,999,460 848,962 3,848,962
Balance, December 31, 1994, as restated - - 7,463,837
746 4,185,404 (996,232) 3,189,918
Issuance of common stock, net of issuance costs 737,842
74 1,398,996 - 1,399,070
Issuance of common stock for services 550,966
55 975,745 - 975,800
Exercise of stock options 84,695
8 149,992 - 150,000
Conversion of stockholders/officers loans
into common stock 198,326
20 351,232 - 351,252
Cash dividends paid -
- - (400,000) (400,000)
Net loss -
- - (1,445,903) (1,445,903)
Balance, December 31, 1995 - - 9,035,666
903 7,061,369 (2,842,135) 4,220,137
Merger with Educational Storybooks International,
Inc. (see Note 2) 950,000
95 (491) - (396)
Issuance of common stock, net of issuance costs 1,267,380
127 1,362,729 - 1,362,856
Issuance of common stock for acquisitions 137,698
14 224,758 - 224,772
Issuance of common stock for services 276,040
28 414,633 - 414,661
Exercise of stock options 5,565
- 13,500 - 13,500
Issuance of convertible preferred stock 68,577 69 -
- 1,371,462 - 1,371,531
Conversion of stockholders/directors loans into
preferred stock 6,000 6 -
- 119,994 - 120,000
Purchase and retirement of treasury stock - - -
- (1,100,000) - (1,100,000)
Cash dividends paid - - -
- - (948,000) (948,000)
10% preferred stock dividend 393 - -
- 7,860 (7,860) -
Net loss - - -
- - (3,551,144) (3,551,144)
Balance, December 31, 1996 74,970 $ 75 11,672,349
$ 1,167 $9,475,814 $(7,349,139) $2,127,917
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE> 4<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net loss $(3,551,144) $(1,445,903)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 880,565 1,039,556
Issuance of common stock for services 414,661 975,800
Provision for losses on accounts and notes
receivable 160,227 (5,448)
Write-off of abandoned and fire damaged
property and equipment 153,022 -
Gain on sale of assets - (84,500)
Deferred income taxes 121,300 (120,000)
Distributor deposits (25,142) (325,124)
Increase (decrease) in cash due to changes in
operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable 1,175,011 (1,357,284)
Inventories 125,306 (259,262)
Prepaid expenses and other current assets 82,338 46,910
Accounts payable 96,711 (4,069)
Accrued expenses (213,304) 186,289
Deferred revenue (26,236) 189,055
Total adjustments 2,944,459 281,923
NET CASH USED IN OPERATING ACTIVITIES (606,685) (1,163,980)
Cash flows from investing activities:
Capital expenditures (414,203) (337,583)
Proceeds from sale of property and equipment - 208,500
Payments for deferred expenses - (8,278)
Payment for acquisitions, net of cash received (5,651) -
NET CASH USED IN INVESTING ACTIVITIES (419,854) (137,361)
Cash flows from financing activities:
Proceeds from the issuance of capital stock 2,747,491 1,414,070
Dividends paid (948,000) (400,000)
Payment for purchase of treasury stock (1,100,000) -
Distributor deposits - 100,000
Proceeds from issuance of note payable 500,824 144,510
Principal payments on notes payable (639,100) -
Proceeds from stockholder loans 120,000 300,306
Payment on stockholder loans - (102,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 681,215 1,456,886
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (345,324) 155,545
Cash and cash equivalent - beginning of year 1,199,614 1,044,069
CASH AND CASH EQUIVALENTS - END OF YEAR $ 854,290 $1,199,614
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 5<PAGE>
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries are engaged in the
manufacturing of recycled plastic lumber from post-consumer plastic waste and
the recycling of soils which have been exposed to hydrocarbons. The Company's
plastic lumber customers are located throughout the United States and
accounted for 28% and 17% of net sales in 1996 and 1995, respectively. The
Company's soil recycling customers are located primarily in the Northeastern
United States and accounted for 72% and 83% of net sales in 1996 and 1995,
respectively.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
U.S. Plastic Lumber Corp. and its wholly-owned subsidiaries, (collectively the
Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be a cash equivalent.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial purposes by the use of the straight-line method over the estimated
useful lives of the assets. Accelerated methods of computing depreciation are
used for tax purposes. Upon sale or retirement, the cost and related
accumulated depreciation of such assets are removed from the accounts and any
resulting gain or loss realized is credited or charged to income for the
period. Expenditures for maintenance and repairs are charged to income as
incurred. Significant renewals, improvements and betterments are capitalized.
GOODWILL
Goodwill represents the excess of the costs of companies acquired over the
fair value of their net assets at dates of acquisition and is being amortized
on a straight-line basis over 5 to 10 years. Amortization expense was $30,220
for the year ended December 31, 1996.
<PAGE> 6<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED EXPENSES
Deferred expenses consist primarily of loan fees and organization costs.
These expenses are amortized over their estimated useful lives.
DEFERRED REVENUE
Revenue from soil recycling is recognized upon treatment and
certification. Billings for untreated soils are recorded as deferred revenue.
DISTRIBUTOR DEPOSITS
Included in other liabilities are deposits received from the Company's
distributors which represent advance payment for the purchase of plastic
lumber.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year which the differences are expected to be settled or realized.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and were
approximately $152,000 and $59,000 in 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company maintains its cash and cash equivalents with
various financial institutions which are primarily located in the Eastern
United States. At December 31, 1996 and 1995, the Company had bank balances
of approximately $774,000 and $991,000, respectively, in excess of amount
insured by federal deposit insurance. Trade receivables are concentrated
primarily in the Northeastern United States. The Company generally does not
require collateral from its customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, cash equivalents, accounts and notes
receivable, accounts payable, and notes payable. The carrying amounts
reported in the consolidated balance sheets for these financial instruments
approximate their fair value due to their short-term nature.
LOSS PER SHARE
Primary loss per share is computed based on the weighted-average number of
shares actually outstanding in 1996 and 1995. Common stock equivalents have
been excluded as they are anti-dilutive. The loss before extraordinary item
and net loss have been adjusted for dividends on convertible preferred stock.
Fully diluted loss per share amounts are not presented for 1996 and 1995 as
the are anti-dilutive.
<PAGE> 7<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECLASSIFICATION
The 1995 consolidated financial statements have been reclassified to
conform to the current year presentation.
NOTE 2 - ACQUISITIONS
During the year ended December 31, 1996, the Company acquired the entities
described below, which were accounted for as a purchase:
Effective March 29,1996, Earth Care Global Holdings, Inc. and
Subsidiaries (Earth Care) were acquired as a wholly-owned subsidiary of
Educational Storybooks International, Inc. (ESI), a publicly-held shell
corporation, trading on the NASD Electronic Bulletin Board, through the
exchange of 5.646304 shares of ESI for each outstanding share of Earth
Care. Upon completion of the acquisition ESI changed its name to U.S.
Plastic Lumber Corporation. For financial reporting purposes, Earth
Care is deemed to be the acquiring corporation and has accounted for the
transaction as a purchase of ESI with Earth Care assuming ESI's capital
structure. All references in the consolidated financial statements
referring to shares, share prices, per share amounts and stock prices
have been retroactively adjusted to reflect the capital structure of
ESI. In addition, the merger agreement provided for 2,000,000 shares of
common stock to be reserved for Earth Care historical stockholders, as
defined, to be issued upon the Company meeting certain production or
sales goals for plastic lumber product prior to December 31, 2000.
On February 1, 1996, the Company acquired certain net assets of Earth
Care Partners (ECP). ECP is engaged in the distribution of recycled
plastic lumber products in the Northeastern United States. The partners
of ECP are also stockholders of the Company. The partners received
112,926 shares of the Company's common stock for a purchase price of
$200,000 which exceeded the fair value of the net assets of ECP by
$114,259. The excess has been recorded as goodwill, which is being
amortized on a straight-line basis over a 5 year period.
On April 4, 1996 the Company acquired the net assets of Duratech
Industries, Inc. (Duratech). Duratech is engaged in the manufacturing
and sale of recycled plastic lumber products. The stockholders of
Duratech received $41,000 and 24,772 shares of the Company's common
stock for a purchase price of $65,772 which exceeded the fair value of
the net assets of Duratech by $125,423. The excess has been recorded as
goodwill, which is being amortized on a straight-line basis over a 10
year period. The purchase agreement also provides for the issuance of
an additional 150,000 shares of common stock if Duratech meets certain
production goals for plastic lumber product by April 30, 1999.
The following unaudited proforma information presents a summary of
consolidated results of operations of the Company and the acquired entities as
if the acquisition had occurred January 1, 1995:
1996 1995
Net sales $ 6,839,000 $ 8,561,000
Loss before extraordinary item $(3,628,000) $(1,643,000)
Net loss $(3,561,000) $(1,643,000)
<PAGE> 8<PAGE>
NOTE 2 - ACQUISITIONS (Continued)
These unaudited proforma results have been prepared for comparison
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets and addition
amortization expense as a result of goodwill. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1995, or of future results of
operations of the consolidated entities.
POOLING OF INTERESTS
On December 30, 1996, the Company acquired Clean Earth Inc. and Subsidiary
(CEI) through the issuance of 5,400,000 shares of the Company's common stock
in exchange for all the outstanding stock of CEI. The historical stockholders
of CEI are also eligible to receive 2,473,686 additional shares of common
stock if the Company meets certain production or sales for plastic lumber
product goals prior to December 31, 2000. CEI is engaged in the recycling of
soils exposed to hydrocarbons. The acquisition was accounted for as a pooling
of interests. Accordingly, the Company's financial statements have been
restated to include the results of CEI for all periods presented.
Combined and separate results of the Company and CEI during the periods
prior to the acquisition were as follows:
INCOME
(LOSS) BEFORE
EXTRAORDINARY NET
NET SALES ITEM INCOME(LOSS)
For the year ended December 31, 1996:
U.S. Plastic Lumber Corp. $1,885,303 $(3,345,054) $(3,345,054)
CEI 4,741,939 (272,949) (206,090)
Combined $6,627,242 $(3,618,003) $(3,551,144)
For the year ended December 31, 1995:
U.S. Plastic Lumber Corp. $1,214,032 $(1,960,127) $(1,960,127)
CEI 6,043,963 514,224 514,224
$7,257,995 $(1,445,903) $(1,445,903)
NOTE 3 - INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
1996 1995
Supplies $ 71,143 $ 31,513
Raw materials 79,040 217,339
Finished goods 424,198 260,990
$ 574,381 $ 509,842
<PAGE> 9<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1995:
1996 1995
Machinery and equipment $4,232,714 $3,821,035
Leasehold improvements 455,627 493,313
Furniture and fixtures 53,411 40,018
4,741,752 4,354,366
Less accumulated depreciation (3,543,520) (2,868,351)
$1,198,232 $1,486,015
Depreciation expense was $748,744 and $974,054 for the years ended
December 31, 1996 and 1995, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1996 and 1995:
1996 1995
Note payable to stockholder, bearing interest at
prime plus 1% (9.25% at December 31, 1996) due
December 31, 1997 retired in January 1997. $ 500,824 $ -
Convertible notes payable to stockholder, bearing
interest at 10%, due December 31, 1996. (A) - 594,510
Promissory bank note, payable in monthly install-
ments of $3,263, including interest at the bank's
basic rate (10.25% at December 31, 1996), balloon
payment due in April 1997. 134,724 -
Note payable to stockholder/director, non interest
bearing, due September 1997. (B) 50,000 50,000
Other notes payable 28,764 -
714,312 644,510
Current portion 707,582 644,510
$ 6,730 $ -
(A) On September 28,1995 the Company notified the lender of its intent
to retire the convertible notes and related accrued interest. The
lender did not exercise its conversion rights within the stipulated time
frame set by the convertible note agreement and subsequently lost their
right to convert the notes into Company stock. During March, 1996, the
Company negotiated new terms for the convertible notes which included a
maturity date of December 31, 1996 and an initial payment of
approximately $200,000 on the signing of the agreement.
In connection with the issuance of the second convertible note payable,
the Company issued the lender options to purchase 84,695 shares of
common stock at $.18 per share. These options were exercised during
October, 1995. The convertible note agreements also provide an option
to purchase up to an additional 353,684 shares of the Company's common
stock at $1.77 per share. Such options must be exercised by December
31, 1997. If the lender does not exercise its option to purchase the
shares, then the 353,684 shares will be issued to the historical
stockholders, as defined, at no cost.
<PAGE> 10<PAGE>
NOTE 5 - NOTES PAYABLE (Continued)
(B) The $50,000 note payable provides an option for the holder to
purchase up to 84,695 shares of the Company's common stock at $1.77 per
share. The option expires September 15, 1997.
The Company's subsidiary, Clean Earth, Inc., has available a $500,000 line
of credit and a $1,000,000 commitment for a term loan both bearing interest at
the bank's prime rate (8.25% at December 31, 1996). Effective with the merger
these agreements terminated. The Company is currently renegotiating the new
terms of these agreements under the combined entities.
NOTE 6 - CAPITAL STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
During the year ended December 31, 1996, the Company initiated an offering
of up to 250,000 shares of the Company's Series A Preferred Stock. The shares
are nonvoting and have a 10% cumulative stock dividend payable semiannually
and will be paid in Series A Preferred Stock. No cash dividends will be paid.
Each share is convertible into seven shares of the Company's common stock at
the option of the stockholder and mandatorily on the date which a registration
statement which would yield the Company $10,000,000 in proceeds is declared
effective by the Securities and Exchange Commission. In the event of any
liquidation, after payment of debts and other liabilities, the stockholders of
Series A Preferred Stock will be entitled to receive, before the stockholder
of any of the Common stock, the stated value of $20 per share. The Series A
Preferred Stock can be redeemed at any time at the sole option of the Company
for $25.00 per share.
From January 1, 1997 through February 10, 1997, the Company sold 79,000
shares of Series A Preferred Stock for proceeds of $1,580,000.
TREASURY STOCK
Prior to the pooling of interest in March 1996, Clean Earth, Inc. acquired
stock from its sole stockholder for $1,100,000. Effective with the pooling of
interest, those treasury shares were cancelled and retired.
STOCK WARRANTS
In connection with the merger with ESI, existing stockholders of ESI
received 950,000 Series A and 950,000 Series B Warrants to purchase the
Company common stock at $2.50 and $4.50 per share, respectively. Such
warrants are exercisable at any time prior to June 30, 1998 provided that a
registration statement is in effect for the underlying common shares. The
warrants are redeemable by the Company for .01 per warrant upon 30 days notice
and if the closing bid price for the Company's stock equals or exceeds $4.00
and $6.00 per share for the Series A and Series B Warrants, respectively, at
any time for twenty consecutive trading days. At December 31,1996 all Series
A and Series B Warrants were outstanding. As of February 10,1997, the Company
has not registered the underlying common stock for the Series A and Series B
Warrants.
<PAGE> 11<PAGE>
NOTE 6 - CAPITAL STOCK (Continued)
STOCK OPTIONS
During 1996, the Company issued stock options to key employees and
directors. The option price at the date of grant is determined by the Board
of Directors and is generally tied to the market price of the Company's freely
trading shares. The term for exercising the stock options is generally ten
years. Stock options granted under the Company's stock option incentive plan
vest ratably over a period of three years. Stock option activity is as
follows:
WEIGHTED - AVERAGE
EXERCISE PRICE
Outstanding, December 31, 1995 - $ -
Granted 750,000 $4.06
Exercised (5,000) $2.50
Canceled (13,000) $4.75
Outstanding, December 31, 1996 732,000 $4.06
Stock options exercisable 625,000 $3.94
The Company also has reserved 550,000 stock options for a key employee
which will be granted upon the achievement of certain performance goals.
The terms of the above grants did not result in any compensation cost, as
the exercise prices exceed the estimated fair value of the stock at the date
of grant. It is not possible to reasonably estimate the fair value of the
options due to the lack of marketability of the majority of the Company's
common stock.
STOCK RESERVATIONS
At December 31, 1996 and 1995, common stock was reserved for the following
reasons:
1996 1995
Contingently issuable under earn-out provisions 4,723,686 -
Exercise of Series A and Series B Warrants 1,900,000 -
Conversion of Preferred Stock 524,790 -
Exercise of options related to notes payable 438,379 438,379
Exercise of stock options 732,000 -
Exercise of stock options contingency issuable
under performance goals 550,000 -
8,868,855 438,379
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company's Clean Earth, Inc. subsidiary has defined contribution 401(k)
and profit sharing plans which cover substantially all employees who have met
the eligibility requirements. Employees may contribute up to the maximum
allowable under current regulations to the 401(k). There are no employee
contributions to the profit sharing plan. The Company's contribution to each
plan is at the discretion of the Company. There were no Company contributions
to either plan during 1996 and 1995.
<PAGE> 12<PAGE>
NOTE 8 - ABANDONMENT OF ASSETS
During 1996, the Company abandoned the establishment of its Camden, New
Jersey production facility. As a result the Company recognized a loss of
$199,087 consisting primarily of leasehold improvements and estimated lease
termination costs.
NOTE 9 - INCOME TAXES
The provision for income taxes includes federal and state taxes currently
payable and those deferred because of temporary differences between financial
statement and tax basis of assets and liabilities. The components of the
provision for income taxes for the years ended December 31, 1996 and 1995 are
as follows:
1996 1995
Current:
Federal $(145,529) $357,800
State (37,287) 72,200
(182,816) 430,000
Deferred:
Federal 94,918 (93,800)
State 26,382 (26,200)
121,300 (120,000)
$ (61,516) $310,000
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996 and 1995:
1996 1995
Deferred tax assets:
Operating loss carryforwards $2,299,000 $1,130,000
Property and equipment 198,000 172,000
Accounts and notes receivable 105,000 41,000
Goodwill 7,000 -
Valuation allowance (2,609,000) (1,192,700)
- 150,300
Deferred tax liabilities:
Deferred expenses - 29,000
Net deferred tax assets $ - $ 121,300
The sources of significant temporary differences which give rise to
deferred taxes and their effects are primarily attributable to depreciation,
amortization, common stock issued to employees and operating loss
carryforwards.
For federal tax purposes, the Company has net operating loss carryforwards
of approximately $5,747,000 at December 31, 1996. These losses expire in the
years 2008 through 2011.
<PAGE> 13<PAGE>
NOTE 10 - GAIN ON INVOLUNTARY CONVERSION
During March 1996, fire damaged equipment at one of the Company's
subsidiaries. The extraordinary gain represents the excess of insurance
proceeds received over the loss incurred. The Company and the insurance
carrier have reached a pending final settlement in the amount of an additional
$455,000. This amount has not been recognized in the December 31, 1996
consolidated financial statement as settlement is subject to adjustment and
review by other affected third parties.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company incurred the following expenses to various stockholders and
directors for the years ended December 31, 1996 and 1995:
1996 1995
Administrative and service fees $500,000 $450,000
Loan guarantee fee 220,000 -
Merger costs 91,875 -
Interest expense 52,970 87,186
Rent expense 107,638 66,700
Consulting fees 66,229 -
At December 31, 1996 and 1995, the Company has $200,000 and $24,000,
respectively, of amounts due to stockholders included in accounts payable.
During the year ended December 31, 1996, certain stockholders and
directors loaned the Company $120,000 which was later converted to Series A
Preferred Stock. Each participating stockholder/director also received 5,000
stock options to purchase Company common stock at $2.50 per share.
At December 31, 1996, $113,535 of receivables due from the partners of ECP
are included in accounts and notes receivables. The partners of ECP have
pledged 70,579 shares of their holdings in the Company's common stock as
collateral. At such time as those shares are registered, the partners will
liquidate their holdings and repay the Company. The Company has recorded an
allowance equal to the receivable as there are no plans to register such
shares at this time.
Sales of approximately $153,000 for the year ended December 31, 1995, were
to ECP which is a partnership controlled by an officer/stockholder of the
Company. In February 1996 the Company acquired the net assets of ECP (see
Note 2).
NOTE 12 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, equipment, manufacturing facilities, and
land under non-cancelable operating leases which expire at various dates
through 1999.
Future minimum payments are as follows for the years ending December 31:
1997 $191,000
1998 191,000
1999 70,000
<PAGE> 14<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company leases land at its soil recycling facility at a rental of
$1.00 per ton of soil received with a minimum rental of $50,000 per year.
Rent expense under this lease was $144,915 and $159,762 for the years ended
December 31, 1996 and 1995, respectively. The lease currently expires in 1998
and contains three five year renewal options. The lessor has the right and
option at the time of renewal to require the Company to purchase the property
at a purchase price of $100,000 per acre subject to annual escalations based
on the Consumer Price Index from inception of the lease. The Company currently
leases 7.5 acres of land.
The Company leases certain office space and manufacturing facilities from
entities controlled by individuals who are stockholders. These leases provide
for minimum annual rentals of $96,000 through 1999. The manufacturing
facility lease provides the Company the option to purchase the facility at any
time during the term of the lease. The purchase price is based on a
decreasing sliding scale and was approximately $338,000 and $394,000 at
December 31, 1996 and 1995, respectively.
Rent expense for all operating leases for the years ended December 31,
1996 and 1995 was approximately $525,000 and $412,000, respectively.
COVENANT NOT TO COMPETE
The Company has a covenant not to compete agreement for which the Company
pays $2.00 per ton of soil received for processing. These payments expire
August, 1997. The expense for the covenant not to compete for 1996 and 1995
amounted to $336,546 and $503,980, respectively.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not
have a material effect on the financial position or results of operations of
the Company.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
1996 1995
Cash paid during the year for:
Interest $ 170,252 $ 4,352
Income taxes $ 50,000 $ 210,000
Supplemental schedule of noncash investing and financing activities:
1996 1995
Capital stock issued for acquisitions $224,772 $ -
Stockholder/director loans converted
to capital stock $120,000 $ 351,252
Capital stock issued for deferred expenses $ - $ 135,000
<PAGE> 15<PAGE>
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
The Company acquired the net assets of Earth Care Partners and Duratech
Industries, Inc. for $26,200 during the year ended December 31, 1996. The
details of the acquisitions were as follows:
Fair value of assets acquired $725,217
Liabilities assumed (474,245)
Capital stock issued (224,772)
Cash paid 26,200
Less cash acquired (20,549)
Net cash paid for acquisitions $ 5,651
NOTE 14 - SUBSEQUENT EVENTS
On January 27, 1997, Recycled Plastics Industries, Inc. (RPI) was acquired
and merged into a newly formed wholly-owned subsidiary of the Company. RPI is
engaged in the manufacturing and sale of recycled plastic lumber products.
The stockholders of RPI received $1,200,000 and 1,000,000 shares of the
Company's common stock for a purchase price of $1,700,000 which exceeded the
fair value of the net assets of RPI by approximately $1,341,310. The excess
will be recorded as goodwill and amortized on a straight-line basis over a 40
year period. RPI had revenue of $1,395,322 and net income of $188,903 for the
year ended December 31, 1996.
On February 24, 1997, ARDT, Inc. (ARDT) was acquired by the Company. ARDT
is engaged in environmental consulting and clean-up of contaminated sites
primarily involving water and soils. The stockholders of ARDT received
300,000 shares of the Company's common stock for a purchase price of $150,000
which was less than the fair value of the net assets of ARDT by approximately
$274,000. This difference will be used to reduce to zero the basis of
noncurrent assets. The remaining balance of approximately $147,000 will be
recorded as negative goodwill and amortized over a 40 year period. ARDT had
revenue of $2,328,222 and net income of $382,307 for the year ended December
31, 1996.
For purposes of the acquisitions, the Company assigned a value of $.50 per
share in determining their cost. The value will be adjusted upon the
completion of a valuation of the Company's common stock. The acquisitions
will be accounted for by the purchase method. Accordingly, the results of
operations of RPI and ARDT will be included with those of the Company for
periods subsequent to the date of acquisition.
The unaudited proforma combined results of operations of the Company, RPI,
and ARDT for the year ended December 31, 1996 after giving effect to certain
proforma adjustments are as follows:
Net sales $10,351,000
Loss before extraordinary item $(3,137,000)
Net loss $(3,070,000)
The foregoing unaudited proforma results of operations reflect adjustments
for interest on notes issued to fund the purchase price, amortization of
goodwill, and deprecation on revalued property and equipment. They do not
purport to be indicative of the results of operations which actually would
have resulted had the combination been in effect on January 1, 1996, or of
future results of operations of the consolidated entities.
<PAGE> 16 <PAGE>
No dealer, salesman or other person
is authorized to give any
information or to make any
representations other that those
contained in this Prospectus in
connection with the offer made
hereby. If given or made, such
information or representations must
not be relied upon as having been
authorized by the Company. This
Prospectus does not constitute an
offer to sell or a solicitation of
an offer to buy any of the
securities covered hereby in any
jurisdiction or to any person to
whom it is unlawful to make such
offer or solicitation in such
jurisdiction. Neither the delivery
of this Prospectus nor any sale made
hereunder shall, in any
circumstances, create any
implication that there has been no
change in the affairs of the Company
since the date hereof.
TABLE OF CONTENTS Page
AVAILABLE INFORMATION. . . . . . . 2
PROSPECTUS SUMMARY . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . 5
DILUTION . . . . . . . . . . . . . 9
USE OF PROCEEDS. . . . . . . . . . 10
MARKET INFORMATION & DIVIDEND
POLICY . . . . . . . . . . . 11
MANAGEMENT'S DISCUSSION AND
ANALYSIS . . . . . . . . . . 11
BUSINESS . . . . . . . . . . . . . 14
MANAGEMENT . . . . . . . . . . . . 26
CERTAIN TRANSACTIONS . . . . . . . 33
DESCRIPTION OF SECURITIES. . . . . 35
PLAN OF DISTRIBUTION . . . . . . . 39
LEGAL MATTERS. . . . . . . . . . . 40
EXPERTS. . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . See Index
<PAGE>
U.S. PLASTIC LUMBER CORP.
950,000 Shares
Common Stock
PROSPECTUS
, 1997
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
The statutes, charter provisions, bylaws, contracts or other arrangements
under which controlling persons, directors or officers of the registrant are
insured or indemnified in any manner against any liability which they may
incur in such capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of
the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction, determines upon application that in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections 1 and 2, or in defense of any claim,
issue or matter therein, he must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him
in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court
or advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the act, suit
or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
5. The certificate or articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if
it is ultimately determined by a court of competent jurisdiction that he is
not entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than director of officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court pursuant to
subsection 2 or for the advancement of expenses made pursuant to subsection 5,
may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer, employee
or agent and inures to the benefit of the heirs, executors and administrators
of such a person."
(b) The registrant's Articles of Incorporation limit liability of its
Officers and Directors to the full extent permitted by the Nevada Business
Corporation Act.
ITEM 25. Other Expenses of Issuance and Distribution*
The following table sets forth all estimated costs and expenses, other than
underwriting discounts, commissions and expense allowances, payable by the
registrant in connection with the maximum offering for the securities included
in this registration statement:
Amount
SEC registration fee $ 719.70
Blue sky fees and expenses 5,000.00
Printing and shipping expenses 2,500.00
Legal fees and expenses 45,000.00
Accounting fees and expenses 10,000.00
Transfer and Miscellaneous expenses 11,780.30
-----------
Total $ 75,000.00
* All expenses are estimated except the Commission filing fee.
ITEM 26. Recent Sales of Unregistered Securities
During 1994, the Company (which was then known as Front Street, Inc.), issued
18,750,000 shares (pre-split) in February and 15,000,000 shares (pre-split) in
June, in connection with the acquisitions of Educational Storybooks, Inc. and
one other company, both of which were privately held companies, in stock for
stock exchanges which were intended to be tax free reorganizations under
Section 368(a) of the Internal Revenue Code. Later that same year, these
acquisitions were both rescinded and the stock issued was cancelled. These
transactions were not registered under the Securities Act of 1933 (the "Act")
in reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. These securities were issued
as restricted securities and the certificates were stamped with restrictive
legends to prevent any resale without registration under the Act or in
compliance with an exemption.
In October, 1995, the Company (which was then known as Educational Storybooks
International, Inc.) issued 200,000 shares (pre-split) for $10,000 in a
private placement. This transaction was not registered under the Act in
reliance on the exemption from registration in Section 4(2), as transactions
not involving any public offering. These securities were issued as restricted
securities and the certificates were stamped with restrictive legends to
prevent any resale without registration under the Act or in compliance with an
exemption.
In March, 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), pursuant
to which the Company reverse split its common stock on a 1 for 16 basis, and
then issued 4,196,316 post split shares of its authorized but previously
unissued common stock to the shareholders of Earth Care to acquire all the
issued and outstanding stock of Earth Care in a stock for stock exchange,
which was intended to be a tax free reorganization under Section 368(a) of the
Internal Revenue Code, and was accounted for, for financial reporting
purposes, as an acquisition by Earth Care of the Company. This transaction
was not registered under the Act in reliance on the exemption from
registration in Section 4(6) of the Act, as an offering made to accredited
investors, all of whom were officers and directors of Earth Care and/or
represented that they were otherwise accredited investors. These securities
were issued as restricted securities and the certificates were stamped with
restrictive legends to prevent any resale without registration under the Act
or in compliance with an exemption.
As a condition precedent to the closing of the Earth Care acquisition, the
Company raised $1,000,000 of capital through an offering of its securities.
The offering was completed and the acquisition closed on or about March 28,
1996. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 3(b) of the Act, and Rule 504 of
Regulation D promulgated thereunder, in that securities with an aggregate
offering price not exceeding $1,000,000 were offered and sold by an issuer
that was not subject to the reporting requirements of the Securities Exchange
Act of 1934, and was not an investment company or a company that had no
specified business purpose.
In April, 1996 the Company acquired all of the assets of DuraTech Industries.
The Company issued 24,772 post-split shares of its authorized but previously
unissued common stock to the shareholders of Duratech to acquire all the
issued and outstanding stock of Duratech in a stock for stock exchange which
was intended to be a tax free reorganization under Section 368(a) of the
Internal Revenue Code. This transaction was not registered under the Act in
reliance on the exemption from registration in Section 4(2), as transactions
not involving any public offering. These securities were issued as restricted
securities and the certificates were stamped with restrictive legends to
prevent any resale without registration under the Act or in compliance with an
exemption.
In December, 1996, the Company formed the Clean Earth division, that acquired
in a pooling of interest a wholly owned subsidiary, Clean Earth of New Castle,
Inc. The Company issued 5,400,000 post-split shares of its authorized but
previously unissued common stock to the shareholder of Clean Earth to acquire
all the issued and outstanding stock of Clean Earth in a stock for stock
exchange which was intended to be a tax free reorganization under Section
368(a) of the Internal Revenue Code. This transaction was not registered
under the Act in reliance on the exemption from registration in Section 4(2),
as transactions not involving any public offering. These securities were
issued as restricted securities and the certificates were stamped with
restrictive legends to prevent any resale without registration under the Act
or in compliance with an exemption.
In January, 1997, the Company acquired Recycled Plastics Industries, Inc.
(RPI), located in Green Bay, Wisconsin. The Company paid $1,200,000 cash and
issued 1,000,000 shares of its Common Stock to the shareholders of RPI in the
acquisition. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2), as transactions not involving
any public offering. These securities were issued as restricted securities
and the certificates were stamped with restrictive legends to prevent any
resale without registration under the Act or in compliance with an exemption.
In February, 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting and
clean up of contaminated sites primarily involving water and soils. The
Company issued 300,000 shares of its Common Stock to the former shareholders
of ARDT. This transaction was not registered under the Act in reliance on the
exemption from registration in Section 4(2), as transactions not involving any
public offering. These securities were issued as restricted securities and
the certificates were stamped with restrictive legends to prevent any resale
without registration under the Act or in compliance with an exemption.
During the period from June, 1997 through February, 1997, the Company has
offered and sold 193,970 shares of Class A Preferred Stock to investors at $20
per share, and raised $3,879,400 in proceeds. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2), as transactions not involving any public offering. These
securities were issued as restricted securities and the certificates were
stamped with restrictive legends to prevent any resale without registration
under the Act or in compliance with an exemption.
During 1996, the Company issued a total of 5,565 shares of Common Stock
pursuant to the exercise of outstanding options held by two individuals who
were officers or directors of the Company. In 1997, the Company issued 500
shares to directors for attendance at meetings. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2), as transactions not involving any public offering. These
securities were issued as restricted securities and the certificates were
stamped with restrictive legends to prevent any resale without registration
under the Act or in compliance with an exemption.
During February, 1997, the Company issued 187,500 shares in connection with
and as partial consideration for the licensing agreement with Rutgers
University. These transactions were not registered under the Act in reliance
on the exemption from registration in Section 4(2), as transactions not
involving any public offering. The securities were issued as restricted
securities and certificates were stamped with restrictive legends to prevent
any resale without registration under the Act or compliance with an exemption.
ITEM 27. Exhibits Index
SEC No. Document Exhibit No.
2 Agreement & Plan of Reorganization 2.1
(Earth Care/Educational Storybooks)
3 Articles of Incorporation (Front Street) 3.1
3 Articles of Amendment (Front Street) 3.2
3 Articles of Amendment (Educational Storybooks) 3.3
3 Articles of Incorporation (Educational Res.) 3.4
3 Articles of Merger (Educational Resources and 3.5
U.S. Plastic Lumber Corp.
3 By-Laws 3.6
4 Common Stock Specimen Certificate 4.1
4 Warrant Agreement 4.2
4 Series A Warrant Certificate 4.3
4 Series B Warrant Certificate 4.4
5,24 Opinion & Consent of Counsel 5.1 & 24.1
10 Jeanell Sales Corp. Acquisition Agreement 10.1
10 Duratech Acquisition Agreement 10.2
10 Clean Earth Acquisition Agreement 10.3
10 RPI Acquisition Agreement 10.4
10 ARDT Acquisition Agreement 10.5
10 Employment Agreement - Mark Alsentzer 10.6
10 Employment Agreement - Harold Gebert 10.7
10 Employment Agreement - David Farrow 10.8
10 Rutgers Licensing Agreement 10.9
10 Lease Agreements (to be filed by amendment)
23 Consent of Accountants 23.1
27 Financial Data Schedule 27.1
ITEM 28. Undertakings
The registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) Include any additional or changed material information on the plan of
distribution; and
(iii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement.
(2) For determining any liability under the Securities Act, treat each post-
effective amendment as a new Registration Statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant 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 registrant 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 Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Boca Raton , State of Florida , on March 6 , 1997.
U.S. PLASTIC LUMBER CORP.
By: /s/ Mark S. Alsentzer
Mark S. Alsentzer, President (Chief Executive Officer)
By: /s/ Lionel A. Marquis
Lionel A. Marquis, (Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Thomas G. Kimble or Van L. Butler, the
undersigned's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing, requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature: /s/ Harold H. Gebert Date: March 6 , 1997
Harold H. Gebert, Chairman & Director
Signature: /s/ David A. Farrow Date: March 6 , 1997
David A. Farrow, Vice Chairman & Director
Signature: /s/ Mark S. Alsentzer Date: March 6 , 1997
Mark S. Alsentzer, President & Director
Signature: /s/ Raymond J. Kiernan Date: March 6 , 1997
Raymond J. Kiernan, Director
Signature: /s/ Lester E. Moody Date: March 6 , 1997
Lester E. Moody, Director
Signature: /s/ James Blosser Date: March 6 , 1997
James Blosser, Director
Signature: /s/ Roger Zitrin Date: March 6 , 1997
Roger Zitrin, Director
Signature: /s/ August C. Schultes Date: March 6 , 1997
August C. Schultes, III, Director
Signature: /s/ Gary J. Ziegler Date: March 6 , 1997
Gary J. Ziegler, Director
Signature: /s/ Stephen M. Groth Date: March 6 , 1997
Stephen M. Groth, Director
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
EDUCATIONAL STORYBOOKS INTERNATIONAL, INC.,
AND
EARTH CARE GLOBAL HOLDINGS, INC.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the
"Agreement") is entered into effective as of this day of
December, 1995, by and among Educational Storybooks
International, Inc., a Nevada corporation (hereinafter "ESB");
Michael P. Dixon, the sole officer and director of ESB,
(hereinafter "Dixon") and Earth Care Global Holdings, Inc., a
Florida corporation (hereinafter "Earth Care").
RECITALS:
WHEREAS, ESB is in the process of forming a wholly-owned
subsidiary in the State of Nevada under the name Educational
Resources, Inc., (hereinafter "ERI") and the boards of directors
of ESB, ERI and Earth Care, respectively, deem it advisable and
in the best interests of such corporations and their respective
shareholders that ERI merge with and into Earth Care pursuant to
this Agreement and the Plan and Articles of Merger in the form
attached hereto as Exhibit "A" and pursuant to applicable
provisions of Florida and Nevada law (such transaction hereafter
referred to as the "Merger"). ERI and Earth Care are sometimes
hereinafter collectively referred to as the "Constituent
Corporations".
WHEREAS, ERI shall have an authorized capitalization
consisting of 5,000 shares of no par value common stock, of which
1,000 shares shall be issued and outstanding and owned by ESB as
of the date hereof; and Earth Care has an authorized
capitalization consisting of 1,000,000 shares of preferred stock,
$.01 par value, none of which shares are outstanding and
10,000,000 shares of common stock, $.01 par value ("Earth Care
Common Stock"), of which 743,137 shares shall be issued and
outstanding as of the Closing hereof. All of the outstanding
shares of Earth Care Common Stock are owned by the shareholders
of Earth Care as set forth on the attached Exhibit "B" (hereafter
"Earth Care Shareholders").
NOW THEREFORE, for the mutual consideration set out herein,
and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Reorganization. The parties hereto do hereby
agree that ERI shall be merged with and into Earth Care upon the
terms and conditions set forth herein. It is the intention of
the parties hereto that this transaction qualify as a tax-free
reorganization under Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended, and related sections thereunder.
2. Terms of Merger. In accordance with the provisions of
this Agreement and the requirements of applicable law, ERI shall
be merged with and into Earth Care as of the Effective Date (the
terms "Closing" and "Effective Date" are defined in Section 7
hereof),
Earth Care shall be the surviving corporation (the "Surviving
Corporation") and the separate existence of ERI shall cease when
the Merger shall become effective. Consummation of the Merger
shall be upon the following terms and subject to the following
conditions:
(a) Corporate Existence
(1) At the Effective Date, the Surviving Corporation
shall continue its corporate existence as a Florida
corporation and (i) it shall thereupon and thereafter
possess all rights, privileges, powers, franchises and
property (real, personal and mixed) of each of the
Constituent Corporations; (ii) all debts due to either of
the Constituent Corporations, on whatever account, all
causes in action and all other things belonging to either of
the Constituent Corporations shall be taken and deemed to be
transferred to and shall be vested in the Surviving
Corporation by virtue of the Merger without further act or
deed; and (iii) all rights of creditors and all liens upon
any property of any of the Constituent Corporations shall be
preserved unimpaired, limited in lien to the property
affected by such liens immediately prior to the Effective
Date, and all debts, liabilities and duties of the
Constituent Corporations shall thenceforth attach to the
Surviving Corporation.
(2) At the Effective Date, (i) the Articles of
Incorporation and the By-laws of Earth Care, as existing
immediately prior to the Effective Date, shall be the
Articles of Incorporation and By-Laws of the Surviving
Corporation; (ii) the members of the Board of Directors of
Earth Care holding office immediately prior to the Effective
Date shall remain as the members of the Board of Directors
of the Surviving Corporation (if on or after the Effective
Date a vacancy exists on the Board of Directors of the
Surviving Corporation, such vacancy may thereafter be filled
in a manner provided by law and the by-laws of the Surviving
Corporation); and (iii) until the Board of Directors of the
Surviving Corporation shall otherwise determine, all persons
who hold offices of Earth Care at the Effective Date shall
hold the same offices of the Surviving Corporation.
(b) re-Merger Events and Recapitalizations.
(1) ESB shall have completed the sale of 700,000 post
split shares of its common stock in a limited offering (the
"Limited Offering") for an aggregate amount of $1,000,000,
which funds shall be on deposit in an escrow account prior
to Closing and shall be disbursed at Closing simultaneous
with the acquisition of Earth Care.
<PAGE>
(2) ESB shall have completed the distribution to its
existing shareholders of 950,000 Series A and 950,000 Series
B Warrants to purchase shares of ESB common stock at $2.50
and $4.50 per share, respectively, exercisable at any time
prior to June 30, 1998. The form of the Series A and Series
B Warrants are attached hereto as Exhibit "D". The Warrants
shall not be exercisable unless a current registration
statement is in effect. The Warrants shall be redeemable at
$.01 per Warrant upon 30 day written notice and if the
closing bid price of the common stock equals or exceeds
$4.00 per share for the Series A Warrant and $6.00 per share
for the Series B Warrant at any time for twenty consecutive
trading days.
(3) ESB shall have effectuated a recapitalization
involving a 1 for 16 reverse stock split (the "ESB Reverse
Stock Split") wherein at or prior to closing the Merger, it
shall have 950,000 shares of its common stock issued and
outstanding and no other shares of capital stock issued or
outstanding not taking into account shares sold in the
Limited Offering.
(4) Earth Care shall have completed the issuance of
its shares of common stock including conversion of notes,
payment for expenses, payment for employee compensation,
rights offering and other similar matters as set forth on
Exhibit "B", so that it shall have 743,197 shares
outstanding at the Closing including 20,000 shares issued to
Trinity American Corp.
(c) Conversion of Securities.
As of the Effective Date and without any action on the
part of ESB, ERI, Earth Care or the holders of any of the
securities of any of these corporations each of the following
shall occur:
(1) Immediately prior to Closing, Earth Care shall
have 743,197 shares of Earth Care Common Stock outstanding.
Each share of Earth Care Common Stock issued and outstanding
immediately prior to the Effective Date shall be converted
into 5.6463 shares of ESB Common Stock (after giving effect
to the ESB Reverse Stock Split) or an aggregate of 4,196,316
ESB shares. The holders of these 743,197 Earth shares of
Common Stock are hereinafter referred to as the "Earth Care
Historical Shareholders. All such shares of Earth Care
Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each
certificate previously evidencing any such shares shall
thereafter represent the right to receive, upon the
surrender of such certificate in accordance with the
provisions of Section 3 hereof, certificates evidencing such
number of shares of ESB Common Stock into which such shares
of Earth Care Common Stock were converted. The holders of
such certificates previously evidencing shares of Earth Care
Common Stock Earth Care outstanding immediately prior to the
Effective Date shall cease to have any rights with respect
to such shares of Earth Care Common Stock except as
otherwise provided herein or by law;
(2) 353,684 shares of ESB Common Stock shall be
reserved for issuance upon exercise of an existing option
held by Magellan Finance Corp. (the "Magellan Option"). In
the event the Magellan Option is not exercised in whole or
in part, then those shares reserved for the Magellan Option
but not purchased by exercise of said option shall be issued
on a pro rata basis to the Earth Care Historical
Shareholders in proportion to the Earth Care shares they
owned at Closing. It is agreed that the Magellan Option
expires on December 31, 1996.
(3) Any shares of Earth Care Common Stock held in the
treasury of Earth Care immediately prior to the Effective
Date shall automatically be canceled and extinguished
without any conversion thereof and no payment shall be made
with respect thereto;
(4) Each share of capital stock of ERI issued and
outstanding immediately prior to the Effective Date shall be
converted into one share of common stock of the Surviving
Corporation and thereafter each stock certificate of ERI
shall evidence ownership of shares of common stock of the
Surviving Corporation;
(5) The 950,000 shares of ESB Common Stock (after
giving effect to the ESB Reverse Stock Split) previously
issued and outstanding prior to the Merger will remain
outstanding and the 700,000 shares of ESB Common Stock
(after giving effect to the ESB Reverse Stock Split) sold in
the Limited Offering shall be issued at Closing;
(6) Earth Care shall have no other securities or
instruments convertible into or exercisable for shares of
Earth Care Common Stock except for convertible promissory
notes issued in the private placement.
(d) Post-Merger Events.
Immediately after the Effective Date, ESB shall file an
amendment to its articles of incorporation with the Secretary of
State of the State of Nevada in substantially the form attached
hereto as Exhibit "D" effecting the amendment to its certificate
of incorporation to change its name to "U.S. Plastic Lumber
Corp." or such other name as is selected by Earth Care and to
accomplish the other matters agreed to by the parties hereto.
(e) Other Matters.
(1) Except for the recapitalization of ESB, including
the ESB Reverse Stock Split, there shall be no stock
dividend, stock split, recapitalization, or exchange of
shares with respect to or rights issued in respect of, ESB's
capital stock after the date hereof and there shall be no
dividends paid on ESB's capital stock after the date hereof,
in each case through and including the Effective Date.
(2) Earth Care shall have received all requisite
director and shareholder approval of all matters set forth
herein and no shareholder of Earth Care shall have exercised
any dissenters rights under applicable corporate law.
(3) ESB shall have received all requisite shareholder
approval of the matters set forth herein.
3. Delivery of Shares; Exchange of Other Securities. On or
as soon as practicable after the Effective Date, Earth Care will
use its best efforts to cause the Earth Care Stockholders to
surrender for cancellation certificates representing their shares
of Earth Care Common Stock, against delivery of certificates
representing the shares of ESB Common Stock for which the shares
of Earth Care Common Stock are to be converted in the Merger.
Until surrendered and exchanged as herein provided, each
outstanding certificate which, prior to the Effective Date,
represented a Earth Care certificate shall be deemed for all
corporate purposes to evidence ownership of the same number of
shares of ESB Common Stock into which the Earth Care certificate
shall have been so converted.
4. Earn Out Shares. The Earth Care Historical Shareholders
shall be entitled to receive on a pro rata basis an aggregate of
2,000,000 additional shares of ESB common stock at any time prior
to December 31, 2000, in the event that Earth Care, on a
consolidated basis, reaches net sales (less returns) or
production of at least 2,000,000 pounds of plastic lumber product
per month for three consecutive months. These shares shall be
issued to the Earth Care Historical Shareholders on the basis of
2.6911 shares for every one Earth Care share of Common Stock they
owned at Closing.
5. Representations of Earth Care. Earth Care hereby
represents and warrants as follows with respect to Earth Care and
its subsidiaries which warranties and representations shall also
be true as of the Effective Date:
(a) Except as noted on Exhibit "B", the Earth Care
Stockholders listed on the attached Exhibit "B" are the sole
owners of record and beneficially of the issued and
outstanding securities of Earth Care.
(b) Earth Care has no outstanding or authorized
capital stock, warrants, options or convertible securities
other than as described in Exhibit B, attached hereto.
(c) The current unaudited financial statements as of
September 30, 1995, and the audited consolidated financial
statements as of December 31, 1994 and 1993, of Earth Care
which have been delivered to ESB (hereinafter collectively
referred to as the "Earth Care Financial Statements") are
complete, accurate and fairly present the financial
condition of Earth Care as of the dates thereof and the
results of its operations for the periods covered, subject,
in the case of the unaudited interim statements, to normal
year-end audit adjustments. There are no material
liabilities or obligations, either fixed or contingent, not
disclosed in the Earth Care Financial Statements or in any
exhibit thereto or notes thereto other than contracts or
obligations in the ordinary course of business; and no such
contracts or obligations in the ordinary course of business
constitute liens or other liabilities which materially alter
the financial condition of Earth Care as reflected in the
Earth Care Financial Statements. Earth Care has good title
to all assets shown on the Earth Care Financial Statements
subject only to dispositions and other transactions in the
ordinary course of business, the disclosures set forth
therein and liens and encumbrances of record. The year end
audited financial statement of Earth Care for the years
ended December 31, 1994 and 1993, have been prepared in
accordance with generally accepted accounting principles
consistently applied (except as may be indicated therein or
in the notes thereto).
(d) Since September 30, 1995, there have not been any
material adverse changes in the financial position of Earth
Care except changes arising in the ordinary course of
business, which changes will in no event materially and
adversely affect the financial position of Earth Care.
(e) Earth Care is not a party to any material pending
litigation (other than as described in writing on an exhibit
attached hereto) or, to its best knowledge, any governmental
investigation or proceeding, not reflected in the Earth Care
Financial Statements, and to its best knowledge, no material
litigation, claims, assessments or any governmental
proceedings are threatened against Earth Care.
(f) Earth Care is in good standing in its state of
incorporation, and is in good standing and duly qualified to
do business in each state where required to be so qualified
except where the failure to so qualify would have no
material negative impact on Earth Care.
(g) Earth Care has (or, by the Effective Date, will
have filed) all material tax, governmental and/or related
forms and reports (or extensions thereof) due or required to
be filed and has (or will have) paid or made adequate
provisions for all taxes or assessments which have become
due as of the Effective Date.
(h) Earth Care has not materially breached any
material agreement to which it is a party. Earth Care has
previously given ESB copies or access thereto of all
material contracts, commitments and/or agreements to which
Earth Care is a party including all relationships or
dealings with related parties or affiliates.
(i) Earth Care has no subsidiary corporations except
Earth Care Products of America, Inc., Earth Care Products of
Tennessee, Inc. and Earth Care Products of New Jersey, Inc.
(j) Earth Care has made its corporate financial
records, minute books, and other corporate documents and
records available for review to present management of ESB
prior to the Effective Date, during reasonable business
hours and on reasonable notice.
(k) The execution of this Agreement does not
materially violate or breach any material agreement or
contract to which Earth Care is a party and has been duly
authorized by all appropriate and necessary corporate action
and Earth Care, to the extent required, has obtained all
necessary approvals or consents required by any agreement to
which Earth Care is a party.
(l) All information regarding Earth Care which has
been provided by Earth Care for use by ESB in its proxy
statement or otherwise is true, complete and accurate in all
material respects.
6. Representations of ESB. ESB, ERI and Dixon hereby
jointly and severally represent and warrant as follows, each of
which representations and warranties shall continue to be true as
of the Effective Date:
(a) As of the Effective Date, the shares of ESB Common
Stock, to be issued and delivered to the Earth Care
Shareholders hereunder will, when so issued and delivered,
constitute, duly authorized, validly and legally issued
shares of ESB capital stock, fully-paid and nonassessable.
(b) ESB Common Stock issuable upon exercise of Assumed
Securities as defined herein has been duly authorized for
issuance and reserved by ESB and will, when issued, against
payment therefor, be validly issued and outstanding and
fully paid and nonassessable.
(c) ESB and ERI have the corporate power to enter into
this Agreement and to perform their respective obligations
hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby
have been duly authorized by the respective Boards of
Directors of ESB and ERI. The execution and performance of
this Agreement will not constitute a material breach of any
agreement, indenture, mortgage, license or other instrument
or document to which ESB or ERI is a party and will not
violate any judgment, decree, order, writ, rule, statute, or
regulation applicable to ESB, ERI or their properties. The
execution and performance of this Agreement will not violate
or conflict with any provision of the respective
certificates of incorporation or by-laws of ESB or ERI.
(d) ESB has delivered to Earth Care a true and
complete copy of its unaudited financial statements for the
nine months ended September 30, 1995, and audited financial
statements for the year ended December 31, 1994 ("ESB
Financial Statements"). The ESB Financial Statements have
been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and
fairly present the financial position of ESB as of the dates
thereof and the results of its operations and changes in
financial position for the periods then ended subject, in
the case of the unaudited interim financial statements, to
normal year-end audit adjustments. ERI has no financial
statements because it is newly formed for the purpose of
effectuating this Merger and it has no assets, liabilities,
contracts or obligations of any kind. ESB has no
subsidiaries except for ERI, and ERI has no subsidiaries.
(e) Since September 30, 1995, there have not been any
material adverse changes in the financial condition of ESB.
(f) Neither ESB nor ERI is a party to or the subject
of any pending litigation, claims, or governmental
investigation or proceeding not reflected in the ESB
Financial Statements or otherwise disclosed herein, and
there are no lawsuits, claims, assessments, investigations,
or similar matters, to the best knowledge of Dixon,
threatened or contemplated against or affecting ESB, or its
properties.
(g) ESB and ERI are each duly organized, validly
existing and in good standing under the laws of the
jurisdiction of their incorporation; each has the corporate
power to own its property and to carry on its business as
now being conducted and is duly qualified to do business in
any jurisdiction where so required except where the failure
to so qualify would have no material negative impact.
(h) ESB and ERI have filed all federal, state, county
and local income, excise, property and other tax,
governmental and/or related returns, forms, or reports,
which are due or required to be filed by it prior to the
date hereof and have paid or made adequate provision in the
ESB Financial Statements for the payment of all taxes, fees,
or assessments which have or may become due pursuant to such
returns or pursuant to any assessments received. Neither
ESB nor ERI is delinquent or obligated for any tax, penalty,
interest, delinquency or charge.
(i) ESB's authorized capital stock shall, at Closing,
consist of: (i) 50,000,000 shares of Common Stock, $.0001
par value, of which 950,000 shares shall be issued and
outstanding, and 5,000,000 shares of $.001 par value
preferred stock, no shares of which shall be outstanding
(not considering the 700,000 shares to be sold in the
Limited Offering). ERI's capitalization shall consist of
5,000 shares of no par value common stock ("ERI's Common
Stock"), of which 1,000 shares shall be outstanding, all of
which shall be owned by ESB, free and clear of all liens,
claims and encumbrances. All outstanding shares of capital
stock of ESB are validly issued, fully paid and
nonassessable. There are no existing options, calls,
warrants, preemptive rights or commitments of any character
relating to the issued or unissued capital stock or other
securities of either ESB or ERI.
(j) ESB and ERI have (and at the Closing they will
have) disclosed in writing all events, conditions and facts
materially affecting the business, financial conditions or
results of operations of either ESB or ERI.
(k) The corporate financial records, minute books, and
other documents and records of ESB and ERI have been made
available to Earth Care prior to the Closing.
(l) ESB has not breached, nor is there any pending, or
to the knowledge of management, any threatened claim that
ESB has breached, any of the terms or conditions of any
agreements, contracts or commitments to which it is a party
or by which it or its properties is bound. The execution
and performance hereof will not violate any provisions of
applicable law or any agreement to which ESB is subject.
ESB hereby represents that it is not a party to any material
contract or commitment other than appointment documents with
its transfer agent, and that it has disclosed to Earth Care
all relationships or dealings with related parties or
affiliates.
(m) ESB has complied with the provisions for
registration under the Securities Act of 1933 and all
applicable blue sky laws in connection with its initial
public stock offering. There are no outstanding, pending or
threatened stop orders or other actions or investigations
relating thereto.
(n) The ESB Common Stock is eligible for quotation on
the NASD Electronic Bulletin Board and there are no stop
orders in effect with respect thereto.
(o) All information regarding ESB which has been
provided to Earth Care, will be used in the ESB Proxy
Statement or otherwise used in connection with the Limited
Offering is true, complete and accurate in all material
respects.
7. Closing. The Closing of the transactions contemplated
herein shall take place on such date (the "Closing") as mutually
determined by the parties hereto when all conditions precedent
have been met and all required documents have been delivered,
which Closing shall be no later than February 15, 1996, unless
extended by mutual consent of all parties hereto. The "Effective
Date" of the Merger shall be that date on which executed copies
of the attached Plan and Articles of Merger are filed with the
Secretary of State of Florida and Nevada.
8. Conditions Precedent to the Obligations of Earth Care.
All obligations of Earth Care under this Agreement are subject to
the fulfillment, prior to or as of the Closing and/or the
Effective Date, as indicated below, of each of the following
conditions:
(a) The representations and warranties by or on behalf
of Dixon, ESB, and ERI contained in this Agreement or in any
certificate or document delivered pursuant to the provisions
hereof shall be true in all material respects at and as of
the Closing and Effective Date as though such
representations and warranties were made at and as of such
time.
(b) ESB and ERI shall have performed and complied with
all covenants, agreements, and conditions set forth in, and
shall have executed and delivered all documents required by
this Agreement to be performed or complied with or executed
and delivered by them prior to or at the Closing.
(c) On or before the Closing, the board of directors
of ESB and ERI, and ESB as sole shareholder of ERI shall
have approved in accordance with applicable state
corporation law the execution and delivery of this Agreement
and the consummation of the transactions contemplated
herein.
(d) On or before the Closing Date, ESB and ERI shall
have delivered certified copies of resolutions of the sole
shareholder and sole director of ERI and of the board of
directors and shareholders of ESB approving and authorizing
the execution, delivery and performance of this Agreement
and authorizing all of the necessary and proper action to
enable ESB and ERI to comply with the terms of this
Agreement including the election of Earth Care's nominees to
the Board of Directors of ESB and all matters outlined
herein.
(e) ESB's stockholders shall have duly approved all
applicable matters described in this Agreement in accordance
with applicable law.
(f) ESB shall have raised at least $1,000,000 in its
Limited Offering.
(g) The Merger shall be permitted by applicable state
law and ESB shall have sufficient shares of its capital
stock authorized to complete the Merger.
(h) At Closing, the existing sole officer and director
of ESB shall have resigned in writing from all positions as
a director and officer of ESB upon the election and
appointment of the Earth Care nominees.
(i) At the Closing, all instruments and documents
delivered to Earth Care Shareholders pursuant to the
provisions hereof shall be reasonably satisfactory to legal
counsel for Earth Care.
(j) At the Closing, upon consummation of the Merger,
ESB shall have the authorized capital as described in
paragraph 6(i) hereof.
(k) The shares of restricted ESB capital stock to be
issued to Earth Care Shareholders at Closing will be validly
issued, nonassessable and fully-paid under Nevada
corporation law and will be issued in a nonpublic offering
and isolated transaction in compliance with all federal,
state and applicable securities laws.
(l) Earth Care shall have received the advice of its
tax advisor that this transaction is a tax free
reorganization as to the exchanging Earth Care shareholders.
(m) Earth Care shall have received all necessary and
required approvals and consents from required parties and
its shareholders.
(n) At the Closing, ESB and ERI shall have delivered
to Earth Care an opinion of its counsel dated as of the
Closing to the effect that:
(i) ESB and ERI, each is a corporation duly
organized, validly existing and in good standing under
the laws of the jurisdiction of incorporation;
(ii) This Agreement has been duly authorized,
executed and delivered by ESB and ERI and is a valid
and binding obligation of ESB and ERI enforceable in
accordance with its terms;
(iii) ESB and ERI each through its Board of
Directors and stockholders have taken all corporate
action necessary for performance under this Agreement;
(iv) The documents executed and delivered to
Earth Care and Earth Care Shareholders hereunder are
valid and binding in accordance with their terms and
vest in Earth Care Shareholders, as the case may be,
all right, title and interest in and to the shares of
ESB's Common Stock to be issued pursuant to Section 2
hereof, and the shares of ESB capital stock when issued
will be duly and validly issued, fully-paid and
nonassessable; and
(v) ESB and ERI each has the corporate power to
execute, deliver and perform under this Agreement.
(vi) Legal counsel for ESB and ERI is not aware
of any liabilities, claims or lawsuits involving ESB or
ERI.
(vii) In connection with the issuance of ESB
securities to persons who were purchasers in the
private placement The shares of ESB Common Stock
issuable upon conversion of the Convertible Promissory
Notes have been duly authorized for issuance and
reserved by ESB and will, when issued and delivered,
against payment of the consideration therefor, be
validly issued and outstanding, fully paid and
nonassessable, and will not be subject to preemptive
rights.
9. Conditions Precedent to the Obligations of ESB and
ERI. All obligations of ESB and ERI under this Agreement are
subject to the fulfillment, prior to or at the Closing, of each
of the following conditions:
(a) The representations and warranties by Earth Care
contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof shall
be true in all material respects at and as of the Closing as
though such representations and warranties were made at and
as of such time.
(b) Earth Care shall have performed and complied with,
in all material respects, all covenants, agreements, and
conditions required by this Agreement to be performed or
complied with by them prior to or at the Closing;
(c) Earth Care shall deliver on behalf of its
shareholders other than purchasers in the private placement,
a letter commonly known as an "Investment Letter," in
substantially the form attached hereto as Exhibit "F",
acknowledging that the shares of ESB Common Stock are being
acquired for investment purposes.
(d) ESB shall have received at least $1,000,000 in its
Limited Offering.
(e) Earth Care shall deliver an opinion of its legal
counsel to the effect that:
(i) Earth Care and its subsidiaries is each a
corporation duly organized, validly existing and in
good standing under the laws of the state of its
incorporation and is duly qualified to do business in
any jurisdiction where so required except where the
failure to so qualify would have no material adverse
impact on the company;
(ii) Earth Care and its subsidiaries each has the
corporate power to carry on its business as now being
conducted; and
(iii) This Agreement has been duly authorized,
executed and delivered by Earth Care.
10. Indemnification. For a period of two years from the
Closing Dixon, ESB and ERI agree to jointly and severally
indemnify and hold harmless Earth Care, and Earth Care agrees to
indemnify and hold harmless Dixon, ESB and ERI, at all times
after the date of this Agreement against and in respect of any
liability, damage or deficiency, all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses including
attorney's fees incident to any of the foregoing, resulting from
any material misrepresentations made by an indemnifying party to
an indemnified party, an indemnifying party's breach of covenant
or warranty or an indemnifying party's nonfulfillment of any
agreement hereunder, or from any material misrepresentation in or
omission from any certificate furnished or to be furnished
hereunder.
11. Nature and Survival of Representations. All
representations, warranties and covenants made by any party in
this Agreement shall survive the Closing and the consummation of
the transactions contemplated hereby for two years from the
Closing. All of the parties hereto are executing and carrying
out the provisions of this Agreement in reliance solely on the
representations, warranties and covenants and agreements
contained in this Agreement and not upon any investigation upon
which it might have made or any representation, warranty,
agreement, promise or information, written or oral, made by the
other party or any other person other than as specifically set
forth herein.
12. Documents at Closing. At the Closing, the following
documents shall be delivered:
(a) Earth Care will deliver, or will cause to be delivered,
to ESB the following:
(i) a certificate executed by the President and
Secretary of Earth Care to the effect that all
representations and warranties made by Earth Care under
this Agreement are true and correct as of the Closing,
the same as though originally given to ESB or ERI on
said date;
(ii) a certificate from the state of
incorporation of Earth Care dated at or about the
Closing to the effect that Earth Care is in good
standing under the laws of said state;
(iii) Investment Letters in the form attached
hereto as Exhibit "F" executed by each historical Earth
Care Shareholder;
(iv) such other instruments, documents and
certificates, if any, as are required to be delivered
pursuant to the provisions of this Agreement;
(v) executed copies of the Plan and Articles of
Merger for filing; and certified copies of resolutions
by the shareholders and directors of Earth Care
authorizing this transaction; and
(vi) all other items, the delivery of which is a
condition precedent to the obligations of ESB and ERI,
as set forth herein.
(vii) the legal opinion required by Section 9(e)
hereof.
(b) ESB and ERI will deliver or cause to be delivered to
Earth Care:
(i) stock certificates and warrants representing
those securities of ESB to be issued as a part of the
exchange as described in Section 2 hereof;
(ii) a certificate of the President/Secretary of
ESB and ERI, respectively, to the effect that all
representations and warranties of ESB and ERI made
under this Agreement are true and correct as of the
Closing, the same as though originally given to Earth
Care on said date;
(iii) certified copies of resolutions adopted by
ESB's and ERI's Board of Directors and ESB's and ERI's
Stockholders authorizing the Merger and all related
matters;
(iv) certificates from the jurisdiction of
incorporation of ESB and ERI dated at or about the
Closing Date that each of said companies are in good
standing under the laws of said state;
(v) opinion of ESB's counsel as described in
Section 9(n) above;
(vi) such other instruments and documents as are
required to be delivered pursuant to the provisions of
this Agreement;
(vii) resignation of all of the officers and
directors of ESB and ERI; and
(viii) all other items, the delivery of which is
a condition precedent to the obligations of Earth Care,
as set forth in Section 8 hereof.
13. Finder's Fees. Dixon, ESB and ERI, jointly and
severally, represent and warrant to Earth Care, and Earth Care
represents and warrants to each of Dixon, ESB and ERI, that none
of them, or any party acting on their behalf, has incurred any
liabilities, either express or implied, to any "broker" of
"finder" or similar person in connection with this Agreement or
any of the transactions contemplated hereby. In this regard,
Dixon, ESB and ERI, jointly and severally, on the one hand, and
Earth Care on the other hand, will indemnify and hold the other
harmless from any claim, loss, cost or expense whatsoever
(including reasonable fees and disbursements of counsel) from or
relating to any such express or implied liability.
14. Miscellaneous.
(a) Further Assurances. At any time, and from time to
time, after the Effective Date, each party will execute such
additional instruments and take such action as may be
reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this
Agreement.
(b) Waiver. Any failure on the part of any party
hereto to comply with any of its obligations, agreements or
conditions hereunder may be waived in writing by the party
to whom such compliance is owed.
(c) Termination. All obligations hereunder may be
terminated at the discretion of either party's Board of
Directors if (i) the closing conditions specified in
Sections 8 and 9 are not met by January 31, 1996, unless
extended, or (ii) any of the representations and warranties
made herein have been materially breached.
(d) Amendment. This Agreement may be amended only in
writing as agreed to by all parties hereto.
(e) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have
been given if delivered in person or sent by prepaid first
class registered or certified mail, return receipt
requested.
(f) Headings. The section and subsection headings in
this Agreement are inserted for convenience only and shall
not affect in any way the meaning or interpretation of this
Agreement.
(g) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Binding Effect. This Agreement shall be binding
upon the parties hereto and inure to the benefit of the
parties, their respective heirs, administrators, executors,
successors and assigns.
(i) Entire Agreement. This Agreement and the attached
Exhibits including the Plan and Articles of Merger attached
hereto as Exhibit "A" is the entire agreement of the parties
covering everything agreed upon or understood in the
transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of
any kind as conditions or inducements to the execution
hereof.
(j) Time. Time is of the essence.
(k) Severability. If any part of this Agreement is
deemed to be unenforceable the balance of the Agreement
shall remain in full force and effect.
(l) Responsibility and Costs. Regardless of whether
the Merger is consummated all fees, expenses and out-of-
pocket costs, including without limitation, fees and
disbursements of counsel, financial advisors and
accountants, incurred by the parties hereto shall be borne
solely and entirely by the party that has incurred such
costs and expenses.
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
EDUCATIONAL STORYBOOKS INTERNATIONAL,INC.
By: /s/ Michael P. Dixon
Michael P. Dixon, President/Secretary
/s/ Michael P. Dixon
Michael P. Dixon, individually
EARTH CARE GLOBAL HOLDINGS, INC.
By: /s/ Harold H. Gebert
Harold H. Gebert, Chairman
ARTICLES OF INCORPORATION
OF
FRONT STREET, INC.
WE, THE UNDERSIGNED natural persons of the age of twenty-one
(21) years or more, acting as incorporators of a corporation
under the Nevada Business Corporation Act, adopt the following
Articles of Incorporation for such corporation.
ARTICLE I - NAME
The name of the corporation is Front Street, Inc.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is
engaged are:
(a) To engage in the specific business of looking for
business acquisitions and related items; also the
business of making investments, including
investments in, purchase and ownership of any and
all kinds of property, assets or business, whether
alone or in conjunction with others. Also, to
acquire, develop, explore and otherwise deal in and
with all kinds of real and personal property and all
related activities, and for any and all other lawful
purposes.
(b) To acquire by purchase, exchange, gift, bequest,
subscription, or otherwise; and to hold, own,
mortgage, pledge, hypothecate, sell, assign,
transfer, exchange, or otherwise dispose of or deal
in or with its own corporate securities or stock or
other securities including, without limitations, any
shares of stock, bonds, debentures, notes,
mortgages, or other obligations, and any
certificates, receipts or other instruments
representing rights or interests therein on any
property or assets created or issued by any person,
firm, associate, or corporation, or instrumen-
talities thereof; to make payment therefor in any
lawful manner or to issue in exchange therefor its
unreserved earned surplus for the purchase of its
own shares, and to exercise as owner or holder of
any securities, any and all rights, powers, and
privileges in respect thereof.
(c) To do each and everything necessary, suitable, or
proper for the accomplishment of any of the purposes
or the attainment of any one or more of the subjects
herein enumerated, or which may, at any time, appear
conducive to or expedient for the protection or
benefit of this corporation, and to do said acts as
fully and to the same extent as natural persons
might, or could do in any part of the world as
principals, agents, partners, trustees, or
otherwise, either alone or in conjunction with any
other person, association, or corporation.
(d) The foregoing clauses shall be construed both as
purposes and powers and shall not be held to limit
or restrict in any manner the general powers of the
corporation, and the enjoyment and exercise thereof,
as conferred by the laws of the State of Nevada; and
it is the intention that the purposes and powers
specified in each of the paragraphs of this Article
III shall be regarded as independent purposes and
powers.
ARTICLE IV - STOCK
The aggregate number of shares which this corporation
shall have authority to issue is 50,000,000 shares of Common
Stock having a par value of $.0001 per share. All common
stock of the corporation shall be of the same class, common,
and shall have the same rights and preferences. Fully-paid
stock of this corporation shall not be liable to any further
call or assessment. The corporation shall also have authority
to issue 5,000,000 shares of Preferred Stock having a par
value of $.001 per share and to be issued with such rights,
preferences and designations and in such series as determined
by the Board of Directors of the corporation.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the
affirmative vote of "a majority" of the shares entitled to
vote on each such amendment.
ARTICLE VI - SHAREHOLDERS' RIGHTS
The authorized and treasury stock of this corporation may
be issued at such time, upon such terms and conditions and for
such consideration as the Board of Directors shall determine.
Shareholders shall not have pre-emptive rights to acquire
unissued shares of the stock of this corporation.
ARTICLE VII - INITIAL OFFICE AND AGENT
The Corporate Trust Company of Nevada
One East First Street
Reno, Nevada 89501
ARTICLE VIII - DIRECTORS
The directors are hereby given the authority to do any
act on behalf of the corporation by law and in each instance
where the Business Corporation Act provides that the directors
may act in certain instances where the Articles of
Incorporation authorized such action by the directors, the
directors are hereby given authority to act in such instances
without specifically numerating such potential action or
instance herein.
The directors are specifically given the authority to
mortgage or pledge any or all assets of the business without
stockholders' approval.
The number of directors constituting the initial Board of
Directors of this corporation is one. The name and address of
the person who is to serve as Director until the first annual
meeting of stockholders or until his successor is elected, is:
NAME ADDRESS
Lynn Dixon 311 South State St., Suite 460
Salt Lake City, Utah 84111
ARTICLE IX - INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
Van L. Butler 311 South State, Suite 440
Salt Lake City, Utah 84111
ARTICLE X
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation
and any one or more of its directors or any other corporation,
firm, association, or entity in which one or more of its
directors or officers are financially interested, shall be
either void or voidable because of such relationship or
interest, or because such director or directors are present at
the meeting of the Board of Directors, or a committee thereof,
which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted for
such purpose if: (a) the fact of such relationship or interest
is disclosed or known to the Board of Directors or committee
which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose
without counting the votes or consents of such interested
director; or (b) the fact of such relationship or interest is
disclosed or known to the stockholders entitled to vote and
they authorize, approve, or ratify such contract or
transaction by vote or written consent, or (c) the contract or
transaction is fair and reasonable to the corporation.
Common or interested directors may be counted in
determining the presence of quorum at a meeting of the Board
of Directors or committee thereof which authorizes, approves,
or ratifies such contract or transaction.
ARTICLE XI
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the
Corporation or its stockholders for monetary damages for any
breach of fiduciary duty by such person as a director or
officer. Notwithstanding the foregoing sentence, a director
or officer shall be liable to the extent provided by
applicable law, (i) for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law,
or (ii) for the payment of dividends in violation of NRS
78.300.
The provisions hereof shall not apply to or have any
effect on the liability or alleged liability of any officer or
director of the corporation for or with respect to any acts or
omissions of such persons occurring prior to such amendment.
Under penalties of perjury, I declare that these Articles
of Incorporation have been examined by me and are, to the best
of my knowledge and belief, true, correct and complete.
DATED this _____ day of May, 1992.
Van L. Butler, Incorporator
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the _____ day of May, 1992, personally appeared
before me, Van L. Butler, who duly acknowledged to me that
he signed the foregoing Articles of Incorporation as the Sole
Incorporator.
NOTARY PUBLIC
My Commission Expires: Residing at Salt Lake County
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT
The Corporation Trust Company of Nevada hereby accepts
the appointment as Registered Agent of the above named
corporation.
The Corporation Trust Company
of Nevada
Dated: By:
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
FRONT STREET, INC.
Pursuant to the applicable provisions of the Nevada Business Corporations
Act, FRONT STREET, INC. (the "Corporation") adopts the following Articles of
Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is FRONT STREET, INC.
SECOND: The following amendments to its Articles of Incorporation were
adopted by majority vote of shareholders of the Corporation on February 7,
1994 in the manner prescribed by Nevada law.
1. Article I is amended to read as follows:
Name. The name of the corporation shall be: EDUCATIONAL STORYBOOKS
INTERNATIONAL, INC.
THIRD: The number of shares of the Corporation outstanding and entitled
to vote at the time of the adoption of said amendment was 15,000,000.
FOURTH: The number of shares voted for such amendments was 12,478,000
(83%) and the number of shares voted against such amendment was 0.
FIFTH: This Amendment to the Certificate of Incorporation of FRONT
STREET, INC. was authorized by a resolution of the Board of Directors and
consent of all of the shareholders of the Corporation.
DATED this 9th day of February, 1994.
FRONT STREET, INC.
By: /s/ Lynn Dixon
Lynn Dixon, President
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
EDUCATIONAL STORYBOOKS INTERNATIONAL, INC.
Pursuant to the applicable provisions of the Nevada Business
Corporations Act, Educational Storybooks International, Inc. (the
"Corporation") adopts the following Articles of Amendment to its Articles of
Incorporation by stating the following:
FIRST: The present name of the Corporation is Educational Storybooks
International, Inc.
SECOND: The following amendments to its Articles of Incorporation were
adopted by majority vote of shareholders of the Corporation in the manner
prescribed by applicable law.
1. The Article entitled ARTICLE I - NAME, is amended to read as
follows:
ARTICLE I - NAME
The name of the corporation is: U.S. Plastic Lumber Corp.
2. The Corporation has effectuated a 1 for 16 reverse stock as to its
outstanding shares of common stock as of March 18, 1996, which reduces the
outstanding shares as of that date from 15,200,000 shares to 950,000 shares.
The reverse split does not change the authorized capital stock of the
Corporation.
THIRD: The number of shares of the Corporation outstanding and entitled
to vote at the time of the adoption of said amendment was 15,200,000.
FIFTH: The number of shares voted for such amendments was 12,678,000
(83.4%) and no shares were voted against such amendment.
DATED this 27TH day of March, 1996.
EDUCATIONAL STORYBOOKS INTERNATIONAL, INC.
By: /s/ Michael Dixon
Michael Dixon, President and Secretary
VERIFICATION
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the Secretary of Educational Storybooks International, Inc.,
that the undersigned has read the Articles of Amendment and knows the contents
thereof and that the same contains a truthful statement of the Amendment duly
adopted by the sole director and stockholders of the Corporation.
/s/ Michael Dixon
Michael Dixon, Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Before me the undersigned Notary Public in and for the said County and
State, personally appeared the President/Secretary of Educational Storybooks
International, Inc., a Nevada corporation, and signed the foregoing Articles
of Amendment as his own free and voluntary acts and deeds pursuant to a
corporate resolution for the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 27th day of
March, 1996.
/s/ Thomas G. Kimble
NOTARY PUBLIC
Notary Seal:
ARTICLES OF INCORPORATION
OF
EDUCATIONAL RESOURCES, INC.
THE UNDERSIGNED natural person of the age of twenty-one (21)
years or more, acting as incorporator of a corporation under the
Nevada Business Corporation Act, adopts the following Articles of
Incorporation for such corporation.
ARTICLE I - NAME
The name of the Corporation is Educational Resources, Inc.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged
are:
(a) To engage in the specific business of plastic recycling
and to acquire, develop, explore and otherwise deal in
and with all kinds of real and personal property and all
related activities, and for any and all other lawful
purposes, including the merger with any company.
(b) To acquire by purchase, exchange, gift, bequest,
subscription, or otherwise; and to hold, own, mortgage,
pledge, hypothecate, sell, assign, transfer, exchange, or
otherwise dispose of or deal in or with its own corporate
securities or stock or other securities including,
without limitations, any shares of stock, bonds,
debentures, notes, mortgages, or other obligations, and
any certificates, receipts or other instruments
representing rights or interests therein on any property
or assets created or issued by any person, firm,
associate, or corporation, or instrumentalities thereof;
to make payment therefor in any lawful manner or to issue
in exchange therefor its unreserved earned surplus for
the purchase of its own shares, and to exercise as owner
or holder of any securities, any and all rights, powers,
and privileges in respect thereof.
(c) To do each and everything necessary, suitable, or
proper for the accomplishment of any of the purposes or
the attainment of any one or more of the subjects herein
enumerated, or which may, at any time, appear conducive
to or expedient for the protection or benefit of this
corporation, and to do said acts as fully and to the same
extent as natural persons might, or could do in any part
of the world as principals, agents, partners, trustees,
or otherwise, either alone or in conjunction with any
other person, association, or corporation.
(d) The foregoing clauses shall be construed both as purposes
and powers and shall not be held to limit or restrict in
any manner the general powers of the corporation, and the
enjoyment and exercise thereof, as conferred by the laws
of the State of Nevada; and it is the intention that the
purposes and powers specified in each of the paragraphs
of this Article III shall be regarded as independent
purposes and powers.
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall
have authority to issue is 5,000 shares of Common Stock having no
par value per share. All stock of the corporation shall be of the
same class, common, and shall have the same rights and preferences.
Fully-paid stock of this corporation shall not be liable to any
further call or assessment.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the
affirmative vote of "a majority" of the shares entitled to vote on
each such amendment.
ARTICLE VI - SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be
issued at such time, upon such terms and conditions and for such
consideration as the Board of Directors shall determine.
Shareholders shall not have pre-emptive rights to acquire unissued
shares of the stock of this corporation.
ARTICLE VII - INITIAL OFFICE AND AGENT
The Corporation Trust Company of Nevada
One East First Street
Reno, Nevada 89501
ARTICLE VIII - DIRECTORS
The directors are hereby given the authority to do any act on
behalf of the corporation by law and in each instance where the
Business Corporation Act provides that the directors may act in
certain instances where the Articles of Incorporation authorize
such action by the directors, the directors are hereby given
authority to act in such instances without specifically numerating
such potential action or instance herein.
The directors are specifically given the authority to mortgage
or pledge any or all assets of the business without stockholders'
approval.
The number of directors constituting the initial Board of
Directors of this corporation is one. The name and address of the
person who will to serve as Director until the first annual meeting
of stockholders or until his successors are elected and qualify,
is:
NAME ADDRESS
Michael Dixon 311 South State, Suite 460
Salt Lake City, Utah 84111
ARTICLE IX - INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
Thomas G. Kimble 311 South State, Suite 440
Salt Lake City, Utah 84111
ARTICLE X
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and
any one or more of its directors or officers or any other
corporation, firm, association, or entity in which one or more of
its directors or officers are financially interested, shall be
either void or voidable because of such relationship or interest,
or because such person is present at the meeting of the Board of
Directors, or a committee thereof, which authorizes, approves, or
ratifies such contract or transaction, or because his or their
votes are counted for such purpose if: (a) the fact of such
relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the
contract or transaction in good faith by vote or consent sufficient
for the purpose without counting the votes or consents of such
interested director; or (b) the fact of such relationship or
interest is disclosed or known to the stockholders entitled to vote
and they authorize, approve, or ratify such contract or transaction
by vote or written consent, (c) the fact of the common
directorship, office or financial interest is not disclosed or
known to the director or officer at the time the transaction is
brought before the board of directors of the corporation for
action; or (d) the contract or transaction is fair and reasonable
to the corporation at the time it is approved.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or
committee thereof which authorizes, approves, or ratifies such
contract or transaction.
ARTICLE XI
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach
of fiduciary duty by such person as a director or officer.
Notwithstanding the foregoing sentence, a director or officer shall
be liable to the extent provided by applicable law, (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing
violation of law, or (ii) for the payment of dividends in violation
of NRS 78.300.
The provisions hereof shall not apply to or have any effect on
the liability or alleged liability of any officer or director of
the Corporation for or with respect to any acts or omissions of
such person occurring prior to such amendment.
Under penalties of perjury, I declare that these Articles of
Incorporation have been examined by me and are, to the best of my
knowledge and belief, true, correct and complete.
DATED this day of March, 1996.
THOMAS G. KIMBLE
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the day of March, 1996, personally appeared before
me, Thomas G. Kimble, who duly acknowledged to me that he signed
the foregoing Articles of Incorporation.
NOTARY PUBLIC
Residing at Salt Lake County
My Commission Expires:
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT
The Corporation Trust Company of Nevada hereby accepts the
appointment as Registered Agent of the above named corporation.
The Corporation Trust Company of
Nevada
Dated: By:
T42(a)aofi.eri
PLAN AND ARTICLES OF MERGER
OF
EDUCATIONAL RESOURCES, INC.
A NEVADA CORPORATION
INTO
EARTH CARE GLOBAL HOLDINGS, INC.
A FLORIDA CORPORATION
THE UNDERSIGNED CORPORATIONS DO HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of
the constituent corporations (the "Constituent Corporations") of
the merger (the "Merger") is as follows:
Name State of Incorporation
Earth Care Global Holdings, Inc. Florida
Educational Resources, Inc. Nevada
SECOND: That a plan of merger, entitled Agreement and Plan of
Reorganization, between the parties to the Merger has been approved
and adopted, by the board of directors of each of the Constituent
Corporations in accordance with the requirements of Florida and
Nevada law and that upon filing this document with the Secretary of
State of Florida and the Secretary of State of Nevada, the Merger
shall be effective (the "Effective Date").
THIRD: The name of the surviving corporation of the Merger is
Earth Care Global Holdings, Inc., a Florida corporation.
FOURTH: The terms and conditions of the Merger and the manner
and basis of converting the shares of the Constituent Corporations
is as follows set forth below. All capitalized terms are defined
in the Agreement and Plan of Reorganization referred to in the
SIXTH Article hereof:
(a) Corporate Existence
(1) At the Effective Date, the Surviving Corporation
shall continue its corporate existence as a Florida
corporation and (i) it shall thereupon and thereafter possess
all rights, privileges, powers, franchises and property (real,
personal and mixed) of each of the Constituent Corporations;
(ii) all debts due to either of the Constituent Corporations,
on whatever account, all causes in action and all other things
belonging to either of the Constituent Corporations shall be
taken and deemed to be transferred to and shall be vested in
the Surviving Corporation by virtue of the Merger without
further act or deed; and (iii) all rights of creditors and all
liens upon any property of any of the Constituent Corporations
shall be preserved unimpaired, limited in lien to the property
affected by such liens immediately prior to the Effective
Date, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving
Corporation.
(2) At the Effective Date, (i) the Articles of
Incorporation and the By-laws of Earth Care, as existing
immediately prior to the Effective Date, shall be the Articles
of Incorporation and By-Laws of the Surviving Corporation;
(ii) the members of the Board of Directors of Earth Care
holding office immediately prior to the Effective Date shall
remain as the members of the Board of Directors of the
Surviving Corporation (if on or after the Effective Date a
vacancy exists on the Board of Directors of the Surviving
Corporation, such vacancy may thereafter be filled in a manner
provided by law and the by-laws of the Surviving Corporation);
and (iii) until the Board of Directors of the Surviving
Corporation shall otherwise determine, all persons who hold
offices of Earth Care at the Effective Date shall hold the
same offices of the Surviving Corporation.
(b) Conversion of Securities.
Educational Storybooks International, Inc. ("ESB") is the
owner of 1,000 shares of common stock of Educational Resources,
Inc. ("ERI"), which 1,000 shares constitutes all of the issued and
outstanding common stock of ERI. Earth Care Global Holdings, Inc.
("Earth Care") is the surviving corporation of the merger of ERI
into Earth Care. As of the Effective Date and without any action
on the part of ESB, ERI, Earth Care or the holders of any of the
securities of any of these corporations each of the following shall
occur:
(1) Immediately prior to the Effective Date, Earth Care
shall have 743,197 shares of Earth Care Common Stock
outstanding. Each share of Earth Care Common Stock issued and
outstanding immediately prior to the Effective Date shall be
converted into 5.6463 shares of ESB Common Stock (after giving
effect to the ESB Reverse Stock Split) or an aggregate of
4,196,316 ESB shares. The holders of these 743,197 Earth
shares of Common Stock are hereinafter referred to as the
"Earth Care Historical Shareholders. All such shares of Earth
Care Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each
certificate previously evidencing any such shares shall
thereafter represent the right to receive certificates
evidencing such number of shares of ESB Common Stock into
which such shares of Earth Care Common Stock were converted.
The holders of such certificates previously evidencing shares
of Earth Care Common Stock Earth Care outstanding immediately
prior to the Effective Date shall cease to have any rights
with respect to such shares of Earth Care Common Stock except
as otherwise provided herein or by law;
(2) 353,797 shares of ESB Common Stock shall be reserved
for issuance upon exercise of an existing option held by
Magellan Finance Corp. (the "Magellan Option"). In the event
the Magellan Option is not exercised in whole or in part, then
those shares reserved for the Magellan Option but not
purchased by exercise of said option shall be issued on a pro
rata basis to the Earth Care Historical Shareholders in
proportion to the Earth Care shares they owned immediately
prior to the Effective Date. It is agreed that the Magellan
Option expires on December 31, 1997.
(3) Any shares of Earth Care Common Stock held in the
treasury of Earth Care immediately prior to the Effective Date
shall automatically be canceled and extinguished without any
conversion thereof and no payment shall be made with respect
thereto;
(4) The 1,000 shares of common stock of ERI issued and
outstanding immediately prior to the Effective Date shall be
converted into one share of common stock of the Surviving
Corporation and thereafter each stock certificate of ERI shall
evidence ownership of shares of common stock of the Surviving
Corporation, all of which shall be beneficially owned by ESB;
(5) The Earth Care Historical Shareholders shall be
entitled to receive on a pro rata basis an aggregate of
2,000,000 shares of ESB Common Stock at any time prior to
December 31, 2,000, in the event that Earth Care, on a
consolidated basis, reaches net sales (less returns) or
production of at least 2,000,000 pounds of plastic lumber
product per month for three consecutive months. These shares
shall be issued to the Earth Care Historical Shareholders on
the basis of 2.6911 shares for every one Earth Care share of
Common Stock they owned immediately prior to the Effective
Date.
FIFTH: Voting results for the merger are as follows:
(a) Earth Care. The Plan of Merger was approved by the Board
of Directors of Earth Care on February 7, 1996, and was submitted
to the shareholders of Earth Care by the Board of Directors and
approved by said shareholders on March 23, 1996, and out of 743,197
shares of common stock entitled to vote on the Plan, 731,217 shares
voted in favor and 11,980 shares voted against, resulting in
approval of the Plan.
(b) ERI. The Plan of Merger was approved by the Board of
Directors of ERI on March 26, 1996, and was submitted to the
shareholders of ERI by the Board of Directors and approved by said
shareholders on March 26, 1996, and out of 1,000 shares of common
stock entitled to vote on the Plan, 1,000 shares voted in favor and
no shares voted against, resulting in unanimous approval of the
Plan.
(c) General. The number of votes cast for the Plan of Merger
by each group was sufficient under Florida and Nevada law for
approval by that voting group.
SIXTH: The Agreement and Plan of Reorganization dated
December 15, 1995, by and between Earth Care and ESB is on file at
the principal place of business of Earth Care and ESB at 2300 West
Glades Road, Suite 440W, Boca Raton, Florida 33431, and will be
furnished on request without cost to any stockholder of either of
the constituent corporations which are parties hereto.
SEVENTH: Upon this Merger becoming effective, the Surviving
Corporation acknowledges that it is deemed, under Nevada law:
(a) To appoint the Secretary of State as its agent for
service of process in a proceeding to enforce any obligation
or the rights of dissenting shareholders of each domestic
corporation party to the merger; and
(b) To agree that it will promptly pay to the dissenting
shareholders of each domestic corporation party to the merge
the amount, if any, to which they are entitled under NRS
78.471 to 78.502, inclusive.
EDUCATIONAL RESOURCES, INC.
By: /s/ Michael Dixon
Michael Dixon, President
and Secretary
EARTH CARE GLOBAL HOLDINGS,
INC.
By: /s/ M. Scott Irons By: /s/ David A. Farrow
M. Scott Irons, Secretary David A. Farrow,
President
T44(a)artmerg.esi
BY-LAWS
OF
U.S PLASTIC LUMBER CORP.
(formerly known as Educational Storybooks International, Inc.)
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada
shall be located in the City of Reno, County of Washoe. The
corporation may have such other offices, either within or without
the State of incorporation as the board of directors may designate
or as the business of the corporation may from time to time
require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on such
date as is determined by the Board of Directors for the purpose of
electing directors and for the transaction of such other business
as may come before the meeting.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by
the president or by the board of directors, and shall be called by
the president at the request of the holders of not less than ten
per cent of all the outstanding shares of the corporation entitled
to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or
without the State unless otherwise prescribed by statute, as the
place of meeting for any annual meeting or for any special meeting
called by the directors. A waiver of notice signed by all
stockholders entitled to vote at a meeting may designate any place,
either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not
less than ten nor more than thirty days before the date of the
meeting, either personally or by mail, by or at the direction of
the president, or the secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or stockholders entitled to receive payment of
any dividend, or in order to make a determination of stockholders
for any other proper purpose, the directors of the corporation may
provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, thirty days. If the stock
transfer books shall be closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock
transfer books, the directors may fix in advance a date as the
record date for any such determination of stockholders, such date
in any case to be not more than thirty days and, in case of a
meeting of stockholders, not less than ten days prior to the date
on which the particular action requiring such determination of
stockholders is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the directors declaring such
dividend is adopted, as the case may be, shall be the record date
for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has
been made as provided in this section, such determination shall
apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten days
before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and
the number of shares held by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the principal
office of the corporation or transfer agent and shall be subject to
inspection by any stockholder at any time during usual business
hours. Such list shall also be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original
stock transfer book shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to
vote at the meeting of stockholders.
7. QUORUM.
Unless otherwise provided by law, at any meeting of
stockholders a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less
than said number of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the
meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders
present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by
proxy executed in writing by the stockholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the
secretary of the corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the
terms and provisions of the certificate of incorporation and these
by-laws shall be entitled to one vote, in person or by proxy, for
each share of stock entitled to vote held by such stockholders.
Upon the demand of any stockholder, the vote for directors and upon
any question before the meeting shall be by ballot. All elections
for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of this
State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders,
shall be as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be
taken at a meeting of the shareholders, or any other action which
may be taken at a meeting of the shareholders, may be taken without
a meeting if a consent in writing, setting forth the action so
taken, shall be signed by the same percentage of all of the
shareholders entitled to vote with respect to the subject matter
thereof as would be required to take such action at a meeting.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed
by its board of directors. The directors shall in all cases act as
a board, and they may adopt such rules and regulations for the
conduct of their meetings and the management of the corporation, as
they may deem proper, not inconsistent with these by-laws and the
laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall as established by
the board of directors, but shall be no less than one. Each
director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and
qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without
other notice than this by-law immediately after, and at the same
place as, the annual meeting of stockholders. The directors may
provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the
request of the president or any director. The person or persons
authorized to call special meetings of the directors may fix the
place for holding any special meeting of the directors called by
them. A director may attend any meeting by telephonic
participation at the meeting.
5. NOTICE.
Notice of any special meeting shall be given at least two days
previously thereto by written notice delivered personally, or by
telegram or mailed to each director at his business address. If
mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully
called or convened.
6. QUORUM.
At any meeting of the directors a majority shall constitute
a quorum for the transaction of business, but if less than said
number is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the board for any
reason except the removal of directors without cause may be filled
by a vote of a majority of the directors then in office, although
less than a quorum exists. Vacancies occurring by reason of the
removal of directors without cause shall be filled by vote of the
stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for
the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote
of the stockholders or by action of the board. Directors may be
removed without cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to
the board, the president or the secretary of the corporation.
Unless otherwise specified in the notice, the resignation shall
take effect upon receipt thereof by the board or such officer, and
the acceptance of the resignation shall not be necessary to make it
effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for
their services, but by resolution of the board a fixed sum and
expenses for actual attendance at each regular or special meeting
of the board may be authorized. Nothing herein contained shall be
construed to preclude any director from serving the corporation in
any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of
the directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its
members an executive committee and other committees, each
consisting of three or more directors. Each such committee shall
serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a
secretary and a treasurer, each of whom shall be elected by the
directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the
directors shall be elected annually at the first meeting of the
directors held after each annual meeting of the stockholders. Each
officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors
may be removed by the directors whenever in their judgment the best
interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any,
of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the
directors for the unexpired portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in
general supervise and control all of the business and affairs of
the corporation. He shall, when present, preside at all meetings
of the stockholders and of the directors. He may sign, with the
secretary or any other proper officer of the corporation thereunto
authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the directors have authorized to be executed,
except in cases where the signing and execution thereof shall be
expressly delegated by the directors or by these by-laws to some
other officer or agent of the corporation, or shall be required by
law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of president and such
other duties as may be prescribed by the directors from time to
time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death,
inability or refusal to act, a vice-president may perform the
duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the
president. A vice-president shall perform such other duties as
from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and
of the directors' meetings in one or more books provided for that
purpose, see that all notices are duly given in accordance with the
provisions of these by-laws or as required, be custodian of the
corporate records and of the seal of the corporation and keep a
register of the post office address of each stockholder which shall
be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in
general perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him by
the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such
surety or sureties as the directors shall determine. He shall have
charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys
due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected
in accordance with these by-laws and in general perform all of the
duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the president or by the
directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time
by the directors and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the directors. Such authority may be
general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the
corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to
time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in
such banks, trust companies or other depositaries as the directors
may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be
in such form as shall be determined by the directors. Such
certificates shall be signed by the president and by the secretary
or by such other officers authorized by law and by the directors.
All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the stockholders,
the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for
a like number of shares shall have been surrendered and canceled,
except that in case of a lost, destroyed or mutilated certificate
a new one may be issued therefor upon such terms and indemnity to
the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, and cancel
the old certificate; every such transfer shall be entered on the
transfer book of the corporation which shall be kept at its
principal office.
(b) The corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof, and,
accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person
whether or not it shall have express or other notice thereof,
except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall end on the last day
of such month in each year as the directors may prescribe.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
ARTICLE IX - SEAL
The directors may, in their discretion, provide a corporate
seal which shall have inscribed thereon the name of the
corporation, the state of incorporation, and the words, "Corporate
Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is
required to be given to any stockholder or director of the
corporation under the provisions of these by-laws or under the
provisions of the articles of incorporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new
by-laws may be adopted by action of the Board of Directors.
[Stock Certificate Border Graphics]
Not Valid Unless Countersigned by Transfer Agent
Incorporated Under the Laws of the State of Delaware
Number Shares
[No. of Cert] [No. of Shares]
U.S. PLASTIC LUMBER CORP.
Authorized Shares: 50,000,000
Par Value: $.0001
THIS CERTIFIES THAT [Name of Shareholder]
IS THE RECORD HOLDER OF [Number of Shares]
U.S. PLASTIC LUMBER CORP.
transferable on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by
the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated: [date of Certificate]
/s/M. Scott Irons /s/Mark S. Alsentzer
Secretary President
[Graphic of Corporate Seal]
[Border Graphics]
Interwest Transfer Co. Inc. P.O. Box 17136/Salt Lake City, Utah
84117
Countersigned & Registered ______________________________
WARRANT AGREEMENT
U.S. PLASTIC LUMBER CORP.
AND
INTERWEST TRANSFER CO., INC.
Warrant Agent
<PAGE>
THIS WARRANT AGREEMENT (the "Agreement") is dated effective as
of March , 1996, between U.S. Plastic Lumber Corp. (formerly
Educational Storybooks International, Inc.), a Nevada Corporation
(the "Company"), and Interwest Transfer Co., Inc., Salt Lake City,
Utah (the "Warrant Agent").
WHEREAS, the Company proposes to issue to its shareholders
950,000 Series A and 950,000 Series B Common Stock Purchase
Warrants (the "Warrants"). Each Warrant will entitle the holder
thereof to purchase one share of Common Stock in the future at such
time as the conditions set forth in the Warrant Certificate are
fulfilled.
WHEREAS, in conjunction with the potential exercise of the
Warrants, the Company anticipates the issuance of up to 1,800,000
shares of its Common Stock (the "Warrant Shares");
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act,
in connection with the issuance, registration, transfer and
exchange of Warrant Certificates and exercise of the Warrants.
NOW, THEREFORE, in consideration of the promises and the
mutual agreements hereinafter set forth, it is agreed that:
1. Warrants/Warrant Certificates. Each Warrant will, in the
future during the period specified in the Warrant Certificate, upon
fulfillment of the conditions and subject to the terms set forth
therein, entitle the holder (the "Registered Holder" or, in the
aggregate, the "Registered Holders") in whose name the Warrant
Certificate shall be registered on the books maintained by the
Warrant Agent to purchase one share of Common Stock on exercise
thereof, subject to modification and adjustment as provided in
Section 8. Warrant Certificates representing the right to
purchase Warrant Shares shall be executed by the Company's
President and attested to by the Company's Secretary or Assistant
Secretary, or shall bear facsimile signatures of such officers, and
shall be delivered to the Warrant Agent upon execution of this
Agreement for distribution to the Company's shareholders pursuant
to written instructions from the Company to the Warrant Agent.
Subject to the provisions of Sections 3, 5, 6 and 8, the
Warrant Agent shall deliver Warrant Certificates in required whole
number denominations to Registered Holders in connection with any
transfer or exchange permitted under this Agreement. Except as
provided in Section 6 hereof, no Warrant Certificates shall be
issued except (i) Warrant Certificates initially issued hereunder,
(ii) Warrant Certificates issued on or after the initial issuance
date, upon the exercise of any Warrants, to evidence the unexer-
cised Warrants held by the exercising Registered holder, and (iii)
Warrant Certificates issued after the initial issuance date, upon
any transfer or exchange of Warrant Certificates or replacements of
lost or mutilated Warrant Certificates.
2. Form and Execution of Warrant Certificates. The Warrant
Certificates shall be substantially in the form as attached as
Exhibits A and B hereto. The Warrant Certificates shall be dated
as of the date of their issuance, whether on initial issuance,
transfer or exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates.
Each Warrant Certificate shall be numbered serially with the
designation "Series A or Series B", respectively, appearing on each
Warrant Certificate.
The Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In the event any officer of the Company who
executed the Warrant Certificates shall cease to be an officer of
the Company before the date of issuance of the Warrant Certificates
or before countersignature and delivery by the Warrant Agent, such
warrant Certificates may be countersigned, issued and delivered by
the Warrant Agent with the same force and effect as though the
person who signed such Warrant Certificates had not ceased to be an
officer of the Company.
3. Exercise. Subject to the provisions of Sections 4, 7 and
8, the Warrants, when evidenced by a Warrant Certificate, may be
exercised at a price (the "Exercise Price") of $2.50 per share as
to the Series A Warrants and $4.50 per share as to the Series B
Warrants, in whole or in part at any time during the period (the
"Exercise Period") commencing on the date (the "Initial Exercise
Date") on which the Company's Registration Statement with respect
to the Warrant Shares is declared effective and terminating on June
30, 1998, unless extended by the Company's Board of Directors. The
Company shall promptly notify the Warrant Agent of the
effectiveness of such Registration Statement and of any such
extension of the Exercise Periods. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on
the date (the "Exercise Date") of the surrender for exercise of the
Warrant Certificate. The exercise form shall be executed by the
Registered Holder thereof or his attorney duly authorized in
writing and will be delivered together with payment to the Warrant
Agent at 1981 East 4800 South, Salt Lake City, Utah 84117, (the
"Corporate Office") or such other place as designated by the
Company, in cash or by official bank or certified check, of an
amount equal to the aggregate Exercise Price, in lawful money of
the United States of America.
Unless Warrant Shares may not be issued as provided herein,
the person entitled to receive the number of Warrant Shares
deliverable on such exercise shall be treated for all purposes as
the holder of such Warrant Shares as of the close of business on
the Exercise date. In addition, the Warrant Agent shall also, at
such time, verify that all of the conditions precedent to the
issuance of Warrant Shares set forth in Section 4 have been
satisfied as of the Exercise Date. If any one of the conditions
precedent set forth in Section 4 are not satisfied as of the
Exercise Date, the Warrant Agent shall request written instructions
from the Company as to whether to return the Warrant and pertinent
Exercise Price to the exercising Registered Holder or to hold the
same until all such conditions have been satisfied. The Company
shall not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any
Warrant or scrip or cash therefor and such fractional shares shall
be of no value whatsoever. If more than one Warrant shall be
exercised at one time by the same Registered Holder, the number of
full Shares which shall be issuable on exercise thereof shall be
computed on the basis of the aggregate number of full shares
issuable on such exercise.
Within thirty days after the Exercise Date and in any event
prior to the pertinent Expiration Date, the Warrant Agent shall
cause to be issued and delivered to the person or persons entitled
to receive the same, a certificate or certificates for the number
of Warrant Shares deliverable on such exercise. No adjustment
shall be made in respect of cash dividends on Warrant Shares
delivered on exercise of any Warrant. The Warrant Agent shall
promptly notify the Company in writing of any exercise and of the
number of Warrant Shares delivered and shall cause payment of an
amount in cash equal to the pertinent Exercise Price to be promptly
made to the order of the Company.
Upon the exercise of any Warrant, the Warrant Agent shall
promptly deposit the payment into a segregated account established
by mutual agreement of the Company and the Warrant Agent at a
federally insured commercial bank. All funds deposited in the
escrow account will be disbursed on a weekly basis to the Company
once they have been determined by the Warrant Agent to be collected
funds. Once the funds are determined to be collected the Warrant
Agent shall cause the share certificate(s) representing the
exercised Warrants to be issued.
Expenses incurred by the Warrant Agent while acting in the
capacity as Warrant Agent will be paid by the Company. These
expenses, including delivery of exercised share certificates to the
shareholder, will be deducted from the exercise fee submitted prior
to distribution of funds to the Company.
A detailed accounting statement relating to the number of
shares exercised and the net amount of exercised funds remitted
will be given to the Company with the payment of each exercise
amount. This will serve as an interim accounting for the
Company's use during the exercise periods. A complete accounting
will be made by the Warrant Agent to the Company concerning all
persons exercising Warrants, the number of shares issued and the
amounts paid at the completion of the Exercise Period.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all
purposes, and the Company shall not be affected by any notice to
the contrary. The Warrants shall not entitle the holder thereof to
any of the rights of shareholders or to any dividend declared on
the Common Stock unless the holder shall have exercised the
Warrants and purchased the shares of Common Stock prior to the
record date fixed by the Board of Directors of the Company for the
determination of holders of Common Stock entitled to such dividend
or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from
its authorized Common Stock such number of shares as shall then be
issuable on the exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares which shall be so issuable shall
be duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue
thereof.
The Company and the Warrant Agent acknowledge that the Company
will be required, pursuant to the Securities Act of 1933, as
amended (the "Act"), to deliver to each Registered Holder, upon the
exercise of Warrants and delivery of Warrant Shares, a prospectus
covering the issuance of the Warrant Shares which meets the
requirements of the Act, which prospectus must be a part of an
effective registration statement under the Act at the time that the
Warrant is exercised. No Warrants may be exercised nor may Warrant
shares be issued by the Company's transfer agent or delivered by
the Warrant Agent unless, on the Exercise Date: (i) the Company
has an effective registration statement covering the issuance of
the Warrant Shares under the Act; (ii) the Warrant Agent has copies
of the prospectus which is a part of such effective registration
statement and which the Warrant Agent hereby agrees to deliver with
the Warrant Shares; and (iii) the Warrant Shares may legally be
issued and delivered to the exercising Registered Holder under the
securities laws of the state in which such Registered Holder
resides.
The Company agrees to use its best efforts to maintain, to the
extent required by the Act, an effective registration statement
under the Act covering the issuance of the Warrant Shares during
the period the Warrants are exercisable, but there may be times
when no such registration statement will be currently effective.
The exercise of Warrants may be temporarily suspended without
liability to the Company during times when no such registration
statement is currently effective, or during times when, in the
reasonable opinion of the Board of Directors of the Company, such
suspension is necessary to preclude violation of any requirements
of applicable law of regulatory bodies having jurisdiction over the
Company. If any Warrant would expire during such a suspension,
then if exercise of such Warrant is duly tendered before its
expiration, such Warrant shall be exercisable and exercised (unless
the attempted exercise is withdrawn) as of the first day after the
end of such suspension. The Company further agrees, from time to
time, to furnish the Warrant Agent with copies of the Company's
prospectus to be delivered to exercising Registered Holders, as set
forth above.
If any shares of Common Stock to be reserved for the purpose
of exercise of Warrants hereunder require any other registration
with or approval of any government authority under any federal or
state law before such shares may be validly issued or delivered,
then the Company covenants that it will in good faith and as
expeditiously as possible endeavor to secure such registration or
approval, as the case may be. No Warrant Shares shall be issued
unless and until any such registration requirements have been
satisfied.
The Registered Holder shall pay all documentary, stamp or
similar taxes and other government charges that may be imposed with
respect to the issuance of the Warrants, or the issuance, transfer
or delivery of any Warrant Shares on exercise of the Warrants. In
the event the Warrant Shares are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate,
no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of any such taxes or
charges incident thereto.
In the event the Warrant Agent ceases to also serve as the
stock transfer agent for the Company, the Warrant Agent is
irrevocably authorized to requisition the Company's new transfer
agent from time to time for Certificates of Warrant Shares required
upon exercise of the Warrants, and the Company will authorize such
transfer agent to comply with all such requisitions. The Company
will file with the Warrant Agent a statement setting forth the name
and address of its new transfer agent, for shares of Common Stock
or other capital stock issuable upon exercise of the Warrants and
of each successor transfer agent.
5. Registration of Transfer. The Warrant Certificates may
be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its
Corporate Office. The Company shall execute and the Warrant Agent
shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the holder making the
transfer shall be entitled to receive.
The Warrant Agent shall keep transfer books at its Corporate
Office which shall register Warrant Certificates and the transfer
thereof. On 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
an equal aggregate number of Warrants. All Warrant Certificates
presented for registration of transfer or exercise shall be duly
endorsed or be accompanied by a written instrument or instruments
or transfer in form satisfactory to the Company and the Warrant
Agent. At the time of exercise, the transfer fee shall be paid by
the Company. The Company may require payment of a sum sufficient
to cover any tax or other government charge that may be imposed in
connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant
Certificates, shall be promptly canceled by the Warrant Agent and
thereafter retained by the Warrant Agent until termination of the
agency created by this Agreement. Prior to due presentment for
registration of transfer thereof, the Company and the Warrant Agent
may treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof (notwithstanding any notations of ownership
or writing thereon made by anyone other than the Company or the
Warrant Agent), and the parties hereto shall not be affected by any
notice to the contrary.
6. Loss or Mutilation. On receipt by the Company and the
Warrant Agent of evidence satisfactory as to the ownership of and
the loss, theft, destruction or mutilation of any Warrant
Certificate, the Company shall execute, and the Warrant Agent shall
countersign and deliver in lieu thereof, a new Warrant Certificate
representing an equal aggregate number of Warrants. In the case of
loss, theft or destruction of any Warrant Certificate, the
individual requesting issuance of a new Warrant Certificate shall
be required to indemnify the Company and Warrant Agent in an amount
satisfactory to each of them. In the event a Warrant Certificate
is mutilated, such certificate shall be surrendered and canceled by
the Warrant Agent prior to delivery of a new Warrant Certificate.
Applicants for a new Warrant Certificate shall also comply with
such other regulations and pay such other reasonable charges as the
Company may prescribe.
7. Call Option. Following issuance of the Warrants and
commencing with the date on which the Company's Registration
Statement with respect to the Warrant Shares is declared effective,
the Company shall have the right and option: (a) with respect to
the Series "A" Warrants, assuming the closing bid price of the
Company's common stock exceeds or equals $4.00 per share for 20
consecutive trading days, and (b) with respect to the Series "B"
Warrants, assuming the closing bid price of the Company's common
stock exceeds or equals $6.00 per share for 20 consecutive trading
days, upon thirty (30) days written notice to each Warrantholder
(or such longer period as is required under any applicable law),
to, at any time thereafter call, redeem and acquire all of the
Warrants of either or both classes of Warrants remaining
outstanding and unexercised at the date specified for such
redemption in such notice (the "Redemption Date"), which Redemption
Date shall be 30 days after the date of such notice, for an amount
equal to $.01 per Warrant; provided, however, that the
Warrantholders shall in any event have the right during the 30-day
period immediately following the date of such notice to exercise
the Warrants in accordance with the provisions of Section 3 hereof.
In the event any Warrants are exercised during such 20-day period,
this call option shall be deemed not to have been exercised by the
Company as to the Warrants so exercised by the holders thereof.
Said notice of redemption shall require each Warrantholder to
surrender to the Company, on the Redemption Date, at the Corporate
Office of the Warrant Agent (or its successor), his certificate or
certificates representing the Warrants to be redeemed.
Notwithstanding the fact that any Warrants called for redemption
have not been surrendered for redemption and cancellation on the
Redemption Date, after the Redemption Date, such Warrants shall be
deemed to be expired and all rights of the holders of such
unsurrendered Warrants shall cease and terminate, other than the
right to receive the redemption price of $.01 per Warrant for such
Warrants, without interest provided, however, that such right to
receive the redemption price of $.01 per Warrant for such Warrants
shall itself expire on the Expiration Date of the Warrants. The
Company shall notify the Warrant Agent verbally, with confirmation
in writing, of the call of the Warrants and of the Redemption Date
and the Company shall instruct the Warrant Agent accordingly as to
the procedures to be followed by the Warrant Agent in connection
with the redemption of the Warrants.
8. Adjustment of Exercise Price and Shares. After each
adjustment of the Exercise Price pursuant to this Section 8, the
number of shares of Common Stock purchasable on the exercise of
each Warrant shall be the number derived by dividing such adjusted
pertinent Exercise Price into the original pertinent Exercise
Price. The pertinent Exercise Price shall be subject to adjustment
as follows:
(a) In the event, prior to the expiration of the Warrants by
exercise or by their terms, the Company shall issue any shares of
its Common Stock as a share dividend or shall subdivide the number
of outstanding shares of Common Stock into a greater number of
shares, then, in either of such events, the Exercise Price per
share of Common Stock purchasable pursuant to the Warrants in
effect at the time of such action shall be reduced proportionately
and the number of shares purchasable pursuant to the Warrants shall
be increased proportionately. Conversely, in the event the Company
shall reduce the number of shares of its outstanding Common Stock
by combining such shares into a smaller number of shares, then, in
such event, the Exercise Price per share purchasable pursuant to
the Warrants in effect at the time of such action shall be
increased proportionately and the number of shares of Common Stock
at that time purchasable pursuant to the Warrants shall be
decreased proportionately. Any dividend paid or distributed on the
Common Stock in shares of any other class of the Company or
securities convertible into shares of Common Stock shall be treated
as a dividend paid in Common Stock to the extent that shares of
Common Stock are issuable on the conversion thereof.
(b) In the event the Company, at any time while the Warrants
shall remain unexpired and unexercised, shall sell all or
substantially all of its property, or dissolves, liquidates or
winds up its affairs, prompt, proportionate, equitable, lawful and
adequate provision shall be made as part of the terms of any such
sale, dissolution, liquidation or winding up such that the holder
of a Warrant may thereafter receive, on exercise thereof, in lieu
of each share of Common Stock of the Company which he would have
been entitled to receive, the same kind and amount of any share,
securities, or assets as may be issuable, distributable or payable
on any such sale, dissolution, liquidation or winding up with
respect to each share of Common Stock of the Company; provided,
however, that in the event of any such sale, dissolution,
liquidation or winding up, the right to exercise this Warrant
shall terminate on a date fixed by the Company, such date to be not
earlier than 4:00 p.m., Eastern Time, on the 10th day next
succeeding the date on which notice of such termination of the
right to exercise the Warrants has been given by mail to the
holders thereof at such addresses as may appear on the books of the
company.
(c) In the event, prior to the expiration of the Warrants by
exercise or by their terms, the Company shall determine to take a
record of the holders of its Common Stock for the purpose of
determining shareholders entitled to receive any share dividend or
other right which will cause any change or adjustment in the
number, amount, price or nature of the shares of Common Stock or
other securities or assets deliverable on exercise of the Warrants
pursuant to the foregoing provisions, the Company shall give to the
Registered Holders of the Warrants at the addresses as may appear
on the books of the Company at least 10 days prior written notice
to the effect that it intends to take such a record. Such notice
shall specify the date as of which such record is to be taken; the
purpose for which such record is to be taken; and the number,
amount, price and nature of the Common Shares or other shares,
securities or assets which will be deliverable on exercise of the
Warrants after the action for which such record will be taken has
been completed. Without limiting the obligation of the Company to
provide notice to the Registered Holders of the Warrant
Certificates of any corporate action hereunder, the failure of the
Company to give notice shall not invalidate such corporate action
of the Company.
(d) No adjustment of the Exercise Price shall be made as a
result of or in connection with (i) the issuance of Common Stock of
the Company pursuant to options, warrants and share purchase
agreements outstanding or in effect on the date hereof, (ii) the
establishment of additional option plans of the Company, the
modification, renewal or extension of any plan now in effect or
hereafter created, or the issuance of Common Stock, on exercise of
any options pursuant to such plans, in connection with
compensation arrangements for officers, employees or agents of the
Company or any subsidiary, and the like or (iii) the issuance of
Common Stock in connection with an acquisition or merger of any
type (therefore, the antidilution provisions of this Section 8 will
not apply in the event a merger or acquisition is undertaken by the
Company).
(e) This Agreement shall be incorporated by reference on the
Warrant Certificates.
Upon any adjustment of the exercise Price required to be made
pursuant to this Section 8, the Company within 30 days thereafter
shall (A) cause to be filed with the Warrant Agent a certificate
setting forth the pertinent Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based, and (B) cause
to be mailed to each of the Registered Holders of the Warrant
Certificates written notice of such adjustment.
9. Reduction in Exercise Price at Company's Option. In
addition to any adjustments made to the Exercise Price pursuant to
Section 8, the Company's Board of Directors may, at its sole
discretion, reduce the Exercise Price of the Warrants in effect at
any time either for the life of the Warrants or any shorter period
of time determined by the Company's Board of Directors. The
Company shall promptly notify the Warrant Agent and the Registered
Holders of any such reductions in the Exercise Price.
10. Duties. Compensation and Termination of Warrant Agent.
The Warrant Agent shall act hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not, by issuing
and delivering Warrant Certificates or by any other act hereunder,
be deemed to make any representation as to the validity, value or
authorization of the Warrant Certificates or the Warrants
represented thereby or of the Common Stock or other property
delivered on exercise of any Warrant. The Warrant Agent shall not
at any time be under any duty or responsibility to any holder of
the Warrant Certificates to make or cause to be made any adjustment
of the Exercise Price or to determine whether any fact exists which
may require any such adjustments.
The Warrant Agent shall not (i) be liable for any recital or
statement of fact contained herein or for any action taken 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 except for its own negligence or
willful misconduct, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or
willful misconduct.
The Company agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities which the Warrant Agent
may incur in connection with the delivery of copies of the
Company's prospectus to exercising Registered Holders upon the
exercise of any Warrants as set forth in Section 4.
The Warrant Agent may at any time consult with counsel
satisfactory to it (which may be counsel for the Company) and shall
incur no liability or responsibility for any action taken 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 its President and
attested by its Secretary or Assistant Secretary. The Warrant
Agent shall not be liable for any action taken or omitted by it in
accordance with such notice, statement, instruction, request, order
or demand.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse the
Warrant Agent for its reasonable expenses. The Company further
agrees to indemnify the Warrant Agent against any and all losses,
expenses and liabilities, including judgments, costs and counsel
fees, for any action taken or omitted by the Warrant Agent in the
execution of its duties and powers hereunder, excepting losses,
expenses and liabilities arising as a result of the Warrant Agent's
negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may
terminate the Warrant Agent and the Warrant Agent shall 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), on 30 days' prior written notice
to the other party. 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. On such resignation or
termination the Company shall appoint a new warrant agent. If the
Company shall fail to make such appointment within a period of 30
days after it has been notified in writing of the resignation by
the Warrant Agent, then the registered holder of any Warrant
Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent.
After acceptance in writing of an appointment of a 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; provided,
however, if 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. The Company shall file a notice of
appointment of a new warrant agent 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 corporate trust business of the Warrant Agent shall be a
successor Warrant Agent under this Agreement, provided that such
corporation is eligible for appointment as a 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. No further action
shall be required for establishment and authorization of such
successor warrant agent.
The Warrant Agent, its officers or directors and its
subsidiaries or affiliates may buy, 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 effect 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.
11. Modification of Agreement. 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 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, this Agreement shall not otherwise be modified,
supplemented or altered in any other respect except with the
consent in writing of the registered holders of Warrant
Certificates representing not less than 51% of each class of
Warrants outstanding. Additionally, except as provided in Section
8, no change in the number or nature of the Warrant Shares
purchasable on exercise of a Warrant, increase the purchase price
therefor, or the acceleration of the Expiration Date of a Warrant
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 or allowed by this
Agreement.
12. Notices. All notices, demands, elections, opinions or
requests (however characterized or described) required or
authorized hereunder shall be deemed given sufficiently if in
writing and sent by registered or certified mail, return receipt
requested and postage prepaid, or by tested telex, telegram or
cable to the last known address of the Company, the Warrant Agent
and if to the Registered Holder of a Purchase Warrant Certificate,
at the address of such holder as set forth on the books maintained
by the Warrant Agent.
13. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the Company, the Warrant Agent and
their respective successors and assigns, and the holders from time
to time of Purchase Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any
other person any right, remedy or claim or to impose on any other
person any duty, liability or obligation.
14. Further Instruments. The parties shall execute and
deliver any and all such other instruments and shall take any and
all other actions as may be reasonably necessary to carry out the
intention of this Agreement.
15. Severability. If any provision of this Agreement shall
be held, declared or pronounced void, voidable, invalid,
unenforceable, or inoperative for any reason by any court of
competent jurisdiction, government authority or otherwise, such
holding, declaration or pronouncement shall not affect adversely
any other provision of this Agreement, which shall otherwise remain
in full force and effect and be enforced in accordance with its
terms, and the effect of such holding, declaration or pronouncement
shall be limited to the territory or jurisdiction in which made.
16. Waiver. All the rights and remedies of either party
under this Agreement are cumulative and not exclusive of any other
rights and remedies as provided by law. No delay or failure on the
part of either party in the exercise of any right or remedy arising
from a breach of this Agreement shall operate as a waiver of any
subsequent right or remedy arising from a subsequent breach of this
Agreement. The consent of any party where required hereunder to act
or occurrence shall not be deemed to be a consent to any other
action or occurrence.
17. General Provisions. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State
of Nevada. Except as otherwise expressly stated herein, time is of
the essence in performing hereunder. This Agreement embodies the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to the
subject matter hereof, and this Agreement may not be modified or
amended or any term or provisions hereof waived or discharged
except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The
headings of this Agreement are for convenience in reference only
and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
U.S. PLASTIC LUMBER CORP.
By
Authorized Officer
THE WARRANT AGENT:
INTERWEST TRANSFER CO., INC.
By
Authorized Officer
T42(a)warragr.esi
SERIES "A"
COMMON STOCK PURCHASE WARRANT
U.S. PLASTIC LUMBER CORP.
(a Nevada corporation)
Dated: , 199
THIS CERTIFIES THAT
(hereinafter called the "Holder") will in the future during the
period hereinafter specified, upon fulfillment of the conditions
and subject to the terms hereinafter set forth, be entitled to
purchase from U.S. PLASTIC LUMBER CORP., a Nevada corporation
(hereinafter called the "Company"), ______ shares (the "Shares") of
the Company's common stock, par value $.001 per share ("Common
Stock"), at an exercise price of $2.50 per Share (the "Exercise
Price").
1. During the period commencing with the effectiveness of
the registration statement which registers the Shares underlying
this Warrant and ending on June 30, 1998, unless extended by the
Company ("Expiration Date"), the Holder shall have the right to
purchase the Shares hereunder at the Exercise Price. After the
Expiration Date, the Holder shall have no right to purchase any
Shares hereunder and this Warrant shall expire thereon effective at
4:00 p.m., New York time.
2. The rights represented by this Warrant may be exercised
at any time within the period above specified, in whole or in part,
by (i) the surrender of this Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of
the Company (or such other office or agency of the Company as it
may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to
the Company of the Exercise Price then in effect for the number of
Shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the Holder to the
effect that such person agrees to be bound by all provisions
hereof. This Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the
close of business on the date this Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this
Paragraph 2, and the person or persons in whose name or names the
certificates for Shares shall be issuable upon such exercise shall
become the holder or holders of record of such Shares at that time
and date. The certificates for the Shares so purchased shall be
delivered to the Holder within a reasonable time after the rights
represented by this Warrant shall have been exercised.
3. This Warrant may not be sold, transferred, assigned, or
otherwise disposed of at any time by the Holder unless the sale is
registered or the Company shall be furnished with an opinion of
counsel in form and substance satisfactory to it that such sale,
transfer, assignment or other disposition does not require
registration under the Act and a valid exemption is available under
applicable federal and state securities laws. Any permitted
transfer or assignment shall be effected by the Holder (i)
completing and executing the form of assignment at the end hereof
and (ii) surrendering this Warrant with such duly completed and
executed assignment form for cancellation, accompanied by funds
sufficient to pay any transfer tax, at the principal executive
office of the Company, accompanied by a written representation from
each such assignee addressed to the Company stating that such
assignee agrees to be bound by the terms of this Warrant; whereupon
the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Warrant or Warrants of like
tenor with appropriate legends restricting transfer under the Act
and representing in the aggregate rights to purchase the same
number of Shares as are purchasable hereunder.
4. The Company covenants and agrees that all Shares
purchased hereunder will, upon issuance, be duly and validly
issued, fully paid and non-assessable and no personal liability
will attach to the Holder thereof. The Company further covenants
and agrees that during the period within which this Warrant may be
exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant.
5. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at
law or in equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
6. (a) The Company hereby agrees to, as promptly as
practicable, subject to the availability of current financial
information, file a registration statement pursuant to the Act to
the end that any shares of common stock acquired upon the exercise
of this Warrant prior to its expiration may be publicly sold under
the Act and to register the Warrant for public resale by the holder
hereof. Said Warrants and shares hereinafter referred to as the
"Registerable Securities".
(b) The Company will use its best efforts to cause the
registration statement to become and remain effective until June
30, 1998; provided, that such Holder shall furnish the Company with
appropriate information in connection therewith as the Company may
reasonably request and furnish indemnification in the manner
provided in Paragraph 7 hereof; and provided, further, that the
Company shall not be required to file such registration statement
on more than one occasion. Except to the extent required by law or
as set forth herein, all costs and expenses of the Company related
to such registration statement shall be borne by the Company,
except for fees and expenses of counsel for the Holder, if any. At
its expense, the Company shall supply prospectuses in order to
facilitate the public sale of the Registrable Securities, use its
best efforts to register and qualify any of the Registrable
Securities for sale in such state as such Holder shall reside at
the time of the initial filing of the registration statement, the
cost of which to be borne by the Company, and furnish indemnifica-
tion in the manner provided in Paragraph 7 hereof.
7. (a) Whenever, pursuant to Paragraph 6, a registration
statement relating to any Registrable Securities is filed under the
Act, amended or supplemented, the Company, by executing this
Warrant, acknowledges that it will indemnify and hold harmless the
Holder against any losses, claims, damages or liabilities, joint or
several, to which the Holder may become subject, under the 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 such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon
the 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 Holder for any legal or other expenses
reasonably incurred by the Holder in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by the Holder for use
in the preparation thereof.
(b) Whenever, pursuant to Paragraph 6, a registration
statement relating to any Registrable Securities is filed under the
Act, amended or supplemented, the Holder by his acceptance of this
Warrant acknowledges that he will indemnify and hold harmless the
Company, each of its directors, officers and agents and each
person, if any, who controls the Company (within the meaning of the
Act) against any losses, claims, damages or liabilities to which
the Company or any such director, officer, agent or controlling
person may become subject, under the 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 or alleged
untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final
prospectus constituting a part thereof, or any amendment or
supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written
information furnished by the Holder for use in the preparation
thereof. The Holder will reimburse the Company or any such
director, officer, agent or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability
or action.
(c) After receipt by an indemnified party under this
Paragraph 7 of notice of the commencement of any action, such
indemnified party will, within 15 days thereof, give the indem-
nifying party notice of the commencement of such action if a claim
in respect thereof is to be made against any indemnifying party.
The omission by the indemnified party to notify the indemnifying
party will relieve the indemnifying party from any liability which
it may have to any indemnified party under this Paragraph 7.
Notice shall be mailed, delivered or telegraphed and confirmed, if
to any party, at its last known address.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
(e) In the event any indemnified party pays any amount
in total or partial settlement of any claim without the prior
written approval of any indemnifying party, which approval shall
not be unreasonably withheld, then the failure to obtain such
approval will relieve the indemnifying party from any liability it
may have to any indemnified party under this Paragraph 7.
8. In the event that the Company shall at any time subdivide
or combine into a greater or lesser number the number of outstand-
ing shares of Common Stock, the number of Shares purchasable upon
exercise of the Warrant shall be proportionately increased and the
Exercise Price proportionally decreased in the case of subdivision
or, in the case of combination, the number of Shares purchasable
upon the exercise of the Warrant shall be proportionately decreased
and the Exercise Price proportionately increased. Irrespective of
any adjustments in the Exercise Price or the number of Shares
purchasable upon exercise of the Warrant, the Warrant theretofore
or thereafter issued may continue to express the same price and
number and kind of Shares as are stated in the Warrant initially
issued.
9. The Warrants represented by this certificate are subject
to redemption by the Company at $.01 per Warrant, at any time upon
30 day notice if the closing bid price of the Company's common
stock equals or exceeds $4.00 per share for 20 consecutive days.
The terms of the redemption and other terms of these Warrants are
set forth in a Warrant Agreement between the Company and its
Warrant Agent, which agreement shall control the terms and
conditions of this Warrant.
10. This Warrant Certificate does not constitute an offer to
sell, nor does it confer any right to purchase securities of the
company until such time as the conditions precedent to its
exercisability have been fulfilled.
11. This Warrant shall be governed by and be in accordance
with the laws of the State of Nevada and may not be amended other
than by written instrument executed by the parties hereto except as
provided in the Warrant Agreement between the Company and the
Warrant Agent.
IN WITNESS WHEREOF, U.S. PLASTIC LUMBER CORP. has caused this
Warrant to be signed by its duly authorized officers.
U.S. PLASTIC LUMBER CORP., a
Nevada Corporation
By:
M. Scott Irons, Secretary David A. Farrow, President
T42(a)seriesa.esi
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the Holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by
such Warrant for, and to purchase thereunder, Shares of
the Common Stock of U.S. PLASTIC LUMBER CORP., and herewith makes
payment of $ therefore, and requests that the share
certificates be issued in the name(s) of, and delivered to
_________________________________________________________________
whose address(es) is (are) ______________________________________
_________________________________________________________________
________________________________________________________________.
Dated: _______________________
______________________________
(Signature)
______________________________
Name (Print or Type)
______________________________
Address
______________________________
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby assigns and
transfers unto _____________________________________________ the
right to purchase shares of the Common Stock of U.S. PLASTIC LUMBER
CORP. represented by the foregoing Warrant to the extent of
________ Shares, and appoints ___________________________, attorney
to transfer such rights on the books of ___________________________
__________________, with full power of substitution in the
premises.
Dated: _______________________
______________________________
(Signature)
______________________________
Name (Print or Type)
______________________________
Address
______________________________
T42(a)seriesA.esi
SERIES "B"
COMMON STOCK PURCHASE WARRANT
U.S. PLASTIC LUMBER CORP.
(a Nevada corporation)
Dated: , 199
THIS CERTIFIES THAT
(hereinafter called the "Holder") will in the future during the
period hereinafter specified, upon fulfillment of the conditions
and subject to the terms hereinafter set forth, be entitled to
purchase from U.S. PLASTIC LUMBER CORP., a Nevada corporation
(hereinafter called the "Company"), ______ shares (the "Shares") of
the Company's common stock, par value $.001 per share ("Common
Stock"), at an exercise price of $4.50 per Share (the "Exercise
Price").
1. During the period commencing with the effectiveness of
the registration statement which registers the Shares underlying
this Warrant and ending on June 30, 1998, unless extended by the
Company ("Expiration Date"), the Holder shall have the right to
purchase the Shares hereunder at the Exercise Price. After the
Expiration Date, the Holder shall have no right to purchase any
Shares hereunder and this Warrant shall expire thereon effective at
4:00 p.m., New York time.
2. The rights represented by this Warrant may be exercised
at any time within the period above specified, in whole or in part,
by (i) the surrender of this Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of
the Company (or such other office or agency of the Company as it
may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to
the Company of the Exercise Price then in effect for the number of
Shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the Holder to the
effect that such person agrees to be bound by all provisions
hereof. This Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the
close of business on the date this Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this
Paragraph 2, and the person or persons in whose name or names the
certificates for Shares shall be issuable upon such exercise shall
become the holder or holders of record of such Shares at that time
and date. The certificates for the Shares so purchased shall be
delivered to the Holder within a reasonable time after the rights
represented by this Warrant shall have been exercised.
3. This Warrant may not be sold, transferred, assigned, or
otherwise disposed of at any time by the Holder unless the sale is
registered or the Company shall be furnished with an opinion of
counsel in form and substance satisfactory to it that such sale,
transfer, assignment or other disposition does not require
registration under the Act and a valid exemption is available under
applicable federal and state securities laws. Any permitted
transfer or assignment shall be effected by the Holder (i)
completing and executing the form of assignment at the end hereof
and (ii) surrendering this Warrant with such duly completed and
executed assignment form for cancellation, accompanied by funds
sufficient to pay any transfer tax, at the principal executive
office of the Company, accompanied by a written representation from
each such assignee addressed to the Company stating that such
assignee agrees to be bound by the terms of this Warrant; whereupon
the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Warrant or Warrants of like
tenor with appropriate legends restricting transfer under the Act
and representing in the aggregate rights to purchase the same
number of Shares as are purchasable hereunder.
4. The Company covenants and agrees that all Shares
purchased hereunder will, upon issuance, be duly and validly
issued, fully paid and non-assessable and no personal liability
will attach to the Holder thereof. The Company further covenants
and agrees that during the period within which this Warrant may be
exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant.
5. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at
law or in equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
6. (a) The Company hereby agrees to, as promptly as
practicable, subject to the availability of current financial
information, file a registration statement pursuant to the Act to
the end that any shares of common stock acquired upon the exercise
of this Warrant prior to its expiration may be publicly sold under
the Act and to register the Warrant for public resale by the holder
hereof. Said Warrants and shares hereinafter referred to as the
"Registerable Securities".
(b) The Company will use its best efforts to cause the
registration statement to become and remain effective until June
30, 1998; provided, that such Holder shall furnish the Company with
appropriate information in connection therewith as the Company may
reasonably request and furnish indemnification in the manner
provided in Paragraph 7 hereof; and provided, further, that the
Company shall not be required to file such registration statement
on more than one occasion. Except to the extent required by law or
as set forth herein, all costs and expenses of the Company related
to such registration statement shall be borne by the Company,
except for fees and expenses of counsel for the Holder, if any. At
its expense, the Company shall supply prospectuses in order to
facilitate the public sale of the Registrable Securities, use its
best efforts to register and qualify any of the Registrable
Securities for sale in such state as such Holder shall reside at
the time of the initial filing of the registration statement, the
cost of which to be borne by the Company, and furnish indemnifica-
tion in the manner provided in Paragraph 7 hereof.
7. (a) Whenever, pursuant to Paragraph 6, a registration
statement relating to any Registrable Securities is filed under the
Act, amended or supplemented, the Company, by executing this
Warrant, acknowledges that it will indemnify and hold harmless the
Holder against any losses, claims, damages or liabilities, joint or
several, to which the Holder may become subject, under the 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 such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon
the 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 Holder for any legal or other expenses
reasonably incurred by the Holder in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by the Holder for use
in the preparation thereof.
(b) Whenever, pursuant to Paragraph 6, a registration
statement relating to any Registrable Securities is filed under the
Act, amended or supplemented, the Holder by his acceptance of this
Warrant acknowledges that he will indemnify and hold harmless the
Company, each of its directors, officers and agents and each
person, if any, who controls the Company (within the meaning of the
Act) against any losses, claims, damages or liabilities to which
the Company or any such director, officer, agent or controlling
person may become subject, under the 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 or alleged
untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final
prospectus constituting a part thereof, or any amendment or
supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written
information furnished by the Holder for use in the preparation
thereof. The Holder will reimburse the Company or any such
director, officer, agent or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability
or action.
(c) After receipt by an indemnified party under this
Paragraph 7 of notice of the commencement of any action, such
indemnified party will, within 15 days thereof, give the indem-
nifying party notice of the commencement of such action if a claim
in respect thereof is to be made against any indemnifying party.
The omission by the indemnified party to notify the indemnifying
party will relieve the indemnifying party from any liability which
it may have to any indemnified party under this Paragraph 7.
Notice shall be mailed, delivered or telegraphed and confirmed, if
to any party, at its last known address.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
(e) In the event any indemnified party pays any amount
in total or partial settlement of any claim without the prior
written approval of any indemnifying party, which approval shall
not be unreasonably withheld, then the failure to obtain such
approval will relieve the indemnifying party from any liability it
may have to any indemnified party under this Paragraph 7.
8. In the event that the Company shall at any time subdivide
or combine into a greater or lesser number the number of outstand-
ing shares of Common Stock, the number of Shares purchasable upon
exercise of the Warrant shall be proportionately increased and the
Exercise Price proportionally decreased in the case of subdivision
or, in the case of combination, the number of Shares purchasable
upon the exercise of the Warrant shall be proportionately decreased
and the Exercise Price proportionately increased. Irrespective of
any adjustments in the Exercise Price or the number of Shares
purchasable upon exercise of the Warrant, the Warrant theretofore
or thereafter issued may continue to express the same price and
number and kind of Shares as are stated in the Warrant initially
issued.
9. The Warrants represented by this certificate are subject
to redemption by the Company at $.01 per Warrant, at any time upon
30 day notice if the closing bid price of the Company's common
stock equals or exceeds $6.00 per share for 20 consecutive days.
The terms of the redemption and other terms of these Warrants are
set forth in a Warrant Agreement between the Company and its
Warrant Agent, which agreement shall control the terms and
conditions of this Warrant.
10. This Warrant Certificate does not constitute an offer to
sell, nor does it confer any right to purchase securities of the
company until such time as the conditions precedent to its
exercisability have been fulfilled.
11. This Warrant shall be governed by and be in accordance
with the laws of the State of Nevada and may not be amended other
than by written instrument executed by the parties hereto except as
provided in the Warrant Agreement between the Company and the
Warrant Agent.
IN WITNESS WHEREOF, U.S. PLASTIC LUMBER CORP. has caused this
Warrant to be signed by its duly authorized officers.
U.S. PLASTIC LUMBER CORP., a
Nevada Corporation
By:
M. Scott Irons, Secretary David A. Farrow, President
T42(a)seriesB.esi
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the Holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by
such Warrant for, and to purchase thereunder, Shares of
the Common Stock of U.S. PLASTIC LUMBER CORP., and herewith makes
payment of $ therefore, and requests that the share
certificates be issued in the name(s) of, and delivered to
_________________________________________________________________
whose address(es) is (are) ______________________________________
_________________________________________________________________
________________________________________________________________.
Dated: _______________________
______________________________
(Signature)
______________________________
Name (Print or Type)
______________________________
Address
______________________________
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby assigns and
transfers unto _____________________________________________ the
right to purchase shares of the Common Stock of U.S. PLASTIC LUMBER
CORP. represented by the foregoing Warrant to the extent of
________ Shares, and appoints ___________________________, attorney
to transfer such rights on the books of ___________________________
__________________, with full power of substitution in the
premises.
Dated: _______________________
______________________________
(Signature)
______________________________
Name (Print or Type)
______________________________
Address
______________________________
T42(a)seriesB.esi
THOMAS G. KIMBLE & ASSOCIATES
311 South State Street, Suite 440
Salt Lake City, Utah 84111
(801) 531-0066
March 4, 1997
Board of Directors
U.S. Plastic Lumber Corp.
2300 W. Glades Road, Suite 440 W
Boca Raton, Florida 33431
Re: Opinion and Consent of Counsel with respect to
Registration Statement on Form SB-2
TO WHOM IT MAY CONCERN:
You have requested the opinion and consent of this law firm, as
counsel, with respect to the proposed issuance and public
distribution of certain securities of the Company pursuant to the
filing of a registration statement on Form SB-2 with the Securities
and Exchange Commission.
The proposed offering and public distribution relates to 950,000
shares of Common Stock, $.0001 par value to be offered and sold to
the holders of Series A Warrants at a price of $2.50 per share. It
is our opinion that the shares of Common Stock will, when issued in
accordance with the terms and conditions set forth in the
registration statement, be duly authorized, validly issued, fully
paid and nonassessable shares of common stock of the Company in
accordance with the corporation laws of the State of Nevada.
We hereby consent to be named as counsel for the Company in the
registration statement and prospectus included therein.
Sincerely yours,
THOMAS G. KIMBLE & ASSOCIATES
/s/ Van L. Butler
Van L. Butler
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT, made as of the ______ day of April, 1994, by and
between Earth Care Products of America, Inc., a Florida corporation ("Buyer"),
Jeanell Sales Corp., a Tennessee corporation ("Seller"), and Jean and Thomas
P. Brock (collectively, the "Brocks").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from the Seller, and the Seller
desires to sell to the Buyer, all of the Assets (as hereinafter defined); and
WHEREAS, as a material inducement to Buyer to purchase the Assets
of Seller, Brocks, the sole shareholders of Seller, desire to make certain
representations and warranties and agrees to be bound by certain covenants and
obligations as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Transfer of Assets. Subject to the terms and conditions set
forth in this Agreement, Seller does hereby sell, convey, transfer, assign and
deliver to Buyer, and Buyer does hereby purchase from Seller, all of the
assets, properties and businesses of Seller, tangible or intangible, as the
same shall exist on the date hereof (exclusive of real estate property) (the
assets being transferred hereunder are collectively referred to as the
"Assets"), including without limitation, the following:
(a) All machinery, tools, furniture, equipment, leasehold
improvements and other tangible personalty owned by Seller, including without
limitation those items described on Schedule 1.1(a) attached hereto and
incorporated herein (collectively, the "Equipment");
(b) All of Seller's inventory of merchandise, raw
materials, plastics, work in process and finished goods, including without
limitation those items described on Schedule 1.1(b) attached hereto and
incorporated herein (collectively, the "Inventory");
(c) All of Seller's other recyclable goods, including
without limitation, any scrap aluminum and copper metals;
(d) All licenses, consents and permits issued by any
governmental authority which are assignable and which relate to the Seller or
its business;
(e) All warranties which the Seller may have received from
manufacturers or suppliers as to any of the Assets which are transferable;
(f) All of Seller's customer lists, profile cards,
telephone lists and mailing lists;
(g) All formulae, mixes, secret processes and know how
with respect to the manufacture and production of Seller's products, including
without limitation, plastic lumber and reinforced plastic lumber; and
(h) All rights to the Seller's telephone numbers and Post
Office Boxes, if any, and, in order to eliminate potential confusion with past
customers of Seller, the name "Jeanell Sales", including any trademarks,
servicemarks or copyrights related thereto.
1.2 Purchase Price.
(a) Subject to adjustment as provided in paragraph (b)
hereof, the purchase price for the Assets shall be Two Hundred Seventy
Thousand Dollars ($270,000) (the "Purchase Price") plus the assumption of the
liabilities set forth in Section 1.4. The Purchase Price shall be payable by
the Buyer as follows: (i) Fifty Thousand Dollars ($50,000) shall be paid to
Seller by cashier's check or other immediately available funds on the date
hereof and shall be evidenced by a promissory note in the form attached hereto
as Exhibit 1.2(a) (the "Note"), which Note shall be guaranteed by the Brocks
pursuant to a Guaranty in the form attached hereto as Exhibit 1.2(a)-2 (the
"Guaranty"); and (ii) the balance of Two Hundred Twenty Thousand Dollars
($220,000) (the "Remaining Balance") shall be paid by cashier's check or other
immediately available funds on the Closing Date (as defined in Section 7.1
hereof). Simultaneous with the execution of this Agreement, Seller shall
execute and deliver to Buyer the Note and Brocks shall execute and deliver the
Guaranty.
(b) The Purchase Price shall be subject to downward
adjustment by an amount equal to any payments received by Seller prior to the
Closing Date for Work-in-process (as defined in Section 1.4 hereof)(the
"Prepayments"). A list of Prepayments as of April 14, 1994 is attached hereto
as Schedule 1.2(b) and shall be updated as of the Closing Date.
1.3 Allocation of Purchase Price. Buyer and Seller and Brocks
agree that they each will take the same position, as determined by Buyer in
its reasonable discretion, with regard to the allocation of the purchase price
(which may include allocations to the Employment Agreements, including the
covenants not to compete contained therein, as provided by Sections 6.10 and
6.12 hereof) for tax purposes and will use such allocation in any and all tax
returns or financial statements.
1.4 Assumption of Certain Designated Liabilities. At the
Closing and as part of the consideration for this transaction, the Seller
shall assign to the Buyer all of its rights, title and interests, and the
Buyer shall assume as of the Closing Date and agree to pay when due and
otherwise perform thereunder, all of Seller's obligations and liabilities
which arise or relate to the period commencing on and after the Closing Date
under those unfilled orders, contracts and other commitments for sale of
Seller's products and services, as set forth in Schedule 1.4 attached hereto
and incorporated herein (collectively, the "Work-in-process").
1.5 No General Assumption of Liabilities. Except as
specifically set forth on Schedule 1.4 hereof, the Buyer does not and shall
not assume any debts, obligations or liabilities of any nature whatsoever of
the Seller or Brocks arising before or after the date hereof or in connection
with any of the Assets or the business of Seller.
1.6 Payment of Certain Fees and Taxes. Seller agrees to pay
recording costs and all sales, transfer and license taxes and fees payable
upon the transfer to Buyer of the Assets to be conveyed pursuant to this
Agreement. In addition, Seller shall be responsible for: (a) any business,
occupation, withholding, or similar tax, (b) any taxes of any kind related to
any period before the Closing Date, or, if the transactions contemplated by
this Agreement are not consummated for any reason, any taxes for any period,
or (c) all income tax liabilities imposed on Seller (including, without
limitation, because of the sale of the Assets contemplated hereby).
2. REPRESENTATIONS AND WARRANTIES BY SELLER AND BROCKS. Seller and
Brocks jointly and severally represent and warrant to Buyer that:
2.1 Organization and Good Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Tennessee, and has all necessary corporate powers to own its properties and
carry on its business as now owned and operated by it.
2.2 Taxes. Except as provided on Schedule 2.2 (the "Outstanding
Taxes"), within the times and in the manner prescribed by law, Seller has
filed all foreign, federal, state, county and local tax returns required by
law and has paid all taxes, assessments, and penalties (collectively, "Taxes")
due and payable. There are presently no disputes as to taxes of any nature
payable by Seller. There are no present or, to the best of Seller's knowledge
and belief, potential disputes as to Taxes payable by Seller, that could
themselves have or result in any material adverse effect on Seller, its
business, or the Assets.
2.3 Inventory. The Inventory consists of items of a quality and
quantity usable and saleable in the ordinary course of Seller's business. All
items included in the Inventory are the property of Seller. No items included
in the Inventory have been pledged as collateral or are held by Seller on
consignment from others.
2.4 Equipment. Schedule 1.1(a) to this Agreement is a complete
and accurate schedule describing all the Equipment. The Equipment constitutes
all tangible personal property necessary for the conduct by Seller of its
business as now conducted. The Equipment is in good and operable condition,
reasonable wear and tear excepted.
2.5 Title and Interests in Property. Seller has possession and
good title to all the Assets and interest in Assets being purchased hereunder,
whether personal, mixed, tangible or intangible, which constitute all the
assets and interests in assets that are required in the businesses of Seller
as now conducted. Except for the lien of the Bank of Sharon, which lien shall
be released on or before the Closing Date, all of the Assets are free and
clear of restrictions on or conditions to transfer or assignment, and free and
clear of mortgages, liens, pledges, options, charges, encumbrances, claims or
security agreements. There are no outstanding agreements or commitments of
any nature obligating Seller to transfer the Assets to any other party. Upon
the sale, transfer and assignment of the Assets hereunder, there shall be
vested in Buyer good and valid title to all of the Assets free and clear of
any lien, security interest, encumbrance or restrictions.
2.6 Legal Compliance. Seller has complied with, and is not in
violation of, applicable federal, state and local statutes, laws and
regulations (including, without limitation, any applicable environmental,
safety and health, building, zoning, or other law, ordinance, or regulation)
affecting its employees, the operation of its business or the Assets
(collectively, "Laws"). Seller has not received notice of any violation of
any Laws and there are no such violations.
2.7 Litigation. There is no suit, claim, audit, action,
arbitration, or legal, administrative, or other proceeding, or non-insured
workmen's compensation claim, or governmental investigation pending or
threatened against or to the best of Seller's knowledge affecting (including
those involving Seller as plaintiff) Seller's business or the Assets. Seller
is not a party or subject to any judgment or decree or order entered in any
suit or proceeding brought by any governmental agency or by any other person
enjoining it in respect of any aspect of its business. Seller is not in
default with respect to any order, writ, injunction or decree of any federal,
state, local, or foreign court, department, agency or instrumentality.
2.8 Violations. The consummation of the transactions
contemplated by this Agreement and the other documents and instruments
required to be delivered herein will not result in or constitute any of the
following: (a) a violation of any provision of the articles of incorporation,
bylaws or other governing documents of Seller; (b) to the best of Seller's
knowledge, a violation of any provisions of any Law or of any writ or decree
of any court or governmental instrumentality; (c) a default or an event that,
with notice or lapse of time or both, would be a default, breach, or violation
of a lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, or other agreement, instrument, or
arrangement to which Seller or Brocks are a party or by which any of them or
the property of any of them is bound, except as otherwise provided herein or
in any Exhibits hereto; (d) an event that would permit any party to terminate
any agreement or to accelerate the maturity of any indebtedness or other
obligation of Seller, except as otherwise provided herein or in any exhibits
hereto; or (e) the creation or imposition of any lien, pledge, option,
security agreement, equity, claim, charge, encumbrance or other restriction or
limitation on the capital stock or on any of the properties or assets of
Seller.
2.9 Legal Authority. Seller and Brocks have the right, power,
legal capacity, and authority to enter into and perform its or their
obligations under this Agreement and all documents delivered in connection
herewith, and this Agreement constitutes, and each document or instrument to
be executed by Seller or Brocks pursuant to the terms hereof upon its
execution and delivery will have been duly executed and delivered and will
constitute, the valid and legally binding obligation of Seller or Brocks, as
the case may be, enforceable in accordance with its terms. The execution and
delivery of this Agreement and of each document or instrument to be executed
by Seller pursuant to the terms hereof, has been duly authorized by Seller's
Board of Directors and stockholders.
2.10 Licenses and Permits. Schedule 2.10 is a schedule of all
licenses, consents and permits issued by any governmental authority used in
connection with the operation of Seller's business. All such licenses,
consents and permits have been duly and validly issued and are in full force
and effect.
2.11 Consents. Except as set forth on Schedule 2.11, to the best
of Seller's and Brocks' knowledge, no consent, approval or authority of any
nature, or other formal action, by any person, firm or corporation, or any
agency, bureau or department of any government or any subdivision thereof, not
already obtained, is required in connection with the execution and delivery of
this Agreement by Seller or Brocks, and the consummation by Seller and Brocks
of the transactions provided for herein.
2.12 Prepaid Work-in-Process. Schedule 1.2(b) to this Agreement
is a complete and accurate listing of all payments received on account of or
relating to Work-in-process.
3. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants that:
3.1 Organization and Good Standing. Buyer is a Florida
corporation, duly organized, validly existing, and in good standing under the
laws of Florida. Buyer has all necessary powers to own its properties and
carry on its business as now owned and operated by it.
3.2 Legal Authority. Buyer has the right, power, legal
capacity, and authority to enter into and perform its obligations under this
Agreement and this Agreement constitutes, and each document or instrument to
be executed by Buyer pursuant to the terms hereof upon its execution and
delivery will have been duly executed and delivered and will constitute, the
valid and legally binding obligation of Buyer, enforceable in accordance with
its terms. The execution and delivery of this Agreement by Buyer has been,
and the execution and delivery of each document or instrument to be executed
by Buyer pursuant to the terms hereof will be, duly authorized by all
necessary action.
4. OBLIGATIONS OF THE PARTIES BEFORE CLOSING.
4.1 Rights of Access.
(a) Buyer and its counsel, employees, accountants, and
other representatives shall have full access to all properties, books,
accounts, records, contracts, files, correspondence, tax records and documents
of or relating to Seller or the Assets. Seller shall at its sole cost and
expense promptly furnish or cause to be furnished to Buyer and its
representatives all data and information concerning such businesses, assets,
finances, and properties of Seller that may be requested. Buyer, at its cost,
shall have the right to cause its agents to conduct such reviews and
investigations as Buyer deems necessary or advisable. Buyer shall have the
right to consult with the certified public accountants for Seller and said
accountants are hereby authorized to disclose all information in their
possession to Buyer with respect to Seller and the assets and businesses being
purchased hereunder.
(b) Buyer agrees that, unless and until the Closing has
been consummated, Buyer and its officers, directors, and other representatives
will hold in strict confidence all data and information obtained in connection
with this transaction or Agreement, with respect to the businesses of Seller;
and if the transactions contemplated by this Agreement are not consummated,
Buyer will return to Seller all data and information made available to Buyer
in connection with this transaction.
4.2 Continuation of Business. Seller will carry on its
businesses and activities diligently and in the same manner as they previously
have been carried out, and shall not make or institute any unusual or novel
methods of purchase, sale, lease, management, accounting, or operation that
will vary from those methods used by Seller as of the date of this Agreement.
4.3 Specific Acts. Seller and Brocks will use their respective
best efforts, without making any commitments on behalf of Buyer, to preserve
Seller's business intact, including, without limiting the generality of the
foregoing:
(a) do or cause to be done all things necessary to
preserve and keep in full force and effect Seller's corporate existence as
described in Section 2.1 and all franchises, rights and privileges, goodwill,
assets, real and personal property, operations, licenses, permits, approvals,
businesses and prospects, and comply with the requirements of all Laws and all
rules, regulations and orders of all regulatory agencies and authorities
having jurisdiction over Seller, its business, assets or its properties;
(b) prior to the date upon which penalties attach thereto,
pay and discharge, or cause to be paid and discharged, all lawful taxes,
assessments and governmental charges or levies imposed upon Seller or upon
Seller's income or property except those for which a dispute exists or the
claim for which may be questionable provided that such matters are contested
in good faith by appropriate proceedings, and are disclosed to Buyer;
(c) promptly notify Buyer in writing of any actual or
threatened investigation, claim, action, suit or proceeding, and any
administrative or governmental actions, suits or claims which are commenced
against, by or relating to Seller the Assets or this Agreement before any
court or any governmental department, commission, board, bureau, agency or
instrumentality;
(d) refrain from knowingly doing any act or omitting to do
any act, or knowingly permit any act or omission to act, which will cause a
breach of any agreement to which Seller is bound or a failure of performance
of any obligation of Seller;
(e) continue to employ the employees of Seller, and
promptly notify Buyer if Seller has reason to know that any employee does not
plan to continue in his respective position of employment at any time after
the date of this Agreement;
(f) preserve each of Seller's existing relationships with
suppliers, customers and others having material business relationships with
any of them; and
(g) to keep the Assets in good working order and repair,
reasonable wear and tear excepted, and perform all necessary repairs,
maintenance, and replacements.
4.4 Insurance. With respect to the Assets and until 12:01 a.m.
on the day immediately following the Closing Date Seller will keep in full
force and effect insurance comparable in amount and scope of coverage to that
now maintained by it.
4.5 Prohibited Acts. Seller shall not, without Buyer's prior
written consent, do, or agree to do, any of the following acts:
(a) transfer, sell, assign or otherwise dispose of any of
its assets other than in the ordinary course of its business, provided Seller
shall dispose of none of the Assets in such manner other than Inventory;
(b) assume, guarantee, endorse or become liable on, or
agree to repurchase the obligation of any person, firm or corporation, or
suffer to exist any such assumption, guarantee, endorsement, liability or
repurchase agreement except for the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business; or
(c) make any loan or advance to, or make any investment
in, any person, firm or corporation whether by acquisition of stock or
indebtedness, by loan, guarantee or otherwise, or create any Account
Receivable, except in the ordinary course of business.
4.6 Business Documentation. At the request of Buyer, Seller
will document and describe any of its business procedures specified by Buyer,
in form and content satisfactory to Buyer in Buyer's sole and absolute
discretion.
4.7 Discussions with Others. Neither Seller nor Brocks will nor
will permit or authorize any officer, director, employee or representative of
Seller to solicit or encourage inquiries (including by way of furnishing
information) or the making of any proposal which is reasonably expected to
lead to any acquisition or purchase of any portion of the Assets or any merger
or consolidation of Seller with any third party.
4.8 Pursuit of Consents. Commencing on the date hereof and
continuing to the Closing, Seller and Brocks shall use their best efforts and
due diligence to obtain all consents and approvals necessary for the lawful
consummation of the transactions contemplated hereby, including the release of
the Bank of Sharon's lien on the Assets. Buyer shall cooperate in all
reasonable respects to enable Seller to obtain the necessary consents.
4.9 Resolution of Tax Liens. Commencing on the date hereof and
continuing to the Closing, Seller and Brocks shall use their best efforts and
due diligence to obtain payoff letters from the Internal Revenue Service as to
the amount owing of Outstanding Taxes (including penalties and interest),
together with a commitment to release any and all federal tax liens, including
without limitation, that certain Notice of Federal Tax Lien dated June 24,
1992 in the amount of $26,985.28, upon the payment of same (collectively, the
"Tax Payoff Documents").
4.10 Update of Schedules. Seller shall update all schedules and
exhibits referred to in Section 2 hereof, including the prepaid Work-in-
process schedule provided in Section 2.12, through and as of the Closing Date,
and shall deliver such updated schedules and exhibits to Buyer.
5. BULK TRANSFER. Seller shall not be required to comply with any
applicable Bulk Transfer Law in respect to the transactions contemplated by
this Agreement. The Seller and Brocks shall, jointly and severally,
indemnify, defend, and hold harmless the Buyer against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, including, but not limited to, interest,
penalties, and attorneys' and paraprofessional fees and disbursements
(including, but not limited to, any attorneys' and paraprofessional fees and
disbursements incident to any appeals), that it shall incur or suffer, which
arise, result from, or relate to failure by the Seller to comply with any such
applicable Bulk Transfer Law. Seller reserves the right to contest in good
faith any claims made pursuant to such laws.
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
6.1 General. The obligations of Buyer to purchase the Assets
under this Agreement are subject to the satisfaction, at or before the
Closing, of all the conditions set out below in this Section 6. Buyer may
waive in writing any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Buyer of any of its other rights or remedies, at law or
in equity, if Seller or Brocks shall be in default of any of their
representations, warranties, or covenants under this Agreement. Written
notice of all waivers by Buyer, if any, shall be delivered to Seller at or
before the Closing.
6.2 Renewal of Representations and Warranties. Except as
otherwise permitted by this Agreement, all representations and warranties by
Seller and Brocks in this Agreement or in any written statement that shall be
delivered to Buyer by any of them under this Agreement shall be true on and as
of the Closing Date as though made at that time. No written statement
contrary to the representations and warranties herein shall result in or cause
the waiver of any or all of Seller's or Stockholders' representations and
warranties herein.
6.3 Performance of Covenants. Seller and Brocks shall have
performed, satisfied, and complied with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by
them, or any of them, on or before the Closing Date.
6.4 Adverse Changes. During the period from the date of this
Agreement to the Closing Date there shall not have been any material adverse
change in the financial condition or the results of operations of Seller. If
any of the Assets to be transferred or conveyed to Buyer pursuant to this
Agreement is damaged or destroyed by fire or other casualty prior to the
Closing Date and the aggregate amount of all such damage or destruction equals
or exceeds $20,000, Buyer may terminate this Agreement and both parties shall
thereupon be relieved of liability under this Agreement, or Buyer may elect to
close and accept in lieu of any diminution in the purchase price the insurance
proceeds payable with respect to the damage; provided, however, that Buyer
shall be required to make one of these elections in such case.
6.5 Performance Certificate. Buyer shall have received a
certificate, dated the Closing Date, signed and verified by Seller's President
certifying, in such form and detail as Buyer and its counsel may reasonably
request, that the conditions specified in Article 6 of this Agreement have
been fulfilled.
6.6 Due Authorization. The execution and delivery of this
Agreement by Seller and the performance of its covenants and obligations under
it, shall have been duly authorized by all necessary corporate action, and
Buyer shall have received copies of all resolutions pertaining to that
authorization, certified by the secretary of Seller, all in form and substance
satisfactory to Buyer and its counsel.
6.7 Consents. All necessary agreements and consents of any
person to the consummation of the transactions contemplated by this Agreement,
or otherwise pertaining to the matters covered by it shall have been obtained
by Seller at its sole cost and expense and delivered to Buyer in form and
substance satisfactory to Buyer and its counsel.
6.8 Tax Payoff Documents. Seller shall have obtained the Tax
Payoff Documents in form and substance acceptable to Buyer.
6.9 Corporate Documentation. Buyer shall have received the
following with respect to Seller:
(a) Certificate of good standing (as of a date not more
than five (5) days prior to the Closing Date) from the Secretary of State of
Tennessee; and
(b) A certificate executed by Seller's secretary, dated as
of the Closing Date, with respect to the incumbency of its officers and
attesting to the validity and accuracy of Seller's articles of incorporation
and by-laws.
6.10 Perry Employment Agreement. Thomas P. Brock shall have
entered into an Employment Agreement as of the Closing Date with the Buyer in
the form attached hereto as Exhibit 6.10, which Employment Agreement also
contains a covenant not-to-compete.
6.11 Lease/Option Agreement. Seller and Buyer shall have entered
into a Lease/Option Agreement relating to the lease of the real property
located at Sharon, Tennessee, together with all improvements thereon, in the
form attached hereto as Exhibit 6.11 (the "Lease").
6.12 Employment Agreement. Buyer and Thomas G. Brock shall have
executed and delivered an Employment Agreement as of the Closing Date in the
form attached hereto as Exhibit 6.12, which Employment Agreement also contains
a covenant not to compete.
7. THE CLOSING.
7.1 Time and Place. The transfer of the Assets by Seller to
Buyer (the "Closing") shall take place at the office of counsel for Buyer,
Proskauer Rose Goetz & Mendelsohn, at One Boca Place, 2255 Glades Road, Suite
340 West, Boca Raton, Florida 33431 at ________ a.m. local time, on the third
business day following satisfaction or waiver of all conditions precedent to
Buyer's obligations or at such other time and place as the parties may agree
to in writing; but in no event later than June 1, 1994, unless otherwise
extended by mutual agreement of the parties (the "Closing Date").
7.2 Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Buyer the following instruments, in form and
substance satisfactory to Buyer and its counsel:
(a) A certificate executed by the President of Seller and
each of the Brocks, dated the Closing Date, certifying that Seller's and
Brocks' representations and warranties in this Agreement are true and correct
at and as of the Closing Date, as though each representation and warranty had
been made on that date;
(b) Each of the documents and certificates referred to in
Article 6 hereof, including without limitation, the Tax Payoff Documents, the
Lease, and the Consulting Agreement;
(c) Such other deeds, bills of sale, endorsements,
assignments and other good and sufficient instruments of conveyance and
transfer as shall be effective to vest in Buyer all of Seller's rights, title
and interests in and to the Assets; and
(d) All contracts and copies of all documents,
instruments, books, records and data of Seller relating to the Assets.
Simultaneously with the consummation of the transfer of the
Assets, Seller, through its officers, agents, and employees, will put Buyer
into full possession and enjoyment of all properties and assets to be conveyed
and transferred by this Agreement.
Seller and Brocks, at any time before or after the Closing Date,
will execute, acknowledge, and deliver any further deeds, assignments,
conveyances, and other assurances, documents, and instruments of transfer,
reasonably requested by Buyer, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Buyer for the
purpose of assigning, transferring, granting, conveying, and confirming to
Buyer, or reducing to possession, any or all property to be conveyed and
transferred by this Agreement.
7.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to
Seller the following against delivery of the items specified in Section 7.2:
(a) The original Note and Guaranty;
(b) The Remaining Balance, less an amount equal to the
outstanding Tax Obligations as set forth in the Tax Payoff Documents and the
amount necessary for the Bank of Sharon to release its lien on the Assets,
which Buyer shall pay directly to the IRS or the Bank of Sharon, as the case
may be;
(c) The Lease; and
(d) A certificate executed by the President or Chief
Executive Officer of Buyer, dated the Closing Date, certifying that all
Buyer's representations and warranties in this Agreement are true and correct
at and as of the Closing Date, as though each representation and warranty had
been made on that date.
8. TERMINATION.
8.1 Termination of Agreement and Abandonment of Purchase.
Anything herein to the contrary notwithstanding, this Agreement and the
purchase contemplated hereby may be terminated as follows, and in no other
manner:
(a) at any time by mutual consent of Seller and Buyer;
(b) by Buyer, at any time in the event of any breach of a
representation, warranty or covenant by Seller or Brocks; provided Seller or
Brocks, as the case may be, shall have 5 days after notice of such breach to
cure such breach to the satisfaction of Buyer;
(c) subject to earlier termination pursuant to the
provisions of Section 6.4 hereof, by Buyer, if by the Closing Date the
transactions contemplated by this Agreement have not otherwise been
consummated, unless due to the failure by Buyer to perform its covenants and
obligations under this Agreement; or
(d) by Seller, if by the Closing Date the transactions
contemplated by this Agreement have not otherwise been consummated, unless due
to the failure by Seller to perform its covenants and obligations under this
Agreement.
8.2 Results of Termination. Any termination of this Agreement
shall operate as a complete release and extinguishment of all liabilities and
obligations of each party to any other party to this Agreement; provided,
however, that any termination pursuant to either Section 8.1 (b) or Sections
8.1(c) or 8.1(d) due to either a breach by Seller or Brocks or the failure by
Buyer or Seller or Brocks to perform any of their respective covenants or
obligations hereunder (the party breaching or failing to perform shall be
referred to as the "Failing Party") shall not affect the rights of the non-
Failing Party to pursue all of its rights and remedies for breach of this
Agreement by the Failing Party. Except in the event of termination of this
Agreement by Seller pursuant to Section 8(d) as a result of Buyer's failure to
perform any of its covenants or obligations hereunder, the Deposit shall be
immediately returned to the Buyer. Any termination of this Agreement pursuant
to Section 6.4 hereof shall not be deemed to result from a breach of this
Agreement.
9. OBLIGATIONS AND OTHER TRANSACTIONS AFTER CLOSING.
9.1 Indemnification.
(a) Seller and Brocks shall, jointly and severally,
indemnify, defend, and hold harmless Buyer from and against any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, including, but not limited to, interest,
penalties, and attorneys' and paraprofessional fees and disbursements, that
Buyer shall incur or suffer, which arise, result from, or relate to: (i) any
breach of, or failure by Seller or Brocks to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any exhibit, or other instrument or document furnished or to be furnished by
Seller or Brocks under this Agreement, (ii) the operation of Seller's business
prior to the Closing Date, including any customer complaints which were based
on work performed prior to the Closing Date or (iii) any liability of Seller
or Brocks not expressly assumed hereunder, including any liability affecting
the Assets as a result of any applicable Bulk Transfer Law or the termination
of Seller's employees pursuant to Section 9.2 hereof.
(b) Buyer shall indemnify, defend and hold harmless Seller
and Brocks from and against any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, and deficiencies,
including, but not limited to, interest, penalties, and attorneys' and
paraprofessional fees and disbursements, that shall incur or suffer, which
arise, result from, or relate to any breach of, or failure to perform, any of
its representations, warranties, covenants, or agreements in this Agreement or
in any exhibit, or other instrument or document furnished or to be furnished
by Buyer under this Agreement.
(c) A party seeking indemnification hereunder shall
promptly notify the other of the existence of any claim, demand or other
matter to which the other's indemnification obligations would apply, and if a
third party claim reasonably and in good faith disputed by such party shall
give it or them a reasonable opportunity to defend the same at its or their
own expense and with counsel of its or their own selection; provided that the
party seeking indemnification shall at all times also have the right to fully
participate in the defense at its expense. If the other party shall within a
reasonable time after this notice fail to defend, the party seeking
indemnification shall have the right, but not the obligation, to undertake the
defense of, and to compromise or settle (exercising reasonable business
judgment) the claim or other matter on behalf, for the account, and at the
risk, of the other party. A party obligated to provide indemnification
hereunder shall satisfy its or their indemnification obligations in cash
within thirty (30) days after receipt of notice of a claim from the other
party, or if with respect to a third party claim being defended in good faith
by the party with the indemnification obligation, upon resolution of such
claim and in any event not later than the rendering of a judgment by a court
or other tribunal with respect to such claim.
(d) In the event Seller and Brocks refuse or fail to
indemnify Buyer pursuant to any indemnification obligation under this
Agreement, Buyer shall have the right to set-off and deduct the amount of such
obligation from any amounts now or hereafter owed by Buyer to Seller or Brocks
under any agreement (including amounts owing in the event of exercise of
Buyer's purchase option under the Lease) or obligation and/or the Buyer shall
have the right to proceed directly against Seller or Brocks for the indemnity
obligation.
9.2 Employees. Seller will terminate the employment of each of
its employees, effective at 12:01 a.m. on the day following the date hereof,
and will pay all liabilities relating to its employment of and termination of
such employees. Seller shall assist Buyer in the orderly transition and
immediate re-employment by Buyer of such of Seller's employees designated by
Buyer.
9.3 Taxes. Seller shall file all withholding tax reports for
all periods ending prior to and on the date hereof, shall file all taxes for
such periods and will be entitled to any refunds of withholding taxes paid by
it with respect to such periods.
9.4 Name Change. Within thirty (30) days of the date hereof,
Seller shall take all necessary steps to change the name of Seller, including
amending its Articles of Incorporation, so as to delete therefrom the phrase
"Jeanell Sales". Seller further agrees that it shall not use any confusingly
similar name and that all rights and goodwill associated with its name are
being transferred to Buyer hereunder.
9.5 Collection of Accounts Receivable. Buyer agrees that any
payments received by Buyer from an account debtor of Seller in payment of an
account receivable (other than with regard to Work-in-process) of Seller shall
be turned over to Seller. Buyer shall have no obligation to collect any such
accounts receivable. Seller agrees (i) that it shall promptly notify Buyer of
any delinquencies in its collection of accounts receivable, (ii) not to use
any form of collection procedure or mechanism which Buyer deems reasonably
objectionable and (iii) to promptly remit to Buyer any payments received after
the Closing Date relating to Work-in-process.
10. MISCELLANEOUS.
10.1 Brokers. Each of the parties represents and warrants that
it or he has dealt with no broker or finder in connection with any of the
transactions contemplated by this Agreement and, insofar as it or he knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
10.2 Amendments. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed
by the party as to whom enforcement of any such amendment, supplement, waiver
or modification is sought and making specific reference to this Agreement.
10.3 Assignments. No party shall assign his or its rights and/or
obligations hereunder without the prior written consent of each other party to
this Agreement, except that Buyer may freely assign this Agreement (and any of
the Exhibits hereto) and its rights and obligations hereunder (or thereunder)
to any corporation controlled by, controlling, under common control with, or
otherwise affiliated to, the Buyer.
10.4 Binding Effect. All of the terms and provisions of this
Agreement, whether so expressed or not, shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their respective legal
representatives, successors and permitted assigns.
10.5 Notices. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
(including telex and telegraphic communication) and shall be (as elected by
the person giving such notice) hand delivered by messenger or courier service,
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
If to Buyer:
2300 Glades Road
Suite 440 West
Boca Raton, FL 33431
Attn: David A. Farrow, President
If to Seller or Brocks:
Sharon Industrial Park
P. O. Box 537
Sharon, TN 38255-0537
Attn: Thomas P. Brock
or to such other address as any party may designate by notice complying with
the terms of this Section. Each such notice shall be deemed delivered (a) on
the date delivered if by personal delivery; (b) on the date telecommunicated
if by telegraph; (c) on the date of transmission with confirmed answer back if
by telex, telefax or other telegraphic method; and (d) on the date upon which
the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, as the case may be,
if mailed.
10.6 Survival. All covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party pursuant
hereto shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
10.7 Specific Performance. Each of the parties acknowledges that
the parties will be irreparably damaged (and damages at law would be an
inadequate remedy) if this Agreement is not specifically enforced. Therefore,
in the event of a breach or threatened breach by any party of any provision of
this Agreement, then the other parties shall be entitled, in addition to all
other rights or remedies, to injunctions restraining such breach, without
being required to show any actual damage or to post any bond or other
security, and/or to a decree for specific performance of the provisions of
this Agreement.
10.8 Jurisdiction and Venue. The parties acknowledge that a
substantial portion of negotiations, anticipated performance and execution of
this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other
federal or state courts, each of the parties irrevocably and unconditionally
(a) agrees that any suit, action or legal proceeding arising out of or
relating to this Agreement may be brought in the courts of record of the State
of Florida in Palm Beach County or the District Court of the United States,
Southern District of Florida; (b) consents to the jurisdiction of each such
court in any suit, action or proceeding; (c) waives any objection which it may
have to the laying of venue of any such suit, action or proceeding in any of
such courts; and (d) agrees that service of any court paper may be effected on
such party as may be provided under applicable laws or court rules in said
state.
10.9 Enforcement Costs. If any legal action or other proceeding
is brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any provision
of this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees, sales and use taxes, court
costs and all expenses even if not taxable as court costs (including, without
limitation, all such fees, taxes, costs and expenses incident to arbitration,
appellate, bankruptcy and post-judgment proceedings), incurred in that action
or proceeding, in addition to any other relief to which such party or parties
may be entitled. Attorneys' fees shall include, without limitation, paralegal
fees, investigative fees, administrative costs, sales and use taxes and all
other charges billed by the attorney to the prevailing party.
10.10 Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Florida without
regard to principles of conflicts of laws.
10.11 Preparation of Agreement. This Agreement shall not be
construed more strongly against any party regardless of who is responsible for
its preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
10.12 Entire Agreement. This Agreement represents the entire
understanding and agreement among the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and among such parties, including without
limitation, the Letter Agreement.
IN WITNESS WHEREOF, the parties of this Agreement have duly executed it
on the day and year first written.
WITNESSES: EARTH CARE PRODUCTS OF AMERICA, INC.
____________________________ By: ____________________________
Its: President
____________________________
JEANELL SALES CORP.
____________________________ By: ____________________________
Its: President
____________________________
_____________________________ ________________________________
Thomas P. Brock
____________________________
_____________________________ ________________________________
Jean Brock
____________________________
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS ("Agreement"), made
as of the ______ day of April, 1996, by and between Earth Care Products of the
Midwest, Inc., a Florida corporation ("Buyer"), and Duratech Industries, Inc.,
a Michigan corporation ("Seller"), Allen Cockrum, Mark Rogers and Michael
Enden (collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, Buyer is a wholly-owned subsidiary of Earth Care Global
Holdings, Inc., a Florida corporation ("ECGH"), which is a wholly-owned
subsidiary of U.S. Plastic Lumber, Inc. (f/k/a Educational Storybooks
International, Inc.), a Nevada corporation ("USI");
WHEREAS, Buyer desires to purchase from the Seller, and the Seller
desires to sell to the Buyer, all of the Assets (as hereinafter defined);
WHEREAS, as a material inducement to Buyer to purchase the Assets
of Seller, Stockholders, the stockholders of Seller, desire to make certain
representations and warranties and agree to be bound by certain covenants and
obligations as hereinafter provided; and
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Transfer of Assets. Subject to the terms and conditions set
forth in this Agreement, Seller does hereby sell, convey, transfer, assign and
deliver to Buyer, and Buyer does hereby purchase from Seller, all of the
assets, properties and businesses of Seller, tangible or intangible, as the
same shall exist on the date hereof (the assets being transferred hereunder
are collectively referred to as the "Assets"), including without limitation,
the following:
(a) All machinery, tools, furniture, equipment, leasehold
improvements and other tangible personalty owned by Seller, including without
limitation those items described on Schedule 1.1(a) attached hereto and
incorporated herein (collectively, the "Equipment");
(b) All of Seller's inventory of merchandise, raw
materials, plastics, work in process and finished goods, including without
limitation those items described on Schedule 1.1(b) attached hereto and
incorporated herein (collectively, the "Inventory");
(c) All of Seller's other recyclable goods, including
without limitation, any scrap aluminum and copper metals;
(d) All licenses, consents and permits issued by any
governmental authority which are assignable and which relate to the Seller or
its business;
(e) All warranties which the Seller may have received from
manufacturers or suppliers as to any of the Assets;
(f) All of Seller's customer lists, profile cards,
telephone lists and mailing lists;
(g) All formulae, mixes, secret processes and know how
with respect to the manufacture and production of Seller's products, including
without limitation, plastic lumber and reinforced plastic lumber;
(h) All accounts and notes receivable of Seller; and
(i) All rights to the Seller's telephone numbers and Post
Office Boxes, if any, and, in order to eliminate potential confusion with past
customers of Seller, the name "Duratech Industries", including any trademarks,
servicemarks or copyrights related thereto.
1.2 Purchase Price. In full consideration for the Assets and
the covenants in this Agreement, Buyer shall pay to Seller and Stockholders,
an aggregate purchase price (the "Purchase Price") which is allocated and
payable as follows:
(a) An amount equal to Ten Thousand Dollars ($10,000) in
cash and the issuance of 8,021 shares of USI Common Stock to Allen Cockrum at
Closing (as defined in Section 8.1 hereof).
(b) An amount equal to Ten Thousand Dollars ($10,000) in
cash and the issuance of 4,251 shares of USI Common Stock to Mike Rogers at
Closing.
(c) An amount equal to Five Thousand Dollars ($5,000) in
cash and the issuance of 2,500 shares of USI Common Stock to Mike Enden at
Closing.
(d) An amount equal to Sixteen Thousand Dollars ($16,000)
payable in fourteen (14) monthly installments at $1,200 per month, with the
first payment due at Closing and the issuance of 10,000 shares of USI Common
Stock to Barry Hilligan at Closing.
(e) The issuance of up to One Hundred Fifty Thousand
(150,000) shares of Common Stock of USI in the form of a stock earn out ("Earn
Out"), payable to Seller, based on the Net Sales of Buyer, if and when earned,
as more fully set forth in Section 7.1 below.
(f) The assumption of liabilities set forth in Section 1.4.
1.3 Allocation of Purchase Price. Buyer and Seller and
Stockholders agree that they each will take the same position, as determined
by Buyer in its reasonable discretion, with regard to the allocation of the
purchase price (which may include allocations to the Employment Agreements,
including the covenants not to compete contained therein, as provided by
Section 6.9 hereof) for tax purposes and will use such allocation in any and
all tax returns or financial statements.
1.4 Assumption of Certain Designated Liabilities. At the
Closing and as part of the consideration for this transaction, the Seller
shall assign to the Buyer all of its right, title and interest, and the Buyer
shall assume as of the Closing Date and agree to pay when due and otherwise
perform thereunder, all of Seller's obligations and liabilities which arise or
relate to the period commencing on and after the Closing Date under those
unfilled orders, contracts and other commitments for sale of Seller's products
and services, as set forth on Schedule 1.4(a) attached hereto and incorporated
herein (collectively, the "Work-in-process"). In addition, Buyer will assume:
(i) the Delinquent Taxes (as defined in Section 2.2 hereof), including the
interest and penalties thereon as specifically set forth on Schedule 2.2
hereof; (ii) the Outstanding Bank Obligation (as defined in Section 2.5
hereof); (iii) up to One Hundred Thousand Dollars ($100,000) on the trade
accounts payable set forth on Schedule 1.4(b) attached hereto and incorporated
herein (collectively, "Accounts Payable"); (iv) the forklift leases with
Citicorp Dealer Finance described on Schedule 1.4(c); and (v) the $5,400
obligation to Tom Vanderhurst. All liabilities to be assumed by Buyer
pursuant to this Section 1.4 shall be referred to as the "Assumed
Liabilities". The parties agree to work together to attempt to negotiate
satisfactory negotiated settlements of such Accounts Payable in an effort to
limit the total amounts payable on such Accounts Payable to such $100,000. In
no event, however, shall Buyer's obligation with regard to Accounts Payable
exceed $100,000 and Seller shall be responsible for any amounts in excess of
such $100,000.
1.5 No General Assumption of Liabilities. Except as
specifically and unambiguously set forth in Section 1.4 and the related
Schedules 1.4(a), 1.4(b) and 1.4(c) hereof, the Buyer does not and shall not
assume any debts, obligations or liabilities of any nature whatsoever of the
Seller arising before or after the date hereof or in connection with any of
the Assets or the business of Seller.
1.6 Payment of Certain Fees and Taxes. Seller agrees to pay
recording costs and all sales, transfer and license taxes and fees payable
upon the transfer to Buyer of the Assets to be conveyed pursuant to this
Agreement. In addition, Seller shall be responsible for: (a) any business,
occupation, withholding, or similar tax other than the Delinquent Taxes, (b)
any taxes of any kind related to any period before the Closing Date (as
hereinafter defined) other than the Delinquent Taxes, or, if the transactions
contemplated by this Agreement are not consummated for any reason, any taxes
for any period, or (c) all income tax liabilities imposed on Seller
(including, without limitation, because of the sale of the Assets contemplated
hereby), other than the Delinquent Taxes.
2. REPRESENTATIONS AND WARRANTIES BY SELLER AND STOCKHOLDERS. Seller
and Stockholders jointly and severally represent and warrant to Buyer that:
2.1 Organization and Good Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Michigan, and has all necessary corporate powers to own its properties and
carry on its business as now owned and operated by it.
2.2 Taxes. Except as provided on Schedule 2.2 (the "Delinquent
Taxes"), within the times and in the manner prescribed by law, Seller has
filed all foreign, federal, state, county and local tax returns required by
law and has paid all taxes, assessments, and penalties (collectively, "Taxes")
due and payable. There are presently no disputes as to taxes of any nature
payable by Seller. There are no present or, to the best of Seller's knowledge
and belief, potential disputes as to Taxes payable by Seller.
2.3 Inventory. The Inventory consists of items of a quality and
quantity usable and saleable in the ordinary course of Seller's business. All
items included in the Inventory are the property of Seller. No items included
in the Inventory have been pledged as collateral or are held by Seller on
consignment from others.
2.4 Equipment. Schedule 1.1(a) to this Agreement is a complete
and accurate schedule describing all the Equipment. The Equipment constitutes
all tangible personal property necessary for the conduct by Seller of its
business as now conducted. The Equipment is in good and operable condition,
reasonable wear and tear excepted, except as described on Schedule 2.4.
2.5 Title and Interests in Property. Seller has possession and
good title to all the Assets and interest in Assets being purchased hereunder,
whether personal, mixed, tangible or intangible, which, together with assets
leased by Seller under leases disclosed to Buyer in the schedules to this
Agreement, constitute all the assets and interests in assets that are required
in the businesses of Seller as now conducted. Except for the lien from Union
Bank and Citicorp Dealer Finance, all of the Assets are free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
mortgages, liens, pledges, options, charges, encumbrances, claims or security
agreements. The present amounts owing to Union Bank (the "Outstanding Bank
Obligation") and Citicorp Dealer Finance are set forth on Schedule 2.5 hereto,
together with a listing of all documents, agreements, promissory notes and
other instruments relating to such matters. There are no outstanding
agreements or commitments of any nature obligating Seller to transfer the
Assets to any other party. Upon the sale, transfer and assignment of the
Assets hereunder, there shall be vested in Buyer good and valid title to all
of the Assets free and clear of any lien, security interest, encumbrance or
restrictions, except for any related to the Outstanding Bank Obligations,
Citicorp Dealer Finance, the Delinquent Taxes and items for taxes not yet due
and payable (together, the "Permitted Items").
2.6 Legal Compliance. Seller has complied with, and is not in
violation of, applicable federal, state and local statutes, laws and
regulations (including, without limitation, any applicable environmental,
safety and health, building, zoning, or other law, ordinance, or regulation)
affecting its employees, the operation of its business or the Assets
(collectively, "Laws"). Seller has not received notice of any violation of
any Laws and there are no such violations.
2.7 Litigation. Except as set forth on Schedule 2.7, there is
no suit, claim, audit, action, arbitration, or legal, administrative, or other
proceeding, or non-insured workmen's compensation claim, or governmental
investigation pending or, to the best of Seller's knowledge, threatened
against (including those involving Seller as plaintiff) Seller, its business
or the Assets. Seller is not a party or subject to any judgment or decree or
order entered in any suit or proceeding brought by any governmental agency or
by any other person enjoining it in respect of any aspect of its business.
Seller is not in default with respect to any order, writ, injunction or decree
of any federal, state, local, or foreign court, department, agency or
instrumentality.
2.8 Violations. Except as set forth on Schedule 2.8, the
consummation of the transactions contemplated by this Agreement and the other
documents and instruments required to be delivered herein will not result in
or constitute any of the following: (a) a violation of any provision of the
articles of incorporation, bylaws or other governing documents of Seller; (b)
to the best of Seller's knowledge, a violation of any provisions of any Law or
of any writ or decree of any court or governmental instrumentality; (c) a
default or an event that, with notice or lapse of time or both, would be a
default, breach, or violation of a lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust, or
other agreement, instrument, or arrangement to which Seller or Stockholders
are a party or by which any of them or the property of any of them is bound,
except as otherwise provided herein or in any Exhibits hereto; (d) an event
that would permit any party to terminate any agreement or to accelerate the
maturity of any indebtedness or other obligation of Seller, except as
otherwise provided herein or in any exhibits hereto; or (e) the creation or
imposition of any lien, pledge, option, security agreement, equity, claim,
charge, encumbrance or other restriction or limitation on the capital stock or
on any of the properties or assets of Seller.
2.9 Legal Authority. Seller and Stockholders have the right,
power, legal capacity, and authority to enter into and perform its or their
obligations under this Agreement and all documents delivered in connection
herewith, and this Agreement constitutes, and each document or instrument to
be executed by Seller or Stockholders pursuant to the terms hereof upon its
execution and delivery will have been duly executed and delivered and will
constitute, the valid and legally binding obligation of Seller enforceable in
accordance with its terms. The execution and delivery of this Agreement and
of each document or instrument to be executed by Seller or Stockholders, as
the case may be, pursuant to the terms hereof, has been duly authorized by
Seller's Board of Directors and stockholders.
2.10 Licenses and Permits. Schedule 2.10 is a schedule of all
licenses, consents and permits issued by any governmental authority used in
connection with the operation of Seller's business. All such licenses,
consents and permits have been duly and validly issued and are in full force
and effect.
2.11 Consents. Except as set forth on Schedule 2.11, no consent,
approval or authority of any nature, or other formal action, by any person,
firm or corporation, or any agency, bureau or department of any government or
any subdivision thereof, not already obtained, is required in connection with
the execution and delivery of this Agreement by Seller or Stockholders, and
the consummation by Seller and Stockholders of the transactions provided for
herein.
2.12 Prepaid Work-in-Process. Schedule 1.4(a) to this Agreement
is a complete and accurate listing of all payments received on account of or
relating to Work-in-process.
2.13 Common Shares. With regard to all shares of USI Common
Stock to be issued to Seller or the Stockholders hereunder, including any such
shares issued pursuant to the Earn Out (collectively, "Shares"), Seller and
Stockholders understand and represent and warrant the following:
(a) Buyer has made available to Seller and Stockholders,
or their designated representatives, during the course of this transaction and
prior to the receipt of the Common Stock of USI referred to herein, the
opportunity to ask questions of and receive answers from the officers and
directors of ECGH and USI (collectively, the "Issuer Group") concerning the
terms and conditions of the offering or otherwise relating to the financial
data and business of the Issuer Group, to the extent that the Issuer Group or
their respective officers and directors possess such information or can
acquire it without unreasonable effort or expense. The Issuer Group has also
made available to the Seller and Stockholders for inspection, documents,
records, books and other written information about the Issuer Group, its
business and this investment. Without limiting the generality of the
foregoing, on or before April 1, 1996, the Seller and each Stockholder
acknowledges that they have received and reviewed USI's Limited Offering
Memorandum dated March 7, 1996 and the related financial statements (the
"Memorandum").
(b) Seller and Stockholders understand and represent that:
(i) the Seller and Stockholders must bear the economic risk of this investment
for an indefinite period of time because the Shares have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), or under any
state securities laws, and therefore, cannot be resold unless they are
subsequently registered under the 1933 Act and the pertinent state securities
laws or unless an exemption from such registration is available; (ii) the
Seller and Stockholders are receiving their Shares for investment for the
benefit of the Seller and Stockholders, not for the account of any other
person, and not with any present view toward resale or other "distribution"
thereof within the meaning of the 1933 Act; and (iii) the Seller and
Stockholders agree not to resell or otherwise dispose of all or any part of
the Shares, except as permitted by law, including, without limitation, any and
all applicable provisions of this Agreement and any regulations under the 1933
Act.
(c) The Seller and Stockholders, either alone or together
with their independent advisors, have such knowledge and expertise in
financial and business matters that they are capable of evaluating the merits
and risks of an investment in the Shares. Each of the Stockholders is
familiar with the type of business conducted by the Issuer Group and
represents that he is principally engaged in a business that is in the same
line of business as the Issuer Group, e.g., the manufacture and sale of
recycled plastic products.
(d) The Seller and Stockholders are aware that an
investment in the Shares is highly speculative and subject to substantial
risks. The Seller and Stockholders are capable of bearing the high degree of
economic risk and burdens of this investment, including the possibility of a
complete loss of their investment and the lack of a public market and limited
transferability of the Shares, which may make the liquidation of this
investment impossible for an indefinite period of time.
(e) The Stockholders are residents of the State of
Michigan and the Seller is domiciled in Michigan.
2.14 Assets in Possession of Others. Except as set forth on
Schedule 2.14, Seller does not hold title to or ownership of any Assets in the
possession of others.
2.15 Accounts and Notes Receivable. Set forth on Schedule 2.15
is a list of all accounts and notes receivable of the Seller as of February
29, 1996. Except as set forth on Schedule 2.15, all such accounts and notes
receivable, and all accounts and notes receivable accruing subsequently to
such date (except those which have been collected since February 29, 1996),
are (a) valid, genuine and subsisting, (b) subject to no defenses, set-offs,
counterclaims, security interest or other encumbrances except to the extent of
a provision for a reserve, and (c) collectible in the ordinary course of
business. All accounts receivable of Seller in existence on the Closing Date
will be paid in full, net of applicable reserves as set forth on Schedule
2.15, on or before 180 days after the Closing Date.
2.16 Undisclosed Liabilities. Except as set forth on Schedule
2.16 and the Assumed Liabilities, Seller does not have any liabilities
whatsoever, known or unknown, asserted or unasserted, liquidated or
unliquidated, accrued, absolute, contingent, or otherwise (collectively,
"Liabilities"), and there is no basis for any claim against Seller for any
such Liability except to the extent reflected on Schedule 2.16.
2.17 Real Property.
(a) Schedule 2.17 contains a list and brief description of
all real property leased by Seller and the improvements (including buildings
and other structures) located on such real property (including a brief
description of the use to which such property is being employed and the
termination date or notice requirement with respect to termination, annual
rental and renewal or purchase options) (the "Real Property"). Seller does
not own any Real Property. Seller has no written leases for Real Property.
Seller (or the lessor under the relevant lease), has legal and valid occupancy
permits and other required licenses or government approvals for each of the
properties and premises leased, used or occupied by Seller. Except as set
forth on Schedule 2.17, Seller has good and marketable title or a valid
leasehold interest, free and clear of all claims, to each improvement, fixture
and item of equipment located in or on each of the properties and premises
leased, used or occupied by it, except for Permitted Liens. Each such lease
is legal, valid and binding as between Seller, and the other party or parties
thereto and Seller is a tenant or possessor in good standing thereunder, free
of any default or breach whatsoever and quietly enjoys the premises provided
for therein. Each rental and other payment due thereunder has been duly made;
each act required to be performed has been duly performed; and no act
forbidden to be performed has been performed thereunder. Except as set forth
on Schedule 2.17 hereto, as of the date of this Agreement Seller has not
received any notice of, nor does Seller or any Stockholder have any knowledge
of (i) any violations (collectively, "Violations", and individually, a
"Violation") of any applicable law or requirements of any federal, state or
municipal department or agency having jurisdiction against or affecting the
Real Property or the construction, management, ownership, maintenance,
operation, use, improvement, acquisition or sale thereof (including, without
limitation, building, health, safety, zoning and environmental Laws)
(collectively, "Legal Requirements") whether or not officially noted or issued
or (ii) any condition relating to the Real Property which, to the best
knowledge of Seller or the Stockholders, would constitute a Violation. The
Real Property is and on the Closing Date shall be in full compliance with any
and all applicable Legal Requirements in any way pertinent or relating to the
acquisition, operation, management, maintenance, use, improvement, sale, and
ownership of the Real Property.
(b) To the best of Seller's and Stockholders' knowledge,
there is no (i) pending or contemplated annexation or condemnation or similar
proceedings affecting, or which may affect, all or any portion of the Real
Property (ii) proposed or pending proceeding to change or redefine the zoning
classification of all or any portion of such Real Property or (iii) proposed
change in road patterns or grades which may adversely affect access to any
roads providing a means of ingress to or egress from the Real Property.
(c) Except for one underground storage tank described in
Schedule 2.17, the Real Property now leased by Seller, or any predecessor
thereof or, to Seller's and Stockholders' knowledge, ever owned or leased by
Seller or any predecessor thereof (including all improvements thereon) does
not contain any underground storage tanks, asbestos, polychlorinated
biphenyls, solid wastes or hazardous substances as such terms may be defined
by all applicable federal, state and local environmental protection laws and
regulations ("Environmental Laws"). No part of the Real Property now leased
by Seller or any predecessor thereof or, to Seller and Stockholders'
knowledge, ever owned or leased by Seller or any predecessor thereof has been
listed or proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act or on a
registry or inventory of inactive hazardous waste sites maintained by any
state and Seller has not received any notices that it is a potentially
responsible person under such Act or any similar law with respect to any
hazardous waste site.
(d) The Real Property has adequate water and sewer supply
for the present and contemplated future use of the Real Property and all sewer
and water supply facilities required for the present and contemplated future
use of the Real Property are properly and fully installed and operating. All
other public or private utilities necessary for the operation of the Real
Property for its present and contemplated future use are properly and fully
installed and operating. There has been no damage to any portion of the Real
Property caused by fire or other casualty which has not been fully repaired or
restored. All oil and/or gas burners, incinerators, furnaces and other fuel
burning devices at the Real Property comply with all applicable Laws,
including, without limitation, all air pollution and Environmental Laws.
2.18 Labor Relations; Employees. The total number of full-time
employees and part-time employees of Seller is set forth on Schedule 2.18.
Seller has generally enjoyed a good employer-employee relationship with its
employees. Schedule 2.18 contains a list of all current officers, managers,
directors, employees, consultants and independent contractors of Seller who
during the past calendar year received, or are expected to receive in the
current calendar year, aggregate remuneration (bonus, benefits and salary) in
excess of $25,000 from Seller, together with the current job title and
aggregate remuneration rate (salary, bonus and benefits) for each such person.
To the best of Seller's and Stockholders' knowledge, no such person will
resign or retire in the near future. Upon termination of the employment of
any employee by Buyer, neither Buyer nor Seller shall incur any liability for
any severance or termination pay, pension or profit-sharing benefit or other
similar payment for periods prior to the Closing Date other than any
unemployment compensation payments, which shall be the responsibility of
Seller. Seller has not engaged in any unfair labor practice, there is no
unfair labor practice or similar complaint against Seller pending before the
National Labor Relations Board or similar authority or strike, dispute,
slowdown or stoppage pending or threatened against or involving Seller or any
complaint pending before the EEOC or any comparable federal, state or local
fair employment practices agency and none has occurred during the last 3 years
except as set forth on Schedule 2.18. No union organization efforts are
pending, nor have any occurred during the past year, at any facility of Seller
and no collective bargaining agreement is currently in effect or being
negotiated by Seller. Seller has complied with all Laws relating to the
employment of labor, including any provisions thereof relating to wages,
hours, equal employment, safety, collective bargaining and the payment of
social security and similar taxes.
2.19 Employee Benefit Plans. The Seller has no employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or any other pension, bonus, deferred
compensation, stock bonus, stock purchase, post-retirement medical,
hospitalization, health and other employee benefit plan, program or
arrangement, whether formal or informal, under which Seller has any obligation
or liability, or under which any employee or former employee of Seller has any
rights to benefits (the "Benefit Plans").
2.20 Customers and Suppliers. Schedule 2.20 is a true and
complete list of all customers over $2,500 and the ten largest suppliers of
Seller during the period specified thereon, showing, with respect to each the
name and address, dollar volume involved, the percentage of the Seller's
business which each such customer and supplier represented and nature of the
relationship (including the principal categories of products bought and sold).
Seller is not required to provide any bonding or other financial security
arrangements in connection with any transactions with any of its customers or
suppliers in the ordinary course of its business. Seller is not engaged in
any material disputes with its customers and suppliers. To the best knowledge
of Seller and the Stockholders, there has not been any loss or threatened loss
of any customer, supplier, distributor, account or product line of Seller nor
is any customer or supplier considering termination, non-renewal or any
adverse modification of its arrangements with the Seller.
3. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer and USI represent
and warrant that:
3.1 Organization and Good Standing. Buyer is a Florida
corporation, duly organized, validly existing, and in good standing under the
laws of Florida. Buyer has all necessary powers to own its properties and
carry on its business as now owned and operated by it.
3.2 Legal Authority. Buyer has the right, power, legal
capacity, and authority to enter into and perform its obligations under this
Agreement and this Agreement constitutes, and each document or instrument to
be executed by Buyer pursuant to the terms hereof upon its execution and
delivery will have been duly executed and delivered and will constitute, the
valid and legally binding obligation of Buyer, enforceable in accordance with
its terms. The execution and delivery of this Agreement by Buyer has been,
and the execution and delivery of each document or instrument to be executed
by Buyer pursuant to the terms hereof will be, duly authorized by all
necessary action.
3.3 Violations. Except as set forth on Schedule 3.3, the
consummation of the transactions contemplated by this Agreement and the other
documents and instruments required to be delivered herein will not result in
or constitute any of the following: (i) a violation of any provision of the
articles of incorporation, bylaws or other governing documents of Buyer; (ii)
to the best of Buyer's knowledge, a violation of any provision or any Law or
of any writ or decree of any court or governmental instrumentality; (iii) a
default or any event that, with notice or lapse of time or both, would be a
default, breach, or violation of a lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust, or
other agreement, instrument, or arrangement to which Buyer is a party or by
which it or the property of it is bound, except as otherwise provided herein
or in any Schedules hereto; (iv) an event that would permit any party to
terminate any agreement or to accelerate the maturity of any indebtedness or
other obligation of Buyer, except as otherwise provided herein or in any
exhibits hereto; or (v) the creation or imposition of any lien, pledge,
option, security agreement, equity, claim, charge, encumbrance or other
restriction or limitation on the capital stock or on any of the properties or
assets of Buyer.
3.4 Available Information. Buyer acknowledges that Seller and
the Stockholders are relying on the information contained in the Memorandum.
Such information is true and correct in all material respects as of the date
of such Memorandum.
4. OBLIGATIONS OF THE PARTIES BEFORE CLOSING.
4.1 Rights of Access.
(a) Each of USI and Buyer, and their respective counsel,
employees, accountants, and other representatives shall have full access to
all properties, books, accounts, records, contracts, files, correspondence,
tax records and documents of or relating to Seller or the Assets. Seller
shall, at its sole cost and expense, promptly furnish or cause to be furnished
to Buyer, USI and their representatives all data and information concerning
such businesses, assets, finances, and properties of Seller that may be
requested. Buyer and USI, at their cost, shall have the right to cause its
agents to conduct such reviews and investigations as Buyer and USI deem
necessary or advisable. Buyer and USI shall have the right to consult with
the accountants for Seller and said accountants are hereby authorized to
disclose all information in their possession to Buyer and USI with respect to
Seller and the assets and businesses being purchased hereunder.
(b) Buyer and USI agree that, unless and until the Closing
has been consummated, Buyer and USI and their respective officers, directors,
and other representatives will hold in strict confidence all data and
information obtained in connection with this transaction or Agreement, with
respect to the businesses of Seller and none of such information and data
which is confidential and proprietary in nature will be used in any manner
other than in connection with the consummation of the transaction contemplated
in this Agreement. If the transactions contemplated by this Agreement are not
consummated, Buyer or USI will return to Seller all data and information made
available to Buyer or USI in connection with this transaction. Seller
understands that, notwithstanding the foregoing, any data or information Buyer
or USI receives from Seller or Stockholders that: (i) is rightfully received
by Buyer or USI from a third party that is not subject to any disclosure
restrictions; (ii) is independently developed by employees of Buyer or USI who
have not had access to such data or information; (iii) is or becomes publicly
available through no wrongful act of the Buyer or USI; or (iv) is already
known by the Buyer or USI as evidenced by documentation bearing a date prior
to the date of disclosure, shall not be subject to the restrictions on use or
disclosure contained in this Section 4.1.
4.2 Continuation of Business. Seller will carry on its
businesses and activities diligently and in the same manner as they previously
have been carried out, and shall not make or institute any unusual or novel
methods of purchase, sale, lease, management, accounting, or operation that
will vary from those methods used by Seller as of the date of this Agreement.
4.3 Specific Acts. Prior to Closing, Seller and Stockholders
will use their respective, reasonable best efforts, without making any
commitments on behalf of Buyer, to preserve Seller's business intact,
including, without limiting the generality of the foregoing:
(a) do or cause to be done all things necessary to
preserve and keep in full force and effect Seller's corporate existence as
described in Section 2.1 and all franchises, rights and privileges, goodwill,
assets, real and personal property, operations, licenses, permits, approvals,
businesses and prospects, and comply with the requirements of all Laws and all
rules, regulations and orders of all regulatory agencies and authorities
having jurisdiction over Seller, its business, assets or its properties;
(b) prior to the date upon which penalties or interest
attach thereto, pay and discharge, or cause to be paid and discharged, all
lawful taxes, assessments and governmental charges or levies imposed upon
Seller or upon Seller's income or property except those for which a dispute
exists or the claim for which may be questionable provided that such matters
are contested in good faith by appropriate proceedings, and are disclosed to
Buyer and the Delinquent Taxes set forth on Schedule 2.2 (provided the amount
of such Delinquent Taxes shall not increase);
(c) promptly notify Buyer in writing of any actual or
threatened investigation, claim, action, suit or proceeding, and any
administrative or governmental actions, suits or claims which are commenced
against, by or relating to Seller the Assets or this Agreement before any
court or any governmental department, commission, board, bureau, agency or
instrumentality;
(d) refrain from knowingly doing any act or omitting to do
any act, or knowingly permit any act or omission to act, which will cause a
breach of any agreement to which Seller is bound or a failure of performance
of any obligation of Seller;
(e) continue to employ the employees of Seller, and
promptly notify Buyer if Seller has reason to know that any employee does not
plan to continue in his respective position of employment at any time after
the date of this Agreement;
(f) preserve each of Seller's existing relationships with
suppliers, customers and others having material business relationships with
any of them; and
(g) to keep the Assets in good working order and repair,
reasonable wear and tear excepted, and perform all necessary repairs,
maintenance, and replacements.
4.4 Insurance. With respect to the Assets and until 12:01 a.m.
on the day immediately following the Closing Date Seller will keep in full
force and effect insurance comparable in amount and scope of coverage to that
now maintained by it.
4.5 Prohibited Acts. Seller shall not, without Buyer's prior
written consent, do, or agree to do, any of the following acts:
(a) transfer, sell, assign or otherwise dispose of any of
its Assets other than in the ordinary course of its business, provided Seller
shall dispose of none of the Assets in such manner other than Inventory;
(b) assume, guarantee, endorse or become liable on, or
agree to repurchase the obligation of any person, firm or corporation, or
suffer to exist any such assumption, guarantee, endorsement, liability or
repurchase agreement except for the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business; or
(c) make any loan or advance to, or make any investment
in, any person, firm or corporation whether by acquisition of stock or
indebtedness, by loan, guarantee or otherwise, or create any Account
Receivable, except in the ordinary course of business.
4.6 Business Documentation. At the request of Buyer, Seller
will document and describe any of its business procedures specified by Buyer,
in form and content satisfactory to Buyer in Buyer's sole and absolute
discretion.
4.7 Discussions with Others. Neither Seller nor Stockholders
will permit or authorize any officer, director, employee or representative of
Seller to solicit or encourage inquiries (including by way of furnishing
information) or the making of any proposal which is reasonably expected to
lead to any acquisition or purchase of any portion of the Assets or any merger
or consolidation of Seller with any third party.
4.8 Pursuit of Consents. Commencing on the date hereof and
continuing to the Closing, Seller and Stockholders shall use their respective,
reasonable best efforts and due diligence to obtain all consents, approvals
and estoppel letters necessary for the lawful consummation of the transactions
contemplated hereby, including the consents of Union Bank and Citicorp Dealer
Finance. Buyer shall cooperate in all reasonable respects to enable Seller to
obtain the necessary consents.
4.9 Update of Schedules. Seller shall update all schedules and
exhibits referred to in Section 2 hereof, including the prepaid Work-in-
process schedule provided in Section 2.12, through and as of the Closing Date,
and shall deliver such updated schedules and exhibits to Buyer.
5. BULK TRANSFER. Seller shall not be required to comply with any
applicable Bulk Transfer Law in respect to the transactions contemplated by
this Agreement. The Seller and Stockholders shall, jointly and severally,
indemnify, defend, and hold harmless the Buyer against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies (other than with respect to the Assumed
Liabilities), including, but not limited to, interest, penalties, and
attorneys' and paraprofessional fees and disbursements (including, but not
limited to, any attorneys' and paraprofessional fees and disbursements
incident to any appeals), that it shall incur or suffer, which arise, result
from, or relate to failure by the Seller to comply with any such applicable
Bulk Transfer Law. Seller reserves the right to contest in good faith any
claims made pursuant to such laws.
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
6.1 General. The obligations of Buyer to purchase the Assets
under this Agreement are subject to the satisfaction, at or before the
Closing, of all the conditions set out below in this Section 6. Buyer may
waive in writing any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Buyer of any of its other rights or remedies, at law or
in equity, if Seller or Stockholders shall be in default of any of their
representations, warranties, or covenants under this Agreement. Written
notice of all waivers by Buyer, if any, shall be delivered to Seller at or
before the Closing.
6.2 Renewal of Representations and Warranties. Except as
otherwise permitted by this Agreement, all representations and warranties by
Seller and Stockholders in this Agreement or in any written statement that
shall be delivered to Buyer by any of them under this Agreement shall be true
on and as of the Closing Date as though made at that time. No written
statement contrary to the representations and warranties herein shall result
in or cause the waiver of any or all of Seller's or Stockholders'
representations and warranties herein.
6.3 Performance of Covenants. Seller and Stockholders shall
have performed, satisfied, and complied with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by
them, or any of them, on or before the Closing Date.
6.4 Adverse Changes. During the period from the date of this
Agreement to the Closing Date, there shall not have been any material adverse
change in the financial condition or the results of operations of Seller or
the value of the Assets, or any increase in the amount of liabilities to be
assumed by Buyer pursuant to Section 1.4 hereof. If any of the Assets to be
transferred or conveyed to Buyer pursuant to this Agreement is damaged or
destroyed by fire or other casualty prior to the Closing Date and the
aggregate amount of all such damage or destruction equals or exceeds $20,000,
Buyer may terminate this Agreement and all parties shall thereupon be relieved
of liability under this Agreement, or Buyer may elect to close and accept in
lieu of any diminution in the purchase price the insurance proceeds payable
with respect to the damage; provided, however, that Buyer shall be required to
make one of these elections in such case.
6.5 Performance Certificate. Buyer shall have received a
certificate, dated the Closing Date, signed and verified by Seller's President
certifying, in such form and detail as Buyer and its counsel may reasonably
request, that the conditions specified in Article 6 of this Agreement have
been fulfilled.
6.6 Due Authorization. The execution and delivery of this
Agreement by Seller and the performance of its covenants and obligations under
it, shall have been duly authorized by all necessary corporate action, and
Buyer shall have received copies of all resolutions pertaining to that
authorization, certified by the secretary of Seller, all in form and substance
satisfactory to Buyer and its counsel.
6.7 Consents. All necessary agreements and consents of any
person to the consummation of the transactions contemplated by this Agreement,
or otherwise pertaining to the matters covered by it shall have been obtained
by Seller at its sole cost and expense and delivered to Buyer in form and
substance satisfactory to Buyer and its counsel.
6.8 Corporate Documentation. Buyer shall have received the
following with respect to Seller:
(a) Certificate of good standing (as of a date not more
than five (5) days prior to the Closing Date) from the Secretary of State of
Michigan or oral confirmation from such authority acceptable to Buyer; and
(b) A certificate executed by Seller's secretary, dated as
of the Closing Date, with respect to the incumbency of its officers and
attesting to the validity and accuracy of Seller's articles of incorporation
and by-laws.
6.9 Employment Agreement. Buyer and Allen Cockrum, Mark Rogers
and Michael Enden shall have executed and delivered an Employment Agreement as
of the Closing Date in the forms attached hereto as Exhibits 6.9(a), (b) and
(c), which Employment Agreements also contain a covenant not to compete.
7. POST-CLOSING OBLIGATIONS.
7.1 Earn Out. The Earn Out shall be payable upon the occurrence
of certain events. A payout of 75,000 shares of the common stock of USI shall
be issued to the Seller (or, subject to compliance with applicable state and
federal securities laws, its assigns) in the event that Buyer achieves net
sales of products manufactured at the Lake Odessa, Michigan facility or any
successor location (the "Michigan Facility") of at least $1,500,000 for any
trailing twelve (12) month period ending not later than April 30, 1999 and
commencing not earlier than May 1, 1996 (the "Measuring Period"). In the
event that the net sales of Buyer reach $2,000,000 during this Measuring
Period, then the Seller (or, subject to compliance with applicable state and
federal securities laws, its assigns) is entitled to be issued an additional
payout of 75,000 shares of USI's common stock. Any such shares shall be
issued within thirty (30) days of receipt by Buyer of a report from its
regularly engaged accountants confirming that the appropriate net sales
amounts have been achieved during the Measuring Period. Stockholders shall
have access to the financial books and records of Buyer solely for the purpose
of determining whether such Earn Out net sales numbers have been achieved and
upon written notice from the Stockholders that they believe such Earn Out net
sales numbers have been achieved, Buyer shall instruct its regularly engaged
accounts to examine such net sales and to use all reasonable efforts to issue
a report to Buyer within thirty (30) days of the Stockholders' notice to Buyer
with respect to such net sales. Net sales shall be calculated in accordance
with generally accepted accounting principles, except that for purposes hereof
net sales shall include only those sales for which payment has been received
by Buyer; provided, however, such collection requirement shall not apply with
respect to net sales by USI or any of its affiliated entities (other than the
Buyer) of products manufactured at the Michigan Facility. If USI at any time
subdivides by any stock split or stock dividend its outstanding shares of
common stock into a greater number of shares, then the number of shares of USI
common stock subject to this Section 7.1 shall be proportionately increased.
If USI at any time combines by any reverse stock split or similar mechanism
its outstanding shares of common stock into a smaller number of shares, then
the number of shares of USI common stock subject to this Section 7.1 shall be
proportionately decreased.
7.2 Registration Rights.
(a) Definitions. As used in this Section 7.2, the
following terms shall have the following respective meanings:
(1) "Commission" means the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
(2) "Exchange Act" means the Securities Exchange Act
of 1934, as amended, or any similar Federal statute, and the rules and
regulations of the Commission issued under such Act, as they each may, from
time to time, be in effect.
(3) "Securities Act" means the Securities Act of
1933, as amended, or any similar Federal statute, and the rules and
regulations of the Commission issued under such Act, as they each may, from
time to time, be in effect.
(4) "Registration Statement" means a registration
statement filed by USI with the Commission for a public offering and sale of
securities of USI (other than a registration statement on Form S-4 or Form S-
8, or their successors, or any other form for a limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
(5) "Registration Expenses" means the expenses
described in Section 7.2(d).
(6) "Registrable Shares" means the shares of Common
Stock comprising the Shares offered hereunder, and any other shares of Common
Stock issued or issuable in respect of the shares of Common Stock comprising
the Shares offered hereunder (because of stock splits, stock dividends,
reclassification, recapitalizations, or similar events, if applicable);
provided, however, that the shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares upon any sale of such shares
pursuant to a Registration Statement, Section 4(1) of the Securities Act or
Rule 144 under the Securities Act.
(b) Piggyback Registration.
(1) Whenever USI proposes to file a Registration
Statement (other than with respect to the registration of USI's Series A or
Series B Common Stock Purchase Warrants and the shares of Common Stock
underlying such Warrants) and at any time thereafter and from time to time, it
will, prior to such filing, give written notice to all holders of the
Registrable Shares of its intention to do so and, upon the written request of
a holder or holders given within ten (10) days after USI provides such notice
(which request shall state the intended method of disposition of such
Registrable Shares), USI shall use its best efforts to cause all Registrable
Shares which USI has been requested by such holder or holders to register to
be registered under the Securities Act to the extent necessary to permit their
sale or other disposition in accordance with the intended methods of
distribution specified in the request of such holder or holders; provided that
USI shall have the right to postpone or withdraw any registration effected
pursuant to this Section 7.2(b) without obligation to any holder.
(2) In connection with any offering under this
Section 7.2 involving an underwriting, USI shall not be required to include
any Registrable Shares in such underwriting unless the holders thereof accept
the terms of the underwriting as agreed upon between USI and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by USI. If in the
opinion of the managing underwriter or underwriters the registration of all,
or part of, the Registrable Shares which the holders have requested to be
included would materially and adversely affect such public offering, then USI
shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the managing underwriter believes may be
sold without causing such adverse effect. If the number of Registrable Shares
to be included in the underwriting in accordance with the foregoing is less
than the total number of shares which the holders of Registrable Shares have
requested to be included, then the holders of Registrable Shares (either alone
or in conjunction with the registration of shares of Common Stock held by
other stockholders of USI) who have requested registration shall participate
in the underwriting pro rata based upon the combined ownership of the
Registrable Shares (or in any other proportion as agreed upon by all holders
of Registrable Shares) together with the total number of shares of Common
Stock owned by other stockholders for whom USI has otherwise undertaken to
register shares.
(c) Registration Procedures. If and when USI is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, USI
shall:
(1) file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become and remain effective;
(2) prepare and file with the Commission any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of up to 120 days from the
effective date;
(3) furnish to each holder such reasonable numbers
of copies of the prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents as the
holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by the holder; and
(4) use its reasonable efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the holder shall reasonably
request, and do any and all other acts and things that may be necessary to
enable the holders to consummate the public sale or other disposition in such
jurisdictions of the Registrable Shares owned by the holder; provided,
however, that USI shall not be required in connection with this Section
7(c)(4) to qualify as a foreign corporation or execute a general consent to
service of process in any jurisdiction.
If USI has delivered preliminary or final prospectuses
to the holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, USI shall promptly notify the
holders and, if requested, the holders shall immediately cease making offers
of Registrable Shares and return all prospectuses to USI. USI shall promptly
provide the holders with revised prospectuses to permit the holders to resume
making offers of the Registrable Shares.
(d) Allocation of Expenses. USI will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if
a registration is withdrawn at the request of the holders requesting such
registration (other than as a result of information concerning the business or
financial condition of USI which is made known to the holders after the date
on which such registration was requested), the requesting holders shall pay
any incremental increase in the Registration Expenses of such registration as
a result of the inclusion of their Registrable Shares pro rata in accordance
with the number of their Registrable Shares included in such registration.
For purposes of this Section 7.2, the term "Registration Expenses" shall mean
all expenses incurred by USI in complying with this Section 7.2, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for USI, state Blue Sky
fees and expenses, but excluding underwriting discounts and selling
commissions attributable to the Registrable Shares and the fees and expenses
of the holders' own counsel and accountants, which shall be borne by such
holders.
(e) Indemnification. In the event of any registration of
any of the Registrable Shares under the Securities Act, pursuant to this
Agreement, USI will indemnify and hold harmless the seller of such Registrable
Shares, each underwriter of such Registrable Shares, and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities laws 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
Shares were registered under the Securities Act, any preliminary prospectus or
final prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon
the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
USI will reimburse such seller, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating and
defending any such loss, claim, damage, liability or action; provided,
however, that USI will not be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon
any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to USI by or on
behalf of such seller, underwriter or controlling person for use in the
preparation thereof, or as a result of the failure of any seller, or agent of
any seller, to deliver any amendments and supplements to any Registration
Statement and the prospectus included in any such Registration Statement.
In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares, severally and not jointly, will indemnify and
hold harmless USI, each of its directors and officers and each underwriter (if
any) and each person, if any, who controls USI or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which USI, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities laws 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 a material fact contained in any Registration Statement under
which such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and each seller of the Registrable Shares
will reimburse USI, each of its directors and officers, each underwriter and
each controlling person, severally and not jointly, for any legal or other
expenses reasonable incurred by USI, each director and officer, each
underwriter and each controlling person in connection with investigating and
defending any such loss, claim, damage, liability or action, if the statement
or omission was made in reliance upon and in conformity with information
furnished to USI by or on behalf of such seller, for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement.
Each party entitled to indemnification under this
Section 7.2(e) (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 claim 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, provided, further, that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 7.2(e).
The Indemnified Party may participate in such defense at such party's expense.
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.
(f) Information by Holder. Each holder of Registrable
Shares included in any registration shall furnish to USI such information
regarding such holder and the distribution proposed by such holder as USI may
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 7.2(f).
(g) "Stand-Off" Agreement. Each holder of Registrable
Shares, if requested by USI and an underwriter of Common Stock or other
securities of USI, shall agree not to sell or otherwise transfer or dispose of
any Registrable Shares or other securities of USI held by such holder for a
specified period of time (not to exceed 180 days) before or after the
effective date of a Registration Statement. Such agreement shall be in
writing in a form satisfactory to USI and such underwriter. USI may impose
stop transfer instructions with respect to the Registrable Shares or other
securities subject to the foregoing restriction until the end of the stand-off
period.
8. THE CLOSING.
8.1 Time and Place. The transfer of the Assets by Seller to
Buyer (the "Closing") shall take place at the office of counsel for Buyer,
Proskauer Rose Goetz & Mendelsohn LLP, at One Boca Place, 2255 Glades Road,
Suite 340 West, Boca Raton, Florida 33431 at 10:00 a.m. local time, on the
third business day following satisfaction or waiver of all conditions
precedent to Buyer's obligations or at such other time and place as the
parties may agree to in writing; but in no event later than April 30, 1996,
unless otherwise extended by mutual agreement of the parties (the "Closing
Date").
8.2 Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Buyer the following instruments, in form and
substance satisfactory to Buyer and its counsel:
(a) A certificate executed by the President of Seller, and
each of the Stockholders, dated the Closing Date, certifying that Seller's and
Stockholders' representations and warranties in this Agreement are true and
correct at and as of the Closing Date, as though his representation and
warranty had been made on that date;
(b) Each of the documents and certificates referred to in
Article 6 hereof, including without limitation, the Employment Agreements;
(c) Such other deeds, bills of sale, endorsements,
assignments and other good and sufficient instruments of conveyance and
transfer as shall be effective to vest in Buyer all of Seller's rights, title
and interests in and to the Assets; and
(d) All contracts and copies of all documents,
instruments, books, records and data of Seller relating to the Assets.
Simultaneously with the consummation of the transfer of the
Assets, Seller, through its officers, agents, and employees, will put Buyer
into full possession and enjoyment of all properties and assets to be conveyed
and transferred by this Agreement.
Seller and Stockholders, at any time before or after the Closing
Date, will execute, acknowledge, and deliver any further deeds, assignments,
conveyances, and other assurances, documents, and instruments of transfer,
reasonably requested by Buyer, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Buyer for the
purpose of assigning, transferring, granting, conveying, and confirming to
Buyer, or reducing to possession, any or all property to be conveyed and
transferred by this Agreement.
8.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to
Seller or its agents the following against delivery of the items specified in
Section 8.2:
(a) A certificate executed by the President or Chief
Executive Officer of Buyer, dated the Closing Date, certifying that all
Buyer's representations and warranties in this Agreement are true and correct
at and as of the Closing Date, as though each representation and warranty had
been made on that date.
(b) That portion of the Purchase Price which is payable at
Closing in accordance with Section 1.2 hereof, including certificates
representing shares of the Common Stock of USI issued in the name of the
appropriate stockholders.
9. TERMINATION.
9.1 Termination of Agreement and Abandonment of Purchase.
Anything herein to the contrary notwithstanding, this Agreement and the
purchase contemplated hereby may be terminated as follows, and in no other
manner:
(a) at any time by mutual consent of Seller and Buyer;
(b) by Buyer, at any time in the event of any breach of a
representation, warranty or covenant by Seller or Stockholders; provided Buyer
notifies Seller of such breach and Seller or Stockholders do not cure such
breach to the satisfaction of Buyer within 5 days after notice thereof;
(c) subject to earlier termination pursuant to the
provisions of Section 6.4 hereof, by Buyer, if by April 30, 1996 the
transactions contemplated by this Agreement have not otherwise been
consummated, unless due to the failure by Buyer to perform its covenants and
obligations under this Agreement; or
(d) by Seller, if by April 30, 1996 the transactions
contemplated by this Agreement have not otherwise been consummated, unless due
to the failure by Seller to perform its covenants and obligations under this
Agreement.
9.2 Results of Termination. Any termination of this Agreement
shall operate as a complete release and extinguishment of all liabilities and
obligations of each party to any other party to this Agreement; provided,
however, that any termination pursuant to Sections 8.1(b), 8.1(c) or 8.1(d)
due to either a breach by Seller or Stockholders or the failure by Buyer or
Seller or Stockholders to perform any of their respective covenants or
obligations hereunder (the party breaching or failing to perform shall be
referred to as the "Failing Party") shall not affect the rights of the non-
Failing Party to pursue all of its rights and remedies for breach of this
Agreement by the Failing Party. Any termination of this Agreement pursuant to
Section 6.4 hereof shall not be deemed to result from a breach of this
Agreement.
10. OBLIGATIONS AND OTHER TRANSACTIONS AFTER CLOSING.
10.1 Indemnification.
(a) Seller and Stockholders, jointly and severally, shall
indemnify, defend, and hold harmless Buyer from and against any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, including, but not limited to, interest,
penalties, and reasonable attorneys' and paraprofessional fees and
disbursements (collectively, "Losses"), that Buyer shall incur or suffer,
which arise, result from, or relate to: (i) any breach of, or failure by
Seller or Stockholders to perform, any of its representations, warranties,
covenants, or agreements in this Agreement or in any exhibit, or other
instrument or document furnished or to be furnished by Seller or Stockholders
under this Agreement, (ii) the operation of Seller's business prior to the
Closing Date, including any customer complaints which were based on work
performed prior to the Closing Date or (iii) any liability of Seller or
Stockholders not expressly assumed hereunder, including any liability
affecting the Assets as a result of any applicable Bulk Transfer Law or the
termination of Seller's or Stockholders' employees pursuant to Section 10.2
hereof, but excluding the Assumed Liabilities. Notwithstanding the foregoing,
Seller and the Stockholders shall not be liable for any indemnification
obligation hereunder until the amount of Buyer's Losses exceeds Ten Thousand
Dollars ($10,000) in the aggregate (the "Basket"); provided, however, such
Basket shall not apply to any intentional breach of a representation or
warranty or to any breach of any covenant or agreement of Seller or the
Stockholders hereunder.
(b) Buyer shall indemnify, defend and hold harmless Seller
and Stockholders from and against any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, and deficiencies,
including, but not limited to, interest, penalties, and reasonable attorneys'
and paraprofessional fees and disbursements, they shall incur or suffer, which
arise, result from, or relate to: (i) any breach of, or failure to perform,
any of its representations, warranties, covenants, or agreements in this
Agreement or in any exhibit, or other instrument or document furnished or to
be furnished by Buyer under this Agreement, (ii) any Assumed Liabilities, or
(iii) the conduct of the business of Buyer after the Closing Date.
(c) A party seeking indemnification hereunder shall
promptly notify the other of the existence of any claim, demand or other
matter to which the other's indemnification obligations would apply, and if a
third party claim is reasonably and in good faith disputed by such party shall
give it or them a reasonable opportunity to defend the same at its or their
own expense and with counsel of its or their own selection; provided that the
party seeking indemnification shall at all times also have the right to fully
participate in the defense at its expense. If the other party shall within a
reasonable time after this notice fail to defend, the party seeking
indemnification shall have the right, but not the obligation, to undertake the
defense of, and to compromise or settle (exercising reasonable business
judgment) the claim or other matter on behalf, for the account, and at the
risk, of the other party. A party obligated to provide indemnification
hereunder shall satisfy its or their indemnification obligations in cash
within thirty (30) days after receipt of notice of a claim from the other
party, or if with respect to a third party claim being defended in good faith
by the party with the indemnification obligation, upon resolution of such
claim and in any event not later than the rendering of a judgment by a court
or other tribunal with respect to such claim.
(d) In the event Seller and Stockholders should refuse or
fail to indemnify Buyer pursuant to any indemnification obligation under this
Agreement, Buyer shall have the right to set-off and deduct the amount of such
obligation from any amounts now or hereafter owed by Buyer to Seller and
Stockholders under any agreement (including shares of Common Stock of USI
which may otherwise be issuable pursuant to the Earn Out) or obligation (other
than base salary due under the Employment Agreements) and/or the Buyer shall
have the right to proceed directly against Seller or Stockholders for the
indemnity obligation.
10.2 Employees. Seller and Stockholders will terminate the
employment of each of their employees, effective at 12:01 a.m. on the day
following the date hereof, and will pay all liabilities relating to its
employment of and termination of such employees. Seller shall assist Buyer in
the orderly transition and immediate re-employment by Buyer of such of
Seller's employees designated by Buyer.
10.3 Taxes. Except as set forth on Schedule 10.3, Seller shall
file and pay all withholding tax reports for all periods ending prior to and
on the date hereof, shall file and pay all taxes for such periods and will be
entitled to any refunds of withholding taxes paid by it with respect to such
periods.
10.4 Name Change. Within fifteen (15) days of the Closing Date
Seller shall take all necessary steps to change the name of Seller, including
amending its Articles of Incorporation. Seller further agrees that it shall
not use any confusingly similar name and that all rights and goodwill
associated with its name are being transferred to Buyer hereunder.
11. MISCELLANEOUS.
11.1 Brokers. Each of the parties represents and warrants that
it or he has dealt with no broker or finder in connection with any of the
transactions contemplated by this Agreement and, insofar as it or he knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
11.2 Amendments. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed
by the party as to whom enforcement of any such amendment, supplement, waiver
or modification is sought and making specific reference to this Agreement.
11.3 Assignments. No party shall assign his or its rights and/or
obligations hereunder without the prior written consent of each other party to
this Agreement, except that Buyer may freely assign this Agreement (and any of
the Exhibits hereto) and its rights and obligations hereunder (or thereunder)
to any corporation controlled by, controlling, under common control with, or
otherwise affiliated to, the Buyer.
11.4 Binding Effect. All of the terms and provisions of this
Agreement, whether so expressed or not, shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their respective legal
representatives, successors and permitted assigns.
11.5 Notices. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
(including telex and telegraphic communication) and shall be (as elected by
the person giving such notice) hand delivered by messenger or courier service,
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
If to Buyer:
2300 Glades Road
Suite 440 West
Boca Raton, FL 33431
Attn: David A. Farrow, President
With a Copy to:
Donald E. Thompson, II, Esq.
Proskauer Rose Goetz & Mendelsohn
LLP
2255 Glades Road, Suite 340 West
Boca Raton, Florida 33431
(407) 241-4145 Facsimile
If to Seller or Stockholders:
Duratech Industries, Inc.
P. O. Box 536
Lake Odessa, MI 48849
Attn: Allen L. Cockrum, President
With a Copy to:
John Sommerdyke, Esq.
Miller, Johnson, Snell & Cummiskey,
P.L.C.
800 Calder Plaza Building
Grand Rapids, Michigan 49503
(618) 459-6708 Facsimile
or to such other address as any party may designate by notice complying with
the terms of this Section. Each such notice shall be deemed delivered (a) on
the date delivered if by personal delivery; (b) on the date telecommunicated
if by telegraph; (c) on the date of transmission with confirmed answer back if
by telex, telefax or other telegraphic method; and (d) on the date upon which
the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, as the case may be,
if mailed.
11.6 Survival. All covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party pursuant
hereto shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; provided, however that
the representations and warranties set forth in this Agreement shall only
survive for a period of two years from the Closing Date, except that:
(a) the representations and warranties set out in Sections
2.5, 2.9 and 2.13 shall survive and continue in full force and effect without
limitation of time;
(b) the representations and warranties set out in Sections
2.17 and 2.18 shall survive and continue in full force and effect until the
third anniversary of the Closing Date;
(c) the representations and warranties set out in Section
2.2 shall survive the closing of the transactions contemplated hereby and
continue in full force and effect until, but not beyond, the expiration of the
period, if any, during which an assessment, reassessment or other form of
recognized document assessing liability for tax, interest or penalties under
applicable tax legislation in respect of any taxation year to which such
representations and warranties extend could be issued under such tax
legislation to the Seller, provided the Seller; respectively, did not file any
waiver or other document extending such period; and
(d) a claim for any breach of any of the representations
and warranties contained in this Agreement or in any agreement, instrument,
certificate or other document executed or delivered pursuant hereto involving
fraud or intentional misrepresentation may be made at any time following the
Closing Date, subject only to applicable limitation periods imposed by law.
11.7 Specific Performance. Each of the parties acknowledges that
the parties will be irreparably damaged (and damages at law would be an
inadequate remedy) if this Agreement is not specifically enforced. Therefore,
in the event of a breach or threatened breach by any party of any provision of
this Agreement, then the other parties shall be entitled, in addition to all
other rights or remedies, to injunctions restraining such breach, without
being required to show any actual damage or to post any bond or other
security, and/or to a decree for specific performance of the provisions of
this Agreement.
11.8 Enforcement Costs. If any legal action or other proceeding
is brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any provision
of this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees, sales and use taxes, court
costs and all expenses even if not taxable as court costs (including, without
limitation, all such fees, taxes, costs and expenses incident to arbitration,
appellate, bankruptcy and post-judgment proceedings), incurred in that action
or proceeding, in addition to any other relief to which such party or parties
may be entitled. Attorneys' fees shall include, without limitation, paralegal
fees, investigative fees, administrative costs, sales and use taxes and all
other charges billed by the attorney to the prevailing party.
11.9 Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Florida without
regard to principles of conflicts of laws.
11.10Preparation of Agreement. This Agreement shall not be
construed more strongly against any party regardless of who is responsible for
its preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
11.11Entire Agreement. This Agreement represents the entire
understanding and agreement among the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and among such parties, including without
limitation, the Letter Agreement.
11.12Remedies Cumulative. Except as otherwise expressly provided
herein, no remedy herein conferred upon any party is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise. No single or partial
exercise by any party of any right, power or remedy hereunder shall preclude
any other or further exercise thereof.
<PAGE>
IN WITNESS WHEREOF, the parties of this Agreement have duly executed it
on the day and year first written.
WITNESSES:
"BUYER"
EARTH CARE PRODUCTS OF THE MIDWEST,
INC.
By:
Its:
"SELLER"
DURATECH INDUSTRIES, INC.
By:
Its:
"STOCKHOLDERS"
Allen Cockrum
Mark Rogers
Michael Enden
The undersigned hereby executes this Agreement for the sole purpose of joining
in the representations and warranties set forth in Section 2.13 of the
Agreement and the provisions of Section 7.2 of the Agreement.
Barry Hilligan
The undersigned hereby executes this Agreement for the sole purpose of being
jointly and severally liable with the Buyer after the Closing Date with
respect to the Outstanding Bank Obligation and the forklift leases with
Citicorp Dealer Finance described on Schedule 1.4(c) and for purposes of
agreeing to the terms of Sections 7.1 and 7.2 hereof.
"USI"
U. S. PLASTIC LUMBER, INC.
By:
Its:
AGREEMENT AND PLAN OF MERGER
Dated as of December 30, 1996
by and among
U.S. PLASTIC LUMBER CORP.,
CLEAN EARTH ACQUISITION CORP.,
CLEAN EARTH, INC.
and
STOUT PARTNERSHIP
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of
December 30, 1996 (the "Agreement"), by and among U.S. Plastic
Lumber Corp., a Nevada corporation ("Parent"), Clean Earth
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Subsidiary" and collectively with Parent,
the "Buyers" and individually a "Buyer"), Clean Earth, Inc., a
Delaware corporation (the "Company") and Stout Partnership, a New
Jersey general partnership and the sole shareholder of the Company
(the "Seller").
W I T N E S S E T H:
WHEREAS the Boards of Directors of Parent and the Company
have determined that the merger of Subsidiary with and into the
Company (the "Merger") is consistent with and in furtherance of the
long-term business strategy of Parent and the Company and is fair
to, and in the best interests of, Parent and the Company and their
respective stockholders; and
WHEREAS, Parent, Subsidiary and the Company intend the
Merger to qualify as a tax-free reorganization under the provisions
of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"), and to be treated as a pooling of interests under
Accounting Principles Board Opinion No. 16 ("APB 16").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to
the conditions of this Agreement, at the Effective Time (as defined
in Section 1.2) in accordance with the Delaware General Corporation
Law, as amended (the "DGCL"), Subsidiary shall be merged with and
into the Company and the separate existence of Subsidiary shall
thereupon cease. The Company shall be the surviving corporation in
the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."
SECTION 1.2 Effective Time of the Merger. The Merger
shall become effective at such time (the "Effective Time") as shall
be stated in a Certificate of Merger, in a form mutually acceptable
to Parent and the Company, to be filed with the Secretary of State
of the State of Delaware in accordance with the DGCL (the "Merger
Filing"). The Merger Filing shall be made simultaneously with or
as soon as practicable after the Closing (as defined in Section
3.3).
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Certificate of Incorporation. The
Certificate of Incorporation of the Surviving Corporation shall be
the Certificate of Incorporation of the Company immediately prior
to the Effective Time (except that the name of the Surviving
Corporation shall remain unchanged).
SECTION 2.2 By-laws. The By-laws of the Surviving
Corporation shall be the By-laws of the Company immediately prior
to the Effective Time (except that the name of the Surviving
Corporation shall remain unchanged).
SECTION 2.3 Directors. The board of directors of the
Surviving Corporation, and the members thereof, shall be as
designated in Schedule 2.3, and such directors shall serve in
accordance with the By-laws of the Surviving Corporation until
their respective successors are duly elected or appointed and
qualified.
SECTION 2.4 Officers. The officers of the Surviving
Corporation shall be as designated in Schedule 2.4, and such
officers shall serve in accordance with the By-laws of the
Surviving Corporation until their respective successors are duly
elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Common Stock in the
Merger.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the sole holder of shares of
common stock, par value $.01 per share, of the Company ("Company
Common Stock"), the shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be
converted into the right to receive an aggregate of 5,400,000
shares of common stock, par value $.0001 per share of Parent
("Parent Common Stock") plus the right to receive additional shares
of Parent Common Stock (the "Additional Parent Common Stock"), on
the same pro rata basis (.47660853 of a share for each share of
Parent Common Stock owned) as the rights granted to certain
historical shareholders of Parent pursuant to that certain
Agreement and Plan of Reorganization dated December 15, 1995 to
receive 2,000,000 shares in the aggregate (the "Earn Out Shares"),
in the event Parent, on a consolidated basis, reaches net sales
(less returns) or production of at least 2,000,000 pounds of
plastic lumber product per month for three consecutive months any
time prior to December 31, 2000 (the "Merger Consideration"). The
Additional Parent Common Stock (approximately 2,573,686 shares)
shall be issued to the Seller when and if the Earn Out Shares are
issued to such historical shareholders of Parent.
(b) At the Effective Time, by virtue of the Merger and
without any action on the part of Parent as the sole stockholder of
Subsidiary, each issued and outstanding share of common stock, par
value $.001 per share, of Subsidiary ("Subsidiary Common Stock")
shall be converted into one share of common stock, par value $.01
per share, of the Surviving Corporation.
(c) No share of Company Common Stock shall be deemed to
be outstanding or to have any rights other than those set forth in
this Section 3.1 after the Effective Time.
SECTION 3.2 Exchange of Certificates.
(a) From and after the Effective Time, all Company
Common Stock outstanding immediately prior to the Effective Time
shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and the holder of a
certificate representing shares of Company Common Stock shall cease
to have any rights with respect thereto, except the right to
receive in exchange therefor, upon surrender thereof to Parent, a
certificate or certificates representing the number of shares of
Parent Common Stock to which such holder is entitled pursuant to
Section 3.1.
(b) At the Closing (as hereinafter defined), the Seller
shall deliver to Parent all certificates, duly endorsed in blank,
held by the Seller that immediately prior to the Effective Time
represented all of the issued and outstanding shares of Company
Common Stock (the "Company Certificates"), and the Buyers and the
Surviving Corporation shall deliver to the Seller certificates
representing the shares of Parent Common Stock constituting the
Merger Consideration.
(c) Upon payment in full thereof, the Merger
Consideration for which shares of the Company Common Stock shall
have been exchanged pursuant to this Section 3.2 shall be deemed to
have been paid in full satisfaction of all rights pertaining to
such shares of Company Common Stock, including, without limitation,
any rights of the Seller to any unpaid dividends thereon (whether
or not declared or accrued on the books of the Company).
SECTION 3.3 Closing. The closing (the "Closing") of
the transactions contemplated by this Agreement shall take place at
the offices of Proskauer Rose Goetz & Mendelsohn LLP, One Boca
Place, 2255 Glades Road, Suite 340 West, Boca Raton, Florida 33431,
or at such other place as the Buyers, the Company and the Seller
shall mutually agree, at 10:00 a.m., Pennsylvania time, as soon as
practicable following the completion of the conditions set forth in
Article IX hereof (the "Closing Date") or such other date as the
Buyers, the Company and the Seller may mutually agree. If on the
Closing Date any condition precedent to the obligations of the
Company and the Seller, on the one hand, or the Buyers, on the
other hand, to consummate the Merger shall not have been satisfied,
the Company and the Seller or the Buyers, as the case may be, shall
have the right to defer the Closing until such date as all
conditions precedent to such respective party's obligation to
consummate the Merger have been satisfied, subject, however, to the
rights of the parties set forth in Article X hereof.
SECTION 3.4 Tax and Accounting Treatment of Merger.
The parties to this Agreement intend for the Merger to qualify as
a tax-free reorganization under the provisions of Section 368 of
the Code and to be treated as a pooling of interests under APB 16.
SECTION 3.5 Restrictions on Resale. Any dispositions
of shares of Parent Common Stock by the Seller after the Closing
shall be effected in compliance with all applicable state and
federal securities laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Each of Parent and Subsidiary, jointly and severally,
represent and warrant to the Company and the Seller as of the date
hereof as follows:
SECTION 4.1 Organization and Qualification. Each of
Parent and Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its
business as it is now being conducted. The acquisition of Earth
Care Global Holdings, Inc., a Florida corporation ("Earth Care"),
as a wholly-owned subsidiary of Parent (formerly called Educational
Storybooks International, Inc.) and the merger of Earth Care with
and into Parent were done in compliance with all applicable rules,
laws and regulations other than those, if any, the violation of
which would not have a Parent Material Adverse Effect (as herein
defined). Each of Parent and Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing will not,
when taken together with all other such failures, have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of Parent
and its subsidiaries, taken as a whole (a "Parent Material Adverse
Effect"). True, accurate and complete copies of each of Parent's
and Subsidiary's Certificates of Incorporation and By-laws, in each
case as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to the Company.
SECTION 4.2 Capitalization.
(a) The authorized capital stock of Parent consists of
(i) 50,000,000 shares of Parent Common Stock, of which 6,253,081
shares were issued and outstanding as of December 30, 1996 and (ii)
10,000,000 shares of preferred stock that is authorized, of which
750,000 shares of Series A Preferred Stock, par value $.001 per
share ("Parent Preferred Stock"), are designated, of which 75,781
shares were issued and outstanding as of December 30, 1996. All of
the issued and outstanding shares of Parent Common Stock and Parent
Preferred Stock are duly authorized and validly issued, are fully
paid, nonassessable and free of preemptive rights.
(b) The authorized capital stock of Subsidiary consists
of 10,000 shares of Subsidiary Common Stock, par value $.01 per
share, of which 100 shares are issued and outstanding, which shares
are owned beneficially and of record by Parent, free and clear of
any liens, claims or encumbrances.
(c) Except as set forth on Schedule 4.2, there are (i)
no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also
including any rights plan or other anti-takeover agreement,
obligating Parent or any subsidiary of Parent to issue, deliver or
sell, or cause to be issued, delivered or sold or otherwise to
become outstanding, additional shares of the capital stock of
Parent or obligating Parent or any subsidiary of Parent to grant,
extend or enter into any such agreement or commitment, and (ii) no
voting trusts, proxies or other agreements or understandings to
which Parent or any subsidiary of Parent is a party or is bound
with respect to the voting of any shares of capital stock of Parent
and, to the knowledge of Parent, there are no such trusts, proxies,
agreements or understandings by, between or among any of Parent's
stockholders with respect to Parent Common Stock. The shares of
Parent Common Stock to be issued to the Seller in the Merger will
be at the Effective Time duly authorized, and upon their issuance
in accordance with the provisions hereof will be validly issued,
fully paid and nonassessable, free of preemptive rights and,
assuming the accuracy of the representations and warranties set
forth in Sections 6.1 and 6.5 hereof, issued in compliance with all
applicable securities laws.
SECTION 4.3 Subsidiaries. Each direct and indirect
subsidiary of Parent (other than Subsidiary) is duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has the requisite
power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being
conducted. Each subsidiary of Parent is qualified to do business
and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing will not
have a Parent Material Adverse Effect. All of the outstanding
shares of capital stock of each subsidiary of Parent are duly
authorized and validly issued, fully paid, nonassessable and free
of preemptive rights and are owned directly or indirectly by
Parent, free and clear of any liens, claims or encumbrances.
Except as set forth on Schedule 4.3, there are no outstanding
subscriptions, options, warrants, rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions
or arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of capital
stock of any subsidiary of Parent, including any right of
conversion or exchange under any outstanding security, instrument
or agreement. As used in this Agreement, the term "subsidiary"
shall mean, when used with reference to any person or entity, any
corporation, partnership, joint venture or other entity which such
person or entity, directly or indirectly, controls or of which such
person or entity (either acting alone or together with its other
subsidiaries) owns, directly or indirectly, 50% or more of the
stock or other voting interests, the holders of which are entitled
to vote for the election of a majority of the board of directors or
any similar governing body of such corporation, partnership, joint
venture or other entity.
SECTION 4.4 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have full corporate power
and authority to enter into this Agreement and, subject to the
Parent Required Statutory Approvals (as defined in Section 4.4(c)),
to consummate the transactions contemplated hereby. This Agreement
has been approved by the Boards of Directors of Parent and
Subsidiary, and no other corporate proceedings on the part of
Parent or Subsidiary are necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and
Subsidiary of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of Parent and
Subsidiary, and, assuming the due authorization, execution and
delivery hereof by the Company and the Seller, constitutes a valid
and legally binding agreement of each of Parent and Subsidiary
enforceable against each of them in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each
of Parent and Subsidiary do not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws
of Parent or any of its subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority
applicable to Parent or any of its subsidiaries or any of their
respective properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any
kind to which Parent or any of its subsidiaries is now a party or
by which Parent or any of its subsidiaries or any of their
respective properties or assets may be bound. The consummation by
Parent and Subsidiary of the transactions contemplated by this
Agreement will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the
terms, conditions or provisions described in clauses (i) through
(iii) of the preceding sentence, subject (x) in the case of the
terms, conditions or provisions described in clause (ii) above, to
obtaining (prior to the Effective Time) the Parent Required
Statutory Approvals, and (y) in the case of the terms, conditions
or provisions described in clause (iii) above, to obtaining (prior
to the Effective Time) consents required from lenders, lessors or
other third parties. Excluded from the foregoing sentences of this
paragraph (b), insofar as they apply to the terms, conditions or
provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not,
in the aggregate, have a Parent Material Adverse Effect.
(c) Except for the making of the Merger Filing with the
Secretary of State of the State of Delaware in connection with the
Merger (the "Parent Required Statutory Approvals"), no declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this
Agreement by Parent or Subsidiary or the consummation by Parent or
Subsidiary of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case
may be, would not, in the aggregate, have a Parent Material Adverse
Effect or affect Subsidiary's ability to consummate the Merger.
SECTION 4.5 Financial Statements. The unaudited
consolidated financial statements of Parent for the year ended
December 31, 1994, the audited consolidated financial statements of
Parent for the year ended December 31, 1995 and the unaudited
interim consolidated financial statements of Parent for the eleven-
month period ended November 30, 1996 (collectively, the "Parent
Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Parent and its
subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended, subject, in
the case of the unaudited interim financial statements, to the
absence of footnotes thereto and normal year-end and audit
adjustments and any other adjustments described therein.
SECTION 4.6 Events Subsequent to Year End Financial
Statements. Except as set forth in Schedule 4.6, since the date of
the Parent Financial Statements for the year ended December 31,
1995, there has not been any change which would have a Parent
Material Adverse Effect. Without limiting the generality of the
foregoing and except as set forth in Schedule 4.6, since December
31, 1995:
(a) none of Parent or its subsidiaries has sold, leased,
transferred or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the ordinary course of
business;
(b) none of Parent or its subsidiaries has entered into
any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) either involving more
than $50,000 or outside the ordinary course of business;
(c) no party (including Parent or any of its
subsidiaries) has accelerated, terminated, modified or cancelled
any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) involving more than
$50,000 to which Parent or any of its subsidiaries is a party or by
which any of them is bound;
(d) none of Parent or any of its subsidiaries has
imposed any security interest, mortgage, pledge, lien, restriction,
covenant, charge or encumbrance of any kind or any character upon
any of its assets, tangible or intangible, involving more than
$50,000 in the aggregate;
(e) none of Parent or any of its subsidiaries has made
any capital expenditure (or series of related capital expenditures)
either involving more than $50,000 or outside the ordinary course
of business;
(f) none of Parent or any of its subsidiaries has made
any capital investment in, any loan to or any acquisition of the
securities or assets of, any other person (or series of related
capital investments, loans and acquisitions) either involving more
than $50,000 or outside the ordinary course of business;
(g) none of Parent or any of its subsidiaries has issued
any note, bond or other debt security or created, incurred, assumed
or guaranteed any indebtedness for borrowed money or capitalized
lease obligation involving more than $50,000;
(h) none of Parent or any of its subsidiaries has
cancelled, compromised, waived or released any right or claim (or
series of related rights and claims) either involving more than
$50,000 or outside the ordinary course of business;
(i) there has been no change made or authorized in the
respective charters or by-laws of Parent or any of its
subsidiaries;
(j) none of Parent or any of its subsidiaries has
issued, sold or otherwise disposed of or reacquired any of its
capital stock, or granted or reacquired any options, warrants or
other rights to purchase or obtain (including upon conversion,
exchange or exercise) any of its capital stock;
(k) none of Parent or any of its subsidiaries has
declared, set aside or paid any dividend or made any distribution
with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased or otherwise acquired any of its capital stock;
(l) none of Parent or any of its subsidiaries has
experienced any material damage, destruction or loss (whether or
not covered by insurance) to its property;
(m) none of Parent or any of its subsidiaries has made
any loan to, or entered into any other transaction with, any of its
directors, officers and employees;
(n) none of Parent or any of its subsidiaries has
entered into any employment contract or collective bargaining
agreement, written or oral, or modified in any material respect the
terms of any existing such contract or agreement;
(o) none of Parent or any of its subsidiaries has
granted any bonuses or a greater than ten percent (10%) increase in
the base compensation of any of its directors, officers and, except
in the ordinary course of business, employees;
(p) none of Parent or any of its subsidiaries has
adopted, amended, modified or terminated any bonus, profit-sharing,
incentive, severance or other plan, contract or commitment for the
benefit of any of its directors, officers and employees (or taken
any such action with respect to any other Parent Plan (as defined
in Section 4.14(a));
(q) none of Parent or any of its subsidiaries has made
any other change in employment terms for any of its directors,
officers and, except in the ordinary course of business, employees;
(r) none of Parent or any of its subsidiaries has made
or pledged to make any charitable or capital contribution outside
the ordinary course of business;
(s) there has not been any other occurrence, event,
incident, action, failure to act or transaction outside the
ordinary course of business involving Parent or any of its
subsidiaries and involving more than $50,000 in the aggregate; and
(t) Parent has not committed to do any of the foregoing.
SECTION 4.7 Books of Account. The books of account of
Parent and its subsidiaries accurately and fairly reflect, in
reasonable detail and in all material respects, Parent's and its
subsidiaries' transactions and the disposition of their assets.
All notes and accounts receivable of Parent and its subsidiaries
are reflected in accordance with generally accepted accounting
principles on their books and records, are valid receivables
subject to no material setoffs or counterclaims, are current and
collectible and will be collected in accordance with their terms at
their recorded amounts subject only to normal adjustments in the
ordinary course of business and the reserves for contractual
allowances and bad debts set forth on the face of the balance sheet
contained in the most recent Parent Financial Statements as
adjusted for the passage of time through the Closing Date in
accordance with past custom and practice of Parent and its
subsidiaries. Parent and its subsidiaries have filed all reports
and returns required by any material law or regulation to be filed
by them, and have paid all taxes, duties and charges due on the
basis of such reports and returns.
SECTION 4.8 Absence of Undisclosed Liabilities. Except
as disclosed in Schedule 4.8, neither Parent nor any of its
subsidiaries had at December 31, 1995 or has incurred since that
date, any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except: (a) liabilities,
obligations or contingencies (i) which are accrued or reserved
against in the Parent Financial Statements or reflected in the
notes thereto, or (ii) which were incurred after December 31, 1995
and were incurred in the ordinary course of business and consistent
with past practice; (b) liabilities, obligations or contingencies
which (i) would not, in the aggregate, have a Parent Material
Adverse Effect, or (ii) have been discharged or paid in full prior
to the date hereof; and (c) liabilities and obligations which are
of a nature not required to be reflected in the consolidated
financial statements of Parent and its subsidiaries prepared in
accordance with generally accepted accounting principles
consistently applied and which were incurred in the ordinary course
of business.
SECTION 4.9 Absence of Certain Changes or Events.
Since December 31, 1995, there has not been any material adverse
change in the business, operations, properties, assets,
liabilities, condition (financial or other) or results of
operations of Parent and its subsidiaries, taken as a whole,
including as a result of any change in capital structure, employee
compensation arrangement (including severance rights and benefit
plans), accounting method or applicable law.
SECTION 4.10 Litigation. Except as disclosed in
Schedule 4.10, there are no claims, suits, actions or proceedings
pending or, to the knowledge of Parent, threatened against,
relating to or affecting Parent or any of its subsidiaries, before
any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seek to
restrain or enjoin the consummation of the Merger or which could
reasonably be expected, either alone or in the aggregate with all
such claims, suits actions or proceedings, to have a Parent
Material Adverse Effect. Except as set forth in Schedule 4.10,
neither Parent nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the
consummation of the transactions contemplated hereby or would,
either alone or in the aggregate, have a Parent Material Adverse
Effect.
SECTION 4.11 No Violation of Law. Except as disclosed
in Schedule 4.11, neither Parent nor any of its subsidiaries is in
violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance,
or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or
regulatory body or authority, except for violations which, in the
aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect. To the knowledge of Parent, no
investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or
regulatory body or authority indicated to Parent an intention to
conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, will not have a Parent
Material Adverse Effect. Parent and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively,
the "Parent Permits"), except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would
not have a Parent Material Adverse Effect. Neither Parent nor any
of its subsidiaries is in violation of the terms of any Parent
Permit, except for delays in filing reports or violations which,
alone or in the aggregate, would not have a Parent Material Adverse
Effect.
SECTION 4.12 Compliance with Agreements. Except as set
forth in Schedule 4.12, neither Parent nor any of its subsidiaries
is in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or action by a third party,
could result in a default under (a) the respective charters, by-
laws or other similar organizational instruments of Parent or any
of its subsidiaries, or (b) to the knowledge of Parent, any
contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument
to which Parent or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is subject,
which breaches, violations and defaults, in the case of clause
(b) of this Section 4.12, would have, in the aggregate, a Parent
Material Adverse Effect.
SECTION 4.13 Taxes.
(a) Parent and its subsidiaries have (i) duly filed with
the appropriate governmental authorities all Tax Returns (as
defined in Section 4.13(c)) required to be filed by them for all
periods ending on or prior to the Effective Time, other than those
Tax Returns the failure of which to file would not have a Parent
Material Adverse Effect, and such Tax Returns are true, correct and
complete in all material respects, and (ii) duly paid in full or
made adequate provision in the Parent Financial Statements for the
payment of all Taxes (as defined in Section 4.13(b)) due for all
periods ending at or prior to the Effective Time (whether or not
shown on any Tax Return), except where the failure to pay such
Taxes would not have a Parent Material Adverse Effect. The
liabilities and reserves for Taxes reflected in the Parent balance
sheet included in the most recent Parent Financial Statements are
adequate to cover all Taxes for all periods ending at or prior to
the Effective Time and there are no material liens for Taxes upon
any property or assets of Parent or any subsidiary thereof, except
for liens for Taxes not yet due. There are no unresolved issues of
law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service (the
"IRS") or any other governmental taxing authority with respect to
Taxes of the Parent or any of its subsidiaries which, if decided
adversely, singly or in the aggregate, would have a Parent Material
Adverse Effect. Neither Parent nor any of its subsidiaries is a
party to any agreement providing for the allocation or sharing of
Taxes with any entity that is not, directly or indirectly, a
wholly-owned subsidiary of Parent other than agreements the
consequences of which are fully and adequately reserved for in the
Parent Financial Statements. Neither Parent nor any of its
subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes"
shall mean all taxes, including, without limitation, income, gross
receipts, excise, property, sales, withholding, social security,
occupation, use, service, service use, license, payroll, franchise,
transfer and recording taxes, fees and charges, windfall profits,
severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments imposed by the United
States, or any state, local or foreign government or subdivision or
agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis, and such term shall include
any interest, fines, penalties or additional amounts and any
interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges,
fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax
Return" shall mean any return, report or other document or
information required to be supplied to a taxing authority in
connection with Taxes.
SECTION 4.14 Employee Benefit Plans; ERISA.
(a) Except as disclosed in Schedule 4.14, neither
Parent, any of its subsidiaries nor any entity that would be deemed
a single employer with Parent under Section 414(b), (c), (m) or (o)
of the Code or Section 4001 of ERISA (an "ERISA Affiliate")
maintains or contributes to or has or has had any obligation or
liability to or under any employee benefit plans, programs,
arrangements or practices (such plans within the meaning set forth
in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including any "Multi-Employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple
Employer Plan" within the meaning of Section 413(c) of the Code),
or any other stock bonus, incentive compensation, vacation pay,
severance, tuition reimbursement, welfare, health, postretirement,
life, executive compensation, sick pay, stock option, or other
plan, agreement program or arrangement, whether or not an ERISA
employee benefit plan, whether written or unwritten, arrangements
or practices of Parent or any of its ERISA Affiliates (referred to
as the "Parent Plans"). Neither Parent nor any of its subsidiaries
has any obligation to create any additional such plan or to amend
any such plan so as to increase benefits thereunder.
With respect to each Parent Plan, copies of all documents
embodying or relating to each Parent Plan including, without
limitation, all plan documents, amendments, trust or funding
agreements, collective bargaining agreements, written summaries or
unwritten plans, annual reports, financial statements, IRS
determination letters and communications from government agencies
have been delivered to Seller.
(b) None of Parent, the ERISA Affiliates or any of their
respective predecessors has ever contributed to, contributes to,
has ever been required to contribute to, or otherwise participated
in or participates in or has any liability (actual or contingent)
with respect to any employee benefit plan (within the meaning of
Section 3(3) of ERISA) subject to Title IV of ERISA, Section 412 of
the Code o Section 302 of ERISA including, without limitation, a
Multiemployer Plan, Multiple Employer Plan or single employer
pension plan.
(c) (i) There have been no prohibited transactions
within the meaning of Section 406 or 407 of ERISA or Section 4975
of the Code with respect to any of the Parent Plans that could
result in material penalties, taxes or liabilities, (ii) except for
premiums due, there is no outstanding liability, whether measured
alone or in the aggregate, under Title IV of ERISA with respect to
any of the Parent Plans, (iii) neither the Pension Benefit Guaranty
Corporation ("PBGC") nor any plan administrator has instituted
proceedings to terminate any of the Parent Plans subject to Title
IV of ERISA, (iv) none of the Parent Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Parent
Plans ended prior to the date of this Agreement, (v) the current
present value of all projected benefit obligations under each of
the Parent Plans which is subject to Title IV of ERISA did not, as
of the last day of the most recent fiscal year of each of the
Parent Plans ended prior to the date of this Agreement, exceed the
then current value of the assets of such plan if based upon the
actuarial assumptions used for funding purposes (A) specified in
the most recent actuarial valuation for such Parent Plan; (B) as
required by the PBGC for the Parent Plan's termination; and (C) as
set forth in Statement No. 87 of the Financial Accounting Standards
Board, using the methodology to calculate the projected benefit
obligation and no amendments or other modifications to such Parent
Plan's actuarial assumptions were adopted since the date of such
Parent Plan's most recent actuarial report, (vi) each of the Parent
Plans has been operated and administered in all material respects
in accordance with applicable laws and its terms, (vii) each of the
Parent Plans which is intended to be "qualified" within the meaning
of Section 401(a) of the Code has been determined by the IRS in
accordance with Revenue Procedure 93-39, as subsequently modified
or superseded, to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any
condition thereof or by a subsequent amendment thereto or a failure
to amend, (viii) with respect to Multi-employer Plans, neither the
Parent nor any of its ERISA Affiliates has made or suffered a
"complete withdrawal" or a "partial withdrawal," as such terms are
defined in Sections 4203, 4204 and 4205 of ERISA, respectively,
and, to the knowledge of Parent and its ERISA Affiliates, no event
has occurred or is expected to occur which presents a material risk
of a complete withdrawal or partial withdrawal under said Sections
4203, 4204 and 4205, (ix) to the knowledge of Parent and its ERISA
Affiliates, there are no pending, threatened or anticipated claims
involving any of the Parent Plans, other than claims for benefits
in the ordinary course, and (x) neither Parent nor any of its ERISA
Affiliates has any liability, whether measured alone or in the
aggregate, for plan termination or complete withdrawal or partial
withdrawal under Title IV of ERISA, and Parent and its ERISA
Affiliates do not reasonably anticipate that any such liability
will be asserted against Parent or any of its ERISA Affiliates.
(d) Listed in Schedule 5.14 are all employment contracts
and other employee benefit arrangements with "change of control" or
similar provisions and all severance agreements with executive
officers.
(e) All payments required by any Parent Plan, any
collective bargaining agreement or other agreement, or by law
(including, without limitation, all contributions, insurance
premiums, or intercompany charges) with respect to all periods
through the date of the Closing shall have been made prior to the
Closing (on a pro rata basis where such payments are otherwise
discretionary at year end) or provided for by Parent as applicable,
by full accruals as if all targets required by such Parent Plan had
been or will be met at maximum levels) on its financial statements.
No Parent Plan is, or is expected to be, under audit or
investigation by the IRS or by any other governmental authority and
no such completed audit, if any, has resulted in the imposition of
any tax or penalty. Each Parent Plan intended to meet requirements
for tax-favored treatment under any provision of the Code,
including, without limitation, Section 79, 105, 106, 117, 120, 125,
127, 129, 132, 162(m), 404, 404A, 419, 419A, or 501(c)(9) of the
Code satisfies in all material respects the applicable requirements
under the Code. With respect to each Parent Plan that is funded
mostly or partially through an insurance policy, neither Parent nor
any ERISA Affiliate has any liability in the nature of retroactive
rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events
occurring on or before the Closing. The consummation of the
transactions contemplated by this Agreement will not give rise to
any liability, including, without limitation, liability for
severance pay, unemployment compensation, termination pay, or
withdrawal liability, or accelerate the time of payment or vesting
or increase the amount of compensation or benefits due to any
employee, director, shareholder, or partner of Parent (whether
current, former, or retired) or their beneficiaries solely by
reason of such transactions. No amounts payable under any Parent
Plan will fail to be deductible for federal income tax purposes by
virtue of Section 280G of the Code. Neither Parent nor any ERISA
Affiliate maintains, contributes to, or in any way provides for any
benefits of any kind whatsoever (other than under Section 4980B of
the Code, the Federal Social Security Act, or a plan qualified
under Section 401(a) of the Code) to any current or future retiree
or terminee. No event, condition, or circumstance exists that
could result in an increase of the benefits provided under any
Parent Plan or the expense of maintaining any Parent Plan from the
level of benefits or expenses incurred for the most recent fiscal
year ended before the Closing. Neither Parent nor any ERISA
Affiliate has any unfunded liabilities pursuant to any Parent Plan
that is not intended to be qualified under Section 401(a) of the
Code. No event, condition, or circumstance exists that would
prevent the amendment or termination of any Parent Plan.
SECTION 4.15 Labor Controversies. Except as disclosed
in Schedule 4.15, (a) there are no material controversies pending
or, to the knowledge of Parent, threatened between Parent or its
subsidiaries and any representatives of any of their employees;
(b) to the knowledge of Parent there are no material organizational
efforts presently being made involving any of the presently
unorganized employees of Parent and its subsidiaries; (c) Parent
and its subsidiaries have, to the knowledge of Parent, complied in
all material respects with all laws relating to the employment of
labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of
social security and similar taxes; and (d) no person has, to the
knowledge of Parent, asserted that Parent or any of its
subsidiaries is liable in any material amount for any arrears of
wages or any taxes or penalties for failure to comply with any of
the foregoing, except for such controversies, organizational
efforts, non-compliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect.
SECTION 4.16 Environmental Matters.
(a) To Parent's knowledge and except as disclosed in
Schedule 4.16, (i) Parent and each of its subsidiaries have
conducted their respective businesses in compliance with all
applicable Environmental Laws (as defined in Section 4.16(b)),
including, without limitation, having all permits, licenses and
other approvals and authorizations necessary for the operation of
their respective businesses as presently conducted, (ii) none of
the properties owned, leased or operated by Parent or any of its
subsidiaries contains any Hazardous Substance (as defined in
Section 4.16(c)) as a result of any activity of Parent or any of
its subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither Parent nor any of its
subsidiaries has received any notices, demand letters or requests
for information from any Federal, state, local or foreign
governmental entity or third party indicating that Parent or any of
its subsidiaries may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of
their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened against Parent
or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no reports have been
filed, or are required to be filed, by Parent or any of its
subsidiaries concerning the release of any Hazardous Substance or
the threatened or actual violation of any Environmental Law,
(vi) no Hazardous Substance has been disposed of, released or
transported in violation of any applicable Environmental Law from
any properties owned, leased or operated by Parent or any of its
subsidiaries as a result of any activity of Parent or any of its
subsidiaries during the time such properties were owned, leased or
operated by Parent or any of its subsidiaries, (vii) there have
been no environmental investigations, studies, audits, tests,
reviews or other analyses regarding compliance or noncompliance
with any applicable Environmental Law or the condition of any
properties owned, leased or operated by Parent or any of its
subsidiaries conducted by or which are in the possession of Parent
or its subsidiaries relating to the activities of Parent or its
subsidiaries, (viii) there are no underground storage tanks on, in
or under any properties owned, leased or operated by Parent or any
of its subsidiaries and no underground storage tanks have been
closed or removed from any of such properties during the time such
properties were owned, leased or operated by Parent or any of its
subsidiaries, and (ix) neither Parent, its subsidiaries nor any of
their respective properties are subject to any material liabilities
or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any
Environmental Law, except for violations of the foregoing clauses
(i) through (ix) that, singly or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect.
(b) For purposes of this Agreement, "Environmental Law"
means any Federal, state, local or foreign law, statute, ordinance,
rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource) or to human
health or safety or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing
Date. The term Environmental Law includes, without limitation,
(i) the Federal Comprehensive Environmental Response Compensation
and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act,
the Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970, each as amended and as
in effect on the Closing Date, or any state counterpart thereof,
and (ii) any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries, damages or penalties
due to, or threatened as a result of, the presence of, effects of
or exposure to any Hazardous Substance.
(c) For purposes of this Agreement, "Hazardous
Substance" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive,
or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is
regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste,
special waste, industrial substance or petroleum or any derivative
or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation,
lead or polychlorinated biphenyls.
SECTION 4.17 Title to Assets. Parent and each of its
subsidiaries has good and marketable title in fee simple to all of
its real property and good title to all of its leasehold interests
and other properties, as reflected in the most recent balance sheet
included in the Parent Financial Statements, except for such
properties and assets that have been disposed of in the ordinary
course of business since the date of such balance sheet, free and
clear of all mortgages, liens, pledges, charges or encumbrances of
any nature whatsoever, except (i) the lien for current Taxes,
payments of which are not yet delinquent and other statutory liens,
(ii) such imperfections in title and easements and encumbrances, if
any, as are not material in character, amount or extent and do not
materially and adversely affect the value or interfere with the
present use of the property subject thereto or affected thereby, or
otherwise materially impair the Parent's business operations (in
the manner presently carried on by the Parent), (iii) as disclosed
in Schedule 4.17, or (iv) mortgages incurred in the ordinary course
of business, and except for such matters which, singly or in the
aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect. All leases under which Parent leases any
real or personal property are in good standing, valid and effective
in accordance with their respective terms, and there is not, under
any of such leases, any existing default or, to the knowledge of
Parent, event which with notice or lapse of time or both would
become a default other than defaults under such leases which in the
aggregate will not have a Parent Material Adverse Effect.
SECTION 4.18 No Stockholder Approval. No Parent
stockholder approval of the Merger or the related transactions
contemplated by this Agreement is required.
SECTION 4.19 Trademarks and Intellectual Property
Compliance. Parent and its subsidiaries own or have the right to
use, without any material payment to any other party, all of their
patents, trademarks (registered or unregistered), trade names,
service marks, copyrights and applications ("Parent Intellectual
Property Rights"), and the consummation of the transactions
contemplated hereby will not alter or impair such rights in any
material respect. To the knowledge of Parent, no claims are
pending by any person with respect to the ownership, validity,
enforceability or use of any Parent Intellectual Property Rights
challenging or questioning the validity or effectiveness of any of
the foregoing which claims could reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 4.20 Contracts, Obligations and Commitments.
Schedule 4.20 sets forth an accurate and complete list of all
material contracts, agreements, options, leases, commitments and
instruments entered into by Parent or its subsidiaries ("Parent
Contracts"). Parent and its subsidiaries have provided, or will
provide prior to the Closing Date, the Company with complete and
correct copies of all such items listed in Schedule 4.20. Except
for such items listed in Schedule 4.20, there are no other material
contracts or other arrangements under which goods, equipment or
services are provided, leased or rendered by, or are to be
provided, leased or rendered to, Parent or any of its subsidiaries.
Except as set forth in Schedule 4.20: (a) the Parent Contracts
have not been modified, pledged, assigned or amended in any
material respect, are legally valid, binding and enforceable in
accordance with their respective terms and are in full force and
effect; (b) to the knowledge of Parent, there are no material
defaults by Parent or any of its subsidiaries or any other party to
the Parent Contracts; (c) neither Parent nor any of its
subsidiaries have received notice of any material default, offset,
counterclaim or defense under any Parent Contract; (d) to the
knowledge of Parent, no condition or event has occurred which with
the passage of time or the giving of notice or both would
constitute a default or breach by Parent or any of its subsidiaries
of the terms of any Parent Contract, except for any consents
required to consummate the transactions contemplated by this
Agreement; and (e) there does not now, and at Closing will not,
exist any material security interest, mortgage, pledge,
restriction, charge, lien, encumbrance or claim of others on any
interest created under any Parent Contract. None of the Parent
Contracts is subject to termination from and after the Closing Date
and prior to the expiration of its stated term by any party to such
Parent Contract, except as stated in each such Parent Contract.
SECTION 4.21 Pooling and Tax-Free Reorganization
Matters. To Parent's knowledge and based upon consultation with
its independent accountants, neither Parent nor any of its
affiliates has taken or agreed to take any action that would
interfere with the ability of Parent to (i) account for the
business combination to be effected by the Merger as a pooling of
interests, or (ii) continue to account for as a pooling of
interests any past business combination transaction currently
accounted for as a pooling of interests, or interfere with the
ability of the Seller, the Company or the Parent to treat the
Merger as a tax-free reorganization pursuant to Section
368(a)(2)(E) of the Code. Parent has no plan or intention (a) to
reacquire any Parent Common Stock issued in the Merger; (b) to
liquidate the Surviving Corporation; (c) to merge the Surviving
Corporation with and into another corporation; (d) to sell or
otherwise dispose of the stock of the Surviving Corporation (except
for transfers of stock to corporations Controlled (as defined
herein) by Parent); or (e) to cause the Surviving Corporation to
sell or otherwise dispose of any of its assets or of any of the
assets acquired from Subsidiary (except for dispositions made in
the ordinary course of business or transfers of assets to a
corporations Controlled by the Surviving Corporation). For
purposes of this Agreement, the term "Controlled" when used with
reference to a corporation means ownership of (x) at least eighty
percent (80%) of the total combined voting power of all classes of
stock of such corporation entitled to vote and (y) at least eighty
percent (80%) of the total number of shares of all other classes of
stock of such corporation.
SECTION 4.22 Transactions with Parent Related Parties.
Except as set forth in Schedule 4.22, (a) there have been no
material transactions by Parent or any of its subsidiaries with any
officer or director of Parent or any of its subsidiaries, any
beneficial owner of more than five percent (5%) of the Parent
Common Stock or their respective affiliates ("Parent Related
Parties") since January 1, 1996 and (b) there are no agreements or
understandings now in effect between Parent or any of its
subsidiaries and any Parent Related Party.
SECTION 4.23 Insurance. Except to extent there would
be no Parent Material Adverse Effect, all of Parent's and its
subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance (except directors' and
officers' insurance), surety bonds and umbrella policies, insuring
Parent and its subsidiaries and their directors, officers,
employees, independent contractors, properties, assets and
business, are valid and in full force and effect and without any
premium past due or pending notice of cancellation, are, in the
reasonable judgment of Parent, adequate for the business of Parent
and its subsidiaries as now conducted, and there are no claims,
singly or in the aggregate, under such policies in excess of
$10,000, which, in any event, are not in excess of the limitations
of coverage set forth in such policies. Parent and its
subsidiaries have taken all actions reasonably necessary to insure
that their independent contractors obtain and maintain adequate
insurance coverage. All of the insurance policies referred to in
this Section 4.23 are "occurrence" policies and no such policies
are "claims made" policies. Neither Parent nor any of its
subsidiaries has knowledge of any fact indicating that such
policies will not continue to be available to Parent and its
subsidiaries upon substantially similar terms subsequent to the
Effective Time. The provision and/or reserves in the most recent
Parent Financial Statements are adequate for any and all self
insurance programs maintained by Parent or its subsidiaries.
SECTION 4.24 Investment. Parent is not acquiring the
Company Common Stock with the view to or for sale in connection
with any distribution thereof within the meaning of the Securities
Act.
SECTION 4.25 Disclosure. No representations and
warranties by Parent and Subsidiary contained in this Agreement,
and no statement contained in this Agreement or in any document
listed in any Schedule to this Agreement or any document or
certificate furnished or to be furnished to the Seller at Closing
pursuant hereto, contains or will contain on the Closing Date any
untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact reasonably related to such
affirmative statements necessary in order to make the statements
therein not misleading in light of the circumstances in which they
were made.
SECTION 4.26 Representations True. To the knowledge of
Parent and Subsidiary on the date of this Agreement based solely on
the due diligence examination performed by their agents or
employees and communicated to such persons, Parent and Subsidiary
have no grounds to make any claim for breach or untruthfulness of
any representation or warranty or breach or nonfulfillment of any
covenant or agreement of the Company or the Seller contained in
this Agreement.
SECTION 4.27 Suppliers, Distributors and Customers.
Except as disclosed on Schedule 4.27, the relationships of Parent
and each of its subsidiaries with their respective suppliers,
distributors and customers are satisfactory commercial working
relationships. Except as disclosed on Schedule 4.27, since the
date of the most recent Parent Financial Statements, no material
supplier, distributor or customer of Parent or any of its
subsidiaries has cancelled or otherwise modified its relationship
with Parent or any of its subsidiaries in a manner that is
materially adverse to Parent or any of its subsidiaries and, to the
knowledge of Parent, no supplier, distributor or customer of Parent
or any of its subsidiaries has any intention to do so nor will the
consummation of the transactions contemplated hereby adversely
affect such relationships.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Each of the Company and the Seller, jointly and
severally, represents and warrants to Parent and Subsidiary as of
the date hereof as follows:
SECTION 5.1 Organization and Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be
so qualified and in good standing will not, when taken together
with all other such failures, have a material adverse effect on the
business, operations, properties, assets, condition (financial or
other) or results of operations of the Company and its
subsidiaries, taken as a whole (a "Company Material Adverse
Effect"). True, accurate and complete copies of the Company's
Certificate of Incorporation and By-laws, in each case as in effect
on the date hereof, including all amendments thereto, have
heretofore been delivered to Parent.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists
of 100 shares of Company Common Stock, par value $1.00 per share,
of which 70.27 shares were issued and outstanding as of December
30, 1996. All of the issued and outstanding shares of Company
Common Stock are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, and are held of
record by the Seller. No subsidiary of the Company holds any
shares of the capital stock of the Company.
(b) Except as set forth on Exhibit 5.2, there are (i) no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any
rights plan or other anti-takeover agreement, obligating the
Company or any subsidiary of the Company to issue, deliver or sell,
or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of the Company
or obligating the Company or any subsidiary of the Company to
grant, extend or enter into any such agreement or commitment, and
(ii) there are no voting trusts, proxies or other agreements or
understandings to which the Company or any subsidiary of the
Company is a party or is bound with respect to the voting of any
shares of capital stock of the Company and, to the knowledge of the
Company and the Seller, there are no such trusts, proxies,
agreements or understandings by, between or among any of the
Company's stockholders with respect to Company Common Stock. There
are no outstanding or authorized stock appreciation rights, phantom
stock, profit participation or similar rights with respect to the
Company.
SECTION 5.3 Subsidiaries. Each direct and indirect
subsidiary of the Company is duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation or organization and has the requisite power and
authority to own, lease and operate its assets and properties and
to carry on its business as it is now being conducted. Each
subsidiary of the Company is qualified to do business and is in
good standing in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by
it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together
with all such other failures, have a Company Material Adverse
Effect. All of the outstanding shares of capital stock of each
subsidiary of the Company are duly authorized and validly issued,
fully paid, nonassessable and free of preemptive rights and are
owned directly or indirectly by the Company, free and clear of any
liens, claims or encumbrances. Except as set forth in Schedule
5.3, there are no subscriptions, options, warrants, rights, calls,
contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with
respect to any shares of capital stock of any subsidiary of the
Company, including any right of conversion or exchange under any
outstanding security, instrument or agreement.
SECTION 5.4 Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority
to enter into this Agreement and, subject to the Company
Stockholder's Approval (as defined in Section 8.2(a)) and the
Company Required Statutory Approvals (as defined in
Section 5.4(c)), to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors
of the Company, and no other corporate proceedings on the part of
the Company are necessary to authorize the execution and delivery
of this Agreement or, except for the Company Stockholder's
Approval, the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by Parent and Subsidiary, constitutes
a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
(b) The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws
of the Company or any of its subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority
applicable to the Company or any of its subsidiaries or any of
their respective properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or
agreement of any kind to which the Company or any of its
subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be
bound. The consummation by the Company of the transactions
contemplated by this Agreement will not result in any violation,
conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in
clauses (i) through (iii) of the preceding sentence, subject (x) in
the case of the terms, conditions or provisions described in
clause (ii) above, to obtaining (prior to the Effective Time) the
Company Required Statutory Approvals and the Company Stockholder's
Approval, and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to
the Effective Time) consents required from lenders, lessors or
other third parties. Excluded from the foregoing sentences of this
paragraph (b), insofar as they apply to the terms, conditions or
provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not,
in the aggregate, have a Company Material Adverse Effect.
(c) Except for the making of the Merger Filing with the
Secretary of State of the State of Delaware in connection with the
Merger (the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and
delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case
may be, would not, in the aggregate, have a Company Material
Adverse Effect.
SECTION 5.5 Financial Statements. The audited
consolidated financial statements and unaudited interim
consolidated financial statements of the Company for the calendar
years ended December 31, 1994 and 1995 and for the eleven-month
period ended November 30, 1996 (collectively, the "Company
Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended, subject, in
the case of the unaudited interim financial statements, to the
absence of footnotes thereto and normal year-end and audit
adjustments and any other adjustments described therein.
SECTION 5.6 Events Subsequent to Year End Financial
Statements. Except as set forth in Schedule 5.6, since the date of
the Company Financial Statements for the year ended December 31,
1995, there has not been any change which would have a Company
Material Adverse Effect. Without limiting the generality of the
foregoing and except as set forth in Schedule 5.6, since December
31, 1995:
(a) none of the Company or its subsidiaries has sold,
leased, transferred or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the ordinary
course of business;
(b) none of the Company or its subsidiaries has entered
into any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) either
involving more than $50,000 or outside the ordinary course of
business;
(c) no party (including the Company or any of its
subsidiaries) has accelerated, terminated, modified or cancelled
any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) involving more than
$50,000 to which the Company or any of its subsidiaries is a party
or by which any of them is bound;
(d) none of the Company or any of its subsidiaries has
imposed any security interest, mortgage, pledge, lien, restriction,
covenant, charge or encumbrance of any kind or any character upon
any of its assets, tangible or intangible, involving more than
$50,000 in the aggregate;
(e) none of the Company or any of its subsidiaries has
made any capital expenditure (or series of related capital
expenditures) either involving more than $50,000 or outside the
ordinary course of business;
(f) none of the Company or any of its subsidiaries has
made any capital investment in, any loan to or any acquisition of
the securities or assets of, any other person (or series of related
capital investments, loans and acquisitions) either involving more
than $50,000 or outside the ordinary course of business;
(g) none of the Company or any of its subsidiaries has
issued any note, bond or other debt security or created, incurred,
assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation involving more than $50,000;
(h) none of the Company or any of its subsidiaries has
cancelled, compromised, waived or released any right or claim (or
series of related rights and claims) either involving more than
$50,000 or outside the ordinary course of business;
(i) there has been no change made or authorized in the
respective charters or by-laws of the Company or any of its
subsidiaries;
(j) none of the Company or any of its subsidiaries has
issued, sold or otherwise disposed of or reacquired any of its
capital stock, or granted or reacquired any options, warrants or
other rights to purchase or obtain (including upon conversion,
exchange or exercise) any of its capital stock;
(k) none of the Company or any of its subsidiaries has
declared, set aside or paid any dividend or made any distribution
with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased or otherwise acquired any of its capital stock;
(l) none of the Company or any of its subsidiaries has
experienced any material damage, destruction or loss (whether or
not covered by insurance) to its property;
(m) none of the Company or any of its subsidiaries has
made any loan to, or entered into any other transaction with, any
of its directors, officers and employees;
(n) none of the Company or any of its subsidiaries has
entered into any employment contract or collective bargaining
agreement, written or oral, or modified in any material respect the
terms of any existing such contract or agreement;
(o) none of the Company or any of its subsidiaries has
granted any bonuses or a greater than ten percent (10%) increase in
the base compensation of any of its directors, officers and, except
in the ordinary course of business, employees;
(p) none of the Company or any of its subsidiaries has
adopted, amended, modified or terminated any bonus, profit-sharing,
incentive, severance or other plan, contract or commitment for the
benefit of any of its directors, officers and employees (or taken
any such action with respect to any other Company Plan (as defined
in Section 5.14(a));
(q) none of the Company or any of its subsidiaries has
made any other change in employment terms for any of its directors,
officers and, except in the ordinary course of business, employees;
(r) none of the Company or any of its subsidiaries has
made or pledged to make any charitable or capital contribution
outside the ordinary course of business;
(s) there has not been any other occurrence, event,
incident, action, failure to act or transaction outside the
ordinary course of business involving the Company or any of its
subsidiaries and involving more than $50,000 in the aggregate; and
(t) the Company has not committed to do any of the
foregoing.
SECTION 5.7 Books of Account. The books of account of
the Company and its subsidiaries accurately and fairly reflect, in
reasonable detail and in all material respects, the Company's and
its subsidiaries' transactions and the disposition of their assets.
All notes and accounts receivable of the Company and its
subsidiaries are reflected in accordance with generally accepted
accounting principles on their books and records, are valid
receivables subject to no material setoffs or counterclaims, are
current and collectible and will be collected in accordance with
their terms at their recorded amounts subject only to normal
adjustments in the ordinary course of business and the reserves for
contractual allowances and bad debts set forth on the face of the
balance sheet contained in the most recent Company Financial
Statements as adjusted for the passage of time through the Closing
Date in accordance with past custom and practice of the Company and
its subsidiaries. The Company and its subsidiaries have filed all
reports and returns required by any material law or regulation to
be filed by them, and have paid all taxes, duties and charges due
on the basis of such reports and returns.
SECTION 5.8 Absence of Undisclosed Liabilities.
Except as disclosed in Schedule 5.8, neither the Company nor any of
its subsidiaries had at December 31, 1995, or has incurred since
that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except:
(a) liabilities, obligations or contingencies (i) which are accrued
or reserved against in the Company Financial Statements or
reflected in the notes thereto, or (ii) which were incurred after
December 31, 1995 and were incurred in the ordinary course of
business and consistent with past practices; (b) liabilities,
obligations or contingencies which (i) would not, in the aggregate,
have a Company Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof; and
(c) liabilities and obligations which are of a nature not required
to be reflected in the consolidated financial statements of the
Company and its subsidiaries prepared in accordance with generally
accepted accounting principles consistently applied and which were
incurred in the ordinary course of business.
SECTION 5.9 Absence of Certain Changes or Events.
Since December 31, 1995, there has not been any material adverse
change in the business, operations, properties, assets,
liabilities, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken as a whole,
including as a result of any change in capital structure, employee
compensation arrangement (including severance rights and benefit
plans), accounting method or applicable law.
SECTION 5.10 Litigation. Except as disclosed in
Schedule 5.10, there are no claims, suits, actions or proceedings
pending or, to the knowledge of the Company and the Seller,
threatened against, relating to or affecting the Company or any of
its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator
that seek to restrain the consummation of the Merger or which could
reasonably be expected, either alone or in the aggregate with all
such claims, suits, actions or proceedings, to have a Company
Material Adverse Effect. Except as set forth in Schedule 5.10,
neither the Company nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the
consummation of the transactions contemplated hereby or would,
either alone or in the aggregate, have a Company Material Adverse
Effect.
SECTION 5.11 No Violation of Law. Except as disclosed
in Schedule 5.11, neither the Company nor any of its subsidiaries
is in violation of, or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for violations
which, in the aggregate, could not reasonably be expected to have
a Company Material Adverse Effect. To the knowledge of the Company
and the Seller, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any
governmental or regulatory body or authority indicated to the
Company an intention to conduct the same, other than, in each case,
those the outcome of which, as far as reasonably can be foreseen,
will not have a Company Material Adverse Effect. The Company and
its subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently
conducted (collectively, the "Company Permits"), except for
permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone
or in the aggregate, would not have a Company Material Adverse
Effect. Neither the Company nor any of its subsidiaries is in
violation of the terms of any Company Permit, except for delays in
filing reports or violations which, alone or in the aggregate,
would not have a Company Material Adverse Effect.
SECTION 5.12 Compliance with Agreements. Except as set
forth in Schedule 5.12, neither the Company nor any of its
subsidiaries is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event
has occurred which, with notice or lapse of time or action by a
third party, could result in a default under, (a) the respective
charters, by-laws or similar organizational instruments of the
Company or any of its subsidiaries, or (b) to the knowledge of the
Company, any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other
instrument to which the Company or any of its subsidiaries is a
party or by which any of them is bound or to which any of their
property is subject, which breaches, violations and defaults, in
the case of clause (b) of this Section 5.12, would have, in the
aggregate, a Company Material Adverse Effect.
SECTION 5.13 Taxes. The Company and its subsidiaries
have (i) duly filed with the appropriate governmental authorities
all Tax Returns required to be filed by them for all periods ending
on or prior to the Effective Time, other than those Tax Returns the
failure of which to file would not have a Company Material Adverse
Effect, and such Tax Returns are true, correct and complete in all
material respects, (ii) duly paid in full or made adequate
provision in the Company Financial Statements for the payment of
all Taxes due for all periods ending at or prior to the Effective
Time (whether or not shown on any Tax Return), except where the
failure to pay such Taxes would not have a Company Material Adverse
Effect. The liabilities and reserves for Taxes reflected in the
Company balance sheet included in the most recent Company Financial
Statements are adequate to cover all Taxes for all periods ending
at or prior to the Effective Time and there are no material liens
for Taxes upon any property or asset of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There
are no unresolved issues of law or fact arising out of a notice of
deficiency, proposed deficiency or assessment from the IRS or any
other governmental taxing authority with respect to Taxes of the
Company or any of its subsidiaries which, if decided adversely,
singly or in the aggregate, would have a Company Material Adverse
Effect. Neither the Company nor any of its subsidiaries is a party
to any agreement providing for the allocation or sharing of Taxes
with any entity that is not, directly or indirectly, a wholly-owned
subsidiary of the Company other than agreements the consequences of
which are fully and adequately reserved for in the Company
Financial Statements. Neither the Company nor any of its
subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
SECTION 5.14 Employee Benefit Plans; ERISA.
(a) Except as disclosed in Schedule 5.14, neither the
Company nor any entity that would be deemed a single employer with
the Company under Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA (an "ERISA Affiliate") maintains or
contributes to or has or has had any obligation or liability to or
under any employee benefit plans, programs, arrangements or
practices (such plans within the meaning set forth in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including any "Multi-Employer Plan" within the meaning
of Section 3(37) of ERISA or a "Multiple Employer Plan" within the
meaning of Section 413(c) of the Code), or any other stock bonus,
incentive compensation, vacation pay, severance, tuition
reimbursement, welfare, health, postretirement, life, executive
compensation, sick pay, stock option, or other plan, agreement
program or arrangement, whether or not an ERISA employee benefit
plan, whether written or unwritten, arrangements or practices of
the Company or any of its ERISA Affiliates (referred to as the
"Company Plans"). Neither the Company nor any of its subsidiaries
has any obligation to create any additional such plan or to amend
any such plan so as to increase benefits thereunder.
With respect to each Company Plan, copies of all
documents embodying or relating to each Company Plan including,
without limitation, all plan documents, amendments, trust or
funding agreements, collective bargaining agreements, written
summaries or unwritten plans, annual reports, financial statements,
IRS determination letters and communications from government
agencies have been delivered to Parent.
(b) None of the Company, the ERISA Affiliates or any of
their respective predecessors has ever contributed to, contributes
to, has ever been required to contribute to, or otherwise
participated in or participates in or has any liability (actual or
contingent) with respect to any employee benefit plan (within the
meaning of Section 3(3) of ERISA) subject to Title IV of ERISA,
Section 412 of the Code or Section 302 of ERISA including, without
limitation, a Multiemployer Plan, Multiple Employer Plan or single
employer pension plan.
(c) (i) There have been no prohibited transactions
within the meaning of Section 406 or 407 of ERISA or Section 4975
of the Code with respect to any of the Company Plans that could
result in material penalties, taxes or liabilities, (ii) except for
premiums due, there is no outstanding liability, whether measured
alone or in the aggregate, under Title IV of ERISA with respect to
any of the Company Plans, (iii) neither the PBGC nor any plan
administrator has instituted proceedings to terminate any of the
Company Plans subject to Title IV of ERISA, (iv) none of the
Company Plans has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal
year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit
obligations under each of the Company Plans which is subject to
Title IV of ERISA did not, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of
this Agreement, exceed the then current value of the assets of such
plan if based upon the actuarial assumptions used for funding
purposes (A) specified in the most recent actuarial valuation for
such Company Plan; (B) as required by the PBGC for the Company
Plan's termination; and (C) as set forth in Statement No. 87 of the
Financial Accounting Standards Board, using the methodology to
calculate the projected benefit obligation and no amendments or
other modifications to such Company Plan's actuarial assumptions
were adopted since the date of such Company Plan's most recent
actuarial report, (vi) each of the Company Plans has been operated
and administered in all material respects in accordance with
applicable laws and its terms, (vii) each of the Company Plans
which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the IRS in accordance
with Revenue Procedure 93-39, as subsequently modified or
superseded, to be so qualified and such determination has not been
modified, revoked or limited by failure to satisfy any condition
thereof or by a subsequent amendment thereto or a failure to amend,
(viii) with respect to Multi-employer Plans, neither the Company
nor any of its ERISA Affiliates has made or suffered a "complete
withdrawal" or a "partial withdrawal," as such terms are defined in
Sections 4203, 4204 and 4205 of ERISA, respectively, and, to the
knowledge of the Company and its ERISA Affiliates, no event has
occurred or is expected to occur which presents a material risk of
a complete withdrawal or partial withdrawal under said Sections
4203, 4204 and 4205, (ix) to the knowledge of the Company and its
ERISA Affiliates, there are no pending, threatened or anticipated
claims involving any of the Company Plans, other than claims for
benefits in the ordinary course, and (x) neither the Company nor
any of its ERISA Affiliates has any liability, whether measured
alone or in the aggregate, for plan termination or complete
withdrawal or partial withdrawal under Title IV of ERISA, and the
Company and its ERISA Affiliates do not reasonably anticipate that
any such liability will be asserted against the Company or any of
its ERISA Affiliates.
(d) Listed in Schedule 5.14 are all employment contracts
and other employee benefit arrangements with "change of control" or
similar provisions and all severance agreements with executive
officers.
(e) All payments required by any Company Plan, any
collective bargaining agreement or other agreement, or by law
(including, without limitation, all contributions, insurance
premiums, or intercompany charges) with respect to all periods
through the date of the Closing shall have been made prior to the
Closing (on a pro rata basis where such payments are otherwise
discretionary at year end) or provided for by the Company as
applicable, by full accruals as if all targets required by such
Company Plan had been or will be met at maximum levels) on its
financial statements. No Company Plan is, or is expected to be,
under audit or investigation by the IRS or by any other
governmental authority and no such completed audit, if any, has
resulted in the imposition of any tax or penalty. Each Company
Plan intended to meet requirements for tax-favored treatment under
any provision of the Code, including, without limitation, Section
79, 105, 106, 117, 120, 125, 127, 129, 132, 162(m), 404, 404A, 419,
419A, or 501(c)(9) of the Code satisfies in all material respects
the applicable requirements under the Code. With respect to each
Company Plan that is funded mostly or partially through an
insurance policy, neither the Company nor any ERISA Affiliate has
any liability in the nature of retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising
wholly or partially out of events occurring on or before the
Closing. The consummation of the transactions contemplated by this
Agreement will not give rise to any liability, including, without
limitation, liability for severance pay, unemployment compensation,
termination pay, or withdrawal liability, or accelerate the time of
payment or vesting or increase the amount of compensation or
benefits due to any employee, director, shareholder, or partner of
the Company (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts
payable under any Company Plan will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
Neither the Company nor any ERISA Affiliate maintains, contributes
to, or in any way provides for any benefits of any kind whatsoever
(other than under Section 4980B of the Code, the Federal Social
Security Act, or a plan qualified under Section 401(a) of the Code)
to any current or future retiree or terminee. No event, condition,
or circumstance exists that could result in an increase of the
benefits provided under any Company Plan or the expense of
maintaining any Company Plan from the level of benefits or expenses
incurred for the most recent fiscal year ended before the Closing.
Neither the Company nor any ERISA Affiliate has any unfunded
liabilities pursuant to any Company Plan that is not intended to be
qualified under Section 401(a) of the Code. No event, condition,
or circumstance exists that would prevent the amendment or
termination of any Company Plan.
SECTION 5.15 Labor Controversies. Except as disclosed
in Schedule 5.15, (a) there are no material controversies pending
or, to the knowledge of the Company and the Seller, threatened
between the Company or its subsidiaries and any representatives of
any of their employees; (b) to the knowledge of the Company and the
Seller, there are no material organizational efforts presently
being made involving any of the presently unorganized employees of
the Company or its subsidiaries; (c) the Company and its
subsidiaries have, to the knowledge of the Company and the Seller,
complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions
thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes; and (d) no person
has, to the knowledge of the Company and the Seller, asserted that
the Company or any of its subsidiaries is liable in any material
amount for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing, except for such
controversies, organizational efforts, non-compliance and
liabilities which, singly or in the aggregate, could not reasonably
be expected to have a Company Material Adverse Effect.
SECTION 5.16 Environmental Matters. To the knowledge
of the Company and the Seller and except as disclosed in Schedule
5.16, (i) the Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary
for the operation of their respective businesses as presently
conducted, (ii) none of the properties owned, leased or operated by
the Company or any of its subsidiaries contains any Hazardous
Substance as a result of any activity of the Company or any of its
subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither the Company nor any of
its subsidiaries has received any notices, demand letters or
requests for information from any Federal, state, local or foreign
governmental entity or third party indicating that the Company or
any of its subsidiaries may be in violation of, or liable under,
any Environmental Law in connection with the ownership or operation
of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened against the
Company or any of its subsidiaries relating to any violation, or
alleged violation, of any Environmental Law, (v) no reports have
been filed, or are required to be filed, by the Company or any of
its subsidiaries concerning the release of any Hazardous Substance
or the threatened or actual violation of any Environmental Law,
(vi) no Hazardous Substance has been disposed of, released or
transported in violation of any applicable Environmental Law from
any properties owned, leased or operated by the Company or any of
its subsidiaries as a result of any activity of the Company or any
of its subsidiaries during the time such properties were owned,
leased or operated by the Company or any of its subsidiaries,
(vii) there have been no environmental investigations, studies,
audits, tests, reviews or other analyses regarding compliance or
noncompliance with any applicable Environmental Law or the
condition of any properties owned, leased or operated by the
Company or any of its subsidiaries conducted by or which are in the
possession of the Company or its subsidiaries relating to the
activities of the Company or its subsidiaries, (viii) there are no
underground storage tanks on, in or under any properties owned,
leased or operated by the Company or any of its subsidiaries and no
underground storage tanks have been closed or removed from any of
such properties during the time such properties were owned, leased
or operated by the Company or any of its subsidiaries, and (ix)
neither the Company, its subsidiaries nor any of their respective
properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or
claim asserted or arising under any Environmental Law, except for
violations of the foregoing clauses (i) through (ix) that, singly
or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect.
SECTION 5.17 Title to Assets. The Company and each of
its subsidiaries has good and marketable title in fee simple to all
of its real property and good title to all of its leasehold
interests and other properties, as reflected in the most recent
balance sheet included in the Company Financial Statements, except
for properties and assets that have been disposed of in the
ordinary course of business since the date of such balance sheet,
free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (i) the lien for
current Taxes, payments of which are not yet delinquent and other
statutory liens, (ii) such imperfections in title and easements and
encumbrances, if any, as are not material in character, amount or
extent and do not materially and adversely affect the value or
interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's
business operations (in the manner presently carried on by the
Company), (iii) as disclosed in Schedule 5.17, or (iv) mortgages
incurred in the ordinary course of business, and except for such
matters which, singly or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect. All leases
under which the Company leases real or personal property have been
delivered to Parent and are in good standing, valid and effective
in accordance with their respective terms, and there is not, under
any of such leases, any existing default or, to the knowledge of
the Company, event which with notice or lapse of time or both would
become a default other than defaults under such leases which in the
aggregate will not have a Company Material Adverse Effect.
SECTION 5.18 Company Stockholder's Approval. The
affirmative vote of stockholders of the Company required for
approval and adoption of this Agreement and the Merger is of the
holders of a majority of the outstanding shares of Company Common
Stock and has been obtained.
SECTION 5.19 Trademarks and Intellectual Property
Compliance. The Company and its subsidiaries own or have the right
to use, without any material payment to any other party, all of
their patents, trademarks (registered or unregistered), trade
names, service marks, copyrights and applications ("Company
Intellectual Property Rights"), and the consummation of the
transactions contemplated hereby will not alter or impair such
rights in any material respect. To the knowledge of the Company
and the Seller, no claims are pending by any person with respect to
the ownership, validity, enforceability or use of any Company
Intellectual Property Rights challenging or questioning the
validity or effectiveness of any of the foregoing which claims
could reasonably be expected to have a Company Material Adverse
Effect.
SECTION 5.20 Contracts, Obligations and Commitments.
Schedule 5.20 sets forth an accurate and complete list of all
material contracts, agreements, options, leases, commitments and
instruments entered into by the Company or its subsidiaries
("Company Contracts"). The Company and its subsidiaries have
provided, or will provide prior to the Closing Date, Parent with
complete and correct copies of all such items listed in Schedule
5.20. Except for such items listed in Schedule 5.20, there are no
other material contracts or other arrangements under which goods,
equipment or services are provided, leased or rendered by, or are
to be provided, leased or rendered to, the Company or any of its
subsidiaries. Except as set forth in Schedule 5.20: (a) the
Company Contracts have not been modified, pledged, assigned or
amended in any material respect, are legally valid, binding and
enforceable in accordance with their respective terms and are in
full force and effect; (b) to the knowledge of the Company and the
Seller, there are no material defaults by the Company or any of its
subsidiaries or any other party to the Company Contracts; (c)
neither the Company nor any of its subsidiaries have received
notice of any material default, offset, counterclaim or defense
under any Company Contract; (d) to the knowledge of the Company and
the Seller, no condition or event has occurred which with the
passage of time or the giving of notice or both would constitute a
default or breach by the Company or any of its subsidiaries of the
terms of any Company Contract, except for any consents required to
consummate the transactions contemplated by this Agreement; and (e)
there does not now, and at Closing will not, exist any material
security interest, mortgage, pledge, restriction, charge, lien,
encumbrance or claim of others on any interest created under any
Company Contract. None of the Company Contracts is subject to
termination from and after the Closing Date and prior to the
expiration of its stated term by any party to such Company
Contract, except as stated in each such Company Contract.
SECTION 5.21 Pooling and Tax-Free Reorganization
Matters. To the knowledge of the Company and the Seller and based
upon consultation with their independent accountants, neither the
Company, the Seller nor any of their affiliates has taken or agreed
to take any action that would interfere with the ability of Parent
to account for the business combination to be effected by the
Merger as a pooling of interests or of the Seller, the Company or
Parent to treat the Merger as a tax-free reorganization pursuant to
Section 368(a)(2)(E) of the Code.
SECTION 5.22 Transactions with Company Related Parties.
Except as set forth in Schedule 5.22, (a) there have been no
material transactions by the Company or any of its subsidiaries
with any officer or director of the Company or any of its
subsidiaries, any beneficial owner of more than five percent (5%)
of the Company Common Stock or their respective affiliates
("Company Related Parties") since December 31, 1995 and (b) there
are no agreements or understandings now in effect between the
Company or any of its subsidiaries and any Company Related Party.
SECTION 5.23 Insurance. Except to extent there would
be no Company Material Adverse Effect, all of the Company's and its
subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance, surety bonds and
umbrella policies, insuring the Company and its subsidiaries and
their directors, officers, employees, independent contractors,
properties, assets and business, are valid and in full force and
effect and without any premium past due or pending notice of
cancellation, are, in the reasonable judgment of the Company,
adequate for the business of the Company and its subsidiaries as
now conducted, and there are no claims, singly or in the aggregate,
under such policies in excess of $10,000, which, in any event, are
not in excess of the limitations of coverage set forth in such
policies. The Company and its subsidiaries have taken all actions
reasonably necessary to insure that their independent contractors
obtain and maintain adequate insurance coverage. All of the
insurance policies referred to in this Section 5.23 are "claims
made" policies and no such policies are "occurrence" policies.
Neither the Company nor the Seller has knowledge of any fact
indicating that such policies will not continue to be available to
the Company and its subsidiaries upon substantially similar terms
subsequent to the Effective Time. The provision and/or reserves in
the most recent Company Financial Statements are adequate for any
and all self insurance programs maintained by the Company or its
subsidiaries.
SECTION 5.24 Disclosure. No representations and
warranties by the Company or the Seller contained in this
Agreement, and no statement contained in this Agreement or in any
document listed in any Schedule to this Agreement or any document
or certificate furnished or to be furnished to Parent at Closing
pursuant hereto, contains or will contain on the Closing Date any
untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact reasonably related to such
affirmative statements necessary in order to make the statements
therein not misleading in light of the circumstances in which they
were made.
SECTION 5.25 Representations True. To the knowledge of
the Company and the Seller on the date of this Agreement based
solely on the due diligence examination performed by their agents
or employees and communicated to such persons, the Company and the
Seller have no grounds to make any claim for breach or
untruthfulness of any representation or warranty or breach or
nonfulfillment of any covenant or agreement of Parent or Subsidiary
contained in this Agreement.
SECTION 5.26 Suppliers, Distributors and Customers.
The relationships of the Company and each of its subsidiaries with
their respective suppliers, distributors and customers are
satisfactory commercial working relationships. Since the date of
the most recent Company Financial Statements, no material supplier,
distributor or customer of the Company or any of its subsidiaries
has cancelled or otherwise modified its relationship with the
Company or any of its subsidiaries in a manner that is materially
adverse to the Company or any of its subsidiaries and, to the
knowledge of the Company and the Seller, no supplier, distributor
or customer of the Company or any of its subsidiaries has any
intention to do so nor will the consummation of the transactions
contemplated hereby adversely affect such relationships.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants to Parent and
Subsidiary as of the date hereof as follows:
SECTION 6.1 Organization and Qualification. Except
for the filing of a fictitious name in the county in which the
principal place of business of the Seller is located, the Seller is
a general partnership duly organized, validly existing and in good
standing under the laws of the State of New Jersey, has its
principal place of business in the State of New Jersey and has the
requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted.
SECTION 6.2 Authority; Non-Contravention; Approvals.
(a) The Seller has full power and authority to enter
into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the general partners
of the Seller, and no other proceedings on the part of the Seller
are necessary to authorize the execution and delivery of this
Agreement or the consummation by the Seller of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Seller, and, assuming the due authorization,
execution and delivery hereof by Parent and Subsidiary, constitutes
a valid and legally binding agreement of the Seller, enforceable
against the Seller in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
(b) The execution and delivery of this Agreement by the
Seller does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the
Seller under any of the terms, conditions or provisions of (i) the
Partnership Agreement of the Seller, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority
applicable to the Seller or any of the Seller's properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or
other instrument, obligation or agreement of any kind to which the
Seller is now a party or by which the Seller or any of the Seller's
properties or assets may be bound. The consummation by the Seller
of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation
of liens under any of the terms, conditions or provisions described
in clauses (i) through (iii) of the preceding sentence, subject in
the case of the terms, conditions or provisions described in
clause (iii) above, to obtaining (prior to the Effective Time)
consents required from lenders, lessors or other third parties.
Excluded from the foregoing sentences of this paragraph (b),
insofar as they apply to the terms, conditions or provisions
described in clauses (ii) and (iii) of the first sentence of this
paragraph (b), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the
aggregate, have a material adverse effect on the business,
operations, properties, assets, conditions (financial or other) or
results of operations of the Seller (a "Seller Material Adverse
Effect").
(c) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Seller or the
consummation by the Seller of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have a
Seller Material Adverse Effect.
SECTION 6.3 Approval of Merger. The Seller shall
adopt and approve the Merger and this Agreement in the manner
requested by the Company pursuant to Section 8.2(a) either by
voting in favor of such adoption and approval at a meeting of the
stockholder of the Company or by executing a written consent of the
stockholder of the Company pursuant to Section 228 of the DGCL.
SECTION 6.4 Title to Shares. The Seller has or will
have on the Closing Date good and marketable title to and is or
will be the lawful owner, of record and beneficially, of 70.27
shares of the Company Common Stock, representing all of the issued
and outstanding shares of Company Common Stock, to be converted
into the right to receive the Merger Consideration. Such Company
Common Stock constitutes all of the shares of Company Common Stock
owned by the Seller, either directly or indirectly. The Company
Common Stock owned by the Seller is not and will not be subject to
any lien, claim, encumbrance or restriction of any type, kind or
nature in favor of any third party or any third party interests.
SECTION 6.5 Tax-Free Reorganization. The Seller has
no present plan, intention or arrangement to sell, exchange or
otherwise dispose of any shares of Parent Common Stock received by
the Seller as Merger Consideration which would have the effect of
reducing the aggregate number of shares of Parent Common Stock
received by the Seller in the Merger to a number of shares that
would be equal in value as of the date of the Merger to less than
50% of the fair market value of the shares of Company Common Stock
outstanding immediately prior to the Merger.
SECTION 6.6 Investment. The Seller (i) understands
that the Parent Common Stock received by the Seller as Merger
Consideration has not been, and will not be, registered under the
Securities Act, or under any state securities laws, and is being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, and Seller agrees
that it will not sell, distribute or transfer the Parent Common
Stock other than in compliance with the Securities Act and
applicable state securities laws, (ii) is acquiring such Parent
Common Stock solely for the Seller's own account for investment
purposes, and not with a view to the distribution thereof, (iii) is
a sophisticated investor with knowledge and experience in business
and financial matters and an accredited investor within the meaning
of the Securities Act of 1933, as amended, (iv) has received
certain information concerning Parent and has had the opportunity
to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Parent Common
Stock, and (v) is able to bear the economic risk and lack of
liquidity inherent in holding the Parent Common Stock.
SECTION 6.7 Litigation. Except as disclosed in
Schedule 6.7, there are no claims, suits, actions or proceedings
pending or, to the knowledge of the Seller, threatened against,
relating to or affecting the Seller, before any court, governmental
department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain the consummation of the Merger
or which could reasonably be expected, either alone or in the
aggregate with all such claims, suits, actions or proceedings, to
have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of
operations of the Seller (a "Seller Material Adverse Effect").
Except as set forth in Schedule 6.7, the Seller is not subject to
any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the
consummation of the transactions contemplated hereby or would,
either alone or in the aggregate, have a Seller Material Adverse
Effect.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 7.1 Conduct of Business by Parent and by the
Company Pending the Merger. Except as otherwise contemplated by
this Agreement, after the date hereof and prior to the Closing Date
or earlier termination of this Agreement, each of Parent and the
Company shall, and shall cause its respective subsidiaries to:
(a) conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice;
(b) not (i) except as necessary to consummate the
transactions contemplated hereby, amend or propose to amend their
respective charters or by-laws, (ii) split, combine or reclassify
their outstanding capital stock, or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions by
a wholly-owned subsidiary of the Company;
(c) except in connection with existing contractual
obligations, not issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of or otherwise cause to become
outstanding, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of
any class or any debt or equity securities convertible into or
exchangeable for such capital stock;
(d) not (i) except relating to the satisfaction of the
Magellan Loan, incur or become contingently liable with respect to
any material indebtedness for borrowed money other than
(x) borrowings in the ordinary course of business, or (y)
borrowings to refinance or extend existing indebtedness, the terms
of which shall be reasonably satisfactory to Parent or the Company,
(ii) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or any options, warrants or rights to
acquire any of its capital stock or any security convertible into
or exchangeable for its capital stock, (iii) take any action which
would jeopardize the treatment of the Merger as a pooling of
interests under APB 16, (iv) take or fail to take any action which
action or failure would cause the Company or the Seller to
recognize gain or loss for federal income tax purposes as a result
of the consummation of the Merger, (v)make any acquisition of any
assets or businesses other than expenditures for fixed or capital
assets in the ordinary course of business which, in such cases of
$50,000 or more, shall be on terms reasonably acceptable to Parent
or the Company, as the case may be, (vi) sell, pledge, dispose of
or encumber any assets or businesses other than sales in the
ordinary course of business which, in such cases involving $50,000
or more, shall be on terms reasonably acceptable to Parent or the
Company, as the case may be, or (vii) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(e) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the
services of their respective present officers and key employees,
and preserve the goodwill and business relationships with customers
and others having business relationships with them and not engage
in any action, directly or indirectly, with the intent to adversely
impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or
more representatives of each to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment
or other similar arrangements or agreements with any directors,
officers or key employees, except in the ordinary course and
consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit
plan, agreement, trust, fund or arrangement for the benefit or
welfare of any employee or retiree, except as required to comply
with changes in applicable law; and
(i) maintain with adequately capitalized insurance
companies insurance coverage for its assets and its businesses in
such amounts and against such risks and losses as are consistent
with past practice.
SECTION 7.2 Control of the Company's Operations.
Nothing contained in this Agreement shall give to Parent, directly
or indirectly, rights to control or direct the Company's operations
prior to the Effective Time. Prior to the Effective Time, the
Company shall exercise, consistent with and subject to the terms
and conditions of this Agreement, complete control and supervision
of its operations.
SECTION 7.3 Control of Parent's or Subsidiary's
Operations. Nothing contained in this Agreement shall give to the
Company, directly or indirectly, rights to control or direct
Parent's or Subsidiary's operations prior to the Effective Time.
Prior to the Effective Time, Parent shall exercise, consistent with
and subject to the terms and conditions of this Agreement, complete
control and supervision of its operations.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1 Access to Information.
(a) The Company and its subsidiaries shall afford to
Parent and Subsidiary and their respective accountants, counsel,
financial advisors and other representatives (the "Parent
Representatives"), and Parent and its subsidiaries shall afford to
the Company and its accountants, counsel, financial advisors and
other representatives (the "Company Representatives"), full access
during normal business hours throughout the period after the date
hereof and prior to the Effective Time to all of their respective
properties, books, contracts, commitments and records (including,
but not limited to, Tax Returns) and, during such period, shall
furnish promptly to one another (i) a copy of each report, schedule
and other document filed or received by any of them pursuant to the
requirements of federal or state securities laws or which may have
a material effect on their respective businesses, properties or
personnel, and (ii) such other information concerning their
respective businesses, operations, properties, assets, condition
(financial or other) results of operations and personnel as Parent
or Subsidiary or the Company, as the case may be, shall reasonably
request; provided that no investigation pursuant to this
Section 8.1 shall amend or modify any representations or warranties
made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Parent and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the
Parent Representatives to hold, and the Company and its
subsidiaries shall hold and shall use their reasonable best efforts
to cause the Company Representatives to hold, in strict confidence
all non-public documents and information furnished to Parent and
Subsidiary or to the Company, as the case may be, in connection
with the transactions contemplated by this Agreement, except that
Parent, Subsidiary and the Company may disclose (i) such
information as may be necessary in connection with seeking the
Parent Required Statutory Approvals, the Company Required Statutory
Approvals, the Company Stockholder's Approval and any required
third party approvals, (ii) any information that it is required by
law or judicial or administrative order to disclose, (iii) any
information which is generally available to or known by the public
other than as a result of improper disclosure by the receiving
party, or (iv) any information which is obtained by the receiving
party from a source other than the disclosing party, provided that
such source was not bound by a duty of confidentiality to the
disclosing party or another party with respect to such information.
(b) In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly redeliver to
the other all non-public written material provided pursuant to this
Section 8.1 and shall not retain any copies, extracts or other
reproductions in whole or in part of such written material. In
such event, all documents, memoranda, notes and other writings
prepared by Parent or the Company based on the information in such
material shall be destroyed (and Parent and the Company shall use
their respective reasonable best efforts to cause their advisors
and representatives to similarly destroy their documents, memoranda
and notes), and such destruction (and reasonable best efforts)
shall be certified in writing by an authorized officer supervising
such destruction.
(c) The Company shall promptly advise Parent and Parent
shall promptly advise the Company in writing of any change or the
occurrence of any event after the date of this Agreement having, or
which, insofar as can reasonably be foreseen, in the future may
have, a Company Material Adverse Effect or a Parent Material
Adverse Effect, as the case may be.
SECTION 8.2 Stockholder Approvals.
(a) The Company and the Seller shall take all actions
required in accordance with the DGCL and the Company's Certificate
of Incorporation and By-laws to convene a meeting (the
"Stockholder's Meeting") of the sole stockholder for the purpose of
considering the Merger (the "Company Stockholder's Approval") on
such date as the Seller shall designate; provided that such date
shall not be later than two business days prior to the Closing
Date. The Company has heretofore recommended to its sole
stockholder that the Merger be approved at the Stockholder's
Meeting. The Seller hereby agrees to vote the Shares owned by such
Seller at the Stockholder's Meeting in favor of the Merger.
(b) Parent shall, through its Board of Directors, but
subject to the fiduciary duties of the members thereof, authorize
and cause an officer of Parent to vote Parent's shares of
Subsidiary Common Stock for adoption and approval of this Agreement
and the transactions contemplated hereby and shall take all
additional actions as the sole stockholder of Subsidiary necessary
to adopt and approve this Agreement and the transactions
contemplated hereby.
SECTION 8.3 Pooling Lock-Up Agreement. The Seller
will not sell any of the Parent Common Stock received by the Seller
as Merger Consideration other than in a manner consistent with the
representation and warranty set forth in Section 6.5 hereof and
otherwise in compliance with Accounting Services Release No. 135.
SECTION 8.4 Parent's Covenants Concerning Maintenance
of Tax-Free Reorganization Status. Following the Merger,
(i) Parent shall cause the Surviving Corporation to continue the
historic business of the Company or to use a significant portion of
the historic business assets of the Company in a business within
the meaning of Treas. Reg. Section 1.368-1(d); and (ii) Parent
shall not take any action (or cause the Surviving Corporation to
take any action) inconsistent with the representations and
warranties set forth in Section 4.21 hereof.
SECTION 8.5 Parent's Covenants Concerning Amendments
to Parent's By-Laws, Nominating Committee, and Certain Other
Matters. Within thirty (30) days following the Effective Time or
as soon as practicable after nomination of the persons by Seller
with regard to subsection (iv) hereof, Parent shall take all action
necessary to assure that: (i) Parent's by-laws are amended to
specify that Parent shall have a classified board of directors
consisting of four classes of directors, each director serving in
that capacity for a term specified on Exhibit B, the initial board
members consisting of the persons set forth in Exhibit B; (ii) the
Nominating Committee of Parent's board of directors shall consist
of August C. Schultes, III and Mark Alsentzer, provided that the
Seller and its affiliates, in the aggregate, beneficially own at
least 5% of the outstanding Parent Common Stock, and Harold Gebert,
provided that Harold Gebert, David A Farrow and their affiliates,
in the aggregate, beneficially own at least 3% of the outstanding
Parent Common Stock; (iii) August C. Schultes, III shall be
appointed as a director of Parent, to serve on the board of
directors of Parent; (iv) the Seller's six remaining nominees for
director, as set forth in Exhibit B, who shall be designated by the
Seller after the Effective Time, shall be appointed to Parent's
board of directors to fill the six vacancies on Parent's board of
directors promptly upon the request of the Seller; (v) Parent's by-
laws shall be amended to specify that the affirmative vote of a
majority of the votes entitled to be cast by directors shall be
required to effectuate corporate action on behalf of Parent;
provided, the following actions of Parent shall require the
affirmative vote of at least two-thirds of the votes entitled to be
cast by directors: (a) the amendment of any provision of Parent's
by-laws, (b) the merger of Parent or any subsidiary of Parent into
each other or into any other entity, (c) the sale of more than
twenty-five percent (25%) of the assets of Parent or of any
subsidiary, either alone or in the aggregate, (d) the purchase of
assets with a value of more than twenty-five percent (25%) of
Parent's assets at the time of such purchase; or (e) any other
similar action that would have a material impact on Parent or any
of its subsidiaries.
SECTION 8.6 Seller's Covenant Concerning the Filing of
a Fictitious Name. As soon as practicable following the Merger,
the Seller shall file a fictitious name in the county in which the
principal place of business of the Seller is located.
SECTION 8.7 Expenses and Fees. Parent shall pay all
expenses related to the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated
hereby, whether incurred by it, the Company or the Seller.
SECTION 8.8 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable pursuant to all
agreements, contracts, indentures or other instruments to which the
parties hereto are a party, or under any applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable
efforts to (i) obtain all necessary or appropriate waivers,
consents and approvals from lenders, landlords, security holders or
other parties whose waiver, consent or approval is required to
consummate the Merger, (ii) effect all necessary registrations,
filings and submissions, and (iii) lift any injunction or other
legal bar to the Merger (and, in such case, to proceed with the
Merger as expeditiously as possible), subject, however, to the
requisite votes of the Boards of Directors of the Parent and the
Subsidiary and the Board of Directors and stockholder of the
Company.
(b) In the event any litigation is commenced by any
person or entity relating to the transactions contemplated by this
Agreement, either Parent or the Company shall have the right, at
its own expense, to participate therein, and the Company or Parent,
as the case may be, will not settle any such litigation without the
consent of the other party, which consent will not be unreasonably
withheld.
SECTION 8.9 Public Statements. Unless required by
law, the parties (i) shall consult with each other prior to issuing
any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby, and (ii)
shall not issue any such press release or written public statement
prior to such consultation.
SECTION 8.10 Notification of Certain Matters. Each of
the Company, Parent and Subsidiary agrees to give prompt notice to
each other of, and to use their respective reasonable best efforts
to prevent or promptly remedy, (i) the occurrence or failure to
occur or the impending or threatened occurrence or failure to
occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this
Agreement to be untrue or inaccurate in any material respect at any
time from the date hereof to the Effective Time, and (ii) any
material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 8.9 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such
notice.
SECTION 8.11 No Liability if Transaction is Not Tax-
Free. No party shall be liable to any other party for any amount
in the event that the Merger is not treated as a tax-free
reorganization for federal income tax purposes except to the extent
any act or omission by Parent or Subsidiary, or by the Company or
the Seller, as the case may be, causes the Merger not to be treated
as a tax-free reorganization for federal income tax purposes, in
which case Parent and Subsidiary, or the Company and the Seller, as
the case may be, shall be liable to the other parties for any
Adverse Consequences (as defined in Section 11.7) incurred by such
other parties as a result of the failure of the Merger to be
treated as a tax-free reorganization for federal income tax
purposes.
SECTION 8.12 Parent Common Stock. Each certificate
representing Parent Common Stock received by the Seller as Merger
Consideration will be imprinted with a legend substantially in the
following form:
The shares of common stock represented by this
certificate were originally issued on December
31, 1996, and have not been registered under
the Securities Act of 1933, as amended. The
transfer of such shares is subject to certain
restrictions set forth in an Agreement and
Plan of Merger dated as of December 30, 1996
by and between the issuer of such shares, the
person to whom such shares were originally
issued and certain other parties thereto. The
issuer of such shares will furnish a copy of
these provisions to the holder hereof without
charge upon written request.
SECTION 8.13 Acquisition of Common Stock. Except for
shares purchased by August C. Schultes, III, his individual
retirement account and Mark S. Alsentzer, prior to the Closing or
the earlier termination of this Agreement pursuant to the terms
hereof, none of the Seller, the Company or any of its subsidiaries
or their respective affiliates have purchased nor will purchase or
otherwise acquire directly or indirectly any Parent Common Stock
other than as provided in this Agreement.
SECTION 8.14 Schedules. The Company has made available
to Parent, and Parent has made available to the Company, on or
prior to the Closing Date, copies of all items set forth on
Schedules to this Agreement and any and all other consents,
documents or agreements to be delivered hereunder which have not
previously been delivered to Parent, or to the Company, as
appropriate, on the date hereof, which items and any such other
consents, documents or agreements shall be in form and substance
reasonably satisfactory to Parent and the Company. In addition,
prior to the Closing the Company and Parent may update the
Schedules as necessary.
SECTION 8.15 Transition. The Seller shall not take any
action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier or other
business associate of the Company and its subsidiaries from
maintaining the same business relationships with the Company and
its subsidiaries after the Closing as it maintained with the
Company and its subsidiaries prior to the Closing unless such
action is taken in accordance with prudent business practices
consistent with the past practices of the Company. The Seller
shall refer all customer inquiries relating to the businesses of
the Company and its subsidiaries to Parent for the three year
period beginning on the Closing Date.
SECTION 8.16 Employee Compensation Payments. Any bonus
amounts which the Company is obligated to pay to any employee
officer of the Company, as disclosed in Schedule 8.16, shall be
paid prior to the Closing Date. In the event any stockholder of
the Company has an obligation to pay any sums to an employee of the
Company, such amount shall be paid directly by such stockholder and
not by the Company when due.
SECTION 8.17 Further Assurances. The parties to this
Agreement agree to use their best efforts to cause the conditions
precedent set forth in Article IX of this Agreement to be satisfied
on or prior to the Closing Date.
ARTICLE IX
CONDITIONS
SECTION 9.1 Conditions to Each Party's Obligation to
Effect the Merger. The respective obligations of each party to
effect the Merger shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions:
(a) no preliminary or permanent injunction or other
order or decree by any federal or state court which prevents the
consummation of the Merger shall have been issued and remain in
effect (each party agreeing to use its reasonable efforts to have
any such injunction, order or decree lifted);
no action shall have been taken, and no statute,
rule or regulation shall have been enacted, by any state or federal
government or governmental agency in the United States which would
prevent the consummation of the Merger or make the consummation of
the Merger illegal;
(c) all governmental waivers, consents, orders and
approvals legally required for the consummation of the Merger and
the transactions contemplated hereby shall have been obtained and
be in effect at the Effective Time;
(d) all required consents and approvals of third parties
to material contracts with the Parent or the Company shall have
been obtained and be in effect at the Effective Time; provided,
however, that the failure to obtain such consents or approvals
shall not be due to the default or delay of the party responsible
for obtaining such consents and approvals; and
(e) Kuntz Lesher Siegrist & Martini, independent
certified public accountants for Parent and Subsidiary, shall have
delivered a letter, dated the Closing Date, addressed to Parent, in
form and substance reasonably satisfactory to Parent, the Company
and the Seller, stating that the Merger will qualify as a pooling-
of-interests transaction under APB 16.
SECTION 9.2 Conditions to Obligation of the Company to
Effect the Merger. Unless waived by the Seller, the obligation of
the Company and the Seller to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following
additional conditions:
(a) Parent and Subsidiary shall have performed in all
respects their agreements contained in this Agreement required to
be performed on or prior to the Closing Date and the
representations and warranties of Parent and Subsidiary contained
in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and the Company shall have
received a certificate of the Chairman of the Board of Directors of
Parent and of the Chairman of the Board of Directors of Subsidiary,
in form and substance reasonably satisfactory to the Company, to
that effect;
(b) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have occurred
which have resulted in or constitute, a material adverse change in
the business, operations, properties, assets, condition (financial
or other) or results of operations of Parent and its subsidiaries,
taken as a whole;
(c) Parent shall take all action necessary to assure
that the members of the current Advisory Board, Raymond F. Darling,
Robert Johnson, Louis H. Jullien, III and Christopher Walter shall
resign;
(d) Parent shall execute a Note, substantially in the
form of Exhibit A, pursuant to which it shall borrow funds from the
Seller, in an amount sufficient to repay in full all amounts owed
to Magellan Finance Corporation ("Magellan") by Earth Care Global
Holdings, Inc., an entity that merged into a wholly-owned
subsidiary of Parent ("Earth Care"), pursuant to the terms of the
Amendment to Second Loan and Option Agreement dated as of March 29,
1996 by and between Magellan and Earth Care and all other
agreements relating thereto (the "Magellan Loan");
(e) Parent shall repay the Magellan Loan in full; and
The Company shall have received the written
resignations, effective as of Closing, of each director of Parent
other than those listed in Schedule 9.2.
SECTION 9.3 Conditions to Obligations of Parent and
Subsidiary to Effect the Merger. Unless waived by Parent and
Subsidiary, the obligations of Parent and Subsidiary to effect the
Merger shall be subject to the fulfillment at or prior to the
Effective Time of the additional following conditions:
(a) the Company and the Seller shall have performed in
all respects their agreements contained in this Agreement required
to be performed on or prior to the Closing Date and the
representations and warranties of the Company and the Seller
contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Parent shall
have received a Certificate of the Vice President of the Company
and of the designated officers of the Seller, in form and substance
reasonably satisfactory to Parent, to that effect;
(b) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have occurred
which have resulted in or constitute, a material adverse change in
the business, operations, properties, assets, condition (financial
or other) or results of operations of the Company and its
subsidiaries, taken as a whole;
(c) the Seller shall loan funds to Parent in an amount
sufficient to repay the Magellan Loan; and
(d) Parent shall have received the written resignations,
effective as of Closing, of each director and officer of the
Company other than those listed in Schedules 2.3 and 2.4.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 Termination. This Agreement may be
terminated by the mutual consent of the parties or at any time
prior to the Closing Date, as follows:
(a) The Company and the Seller shall have the right to
terminate this Agreement:
(i) if the Merger is not completed by March
31, 1997 other than on account of delay or a breach of the
representations and warranties or a failure to comply with a
covenant or agreement contained in this Agreement on the part
of the Company or the Seller;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or the Seller;
(iii) if Parent or Subsidiary (A) breaches any
representation and warranty or fails to comply with any
covenant or agreement contained in this Agreement, and
(B) does not cure such breach or failure within ten business
days after written notice of such default is given to Parent
by the Seller (except that such 10 business day cure period
shall not be applicable for a breach which cannot be cured);
or
(iv) if the conditions set forth in Section
9.2 have not been satisfied or waived by the Company or the
Seller.
(b) Parent shall have the right to terminate this
Agreement:
(i) if the Merger is not completed by March 31,
1997 other than on account of delay or a breach of the
representations and warranties or a failure to comply with a
covenant or agreement contained in this Agreement on the part
of Parent or Subsidiary;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of Parent or any of its 5% stockholders or any of
their affiliates or associates;
(iii) if the Company or the Seller (A) breaches any
representation and warranty or fails to comply with any
covenant or agreement contained in this Agreement, and (B) do
not cure such breach or failure within 10 business days after
written notice of such default is given to the Company or the
Seller, as the case may be, by Parent (except that such 10
business day cure period shall not be applicable for a breach
which cannot be cured); or
(iv) if the conditions set forth in Section 9.3
have not been satisfied or waived by Parent.
(c) Any termination of this Agreement pursuant to this
Section 10.1 shall be effective immediately upon delivery of
written notice of termination by the terminating party to the other
parties hereto.
SECTION 10.2 Effect of Termination. In the event of
termination of this Agreement by either Parent or the Company as
provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no further obligation on the part of the
Company, Parent, Subsidiary or their respective officers or
directors (except as set forth in Sections 8.1(b)and 8.6, which
shall survive the termination). Nothing in this Section 10.2 shall
relieve any party from liability for any breach of this Agreement.
SECTION 10.3 Waiver. At any time prior to the Effective
Time, the parties hereto may by written agreement (a) extend the
time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant thereto, and (c) waive compliance with any of
the agreements or conditions contained herein. Any such waiver
shall not be deemed to be continuing or to apply to any future
obligation or requirement of any party hereto provided herein. Any
agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
REMEDIES FOR BREACHES
SECTION 11.1 Survival of Representations and
Warranties. All of the representations, warranties, covenants and
agreements of Parent, the Company and the Seller contained in this
Agreement shall survive the Closing and continue in full force and
effect until the first anniversary of the Closing Date.
SECTION 11.2 Limitations on Indemnification.
(a) Notwithstanding any other provision of this
Agreement, Parent and the Seller shall not be entitled to make a
claim for indemnification pursuant to Sections 11.3 and 11.4 below,
respectively, unless and until the aggregate amount of Adverse
Consequences incurred by the party making such claim(s) exceeds
$250,000, at which time the party seeking indemnification may
recover only with respect to the aggregate amount of Adverse
Consequences above such $250,000 threshold amount described herein.
(b) Subject to the provisions of this Section 11.2, (i)
the Seller shall indemnify Parent pursuant to Section 11.3 below by
payment in cash equal to the amount for which Parent is to be
indemnified and (ii) Parent shall indemnify the Seller pursuant to
Section 11.4 below by payment in cash equal to the amount for which
the Seller is to be indemnified.
SECTION 11.3 Indemnification Provisions for Benefit of
Parent. In the event the Company or the Seller breaches any of its
representations, warranties, covenants and agreements contained in
this Agreement, and, provided that Parent makes a written claim for
indemnification against the Seller pursuant to Section 12.2 below
within the survival period set forth in Section 11.1 above, then,
subject to the provisions of Section 11.2 above, the Seller agrees
to indemnify Parent and each of its subsidiaries and affiliates
from and against the entirety of any Adverse Consequences Parent
may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences Parent or any
of its subsidiaries or affiliates may suffer after the end of the
applicable survival period) resulting from, arising out of,
relating to, in the nature of or caused by the breach.
SECTION 11.4 Indemnification Provisions for Benefit of
the Company Stockholders. In the event Parent breaches any of its
representations, warranties, covenants and agreements contained in
this Agreement, and, provided that the Seller makes a written claim
for indemnification against Parent pursuant to Section 12.2 below
within the survival period set forth in Section 11.1 above, then,
subject to the provisions of Section 11.2 above, Parent agrees to
indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature
of or caused by the breach.
SECTION 11.5 Matters Involving Third Parties.
(a) If any third party shall notify any party to this
Agreement (the "Indemnified Party") with respect to any matter (a
"Third Party Claim") which may give rise to a claim for
indemnification against any other party to this Agreement (the
"Indemnifying Party") under this Section 11, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is
prejudiced and so long as such notice shall be delivered to the
Indemnifying Party within the survival period set forth in
Section 11.1 above.
(b) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel of
its choice reasonably satisfactory to the Indemnified Party so long
as (i) the Third Party Claim involves only money damages and does
not seek an injunction or other equitable relief, and (ii) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently with counsel reasonably acceptable to the
Indemnified Party.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 11.5
above, (a) the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the
Third Party Claim, (b) the Indemnified Party will not consent to
the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (c) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to
be withheld unreasonably).
SECTION 11.6 Other Indemnification Provisions. The
foregoing indemnification provisions are the sole and exclusive
remedy (other than equitable remedies) that any party to this
Agreement may have for breach of a representation, warranty,
covenant or agreement contained in this Agreement not involving
fraud. In the case of a breach of representation, warranty,
covenant or agreement contained in this Agreement involving fraud,
the foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory, equitable or common law remedy
any party may have for breach of representation, warranty or
covenant.
SECTION 11.7 Adverse Consequences. For purposes of
this Agreement, "Adverse Consequences" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages
(excluding consequential or punitive damages), dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses, exceeding any tax benefits
realized or insurance proceeds received as a result of or regarding
such matters.
SECTION 11.8 Arbitration. If good faith negotiations
among the parties do not resolve any claim, dispute or other matter
arising out of or relating to this Agreement or the alleged breach
hereof which is subject to indemnification under Section 11.3 or
11.4 within sixty (60) days after notice of such claim, dispute or
other matter is provided to the other party, such claim, dispute or
other matter shall be resolved exclusively through the arbitration
provisions described in Exhibit C, attached hereto and made a part
hereof.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 Brokers. The Company and the Seller
represent and warrant that no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission
in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the
Company and the Seller. Parent and Subsidiary represent and
warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or
Subsidiary.
SECTION 12.2 Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by registered or certified
mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
U.S. Plastic Lumber Corp.
2300 Glades Road
Suite 440 West
Boca Raton, Florida 33431
Attention: Harold H. Gebert
Facsimile Number: (561) 394-5335
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
One Boca Place
2255 Glades Road
Suite 340 West
Boca Raton, Florida 33431
Attention: Donald E. Thompson, II, Esq.
Christopher C. Wheeler, Esq.
Facsimile Number: (561) 241-7145
(b) If to the Company or the Seller, to:
Stout Partnership
101 Jessup Road
Thorofare, New Jersey 08086
Attention: August C. Schultes
Facsimile Number: (609) 848-8309
SECTION 12.3 Interpretation. The headings contained in
this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. In
this Agreement, unless a contrary intention appears, (i) the words
"herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any
Article or Section means such Article or Section hereof. No
provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal
representative drafted such provision.
SECTION 12.4 Miscellaneous. This Agreement (including
the documents and instruments referred to herein) (i) constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies
hereunder, and (iii) shall not be assigned by operation of law or
otherwise, except that Subsidiary may assign this Agreement to any
other wholly-owned subsidiary of Parent. THIS AGREEMENT SHALL BE
GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND
EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 12.5 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed
to be an original, but all of which shall constitute one and the
same agreement. Each of the parties agrees to accept and be bound
by facsimile signatures hereto.
SECTION 12.6 Parties In Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 12.7 Schedules. All Schedules referred to in
this Agreement shall be attached hereto and are incorporated herein
by reference.
SECTION 12.8 Amendment of Agreement. No amendments or
variations of the terms or conditions of this Agreement shall be
valid unless made in writing signed by all parties hereto.
SECTION 12.9 Severability. If any term, provision,
condition or covenant of this Agreement or the application thereof
to any party or circumstances shall be held to be invalid or
unenforceable to any extent in any jurisdiction, then the remainder
of this Agreement and the application of such term, provision,
condition or covenant in any other jurisdiction or to persons or
circumstances other than those as to whom or which it is held to be
invalid or unenforceable, shall not be affected thereby, and each
term, provision, condition and covenant of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
SECTION 12.10 Entire Agreement. This Agreement and any
other agreements between the parties dated the date hereof
supersede any and all other agreements, either oral or in writing,
between the parties hereto with respect to the subject matter and
contain all the covenants and agreements between the parties with
respect to the subject matter of this Agreement in any manner
whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf
of any party, which are not included herein, and that no other
agreement, statement or promise not contained in this Agreement or
referred to herein shall be valid or binding. This Agreement
constitutes the entire Agreement between the parties with respect
to the subject matter hereof and shall bind and inure to the
benefit of the parties and their respective successors, assigns,
heirs and personal representatives, subject to the restriction on
assignment contained herein.
SECTION 12.11 Assignment. The parties hereto may not
assign any of their rights or obligations hereunder without
obtaining the prior written consent of the other parties hereto,
which consent shall not be unreasonably withheld, except that
Parent may assign or transfer this Agreement to a successor
corporation or other successor entity in the event of a merger,
consolidation or other transfer related to a reorganization by
Parent, provided that in the case of any assignment or transfer
under the terms of this Section 12.11, this Agreement shall be
binding upon and inure to the benefit of the successor, and the
successor shall discharge and perform all of the obligations of
Parent under this Agreement and such assignment or transfer shall
not act as a release of the obligation of Parent hereunder.
SECTION 12.12 Gender and Number. All references to the
neuter gender shall include the feminine or masculine gender and
vice versa, where applicable, and all references to the singular
shall include the plural and vice versa, where applicable.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Parent, Subsidiary, the Company and
the Seller have caused this Agreement to be signed on their behalf
as of the date first written above.
U.S. PLASTIC LUMBER CORP.
By: _____________________
Name: Harold G. Gebert
Title: Chairman of the
Board of Directors
CLEAN EARTH ACQUISITION CORP.
By:
Name: Harold G. Gebert
Title: Chairman of the
Board of Directors
CLEAN EARTH, INC.
By:
Name: August C. Schultes
Title: Vice President
STOUT PARTNERSHIP
By:
Name: August C. Schultes
Title: Power of Attorney
<PAGE>
EXHIBIT B
Class IV Directors (term expiring at the 2000 Annual Meeting of
Parent's Shareholders and thereafter for four-
year terms):
Mark Alsentzer
August Schultes, III
Two to be designated by Seller
Class III Directors (term expiring at the 1999 Annual Meeting of
Parent's Shareholders and thereafter for four-
year terms):
Ray Kiernan
James Blosser
Harold Gebert
One to be designated by Seller
Class II Directors (term expiring at the 1998 Annual Meeting of
Parent's Shareholders and thereafter for four-
year terms):
David A. Farrow
Lester Moody
Roger Zitrin
One to be designated by Seller
Class I Directors (term expiring at the 1997 Annual Meeting of
Parent's Shareholders and thereafter for four-
year terms):
Eugene Arnold, Jr.
Two to be designated by Seller
NOTE: AS INDICATED ABOVE, THE SELLER SHALL HAVE THE
RIGHT TO NOMINATE TWO ADDITIONAL CLASS I DIRECTORS, ONE
ADDITIONAL CLASS II DIRECTOR, ONE ADDITIONAL CLASS III
DIRECTOR AND TWO ADDITIONAL CLASS IV DIRECTORS PURSUANT
TO THE TERMS OF SECTION 8.5 OF THE AGREEMENT.
* The parties acknowledge that due to the classification of the
Board, each appointee may need to be elected at the next annual
meeting.
<PAGE>
EXHIBIT C
Arbitration
Any claim, controversy or dispute arising out of or
relating to this Agreement or any interpretation or breach thereof
or performance thereunder, including without limitation any dispute
concerning the scope of this arbitration provision, shall be
settled exclusively by submission to final, binding and non-
appealable arbitration ("Arbitration") for determination, without
any right by any party to a trial de novo in a court of competent
jurisdiction, after a twenty-five (25) calendar day waiting period
(the "Waiting Period") subject to Section 10 in this Arbitration
provision. During the Waiting Period, the parties shall work
reasonably and in good faith and shall use their best efforts to
amicably resolve the claim, controversy or dispute. The
Arbitration and all pre-hearing, hearing, post-hearing arbitration
procedures, including those for Disclosure and Challenge, shall be
conducted in accordance with the Commercial Arbitration Rules (the
"Commercial Rules") of the American Arbitration Association (herein
referred to as the "Association") in Boca Raton, Florida, as
supplemented hereby. In addition to the Commercial Rules, the
parties shall also follow the procedures described below:
1. Following the Waiting Period, the party seeking
Arbitration shall give notice of a demand to arbitrate (herein
referred to as the "Demand") to the other party and to the
Association. The Demand shall include (i) the issues to be
determined, (ii) a copy of this arbitration provision, and (iii) to
the extent the parties cannot agree on a single arbitrator, the
designation of one arbitrator, who shall have no prior or existing
personal or financial relationship with the designating party.
2. Within thirty days after receipt of the Demand, the
other party shall give notice (herein referred to as the
"Response") to the party that demanded arbitration, and to the
Association, of (i) any additional issues to be arbitrated, (ii)
its answer to the issues raised by the party that sent the Demand,
and (iii) its designation of a second arbitrator, who shall have no
prior or existing personal or financial relationship with the
designating party.
3. If a Response designating a second arbitrator is not
received within the above-mentioned thirty (30) day period, the
Association shall immediately designate the second arbitrator.
4. The two arbitrators as designated pursuant to the
foregoing provision shall then designate a third arbitrator within
ten days after the designation of the second arbitrator. If the
two arbitrators cannot agree on the designation of the third
arbitrator within the ten (10) day period allotted, the Association
shall designate the third arbitrator.
5. The arbitration panel as designated above shall
proceed with the Arbitration by giving notice to all parties of its
proceedings and hearings in accordance with the Association's
applicable procedures. Within 15 days after all three arbitrators
have been appointed, an initial meeting among the arbitrators and
counsel for the parties shall be held for the purpose of
establishing a plan for administration of the Arbitration,
including: (i) definition of issues; (ii) scope, timing and type
of discovery, which may at the discretion of the arbitrators
include production of documents in the possession of the parties,
but may not, without the consent of the parties, include
depositions; (iii) exchange of documents and filing of detailed
statements of claims and prehearing memoranda; (iii) schedule and
place of hearings; and (iv) any other matters that may promote the
efficient, expeditious and cost-effective conduct of the
proceeding. The substantive law of the State of Delaware shall be
applied by the arbitrators to the resolution of the dispute,
provided that the arbitrators shall base their decision on the
express terms, covenants and conditions of this Agreement. The
arbitrators shall be bound to make specific findings of fact and
reach conclusions of law, based upon the submissions and evidence
of the parties, and shall issue a written decision explaining the
basis for the decision and award. The award shall be made within
one year of delivery of the Response.
6. The parties agree that the arbitrators shall have no
power to alter or modify any express provision of this Agreement or
to render any award which, by its terms, effects any such
alteration or modification.
7. Upon written demand to any party to the Arbitration
for the production of documents and things (including computer
discs and data) reasonably related to the issues being arbitrated,
the party upon which such demand is made shall promptly produce, or
make available for inspection and copying, such documents or things
without the necessity of any action by the arbitrators, provided,
however, that no such demand shall be effective if made more than
ninety (90) days after the receipt of the Response.
8. Subject to the limitations imposed by Section 6, the
arbitrators shall have the power to grant any and all relief and
remedies, whether at law or in equity, that the courts in the State
of Florida may grant and such other relief as may be available
under the Commercial Rules, other than punitive damages. Any award
of the arbitrators shall include pre-award and post-award interest
at a rate or rates considered just under the circumstances by the
arbitrators. The decision of the arbitrators shall be final and as
an "award" within the meaning of the Commercial Rules and judgment
upon the arbitration award may be entered in the United States
District Court for the Southern District of Florida ("District
Court") or any other court having jurisdiction, as if it were a
judgment of that court. The parties to this Agreement expressly
consent to the jurisdiction of the Association, including, without
limitation, reasonable attorney's fees and the parties waive any
objection they may have as to jurisdiction and venue regarding the
District Court.
9. The party which does not prevail in the Arbitration
shall be responsible for all fees and expenses incurred in
connection with the Arbitration, including, without limitation,
reasonable attorney's fees.
10. Notwithstanding the foregoing, the parties
specifically reserve the right to seek a temporary judicial
restraining order, preliminary injunction, or other similar short
term equitable relief, and grant the arbitration tribunal the right
to make a final determination of the parties' rights, including
whether to make permanent or dissolve such court order. No party
shall bring a civil action seeking enforcement or any other remedy
founded on this Agreement.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.1 The Merger . . . . . . . . . . . . . . . . 1
SECTION 1.2 Effective Time of the Merger . . . . . . . 1
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Certificate of Incorporation . . . . . . . 2
SECTION 2.2 By-laws. . . . . . . . . . . . . . . . . . 2
SECTION 2.3 Directors. . . . . . . . . . . . . . . . . 2
SECTION 2.4 Officers . . . . . . . . . . . . . . . . . 2
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Common Stock in the
Merger . . . . . . . . . . . . . . . . . . 2
SECTION 3.2 Exchange of Certificates . . . . . . . . . 3
SECTION 3.3 Closing. . . . . . . . . . . . . . . . . . 3
SECTION 3.4 Tax and Accounting Treatment of Merger . . 4
SECTION 3.5 Restrictions on Resale . . . . . . . . . . 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
SECTION 4.1 Organization and Qualification . . . . . . 4
SECTION 4.2 Capitalization . . . . . . . . . . . . . . 5
SECTION 4.3 Subsidiaries . . . . . . . . . . . . . . . 5
SECTION 4.4 Authority; Non-Contravention; Approvals. . 6
SECTION 4.5 Financial Statements . . . . . . . . . . . 7
SECTION 4.6 Events Subsequent to Year End Financial
Statements . . . . . . . . . . . . . . . . 8
SECTION 4.7 Books of Account . . . . . . . . . . . . . 10
SECTION 4.8 Absence of Undisclosed Liabilities . . . . 10
SECTION 4.9 Absence of Certain Changes or Events . . . 10
SECTION 4.10 Litigation . . . . . . . . . . . . . . . . 11
SECTION 4.11 No Violation of Law. . . . . . . . . . . . 11
SECTION 4.12 Compliance with Agreements . . . . . . . . 11
SECTION 4.13 Taxes. . . . . . . . . . . . . . . . . . . 12
SECTION 4.14 Employee Benefit Plans; ERISA. . . . . . . 13
SECTION 4.15 Labor Controversies. . . . . . . . . . . . 15
SECTION 4.16 Environmental Matters. . . . . . . . . . . 16
SECTION 4.17 Title to Assets. . . . . . . . . . . . . . 18
SECTION 4.18 No Stockholder Approval. . . . . . . . . . 18
SECTION 4.19 Trademarks and Intellectual Property
Compliance.. . . . . . . . . . . . . . . . 18
SECTION 4.20 Contracts, Obligations and Commitments.. . 18
SECTION 4.21 Pooling and Tax-Free Reorganization
Matters. . . . . . . . . . . . . . . . . . 19
SECTION 4.22 Transactions with Parent Related
Parties. . . . . . . . . . . . . . . . . . 20
SECTION 4.23 Insurance. . . . . . . . . . . . . . . . . 20
SECTION 4.24 Investment.. . . . . . . . . . . . . . . . 20
SECTION 4.25 Disclosure.. . . . . . . . . . . . . . . . 20
SECTION 4.26 Representations True.. . . . . . . . . . . 21
SECTION 4.27 Suppliers, Distributors and Customers.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
SECTION 5.1 Organization and Qualification . . . . . . 21
SECTION 5.2 Capitalization . . . . . . . . . . . . . . 22
SECTION 5.3 Subsidiaries . . . . . . . . . . . . . . . 22
SECTION 5.4 Authority; Non-Contravention; Approvals. . 23
SECTION 5.5 Financial Statements . . . . . . . . . . . 24
SECTION 5.6 Events Subsequent to Year End Financial
Statements . . . . . . . . . . . . . . . . 24
SECTION 5.7 Books of Account . . . . . . . . . . . . . 26
SECTION 5.8 Absence of Undisclosed Liabilities . . . . 27
SECTION 5.9 Absence of Certain Changes or Events . . . 27
SECTION 5.10 Litigation . . . . . . . . . . . . . . . . 27
SECTION 5.11 No Violation of Law. . . . . . . . . . . . 28
SECTION 5.12 Compliance with Agreements . . . . . . . . 28
SECTION 5.13 Taxes. . . . . . . . . . . . . . . . . . . 28
SECTION 5.14 Employee Benefit Plans; ERISA. . . . . . . 29
SECTION 5.15 Labor Controversies. . . . . . . . . . . . 32
SECTION 5.16 Environmental Matters. . . . . . . . . . . 32
SECTION 5.17 Title to Assets. . . . . . . . . . . . . . 33
SECTION 5.18 Company Stockholder's Approval . . . . . . 34
SECTION 5.19 Trademarks and Intellectual Property
Compliance.. . . . . . . . . . . . . . . . 34
SECTION 5.20 Contracts, Obligations and Commitments.. . 34
SECTION 5.21 Pooling and Tax-Free Reorganization
Matters. . . . . . . . . . . . . . . . . . 35
SECTION 5.22 Transactions with Company Related
Parties. . . . . . . . . . . . . . . . . . 35
SECTION 5.23 Insurance. . . . . . . . . . . . . . . . . 35
SECTION 5.24 Disclosure.. . . . . . . . . . . . . . . . 35
SECTION 5.25 Representations True . . . . . . . . . . . 36
SECTION 5.26 Suppliers, Distributors and Customers. . . 36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 6.1 Organization and Qualification . . . . . . 36
SECTION 6.2 Authority; Non-Contravention; Approvals. . 36
SECTION 6.3 Approval of Merger . . . . . . . . . . . . 38
SECTION 6.4 Title to Shares. . . . . . . . . . . . . . 38
SECTION 6.5 Tax-Free Reorganization. . . . . . . . . . 38
SECTION 6.6 Investment . . . . . . . . . . . . . . . . 38
SECTION 6.7 Litigation . . . . . . . . . . . . . . . . 38
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 7.1 Conduct of Business by Parent and by the
Company Pending the Merger . . . . . . . . 39
SECTION 7.2 Control of the Company's Operations. . . . 40
SECTION 7.3 Control of Parent's or Subsidiary's
Operations . . . . . . . . . . . . . . . . 41
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1 Access to Information. . . . . . . . . . . 41
SECTION 8.2 Stockholder Approvals. . . . . . . . . . . 42
SECTION 8.3 Pooling Lock-Up Agreement. . . . . . . . . 42
SECTION 8.4 Parent's Covenants Concerning Maintenance
of Tax-Free Reorganization Status. . . . . 43
SECTION 8.5 Parent's Covenants Concerning Amendments
to Parent's By-Laws, Nominating
Committee, and Certain Other Matters . . . 43
SECTION 8.6 Seller's Covenant Concerning the Filing
of a Fictitious Name . . . . . . . . . . . 43
SECTION 8.7 Expenses and Fees. . . . . . . . . . . . . 44
SECTION 8.8 Agreement to Cooperate . . . . . . . . . . 44
SECTION 8.9 Public Statements. . . . . . . . . . . . . 44
SECTION 8.10 Notification of Certain Matters. . . . . . 44
SECTION 8.11 No Liability if Transaction is Not Tax-
Free . . . . . . . . . . . . . . . . . . . 45
SECTION 8.12 Parent Common Stock. . . . . . . . . . . . 45
SECTION 8.13 Acquisition of Common Stock. . . . . . . . 45
SECTION 8.14 Schedules. . . . . . . . . . . . . . . . . 45
SECTION 8.15 Transition.. . . . . . . . . . . . . . . . 46
SECTION 8.16 Employee Compensation Payments.. . . . . . 46
SECTION 8.17 Further Assurances.. . . . . . . . . . . . 46
ARTICLE IX
CONDITIONS
SECTION 9.1 Conditions to Each Party's Obligation to
Effect the Merger. . . . . . . . . . . . . 46
SECTION 9.2 Conditions to Obligation of the Company
to Effect the Merger . . . . . . . . . . . 47
SECTION 9.3 Conditions to Obligations of Parent and
Subsidiary to Effect the Merger. . . . . . 48
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 Termination. . . . . . . . . . . . . . . . 48
SECTION 10.2 Effect of Termination. . . . . . . . . . . 49
SECTION 10.3 Waiver . . . . . . . . . . . . . . . . . . 50
ARTICLE XI
REMEDIES FOR BREACHES
SECTION 11.1 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . 50
SECTION 11.2 Limitations on
Indemnification. . . . . . . . . . . . . . 50
SECTION 11.3 Indemnification Provisions for Benefit of
Parent . . . . . . . . . . . . . . . . . . 50
SECTION 11.4 Indemnification Provisions for Benefit of the
Company Stockholders . . . . . . . . . . . 51
SECTION 11.5 Matters Involving Third Parties. . . . . . 51
SECTION 11.6 Other Indemnification Provisions . . . . . 52
SECTION 11.7 Adverse Consequences . . . . . . . . . . . 52
SECTION 11.8 Arbitration. . . . . . . . . . . . . . . . 52
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 Brokers. . . . . . . . . . . . . . . . . . 52
SECTION 12.2 Notices. . . . . . . . . . . . . . . . . . 52
SECTION 12.3 Interpretation . . . . . . . . . . . . . . 53
SECTION 12.4 Miscellaneous. . . . . . . . . . . . . . . 54
SECTION 12.5 Counterparts . . . . . . . . . . . . . . . 54
SECTION 12.6 Parties In Interest. . . . . . . . . . . . 54
SECTION 12.7 Schedules. . . . . . . . . . . . . . . . . 54
SECTION 12.8 Amendment of Agreement . . . . . . . . . . 54
SECTION 12.9 Severability . . . . . . . . . . . . . . . 54
SECTION 12.10 Entire Agreement . . . . . . . . . . . . . 54
SECTION 12.11 Assignment . . . . . . . . . . . . . . . . 55
SECTION 12.12 Gender and Number. . . . . . . . . . . . . 55
EXHIBIT
Exhibit A Form of Employment Agreement
Exhibit B Initial Board of Directors of Parent
Exhibit C Arbitration Provisions
SCHEDULES
Schedule 2.3 Directors of Surviving Corporation
Schedule 2.4 Officers of Surviving Corporation
Schedule 4.2 Parent Capitalization
Schedule 4.3 Subsidiary Stock
Schedule 4.6 Subsequent Events of Parent and Subsidiaries
Schedule 4.8 Liabilities of Parent and Subsidiaries
Schedule 4.10 Litigation of Parent and Subsidiaries
Schedule 4.11 Violations of Law by Parent
Schedule 4.12 Compliance with Agreements by Parent and
Subsidiaries
Schedule 4.14 Employee Benefit Matters of Parent and
Subsidiaries
Schedule 4.15 Labor Controversies of Parent and Subsidiaries
Schedule 4.16 Environmental Matters of Parent and
Subsidiaries
Schedule 4.17 Title to Assets of Parent and Subsidiaries
Schedule 4.20 Contracts, Obligations and Commitments of
Parent and Subsidiaries
Schedule 4.22 Transactions with Parent Related Parties
Schedule 4.27 Suppliers, Distributors and Customers of
Parent and Subsidiaries
Schedule 5.2 Company Capitalization
Schedule 5.3 Company's Subsidiary Capitalization
Schedule 5.6 Subsequent Events of Company and Subsidiaries
Schedule 5.8 Liabilities of Company and Subsidiaries
Schedule 5.10 Litigation of Company
Schedule 5.11 Violations of Law by Company
Schedule 5.12 Compliance with Agreements by Company and
Subsidiaries
Schedule 5.14 Employee Benefit Matters of the Company and
Subsidiaries
Schedule 5.15 Labor Controversies of Company
Schedule 5.16 Environmental Matters of Company
Schedule 5.17 Title to Assets of Company
Schedule 5.20 Contracts, Obligations and Commitments of
Company and Subsidiaries
Schedule 5.22 Company and Subsidiaries Transactions with
Related Parties
Schedule 6.7 Litigation of Seller
Schedule 8.16 Employee Compensation Payments
Schedule 9.2 Officers and Directors of Parent<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered
into as of __________________________, 1997 by among U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation (the "Parent"), RPI
ACQUISITION CORPORATION, a Wisconsin corporation and a wholly owned
subsidiary of Parent (the "Subsidiary"), and RECYCLED PLASTICS
INDUSTRIES, INC., a Wisconsin corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent and the
Company have each determined that the merger of the Company with
and into the Subsidiary (the "Merger") is consistent with and in
furtherance of the long-term business strategy of Parent and the
Company and their respective Shareholders;
WHEREAS, the respective Boards of Directors of Parent,
Subsidiary and the Company have each approved the Merger, upon the
terms and subject to the conditions set forth herein; and
WHEREAS, Parent, Subsidiary and the Company intend that the
Merger qualify as a tax-free reorganization under the provisions of
Section 368 of the Code (as hereinafter defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements and
conditions hereinafter set forth, and other good and valuable
considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
Unless otherwise defined herein or the context otherwise
requires, the terms defined in this Article 1 shall have the
meanings herein specified for all purposes of this Agreement,
applicable to both the singular and plural forms of any of the
terms herein defined. Unless otherwise indicated, any reference
herein to a "Section", "Article", or "Schedule" shall mean the
applicable section, article or schedule of or to this Agreement.
All accounting terms used in this Agreement not defined in this
Article 1 shall, except as otherwise provided for herein, be
construed in accordance with generally accepted accounting
principles, consistently applied.
"Action" shall mean any actual or threatened claim, action,
suit, arbitration, hearing, inquiry, proceeding, complaint, charge
or investigation by or before any Governmental Entity or arbitrator
and any appeal from any of the forgoing.
"Affiliate" of a Person shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control
with the indicated Person.
"Agreement" shall mean this Agreement and Plan of Merger.
"Balance Sheet" and "Balance Sheet Date" shall have the
meaning assigned to such terms in Section 4.4(a).
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Closing" and "Closing Date" shall have the respective
meanings assigned to such terms in Section 2.3.
"Common Stock" shall mean the Company's authorized class of
common stock, $0.01 par value per share.
"DOL" shall mean the United States Department of Labor.
"Damages" shall mean any and all losses, liabilities,
obligations, costs, expenses, damages or judgments of any kind or
nature whatsoever (including reasonable attorneys', accountants,
and expert's fees, disbursements of counsel, and other costs and
expenses incurred pursuing indemnification claims under Article 10
hereof).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any Person which is (or at any
relevant time was) a member of a controlled group of corporations
within the meaning of Code Section 414 (b), all trades or
businesses under common control within the meaning of Code Section
414(c), and all affiliated service groups within the meaning of
Code Section 414(m), of which the Company is (or any relevant time
was) a member.
"Environmental Laws" shall mean all Legal requirements
pertaining to the protection of the environment, the treatment,
emission and discharge of gaseous, particulate and effluent
pollutants and the use, handling storage, treatment, removal
transport, transloading, cleanup decontamination, discharge and
disposal of Hazardous Substances, including, without limitation,
those statutes, laws, rules and regulations set forth below in the
definitions of "Hazardous Material".
"Governmental Entity" shall mean any local, state, federal or
foreign (i) court, (ii) government or (iii) governmental
department, commission, instrumentality, board, agency or
authority, including the IRS and other taxing authorities.
"Hazardous Material" shall mean any flammable, ignitable,
corrosive, reactive, radioactive or explosive substance or
material, hazardous waste, toxic substance or related material and
any other substance or material defined or designated as a
hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated
in the future and shall include, without limitation:
(a) those substances included within the definitions of
"hazardous substances", "hazardous materials", "toxic substances",
or "solid waste" in the Comprehensive Environmental response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Sections 9601, et. seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901 et.seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et. seq., and in the
regulations promulgated pursuant thereto.
(b) those substances defined as "hazardous substances",
"hazardous materials", "toxic substances", or "solid waste" in the
State of Wisconsin.
(c) those substances listed in the United States
Department of Transportation Table (49CFR 172.101 and amendments
thereto) or by the Environmental Protection Agency (or any
successor thereto) as hazardous substances (40CFR Part 302 and any
amendments thereto).
(d) such other substances, materials and wastes that are
or become regulated under applicable local, state or federal laws
or regulations, or which are or become classified as hazardous or
toxic under any Legal Requirement; and
(e) any material, waste or substance that is, in whole or
in part, (i) petroleum, asbestos, polychorinated biphenyls,
methylene chloride, trichorothylene, 1, 2-transdichoroethylene,
dioxins or dibenzofurans, (ii) designated as an "extremely
hazardous substance" pursuant to Section 302 of the Emergency
Planning and Community Right-to-Know Act of 1986, as amended, or
(iii) designated as a "hazardous substance" pursuant to Section 311
of the Clean Water Act, 33 U.S.C. Sections 1251 et. seq. (U.S.C.
Section 1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. Section 1317), or Section 112 or other sections of
the Clean Water Act, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"Indebtedness" shall mean, when used with reference to any
Person, without duplication, (i) any liability of such Person
created or assumed by such Person, or any Subsidiary thereof, (A)
for borrowed money, (B) evidence by a bond, note, debenture, or
similar instrument (including a purchase money obligation, deed of
trust or mortgage) given in connection with the acquisition of, or
exchange for, any property or assets (other than inventory or
similar property acquired and consumed in the Ordinary Course),
including securities and other Indebtedness, (C) in respect of
letters of credit issued for such Person's account and "swaps" of
interest and currency exchange rate (and other interest and
currency exchange rate hedging agreements) to which such Person is
a party or (D) for the payment of money as lessee under leases that
should be, in accordance with generally accepted accounting
principles, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding
clause (i) guaranteed as to payment of principal and interest by
such Person or in effect guaranteed by such Person through an
agreement, contingent or otherwise, to purchase, repurchase or pay
the related Indebtedness or to acquire security therefor; (iii) all
liabilities or obligations secured by a Lien upon property owned by
such Person and upon liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person
has not assumed or become liable for the payment of such
liabilities or obligations; and (iv) any amendment, renewal,
extension, revision or refunding or any such liability or
obligation; provide, however, that Indebtedness shall not include
any liability for compensation of such Person's employees or for
inventory or similar property acquired and consumed in the Ordinary
Course or for services.
"Leased Real Property" shall mean all real property, including
Structures, leased by the Company.
"Legal Requirements" shall mean any statute, law, ordinance,
rule, regulation, permit, order, writ, judgment, injunction, decree
or award issued, enacted or promulgated by any Governmental Entity
or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics
liens, regardless of whether liquidated), mortgages, assessments,
security interests, easements, claims, pledges, trusts
(constructive or other), deeds of trust, options or other charges,
encumbrances or restrictions.
"Material Adverse effect" shall mean a material adverse effect
on the business, financial condition, properties, profitability,
prospects or operations of the Company.
"Noncompetition Agreement(s)" shall have the meaning assigned
to such term in Section 8.1(g).
"Ordinary Course" shall mean, when used with reference to the
Company, the ordinary course of the Company's business, consistent
with past practices.
"Owned Real Property" shall mean all real property, including
Structures, owned by the Shareholders.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall have the meaning assigned to such term in
Section 4.16.
"Permitted Liens" shall mean (a) Liens for ad valorem real or
personal property taxes or assessments not at the time due and (b)
Liens in respect of pledges or deposits under worker's compensation
laws or similar legislation, carriers', warehousemen's, mechanic's,
laborers' and materialmen's and similar liens, if the obligations
secured by such Liens are not then delinquent.
"Person" shall mean all natural person's, corporations,
business trusts, associations, limited liability companies,
companies partnerships, joint ventures, Governmental Entities and
any other entities.
"Real Property" shall mean the Owned Real Property and the
Lease Real Property, collectively.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Share Percentage" with respect to any Shareholder shall mean
the percentage that the number of Shares held by such Shareholder
represents of the total number of Shares, as set forth on Schedule
"A".
"Shares" shall mean the shares of Common Stock of the Company
held by the shareholders.
"Stock" shall mean shares of common stock issued by the
Parent, as contemplated by Article 2 hereof.
" Structure" shall mean any facility, building, plant,
factory, office, warehouse structure or other improvement owned or
leased by the Company.
"Subsidiary" of a Person shall mean any corporation,
partnership, limited liability company, association or other
business entity at least 50% of the outstanding voting power of
which is at the time owned or controlled directly or indirectly by
such Person or by one or more of such subsidiary entity, or both.
"Tax" shall mean any Federal, state, local or foreign income,
gross receipts, license, payroll, unemployment, excise, severance,
stamp, occupation, premium, windfall profits, environmental
(including, without limitation, taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding,
social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration,
value added, alterative or add-on minimum, estimated tax or other
tax, assessment or charge of any kind whatsoever, including,
without limitation, any interest, fine, penalty or addition
thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim
for refund or information, or statement relating to Taxes, and any
exhibit, schedule, attachment or amendment thereto.
2. THE MERGER
2.1 Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined below) in
accordance with the Wisconsin Business Corporation Law (the
"WBCA"), the Company shall be merged with and into the Subsidiary
and the separate corporate existence of the Company shall thereupon
cease. The Subsidiary shall be the surviving corporation in the
Merger and is hereinafter sometimes referred to as the "Surviving
Corporation." The Merger shall become effective at such time (the
"Effective Time") as shall be stated in the Articles of Merger, in
a form mutually acceptable to Parent and the Company, to be filed
with the Department of Financial Institutions of the State of
Wisconsin in accordance with the WBCA (the "Merger Filing"). The
Merger Filing shall be made simultaneously with or as soon as
practicable after the Closing (as defined below) of the
transactions contemplated by this Agreement.
2.2 Conversion of Company Shares in the Merger. At the
Effective Time, by virtue of the Merger and without any action on
the part of any holder of the Shares, each of the Shares as
described opposite the name of such Shareholder on Schedule "A"
shall be canceled and extinguished and converted into the right to
receive (i) Two Hundred Ninety Nine and 925/1000 Dollars
($299.925), totaling One Million Two Hundred Thousand Dollars
($1,200,000.00); and (ii) 249.9371 shares of the Stock, which is
equivalent to One Million (1,000,000) shares of the Stock, both to
be allocated among the Shareholders as set forth opposite their
names on Schedule "A". The Stock shall not have been registered
pursuant to the Securities Act, provide, however, the Shareholders
shall be entitled to those rights granted pursuant to the
Registration Rights Agreement in the form of Exhibit "A" attached
hereto (the "Registration Rights Agreement").
2.3 Closing". The Closing of the transactions contemplated
by this Agreement, (the "Closing") shall occur at 10:00AM, local
time, on January 27, 1997, simultaneously at the offices of
Dickenson, Murdoch, Rex and Sloan, Suite 410, 980 North Federal
Highway, Boca Raton, Florida and at the office of the general
counsel for the Company, Green Bay, Wisconsin, or at such other
time or on such other date as shall be agreed upon among the
Company and the Parent upon fulfillment of all conditions precedent
to the Closing, such hour and date being herein generally referred
to as the "Closing Date". At the Closing:
(a) Each Shareholder shall deliver or cause to be delivered to
the Surviving Corporation , against the delivery by the Parent
of the Stock, in payment of the merger consideration to such
Shareholder:
(i) a certificate or certificates representing the Shares
of such Shareholder;
(ii) all of the documents, certificates, and instruments
required to be delivered, or caused to be delivered, by
the Company and such Shareholder pursuant to Section 8.1
hereof; and
(iii) all records, documents, and files of the Company,
including, without limitation, all minute books, stock
records, stock certificate books, and internal accounting
records.
(b) The Surviving Corporation shall deliver or cause to be
delivered to each Shareholder, against delivery of the
certificate or certificates representing the Shares:
(i) certificate(s) of Stock of the Parent representing
the number of shares allocated to the respective
Shareholder as set forth on Schedule "A";
(ii) all of the documents, if any, required to be
delivered by the Surviving Corporation and the Parent
pursuant to Section 8.2 hereof; and
(iii) the cash payment to the Shareholders in the total
amount of One Million Two Hundred Thousand Dollars
($1,200,000.00) to be allocated among the Shareholders as
set forth on Schedule "A", by wire transfer no later than
January 27, 1997 to the trust account of Godrey & Kahn.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS
Each of the Shareholders hereby severally represents and
warrants to, and covenants and agree with, the Parent that:
3.1 Ownership of Shares. Such Shareholder owns of record and
beneficially the number of Shares set forth opposite the name of
such Shareholder on Schedule "A" hereto, and has, and at all times
prior to and as of the Closing such Shareholder will have, good and
marketable title to such Shares free and clear of all Liens, except
as provided in Section 180.0622(2)(b) of the Wisconsin Statutes and
the cases decided thereunder.
3.2 OMITTED.
3.3 Execution and Delivery. All consents, approvals,
authorizations and order necessary for the execution, delivery and
performance by such Shareholder of this Agreement (including,
without limitation, the transfer of the Shares by such Shareholder)
have been duly and lawfully obtained, and such Shareholder has, and
at the Closing will have, full right, power, authority and capacity
to execute, deliver and perform this Agreement. This Agreement has
been duly executed and delivered by such Shareholder and
constitutes a legal, valid and binding agreement of such
Shareholder enforceable against such Shareholder in accordance with
its terms.
3.4 No Conflicts. The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach or
violation of any term or provision of, or (with or without notice
or passage of time, or both) constitute a default under, any
indenture, mortgage, deed of trust, trust (constructive and other),
loan agreement or other agreement or instrument to which such
Shareholder is a party or by which such Shareholder or such
Shareholder's Shares are bound, or violate any Legal Requirement
applicable to or binding upon such Shareholder.
3.5 No Brokers. No broker, finder or similar agent has been
employed by or on behalf of such Shareholder in connection with
this Agreement or the transactions contemplated hereby, and such
Shareholder has not entered into any agreement or understanding of
any kind with any person or entity for the payment of any brokerage
commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Shareholders hereby jointly and severally represent and
warrant to, and covenant and agree with, the Parent that:
4.1 Organization and Good Standing.
(a) The Company has been duly organized and is existing
as a corporation in good standing under the laws of the State of
Wisconsin with full power and authority (corporate and other) to
own and lease its properties and to conduct its business as
currently conducted. The Company has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each jurisdiction set forth on Schedule
4.1(a), such jurisdictions comprising all jurisdictions in which
the Company owns or leases any property, or conducts any business,
so as to require such qualifications, and the failure to so qualify
would have a Material Adverse Effect upon the Company.
(b) Except as set forth in Schedule 4.1(b), the Company
has no Subsidiary nor owns or controls, or has any other equity
investment or other interest in, directly or indirectly, any
corporation, joint venture, partnership, association or other
entity.
4.2 No Conflicts. Except as set forth on Schedule 4.2, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (a)
conflict with or result in a breach or violation of any term or
provision of, or constitute a default under (with or without notice
or passage of time, or both), or otherwise give any Person a basis
for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan
or credit agreement, lease, license or other agreement or
instrument of which the Company is a party or by which the Company
is bound or affected or to which any of the property or assets of
the Company is bound or affected including, without limitation, all
arrangements in Section 4.19 hereof, (b) result in the violation of
the provisions of the Articles of Incorporation or Bylaws of the
Company or any Legal Requirement applicable to or binding upon it,
(c) result in the creation or imposition of any Lien upon any
property or asset of the Company or (d) otherwise adversely affect
the contractual or other legal rights or privileges of the Company.
Schedule 4.2 sets forth a list of all agreements requiring the
consent of any party thereto to any of the transactions
contemplated hereby.
4.3 Capitalization. The authorized capital stock of the
Company consists solely of Ten Thousand (10,000) shares of Common
Stock having a par value of $0.01 per share, of which only the
number of Shares listed on Schedule "A" are, and as of the Closing
will be, issued and outstanding. All of the Shares have been duly
authorized and validly issued and are fully paid, nonassessable ,
except as provided in Section 180.0622(2)(b) of the Wisconsin
Statutes and the cases decided thereunder, and outstanding and are
held by the Shareholders in amounts reflected in Schedule "A"
hereto. Other than as set forth on Schedule 4.3, (i) there are no
existing options, warrants, right, calls or commitments of any
character relating to the shares of Common Stock or any other
capital stock or securities of the Company, (ii) there are no
outstanding securities or other instruments convertible into or
exchangeable for shares of Common Stock or any other capital stock
or securities of the Company and no commitments to issue such
securities or instruments and no Person has any right of first
refusal, preemptive right, subscription right or similar right with
respect to any shares of Common Stock or any other capital stock or
securities of the Company. The offer, issuance and sale of the
Shares were (i) exempt from the registration and prospectus
delivery requirements of the Securities Act, (ii) registered or
qualified (or exempt from registration or qualification) under the
registration or qualification requirements of all applicable state
securities laws and (iii) accomplished in conformity with all other
Legal Requirements.
4.4 Financial Statements.
(a) Schedule 4.4 hereto contains true and complete
copies of (i) the unaudited balance sheet (the "Balance Sheet") of
the Company at November 30, 1996 (the "Balance Sheet Date"), and
the related unaudited statements of income for eleven (11) months
then ended, (ii) the reviewed balance sheet of the Company at
(December) 31, 1995 and the related reviewed statements of income,
shareholders' equity and cash flow for the fiscal year then ended
(together with the report thereon of Jonet & Fountain, independent
public accountants)(the financial statements described in clause
(i) and (ii) above are collectively referred to as the "Financial
Statements").
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the
results of operations and changes in financial position of the
Company for the periods specified therein, have been prepared in
conformity with generally accepted accounting principles applied on
a consistent basis during the periods covered thereby and prior
periods, have been derived from the accounting records of the
Company and represent only actual, bona fide transactions. The
Company's Financial Statements are true and correct in all material
respects and do not contain any untrue statement of a material fact
or omit to state a material fact.
4.5 Title to Property; Encumbrances.
(a) The Company has, and immediately prior to the
Closing will have, good, valid and marketable title in fee simple
to all personal property reflected on the Balance Sheet as owned by
the Company and all personal property acquired by the Company since
the Balance Sheet Date, in each case free and clear of all Liens
except (i) as set forth on Schedule 4.5(a), (ii) for sales and
other dispositions of inventory in the Ordinary Course since the
Balance Sheet Date which, in the aggregate, have not been
materially different from prior periods, and (iii) Permitted Liens.
(b) Schedule 4.5(b). contains a true and complete list
and legal description of each parcel of Owned Real Property and a
general description of each Structure situated thereon. The
Shareholders have heretofore furnished to Parent true and complete
copies of all deeds, other instruments of title and policies of
title insurance indicating and describing the Company's ownership
of the Owned Real Property, as well as copies of any surveys or
environmental reports relating to the real property.
(c) Schedule 4.5(c). contains a list of all tangible
personal property having a cost or fair market value in excess of
Five Thousand Dollars ($5,000.00) owned by the Company (other than
personal property held by the Company as lessee under a personal
property lease).
(d) Schedule 4.5(d) contains a list of all real property
leases, licenses and personal property leases under which the
Company is the lessee or licensee, together with (i) the location
and nature of each of the leased or licensed properties (including
a legal description of all Leased Real Property), (ii) the
termination date of each such lease or license, (iii) the name of
the lessor or licensor and (iv) all rental and other payments made
or required to be made for the fiscal years ending (December 31),
1994 and December 31, 1995. All leases and licenses pursuant to
which the Company leases or licenses from others real or personal
property are valid, subsisting in full force and effect in
accordance with their respective terms, and there is not, under any
real property lease, personal property lease or license, any
existing default or event of default (or event that, with notice or
passage of time, or both, would constitute a default, or would
constitute a basis of force majeure or other claim of excusable
delay or nonperformance). True and complete copies of all real
property leases, licenses and personal property leases listed on
Schedule 4.5(d) have been delivered to Parent heretofore, as well
as copies of any title reports, surveys or environmental reports or
audits relating to any Leased Real Property. Except as set forth
in Schedule 4.5(d), no such lease or license will require the
consent of the lessor or licensor to or as a result of the
consummation of the transactions contemplated by this Agreement.
For the purposes of this Section 4.5(d), a "lease" shall include a
sublease.
(e) All personal property owned by the Company and all
personal property held by the Company pursuant to personal property
leases is in good operating condition and repair, subject only to
ordinary wear and tear, has been operated, serviced and maintained
properly within the recommendations and requirements of the
manufacturers thereof (if any) and is suitable and appropriate for
the use thereof made and proposed to be made by the Company in its
business and operations. The Real Property and personal property
described in Sections 4.5(a), 4.5(b) and 4.5(c) and the Real
Property and personal property held by the Company pursuant to the
leases and licenses described in Schedule 4.5(d) compromise all of
the real property and personal property used in the conduct of
business of the Company.
(f) Except as set forth in Schedule 4.5(f):
(i) The Company is not in violation of, or default under,
any Legal Requirement pertaining to any of the Real Property.
No notice of violation of any Legal Requirement, or of any
covenant, condition, restriction or easement affecting any
Real Property or with respect to the use or occupancy thereof,
has been given by any Person;
(ii) All of the Structures (A) are in good operating
condition and repair, (B) are adequate and suitable for the
purposes for which they are currently and proposed to be used,
and (C) are supplied with utilities and other services
necessary for the operation of such Structures, and the
business conducted by the Company therein, including gas,
electricity, water, telephone, sanitary sewer and storm sewer,
all of which services are maintained in accordance with all
Legal Requirements and are provided via permanent,
irrevocable, appurtenant easements in favor of the Company;
(iii) No condemnation proceeding is pending or, to the
knowledge of the Shareholders, threatened which would impair
the occupancy, use or value of any Real Property;
(iv) No Structure, nor the operations of the Company
therein or thereon, (A) is located outside of the boundary
lines of the described parcel of land on which it is located,
(B) is in violation of applicable setback requirements, zoning
laws, or ordinances, (C) is subject to "permitted non-conforming use" or
"permitted non-conforming structure"
classifications or (D) encroaches on any property owned by, or
easement granted in favor of, any Person;
(v) There are no (A) leases, subleases, licenses,
concessions or other agreements, written or oral, granting to
any other Person the right to acquire, use or occupy any
portion of, any Real Property, (B) outstanding options or
rights of first refusal to purchase all or any portion of Real
Property or interest therein, and (C) Persons (other than the
Company) in possession of any Real Property;
(vi) Each parcel of Owned Real Property (A) is fully and
adequately described in the legal description therefor
contained in the deed thereof, (B) abuts a paved public right-of-way, (C)
does not serve any adjoining property for any
purpose inconsistent with the use of the land, and (D) is not
located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the
use thereof have not been obtained; and
(vii) With respect to each item of Leased Real Property,
(A) to the Shareholders' knowledge, the owner thereof has good
and marketable title thereto, free and clear of all Liens
other than (I) recorded easements, covenants and restrictions
that do not impair the current use, occupancy or value thereof
and (II) the leasehold interest of the Company, (B) there is
adequate ingress and egress (and a continuing right thereto),
without the need for an easement, between paved public rights-of-way and
such Leased Real Property and (C) the Company has
not sold, transferred or subjected to a Lien such Leased Real
Property or any interest therein.
4.6 Accounts Receivable. All accounts receivable of the
Company reflected in the Balance Sheet and all accounts receivable
of the Company that have arisen since the Balance Sheet Date
(except such accounts receivable as have been collected since such
dates) are valid and enforceable claims, and the goods and services
sold and delivered that gave rise to such accounts were sold and
delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such
accounts receivable of the Company are subject to no valid defense,
offset or counterclaim and are fully collectible, except to the
extent of the allowance for doubtful accounts reflected on the
Balance Sheet. Schedule 4.6 contains a true and complete aging of
the Company's accounts receivable as of the Balance Sheet Date.
4.7 Inventories. Except as described in Schedule 4.7, all
inventories of raw materials, work-in-process and finished good set
forth or reflected in the Balance Sheet or acquired by the Company
since the balance Sheet Date, consist of a quality and quantity
usable and saleable in the Ordinary Course, except for slow-moving,
damaged or obsolete items and materials of below standard quality,
all of which have been written down to net realizable market value
or in respect of which adequate reserves have been provided, in
each case as reflected in the Balance Sheet. The value at which
inventories are carried on the Balance Sheet reflect the normal
inventory valuation policy of the Company, as applicable, in
accordance with generally accepted accounting principles and on a
basis consistent with that of preceding periods, of stating
inventory at the lower of cost or market value. There is no reason
to believe that the Company will experience in the foreseeable
future any difficulty in obtaining, in the desired quantity and
quality, the inventory necessary to conduct its business in the
manner proposed to be conducted, including, without limitation,
inventory which historically has been imported.
4.8 Trademarks, Patents, Etc.
(a) Schedule 4.8(a) contains a true and complete list of
all letters patent, patent applications, trade names, trademarks,
service marks, trademark and service mark registrations and
applications, copyrights, copyright registrations and applications,
grants of a license or right to the Company with respect to the
foregoing, both domestic and foreign, claimed by either Company or
used or proposed to be used by the Company in the conduct of its
business, whether registered or not, (collectively herein,
"Registered Rights").
(b) Except as described in Schedule 4.8(b), the Company
owns and has the unrestricted right to use the Registered Rights
and every trade secret, know-how, process, discovery, development,
design, technique, customer and supplier list, promotional idea,
marketing and purchasing strategy, invention, process, confidential
data and or other information (collectively herein, "Proprietary
Information") required for or incident of the design, development,
manufacture, operation, sale and use of all products and services
sold or rendered or proposed to be sold or rendered by the Company,
free and clear of any right, equity or claim of others. The
Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all Proprietary Information.
(c) Schedule 4.8(c) contains a true and complete list
and description of all licenses of or rights to Proprietary
Information granted to the Company by others or to others by the
Company. Except as described in Schedule 4.8(c), (i) the Company
has not sold, transferred, assigned, licensed or subjected to any
Lien, any Registered Right or Proprietary Information or any
interest therein, and (ii) the Company is not obligated or under
any liability whatever to make any payments by way of royalties,
fees or otherwise to any owner or licensor of, or other claimant
to, any Registered Right or Proprietary Information.
(d) There is no claim or demand of any Person pertaining
to, or any Action that is pending or, to the Shareholders'
knowledge, threatened, which challenges the rights of the Company
in respect of any Registered Right or any Proprietary Information.
4.9 Banking and Insurance.
(a) Schedule 4.9(a) contains a true and complete list of
the names and locations of all financial institutions at which the
Company maintains a checking account, deposit account, securities
account, safety deposit box or other deposit or safekeeping
arrangement, the numbers or other identification of all such
accounts and arrangements and the names of all persons authorized
to draw against any funds therein.
(b) Schedule 4.9(b) contains a true and complete list of
all insurance policies and bonds and self insurance arrangements
currently in force that cover or purport to cover risks or losses
to or associated with the Company's business, operations, premises,
properties, assets, employees, agents and directors and sets forth,
with respect to each such policy, bond and self insurance
arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of
coverage, a general description of each deductible feature and
principal exclusion and the premiums paid and to be paid prior to
expiration. The insurance policies, bonds and arrangements
described on Schedule 4.9(b) (the "Policies") provide such coverage
against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or
similar business and similarly situated. The Company has no
obligation, liability or other commitment relating to any contract
of insurance containing a provision for retrospective rating or
adjustment of the Company's premium obligation. To the
Shareholders' knowledge, no facts or circumstances exist that would
cause the Company to be unable to renew its existing insurance
coverage as and when the same shall expire upon terms at least as
favorable as those currently in effect, other than possible
increases in premiums that do not result from any act or omission
of the Company or any Shareholder.
4.10 Indebtedness.
(a) The Company has no liability or obligation for
Indebtedness other than as set forth on Schedule 4.10(a), and true
and complete copies of all instruments and documents evidencing,
creating, securing or otherwise relating to such Indebtedness have
been delivered to Parent heretofore. Except as described in
Schedule 4.10(a), no event has occurred and no condition has become
known to the Company or any Shareholder (including the transactions
contemplated hereby) that constitutes or, with notice or passage of
time, or both, would constitute a default or a basis of force
majeure or other claim of accelerated or increased rights,
termination, excusable delay or nonperformance by the Company or
any other Person under any instrument or document relating to or
evidencing Indebtedness that would entitle any person to require
the Company to pay any portion of the principal amount of such
Indebtedness prior to the scheduled maturity thereof. Except as
set forth in Schedule 4.10(a), no instrument or document
evidencing, creating, securing or otherwise relating to
Indebtedness will require the consent of any person to or as a
result of the consummation of the transactions contemplated by this
Agreement.
(b) Schedule 4.10(b) contains a list and brief
description of all agreements or instruments pursuant to which any
of the Company's directors, employees or shareholders have
guaranteed by Indebtedness of the Company (the "Guaranties"). True
and complete copies of all Guaranties have been delivered to
Parent.
4.11 Judgments; Litigation. Except as set forth on Schedule
4.11:
(a) There is no (i) outstanding judgment, order, decree,
award stipulation or injunction of any Governmental Entity or
arbitrator against or affecting the Company or its properties,
assets or business or (ii) Action pending against or affecting the
Company or its properties, assets or business.
(b) To the Shareholders' knowledge, there is no (i)
outstanding judgment, order, decree, award, stipulation, injunction
of any Governmental Entity or arbitrator against or affecting any
officer, director or employee of the Company relating to the
Company or its business, (ii) Action threatened against or
affecting the Company or its properties, assets or business, (iii)
Action pending or threatened against the Company's officers,
directors or employees relating to the Company or its business or
(iv) basis for the institution of any Action against the Company or
any of its officers, directors, employees, properties or assets
which, if decided adversely, would have a Material Adverse Effect.
4.12 Income and Other Taxes. Except as set forth on Schedule
4.12:
(a) All Tax Returns required to be filed through and
including the date hereof in connection with the operations of the
Company are true, complete and correct in all respects and have
been properly and timely filed. The Company has not requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed. Parent has heretofore been
furnished by the Company with true, correct and complete copies of
each Tax Return of the Company with respect to the past three (3)
taxable years, and of all reports of, and communications from, any
Governmental Entities relating to such period. The Company has
disclosed on its Federal Income Tax Returns all positions taken
therein that could give rise to a substantial understatement of
income Taxes for federal income tax purposes within the meaning of
Code Section 6662.
(b) All Taxes required to be paid or withheld and
deposited through and including the date hereof in connection with
the operations of the Company have been duly and timely paid or
deposited by the Company. The Company has properly withheld or
collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for sales Taxes on sales,
and has properly and timely remitted such withheld or collected
amounts to the appropriate Governmental Entity. The Company has no
liabilities for any Taxes for any taxable period ending prior to or
coincident with the Closing Date.
(c) The Company has made adequate provision on its book
of account for all Taxes with respect to its business, properties
and operations through the Balance Sheet Date, and the accruals for
Taxes in the Balance Sheet are adequate to cover all liabilities
for Taxes of the Company for all periods ending on or before the
Closing Date.
(d) The Company has never (i) had a tax deficiency
proposed, asserted or assessed against it (ii) executed any waiver
of any statute of limitations on the assessment or collection of
any Taxes, or (iii) been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the
subject of other Action by any Governmental Entity. The Company
has not received any notice from any Governmental Entity of any
pending examination or any proposed deficiency, addition,
assessment, demand for payment or adjustment relating to or
affecting the Company or its assets or properties and no
Shareholder has reason to believe that any Governmental Entity may
assess (or threaten to assess) any Taxes for any periods ending on
or prior to the Closing Date.
(f) The Company (i) has not filed any consent or
agreement pursuant to Code Section 341(f), and no such consent or
agreement will be filed at any time on or before the Closing Date;
(ii) has not made any payments, is not obligated to make any
payments and is not a party to any agreement that under certain
circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G, (iii) is not a
United States real property holding corporation within the meaning
of Code Section 897(c)(2); (iv) is not a party to a tax allocation
or sharing agreement; (v) has never been (or does not have any
liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has
never applied for a tax ruling from a Governmental Entity and (vii)
has never filed or been the subject of an election under Code
Section 338(g) or Code Section 338(h)(10) or caused or been the
subject of a deemed election under Code Section 338(e).
4.13 Questionable Payments. Neither the Company nor, to the
Shareholders' knowledge, any of its directors, officers, agents,
employees or other Person associated with or acting on behalf of
the Company has (a) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (b) made any direct or indirect
unlawful payments to government officials or employees, or foreign
government officials or employees, from corporate funds, (c)
established or maintained any unlawful or unrecorded fund of
corporate monies or other assets, (d) made any false or fictitious
entries on the books of account of the Company, (e) made or
received any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment, or (f) made any other payment, favor or
gift not fully deductible for federal income tax purposes.
4.14 Employee Benefit Matters.
(a) Schedule 4.14 contains a complete list of all Plans.
True and complete copies of each of the following documents (and
any amendments thereto), where applicable, have been delivered
previously to Parent: (i) the Plan documents; (ii) a written
description of any Plan which is not in writing; (iii) if the Plan
is funded through a trust or any third-party funding vehicle, the
trust or other funding agreement; (iv) the Plan's most recent
financial statements; (v) the two most recent annual reports
(including all schedules and attachments thereto) required by
ERISA; (vi) the most recent actuarial report and valuation; (vii)
the most recent determination letter received from the IRS with
respect to each Plan that is intended to be qualified under Code
Section 401 or to be recognized as tax-exempt under Code Section
501(c); (viii) the most recent summary plan description and each
summary of material modifications required by ERISA; (ix) any
agreement providing for the provision of administrative or
investment management services with respect to the Plan; and (x)
all documents and correspondence received from or provided to the
DOL, IRS and PBGC during the past two years.
(b) Each Plan and related trust, annuity, or other
funding agreement complies and has been maintained in compliance
with all applicable Legal Requirements. No non-exempt prohibited
transaction (as defined in Code Section 4975 and ERISA Sections 406
and 408) has occurred and no "fiduciary" (as defined in ERISA
Section 3(21)) has committed any breach of duty which could subject
the Company, any ERISA Affiliate, or any director, officer, or
employee thereof to liability under Title I of ERISA or to tax
under Code Section 4975. All material obligations required to be
performed by the Company and other Person under the terms of each
Plan and applicable Legal Requirement have been performed.
(c) All required reports and descriptions, including,
without limitation, annual reports (Form 5500), summary annual
reports, and summary plan descriptions, have been filed and
distributed timely. With respect to each Plan which is a welfare
plan (as defined in ERISA Section 3(1)), the requirements of Party
6 of Subtitle B of Title I of ERISA and of Code Sections 162(k) and
4980B have been satisfied.
(d) All contributions, premiums, and other payments,
including, without limitation, employer contributions and employee
salary reduction contributions, have been paid when due or accrued
in accordance with the past custom and practice of Seller and any
ERISA Affiliate. No Plan that is subject to Part 3 of Subtitle B
of Title I of ERISA or to Code Section 412 has incurred any
accumulated funding deficiency, whether or not waived, and no other
actual or contingent liability for any other expenses or
obligations of any Plan exists.
(e) There are no pending or, to the Shareholders'
knowledge, threatened Actions (other than routine claims for
benefits) asserted or instituted against any Plan or the assets of
any Plan, or against the Company, or any ERISA Affiliate, trustee,
administrator, or fiduciary of such Plan, and the Shareholders have
no knowledge of any facts that could form the basis of any such
Action. There is no pending or, to the Shareholders' knowledge,
threatened or contemplated Action by any Governmental Entity with
respect to any Plan, and the Shareholders have no knowledge of any
facts that could reasonably be expected to cause or trigger such an
Action.
(f) The Company (or, if applicable, an ERISA Affiliate,)
may terminate, suspend, or amend each Plan at any time, except to
the extent otherwise required by Code Section 4980B, without the
consent of the participants or employees covered by such Plan.
Neither the Company nor any ERISA Affiliate has announced any
intention, made any amendment or binding commitment, or given any
written or oral notice providing that the Company or an ERISA
Affiliate (i) will create additional Plans covering employees of
the Company or any ERISA Affiliate, (ii) will increase benefits
promised or provided pursuant to any Plan, or (iii) will not
exercise after the Closing Date any right or power it may have to
terminate, suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate
maintains or has maintained any time, or contributes to or has
contributed to or is or was required to contribute to, any (i) Plan
subject to Title IV or ERISA, including, without limitation, any
multi-employer plan (as defined in ERISA Section 3(37)), within the
past five years, or (ii) funded or unfunded medical, health,
accident, or life insurance plan or arrangement for current or
future retirees or terminated employees or their spouses or
dependents (except to the extent required by Code Sections 162(k)
or 4980B).
(h) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
constitute a termination of employment or other event entitling any
Person to any additional or other benefits, or that would otherwise
modify benefits or the vesting of benefits, provided under any
Plan.
(i) No event has occurred which could subject the
Company of any ERISA Affiliate to any material liability (i) under
any Legal Requirement relating to any Plan, or (ii) resulting from
any obligation of Seller or an ERISA Affiliate to indemnify any
Person against liability incurred with respect to or in connection
with any Plan.
(j) Each Plan which is intended to be qualified under
Code Section 401 has received, within the last five years, a
favorable determination letter from the IRS. No event has occurred
and no facts or circumstances exist which may cause or result in
the loss or revocation of such determination.
4.15 No Undisclosed Liabilities. Except (i) to the extent set
forth or provided for in the Balance Sheet or the notes thereto,
(ii) as set forth on Schedule 4.15 or (iii) for non-material
current liabilities incurred since the Balance Sheet Date in the
Ordinary Course, as of the date hereof the Company has no
liabilities, whether accrued, absolute, contingent or otherwise,
whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated
losses from any commitments of a contractual nature, including
Taxes with respect to or based upon the transactions or events
occurring at or prior to the Closing.
4.16 Permits, Licenses, Etc. The Company possesses, and is
operating in compliance with, all franchises, licenses, permits,
certificates, authorizations, rights and other approvals of
Governmental Entities necessary to (i) occupy, maintain, operate
and use the Real Property as it is currently used and proposed to
be used, (ii) conduct its business as currently conducted and as
proposed to be conducted, and (iii) maintain and operate its Plans
(the "Permits"). Schedule 4.16 contains a true and complete list
of all Permits. Each Permit has been lawfully and validly issued,
and no proceeding is pending or, to the Shareholders' knowledge,
threatened looking toward the revocation, suspension or limitation
of any Permit. The consummation of the transactions contemplated
by this Agreement will not result in the revocation, suspension or
limitation of any Permit and, except as set forth in Schedule 4.16,
no Permit will require the consent of its issuing authority to or
as a result of the consummation of the transaction contemplated
hereby.
4.17 Regulatory Filings. The Company has made all required
registrations and filings with and submissions to all applicable
Governmental Entities relating to the operations of the Company as
currently conducted and as proposed to be conducted, including,
without limitation, all such applicable Governmental Entities
having jurisdiction over any matters pertaining to conservation or
protection of the environment, and the treatment, discharge, use,
handling, storage or production, or disposal of Hazardous
Materials. All such registrations, filings and submissions were in
compliance with all Legal Requirements (including all Environmental
Laws) and other requirements when filed, no material deficiencies
have been asserted by any such applicable Governmental Entities
with respect to such registrations, filings or submissions and, to
the Shareholders' knowledge, no facts or circumstances exist which
would indicate that a material deficiency may be asserted by any
such authority with respect to any such registration, filing or
submission.
4.18 Consents. All consents, authorizations and approvals of
any Person to or as a result of the consummation of the
transactions contemplated hereby, that are necessary or advisable
in connection with the operations and business of the Company as
currently conducted and as proposed to be conducted, or for which
the failure to obtain the same might have, individually or in the
aggregate, a Material Adverse Effect, have been lawfully and
validly obtained by the Company, except as described in Schedules
4.5(c), 4.10 and 4.16 hereto. All consents, authorizations and
approvals described in schedules 4.5(c), 4.10 and 4.16 will have
been lawfully and validly obtained prior to the Closing.
4.19 Material Contracts; No Defaults.
(a) Schedule 4.19(a) contains a true and complete list
and description of the outstanding sales order and sales contract
backlog of the Company having an indicated gross value in excess of
Five Thousand Dollars ($5,000.00) or having a term of duration in
excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary
Course. Except as described in Schedule 4.19(a), the Company has
not received any advance, progress payment or deposit in respect of
any sales order or sales contract, and the Company has no sales
order or sales contract that will result, upon completion or
performance thereof, in gross margins materially lower than those
normally experienced by the Company for the services or products
covered by such sales order or sales contract.
(b) Schedule 4.19(b) contains a true and complete list
and description of all outstanding purchase orders and purchase
commitments of the Company having a gross indicated value in excess
of Ten Thousand Dollars ($10,000.00) in the aggregate from any
single supplier or other vendor. All outstanding purchase orders
and purchase commitments of the Company have been incurred in the
Ordinary Course, and no purchase order or purchase commitment of
the Company is in excess of the normal, ordinary and usual
requirements of the business of the Company or at an excessive
price. The principal raw materials used and inventory sold by the
Company are available from several sources at competitive prices
and upon competitive terms and no interruption in production or
Material Adverse Effect will result from the loss of any one of
such sources.
(c) Schedule 4.19(c) contains a true and complete list
of all sales agency, sales representative, distributor, wholesaler,
dealer and similar contracts or agreements of the Company, and true
and complete copies of the same have been delivered to Parent
heretofore. Except as described in Schedule 4.19(c), all of such
contracts and agreements are terminable at any time by the
applicable Company without penalty (including, without limitation,
any obligation to repurchase inventories on hand) upon not more
than thirty (30) days' notice.
(d) Schedule 4.19(d) contains a true and complete list
and description of all noncompetition agreements and covenants
under which the Company or any of their respective officers,
directors or employees or any Shareholder is obligated, and true
and complete copies of the same have been delivered to Parent
heretofore. Except as described in Schedule 4.19(d), the Company
is not restricted by any agreement from carrying on its business or
engaging in any other activity anywhere in the world (including
relocating, closing, or terminating any of its operations or
facilities), and no such officer, director, key employee or
Shareholder is a party to or otherwise bound or affected by any
agreement, covenant or other arrangement or understanding that
would restrict or impair his ability to perform diligently his
other duties to the Company. Schedule 4.19(d) also contains a true
and complete list and description of all noncompetition agreements
or covenants in favor of the Company, and true and complete copies
of the same have been delivered to Parent heretofore.
(e) Schedule 4.19(e) contains a true and complete list
and description of all contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company with
any officer, director, consultant, employee or Affiliate of the
Company or with any associate, Affiliate or employee of any
Affiliate of the Company, other than those disclosed in Schedule
4.21(a) hereto; in each case a true and complete copy of such
written contract, agreement, understanding, arrangement or
commitment or a true and complete summary of such oral contract,
agreement, understanding, arrangement or commitment has been
delivered to Parent heretofore.
(f) Schedule 4.19(f) contains a true and complete list
and description of all other material contracts, agreements,
understandings, arrangements and commitments, written or oral, of
the Company by which it or its properties, rights or assets are
bound that are not otherwise disclosed in this Agreement or the
Schedule hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments
and true and complete summaries of such oral contracts, agreements,
understandings, arrangements and commitments have been delivered to
Parent heretofore. For the purposes of this subsection (f),
"material" means any contract, agreement, understanding,
arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii)
involves payments or receipts by the Company in excess of Five
Thousand Dollars ($5,000.00), (iii) involves capital expenditures
in excess of Five Thousand Dollars ($5,000.00) or (iv) otherwise
materially affects the Company.
(g) Except as described in Schedule 4.19(g):
(i) each agreement, contract, arrangement or
commitment described above in this Section 4.19 is, and after
the Closing on identical terms will be, legal, valid, binding,
enforceable and in full force and effect;
(ii) no event or condition has occurred or become
known to the Company or any Shareholder or is alleged to have
occurred that constitutes or, with notice or the passage of
time, or both, would constitute a default or a basis of force
majeure or other claim of excusable delay, termination,
nonperformance or accelerated or increased rights by the
Company or any other Person under any contract, agreement,
arrangement, commitment or other understanding, written or
oral, described above in this Section 4.19, or described or
otherwise disclosed pursuant to this Agreement; and
(iii) no person with whom the Company has such a
contract, agreement, arrangement, commitment or other
understanding is in default thereunder or has failed to
perform fully thereunder by reason of force majeure or other
claim of excusable delay, termination or nonperformance
thereunder, the delay, termination or nonperformance of which,
or a default under which, has had or may have a Material
Adverse Effect.
4.20 Absence of Certain Changes. Since December 31, 1995,
except as disclosed in Schedule 4.20, the Company has not: (i)
incurred any debts, obligations or liabilities (absolute, accrued,
contingent or otherwise), other than current liabilities incurred
in the Ordinary Course which, individually or in the aggregate, are
not material; (ii) subjected to or permitted a Lien (other than a
Permitted Lien) upon or otherwise encumbered any of its assets,
tangible or intangible; (iii) sold, transferred, licensed or leased
any of its assets or properties except in the Ordinary Course; (iv)
discharged or satisfied any Lien other than a Lien securing, or
paid any obligation or liability other than, current liabilities
shown on the Balance Sheet and current liabilities incurred since
the Balance Sheet Date, in each case in the Ordinary Course; (v)
canceled or compromised any debt owed to or by or claim of or
against it, or waived or released any right of material value other
than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing
a Material Adverse Effect; (vii) entered into any material
transaction or otherwise committed or obligated itself to any
capital expenditure other than in the Ordinary Course; (viii) made
or suffered any change in, or condition affecting, its condition
(financial or otherwise), properties, profitability, prospects or
operations other than changes, events or conditions in the Ordinary
Course, none of which (individually or in the aggregate) has had or
may have a Material Adverse Effect; (ix) made any change in the
accounting principles, methods, records or practices followed by it
or depreciation or amortization policies or rates theretofore
adopted; (x) other than in the Ordinary Course, made or suffered
any amendment or termination of any material contract, agreement,
lease or license to which it is a party; (xi) paid, or made any
accrual or arrangement for payment of, any severance or termination
pay to, or entered into any employment or loan or loan guarantee
agreement with, any current or former officer, director or employee
or consultant; (xii) paid, or made any accrual or arrangement for
payment of, any increase in compensation, bonuses or special
compensation of any kind to any employee other than pursuant to an
agreement disclosed on Schedule 4.21(a) or Schedule 4.21(b) or
other than in the Ordinary Course, or paid, or made any accrual or
arrangement for payment of, any increase in compensation, bonuses
or special compensation of any kind to any officer or director of
the Company or any consultant to the Company; (xiii) made or agreed
to make any charitable contributions or incurred any nonbusiness
expenses; (xiv) changed or suffered change in any benefit plan or
labor agreement affecting any employee of the Company otherwise
than to conform to Legal Requirements; or (xv) entered into any
agreement or otherwise obligated itself to do any of the foregoing.
4.21 Employees and Labor Matters.
(a) Schedule 4.21(a) contains a true and complete list
of all contracts, agreements, plans, arrangements, commitments and
understandings (formal and informal) pertaining to terms of
employment, compensation, bonuses, profit sharing, stock purchases,
stock repurchases, stock options, commissions, incentives, loans or
loan guarantees, severance pay or benefits, use of the Company's
property and related matters of the Company with any current or
former officer, director, employee or consultant, and true and
complete copies of all such contracts, agreements, plans,
arrangements and understandings have been delivered to Parent
heretofore. Attached to Schedule 4.21(a) is the most current copy
of the employee handbook utilized by the Company and distributed to
each of its employees.
(b) Schedule 4.21(b) contains a true and complete list
of all labor, collective bargaining, union and similar agreements
under or by which the Company is obligated, and true and complete
copies of all such agreements have been delivered to Parent
heretofore.
(c) Except as set forth on Schedules 4.21(a) and
4.21(b), neither nor the Company will have any responsibility for
continuing any person in the employ (or retaining any person as a
consultant) of the Company from and after the Closing or have any
liability for any severance payments to or similar arrangements
with any such Person who shall cease to be an employee of the
Company at or prior to the Closing.
(d) There is not occurring or, to the Shareholders'
knowledge, threatened, any strike, slow down, picket, work stoppage
or other concerted action by any union or other group of employees
or other persons against either Company or its premises or
products. Except for activities by the unions that are parties to
any of the agreements listed on Schedule 4.21(b) with respect to
the existing members of such unions, to the Shareholders'
knowledge, no union or other labor organization has attempted to
organize any of the employees of the Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, and, to the Shareholders'
knowledge, no facts or circumstances exist that could provide a
reasonable basis for a claim of wrongful termination by any current
or former employee of the Company against the Company.
4.22 Affiliation. Except as disclosed on Schedule 4.22, none
of the Shareholders, any officer, director or key employee of the
Company or any associate or Affiliate of the Company or any of such
Persons has, directly or indirectly, (i) an interest in any Person
that (A) furnishes or sells, or proposes to furnish or sell,
services or products that are furnished or sold by the Company or
(B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or
services or (ii) a beneficial interest in any contract or agreement
to which the Company is a party or by which the Company or any of
the assets of the Company are bound or affected.
4.23 Principal Customers and Suppliers.
(a) Schedule 4.23(a) contains a true and complete list
of the name and address of each customer that purchased in excess
of five percent (5%) of the Company's sales of goods or services
during the twelve months ended on the Balance Sheet Date, and since
that date no such customer has terminated its relationship with or
adversely curtailed its purchases from the Company or indicated
(for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 4.23(b) contains a true and complete list of
each supplier from whom the Company purchased in excess of five
percent (5%) of the Company's purchases of goods or services during
the twelve months ended on the balance Sheet Date, and since that
date no such supplier has terminated its relationship with or
adversely curtailed its accommodations, sales or services to the
Company or indicated (for any reason) its intention to terminate
such relationship or curtail its accommodations, sales or services.
4.24 Compliance with Law. Through and including the date
hereof, the Company (i) has not violated or conducted its business
or operations in violation of, and has not used or occupied its
properties or assets in violation of, any Legal Requirement, (ii)
to the Shareholders' knowledge, has not been alleged to be in
violation of any Legal Requirement, and (iii) has not received any
notice of any alleged violation of, or any citation for
noncompliance with, any Legal Requirement.
4.25 Product Returns. Schedule 4.25 contains a true and
complete description of the product return experience of the
Company for the immediately preceding twelve (12) months. The
Company has not experienced any product returns which have had or
may have a Material Adverse Effect.
4.26 Product Liability and Product Warranty. Schedule 4.26
hereto contains a true and complete description of (i) all
warranties granted or made with respect to products sold, or
services rendered, by the Company and (ii) the Company's product
liability and product warranty experience for the last three years.
The Company has not suffered any product liability or product
warranty claims which have had or may have a Material Adverse
Effect.
4.27 Corporate Records. The copies or originals of the
Articles of Incorporation, Bylaws, minute books and stock records
of the Company previously delivered to, or made available for
inspection by, Parent are true, complete and correct.
4.28 Hazardous Materials. Except as set forth on Schedule
4.28:
(a) No Hazardous Material (i) has been released, placed,
stored, generated, used, manufactured, treated, deposited, spilled,
discharged, released or disposed or on or under any real property
currently or previously owned or leased by the Company or is
presently located on or under any Real Property (or, to the
Shareholders' knowledge, any property adjoining any Real Property),
(ii) is presently maintained, used, generated, or permitted to
remain in place by the Company in violation of any Environmental
Law, (iii) is required by any Environmental Law to be eliminated,
removed, treated or mitigated by the company, given the nature of
its present condition, location, nature, material or maintenance,
or (iv) is of a type, location, material, nature or condition which
requires special notification to third parties by the Company under
Environmental Law or common law.
(b) No notice, citation, summons or order has been
received by the Company or any Shareholder, no notice has been
given by the Company and no complaint has been filed, no penalty
has been assessed and no investigation or review is pending or
threatened by any Governmental Entity, with respect to (i) any
alleged violation by the Company of any Environmental Law of (ii)
any alleged failure by the Company to have any environmental
permit, certificate, license, approval, registration or
authorization required in connection with its business or
properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on
behalf of the Company of any Hazardous Material.
(c) The Company has not received any request for
information, notice of claim, demand or notification that it is or
that indicates that it may be a "potentially responsible party"
with respect to any investigation or remediation of any threatened
or actual release of any Hazardous Material.
(d) No above-ground or underground storage tanks,
whether or not in use, are or have ever been located at any
property currently owned or leased by the Company.
(e) No notice has been received by the Company with
respect to the listing or proposed listing of any property
currently or previously owned, operated or leased by the Company on
the National Priorities List promulgated pursuant to CERCLA,
CERCLIS or any similar state list of sites requiring investigation
or cleanup.
(f) There have been no environmental inspections,
investigations, studies, tests, review or other analyses conducted
in relation to any Real Property.
(g) The Company has not yet released, transported, or
arranged for the transportation of any Hazardous Material from any
property currently or previously owned, operated or leased by the
Company.
4.29 Brokers' Fees. No broker, finder or similar agent has
been employed by or on behalf of the Company in connection with
this Agreement or the transactions contemplated hereby, and the
Company has not entered into any agreement or understanding of any
kind with any person or entity for the payment of any brokerage
commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
4.30 Disclosure.
(a) No representation or warranty of any Shareholder in
this Agreement and no information contained in any Schedule or
other writing delivered pursuant to this Agreement or at the
Closing contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to
make the statements herein or therein not misleading. There is no
fact that the Shareholders have not disclosed to Parent in writing
that has had or, insofar as any Shareholder can now foresee, may
have a Material Adverse Effect on the ability of any Shareholder to
perform fully this Agreement.
(b) To the extent that any representation or warranty in
this Article 4 is qualified to the Shareholders' "knowledge," the
Shareholders represent and warrant that they have made a reasonable
investigation sufficient to express an informed view concerning the
matters to which such representation or warranty relates, including
diligent inquiries of the Company's officers, directors and
employees.
5. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
Parent and Subsidiary, jointly and severally, hereby represent
and warrant to, and covenant and agree with, each of the
Shareholders that:
5.1 Organization and Good Standing. Parent and Subsidiary
were duly organized and are existing as a corporation in good
standing under the laws of the State of Nevada and Wisconsin,
respectively, with full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated
hereby.
5.2 Execution and Delivery. This Agreement has been duly
authorized by all necessary corporate action on the part of the
Parent and Subsidiary, has been duly executed and delivered by the
Parent and the Subsidiary and constitutes the legal, valid and
binding agreement of the Parent and Subsidiary enforceable against
the Parent and Subsidiary in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of
this Agreement by the Parent and Subsidiary and the consummation by
the Parent and Subsidiary of the transactions contemplated hereby
will not conflict with or result in the violation of the provisions
of the Articles of Incorporation or Bylaws of the Parent and
Subsidiary.
5.4 Board of Directors Position. The Parent agrees to take
all necessary action so as to cause the Board of Directors of
Parent to elect one (1) of the Shareholders, to be selected by the
Parent's Nominating Committee, as a director of the Parent, for a
two (2) year term beginning after the Closing.
5.5 Capitalization. (a)The authorized capital stock of the
Parent consists solely of Fifty Million (50,000,000) shares of
Common Stock having a par value of $0.0001 per share and Five
Million (5,000,000) shares of Preferred Stock having a par value of
$0.001 per share of which only the shares listed on Schedule 5.5(a)
are, and as of the Closing Date will be issued and outstanding.
All of the shares have been duly authorized and validly issued and
are fully paid, nonassessable, and outstanding. Other than as set
forth on Schedule 5.5 (a), (i) there are no existing options,
warrants, right, calls or commitments of any character relating to
the shares of Common Stock or any other capital stock or securities
of the Parent, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Common
Stock or any other capital stock or securities of the Parent and no
commitments to issue such securities or instruments and no Person
has any right of first refusal, preemptive right, subscription
right or similar right with respect to any shares of Common Stock
or any other capital stock or securities of the Parent. The offer,
issuance and sale of the shares were (i) exempt from the
registration and prospectus delivery requirements of the Securities
Act, (ii) registered or qualified (or exempt from registration or
qualification) under the registration or qualification requirements
of all applicable state securities laws and (iii) and since March
19, 1996 accomplished in conformity with all other Legal
Requirements.
(b) The authorized capital stock of the Subsidiary consists of
Nine Thousand (9,000) shares of the Subsidiary common stock of
which One Hundred (100) shares are issued and outstanding and owned
beneficially and of record by Parent.
5.6 Financial Statements.
(a) Schedule 5.6 hereto contains true and complete
copies of (i) the unaudited balance sheet (the "Balance Sheet") of
the Parent at November 30, 1996, and the related unaudited
statements of income and cash flow for eleven (11) months then
ended, (ii) the audited balance sheet of the Parent at December 31,
1995 and the related audited statements of income, shareholders'
equity and cash flow for the fiscal year then ended (together with
the report thereon of Kuntz, Lesher, Siegrist & Martini, LLP,
independent public accountants)(the financial statements described
in clause (i) and (ii) above are collectively referred to as the
"Financial Statements").
(b) Subject to the provisions of (c) below, the Financial
Statements present fairly the financial condition of the Parent as
of the dates indicated therein and the results of operations and
changes in financial position of the Parent for the periods
specified therein, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis during
the periods covered thereby and prior periods, have been derived
from the accounting records of the Parent and represent only
actual, bona fide transactions. The Parent's Financial Statements
are true and correct in all material respects and do not contain
any untrue statement of a material fact or omit to state a material
fact.
(c) The Shareholders acknowledge and agree that the Parent is
rapidly expanding through acquisitions and mergers, and that the
Parent's financial statements for periods subsequent to the date of
the Financial Statements will not and cannot accurately reflect the
financial condition of the Parent, and will be substantially
different from the Financial Statements.
5.7 Income and Other Taxes. Except as set forth on Schedule
5.7:
(a) All Tax Returns required to be filed through and
including the date hereof in connection with the operations of the
Parent are true, complete and correct in all respects and have been
properly and timely filed. The Parent has not requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(b) All Taxes required to be paid or withheld and
deposited through and including the date hereof in connection with
the operations of the Parent have been duly and timely paid or
deposited by the Parent. The Parent has properly withheld or
collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for sales Taxes on sales,
and has properly and timely remitted such withheld or collected
amounts to the appropriate Governmental Entity. The Parent has no
liabilities for any Taxes for any taxable period ending prior to or
coincident with the Closing Date.
(c) The Parent has made adequate provision on its book
of account for all Taxes with respect to its business, properties
and operations through the Balance Sheet Date, and the accruals for
Taxes in the Balance Sheet are adequate to cover all liabilities
for Taxes of the Parent for all periods ending on or before the
Closing Date.
(d) The Parent has never (i) had a tax deficiency
proposed, asserted or assessed against it (ii) executed any waiver
of any statute of limitations on the assessment or collection of
any Taxes, or (iii) been delinquent in the payment of any Taxes.
(e) No Tax Return of the Parent has been audited or the
subject of other Action by any Governmental Entity. The Parent has
not received any notice from any Governmental Entity of any pending
examination or any proposed deficiency, addition, assessment,
demand for payment or adjustment relating to or affecting the
Parent or its assets or properties and the Parent has no reason to
believe that any Governmental Entity may assess (or threaten to
assess) any Taxes for any periods ending on or prior to the Closing
Date.
(f) The Parent (i) has not filed any consent or
agreement pursuant to Code Section 341(f), and no such consent or
agreement will be filed at any time on or before the Closing Date;
(ii) has not made any payments, is not obligated to make any
payments and is not a party to any agreement that under certain
circumstances could obligate the Parent to make any payments that
will not be deductible under Code Section 280G, (iii) is not a
United States real property holding corporation within the meaning
of Code Section 897(c)(2); (iv) is not a party to a tax allocation
or sharing agreement; (v) has never been (or does not have any
liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has
never applied for a tax ruling from a Governmental Entity and (vii)
has never filed or been the subject of an election under Code
Section 338(g) or Code Section 338(h)(10) or caused or been the
subject of a deemed election under Code Section 338(e).
5.8 Stock Restriction Agreements. Schedule 5.8 sets forth
complete copies of all agreements between Parent and any of its
shareholders which in any way relate to such shareholders'
inability to sell, gift, bequeath, or otherwise transfer such
shareholders' stock in the Parent (the "Shareholder Restriction
Agreements").
6. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing
through the Closing Date, the Shareholders jointly and severally
covenant and agree (except as expressly contemplated by this
Agreement or to the extent that Parent shall otherwise expressly
consent in writing) that:
6.1 Qualification. The Company shall maintain all
qualifications to transact business and remain in good standing in
its jurisdiction of incorporation and in the foreign jurisdictions
set forth on Schedule 4.1(a).
6.2 Ordinary Course. The Company shall conduct its business
in, and only in, the Ordinary Course and, to the extent consistent
with such business, shall preserve intact its current business
organizations, keep available the services of its current officers
and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end
that its goodwill and going business value shall be unimpaired at
the Closing Date. The Company shall maintain its properties and
assets in good condition and repair.
6.3 Corporate Changes. The Company shall not (a) amend its
Articles of Incorporation or Bylaws (or equivalent documents), (b)
acquire by merging or consolidating with, or agreeing to merge or
consolidate with, or purchase substantially all of the stock or
assets of, or otherwise acquire, any business or any corporation,
partnership, association or other business organization or division
thereof, (c) enter into any partnership or joint venture, (d)
declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or purchase or redeem, directly or
indirectly, any shares of its capital stock, (e) issue or sell any
shares of its capital stock of any class or any options, warrants,
conversion or other rights to purchase any such shares or any
securities convertible into or exchangeable for such shares, or (f)
liquidate or dissolve or obligate itself to do.
6.4 Indebtedness. The Company shall not incur any
Indebtedness, sell any debt securities or lend money to or
guarantee the Indebtedness of any Person. The Company shall not
restructure or refinance its existing Indebtedness.
6.5 Accounting. The Company shall not make any change in the
accounting principles, methods, records or practices followed by it
or depreciation or amortization policies or rates heretofore
adopted by it. The Company shall maintain its books, records and
accounts in accordance with generally accepted accounting
principles applied on a basis consistent with that of prior
periods.
6.6 Compliance with Legal Requirements. The Company shall
comply promptly with all requirements that applicable law may
impose upon it and its operations and with respect to the
transactions contemplated by this Agreement, and shall cooperate
promptly with, and furnish information to, Parent in connection
with any such requirements imposed upon Parent, or upon any of its
affiliates, in connection therewith or herewith.
6.7 Disposition of Assets. The Company shall not sell,
transfer, license, lease or otherwise dispose of, or suffer or
cause the encumbrance by any Lien upon any of its properties or
assets, tangible or intangible, or any interest therein, except for
sales of inventory in the Ordinary Course.
6.8 Compensation. The Company shall not (a) adopt or amend
in any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred
compensation, employment or other plan, agreement, trust, fund or
arrangement for the benefit of employees (whether or not legally
binding) other than to comply with any Legal Requirement or (b)
pay, or make any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any
kind, or any severance or termination pay to, or enter into any
employment or loan or loan guarantee agreement with, any current or
former officer, director, employee or consultant of the Company,
except for such bonuses as may be required to offset the individual
income tax liability of each Shareholder relating to the Company.
6.9 Modification or Breach of Agreement; New Agreements. The
Company shall not terminate or modify, or commit or cause or suffer
to be committed any act that will result in breach or violation of
any term of or (with or without notice or passage of time, or both)
constitute a default under or otherwise give any person a basis for
non-performance under, any indenture, mortgage, deed of trust, loan
or credit agreement, lease, license or other agreement, instrument,
arrangement or understanding, written or oral, disclosed in this
Agreement or the Schedules hereto. The Company shall refrain from
becoming a party to any contract or commitment other than in the
Ordinary Course. The Company shall meet all of its contractual
obligations in accordance with their respective terms.
6.10 Capital Expenditures. Except for capital expenditures or
commitments necessary to maintain its properties and assets in good
condition and repair (the amount of which shall not exceed Five
Thousand Dollars ($5,000.00) in the aggregate), the Company shall
not purchase or enter into any contract to purchase any capital
assets.
6.11 Consents. The Company shall use its best efforts to
obtain any consent, authorization or approval of, or exemption by,
any Person required to be obtained or made by any party hereto in
connection with the transactions contemplated hereby or the taking
of any action in connection with the consummation thereof.
6.12 Maintain Insurance. The Company shall maintain its
Policies in full force and effect and shall not do, permit or
willingly allow to be done any act by which any of the Policies may
be suspended, impaired or canceled.
6.13 Discharge. The Company shall not cancel, compromise,
release or discharge any claim of the Company upon or against any
person or waive any right of the Company of material value, and not
discharge any Lien (other than Permitted Liens) upon any asset of
the Company or compromise any debt or other obligation of the
Company to any person other than Liens, debts or obligations with
respect to current liabilities of the Company.
6.14 Actions. The Company shall not institute, settle or
agree to settle any Action before any Governmental Entity.
6.15 Permits. The Company shall maintain in full force and
effect, and comply with, all Permits.
6.16 Tax Assessments and Audits. The Company shall furnish
promptly to Parent a copy of all notices of proposed assessment or
similar notices or reports that are received from any taxing
authority and which relate to the Company's operations for periods
ending on or prior to the Closing Date. The Shareholders shall
cause the Company to promptly inform Parent, and permit the
participation in and control by Parent, of any investigation, audit
or other proceeding by a Governmental Entity in connection with any
Taxes, assessment, governmental charge or duty and shall not
consent to any settlement or final determination in any proceeding
without the prior written consent of Parent.
7. ADDITIONAL COVENANTS
7.1 Covenants of the Shareholders. During the period from
the date hereof through the Closing Date, each Shareholder agrees
to:
(a) comply promptly with all requirements that
applicable Legal Requirements may impose upon it with respect to
the transactions contemplated by the Agreement, and shall cooperate
promptly with, and furnish information to, Parent in connection
with any requirements imposed upon Parent or upon any of its
affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to
cooperate with Parent in obtaining) any consent, authorization or
approval of, or exemption by, any Person required to be obtained or
made by such Shareholder in connection with the transactions
contemplated by this Agreement;
(c) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in
Section 8.1 of this Agreement;
(d) promptly advise Parent orally and, within three (3)
business days thereafter, in writing of any change in such
Company's business or condition that has had or may have a Material
Adverse Effect; and
(e) deliver to Parent prior to the Closing a written
statement disclosing any untrue statement in this Agreement or any
Schedule hereto (or supplement thereto) or document furnished
pursuant hereto, or any omission to state any material fact
required to make the statements herein or therein contained
complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement
to any Schedule to this Agreement that may be affected thereby;
provided, however, that the disclosure of such untrue statement or
omission shall not prevent Parent from terminating this Agreement
pursuant to Section 9.1(c) hereof at any time at or prior to the
Closing in respect of any original untrue or misleading statement.
7.2 Covenants of Parent. During the period from the date
hereof to the Closing Date, Parent shall:
(a) comply promptly with all requirements that
applicable Legal Requirements may impose upon it with respect to
the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, the
Shareholders in connection with any such requirements imposed upon
the Shareholders or the Company or upon any of the Company's
affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain any
consent, authorization or approval of, or exemption by, any Person
required to be obtained or made by Parent in connection with the
transactions contemplated by this Agreement; and
(c) use its reasonable best efforts to bring about the
satisfaction of the condition precedent to Closing set forth in
Section 8.2 of this Agreement.
7.3 Access and Information
(a) During the period commencing on the date hereof and
continuing through the Closing Date, the Shareholders shall
continue to cause the Company to afford to Parent and to Parent's
accountants, counsel, investment bankers and other representatives,
reasonable access to all of its properties, books, contracts,
commitments, records and personnel and, during such period, to
continue to cause the Company to furnish promptly to Parent all
information concerning its business, properties and personnel as
Parent may reasonably request.
(b) Except to the extent permitted by the provisions of
Section 7.6 hereof, Parent shall hold in confidence, and shall use
reasonable efforts to ensure that its employees and representatives
hold in confidence, all such information supplied to it by the
Shareholders or the Company concerning the Company and shall not
disclose such information to any third party except as may be
required by any Legal Requirement and except for information that
(i) is or becomes generally available to the public other than as
a result of disclosure by Parent or its representatives, (ii)
becomes available to Parent or its representatives from a third
party other than the Shareholders or the Company, and Parent or its
representatives have no reason to believe that such third party is
not entitled to disclose such information, (iii) is known to Parent
or its representatives on a non-confidential basis prior to is
disclosure by any Shareholder or the Company or (iv) is made
available by any Shareholder or the Company to any other Person on
a non-restricted basis. Parent's obligations under the foregoing
sentence shall expire on the Closing Date or, if the Closing does
not occur, two (2) years after the date hereof.
7.4 Expenses. All costs and expenses (including, without
limitation, all legal fees and expenses and fees and expenses of
any brokers, finders or similar agents) incurred in connection with
this Agreement and the transactions contemplated hereby shall be
paid by the party incurring the same.
7.5 Certain Notifications. At all times from the date hereof
to the Closing Date, each party shall promptly notify the others in
writing of the occurrence of any event that will or may result in
the failure to satisfy any of the conditions specified in Article
8 hereof.
7.6 Publicity; Employee Communications. At all times prior
to the Closing Date, each party shall obtain the consent of all
other parties hereto prior to issuing, or permitting any of its
directors, officers, employees or agents to issue, any press
release or other information to the press, employees of the Company
or any third party with respect to this Agreement or the
transactions contemplated hereby; provided, however, that no party
shall be prohibited from supplying any information to any of its
representatives, agents, attorneys, advisors, financing sources and
others to the extent necessary to complete the transactions
contemplated hereby so long as such representatives, agents,
attorneys, advisors, financing sources and others are made aware of
the terms of this Section 5.6. Nothing contained in this Agreement
shall prevent any party to this Agreement at any time from
furnishing any required information to any Governmental Entity or
authority pursuant to a Legal Requirement or from complying with
its legal or contractual obligations.
7.7 Further Assurances.
(a) Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under
applicable Legal Requirements, to consummate and make effective the
transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this
Agreement, the Shareholders and the property officers or directors
of Parent, as the case may be, shall take or cause to be taken all
such necessary or convenient action and execute, and deliver and
file, or cause to be executed, delivered and filed, all necessary
or convenient documentation.
7.8 Competing Offers; Merger or Liquidation. The
Shareholders agree that they will not, and will cause the Company
not to, directly or indirectly, through any officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions
of bids, offers or proposals by, any Person with respect to an
acquisition of the Company or its assets or capital stock or a
merger or similar transaction, and the Shareholders will not, and
will not permit the Company to, engage any broker, financial
adviser or consultant with an incentive to initiate or encourage
proposals or offers from other parties. Furthermore, the
Shareholders shall not, and shall not permit the Company to,
directly or indirectly, through any officer, director, agent or
otherwise, engage in negotiations concerning any such transaction
with, or provide information to, any Person other than Parent and
its representatives with a view to engaging, or preparing to
engage, that Person with respect to any matters in this Section.
The Shareholders shall ensure that the Company shall not commence
any proceeding to merge, consolidate or liquidate or dissolve or
obligate itself to do so.
7.9 Inconsistent Action. The Shareholders shall not take or
suffer to be taken, and shall not permit the Company to take or
cause or suffer to be taken, any action that would cause any of the
representations or warranties of any of the Shareholders in this
Agreement to be untrue, incorrect, incomplete or misleading.
7.10 Post-Termination Employment. Except for the employment
agreement to be executed by Lee Anderson, each Shareholder
acknowledges and agrees that after the Closing (a) neither Parent
nor the Surviving Corporation shall be required to employ or retain
any employee of the Company or any other Person, and (b) Surviving
Corporation, in its sole and absolute discretion, may cause the
Company to retain all, some, or none of such employees.
8. CONDITIONS PRECEDENT TO CLOSING
8.1 Conditions of Subsidiary. Notwithstanding any other
provision of this Agreement, the obligations of Subsidiary to
consummate the transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i)
challenging the merger or otherwise seeking to restrain or prohibit
the consummation of the transactions contemplated hereby or (ii)
seeking to prohibit the direct or indirect ownership or operation
by Parent of all or a material portion of the business or assets of
the Company, or to compel Parent or the Surviving Corporation to
dispose of or hold separate all or a material portion of the
business or assets of the Company or Surviving Corporation;
(b) The representations and warranties of each of the
Shareholders in this Agreement shall be true and correct in all
respects on and as of the Closing Date with the same effect as if
made on the Closing Date and each of the Shareholders shall have
complied with all covenants and agreements and satisfied all
conditions on such Shareholder' part to be performed or satisfied
on or prior to the Closing Date;
(c) OMITTED
(d) Subsidiary shall have received from the President of
the Company a certificate dated the Closing Date in substantially
the form attached as Schedule C hereto;
(e) Subsidiary shall have received from each Shareholder
a certificate dated the Closing Date in substantially the form
attached as Schedule D hereto;
(f) Subsidiary shall have received a certificate of the
Secretary of the Company in substantially the form attached as
Schedule E hereto;
(g) Each Shareholder shall have entered into a
Noncompetition Agreement with Parent and the Company in
substantially the form attached as Schedule F hereto,
(collectively, the "Noncompetition Agreements");
(h) Parent shall have concluded (through its
representatives, accountants, counsel and other experts) an
investigation of the business, condition (financial and other),
properties, assets, prospects, operations and affairs of the
Company and shall be satisfied, in its sole discretion, with the
results thereof;
(i) All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments, releases and
documents referenced herein or incident to the transactions
contemplated hereby shall be in form and substance satisfactory to
Parent and its counsel;
(j) Parent shall have received reasonable assurances
from those employees, if any, of the Company that may be
identified by Parent in its discretion that they will remain in the
employ of the Company for a reasonable period of time after the
consummation of the transactions contemplated hereby.;
(k) All consents from third parties, including from any
Governmental Entity, landlord or other Person, necessary for the
consummation of the transactions contemplated hereby shall have
been obtained;
(l) The Board of Directors of Parent shall have
authorized and approved this Agreement and the transactions
contemplated hereby;
(m) All officers and directors of the company shall have
resigned as such, effective of the Closing;
(n) No act, event or condition shall have occurred after
the date hereof which Parent determines has had or could have had
a Material Adverse Effect;
(o) The Lease Agreement made December 30, 1994 by and
between Plastic Properties, LLC, a Wisconsin Limited Liability
Company, as lessor, and the Company, as lessee, shall be amended to
delete Section IV (C) in its entirety, to provide for a five (5)
year lease term, with right to extend the term for an additional
five (5) years from the Closing Date, and to provide that the
Rental shall be equal to Four Thousand Four Hundred Thirty Two and
42/100 Dollars ($4,432.42) per month; and
(p) Each Shareholder shall execute and deliver the
Registration Rights Agreement.
8.2 Conditions of the Company and the Shareholders.
Notwithstanding any other provision of this Agreement, the
obligations of the Company and the Shareholders to consummate the
transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) There shall not be instituted and pending or
threatened any Action before any Governmental Entity challenging
the merger or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated hereby;
(b) The representations and warranties of the Parent and
Subsidiary in this Agreement shall be true and correct in all
respects on and as of the Closing Date with the same effect as if
made on the Closing Date and the Parent and Subsidiary shall have
complied with all covenants and agreements and satisfied all
conditions on the Parent's and Subsidiary's part to be performed or
satisfied on or prior to the Closing Date;
(c) The Shareholders shall have received from the
President of the Parent and Subsidiary a certificate dated the
Closing Date in substantially the form attached as Schedule 8.2(d)
hereto;
(d) The Shareholders shall have each received from a
certificate of the Secretary of the Parent and Subsidiary in
substantially the form attached as Schedule 8.2(e) hereto;
(e) Each Shareholder shall have entered into a
Noncompetition Agreement with Parent and Subsidiary in
substantially the form attached as Schedule 8.2(f) hereto,
(collectively, the "Noncompetition Agreements");
(f) The Shareholders shall have concluded (through its
representatives, accountants, counsel and other experts) an
investigation of the business, condition (financial and other),
properties, assets, prospects, operations and affairs of the Parent
and shall be satisfied, in its sole discretion, with the results
thereof;
(g) All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments, releases and
documents referenced herein or incident to the transactions
contemplated hereby shall be in form and substance satisfactory to
the Shareholders, the Company and its counsel;
(h) No act, event or condition shall have occurred after
the date hereof which the Shareholders determine has had or could
have a Material Adverse Effect on the Parent;
(i) The Lease Agreement made December 30, 1994 by and
between Plastic Properties, LLC, a Wisconsin Limited Liability
Company, as lessor, and the Company, as lessee, shall be amended to
delete Section IV (C) in its entirety, to provide for a five (5)
year lease term, with right to extend the term for an additional
five (5) years from the Closing Date, and to provide that the
Rental shall be equal to Four Thousand Four Hundred Thirty Two and
42/100 Dollars ($4,432.42) per month;
(j) Parent and Subsidiary shall have executed and
delivered the Registration Rights Agreement; and
(k) the cash payment to the Shareholders in the total
amount of One Million Two Hundred Thousand Dollars ($1,200,000.00)
to be allocated among the Shareholders as set forth on Schedule
"A", shall be paid by wire transfer no later than January 27, 1997
to the trust account of Godrey & Kahn.
(l) Parent and Subsidiary shall have executed and
delivered to Lee Anderson an Employment Agreement in the form
attached hereto as Schedule 8.2(l); and
9. TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual consent of the Parent and the
Shareholders;
(b) by Parent if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by any
Shareholder under this Agreement or (ii) any of the conditions
precedent to Closing set forth in Section 8.1 have not been met on
the Closing Date, and, in each case, Parent is not then in material
default of its obligations hereunder; or
(c) by the Shareholders acting together if (i) there has
been a material misrepresentation, breach of warranty or breach of
covenant by Parent or Subsidiary under this Agreement or (ii) any
of the conditions precedent to Closing set forth in Section 8.2
have not been met on the Closing Date, and, in each case, no
Shareholder is then in material default of his obligations
hereunder.
9.2 Effect of Termination.
(a) In the case of any termination of this Agreement,
the provisions of Section 7.3 and 7.4 shall remain in full force
and effect.
(b) Upon termination of this Agreement as provided in
Section 9.1(a), except as stated in subsection (a) above, this
Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their
respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement as
provided in Section 9.1(b), (c) or (d) hereof, such termination
shall be without prejudice to any rights that the terminating party
or parties may have against the breaching party or parties or any
other person under the terms of this Agreement or otherwise.
9.3 Amendment. This Agreement may be amended at any time by
a written instrument executed by Parent and the Shareholders. Any
amendment effected pursuant to this Section 9.3 shall be binding
upon all parties hereto.
9.4 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by the party or parties entitled to
the benefits thereof. Any waiver effected pursuant to this Section
9.4 shall be binding upon all parties hereto. No failure to
exercise and no delay in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial
exercise of any other right, power or privilege. No waiver of any
breach of any covenant or agreement hereunder shall be deemed a
waiver of any preceding or subsequent breach of the same or any
other covenant or agreement. The rights and remedies of each party
under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the
other parties.
10. INDEMNIFICATION
10.1 Survival of Representations and Warranties. The
representations and warranties of the parties hereto contained in
this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the Closing and the consummation of the
transactions contemplated hereby (and any examination or
investigation by or on behalf of any party hereto) until the fourth
anniversary of the Closing Date; provided, that the representations
and warranties contained in Section 4.12 and Section 4.14 shall not
terminate until the expiration of any applicable statute of
limitations; provided, further, that representations and warranties
contained in Article 3, Section 4.17, Section 4.24 and Section 4.28
shall not terminate but shall continue indefinitely.
10.2 Indemnification.
(a) The Shareholders, jointly and severally, covenant
and agree to defend, indemnify and hold harmless Parent and
Surviving Corporation and each Person who controls Parent or the
Surviving Corporation within the meaning of the Securities Act from
and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation or warranty made by
any Shareholder in this Agreement or in any writing delivered
pursuant to this Agreement or at the closing [unless and except
that such inaccuracy or breach is a direct result of changes made
by the Parent in accounting methods or estimates utilized in
financial reporting of the Company]; or (ii) the failure of any
Shareholder to perform or observe fully any covenant, agreement or
provision to be performed or observed by such Shareholder pursuant
to this Agreement or the Noncompetition Agreements. Except for the
representations and warranties set forth in Article III ( as to
which there shall be no limitation on any Shareholders' liability),
the Parent and Surviving Corporation and each person who controls
the Parent or Surviving Corporation shall be entitled to
indemnification hereunder only to the extent that the aggregate
amount of all Damages indemnified against hereunder shall exceed
One Hundred Thousand Dollars ($100,000.00), in which case, the
Shareholders shall be required to pay only the amount by which such
aggregate amount of Damages exceeds One Hundred Thousand Dollars
($100,000.00) (the "Basket Amount").
(b) Parent or Surviving Corporation covenants and agrees
to defend, indemnify and hold harmless the Shareholders from and
against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation or warranty made by
Parent or Subsidiary Corporation in this Agreement or in any
writing delivered pursuant to this Agreement or at the Closing;
(ii) the failure by Parent or Subsidiary Corporation to perform or
observe any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement; or (iii) the
Shareholders' liability under the Guaranties. The Shareholders
shall be entitled to indemnification hereunder only to the extent
that the aggregate amount of all Damages indemnified against
hereunder shall exceed One Hundred Thousand Dollars ($100,000.00),
in which case, the Parent or Subsidiary Corporation shall be
required to pay only the amount by which such aggregate amount of
Damages exceeds the Basket Amount.
10.3 Third Party Claims.
(a) If any party entitled to be indemnified pursuant to
Section 10.2 (an "Indemnified Party") receives notice of the
assertion by any third party of any claim or of the commencement by
any such third person of any Action (any such claim or Action being
referred to herein as an "Indemnifiable Claim") with respect to
which another party hereto (an "Indemnifying Party") is or may be
obligated to provide indemnification, the Indemnified Party shall
promptly notify the Indemnifying Party in writing (the "Claim
Notice") of the Indemnifiable Claim; provided, that the failure to
provide such notice shall not relieve or otherwise affect the
obligation of the Indemnifying Party to provide indemnification
hereunder, except to the extent that any Damages directly resulted
or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days
after receipt of the Claim Notice to undertake, conduct and
control, through counsel of its own choosing, and at its expense,
the settlement or defense thereof, and the Indemnified Party shall
cooperate with the Indemnifying Party in connection therewith;
provided, that (i) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense
through counsel chosen by the Indemnified Party (subject to the
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld), provided that the fees and expenses of such
counsel shall not be borne by the Indemnifying Party, and (ii) the
Indemnifying Party shall not settle any Indemnifiable Claim without
the Indemnified Party's consent. So long as the Indemnifying Party
is vigorously contesting any such Indemnifiable Claim in good
faith, the Indemnified Party shall not pay or settle such claim
without the Indemnifying Party's consent, which consent shall not
be unreasonably withheld.
(c) If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after receipt of the
Claim Notice that it elects to undertake the defense of the
Indemnifiable Claim described therein, the Indemnified Party shall
have the right to contest, settle or compromise the Indemnifiable
Claim in the exercise of its reasonable discretion; provided, that
the Indemnified Party shall notify the Indemnifying Party of any
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.3 to the
contrary notwithstanding, the Shareholders shall not be entitled to
assume the defense for any Indemnifiable Claim (and shall be liable
for the reasonable fees and expenses incurred by the Indemnified
Party in defending such claim) if the Indemnifiable Claim seeks an
order, injunction or other equitable relief or relief for other
than money damages against Parent or Subsidiary Corporationwhich
Parent or Subsidiary Corporation determines, after conferring with
its counsel, cannot be separated from any related claim for money
damages and which, if successfully, would adversely affect the
business, properties or prospects of the Company.
10.4 Indemnification Non-Exclusive. The foregoing
indemnification provisions are in addition to, and not in
derogation of, any statutory, equitable or common-law remedy any
party may have for breach of representation, warranty, covenant or
agreement. Provided, however, the Basket Amount shall be in effect
with respect to all remedies exercised by the Parent or Subsidiary
Corporation.
10.5 Set-off. Notwithstanding any provision of this Agreement
or of any other agreement, instrument or undertaking, it is
understood and agreed that Parent or Subsidiary Corporation shall
have the right to set-off the amount of any indemnity under
Sections 10.2 or 10.3 hereof to the extent any of the Shareholder
shall be liable therefor against any sums of money or any shares of
the Parent at any time payable or deliverable to the Shareholders.
The remedies provided in this Article shall be cumulative and shall
not preclude the assertion by any party of any other rights or the
seeking of any other remedies by it against any other party.
11. GENERAL PROVISIONS
11.1 Notices. All notices and other communications under or
in connection with this Agreement shall be in writing and shall be
deemed given (a) if delivered personally (including by overnight
express or messenger), upon delivery, (b) if delivered by
registered or certified mail (return receipt requested), upon the
earlier of actual delivery or three (3) days after being mailed, or
(c) if given by telecopy, upon confirmation of transmission by
telecopy, in each case to the parties at the following addresses:
(a) If to the Parent or Subsidiary, addressed to:
U. S. Plastic Lumber Corporation
2300 W. Glades Road
Suite 440W
Boca Raton, Florida 33431
Attention: Mark Alsentzer, President and CEO
Telecopy: (561)394-5335
With a copy to:
Richard A. Murdoch, Esq.
Dickenson, Murdoch, Rex and Sloan
980 North Federal Highway
Suite 410
Boca Raton, Florida 33432
Telecopy:(561) 391-1933
(b) If to any Shareholder, to the address set forth
below such Shareholder's name on Schedule "A"
hereto:
With a copy to:
Godfrey & Kahn, S. C.
333 Main Street
Suite 600
Green Bay, Wisconsin 54301
Attn: William J. Plummer, Esq.
Telecopy: (414) 436-7988
11.2 Severability. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such
term or provision shall be ineffective as to such jurisdiction to
the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable such term or provision in
any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or
enforceable.
11.3 Entire Agreement. This Agreement, including the annexes
and schedules attached hereto and other documents referred to
herein, contains the entire understanding of the parties hereto in
respect of its subject matter and supersedes all prior and
contemporaneous agreements and understandings, oral and written,
between the parties with respect to such subject matter.
11.4 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Parent, the Subsidiary, the
Company and the Shareholders and their respective successors, heirs
and assigns; provided, however, that no Shareholder shall directly
or indirectly transfer or assign any of such Shareholder's
respective rights hereunder in whole or in part without the prior
written consent of Parent, and any such transfer or assignment
without said consent shall be void, ab initio. Subject to the
immediately preceding sentence, and except as set forth in Article
10, this Agreement is not intended to benefit, and shall not run to
the benefit of or be enforceable by, any other person or entity
other than the parties hereto and their permitted successors and
assigns.
11.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but
all such counterparts together shall constitute but one and the
same Agreement.
11.6 Recitals, Schedules and Annexes. The recitals, schedules
and annexes to this Agreement are incorporated herein and, by this
reference, made a part hereof as if fully set forth at length
herein.
11.7 Construction.
(a) The article, section and subsection headings used
herein are inserted for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to
include the others whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the
context clearly requires, "or" is not exclusive.
11.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of
conflicts) of the State of Florida.
11.9 Tax Free Treatment of Transaction. The Parent and the
Shareholders shall each use their commercially reasonable efforts
to cause the transaction contemplated hereunder to be treated as a
tax-free reorganization for federal, state and foreign income tax
purposes, provided, however, Parent shall not be required to expend
any funds or suffer any other cost, expense or liability in
connection with its efforts, or the result thereof, to cause the
transaction to be treated as a tax-free transaction.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement, or has caused this Agreement to be executed on its
behalf by a representative duly authorized, all as of the date
first above set forth.
"PARENT"
________________________ United States Plastic
Lumber, Inc.,
________________________ a Nevada corporation
By:_________________________
____________________________
Print Name/Title
SHAREHOLDERS:
________________________ ____________________________
STEPHEN M. GROTH
________________________
________________________ ____________________________
LEE ANDERSON
________________________
________________________ ____________________________
RON VAN STRATEN
________________________
________________________ ____________________________
ROBERT VAN DRISSE
________________________
"SUBSIDIARY"
________________________ RPI Acquisition Corp., a
Wisconsin corporation
By:_________________________
________________________
____________________________
Print Name/Title
"COMPANY"
________________________ Recycled Plastics
Industries, Inc.,
a Wisconsin corporation
By:_________________________
_________________________ ____________________________
Print Name/Title
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as of
____________________, 1997 among U.S. PLASTIC LUMBER CORPORATION, a Nevada
corporation (the "Purchaser") or of any its affiliates, subsidiaries or other
entity established for the purpose of this transaction and the individuals
listed on Exhibit "A" attached hereto (such individuals are sometimes referred
to herein collectively as the "Shareholders" and individually as a
"Shareholder").
RECITALS
A. The Shareholders own (i) all of the issued and outstanding capital stock
of ADVANCED REMEDIATION and DISPOSAL TECHNOLOGIES, INC., a Pennsylvania
corporation (the "Company").
B. The Shareholders wish to sell, and the Purchaser wishes to purchase, all
of the issued and outstanding capital stock of the Company upon the terms and
subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, the terms
defined in this Article 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms
of any of the terms herein defined. Unless otherwise indicated, any reference
herein to a "Section", "Article", or "Schedule" shall mean the applicable
section, article or schedule of or to this Agreement. All accounting terms
used in this Agreement not defined in this Article 1 shall, except as
otherwise provided for herein, be construed in accordance with generally
accepted accounting principles, consistently applied.
"Action" shall mean any actual or threatened claim, action, suit, arbitration,
hearing, inquiry, proceeding, complaint, charge or investigation by or before
any Governmental Entity or arbitrator and any appeal from any of the forgoing.
"Affiliate" of a Person shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with the indicated
Person.
"Agreement" shall mean this Securities Purchase Agreement.
"Balance Sheet" and "Balance Sheet Date" shall have the meaning assigned to
such terms in Section 4.4(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Closing" and "Closing Date" shall have the respective meanings assigned to
such terms in Section 2.3.
"Common Stock" shall mean the Company's authorized class of common stock,
$0.01 par value per share.
"DOL" shall mean the United States Department of Labor.
"Damages" shall mean any and all losses, liabilities, obligations, costs,
expenses, damages or judgments of any kind or nature whatsoever (including
reasonable attorneys', accountants, and expert's fees, disbursements of
counsel, and other costs and expenses incurred pursuing indemnification claims
under Article 10 hereof).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any Person which is (or at any relevant time was)
a member of a controlled group of corporations within the meaning of Code
Section 414 (b), all trades or businesses under common control within the
meaning of Code Section 414(c), and all affiliated service groups within the
meaning of Code Section 414(m), of which the Company is (or any relevant time
was) a member.
"Environmental Laws" shall mean all Legal requirements pertaining to the
protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling storage,
treatment, removal transport, transloading, cleanup decontamination, discharge
and disposal of Hazardous Substances, including, without limitation, those
statutes, laws, rules and regulations set forth below in the definitions of
"Hazardous Material".
"Governmental Entity" shall mean any local, state, federal or foreign (i)
court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other
taxing authorities.
"Hazardous Material" shall mean any flammable, ignitable, corrosive, reactive,
radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the
future and shall include, without limitation:
(a) those substances included within the definitions of "hazardous
substances", "hazardous materials", "toxic substances", or "solid waste" in
the Comprehensive Environmental response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sections 9601, et. seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Sections 6901 et.seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et. seq., and in the regulations
promulgated pursuant thereto.
(b) those substances defined as "hazardous substances", "hazardous materials",
"toxic substances", or "solid waste" in the State of Wisconsin.
(c) those substances listed in the United States Department of Transportation
Table (49CFR 172.101 and amendments thereto) or by the Environmental
Protection Agency (or any successor thereto) as hazardous substances (40CFR
Part 302 and any amendments thereto).
(d) such other substances, materials and wastes that are or become regulated
under applicable local, state or federal laws or regulations, or which are or
become classified as hazardous or toxic under any Legal Requirement; and
(e) any material, waste or substance that is, in whole or in part, (i)
petroleum, asbestos, polychorinated biphenyls, methylene chloride,
trichorothylene, 1, 2-transdichoroethylene, dioxins or dibenzofurans, (ii)
designated as an "extremely hazardous substance" pursuant to Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended, or
(iii) designated as a "hazardous substance" pursuant to Section 311 of the
Clean Water Act, 33 U.S.C. Sections 1251 et. seq. (U.S.C. Section 1321) or
listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section
1317), or Section 112 or other sections of the Clean Water Act, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"Indebtedness" shall mean, when used with reference to any Person, without
duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidence by a
bond, note, debenture, or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the
acquisition of, or exchange for, any property or assets (other than inventory
or similar property acquired and consumed in the Ordinary Course), including
securities and other Indebtedness, (C) in respect of letters of credit issued
for such Person's account and "swaps" of interest and currency exchange rate
(and other interest and currency exchange rate hedging agreements) to which
such Person is a party or (D) for the payment of money as lessee under leases
that should be, in accordance with generally accepted accounting principles,
recorded as capital leases for financial reporting purposes; (ii) any
liability of others described in the preceding clause (i) guaranteed as to
payment of principal and interest by such Person or in effect guaranteed by
such Person through an agreement, contingent or otherwise, to purchase,
repurchase or pay the related Indebtedness or to acquire security therefor;
(iii) all liabilities or obligations secured by a Lien upon property owned by
such Person and upon liabilities or obligations such Person customarily pays
interest or principal, whether or not such Person has not assumed or become
liable for the payment of such liabilities or obligations; and (iv) any
amendment, renewal, extension, revision or refunding or any such liability or
obligation; provide, however, that Indebtedness shall not include any
liability for compensation of such Person's employees or for inventory or
similar property acquired and consumed in the Ordinary Course or for services.
"Leased Real Property" shall mean all real property, including Structures,
leased by the Company.
"Legal Requirements" shall mean any statute, law, ordinance, rule, regulation,
permit, order, writ, judgment, injunction, decree or award issued, enacted or
promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Material Adverse effect" shall mean a material adverse effect on the
business, financial condition, properties, profitability, prospects or
operations of the Company.
"Noncompetition Agreement(s)" shall have the meaning assigned to such term in
Section 8.1(h).
"Ordinary Course" shall mean, when used with reference to the Company, the
ordinary course of the Company's business, consistent with past practices.
"Owned Real Property" shall mean all real property, including Structures,
owned by the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall have the meaning assigned to such term in Section 4.16.
"Permitted Liens" shall mean (a) Liens for ad valorem real or personal
property taxes or assessments not at the time due and (b) Liens in respect of
pledges or deposits under worker's compensation laws or similar legislation,
carriers', warehousemen's, mechanic's, laborers' and materialmen's and similar
liens, if the obligations secured by such Liens are not then delinquent.
"Person" shall mean all natural person's, corporations, business trusts,
associations, limited liability companies, companies partnerships, joint
ventures, Governmental Entities and any other entities.
"Real Property" shall mean the Owned Real Property and the Lease Real
Property, collectively.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Percentage" with respect to any Shareholder shall mean the percentage
that the number of Shares held by such Shareholder represents of the total
number of Shares, as set forth on Schedule "A".
"Shares" shall mean the shares of Common Stock of the Company held by the
shareholders.
"Stock" shall mean shares of common stock issued by the Purchaser to the
Shareholders as payment of the Purchase Price, as contemplated by Article 2
hereof.
" Structure" shall mean any facility, building, plant, factory, office,
warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership, limited
liability company, association or other business entity at least 50% of the
outstanding voting power of which is at the time owned or controlled directly
or indirectly by such Person or by one or more of such subsidiary entity, or
both.
"Tax" shall mean any Federal, state, local or foreign income, gross receipts,
license, payroll, unemployment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including, without limitation, taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alterative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine,
penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for refund or
information, or statement relating to Taxes, and any exhibit, schedule,
attachment or amendment thereto.
2. PURCHASE AND SALE OF SECURITIES
2.1 Sale and Delivery. Each Shareholder agrees to sell and deliver to
Purchaser, and Purchaser agrees to purchase and accept from each Shareholder,
free and clear of all Liens, on the terms and conditions set forth in this
Agreement, and for the purchase price described in Section 2.2 below, good and
marketable title to the number of Shares set forth opposite the name of such
Shareholder on Exhibit "A". The Shares to be sold and purchased pursuant to
this Agreement constitute all of the outstanding capital stock of the Company.
2.2 Purchase Price. The Purchase Price for all of the Shares shall be equal
to Three Hundred Thousand (300,000) shares of the Stock of USPL, to be
allocated among the Shareholders as set forth opposite their respective names
on Exhibit "A", subject to and payable as follows:
(a) Two Hundred Thousand shares to be paid at time of Closing of
this transaction pari passu to each of the Company's current Shareholder
ownership.
(b) One Hundred Thousand shares to placed into an Escrow
Account at time of Closing. Such shares shall be held in an escrow fund (the
"Stock Escrow Fund") under the terms and conditions of an escrow agreement
(the "Stock Escrow Agreement"), as set forth in Exhibit "B".
(c) Assumption, Payment, and Release of the liabilities
set forth in Schedule 2.2 (c) on the Closing Date, specifically to include but
not limited to Release of Liens by Sun National Bank with regard to the credit
line.
(d) Execution at the Closing of Employment Agreements for
John W. O'Donnell and Kevin John as set forth in Exhibit "C" effective as of
the Closing Date, and
(e) Execution at the Closing of Non-Compete Agreement of
Joseph Basolis and all other minority shareholders as set forth in Exhibit
"D".
(f) Execution at the Closing of Equipment Lease Agreements for
John W. O'Donnell, Kevin John, and Joseph Basolis to purchase certain existing
Company vehicles. as set forth in Exhibit "E".
2.3 Additional Terms of Purchase.
(a). Stock Earn-out.
(i) As additional consideration for the Company to maximize its
profitability over the next two years, the Purchaser has established a stock
earn-out for the Company for 1997 and 1998. If all or any portion of the Stock
Earn-out is earned by the Company in 1997 and 1998, the shares to be paid
hereunder by Purchaser to the Company will be on a pari passu basis to the
current Shareholder ownership. The distribution of these shares shall be made
within 60 days from the last day of the applicable calendar year. The Stock
Earn-out shall consist of 75,000 shares in each of 1997 and 1998 based upon
pre-tax profits being met as indicated below:
Pre-Tax Profits Earnout Shares to be Delivered
1997 $500,000 25,000
$520,000 35,000
$540,000 45,000
$560,000 55,000
$580,000 65,000
$600,000 75,000
1998 $600,000 25,000
$620,000 35,000
$640,000 45,000
$660,000 55,000
$680,000 65,000
$700,000 75,000
(ii) Pre-tax profits are before any charges or costs attributed to
the Company from the Purchaser and based upon the Company continuing to do
business as it has for the last three years, other than financial reporting
procedures and bad debt management. Pre-tax profits, for purposes of this
Agreement, shall be defined as normal operating pre-tax profits, not to
include items such as but not limited to tax refunds, insurance refunds,
insurance payments, and other extraordinary or one time items. All financial
reporting shall be done in accordance with generally accepted accounting
principles. Any costs related to the acquisition of the stock of the Company
by Purchaser shall not be included in the pre-tax profit analysis.
(iii) In the event, pre-tax profits for the fiscal year ending
1997 of the Company exceed $600,000 any and all excess monies shall be applied
as a credit toward the 1998 earn-out computation of pre-tax profits.
(b) Registration Rights. The Purchaser will use its reasonable
best efforts to register the securities being issued hereunder at such time as
the Purchaser registers the shares owned by the Stout Partnership, but will be
under no obligation to register such shares.
(c) Dilution of Share Ownership. The Shareholders will suffer
dilution of share ownership to the same extent as other shareholders of
Purchaser, but Purchaser will not take any action to cause the Shareholders to
be diluted in their share ownership separate and apart from the share
ownership of other shareholders of Purchaser.
2.4 Closing". The purchase and sale of the Shares and the consummation of
the other transactions contemplated by this Agreement, (the "Closing") shall
occur at 10:00AM, local time, on February 24, 1997, simultaneously at the
offices of the Purchaser and at the office of the general counsel for the
Company, or at such other time or on such other date as shall be agreed upon
among the Shareholders and the Purchaser upon fulfillment of all conditions
precedent to the Closing, such hour and date being herein generally referred
to as the "Closing Date". At the Closing:
(a) Each Shareholder shall deliver or cause to be delivered to Purchaser,
against the delivery by the Purchaser of the Stock, in payment by Purchaser of
the Purchase Price to such Shareholder:
(i) a certificate or certificates representing the Shares being sold by such
Shareholder hereunder duly endorsed for transfer, or accompanied by duly
executed assignments separate from the certificate, transferring to Purchaser
good and marketable title to such Shares, free and clear of all Liens;
(ii) all of the documents, certificates, and instruments required to be
delivered, or caused to be delivered, by such Shareholder pursuant to Section
8.1 hereof; and
(iii) all records, documents, and files of the Company, including, without
limitation, all minute books, stock records, stock certificate books, and
internal accounting records.
(b) Purchaser shall deliver or cause to be delivered to each Shareholder,
against delivery of the certificate or certificates representing the Shares:
(i) certificate(s) of Stock of the Purchaser representing the number of shares
allocated to the respective Shareholder as set forth on Exhibit "A";
(ii) all of the documents, if any, required to be delivered by Purchaser
pursuant to Section 8.2 hereof; and
(iii) the Purchaser shall satisfy the liabilities of the Company as set forth
on Schedule 2.2 (c).
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS
Each of the Shareholders hereby severally represents and warrants to, and
covenants and agree with, Purchaser that:
3.1 Ownership of Shares. Such Shareholder owns of record and beneficially
the number of Shares set forth opposite the name of such Shareholder on
Exhibit "A" hereto, and has, and at all times prior to and as of the Closing
such Shareholder will have, good and marketable title to such Shares free and
clear of all Liens.
3.2 Delivery of Good Title. Upon delivery of the Shares to be sold by such
Shareholder hereunder and delivery of the Stock therefor pursuant to this
Agreement, Purchaser will have good and marketable title to such Shares free
and clear of all Liens.
3.3 Execution and Delivery. Except as listed on Schedule 3.3, all consents,
approvals, authorizations and order necessary for the execution, delivery and
performance by such Shareholder of this Agreement (including, without
limitation, the transfer and sale of the Shares to be sold by such Shareholder
to Purchaser) have been duly and lawfully obtained, and such Shareholder has,
and at the Closing will have, full right, power, authority and capacity to
execute, deliver and perform this Agreement. This Agreement has been duly
executed and delivered by such Shareholder and constitutes a legal, valid and
binding agreement of such Shareholder enforceable against such Shareholder in
accordance with its terms.
3.4 No Conflicts. Except as listed on Schedule 3.4, the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach or violation
of any term or provision of, or (with or without notice or passage of time, or
both) constitute a default under, any indenture, mortgage, deed of trust,
trust (constructive and other), loan agreement or other agreement or
instrument to which such Shareholder is a party or by which such Shareholder
or such Shareholder's Shares are bound, or violate any Legal Requirement
applicable to or binding upon such Shareholder.
3.5 No Brokers. No broker, finder or similar agent has been employed by or
on behalf of such Shareholder in connection with this Agreement or the
transactions contemplated hereby, and such Shareholder has not entered into
any agreement or understanding of any kind with any person or entity for the
payment of any brokerage commission, finder's fee or any similar compensation
in connection with this Agreement or the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Shareholders hereby jointly and severally represent and warrant to, and
covenant and agree with, Purchaser that:
4.1 Organization and Good Standing.
(a) The Company has been duly organized and is existing as a corporation in
good standing under the laws of the State of Pennsylvania with full power and
authority (corporate and other) to own and lease its properties and to conduct
its business as currently conducted. The Company has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction set forth on Schedule 4.1(a), such
jurisdictions comprising all jurisdictions in which the Company owns or leases
any property, or conducts any business, so as to require such qualifications.
(b) Except as set forth in Schedule 4.1(b), the Company has no Subsidiary nor
owns or controls, or has any other equity investment or other interest in,
directly or indirectly, any corporation, joint venture, partnership,
association or other entity.
4.2 No Conflicts. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (a)
conflict with or result in a breach or violation of any term or provision of,
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any Person a basis for accelerated or increased
rights or termination or nonperformance under, any indenture, mortgage, deed
of trust, loan or credit agreement, lease, license or other agreement or
instrument of which the Company is a party or by which the Company is bound or
affected or to which any of the property or assets of the Company is bound or
affected including, without limitation, all arrangements in Section 4.19
hereof, (b) result in the violation of the provisions of the Articles of
Incorporation or Bylaws of the Company or any Legal Requirement applicable to
or binding upon it, (c) result in the creation or imposition of any Lien upon
any property or asset of the Company or (d) otherwise adversely affect the
contractual or other legal rights or privileges of the Company. Schedule 4.2
sets forth a list of all agreements requiring the consent of any party thereto
to any of the transactions contemplated hereby.
4.3 Capitalization. The authorized capital stock of the Company consists
solely of Thousand ( ,000) shares of Common Stock having a par value
of $0.01 per share, of which only the number of Shares listed on Exhibit "A"
are, and as of the Closing will be, issued and outstanding. All of the Shares
have been duly authorized and validly issued and are fully paid, nonassessable
and outstanding and are held by the Shareholders in amounts reflected in
Exhibit "A" hereto. Other than as set forth on Schedule 4.3, (i) there are
no existing options, warrants, right, calls or commitments of any character
relating to the shares of Common Stock or any other capital stock or
securities of the Company, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Common Stock or any
other capital stock or securities of the Company and no commitments to issue
such securities or instruments and no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any
shares of Common Stock or any other capital stock or securities of the
Company. The offer, issuance and sale of the Shares were (i) exempt from the
registration and prospectus delivery requirements of the Securities Act, (ii)
registered or qualified (or exempt from registration or qualification) under
the registration or qualification requirements of all applicable state
securities laws and (iii) accomplished in conformity with all other Legal
Requirements.
4.4 Financial Statements.
(a) Schedule 4.4 hereto contains true and complete copies of (i) the
unaudited balance sheet (the "Balance Sheet") of the Company at December 31,
1996 (the "Balance Sheet Date"), and the related unaudited statements of
income for twelve (12) months then ended, (ii) the reviewed balance sheet of
the Company at December 31, 1996 and the related reviewed statements of
income, shareholders' equity and cash flow for the fiscal year then ended
(together with the report thereon of independent public accountants)(the
financial statements described in clause (i) and (ii) above are collectively
referred to as the "Financial Statements").
(b) The Financial Statements present fairly the financial condition of the
Company as of the dates indicated therein and the results of operations and
changes in financial position of the Company for the periods specified
therein, have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods covered thereby
and prior periods, have been derived from the accounting records of the
Company and represent only actual, bona fide transactions. The Company's
Financial Statements are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state a material
fact. The Company will provide a Review letter from its Independent Accountant
verifying this representation and warranty.
4.5 Title to Property; Encumbrances.
(a) The Company has, and immediately prior to the Closing will have, good,
valid and marketable title in fee simple to all Real Property and all personal
property reflected on the Balance Sheet as owned by the Company and all Real
Property and personal property acquired by the Company since the Balance Sheet
Date, in each case free and clear of all Liens except (i) as set forth on
Schedule 4.5(a), (ii) for sales and other dispositions of inventory in the
Ordinary Course since the Balance Sheet Date which, in the aggregate, have not
been materially different from prior periods, and (iii) Permitted Liens.
(b) Schedule 4.5(b). contains a true and complete list and legal description
of each parcel of Owned Real Property and a general description of each
Structure situated thereon. The Shareholders have heretofore furnished to
Purchaser true and complete copies of all deeds, other instruments of title
and policies of title insurance indicating and describing the Company's
ownership of the Owned Real Property, as well as copies of any surveys or
environmental reports relating to the real property.
(c) Schedule 4.5(c). contains a list of all tangible personal property having
a cost or fair market value in excess of Five Thousand Dollars ($5,000.00)
owned by the Company (other than personal property held by the Company as
lessee under a personal property lease).
(d) Schedule 4.5(d) contains a list of all real property leases, licenses,
permits, and personal property leases under which the Company is the lessee or
licensee, together with (i) the location and nature of each of the leased or
licensed properties (including a legal description of all Leased Real
Property), (ii) the termination date of each such lease or license, (iii) the
name of the lessor or licensor and (iv) all rental and other payments made or
required to be made for the fiscal years ending December 31, 1995 and December
31, 1996. All leases and licenses pursuant to which the Company leases or
licenses from others real or personal property are valid, subsisting in full
force and effect in accordance with their respective terms, and there is not,
under any real property lease, personal property lease or license, any
existing default or event of default (or event that, with notice or passage of
time, or both, would constitute a default, or would constitute a basis of
force majeure or other claim of excusable delay or nonperformance). True and
complete copies of all real property leases, licenses and personal property
leases listed on Schedule 4.5(d) have been delivered to Purchaser heretofore,
as well as copies of any title reports, surveys or environmental reports or
audits relating to any Leased Real Property. Except as set forth in Schedule
4.5(d), no such lease or license will require the consent of the lessor or
licensor to or as a result of the consummation of the transactions
contemplated by this Agreement. For the purposes of this Section 4.5(d), a
"lease" shall include a sublease.
(e) All personal property owned by the Company and all personal property held
by the Company pursuant to personal property leases is in good operating
condition and repair, subject only to ordinary wear and tear, has been
operated, serviced and maintained properly within the recommendations and
requirements of the manufacturers thereof (if any) and is suitable and
appropriate for the use thereof made and proposed to be made by the Company in
its business and operations. The Real Property and personal property
described in Sections 4.5(a), 4.5(b) and 4.5(c) and the Real Property and
personal property held by the Company pursuant to the leases and licenses
described in Schedule 4.5(d) compromise all of the real property and personal
property used in the conduct of business of the Company.
(f) Except as set forth in Schedule 4.5(f):
(i) The Company is not in violation of, or default under, any Legal
Requirement pertaining to any of the Real Property. No notice of violation of
any Legal Requirement, or of any covenant, condition, restriction or easement
affecting any Real Property or with respect to the use or occupancy thereof,
has been given by any Person;
(ii) All of the Structures (A) are in good operating condition and repair, (B)
are adequate and suitable for the purposes for which they are currently and
proposed to be used, and (C) are supplied with utilities and other services
necessary for the operation of such Structures, and the business conducted by
the Company therein, including gas, electricity, water, telephone, sanitary
sewer and storm sewer, all of which services are maintained in accordance with
all Legal Requirements and are provided via permanent, irrevocable,
appurtenant easements in favor of the Company;
(iii) No condemnation proceeding is pending or, to the knowledge of the
Shareholders, threatened which would impair the occupancy, use or value of any
Real Property;
(iv) No Structure, nor the operations of the Company therein or thereon, (A)
is located outside of the boundary lines of the described parcel of land on
which it is located, (B) is in violation of applicable setback requirements,
zoning laws, or ordinances, (C) is subject to "permitted non-conforming use"
or "permitted non-conforming structure" classifications or (D) encroaches on
any property owned by, or easement granted in favor of, any Person;
(v) There are no (A) leases, subleases, licenses, concessions or other
agreements, written or oral, granting to any other Person the right to
acquire, use or occupy any portion of, any Real Property, (B) outstanding
options or rights of first refusal to purchase all or any portion of Real
Property or interest therein, and (C) Persons (other than the Company) in
possession of any Real Property;
(vi) Each parcel of Owned Real Property (A) is fully and adequately described
in the legal description therefor contained in the deed thereof, (B) abuts a
paved public right-of-way, (C) does not serve any adjoining property for any
purpose inconsistent with the use of the land, and (D) is not located within
any flood plain or subject to any similar type restriction for which any
permits or licenses necessary to the use thereof have not been obtained; and
(vii) With respect to each item of Leased Real Property, (A) to the
Shareholders' knowledge, the owner thereof has good and marketable title
thereto, free and clear of all Liens other than (I) recorded easements,
covenants and restrictions that do not impair the current use, occupancy or
value thereof and (II) the leasehold interest of the Company, (B) there is
adequate ingress and egress (and a continuing right thereto), without the need
for an easement, between paved public rights-of-way and such Leased Real
Property and (C) the Company has not sold, transferred or subjected to a Lien
such Leased Real Property or any interest therein.
4.6 Accounts Receivable. All accounts receivable of the Company reflected
in the Balance Sheet and all accounts receivable of the Company that have
arisen since the Balance Sheet Date (except such accounts receivable as have
been collected since such dates) are valid and enforceable claims, and the
goods and services sold and delivered that gave rise to such accounts were
sold and delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such accounts
receivable of the Company are subject to no valid defense, offset or
counterclaim and are fully collectible, except to the extent of the allowance
for doubtful accounts reflected on the Balance Sheet or except as listed on
Schedule 4.6-1. Schedule 4.6-2 contains a true and complete aging of the
Company's accounts receivable as of the Balance Sheet Date.
(a) Except as set forth on Schedule "4.6-1", the Company and the
Shareholders are not aware of any issues relative to the collectability of the
Accounts Receivable. ) As a result of the issues disclosed on Schedule
"4.6-1", the parties have agreed to execute a "Stock Escrow Agreement" and
establish a "Stock Escrow Fund" to hold 100,000 shares being issued as part of
the purchase price set forth in Section 2.2 of this Agreement. The Company has
disclosed several lawsuits as listed on Schedule "4.6-1" relating to the
collectability of its accounts receivable. The Company represents and warrants
as part of this Agreement that the bad debt resulting from the collectability
of the items disclosed on Schedule "4.6-1" will not exceed $100,000. In the
event the bad debt resulting from the collectability of the items disclosed on
Schedule "4.6-1" do exceed $100,000, there will be a corresponding reduction
in the number of shares to be released from the Stock Escrow Fund to the
Shareholders and any excess or shortage of monies will be applied to the
earn-out requirements for the applicable year in accordance with the terms
and conditions of the Stock Escrow Agreement.
(i) For purposes of this Section 4.6 and Section 3.2 of the Stock
Escrow Agreement, commissions earned by the Company from its customer
"Tri-State" as part of an Agreement currently existing between the Company and
"Tri-State" dated January 30, 1997 shall be included as a credit toward the
bad debt reserve specified in Section 4.6(a) above, provided however, that
Tri-State is not in breach of any of its payments as outlined in said
Agreement.
4.7 Inventories. Except as described in Schedule 4.7, all inventories of
raw materials, work-in-process and finished good set forth or reflected in the
Balance Sheet or acquired by the Company since the Balance Sheet Date, consist
of a quality and quantity usable and saleable in the Ordinary Course, except
for slow-moving, damaged or obsolete items and materials of below standard
quality, all of which have been written down to net realizable market value or
in respect of which adequate reserves have been provided, in each case as
reflected in the Balance Sheet. The value at which inventories are carried on
the Balance Sheet reflect the normal inventory valuation policy of the
Company, as applicable, in accordance with generally accepted accounting
principles and on a basis consistent with that of preceding periods, of
stating inventory at the lower of cost or market value. There is no reason to
believe that the Company will experience in the foreseeable future any
difficulty in obtaining, in the desired quantity and quality, the inventory
necessary to conduct its business in the manner proposed to be conducted,
including, without limitation, inventory which historically has been imported.
4.8 Trademarks, Patents, Etc.
(a) Schedule 4.8(a) contains a true and complete list of all letters patent,
patent applications, trade names, trademarks, service marks, trademark and
service mark registrations and applications, copyrights, copyright
registrations and applications, grants of a license or right to the Company
with respect to the foregoing, both domestic and foreign, claimed by either
Company or used or proposed to be used by the Company in the conduct of its
business, whether registered or not, (collectively herein, "Registered
Rights").
(b) Except as described in Schedule 4.8(b), the Company owns and has the
unrestricted right to use the Registered Rights and every trade secret,
know-how, process, discovery, development, design, technique, customer and
supplier list, promotional idea, marketing and purchasing strategy, invention,
process, confidential data and or other information (collectively herein,
"Proprietary Information") required for or incident of the design,
development, manufacture, operation, sale and use of all products and services
sold or rendered or proposed to be sold or rendered by the Company, free and
clear of any right, equity or claim of others. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all Proprietary Information.
(c) Schedule 4.8(c) contains a true and complete list and description of all
licenses of or rights to Proprietary Information granted to the Company by
others or to others by the Company. Except as described in Schedule 4.8(c),
(i) the Company has not sold, transferred, assigned, licensed or subjected to
any Lien, any Registered Right or Proprietary Information or any interest
therein, and (ii) the Company is not obligated or under any liability whatever
to make any payments by way of royalties, fees or otherwise to any owner or
licensor of, or other claimant to, any Registered Right or Proprietary
Information.
(d) There is no claim or demand of any Person pertaining to, or any Action
that is pending or, to the Shareholders' knowledge, threatened, which
challenges the rights of the Company in respect of any Registered Right or any
Proprietary Information.
4.9 Banking and Insurance.
(a) Schedule 4.9(a) contains a true and complete list of the names and
locations of all financial institutions at which the Company maintains a
checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification
of all such accounts and arrangements and the names of all persons authorized
to draw against any funds therein.
(b) Schedule 4.9(b) contains a true and complete list of all insurance
policies and bonds and self insurance arrangements currently in force that
cover or purport to cover risks or losses to or associated with the Company's
business, operations, premises, properties, assets, employees, agents and
directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies,
bonds and arrangements described on Schedule 4.9(b) (the "Policies") provide
such coverage against such risk of loss and in such amounts as are customary
for corporations of established reputation engaged in the same or similar
business and similarly situated. The Company has no obligation, liability or
other commitment relating to any contract of insurance containing a provision
for retrospective rating or adjustment of the Company's premium obligation.
To the Shareholders' knowledge, no facts or circumstances exist that would
cause the Company to be unable to renew its existing insurance coverage as and
when the same shall expire upon terms at least as favorable as those currently
in effect, other than possible increases in premiums that do not result from
any act or omission of the Company or any Shareholder.
4.10 Indebtedness.
(a) The Company has no liability or obligation for Indebtedness other than as
set forth on Schedule 4.10(a), and true and complete copies of all instruments
and documents evidencing, creating, securing or otherwise relating to such
Indebtedness have been delivered to Purchaser heretofore. Except as set forth
on Schedule 4.10(a), the Purchaser is not assuming any liabilities or
obligations of the Company. Except as described in Schedule 4.10(a), no event
has occurred and no condition has become known to the Company or any
Shareholder (including the transactions contemplated hereby) that constitutes
or, with notice or passage of time, or both, would constitute a default or a
basis of force majeure or other claim of accelerated or increased rights,
termination, excusable delay or nonperformance by the Company or any other
Person under any instrument or document relating to or evidencing Indebtedness
that would entitle any person to require the Company to pay any portion of the
principal amount of such Indebtedness prior to the scheduled maturity thereof.
Except as set forth in Schedule 4.10(a), no instrument or document evidencing,
creating, securing or otherwise relating to Indebtedness will require the
consent of any person to or as a result of the consummation of the
transactions contemplated by this Agreement.
(b) Schedule 4.10(b) contains a list and brief description of all agreements
or instruments pursuant to which any of the Company's directors, employees or
shareholders have guaranteed by Indebtedness of the Company (the
"Guaranties"). True and complete copies of all Guaranties have been delivered
to Purchaser.
4.11 Judgments; Litigation. Except as set forth on Schedule 4.11:
(a) There is no (i) outstanding judgment, order, decree, award stipulation or
injunction of any Governmental Entity or arbitrator against or affecting the
Company or its properties, assets or business or (ii) Action pending against
or affecting the Company or its properties, assets or business.
(b) To the Shareholders' knowledge, there is no (i) outstanding judgment,
order, decree, award, stipulation, injunction of any Governmental Entity or
arbitrator against or affecting any officer, director or employee of the
Company relating to the Company or its business, (ii) Action threatened
against or affecting the Company or its properties, assets or business, (iii)
Action pending or threatened against the Company's officers, directors or
employees relating to the Company or its business or (iv) basis for the
institution of any Action against the Company or any of its officers,
directors, employees, properties or assets which, if decided adversely, would
have a Material Adverse Effect.
4.12 Income and Other Taxes. Except as set forth on Schedule 4.12:
(a) All Tax Returns required to be filed through and including the date
hereof in connection with the operations of the Company are true, complete and
correct in all respects and have been properly and timely filed. The Company
has not requested any extension of time within which to file any Tax Return,
which Tax Return has not since been filed. Purchaser has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three (3) taxable years, and of
all reports of, and communications from, any Governmental Entities relating to
such period. The Company has disclosed on its Federal Income Tax Returns all
positions taken therein that could give rise to a substantial understatement
of income Taxes for federal income tax purposes within the meaning of Code
Section 6662.
(b) All Taxes required to be paid or withheld and deposited through and
including the date hereof in connection with the operations of the Company
have been duly and timely paid or deposited by the Company. The Company has
properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for sales Taxes on sales, and has
properly and timely remitted such withheld or collected amounts to the
appropriate Governmental Entity. The Company has no liabilities for any Taxes
for any taxable period ending prior to or coincident with the Closing Date.
(c) The Company has made adequate provision on its book of account for all
Taxes with respect to its business, properties and operations through the
Balance Sheet Date, and the accruals for Taxes in the Balance Sheet are
adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has never (i) had a tax deficiency proposed, asserted or
assessed against it (ii) executed any waiver of any statute of limitations on
the assessment or collection of any Taxes, or (iii) been delinquent in the
payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject of other
Action by any Governmental Entity. The Company has not received any notice
from any Governmental Entity of any pending examination or any proposed
deficiency, addition, assessment, demand for payment or adjustment relating to
or affecting the Company or its assets or properties and no Shareholder has
reason to believe that any Governmental Entity may assess (or threaten to
assess) any Taxes for any periods ending on or prior to the Closing Date.
(f) The Company (i) has not filed any consent or agreement pursuant to Code
Section 341(f), and no such consent or agreement will be filed at any time on
or before the Closing Date; (ii) has not made any payments, is not obligated
to make any payments and is not a party to any agreement that under certain
circumstances could obligate the Company to make any payments that will not be
deductible under Code Section 280G, (iii) is not a United States real property
holding corporation within the meaning of Code Section 897(c)(2); (iv) is not
a party to a tax allocation or sharing agreement; (v) has never been (or does
not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity and (vii) has never filed
or been the subject of an election under Code Section 338(g) or Code Section
338(h)(10) or caused or been the subject of a deemed election under Code
Section 338(e).
4.13 Questionable Payments. Neither the Company nor, to the Shareholders'
knowledge, any of its directors, officers, agents, employees or other Person
associated with or acting on behalf of the Company has (a) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (b) made any direct or indirect
unlawful payments to government officials or employees, or foreign government
officials or employees, from corporate funds, (c) established or maintained
any unlawful or unrecorded fund of corporate monies or other assets, (d) made
any false or fictitious entries on the books of account of the Company, (e)
made or received any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment, or (f) made any other payment, favor or gift not fully
deductible for federal income tax purposes.
4.14 Employee Benefit Matters.
(a) Schedule 4.14 contains a complete list of all Plans. True and complete
copies of each of the following documents (and any amendments thereto), where
applicable, have been delivered previously to Purchaser: (i) the Plan
documents; (ii) a written description of any Plan which is not in writing;
(iii) if the Plan is funded through a trust or any third-party funding
vehicle, the trust or other funding agreement; (iv) the Plan'Shareholder most
recent financial statements; (v) the two most recent annual reports (including
all schedules and attachments thereto) required by ERISA; (vi) the most recent
actuarial report and valuation; (vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended to be
qualified under Code Section 401 or to be recognized as tax-exempt under Code
Section 501(c); (viii) the most recent summary plan description and each
summary of material modifications required by ERISA; (ix) any agreement
providing for the provision of administrative or investment management
services with respect to the Plan; and (x) all documents and correspondence
received from or provided to the DOL, IRS and PBGC during the past two years.
(b) Each Plan and related trust, annuity, or other funding agreement complies
and has been maintained in compliance with all applicable Legal Requirements.
No non-exempt prohibited transaction (as defined in Code Section 4975 and
ERISA Sections 406 and 408) has occurred and no "fiduciary" (as defined in
ERISA Section 3(21)) has committed any breach of duty which could subject the
Company, any ERISA Affiliate, or any director, officer, or employee thereof to
liability under Title I of ERISA or to tax under Code Section 4975. All
material obligations required to be performed by the Company and other Person
under the terms of each Plan and applicable Legal Requirement have been
performed.
(c) All required reports and descriptions, including, without limitation,
annual reports (Form 5500), summary annual reports, and summary plan
descriptions, have been filed and distributed timely. With respect to each
Plan which is a welfare plan (as defined in ERISA Section 3(1)), the
requirements of Party 6 of Subtitle B of Title I of ERISA and of Code Sections
162(k) and 4980B have been satisfied.
(d) All contributions, premiums, and other payments, including, without
limitation, employer contributions and employee salary reduction
contributions, have been paid when due or accrued in accordance with the past
custom and practice of Seller and any ERISA Affiliate. No Plan that is
subject to Part 3 of Subtitle B of Title I of ERISA or to Code Section 412 has
incurred any accumulated funding deficiency, whether or not waived, and no
other actual or contingent liability for any other expenses or obligations of
any Plan exists.
(e) There are no pending or, to the Shareholders' knowledge, threatened
Actions (other than routine claims for benefits) asserted or instituted
against any Plan or the assets of any Plan, or against the Company, or any
ERISA Affiliate, trustee, administrator, or fiduciary of such Plan, and the
Shareholders have no knowledge of any facts that could form the basis of any
such Action. There is no pending or, to the Shareholders' knowledge,
threatened or contemplated Action by any Governmental Entity with respect to
any Plan, and the Shareholders have no knowledge of any facts that could
reasonably be expected to cause or trigger such an Action.
(f) The Company (or, if applicable, an ERISA Affiliate,) may terminate,
suspend, or amend each Plan at any time, except to the extent otherwise
required by Code Section 4980B, without the consent of the participants or
employees covered by such Plan. Neither the Company nor any ERISA Affiliate
has announced any intention, made any amendment or binding commitment, or
given any written or oral notice providing that the Company or an ERISA
Affiliate (i) will create additional Plans covering employees of the Company
or any ERISA Affiliate, (ii) will increase benefits promised or provided
pursuant to any Plan, or (iii) will not exercise after the Closing Date any
right or power it may have to terminate, suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate maintains or has maintained
any time, or contributes to or has contributed to or is or was required to
contribute to, any (i) Plan subject to Title IV or ERISA, including, without
limitation, any multi-employer plan (as defined in ERISA Section 3(37)),
within the past five years, or (ii) funded or unfunded medical, health,
accident, or life insurance plan or arrangement for current or future retirees
or terminated employees or their spouses or dependents (except to the extent
required by Code Sections 162(k) or 4980B).
(h) Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will constitute a termination of
employment or other event entitling any Person to any additional or other
benefits, or that would otherwise modify benefits or the vesting of benefits,
provided under any Plan.
(i) No event has occurred which could subject the Company of any ERISA
Affiliate to any material liability (i) under any Legal Requirement relating
to any Plan, or (ii) resulting from any obligation of Seller or an ERISA
Affiliate to indemnify any Person against liability incurred with respect to
or in connection with any Plan.
(j) Each Plan which is intended to be qualified under Code Section 401 has
received, within the last five years, a favorable determination letter from
the IRS. No event has occurred and no facts or circumstances exist which may
cause or result in the loss or revocation of such determination.
4.15 No Undisclosed Liabilities. Except (i) to the extent set forth or
provided for in the Balance Sheet or the notes thereto, (ii) as set forth on
Schedule 4.15 or (iii) for non-material current liabilities incurred since the
Balance Sheet Date in the Ordinary Course, as of the date hereof the Company
has no liabilities, whether accrued, absolute, contingent or otherwise,
whether due or to become due and whether the amounts thereof are readily
ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature, including Taxes with respect to or based
upon the transactions or events occurring at or prior to the Closing.
4.16 Permits, Licenses, Etc. The Company possesses, and is operating in
compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary
to (i) occupy, maintain, operate and use the Real Property as it is currently
used and proposed to be used, (ii) conduct its business as currently conducted
and as proposed to be conducted, and (iii) maintain and operate its Plans (the
"Permits"). Schedule 4.16 contains a true and complete list of all Permits.
Each Permit has been lawfully and validly issued, and no proceeding is pending
or, to the Shareholders' knowledge, threatened looking toward the revocation,
suspension or limitation of any Permit. The consummation of the transactions
contemplated by this Agreement will not result in the revocation, suspension
or limitation of any Permit and, except as set forth in Schedule 4.16, no
Permit will require the consent of its issuing authority to or as a result of
the consummation of the transaction contemplated hereby.
4.17 Regulatory Filings. The Company has made all required registrations and
filings with and submissions to all applicable Governmental Entities relating
to the operations of the Company as currently conducted and as proposed to be
conducted, including, without limitation, all such applicable Governmental
Entities having jurisdiction over any matters pertaining to conservation or
protection of the environment, and the treatment, discharge, use, handling,
storage or production, or disposal of Hazardous Materials. All such
registrations, filings and submissions were in compliance with all Legal
Requirements (including all Environmental Laws) and other requirements when
filed, no material deficiencies have been asserted by any such applicable
Governmental Entities with respect to such registrations, filings or
submissions and, to the Shareholders' knowledge, no facts or circumstances
exist which would indicate that a material deficiency may be asserted by any
such authority with respect to any such registration, filing or submission.
4.18 Consents. All consents, authorizations and approvals of any Person to
or as a result of the consummation of the transactions contemplated hereby,
that are necessary or advisable in connection with the operations and business
of the Company as currently conducted and as proposed to be conducted, or for
which the failure to obtain the same might have, individually or in the
aggregate, a Material Adverse Effect, have been lawfully and validly obtained
by the Company, except as described in Schedules 4.5(c), 4.10 and 4.16 hereto.
All consents, authorizations and approvals described in schedules 4.5(c), 4.10
and 4.16 will have been lawfully and validly obtained prior to the Closing.
4.19 Material Contracts; No Defaults.
(a) Schedule 4.19(a) contains a true and complete list and description of the
outstanding sales order and sales contract backlog of the Company having an
indicated gross value in excess of Five Thousand Dollars ($5,000.00) or having
a term of duration in excess of six months. All outstanding sales orders and
sales contracts of the Company have been entered into in the Ordinary Course.
Except as described in Schedule 4.19(a), the Company has not received any
advance, progress payment or deposit in respect of any sales order or sales
contract, and the Company has no sales order or sales contract that will
result, upon completion or performance thereof, in gross margins materially
lower than those normally experienced by the Company for the services or
products covered by such sales order or sales contract.
(b) Schedule 4.19(b) contains a true and complete list and description of all
outstanding purchase orders and purchase commitments of the Company having a
gross indicated value in excess of Five Thousand Dollars ($5,000.00) in the
aggregate from any single supplier or other vendor. All outstanding purchase
orders and purchase commitments of the Company have been incurred in the
Ordinary Course, and no purchase order or purchase commitment of the Company
is in excess of the normal, ordinary and usual requirements of the business of
the Company or at an excessive price. The principal raw materials used and
inventory sold by the Company are available from several sources at
competitive prices and upon competitive terms and no interruption in
production or Material Adverse Effect will result from the loss of any one of
such sources.
(c) Schedule 4.19(c) contains a true and complete list of all sales agency,
sales representative, distributor, wholesaler, dealer and similar contracts or
agreements of the Company, and true and complete copies of the same have been
delivered to Purchaser heretofore. Except as described in Schedule 4.19(c),
all of such contracts and agreements are terminable at any time by the
applicable Company without penalty (including, without limitation, any
obligation to repurchase inventories on hand) upon not more than thirty (30)
days' notice.
(d) Schedule 4.19(d) contains a true and complete list and description of all
noncompetition agreements and covenants under which the Company or any of
their respective officers, directors or employees or any Shareholder is
obligated, and true and complete copies of the same have been delivered to
Purchaser heretofore. Except as described in Schedule 4.19(d), the Company is
not restricted by any agreement from carrying on its business or engaging in
any other activity anywhere in the world (including relocating, closing, or
terminating any of its operations or facilities), and no such officer,
director, key employee or Shareholder is a party to or otherwise bound or
affected by any agreement, covenant or other arrangement or understanding that
would restrict or impair his ability to perform diligently his other duties to
the Company. Schedule 4.19(d) also contains a true and complete list and
description of all noncompetition agreements or covenants in favor of the
Company, and true and complete copies of the same have been delivered to
Purchaser heretofore.
(e) Schedule 4.19(e) contains a true and complete list and description of all
contracts, agreements, understandings, arrangements and commitments, written
or oral, of the Company with any officer, director, consultant, employee or
Affiliate of the Company or with any associate, Affiliate or employee of any
Affiliate of the Company, other than those disclosed in Schedule 4.21(a)
hereto; in each case a true and complete copy of such written contract,
agreement, understanding, arrangement or commitment or a true and complete
summary of such oral contract, agreement, understanding, arrangement or
commitment has been delivered to Purchaser heretofore.
(f) Schedule 4.19(f) contains a true and complete list and description of all
other material contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company by which it or its properties,
rights or assets are bound that are not otherwise disclosed in this Agreement
or the Schedule hereto. True and complete copies of such written contracts,
agreements, understandings, arrangements and commitments and true and complete
summaries of such oral contracts, agreements, understandings, arrangements and
commitments have been delivered to Purchaser heretofore. For the purposes of
this subsection (f), "material" means any contract, agreement, understanding,
arrangement or commitment that (i) involves performance by any party more than
ninety (90) days from the date hereof, (ii) involves payments or receipts by
the Company in excess of Five Thousand Dollars ($5,000.00), (iii) involves
capital expenditures in excess of Five Thousand Dollars ($5,000.00) or (iv)
otherwise materially affects the Company.
(g) Except as described in Schedule 4.19(g):
(i) each agreement, contract, arrangement or commitment described above in
this Section 4.19 is, and after the Closing on identical terms will be, legal,
valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become known to the Company or any
Shareholder or is alleged to have occurred that constitutes or, with notice or
the passage of time, or both, would constitute a default or a basis of force
majeure or other claim of excusable delay, termination, nonperformance or
accelerated or increased rights by the Company or any other Person under any
contract, agreement, arrangement, commitment or other understanding, written
or oral, described above in this Section 4.19, or described or otherwise
disclosed pursuant to this Agreement; and
(iii) no person with whom the Company has such a contract, agreement,
arrangement, commitment or other understanding is in default thereunder or has
failed to perform fully thereunder by reason of force majeure or other claim
of excusable delay, termination or nonperformance thereunder, the delay,
termination or nonperformance of which, or a default under which, has had or
may have a Material Adverse Effect.
4.20 Absence of Certain Changes. Since December 31, 1996, except as
disclosed in Schedule 4.20, the Company has not: (i) incurred any debts,
obligations or liabilities (absolute, accrued, contingent or otherwise), other
than current liabilities incurred in the Ordinary Course which, individually
or in the aggregate, are not material; (ii) subjected to or permitted a Lien
(other than a Permitted Lien) upon or otherwise encumbered any of its assets,
tangible or intangible; (iii) sold, transferred, licensed or leased any of its
assets or properties except in the Ordinary Course; (iv) discharged or
satisfied any Lien other than a Lien securing, or paid any obligation or
liability other than, current liabilities shown on the Balance Sheet and
current liabilities incurred since the Balance Sheet Date, in each case in the
Ordinary Course; (v) canceled or compromised any debt owed to or by or claim
of or against it, or waived or released any right of material value other than
in the Ordinary Course; (vi) suffered any physical damage, destruction or loss
(whether or not covered by insurance) causing a Material Adverse Effect; (vii)
entered into any material transaction or otherwise committed or obligated
itself to any capital expenditure other than in the Ordinary Course; (viii)
made or suffered any change in, or condition affecting, its condition
(financial or otherwise), properties, profitability, prospects or operations
other than changes, events or conditions in the Ordinary Course, none of which
(individually or in the aggregate) has had or may have a Material Adverse
Effect; (ix) made any change in the accounting principles, methods, records or
practices followed by it or depreciation or amortization policies or rates
theretofore adopted; (x) other than in the Ordinary Course, made or suffered
any amendment or termination of any material contract, agreement, lease or
license to which it is a party; (xi) paid, or made any accrual or arrangement
for payment of, any severance or termination pay to, or entered into any
employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xii) paid, or made any accrual
or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind to any employee other than pursuant to an
agreement disclosed on Schedule 4.21(a) or Schedule 4.21(b) or other than in
the Ordinary Course, or paid, or made any accrual or arrangement for payment
of, any increase in compensation, bonuses or special compensation of any kind
to any officer or director of the Company or any consultant to the Company;
(xiii) made or agreed to make any charitable contributions or incurred any
nonbusiness expenses; (xiv) changed or suffered change in any benefit plan or
labor agreement affecting any employee of the Company otherwise than to
conform to Legal Requirements; or (xv) entered into any agreement or otherwise
obligated itself to do any of the foregoing.
4.21 Employees and Labor Matters.
(a) Schedule 4.21(a) contains a true and complete list of all employees,
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation,
bonuses, profit sharing, stock purchases, stock repurchases, stock options,
commissions, incentives, loans or loan guarantees, severance pay or benefits,
use of the Company'Shareholder property and related matters of the Company
with any current or former officer, director, employee or consultant, and true
and complete copies of all such contracts, agreements, plans, arrangements and
understandings have been delivered to Purchaser heretofore. Attached to
Schedule 4.21(a) is the most current copy of the employee handbook utilized by
the Company and distributed to each of its employees.
(b) Schedule 4.21(b) contains a true and complete list of all labor,
collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered to Purchaser heretofore.
(c) Except as set forth on Schedules 4.21(a) and 4.21(b), neither Purchaser
nor the Company will have any responsibility for continuing any person in the
employ (or retaining any person as a consultant) of the Company from and after
the Closing or have any liability for any severance payments to or similar
arrangements with any such Person who shall cease to be an employee of the
Company at or prior to the Closing.
(d) There is not occurring or, to the Shareholders' knowledge, threatened,
any strike, slow down, picket, work stoppage or other concerted action by any
union or other group of employees or other persons against either Company or
its premises or products. Except for activities by the unions that are
parties to any of the agreements listed on Schedule 4.21(b) with respect to
the existing members of such unions, to the Shareholders' knowledge, no union
or other labor organization has attempted to organize any of the employees of
the Company.
(e) The Company has complied with all Legal Requirements relating to
employment and labor, and, to the Shareholders' knowledge, no facts or
circumstances exist that could provide a reasonable basis for a claim of
wrongful termination by any current or former employee of the Company against
the Company.
4.22 Affiliation. Except as disclosed on Schedule 4.22, none of the
Shareholders, any officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that (A) furnishes or sells, or
proposes to furnish or sell, services or products that are furnished or sold
by the Company or (B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or services or (ii)
a beneficial interest in any contract or agreement to which the Company is a
party or by which the Company or any of the assets of the Company are bound or
affected.
4.23 Principal Customers and Suppliers.
(a) Schedule 4.23(a) contains a true and complete list of the name and
address of each customer that purchased in excess of five percent (5%) of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 4.23(b) contains a true and complete list of each supplier from
whom the Company purchased in excess of five percent (5%) of the Company's
purchases of goods or services during the twelve months ended on the balance
Sheet Date, and since that date no such supplier has terminated its
relationship with or adversely curtailed its accommodations, sales or services
to the Company or indicated (for any reason) its intention to terminate such
relationship or curtail its accommodations, sales or services.
4.24 Compliance with Law. Through and including the date hereof, the Company
(i) has not violated or conducted its business or operations in violation of,
and has not used or occupied its properties or assets in violation of, any
Legal Requirement, (ii) to the Shareholders' knowledge, has not been alleged
to be in violation of any Legal Requirement, and (iii) has not received any
notice of any alleged violation of, or any citation for noncompliance with,
any Legal Requirement.
4.25 Product Returns. Schedule 4.25 contains a true and complete description
of the product return experience of the Company for the immediately preceding
twelve (12) months. The Company has not experienced any product returns which
have had or may have a Material Adverse Effect.
4.26 Product Liability and Product Warranty. Schedule 4.26 hereto contains a
true and complete description of (i) all warranties granted or made with
respect to products sold, or services rendered, by the Company and (ii) the
Company's product liability and product warranty experience for the last three
years. The Company has not suffered any product liability or product warranty
claims which have had or may have a Material Adverse Effect.
4.27 Corporate Records. The copies or originals of the Articles of
Incorporation, Bylaws, minute books and stock records of the Company
previously delivered to, or made available for inspection by, Purchaser are
true, complete and correct.
4.28 Hazardous Materials. Except as set forth on Schedule 4.28:
(a) No Hazardous Material (i) has been released, placed, stored, generated,
used, manufactured, treated, deposited, spilled, discharged, released or
disposed or on or under any real property currently or previously owned or
leased by the Company or is presently located on or under any Real Property
(or, to the Shareholders' knowledge, any property adjoining any Real
Property), (ii) is presently maintained, used, generated, or permitted to
remain in place by the Company in violation of any Environmental Law, (iii) is
required by any Environmental Law to be eliminated, removed, treated or
mitigated by the company, given the nature of its present condition, location,
nature, material or maintenance, or (iv) is of a type, location, material,
nature or condition which requires special notification to third parties by
the Company under Environmental Law or common law.
(b) No notice, citation, summons or order has been received by the Company or
any Shareholder, no notice has been given by the Company and no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or threatened by any Governmental Entity, with respect to (i) any
alleged violation by the Company of any Environmental Law of (ii) any alleged
failure by the Company to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its
business or properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on behalf of the
Company of any Hazardous Material.
(c) The Company has not received any request for information, notice of
claim, demand or notification that it is or that indicates that it may be a
"potentially responsible party" with respect to any investigation or
remediation of any threatened or actual release of any Hazardous Material.
(d) No above-ground or underground storage tanks, whether or not in use, are
or have ever been located at any property currently owned or leased by the
Company.
(e) No notice has been received by the Company with respect to the listing or
proposed listing of any property currently or previously owned, operated or
leased by the Company on the National Priorities List promulgated pursuant to
CERCLA, CERCLIS or any similar state list of sites requiring investigation or
cleanup.
(f) There have been no environmental inspections, investigations, studies,
tests, review or other analyses conducted in relation to any Real Property.
(g) The Company has not yet released, transported, or arranged for the
transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
4.29 Brokers' Fees. No broker, finder or similar agent has been employed by
or on behalf of the Company in connection with this Agreement or the
transactions contemplated hereby, and the Company has not entered into any
agreement or understanding of any kind with any person or entity for the
payment of any brokerage commission, finder's fee or any similar compensation
in connection with this Agreement or the transactions contemplated hereby.
4.30 Disclosure.
(a) No representation or warranty of any Shareholder in this Agreement and no
information contained in any Schedule or other writing delivered pursuant to
this Agreement or at the Closing contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to
make the statements herein or therein not misleading. There is no fact that
the Shareholders have not disclosed to Purchaser in writing that has had or,
insofar as any Shareholder can now foresee, may have a Material Adverse Effect
on the ability of any Shareholder to perform fully this Agreement.
(b) To the extent that any representation or warranty in this Article 4 is
qualified to the Shareholders' "knowledge," the Shareholders represent and
warrant that they have made a reasonable investigation sufficient to express
an informed view concerning the matters to which such representation or
warranty relates, including diligent inquiries of the Company's officers,
directors and employees.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants, both as to itself and all of its
affiliates, subsidiaries and other entities related to it by common ownership
or control (collectively in this Section 5 referred to as Purchaser) to, and
covenants and agrees with, each of the Shareholders that:
5.1 Organization and Good Standing. Purchaser has been duly organized and
is existing as a corporation in good standing under the laws of the State of
Nevada with full corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby.
5.2 Execution and Delivery. This Agreement has been duly authorized by all
necessary corporate action on the part of Purchaser, has been duly executed
and delivered by Purchaser and constitutes the legal, valid and binding
agreement of Purchaser enforceable against Purchaser in accordance with its
terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in the violation of the
provisions of the Articles of Incorporation or Bylaws of Purchaser.
5.4 Full Disclosure. To the best of Purchaser's knowledge, the
information furnished by or on behalf of Purchaser to Shareholders or the
Company in connection with this Agreement and the transactions contemplated
hereby does not and will not contain any untrue statement of a material fact
and does not and will not omit to state any material fact necessary to make
the statements made, in the context in which made, not false or misleading.
The Purchaser, to the best of its knowledge, is not aware of any claims
threatened or pending against the Purchaser that may have a material adverse
impact upon the financial stability of Purchaser.
5.5 No Liabilities. To the best of Purchaser's knowledge, there are no
liabilities, debts or obligations accrued, absolute, contingent or otherwise,
except as disclosed in this Agreement or the Schedules attached hereto or in
the most recent financial statements provided for Shareholders review prior to
Closing, except for debts, liabilities or obligations incurred in the ordinary
course of business, consistent with past business practices of the Purchaser.
5.6 No Encumbrances. The common stock of U. S. Plastic Lumber Corp to
be received by the Shareholders pursuant to this Agreement will be received
free and clear of liens, encumbrances, claims and other charges of any kind
with the exception of the escrow arrangements or rights of set-off provided
for hereunder, and each such share of capital stock shall be validly issued,
fully paid and non-assessable.
6. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through the
Closing Date, the Shareholders jointly and severally covenant and agree
(except as expressly contemplated by this Agreement or to the extent that
Purchaser shall otherwise expressly consent in writing) that:
6.1 Qualification. The Company shall maintain all qualifications to
transact business and remain in good standing in its jurisdiction of
incorporation and in the foreign jurisdictions set forth on Schedule 4.1(a).
6.2 Ordinary Course. The Company shall conduct its business in, and only
in, the Ordinary Course and, to the extent consistent with such business,
shall preserve intact its current business organizations, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the
end that its goodwill and going business value shall be unimpaired at the
Closing Date. The Company shall maintain its properties and assets in good
condition and repair.
6.3 Corporate Changes. The Company shall not (a) amend its Articles of
Incorporation or Bylaws (or equivalent documents), (b) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase
substantially all of the stock or assets of, or otherwise acquire, any
business or any corporation, partnership, association or other business
organization or division thereof, (c) enter into any partnership or joint
venture, (d) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or purchase or redeem, directly
or indirectly, any shares of its capital stock, (e) issue or sell any shares
of its capital stock of any class or any options, warrants, conversion or
other rights to purchase any such shares or any securities convertible into or
exchangeable for such shares, or (f) liquidate or dissolve or obligate itself
to do.
6.4 Indebtedness. The Company shall not incur any Indebtedness, sell any
debt securities or lend money to or guarantee the Indebtedness of any Person.
The Company shall not restructure or refinance its existing Indebtedness.
6.5 Accounting. The Company shall not make any change in the accounting
principles, methods, records or practices followed by it or depreciation or
amortization policies or rates heretofore adopted by it. The Company shall
maintain its books, records and accounts in accordance with generally accepted
accounting principles applied on a basis consistent with that of prior
periods.
6.6 Compliance with Legal Requirements. The Company shall comply promptly
with all requirements that applicable law may impose upon it and its
operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to,
Purchaser in connection with any such requirements imposed upon Purchaser, or
upon any of its affiliates, in connection therewith or herewith.
6.7 Disposition of Assets. The Company shall not sell, transfer, license,
lease or otherwise dispose of, or suffer or cause the encumbrance by any Lien
upon any of its properties or assets, tangible or intangible, or any interest
therein, except for sales of inventory in the Ordinary Course.
6.8 Compensation. The Company shall not (a) adopt or amend in any material
respect any collective bargaining, bonus, profit-sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other plan,
agreement, trust, fund or arrangement for the benefit of employees (whether or
not legally binding) other than to comply with any Legal Requirement or (b)
pay, or make any accrual or arrangement for payment of, any increase in
compensation, bonuses or special compensation of any kind, or any severance or
termination pay to, or enter into any employment or loan or loan guarantee
agreement with, any current or former officer, director, employee or
consultant of the Company, except for such bonuses as may be required to
offset the individual income tax liability of each Shareholder relating to the
Company.
6.9 Modification or Breach of Agreement; New Agreements. The Company shall
not terminate or modify, or commit or cause or suffer to be committed any act
that will result in breach or violation of any term of or (with or without
notice or passage of time, or both) constitute a default under or otherwise
give any person a basis for non-performance under, any indenture, mortgage,
deed of trust, loan or credit agreement, lease, license or other agreement,
instrument, arrangement or understanding, written or oral, disclosed in this
Agreement or the Schedules hereto. The Company shall refrain from becoming a
party to any contract or commitment other than in the Ordinary Course. The
Company shall meet all of its contractual obligations in accordance with their
respective terms.
6.10 Capital Expenditures. Except for capital expenditures or commitments
necessary to maintain its properties and assets in good condition and repair
(the amount of which shall not exceed Five Thousand Dollars ($5,000.00) in
the aggregate), the Company shall not purchase or enter into any contract to
purchase any capital assets.
6.11 Consents. The Company shall use its best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by any party hereto in connection with the transactions
contemplated hereby or the taking of any action in connection with the
consummation thereof.
6.12 Maintain Insurance. The Company shall maintain its Policies in full
force and effect and shall not do, permit or willingly allow to be done any
act by which any of the Policies may be suspended, impaired or canceled.
6.13 Discharge. The Company shall not cancel, compromise, release or
discharge any claim of the Company upon or against any person or waive any
right of the Company of material value, and not discharge any Lien (other than
Permitted Liens) upon any asset of the Company or compromise any debt or other
obligation of the Company to any person other than Liens, debts or obligations
with respect to current liabilities of the Company.
6.14 Actions. The Company shall not institute, settle or agree to settle any
Action before any Governmental Entity.
6.15 Permits. The Company shall maintain in full force and effect, and
comply with, all Permits.
6.16 Tax Assessments and Audits. The Company shall furnish promptly to
Purchaser a copy of all notices of proposed assessment or similar notices or
reports that are received from any taxing authority and which relate to the
Company's operations for periods ending on or prior to the Closing Date. The
Shareholders shall cause the Company to promptly inform Purchaser, and permit
the participation in and control by Purchaser, of any investigation, audit or
other proceeding by a Governmental Entity in connection with any Taxes,
assessment, governmental charge or duty and shall not consent to any
settlement or final determination in any proceeding without the prior written
consent of Purchaser.
6.17 Confidentiality. Hold in confidence and cause the Shareholders'
and the Company's Representatives (as defined below) to hold in confidence all
Confidential Information (as defined below) and not disclose the same to any
third person without the prior consent of Buyer, except to the Shareholder's
and the Company's Representatives who need such information for the purpose of
evaluating the transactions contemplated by this Agreement (such person shall
be informed by the Shareholders or the Company of the confidential nature of
the material and shall be subject to all the terms of this Agreement; the
Shareholders and the Company shall be responsible for any breach of such terms
by any such Representatives). If this Agreement is terminated or dissolved
for any reason, Shareholders and the Company will promptly return to Buyer all
Confidential Information furnished by Purchaser and held by Shareholders or
the Company, including all copies and summaries thereof and will not make use
of such Confidential Information. As used herein, "Confidential Information"
means all information concerning Purchaser and its business obtained by
Shareholders, the Company, or their directors, officers, employees, attorneys,
agents or other representatives (collectively, "Representatives") from
Purchaser in connection with the transactions contemplated by this Agreement
except information which (i) was available to the public prior to the time of
such disclosure, (ii) becomes available to the public through no act or
omission of the Shareholders or the Company or their Representatives, or (iii)
has been given to the Shareholders or the Company prior to such disclosure, or
is given to the Shareholders or the Company thereafter, in either case by a
third party not known by the Shareholders or the Company to be under any
obligation of confidentiality to the Purchaser with respect thereto.
"Confidential Information" includes this Agreement.
6.18. Notice. Promptly, by written notice, advise Purchaser of any
information that indicates that any representation or warranty of the Company
or the Shareholders contained in this Agreement is not true and correct or
that the Company or Shareholders have breached any of its obligations under
this Agreement. Promptly, by written notice, advise Purchaser of any event,
condition or circumstance (an "Event") occurring after the date hereof through
the Closing Date which causes any of the representations and warranties of the
Company or Shareholders not to be true and correct in all material respects as
of the date hereof or as of the date such Event occurred (as if Shareholders
and the Company had made such representation or warranty on the date such
Event occurred). Purchaser's closing under this Agreement after its receipt
of information furnished by the Company or Shareholders pursuant hereto shall
not operate as a waiver of any of Purchaser's rights for any misrepresentation
or breach of any representation or warranty which is disclosed by such
information.
7. ADDITIONAL COVENANTS
7.1 Covenants of the Shareholders. During the period from the date hereof
through the Closing Date, each Shareholder agrees to:
(a) comply promptly with all requirements that applicable Legal Requirements
may impose upon it with respect to the transactions contemplated by the
Agreement, and shall cooperate promptly with, and furnish information to,
Purchase in connection with any requirements imposed upon Purchaser or upon
any of its affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to cooperate with
Purchaser in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by such Shareholder
in connection with the transactions contemplated by this Agreement;
(c) use its reasonable best efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in Section 8.1 of this Agreement;
(d) promptly advise Purchase orally and, within three (3) business days
thereafter, in writing of any change in such Company's business or condition
that has had or may have a Material Adverse Effect; and
(e) deliver to Purchaser prior to the Closing a written statement disclosing
any untrue statement in this Agreement or any Schedule hereto (or supplement
thereto) or document furnished pursuant hereto, or any omission to state any
material fact required to make the statements herein or therein contained
complete and not misleading, promptly upon the discovery of such untrue
statement or omission, accompanied by a written supplement to any Schedule to
this Agreement that may be affected thereby; provided, however, that the
disclosure of such untrue statement or omission shall not prevent Purchaser
from terminating this Agreement pursuant to Section 9.1(c) hereof at any time
at or prior to the Closing in respect of any original untrue or misleading
statement.
7.2 Covenants of Purchaser. During the period from the date hereof to the
Closing Date, Purchaser shall:
(a) comply promptly with all requirements that applicable Legal Requirements
may impose upon it with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, the
Shareholders in connection with any such requirements imposed upon the
Shareholders or the Company or upon any of the Company's affiliates in
connection therewith or herewith;
(b) use its reasonable best efforts to obtain any consent, authorization or
approval of, or exemption by, any Person required to be obtained or made by
Purchaser in connection with the transactions contemplated by this Agreement;
and
(c) use its reasonable best efforts to bring about the satisfaction of the
condition precedent to Closing set forth in Section 8.2 of this Agreement.
7.3 Access and Information
(a) During the period commencing on the date hereof and continuing through the
Closing Date, the Shareholders shall continue to cause the Company to afford
to Purchaser and to Purchaser's accountants, counsel, investment bankers and
other representatives, reasonable access to all of its properties, books,
contracts, commitments, records and personnel and, during such period, to
continue to cause the Company to furnish promptly to Purchaser all information
concerning its business, properties and personnel as Purchaser may reasonably
request.
(b) Except to the extent permitted by the provisions of Section 7.6 hereof,
Purchaser shall hold in confidence, and shall use reasonable efforts to ensure
that its employees and representatives hold in confidence, all such
information supplied t it by the Shareholders or the Company concerning the
Company and shall not disclose such information to any third party except as
may be required by any Legal Requirement and except for information that (i)
is or becomes generally available to the public other than as a result of
disclosure by Purchaser or its representatives, (ii) becomes available to
Purchaser or its representatives from a third party other than the
Shareholders or the Company, and Purchaser or its representatives have no
reason to believe that such third party is not entitled to disclose such
information, (iii) is known to Purchaser or its representatives on a
non-confidential basis prior to is disclosure by any Shareholder or the
Company or (iv) is made available by any Shareholder or the Company to any
other Person on a non-restricted basis. Purchaser's obligations under the
foregoing sentence shall expire on the Closing Date or, if the Closing does
not occur, two (2) years after the date hereof.
7.4 Expenses. All costs and expenses (including, without limitation, all
legal fees and expenses and fees and expenses of any brokers, finders or
similar agents) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring the
same.
7.5 Certain Notifications. At all times from the date hereof to the Closing
Date, each party shall promptly notify the others in writing of the occurrence
of any event that will or may result in the failure to satisfy any of the
conditions specified in Article 8 hereof.
7.6 Publicity; Employee Communications. At all times prior to the Closing
Date, each party shall obtain the consent of all other parties hereto prior to
issuing, or permitting any of its directors, officers, employees or agents to
issue, any press release or other information to the press, employees of the
Company or any third party with respect to this Agreement or the transactions
contemplated hereby; provided, however, that no party shall be prohibited from
supplying any information to any of its representatives, agents, attorneys,
advisors, financing sources and others to the extent necessary to complete the
transactions contemplated hereby so long as such representatives, agents,
attorneys, advisors, financing sources and others are made aware of the terms
of this Section 5.6. Nothing contained in this Agreement shall prevent any
party to this Agreement at any time from furnishing any required information
to any Governmental Entity or authority pursuant to a Legal Requirement or
from complying with its legal or contractual obligations.
7.7 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and
make effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, the Shareholders and
the property officers or directors of Purchaser, as the case may be, shall
take or cause to be taken all such necessary or convenient action and execute,
and deliver and file, or cause to be executed, delivered and filed, all
necessary or convenient documentation.
7.8 Competing Offers; Merger or Liquidation. The Shareholders agree that
they will not, and will cause the Company not to, directly or indirectly,
through any officer, director, agent, or otherwise, solicit, initiate or
encourage the submissions of bids, offers or proposals by, any Person with
respect to an acquisition of the Company or its assets or capital stock or a
merger or similar transaction, and the Shareholders will not, and will not
permit the Company to, engage any broker, financial adviser or consultant with
an incentive to initiate or encourage proposals or offers from other parties.
Furthermore, the Shareholders shall not, and shall not permit the Company to,
directly or indirectly, through any officer, director, agent or otherwise,
engage in negotiations concerning any such transaction with, or provide
information to, any Person other than Purchaser and its representatives with a
view to engaging, or preparing to engage, that Person with respect to any
matters in this Section. The Shareholders shall ensure that the Company shall
not commence any proceeding to merge, consolidate or liquidate or dissolve or
obligate itself to do so.
7.9 Inconsistent Action. The Shareholders shall not take or suffer to be
taken, and shall not permit the Company to take or cause or suffer to be
taken, any action that would cause any of the representations or warranties of
any of the Shareholders in this Agreement to be untrue, incorrect, incomplete
or misleading.
7.10 Post-Termination Employment. Except for the employment agreement to be
executed by John W. O'Donnell and Kevin John, each Shareholder acknowledges
and agrees that after the Closing (a) neither Purchaser nor the Company shall
be required to employ or retain any employee of the Company or any other
Person, and (b) Purchaser, in its sole and absolute discretion, may cause the
Company to retain all, some, or none of such employees.
8. CONDITIONS PRECEDENT TO CLOSING
8.1 Conditions of Purchaser. Notwithstanding any other provision of this
Agreement, the obligations of Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened any Action before
any Governmental Entity (i) challenging the acquisition of the Shares by
Purchaser or otherwise seeking to restrain or prohibit the consummation of the
transactions contemplated hereby or (ii) seeking to prohibit the direct or
indirect ownership or operation by Purchaser of all or a material portion of
the business or assets of the Company, or to compel Purchaser or the Company
to dispose of or hold separate all or a material portion of the business or
assets of the Company or Purchaser;
(b) The representations and warranties of each of the Shareholders in this
Agreement shall be true and correct in all respects on and as of the Closing
Date with the same effect as if made on the Closing Date and each of the
Shareholders shall have complied with all covenants and agreements and
satisfied all conditions on such Shareholder' part to be performed or
satisfied on or prior to the Closing Date;
(c) Purchaser shall have received from John A. Rule, Esq., counsel for the
Shareholders and the Company, a written opinion dated the Closing date and
addressed to Purchaser, in substantially the form attached as Exhibit F
hereto;
(d) Purchaser shall have received from the President of the Company a
certificate dated the Closing Date in substantially the form attached as
Exhibit G hereto;
(e) Purchaser shall have received from each Shareholder a certificate dated
the Closing Date in substantially the form attached as Exhibit H hereto;
(f) Purchaser shall have received a certificate of the Secretary of the
Company in substantially the form attached as Exhibit I hereto;
(g) Each Shareholder shall have entered into a Stock Escrow Agreement
substantially in the form attached as Exhibit B; and Noncompetition Agreements
with Purchaser and the Company in substantially the form attached as Exhibit D
hereto, (collectively, the "Noncompetition Agreements"); John W. O 'Donnell
and Kevin John shall have entered into Employment Agreements substantially in
the form attached as Exhibit C; John W. O'Donnell, Kevin John, and Joseph
Basolis shall have entered into Vehicle Lease Equipments substantially in the
form attached as Exhibit E.
(h) Purchaser shall have concluded (through its representatives, accountants,
counsel and other experts) an investigation of the business, condition
(financial and other), properties, assets, prospects, operations and affairs
of the Company and shall be satisfied, in its sole discretion, with the
results thereof;
(i) All corporate and other proceedings and actions taken in connection with
the transactions contemplated hereby and all certificates, opinions,
agreements, instruments, releases and documents referenced herein or incident
to the transactions contemplated hereby shall be in form and substance
satisfactory to Purchaser and its counsel;
(j) Purchaser shall have received reasonable assurances from those employees,
if any, of the Company that may be identified by Purchaser in its discretion
that they will remain in the employ of the Company for a reasonable period of
time after the consummation of the transactions contemplated hereby.;
(k) All consents from third parties, including from any Governmental Entity,
landlord or other Person, necessary for the consummation of the transactions
contemplated hereby shall have been obtained;
(l) The Board of Directors of Purchaser shall have authorized and approved
this Agreement and the transactions contemplated hereby;
(m) All officers and directors of the Company shall have resigned as such,
effective of the Closing;
(n) No act, event or condition shall have occurred after the date hereof
which Purchaser determines has had or could have had a Material Adverse
Effect;
8.2 Conditions of the Shareholders. Notwithstanding any other provision of
this Agreement, and except as set forth below, the obligations of the
Shareholders to consummate the transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing, of the condition set
forth in subsection (a) of Section 8.1, and the condition that the
representations and warranties of Purchaser in this Agreement shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as if made on the Closing Date and Purchaser shall have complied
with all covenants and agreements and satisfied all conditions on its part to
be performed or satisfied on or prior to the Closing Date in substantially the
form attached hereto as Exhibit J.
9. TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual consent of the Purchaser and the Shareholders;
(b) by Purchaser if (i) there has been a material misrepresentation, breach
of warranty or breach of covenant by any Shareholder under this Agreement or
(ii) any of the conditions precedent to Closing set forth in Section 8.1 have
not been met on the Closing Date, and, in each case, Purchaser is not then in
material default of its obligations hereunder; or
(c) by the Shareholders acting together if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Purchaser under
this Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 8.2 have not been met on the Closing Date, and, in each case, no
Shareholder is then in material default of his obligations hereunder.
9.2 Effect of Termination.
(a) In the case of any termination of this Agreement, the provisions of
Section 7.3 and 7.4 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section 9.1(a), except
as stated in subsection (a) above, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
or their respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement as provided in Section
9.1(b), (c) or (d) hereof, such termination shall be without prejudice to any
rights that the terminating party or parties may have against the breaching
party or parties or any other person under the terms of this Agreement or
otherwise.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by Purchaser and the Shareholders. Any amendment effected
pursuant to this Section 9.3 shall be binding upon all parties hereto.
9.4 Waiver. Any term or provision of this Agreement may be waived in
writing at any time by the party or parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 9.4 shall be binding upon all
parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any other right, power or privilege. No waiver of any
breach of any covenant or agreement hereunder shall be deemed a waiver of any
preceding or subsequent breach of the same or any other covenant or agreement.
The rights and remedies of each party under this Agreement are in addition to
all other rights and remedies, at law or in equity, that such party may have
against the other parties.
10. INDEMNFICATION
10.1 Survival of Representations and Warranties. The representations and
warranties, covenants and agreements of the parties hereto contained in this
Agreement or in any writing delivered pursuant hereto or at the Closing shall
survive the Closing and the consummation of the transactions contemplated
hereby (and any examination or investigation by or on behalf of any party
hereto) until the fourth anniversary of the Closing Date; provided, that the
representations and warranties contained in Section 4.12 and Section 4.14
shall not terminate until the expiration of any applicable statute of
limitations; provided, further, that representations and warranties contained
in Section 2.3(c), Article 3, Section 4.17, Section 4.24 and Section 4.28
shall not terminate but shall continue indefinitely.
10.2 Indemnification.
(a) Subject to the limitations as stated below in this subsection, the
Shareholders, jointly and severally, covenant and agree to defend, indemnify
and hold harmless Purchaser and the Company and each Person who controls
Purchaser or the Company within the meaning of the Securities Act from and
against any Damages arising out of or resulting from: (i) any inaccuracy in or
breach of any representation or warranty made by any Shareholder in this
Agreement or in any writing delivered pursuant to this Agreement or at the
closing [unless and except that such inaccuracy or breach is a direct result
of changes made by the Purchaser in accounting methods or estimates utilized
in financial reporting of the Company]; or (ii) the failure of any Shareholder
to perform or observe fully any covenant, agreement or provision to be
performed or observed by such Shareholder pursuant to this Agreement or the
Noncompetition Agreements; (iii) any claim, action, rights, litigation,
damages, legal or other defense related expenses, or judgments arising out of
or resulting from an action involving an automobile accident which has named
the estate of Shawn O' Donnell's deceased wife and the Company. The above
noted indemnification by the Shareholders, Harry Skilton, Elbert Basolis, and
Kent Webster, ("Limited Shareholders") is limited to claims for
indemnification arising within two years of the Closing Date and is further
limited in amount and remedy in that the Purchaser agrees that any
indemnification claimed against the Limited Shareholders shall be satisfied
exclusively by repossession of the U. S. Plastic Lumber Corp. stock issued to
the Limited Shareholders in satisfaction of the purchase price to be paid
under this Agreement (USPL Stock"). Satisfaction of an indemnification claim
against the USPL Stock shall be calculated at a price per share equal to the
publicly traded closing price for U.S. Plastic Lumber Corp. stock on the
Closing Date. Purchaser shall have the right to satisfy an indemnification
claim by requiring the Limited Shareholders to return to a pro rata portion of
the USPL Stock necessary to satisfy the indemnification claim. If the shares
of USPL Stock held by the Limited Shareholders outside of the Stock Escrow
Agreement are insufficient to satisfy the indemnification claim, the Purchaser
may also seek to recover against the shares held under the Stock Escrow
Agreement. In the event the Shareholders fail or refuse to return the shares
of USPL Stock required to indemnify the Purchaser, the Purchaser shall have
the right to satisfy the indemnification claim by cancelling the requisite
number of shares of the Limited Shareholders on the books of U.S. Plastic
Lumber Corp. All of such indemnification rights shall be without prejudice to
the Limited Shareholders to contest and defend against any indemnification
claim using any and all available legal remedies. Limited Shareholders agree
not to sell or make any disposition of their USPL Stock for the two year
period of indemnification. If a Limited Shareholder shall violate this
prohibition on sale or disposition, it shall have the effect of causing the
indemnification by such Limited Shareholder to be unlimited.
(b) Purchaser covenants and agrees to defend, indemnify and hold harmless the
Shareholders from and against any Damages arising out of or resulting from:
(i) any inaccuracy in or breach of any representation or warranty made by
Purchaser in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; (ii) the failure by Purchaser to perform or
observe any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement; or (iii) the Shareholders' liability under the
Guaranties.
10.3 Third Party Claims.
(a) If any party entitled to be indemnified pursuant to Section 10.2 (an
"Indemnified Party") receives notice of the assertion by any third party of
any claim or of the commencement by any such third person of any Action (any
such claim or Action being referred to herein as an "Indemnifiable Claim")
with respect to which another party hereto (an "Indemnifying Party") is or may
be obligated to provide indemnification, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (the "Claim Notice") of the
Indemnifiable Claim; provided, that the failure to provide such notice shall
not relieve or otherwise affect the obligation of the Indemnifying Party to
provide indemnification hereunder, except to the extent that any Damages
directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days after receipt of the
Claim Notice to undertake, conduct and control, through counsel of its own
choosing, and at its expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided, that (i) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the
fees and expenses of such counsel shall not be borne by the Indemnifying
Party, and (ii) the Indemnifying Party shall not settle any Indemnifiable
Claim without the Indemnified Party'Shareholder consent. So long as the
Indemnifying Party is vigorously contesting any such Indemnifiable Claim in
good faith, the Indemnified Party shall not pay or settle such claim without
the Indemnifying Party's consent, which consent shall not be unreasonably
withheld.
(c) If the Indemnifying Party does not notify the Indemnified Party within
thirty (30) days after receipt of the Claim Notice that it elects to undertake
the defense of the Indemnifiable Claim described therein, the Indemnified
Party shall have the right to contest, settle or compromise the Indemnifiable
Claim in the exercise of its reasonable discretion; provided, that the
Indemnified Party shall notify the Indemnifying Party of any compromise or
settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.3 to the contrary notwithstanding,
the Shareholders shall not be entitled to assume the defense for any
Indemnifiable Claim (and shall be liable for the reasonable fees and expenses
incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Purchaser or the Company which
Purchaser determines, after conferring with its counsel, cannot be separated
from any related claim for money damages and which, if successfully, would
adversely affect the business, properties or prospects of the Company.
10.4 Indemnification Non-Exclusive. The foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory, equitable or
common-law remedy any party may have for breach of representation, warranty,
covenant or agreement.
10.5 Set-off. Notwithstanding any provision of this Agreement or of any
other agreement, instrument or undertaking, it is understood and agreed that
Purchaser shall have the right to set-off the amount of any indemnity under
Sections 10.2 or 10.3 hereof to the extent any of the Shareholder shall be
liable therefor against any sums of money or any shares of the Purchaser at
any time payable or deliverable to the Shareholders. The remedies provided in
this Article shall be cumulative and shall not preclude the assertion by any
party of any other rights or the seeking of any other remedies by it against
any other party.
11. GENERAL PROVISIONS
11.1 Notices. All notices and other communications under or in connection
with this Agreement shall be in writing and shall be deemed given (a) if
delivered personally (including by overnight express or messenger), upon
delivery, (b) if delivered by registered or certified mail (return receipt
requested), upon the earlier of actual delivery or three (3) days after being
mailed, or (c) if given by telecopy, upon confirmation of transmission by
telecopy, in each case to the parties at the following addresses:
(a) If to the Purchaser, addressed to:
U. S. Plastic Lumber Corporation
2300 W. Glades Road
Suite 440W
Boca Raton, Florida 33431
Attention: Mark Alsentzer, President and CEO
Telecopy: (561)394-5335
(b) If to any Shareholder, to the address set forth
below such Shareholder's name on Schedule "A" hereto:
With a copy to:
Miller, Turetsky, Rule, McLennan, & Stern
300 Courthouse Plaza
18 West Airy Street
Norristown, PA 19401-4717
Attn: John A. Rule
11.2 Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of
this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
11.3 Entire Agreement. This Agreement, including the annexes and schedules
attached hereto and other documents referred to herein, contains the entire
understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral
and written, between the parties with respect to such subject matter.
11.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Purchaser and the Shareholders and their respective
successors, heirs and assigns; provided, however, that no Shareholder shall
directly or indirectly transfer or assign any of such Shareholder's respective
rights hereunder in whole or in part without the prior written consent of
Purchaser, and any such transfer or assignment without said consent shall be
void, ab initio. Subject to the immediately preceding sentence, and except as
set forth in Article 10, this Agreement is not intended to benefit, and shall
not run to the benefit of or be enforceable by, any other person or entity
other than the parties hereto and their permitted successors and assigns.
11.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
11.6 Recitals, Schedules and Annexes. The recitals, schedules and annexes to
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
11.7 Construction.
(a) The article, section and subsection headings used herein are inserted for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter gender, and
the singular or plural, shall be deemed to include the others whenever and
wherever the context so requires.
(c) For the purposes of this Agreement, unless the context clearly requires,
"or" is not exclusive.
11.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Florida.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
has caused this Agreement to be executed on its behalf by a representative
duly authorized, all as of the date first above set forth.
"PURCHASER"
ATTEST
________________________
By:_________________________
____________________________
Print Name/Title
WITNESS
SHAREHOLDERS:
_______________________ _________________________
John W. O'Donnell
_______________________ _________________________
Kevin John
_______________________ _________________________
Joseph Basolis
_______________________ _________________________
Elbert Basolis
_______________________ _________________________
Harry Skilton
_______________________ _________________________
Kent Webster
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 24, 1996, is between U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation (the "Company"), and MARK ALSENTZER,
of 604 Creek Lane, Flourtown, Pennsylvania 19031 ("Executive").
RECITALS
A. Executive has been employed as a principal executive officer of
the Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desire
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
Company and Executive hereby agree as follows:
SECTION 1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period commencing as of the date hereof and ending on the fifth (5th)
anniversary of the date hereof, subject to termination as hereinafter provided
(the period from the date hereof through the fifth (5th) anniversary of the
date hereof or the date of such termination, as the case may be, being the
("Employment Period").
SECTION 2. DUTIES.
(a) General Duties. During the Employment Period, Executive shall
serve the Company and its subsidiaries in a senior executive capacity with
such duties consistent therewith, and shall perform such other services for
the Company and its subsidiaries consistent with the position of a senior
executive officer, as may be reasonably assigned to him from time to time by
the Board of Directors of the Company. Executive's initial positions with the
Company shall be President and Chief Executive OtTtcer.
(b) Primary Activity. During the Employment Period, Executive shall
devote at least 75%, and shall be under no obligation to devote more than 75%,
of his working time and energy to the interests and business of the Company
and its subsidiaries; however, Executive shall be excused from performing any
services for the Company hereunder during periods of temporary illness or
incapacity and during reasonable vacations, and Executive may devote a
reasonable amount of time to the handling of his personal affairs, without
thereby in any way affecting the compensation to which he is entitled
hereunder. Although it is acknowledged that the duties of a senior executive
officer may require from time to time attention to business at times other
than normal business hours, it is intended by the parties hereto that
Executive shall perform his duties hereunder during normal business hours.
During the Employment Period, Executive shall, to the best of his skill and
ability, use his best efforts and endeavors to the extension and promotion of
the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) Location and Travel. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be
performable) at the executive offices of the Company in Boca Raton, Florida,
and the sales offices of the Company in Blue Bell, Pennsylvania, unless
otherwise agreed to in writing by the Company and Executive. Executive agrees
to travel for business purposes in a reasonable amount for reasonable lengths
of time, commensurate with Executive's senior executive position.
SECTION 3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following compensation during the Employment Period:
(a) If gross sales of the Company reach an aggregate of Five Million
($5,000,000.00) Dollars over any period of twelve (12) consecutive months
(including, without limitation, over a period of twelve (12) consecutive
months that fall within two calendar years or two fiscal years of the Company)
or if gross sales of the Company over any period of three (3) consecutive
months average Five Hundred Thousand ($5OO,000.00) Dollars per month,
whichever first occurs, then Executive shall have earned and the Company shall
promptly issue to Executive its stock warrants for two hundred thousand
(200,000) shares of the common voting stock of the Company exercisable at the
price per share for purchase of the stock set forth below. In addition, if
the gross sales of the Company reach an aggregate of Seven Million Five
Hundred Thousand ($7,500,000.00) Dollars over any period of twelve (12)
consecutive months (including, without limitation, over a period of twelve
(12) consecutive months that fall within two calendar years or two fiscal
years of the Company) or if gross sales of the Company over any period of
three (3) consecutive months average Seven Hundred Thousand ($700,000.00)
Dollars per month, whichever first occurs, then Executive shall have earned
and Company shall promptly issue to Executive its stock warrants, for four
hundred thousand (400,000) shares of the common voting stock of the Company
(less the warrants, if any, previously earned by Executive under the
immediately preceding sentence) exercisable at the price per share for
purchase of the stock set forth below. The initial exercise price per share
for purchase of stock, covered by the warrants shall be S2.25 per share and
every ninety (90) days after the issue date of the warrants hereunder, the
exercise price per share shall automatically adjust for all remaining shares
covered by the ts so that the exercise price per share equals the lower of
$2.25 per share or a price equal to $1.75 below the market price per share on
the then current adjustment date (provided, however, that the exercise price
shall in no event be less than $.Ol per share). The warrants shall have a
term of ten (1O) years and shall be exercisable from time to time, in whole or
in part, by Executive or his successors or assigns and the Company shall use
its best efforts to register the warrants under Federal Securities Law as soon
as feasible including, without limitation, the obligation to piggyback the
warrants on any other registration.
(b) Executive shall be paid the following compensation, which shall be
in addition to the stock warrants set forth in subparagraph 3(a), and which
additional compensation shall commence upon, and no later than, the expiration
of two (2) years from the date hereof, and provided, however, that the said
following additional compensation shall conunence earlier, upon and as soon as
the gross sales of the Company reach an aggregate of Seven Million Five
Hundred Thousand ($7,500,000.00) Dollars over any period of twelve (I 2)
consecutive months (including, without limitation, over a period of twelve
(12) consecutive months that fall within two calendar years or two fiscal
years of the Company) or as soon as gross sales of the Company over any period
of three consecutive months average Seven Hundred Thousand ($700,000-00)
Dollars per month, whichever first occurs:
(i) A base salary for the balance of the term of employment in
an amount then agreed upon by Executive and the Company. If Executive
and the Company are unable to agree, then the amount of the base salary
shall be determined by an arbitrator selected by the parties and if the
parties cannot agree on an arbitrator, then the arbitrator shall be
appointed by the Court of Common Pleas of Montgomery County, State of
Pennsylvania, upon the filing of a petition requesting appointment of
the arbitrator. The decision of the arbitrator shall be final and
binding on the parties. It is intended that the base salary shall be
commensurate with the position, performance and responsibility of the
Executive and shall be determined without taking into account any stock
warrants issued or to be issued to Employee under the terms of the
Employment Agreement.
(ii) Tbe Company shall issue additional stock warrants to
Executive for one hundred fifty thousand (150,000) of the common voting
stock of the Company, which warrants shall be issued over three (3)
consecutive years at a rate of fifty thousand (50,000) shares per year.
The initial exercise price per share for purchase of the stock covered
by the warrants shall be $3.50 per share and every ninety (90) days
after the issue date of the warrants hereunder, the exercise price per
share shall automatically adjust so that the price per share for all
remaining shares covered by the warrants equals the lower of $3.50, or
the adjusted price ftom the previous quarter, or the market price of the
shares on the then current adjustment date. The warrants shall have a
term of ten (10) years and shall be exercisable from time to time, in
whole or in part, by Executive or his successors or assigns and the
Company shall use its best efforts to register the warrants under
Federal Securities Law as soon as feasible including, without
limitation, the obligation to Piggyback the warrants on any other
registration.
(c) As an incentive to induce Executive to enter into this Agreement,
the Company agrees upon execution hereof to issue to Executive its stock
warrants for four hundred thousand (400,000) shares of the common voting stock
of the Company. The initial exercise price per share for purchase of stock
covered by the warrant shall be $4.00 per share, and every year thereafter on
the anniversary date of issuance of the warrants the exercise price per share
shall automatically adjust for all remaining shares covered by the warrants so
that the exercise price per share equals the lower of $4.00 per share or the
market price of the shares on the then current anniversary date. The warrants
shall have a term of ten (10) years and shall be exercisable, from time to
time, in whole or in part by Executive or his successors or assigns. The
Company agrees to register said warrants for one hundred fifty thousand
(150,000) of the shares under Federal Securities Laws as part of its SB-2
Registration which will be filed in February of 1997. Tbe Company agrees to
register the remainder of the warrants as soon as feasible.
(d) Reimbursement of Expenses. The Company shall reimburse Executive
for all expenses properly incurred by him in the performwice of his duties
hereunder in accordance with policies established from time to time by the
Board of Directors of the Company. In addition to the foregoing, Executive
will be reimbursed all necessary business expenses including temporary living
expenses in the State of Florida. In the event that Executive purchases or
leases a residential unit in Florida, Company will pay Executive Three
Thousand ($3,000.00) Dollars per month as long as Executive owns or leases the
unit and is employed by Company, which sum is intended to take into account
all expenses or investments by Executive with regard to the residential unit
and is payable, however, without respect to the actual expenses or amount of
investment made by Executive with regard to the residential unit.
(e) Further Benefits. Executive shall be entitled to participate in
any health, accident, retirement or similar employee benefit plans provided by
the Company generally to its employees to the extent commensurate with the
participation therein of executives of the Company; provided, however, that
such employee benefit plans shall be no less favorable to Executive than those
provided by the Company to Executive immediately prior to the entering into of
this Agreement. Executive shall be entitled to participate in any present or
future bonus, insurance, pension, retirement, profit sharing or other
compensation or incentive plans adopted by the Company, for the general and
overall benefit of executives of the Company, the extent and manner of
participation to be determined by the Board of Directors of the Company. The
benefits provided in this subsection (c) shall be in addition to the
compensation and benefits provided in the other subsections of this Section 3.
(f) In the event that prior to exercise of all of the rights under the
warrants issued under this Agreement, the issued and outstanding shares of the
same class as the shares subject to the warrants are changed into or exchanged
for a different number or kinds of shares or securities of the Corporation or
of another corporation, whether by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, combination of
shares, or dividends payable in capital stock, appropriate adjustment shall be
made in the number of the shares covered by the warrants.
SECTION 4. CERTAIN COVENANTS.
In order to induce the Company to enter into this Agrccment, Executive
hereby acknowledges and agrees as follows:
(a) Proprietary Information. All documents, records, techniques,
business secrets and other information which have come into the possession of
or have been developed by Executive from time to time in the course and for
the business of the Company and its subsidiaries prior to the date hereof or
which may come into his possession or be developed by him during his
employment by the Company hereunder shall be deemed to be confidential and
proprietary to the Company. None of such Confidential Information, or any
copies thereof, shall be retained by Executive after termination of the
Employment Period. The foregoing does not apply to such documents, records,
techniques, business secrets and other infon-nation which have come into the
possession of or have been developed by Executive prior to the date hereof in
the course and for the business of any other company.
(b) Confidentiality. Executive shall keep confidential all, and shall
not divulge to any other party any, of the Conridential Information of the
Company and its subsidiaries including, but not limited to, Confidential
Information relating to such matters as their finances and operations, the
materials, processes, plans, designs, models, apparatus, equipment and
formulas used in their operations, the names of their customers and such
customers' requirements and the names of their suppliers, except for any such
disclosure (i) which Executive believes in good faith to be required by
applicable law or (ii) is now in the public domain, or hereafter enters the
public domain, through no violation by Executive of his obligations hereunder.
(c) Remedies. In the event of a breach or threatened breach by
Executive of the provisions of this Section 4, the Company shall be entitled
to an injunction restraining Executive from disclosing, in whole or in part,
confidential information described herein, or from rendering any services to
any person, firm, corporation, association or other entity to whom such
confidential information has been disclosed, or is threatened to be disclosed,
or from otherwise violating the provisions of this Section 4. Nothing herein
contained shall be construed as prohibiting the Company or any of its
subsidiaries from pursuing any other remedies available to them for such
breach or threatened breach, including recovery of damages from Executive.
SECTION 5. TERMINATION OF AGREEMENT.
(a) Events of Termination. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the fifth anniversary of the date
hereof;
(ii) the death of Executive;
(iii) termination of Executive's employment for Cause. For the
purpose of this Agreement, the Company shall have "Cause" to terminate
Executive's employment hereunder upon (A) the conviction of Executive of
a felony crime involving moral turpitude; or (B) the intentional and
knowing violation by Executive of the provisions of Section 4 hereof,
which results in a substantial and material injury to the Company; or
(C) conduct by Executive with respect to the Company or its business in
breach of this Agreement which either (a) is intended to injure the
Company and does injure the Company in a substantial and material way or
(b) constitutes a course of grossly negligent conduct, done in bad faith
and not intended to benefit the Company, and which injures the Company
in a substantial and material way. If the Company has knowledge of the
conduct by Executive under (iii)(B) or (C) before substantial and
material in ury to the Company has occurred, then the Company shall not
have "Cause" to terminate Executive unless the Company promptly gives
written notice to Executive, making reference to this sub-paragraph, to
cure ihe conduct and the Company sustains substantial and material
injury because Executive failed to successfully cure the conduct.
(iv) the election by Executive to terminate his employment
hereunder;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of
this Agreement the "permanent disability" of Executive shall mean
Executive's inability, because of his injury, illness, or other
incapacity (physical or mental), to perform the services to the Company
contemplated hereby for a continuous period of 150 days or for 180 days
out of a continuous period of 300 days. Such permanent disability shall
be deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(b) Compensation Upon Termination. If the Employment Period shall
cease and terminate hereunder, Company agrees to pay or perform the following,
as an agreed severance benefit, without setoff or deduction, which payments or
performance shall not be subject to any principle of mitigation of damages:
(i) If the employment period ceases and terminates for Cause in
compliance with 5(a)(iii), or if Executive elects to terminate under
5(a)(iv) and the Company at the time of such election by Executive is
not in breach of any of its obligations under this Agreement, or if
termination occurs on the fifth (Sth) anniversary date hereof under
5(a)(i), then all unissued warrants under paragraph 3 hereof for which
the conditions of issuance have otherwise been met shall issue and shall
be fully enforceable according to their terms. All issued and
unexercised warrants shall remain in full force and effect and be fully
enforceable according to their terms. All accrued and unpaid salary, if
any, including under paragraph 3(b)(i), accrued and unpaid expenses and
other payments under paragraph 3(d) and all benefits under paragraph
3(e), including interest iii any retirement or employee benefit plan
shall be promptly paid, or delivered to Executive or to the person
designated by Executive.
(ii) If the employment period ceases or terminates under
paragraph 5(a)(ii), (a)(v), (a)(vi), or if Executive elects to terminate
employment under 5(a)(iv) at a time when the Company is in breach of any
of its obligations hereunder, or if the employment period shall cease
and terminate for any other reason or on any other basis other than set
forth in 5(b)(i), then, Company shall pay and perform all of the items
set forth in paragraph 5(b)(i) and, in addition, the following shall
apply:
(1) If the employment period ceases or terminates within
two (2) years after the date of this Agreement, then the balance
of the warrants for four hundred thousand (400,000) shares of the
common voting stock of the Company that have not been issued under
paragraph 3(a) because the conditions for issuance have not been
met, shall be issued to Executive without regard to performance of
the conditions for issuance set forth in paragraph 3(a). If the
employment period shall cease and terminate more than two (2)
years after the date hereof, then the balance of the warrants for
four hundred thousand (400,000) shares of the common voting stock
of the Company that have not been issued under paragraph 3(a)
because the conditions for issuance have not been met, shall be
issued to Executive without regard to performance of the
conditions for issuance set forth in paragraph 3(a), and, in
addition thereto, Company shall thereupon promptly make a lump sum
cash payment to Executive in an amount equal to two (2) years of
base salary. For purposes of the immediately preceding sentence,
base salary shall mean the highest level of Executive's base
salary that was in effect at any time prior to termination of the
Employment Period, projected over a twelve (12) month period.
(iii) Within twelve (12) months after the Employment Period ceases
or terminates, whether under paragraph 5(a) or otherwise, Company shall
cause all warrants held by Executive to be registered under Federal
Securities Law.
(c) Effect of Termination. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate
effective upon any termination of the Employment Period permitted by this
Agreement; provided, however, that Executive's obligations under Section 4
hereof shall survive any such termination.
(d) Remedies. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof. In addition to any other remedies
available to Executive, Executive shall have the right to specifically enforce
in equity the provisions of paragraph 5(b) hereof.
SECTION 6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except that
the Company shall have the right to assign its rights hereunder to any direct
or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under conunon control with the
Company, any such subsidiary or any such successor, provided, however, that
any such assignment shall not relieve the Company of any of its obligations
hereunder.
SECTION 7. NOTICES.
All notices requests, demands and other communications hereunder must be
in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
U.S. Plastic Lumber Corp.
2300 Glades Rd., Suite 44OW
Boca Raton, FL 33431
Attention:
Copies to:
Proskauer, Rose, Goetz & Mendelsohn
2255 Glades Rd., Suite 340 West
Boca Raton, FL 33431-7360
Attention: Donald Thompson
(b) If to the Executive:
Mr. Mark Alsentzer
604 Creek Lane
Flourtown, PA 19031
Copies to:
Fox, Differ, Callahan, Sheridan & O'Neill
325 Swede Street
Norristown,, PA 19401
Attention: Michael J. Sheridan, Esquire
Addresses may be changed by notice in writing signed by the addressee.
SECTION 8. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties
hereto. Any prior employment agreement between the Company and Executive
shall be deemed to be superseded for all purposes by this Agreement and, upon
the execution and delivery of this Agreement by Executive and the Company, any
such prior employment agreement shall be deemed to be cancelled and of no
further force or effect. The headings in this Agreement are for convenience
of reference only and shall not be considered as part of this Agreement or to
limit or otherwise effect the meaning hereof. If any provisions of this
Agreement shall be held invalid, illegal or unenforceable in whole or in part,
neither the validity of the remaining part of such provisions nor the validity
of any other provisions of this Agreement shall in any way be affected
thereby. This Agreement shall in all respects be governed by and construed in
accordance with the laws of the State of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
U.S. PLASTIC LUMBER CORP.
By:
Name:
(SEAL)
Executive: Mark Alsentzer
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December , 1996, is between U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation (the "Company"), and HAROLD H. GEBERT
("Executive").
RECITALS
A. Executive has been employed as a principal executive officer of
the Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
Company and Executive hereby agree as follows:
SECTION 1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period commencing as of the date hereof and ending on the second (2nd)
anniversary of the date hereof, subject to termination as hereinafter provided
(the period from the date hereof through the second (2nd) anniversary of the
date hereof or the date of such termination, as the case may be, being the
(Employment Period").
SECTION 2. DUTIES.
(a) General Duties. During the Employment Period, Executive shall
serve the Company and its subsidiaries in a senior executive capacity with
such duties consistent therewith, and shall perform such other services for
the Company and its subsidiaries consistent with the position of a senior
executive officer, as may be reasonably assigned to Mm from time to time by
the Board of Directors of the Company. Executive's initial position with the
Company shall be Chairman.
(b) Primary Activity. Durina the Employment Period, Executive shall
devote at least 75%, and shall be under no obligation to devote more than 75%,
of his working time and energy to the interests and business of the Company
and its subsidiaries; however, Executive shall be excused from perfo@ng any
services for the Company hereunder during periods of temporary illness or
incapacity and during reasonable vacations, and Executive may devote a
reasonable amount of time to the handling of his personal affairs, without
thereby in any way affecting the compensation to which he is entitled
hereunder. Although it is acknowledged that the duties of a senior executive
officer may require from time to time attention to business at times other
than normal business hours, it is intended by the parties hereto that
Executive shall perform his duties hereunder during normal business hours.
During the Employment Period, Executive shall, to the best of his skill and
ability, use his best efforts and endeavors to the extension and promotion of
the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) Location and Travel. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be
performable) at the executive offices of the Company in Boca Raton, Florida,
unless otherwise agreed to in writing by the Company and Executive. Executive
agrees to travel for business purposes in a reasonable amount for reasonable
lengths of time, commensurate with Executive's senior executive position.
SECTION 3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) Salary. The Company shall pay Executive a salary at the annual
rate of $52,000. or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal weekly
installments, less any amounts required to be withheld by the Company from
time to time from such salary under any applicable federal, state or local
income tax laws or similar laws then in effect. Executive will be granted
options to purchase 100,000 shares of common stock of U.S. Plastic Lumber at
$4.00 per share.
(b) Reimbursement of Expenses. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies, established from time to time by the
Board of Directors of the Company.
(c) Further Benefits. Executive shall be entitled to participate in
any health, accident, retirement or similar employee benefit plans provided by
the Company generally to its employees to the extent conunensurate with the
participation therein of executives of the Company; provided, however, that
such employee benefit plans shall be no less favorable to Executive than those
provided by the Company to Executive immediately prior to the entering into of
this Agreement. Executive shall be entitled to participate in any present or
future bonus, insurance, pension, retirement, profit sharing or other
compensation or incentive plans adopted by the Company, for the general and
overall benefit of executives of the Company, the extent and manner of
participation to be determined by the Board of Directors of the Company. The
benefits provided in this subsection (c) shall be in addition to the
compensation and benefits provided in the other subsections of this Section 3.
(d) Offices. Executive agrees to serve without additional
compensation, if elected or appointed thereto, in one or more offices or as a
director of any of the Company's subsidiaries, provided, however, that
Executive shall not be required to serve as an officer or director of any
subsidiary if such service would expose him to adverse financial consequences.
SECTION 4. CERTAIN COVENANTS.
In order to induce the Company to enter into this Agreement, Executive
hereby acknowledges and agrees as follows:
(a) Proprietary Information. All documents, records, techniques,
business secrets and other information which have come into the possession of
or have been developed by Executive from time to time in the course and for
the business of the Company and its subsidiaries prior to the date hereof or
which may come into his possession or be developed by him during his
employment by the Company hereunder shall be deemed to be confidential and
proprietary to the Company, except for such documents, records, techniques,
business secrets and other information which have come into the possession of
or have been developed by Executive prior to the date hereof in the course and
for the business of, and which is used by, U.S. Plastic Lumber Corp. None of
such Confidential Information, or any copies thereof, shall be retained by
Executive after termination of the Employment Period.
(b) Confidentiality. Executive shall keep confidenfial all, and shall
not divulge to any other party any, of the Confidential Information of the
Company and its subsidiaries including, but not limited to, Confidential
Information relating to such matters as their finances and operations, the
materials, processes, plans, designs, models, apparatus, equipment and
formulas used in their operations, the names of their customers and such
customers' requirements and the names of their suppliers, except for any such
disclosure (1) which Executive believes in good faith to be required by
applicable law or (ii) is now in the public domain, or hereafter enters the
public domain, through no violation by Executive of his obligations hereunder.
(c) Remedies. In the event of a breach or threatened breach by
Executive of the provisions of this Section 4, the Company shall be entitled
to an injunction restraining Executive from disclosing, in whole or in part,
confidential information described herein, or from rendering any services to
any person, firm, corporation, association or other entity to whom such
confidential information has been disclosed, or is threatened to be disclosed,
or from otherwise violating the provisions of this Section 4. Nothing herein
contained shall be construed as prohibiting the Company or any of its
subsidiaries from pursuing any other remedies available to them for such
breach or threatened breach, including recovery of damages from Executive.
SECTION 5. TERMINATION OF AGREEMENT.
(a) Events of Termination. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the second anniversary of the date
hereof,
(ii) the death of Executive;
(iii)termination of Executive's employment for Cause. For the purpose
of this Agreement, the Company shall have "Cause" to terminate Executive's
employment hereunder upon (A) the failure by Executive to substantially
perform his duties hereunder, other than any such failure resulting from
incapacity due to physical or mental illness, (B) the engaging by Executive in
gross negligence of willful misconduct injurious to the Company, (C) the
violation by Executive of the provisions of Section 4 hereof, or (D) the
conviction of Executive of a felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment hereunder;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of this
Agreement, the "permanent disability" of Executive shall mean Executive's
inability, because of his injury, illness, or other incapacity (physical or
mental), to perform the services to the Company contemplated hereby for a
continuous period of 150 days or for 180 days out of a continuous period of
300 days. Such permanent disability shall be deemed to have occurred on the
150th consecutive day or on the 180th day within the specified period,
whichever is applicable.
(b) Compensation Upon Termination. If the Employment Period shall
cease and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv) or
(a)(vi) of this Section 5, the Company shall pay to Executive (or his estate
in the case of subsection (a) (ii)) his Base Salary pursuant to Section 3(a)
hereof and the reimbursable expenses incurred under Section 3(b) hereof
through the date of termination. The Company shall have no additional or
further liability to Executive hereunder; or
(ii) pursuant to subsection (a)(v) of this Section 5, the company shall
(A) pay to Executive his Base Salary pursuant to Section 3(a) hereof and the
reimbursable expenses incurred under Section 3(b) hereof through the date of
termination, (B) pay to Executive an amount equal to his then current annual
Base Salary, such amount to be payable in 24 equal semimonthly installments,
less any amounts required to be withheld by the Company under any applicable
federal, state or local income tax laws or similar laws then in effect, and
(c) continue for a period of one year from the date of termination (but only
if permitted by the applicable plan) all fringe benefits to which Executive is
then entitled pursuant to Section 3(c) hereof (including payment for any
benefits to which Executive would be entitled to receive under the
Consolidated Omnibus Budget Reconciliation Act of 1985, the benefit period
with respect to which shall commence on the date of termination); provided,
however, that the Employment Period shall be deemed to have expired on the
date of termination for the purposes of any vesting period; and provided,
further, that in no event shall Executive be entitled to receive pursuant to
clause (B) above in amount in excess of that to which Executive would have
been entitled had this Agreement not been so terminated.
(c) Effect of Termination. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate
effective upon any termination of the Employment Period permitted by this
Agreement; provided, however, that Executive's obligations under Section 4
hereof shall survive any such termination.
(d) Remedies. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof
SECTION 6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except that
the Company shall have the right to assign its rights hereunder to any direct
or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that
any such assignment shall not relieve the Company of any of its obligations
hereunder.
SECTION 7. NOTICES.
All notices requests, demands and other communications hereunder must be
in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
U.S. Plastic Lumber Corp.
2300 Glades Rd., Suite 44OW
Boca Raton, FL 33431
Attention: Mr. Mark Alsentzer
Copies to:
Proskauer, Rose, Goetz & Mendelsohn
2255 Glades Rd., Suite 340 West
Boca Raton, FL 33431-7360
Attention: Donald Thompson
Addresses may be changed by notice in writing signed by the addressee.
SECTIONS. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties
hereto. Any prior employment agreement between the Company and Executive
shall be deemed to be superseded for all purposes by this Agreement and, upon
the execution and delivery of this Agreement by Executive and the Company, any
such prior employment agreement shall be deemed to be canceled and of no
further force or effect. The headings in this Agreement are for convenience
of reference only and shall not be considered as part of this Agreement or to
lin-dt or otherwise effect the meaning hereof If any provisions of this
Agreement shall be held invalid, illegal or unenforceable in whole or in part,
neither the validity of the remaining part of such provisions nor the validity
of any other provisions of this Agreement shall in any way be affected
thereby. This agreement shall in all respects be governed by and construed in
accordance with the laws of the State of Florida.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
U.S. PLASTIC LUMBER CORP.
By: /s/ Mark Alsentzer
Name: Mark Alsentzer
Title: Chief Executive Officer
/s/ Harold H. Gebert
Harold H. Gebert
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December , 1996, is between U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation (the "Company"), and DAVID A. FARROW
("Executive").
RECITALS
A. Executive has been employed as a principal executive officer of
the Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
Company and Executive hereby agree as follows:
SECTION 1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period commencing as of the date hereof and ending on the second (2nd)
anniversary of the date hereof, subject to termination as hereinafter provided
(the period from the date hereof through the second (2nd) anniversary of the
date hereof or the date of such termination, as the case may be, being the
(Employment Period").
SECTION 2. DUTIES.
(a) General Duties. During the Employment Period, Executive shall
serve the Company and its subsidiaries in a senior executive capacity with
such duties consistent therewith, and shall perform such other services for
the Company and its subsidiaries consistent with the position of a senior
executive officer, as may be reasonably assigned to Mm from time to time by
the Board of Directors of the Company. Executive's initial position with the
Company shall be Chairman.
(b) Primary Activity. Durina the Employment Period, Executive shall
devote at least 75%, and shall be under no obligation to devote more than 75%,
of his working time and energy to the interests and business of the Company
and its subsidiaries; however, Executive shall be excused from perfo@ng any
services for the Company hereunder during periods of temporary illness or
incapacity and during reasonable vacations, and Executive may devote a
reasonable amount of time to the handling of his personal affairs, without
thereby in any way affecting the compensation to which he is entitled
hereunder. Although it is acknowledged that the duties of a senior executive
officer may require from time to time attention to business at times other
than normal business hours, it is intended by the parties hereto that
Executive shall perform his duties hereunder during normal business hours.
During the Employment Period, Executive shall, to the best of his skill and
ability, use his best efforts and endeavors to the extension and promotion of
the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) Location and Travel. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be
performable) at the executive offices of the Company in Boca Raton, Florida,
unless otherwise agreed to in writing by the Company and Executive. Executive
agrees to travel for business purposes in a reasonable amount for reasonable
lengths of time, commensurate with Executive's senior executive position.
SECTION 3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) Salary. The Company shall pay Executive a salary at the annual
rate of $52,000. or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal weekly
installments, less any amounts required to be withheld by the Company from
time to time from such salary under any applicable federal, state or local
income tax laws or similar laws then in effect. Executive will be granted
options to purchase 100,000 shares of common stock of U.S. Plastic Lumber at
$4.00 per share.
(b) Reimbursement of Expenses. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies, established from time to time by the
Board of Directors of the Company.
(c) Further Benefits. Executive shall be entitled to participate in
any health, accident, retirement or similar employee benefit plans provided by
the Company generally to its employees to the extent conunensurate with the
participation therein of executives of the Company; provided, however, that
such employee benefit plans shall be no less favorable to Executive than those
provided by the Company to Executive immediately prior to the entering into of
this Agreement. Executive shall be entitled to participate in any present or
future bonus, insurance, pension, retirement, profit sharing or other
compensation or incentive plans adopted by the Company, for the general and
overall benefit of executives of the Company, the extent and manner of
participation to be determined by the Board of Directors of the Company. The
benefits provided in this subsection (c) shall be in addition to the
compensation and benefits provided in the other subsections of this Section 3.
(d) Offices. Executive agrees to serve without additional
compensation, if elected or appointed thereto, in one or more offices or as a
director of any of the Company's subsidiaries, provided, however, that
Executive shall not be required to serve as an officer or director of any
subsidiary if such service would expose him to adverse financial consequences.
SECTION 4. CERTAIN COVENANTS.
In order to induce the Company to enter into this Agreement, Executive
hereby acknowledges and agrees as follows:
(a) Proprietary Information. All documents, records, techniques,
business secrets and other information which have come into the possession of
or have been developed by Executive from time to time in the course and for
the business of the Company and its subsidiaries prior to the date hereof or
which may come into his possession or be developed by him during his
employment by the Company hereunder shall be deemed to be confidential and
proprietary to the Company, except for such documents, records, techniques,
business secrets and other information which have come into the possession of
or have been developed by Executive prior to the date hereof in the course and
for the business of, and which is used by, U.S. Plastic Lumber Corp. None of
such Confidential Information, or any copies thereof, shall be retained by
Executive after termination of the Employment Period.
(b) Confidentiality. Executive shall keep confidenfial all, and shall
not divulge to any other party any, of the Confidential Information of the
Company and its subsidiaries including, but not limited to, Confidential
Information relating to such matters as their finances and operations, the
materials, processes, plans, designs, models, apparatus, equipment and
formulas used in their operations, the names of their customers and such
customers' requirements and the names of their suppliers, except for any such
disclosure (1) which Executive believes in good faith to be required by
applicable law or (ii) is now in the public domain, or hereafter enters the
public domain, through no violation by Executive of his obligations hereunder.
(c) Remedies. In the event of a breach or threatened breach by
Executive of the provisions of this Section 4, the Company shall be entitled
to an injunction restraining Executive from disclosing, in whole or in part,
confidential information described herein, or from rendering any services to
any person, firm, corporation, association or other entity to whom such
confidential information has been disclosed, or is threatened to be disclosed,
or from otherwise violating the provisions of this Section 4. Nothing herein
contained shall be construed as prohibiting the Company or any of its
subsidiaries from pursuing any other remedies available to them for such
breach or threatened breach, including recovery of damages from Executive.
SECTION 5. TERMINATION OF AGREEMENT.
(a) Events of Termination. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the second anniversary of the date
hereof,
(ii) the death of Executive;
(iii)termination of Executive's employment for Cause. For the purpose
of this Agreement, the Company shall have "Cause" to terminate Executive's
employment hereunder upon (A) the failure by Executive to substantially
perform his duties hereunder, other than any such failure resulting from
incapacity due to physical or mental illness, (B) the engaging by Executive in
gross negligence of willful misconduct injurious to the Company, (C) the
violation by Executive of the provisions of Section 4 hereof, or (D) the
conviction of Executive of a felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment hereunder;
(v) the election by the Company to terminate Executive's employment
hereunder; or
(vi) the permanent disability of Executive. For the purpose of this
Agreement, the "permanent disability" of Executive shall mean Executive's
inability, because of his injury, illness, or other incapacity (physical or
mental), to perform the services to the Company contemplated hereby for a
continuous period of 150 days or for 180 days out of a continuous period of
300 days. Such permanent disability shall be deemed to have occurred on the
150th consecutive day or on the 180th day within the specified period,
whichever is applicable.
(b) Compensation Upon Termination. If the Employment Period shall
cease and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv) or
(a)(vi) of this Section 5, the Company shall pay to Executive (or his estate
in the case of subsection (a) (ii)) his Base Salary pursuant to Section 3(a)
hereof and the reimbursable expenses incurred under Section 3(b) hereof
through the date of termination. The Company shall have no additional or
further liability to Executive hereunder; or
(ii) pursuant to subsection (a)(v) of this Section 5, the company shall
(A) pay to Executive his Base Salary pursuant to Section 3(a) hereof and the
reimbursable expenses incurred under Section 3(b) hereof through the date of
termination, (B) pay to Executive an amount equal to his then current annual
Base Salary, such amount to be payable in 24 equal sernimonthly installments,
less any amounts required to be withheld by the Company under any applicable
federal, state or local income tax laws or similar laws then in effect, and
(c) continue for a period of one year from the date of termination (but only
if permitted by the applicable plan) all fringe benefits to which Executive is
then entitled pursuant to Section 3(c) hereof (including payment for any
benefits to which Executive would be entitled to receive under the
Consolidated Omnibus Budget Reconciliation Act of 1985, the benefit period
with respect to which shall commence on the date of termination); provided,
however, that the Employment Period shall be deemed to have expired on the
date of termination for the purposes of any vesting period; and provided,
further, that in no event shall Executive be entitled to receive pursuant to
clause (B) above in amount in excess of that to which Executive would have
been entitled had this Agreement not been so terminated.
(c) Effect of Termination. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate
effective upon any termination of the Employment Period permitted by this
Agreement; provided, however, that Executive's obligations under Section 4
hereof shall survive any such termination.
(d) Remedies. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof
SECTION 6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except that
the Company shall have the right to assign its rights hereunder to any direct
or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that
any such assignment shall not relieve the Company of any of its obligations
hereunder.
SECTION 7. NOTICES.
All notices requests, demands and other communications hereunder must be
in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
U.S. Plastic Lumber Corp.
2300 Glades Rd., Suite 44OW
Boca Raton, FL 33431
Attention: Mr. Mark Alsentzer
Copies to:
Proskauer, Rose, Goetz & Mendelsohn
2255 Glades Rd., Suite 340 West
Boca Raton, FL 33431-7360
Attention: Donald Thompson
Addresses may be changed by notice in writing signed by the addressee.
SECTIONS. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties
hereto. Any prior employment agreement between the Company and Executive
shall be deemed to be superseded for all purposes by this Agreement and, upon
the execution and delivery of this Agreement by Executive and the Company, any
such prior employment agreement shall be deemed to be canceled and of no
further force or effect. The headings in this Agreement are for convenience
of reference only and shall not be considered as part of this Agreement or to
lin-dt or otherwise effect the meaning hereof If any provisions of this
Agreement shall be held invalid, illegal or unenforceable in whole or in part,
neither the validity of the remaining part of such provisions nor the validity
of any other provisions of this Agreement shall in any way be affected
thereby. This agreement shall in all respects be governed by and construed in
accordance with the laws of the State of Florida.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
U.S. PLASTIC LUMBER CORP.
By: /s/ Mark Alsentzer
Name: Mark Alsentzer
Title: Chief Executive Officer
/s/ David A. Farrow
David A. Farrow
EXCLUSIVE LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made and is
effective as of the day of , 1997, (hereinafter known as the
"Effective Date") by and between RUTGERS, THE STATE UNIVERSITY OF
NEW JERSEY, having its statewide Office of Corporate Liaison and
Technology Transfer at P.O. Box 1179, ASB Annex II, Bevier Road,
Piscataway, New Jersey 08855-1179, (hereinafter referred to as
"Rutgers"), and U.S. Plastics Lumber Corp., a Florida corporation
having a principal place of business at 2300 W. Glades Rd., Suite
440, Boca Raton, FL 33431 (hereinafter referred to as "Licensee").
RECITALS
WHEREAS, Certain inventions disclosed under Rutgers' Case No.
96-0404-1, generally characterized as "Composite Building Material
From Recycled Waste," hereinafter collectively referred to as the
"Invention," were made in the course of research at Rutgers, The
State University of New Jersey by Drs. Richard Renfree and Tom
Nosker (hereinafter, "Inventors"); and
WHEREAS, Licensee entered into Secrecy and an Option
Agreement with Rutgers effective November 18, 1996 and June 30,
1996, respectively, and terminating on and December 31, 1997 and
January 31, 1997, respectively, for the purpose of evaluating the
Invention; and
<PAGE>
WHEREAS, Licensee is a "small business firm" as defined in 15
U.S.C. 632; and
WHEREAS, Licensee wishes to obtain certain rights from Rutgers
for the commercial development, manufacture, use, and sale of the
Invention, and Rutgers is willing to grant such rights on the terms
and conditions set forth in this Agreement; and
WHEREAS, Licensee's early access to Rutgers' Technology prior
to the effective date of this Agreement provides the consideration
for Licensee's continuing royalty obligation for use of Rutgers
Technology; and
WHEREAS, Both parties recognize and agree that royalties due
hereunder will be paid on both pending patent applications and
issued patents, as well as on Rutgers' Technology as hereafter
defined; and
WHEREAS, Rutgers is desirous that the Invention be developed
and utilized to the fullest extent so that the benefits can be
enjoyed by the general public.
NOW THEREFORE, the parties agree as follows:
2
<PAGE>
1. DEFINITIONS
1.1 "Affiliate" means (i) any corporation or business entity
that directly or indirectly controls, is controlled by, or is under
common control with Licensee to the extent of at least fifty
percent (50%) of the outstanding stock or other voting rights
entitled to elect directors and (ii) any joint venture in which
Licensee or an Affiliate participates which markets Licensed
Products.
1.2 "Data" means all information acquired by Licensee, its
Affiliates or its sublicensees directly or indirectly from or
through Rutgers, its units, its employees, the Inventors, or its
consultants relating to the Invention, Licensed Products, on this
Agreement, including but not limited to all Rutgers Technology, all
patent prosecution documents, and all information received from
Inventors.
1.3 "Licensed Field" shall mean the use of the Invention for
plastic railroad ties, marine pilings, highway spacer blocks,
highway guard rails, and building materials.
1.4 "Second Field" shall mean the use of the Invention for
sports equipment, and other non-building products, but excluding
telephone poles and light poles.
3
<PAGE>
1. 5 "Licensed Method" means any process, method, or use
that is covered by Rutgers' Patent Rights or whose use or practice
would constitute, but for the license granted to Licensee pursuant
to this Agreement, an infringement of any issued or pending claim
within Rutgers' Patent Rights.
1.6 "Licensed Product" means any material or product or kit,
or any service, process, or procedure that (1) either is covered by
Rutgers' Patent Rights or whose manufacture, use, or sale would
constitute, but for the license granted to Licensee pursuant to
this Agreement, an infringement of any claim within Rutgers' Patent
Rights or (2) is developed, made, sold, registered, or practiced
using Rutgers' Technology or Licensed,Method or which may be used
to practice the Licensed Method, in whole or in part.
1.7 "Major Market countries" shall mean Canada, France,
Germany, Italy, Japan, Mexico, and the United Kingdom.
1.8 "Net Sales" means the total of the gross consideration
received for Licensed Products made, used, leased, transferred,
sold or otherwise disposed of by Licensee, its Affiliates, and its
sublicensees, at arms-length prices, less the sum of the following
actual and customary deductions (net of rebates or allowances of
such deductions received) included on the invoice and actually
paid: returns, bad debts not to exceed 5% of the Net Sales
annually, cash, trade, or quantity discounts; sales or use taxes
4
<PAGE>
imposed upon particular sales; import/export duties; and
transportation charges.
A Licensed Product shall be deemed made, used, leased,
transferred, sold, or otherwise disposed of at the time Licensee
bills, invoices, ships, or receives payment for such Licensed
Product, whichever occurs first.
1.9 "Research Agreement" means the research agreement
executed between Licensee and Rutgers which funds further research
in the field of Rutgers' Patent Rights.
1.10 "Rutgers Patent Rights" means U.S. Patent Application
Number 08/704,889 and foreign patents and patent applications
corresponding thereto owned by Rutgers, including any reissues,
extensions, substitutions, divisions, continuations not including
continuations-in-part thereof.
1.11 "Rutgers' Technology" means all information, and physical
objects related to the Invention or to Licensed Product, in the
field of use licensed hereunder, (other than Rutgers' Patent
Rights), including but not limited to formulations, data, drawings
and sketches, designs, testing and test results, regulatory
information of a like nature, whether patentable or not, owned or
controlled by Rutgers, which Rutgers has the right to disclose and
license to third parties and which arose in the Inventors
laboratories under the direction of one or more of the Inventors
5
<PAGE>
prior to the Effective Date of this Agreement or arises hereafter
under the Research Agreement.
1.12 "Territory" shall mean all countries of the world in
which Rutgers has intellectual property rights, subject to any
exclusions provided in this Agreement.
2. GRANT
2.1 Subject to the limitations set forth in this Agreement,
Rutgers hereby grants to Licensee an exclusive license in the
Licensed Field under Rutgers' Patent Rights and Rutgers' Technology
to make, have made, use, and sell Licensed Products and to practice
Licensed Method in the Territory during the term of this Agreement.
2.2 Subject to the limitations set forth in this Agreement,
Rutgers hereby grants to Licensee a nonexclusive license in the
Second Field under Rutgers' Patent Rights and Rutgers' Technology
to make, have made, use, and sell Licensed Products and to practice
Licensed Method in the Territory during the term of this Agreement.
2.3 If the Invention was funded by the U.S. Government, the
license granted hereunder shall be subject to the overriding
obligations to the U.S. Government set forth in 35 U.S.C. 200-212
and applicable governmental implementing regulations and to the
licenses granted to the U.S. Government that are referred to in the
6
<PAGE>
Recitals.
2.4 Rutgers expressly reserves the right to use the
Invention, Rutgers' Patent Rights, Rutgers' Technology, Licensed
Products, Licensed Methods, and associated information and
technology for educational, research and other non-business
purposes and to publish the results thereof.
2.5 Rutgers', principally through the Inventors, has provided
Rutgers Technology to Licensee. It is understood that at the time
of disclosure to the Licensee some of the Rutgers' Technology may
have been made available to the public or to Licensee without
restrictions.
3. SUBLICENSES
3.1 Rutgers grants to Licensee the right to grant sublicenses
to third parties under the licenses granted in Article 2.1,
provided Licensee has current exclusive rights thereto under this
Agreement. To the extent applicable, such sublicenses shall
include all of the rights of and obligations due to Rutgers (and,
if applicable, to the United States Government) that are contained
in this Agreement.
3.2 Within thirty (30) days after execution thereof, Licensee
shall provide Rutgers with a copy of each sublicense issued
7
<PAGE>
hereunder, and shall thereafter collect and guarantee payment of
all royalties due Rutgers from sublicensees and summarize and
deliver all reports due Rutgers from sublicensees.
3.3 Upon termination of this Agreement for any reason,
Rutgers, at its sole discretion, shall determine whether any or all
sublicenses shall be canceled or assigned to Rutgers.
4. LICENSE ISSUE FEE, LICENSE MAINTENANCE FEES
AND MILESTONE PAYMENTS
4.1 Licensee agrees to pay to Rutgers a License Issue Fee of
Ten Thousand Dollars ($10,000) and 187,500 shares of Licensee's
common stock within thirty (30) days after the execution of this
Agreement. This consideration is non-refundable and is not an
advance against royalties.
4.2 Licensee agrees to pay to Rutgers a License Maintenance
Fee of Five Thousand Dollars ($5,000)on the first anniversary of
the Effective Date in 1998, Ten Thousand Dollars ($10,000) on the
second anniversary date of the Effective Date in 1999, and Ten
Thousand Dollars ($10,000) continuing annually on the anniversary
of the Effective Date of each subsequent year. The License
Maintenance Fee shall not be payable on any due date if on said
date Licensee is commercially selling Licensed Product and paying
an earned royalty to Rutgers on the sales of Licensed Product. The
8
<PAGE>
License Maintenance Fee is non-refundable and is not an advance
against royalties.
4.4 Licensee shall pay to Rutgers a portion of all nonroyalty
consideration received by Licensee from sublicensing or
transferring the rights licensed to Licensee hereunder, and shall
pay or cause its shareholders to pay to Rutgers a portion of all
consideration, received from sale of Licensee or its Affiliates,
attributable to the rights granted to Licensee hereunder according
to the following schedule:
Cumulative Consideration Percentage to Rutgers
Received by Licensee
$0 to $2 Million 10%
>$2 Million $4 Million 25%
>$4 Million 40%
5. ROYALTIES
5.1 Except as otherwise required by law, Licensee shall pay
to Rutgers a running royalty of three percent (3%) of Net Sales
during the term of this Agreement. Sales among Licensee, its
Affiliates and its sublicensees for ultimate third party use shall
be disregarded for purposes of computing royalties. Royalties
shall be payable only upon sales or transfers between unrelated
third parties and shall be based on arms length consideration.
9
<PAGE>
5.2 Royalties payable to Rutgers shall be paid to Rutgers quarterly
on or before the following dates of each calendar year:
February 28 May 31
August 31 November 30
Each such payment will be for unpaid royalties that accrued within
Licensee's most recently completed calendar quarter.
5.3 Licensee shall pay to Rutgers a minimum annual royalty equal to
the amount set forth on the following schedule:
Year of Commercial Marketing Minimum Royalty
1 $25,000
2 $40,000
3 and thereafter $60,000
for the term of this Agreement beginning with the date of first commercial
sale of Licensed Product. This minimum annual royalty shall be paid to
Rutgers by February 28 of each year and shall be credited against the
earned royalty due and owing for the calendar year in which the minimum
annual royalty is paid. The first year's minimum annual royalty shall be
prorated by the fractional number of full months remaining in that
calendar year and shall be paid within forty-five days (45) of the date of
first commercial sale of a Licensed Product.
10
<PAGE>
5.4 All amounts due Rutgers shall be payable in United States
Dollars in New Brunswick, New Jersey. When Licensed Products are
sold for monies other than United States Dollars, the earned
royalties will first be determined in the foreign currency of the
country in which such Licensed Products were sold and then
converted into equivalent United States Dollars. The exchange rate
will be the United States Dollar buying rate quoted in the Wall
Street Journal on the last day of the reporting period.
5.5 Licensee shall be responsible for any and all taxes,
fees, or other charges imposed by the government of any country
outside the United States on the remittance of royalty income for
sales occurring in any such country. Licensee shall also be
responsible for all bank transfer charges.
5.6 If at any time legal restrictions prevent the acquisition
or prompt remittance of United States Dollars by Licensee with
respect to any country where a Licensed Product is sold, Licensee
shall pay royalties due to Rutgers from Licensee's other sources of
United States Dollars.
5.7 In the event that any patent or any claim thereof
included within the Rutgers' Patent Rights shall be held invalid in
a final decision by a court of competent jurisdiction and last-
resort in any country and from which no appeal has or can be taken,
all obligation to pay royalties based on such patent or claim or
<PAGE>
any claim patentably indistinct therefrom shall cease as of the
date of such final decision with respect to such country. Licensee
shall not, however, be relieved from paying any royalties that
accrued before such decision or that are based on another patent or
claim not involved in such decision, or that are based on Rutgers'
Technology.
5.8 In the event that a patent application is made for
Letters Patent, but no patent issues under Rutgers' Patent Rights
as described in 5.7 above, Licensee's royalty due hereunder shall
be reduced to one-half of one percent (.5%) of Net Sales during the
term of this Agreement. Sales among Licensee, its Affiliates and
its sublicensees for ultimate third party use shall be disregarded
for purposes of computing royalties. Royalties shall be payable
only upon sales or transfers between unrelated third parties and
shall be based on arms length consideration. Royalties due herein
shall continue for a time period that ends at 17 years from the
Effective Date of this Agreement.
5.9 If a license to the Invention has been granted to the
United States Government, no royalties shall be payable hereunder
on Licensed Products sold to the U.S. Government. Licensee and its
sublicensees shall reduce the amount charged for Licensed Products
sold to the United States Government by an amount equal to the
royalty for such Licensed Products otherwise due Rutgers as
provided herein.
12
<PAGE>
6. DILIGENCE
6.1 Licensee, upon execution of this Agreement, shall use its
best efforts to endeavor to develop, test, obtain regulatory
approval, manufacture, market and sell Licensed Products in all
countries of the Territory and shall use its best efforts to
market the same within a reasonable time after execution of this
Agreement and in quantities sufficient to meet the market demands
therefor.
6.2 Licensee shall be entitled to exercise prudent and
reasonable business judgment in meeting its diligence obligations
hereunder.
6.3 Licensee shall use all reasonable efforts to obtain all
necessary governmental approvals for the manufacture, use and
sale of Licensed Products.
6.4 If Licensee fails to complete the following milestones
as described below, then Rutgers shall have the right and option
upon sixty (60) days' written notice, either to terminate this
Agreement with respect to any countries where Licensee has failed
to perform or to reduce Licensee's exclusive license to a
nonexclusive license in such countries:
a. Execute the Research Agreement in the amount of least
13
<PAGE>
$100,000 within thirty (30) days of the execution of this
Agreement and perform in accordance of the terms of that Research
Agreement.
b. Make the first commercial sale in the United States of
America and a Major Market Country in the Licensed Field by
December 31, 1998.
c. Complete construction of a plastic extrusion plant
capable of producing railroad ties at a capacity in excess of
400,000 railroad ties per year and commence operation of such
plant by December 1999.
d. Make a first commercial sale in the United States of
America and a Major Market Country in each of the Second Fields
by December 31, 1999.
Should the Licensee fail to fulfill the diligence requirements
within said sixty (60) day period, the notice shall be effective
at the end of said period. This right, if exercised by Rutgers,
supersedes the rights granted in Article 2 (GRANT).
7. PROGRESS AND ROYALTY REPORTS
7.1 Beginning August 28, 1997, and semi-annually thereafter,
Licensee shall submit to Rutgers a progress report covering
14
<PAGE>
Licensee's activities related to the development and testing of all
Licensed Products and the obtaining of the governmental approvals
necessary for marketing. These progress reports shall be made for
each Licensed Product in each country of the Territory.
7.2 The progress reports submitted under section 7.1 shall
include sufficient information to enable Rutgers to determine
Licensee's progress in fulfilling its obligations under Article 6,
including, but not limited to, the following topics:
- summary of work completed
- key scientific discoveries
- summary of work in progress, including product
development and testing and progress in obtaining
government approvals
- current schedule of anticipated events or milestones
- market plans for introduction of Licensed Products in
countries of the Territory in which Licensed Product has
not been introduced
- summary of resources (dollar value) spent in the
reporting period for research, development, and marketing
of Licensed Products
- activities in obtaining sublicensees and activities of
sublicensees
- certified financial statements annually and quarterly
financial statements that are produced internally as of
15
<PAGE>
the end of the previous calendar quarter.
- activities under the Research Agreement
7.3 Licensee shall have a continuing responsibility to keep
Rutgers informed of the large/small entity status (as defined by
the United States Patent and Trademark office) of itself and its
sublicensees.
7.4 Licensee shall report to Rutgers in its immediately
subsequent progress and royalty report the date of first commercial
sale of each Licensed Product in each country.
7.5 After the first commercial sale of a Licensed Product
anywhere in the world, Licensee will make quarterly royalty reports
to Rutgers on or before each February 28, May 31, August 31 and
November 30 of each year. Each such royalty report will cover
Licensee's most recently completed calendar quarter and will show
(a) the units and gross sales and Net Sales of each type of
Licensed Product sold by Licensee on which royalties have not been
paid, including a clear indication of how Net Sales were
calculated; (b) the royalties, in U.S. dollars, payable hereunder
with respect to such sales; (c) the method used to calculate the
royalty; (d) the exchange rates used, if any; and (e) consideration
received from sublicensing.
7.6 If no sales of Licensed Products have been made during
16
<PAGE>
any reporting period, a statement to this effect shall be made by
Licensee.
8. BOOKS AND RECORDS
8.1 Licensee shall keep and cause its sublicensees to keep
books and records in accordance with general acceptable accounting
principles accurately showing all transactions and information
relating to this Agreement. Such books and records shall be
preserved for at least five (5) years from the date of the entry to
which they pertain and shall be open to inspection by
representatives or agents of Rutgers at reasonable times upon
reasonable notice.
8.2 The fees and expenses of Rutgers' representatives
performing such an examination shall be borne by Rutgers. However,
if an error in royalties of more than five percent (5%) of the
total royalties due for any year is discovered, or if as a result
of the examination it is determined that Licensee is in material
breach of its other obligations under this Agreement, then the fees
and expenses of these representatives shall be borne by Licensee.
17
<PAGE>
9. TERM OF THE AGREEMENI
9.1 Unless otherwise terminated by operation of law or by
acts of the parties in accordance with the provisions of this
Agreement, this Agreement shall be in force from the effective date
recited on page one and shall remain in effect in each country of
the Territory until the longer of (i) expiration of the last-to-
expire patent licensed under this Agreement in such country or (ii)
ten years from the date of first commercial sale of a Licensed
Product in such country.
9.2 Any expiration or termination of this Agreement shall not
affect the rights and obligations set forth in the following
Articles:
Article 8 Books and Records
Article 12 Disposition of Licensed Products on
Hand Upon Termination
Article 13 Use of Names, Trademarks and
Confidential Data
Article 18 Indemnification and Insurance
Article 23 F ailure to Perform
Article 28 Confidentiality
18
<PAGE>
10. TERMINATION BY RUTGERS
10.1 If Licensee should breach or fail to perform any
provision of this Agreement, then Rutgers may give written notice
of such default (Notice of Default) to Licensee. If Licensee
should fail to cure such default within ninety (90) days of the
effective date of such notice, Rutgers shall have the right to
terminate this Agreement and the licenses herein by a second
written notice (Notice of Termination) to Licensee. If a Notice of
Termination is sent to Licensee, this Agreement shall automatically
terminate on the effective date of such notice. Termination shall
not relieve Licensee of its obligation to pay all amounts due to
Rutgers as of the effective date of termination and shall not
impair any accrued right of Rutgers.
11. TERMINATION BY LICENSEE
11.1 Licensee shall have the right at any time to terminate
this Agreement in whole or as to any portion of Rutgers' Patent
Rights by giving ninety (90) days notice thereof in writing to
Rutgers. If such termination is within the first two (2) years of
this Agreement, Licensee shall pay Rutgers a relicensing fee of Ten
Thousand Dollars ($10,000).
11.2 Any termination pursuant to the above paragraph shall not
relieve Licensee of any obligation or liability accrued
19
<PAGE>
hereunder prior to such termination or rescind anything done by
Licensee or any payments made to Rutgers hereunder prior to the
time such termination becomes effective, and such termination shall
not affect in any manner any rights of Rutgers arising under this
Agreement prior to such termination.
12. DISPOSITION OF LICENSED PRODUCTS AND INFORMATION
ON HAND UPON TERMINATION
12.1 Upon termination of this Agreement by either party (i)
Licensee shall have the privilege of disposing of all previously
made or partially made Licensed Products, but no more, within a
period of one hundred and twenty (120) days after the effective
date of termination, provided, however, that the disposition of
such Licensed Products shall be subject to the terms of this
Agreement including, but not limited to, the payment of royalties
at the rate and at the time provided herein and the rendering of
reports thereon; (ii) Licensee shall promptly return, and shall
cause its sublicensees to return, to Rutgers all Rutgers'
Technology, and other property belonging to Rutgers, if any, that
has been provided to Licensee or its Affiliates or sublicensees
hereunder, and all copies and facsimiles thereof and derivatives
therefrom (except that Licensee may retain one copy of written
material for record purposes only, provided such material is not
used by Licensee for any other purpose and is not disclosed to
others); and (iii) Licensee shall provide Rutgers with copies of
20
<PAGE>
all information relating to Licensed Product or Licensed Method
developed or acquired by Licensee or its Affiliates, and Rutgers
shall have the nonexclusive, worldwide right to use such
information in connection with its research and in connection with
the relicensing of Rutgers' Patent Rights and Rutgers' Technology.
13. USE OF NAMES, TRADEMARKS, AND CONFIDENTIAL INFORMATION
13.1 Nothing contained in this Agreement shall be construed as
granting any right to Licensee or its Affiliates to use in
advertising, publicity, or other promotional activities any name,
trade name, trademark, or other designation of Rutgers or any of
its units (including contraction, abbreviation or simulation of any
of the foregoing). Unless required by law, the use by Licensee of
the name, "Rutgers, The State University of New Jersey" or any
campus or unit of Rutgers is expressly prohibited, and Licensee
shall not use such names in any manner without Rutgers' prior
written consent.
14, LIMITED WARRANTY
14.1 Rutgers warrants to Licensee that it has the lawful right
to grant this license.
14.2 This license and the associated Invention are provided
WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
21
<PAGE>
PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. RUTGERS MAKES
NO REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR
LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY
RIGHT.
14.3 IN NO EVENT WILL RUTGERS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS
LICENSE OR MANUFACTURE, SALE, OR USE OF THE INVENTION OR LICENSED
PRODUCTS OR LICENSED METHODS OR RUTGERS' TECHNOLOGY OR BIOLOGICAL
MATERIAL.
14.4 Nothing in this Agreement shall be construed as:
(14.4a) a warranty or representation by Rutgers as to the
validity or scope of any Rutgers' Patent Rights or
Rutgers Technology; or
(14.4b) a warranty or representation that anything made.,
used, sold or otherwise disposed of under any
license granted in this Agreement is or will be
free from infringement of patents or other
intellectual property or biological materials of
third parties; or
(14.4c) an obligation to bring or prosecute actions or
suits against third parties except as provided in
Article 17; or
(14.4d) conferring by implication, estoppel or otherwise
any license or rights under any
22
<PAGE>
patents or other intellectual property of Rutgers
other than Biological Materials, Rutgers' Patent
Rights and Rutgers Technology as defined herein,
regardless of whether such patents are dominant or
subordinate to Rutgers' Patent Rights; or
(14.4e) an obligation to furnish any know-how not provided
in Rutgers' Patent Rights and Rutgers Technology.
15, PATENT PROSECUTION
AND MAINTENANCE
15.1 Rutgers shall diligently prosecute and maintain the
United States patents comprising Rutgers' Patent Rights using
counsel of its choice. Rutgers' counsel shall take instructions
only from Rutgers. Rutgers shall provide Licensee with copies of
all relevant documentation so that Licensee may be informed and
apprised of the continuing prosecution. Licensee agrees to keep
this documentation confidential.
15.2 Rutgers shall give due consideration to amending any
patent application to include claims reasonably requested by
Licensee to protect the Licensed Products contemplated to be sold
under this Agreement.
23
<PAGE>
15.3 Rutgers shall cooperate with Licensee in applying for an
extension of the term of any patent included within Rutgers' Patent
Rights if appropriate under the Drug Price Competition and Patent
Term Restoration Act of 1984. Licensee shall prepare all such
documents, and Rutgers agrees to execute such documents and to take
such additional action as Licensee may reasonably request in
.connection therewith.
15.4 All past, present, and future costs of preparing, filing,
prosecuting, defending, and maintaining all United States patent
applications and/or patents, including interferences and
oppositions, and all corresponding foreign patent applications and
patents covered by Rutgers' Patent Rights shall be borne by
Licensee. such costs include patent prosecution costs for this
Invention incurred by Rutgers prior to the execution of this
Agreement of approximately $6,000, based on information currently
available to Rutgers, which amount shall be due within thirty (30)
days of the execution of this Agreement. Current and future costs
shall be payable by Licensee within thirty (30) days of the billing
date. Failure to pay these bills in a timely manner is grounds for
terminating this Agreement. After Licensee has been notified three
times of failure to pay bills in a timely manner, Rutgers may
terminate this Agreement without prior notice to Licensee.
15.5 Rutgers shall, at the request of Licensee, file,
prosecute, and maintain patent applications and patents covered by
24
<PAGE>
Rutgers' Patent Rights in foreign countries if available. Licensee
consents to the filing of all PCT and foreign patent applications
that have already been filed as of the effective date of this
Agreement. Licensee shall notify Rutgers within six (6) months of
the filing of the corresponding United States application of its
decision to obtain all other foreign patents. This notice shall be
in writing and shall identify the countries desired. The absence
of such a notice from Licensee shall be considered by Rutgers to be
an election not to request foreign rights.
15.6 Licensee's obligation to underwrite and to pay patent
prosecution costs shall continue for so long as this Agreement
remains in effect, provided, however, that Licensee may terminate
its obligations with respect to any given patent application or
patent upon three (3) months' written notice to Rutgers. Rutgers
shall use reasonable efforts to curtail patent costs when such a
notice is received from Licensee. Licensee shall promptly pay
patent costs which cannot be so curtailed. Commencing on the
effective date of such notice, Rutgers may continue prosecution
and/or maintenance of such applications or patent(s) at its sole
discretion and expense, and Licensee shall have no further right or
licenses thereunder or to relat ed Rutgers Technology.
15.7 Rutgers shall have the right to file patent applications
at its own expense in any country or countries in which Licensee
has not elected to secure patent rights or in which Licensee's
25
<PAGE>
patent rights hereunder have terminated, and such applications and
resultant patents shall not be subject to this Agreement and may be
freely licensed by Rutgers to others together with Rutgers,
Technology.
16. PATENT MARKING
16.1 Licensee shall mark all Licensed Products made, used,
sold or otherwise disposed of under the terms of this Agreement, or
their containers, in accordance with the applicable patent marking
laws.
17, PATENT INFRINGEMENT
17.1 In the event that Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, Licensee
shall call Rutgers' attention thereto in writing and shall provide
Rutgers with reasonable evidence of such infringement. Both
parties to this Agreement agree that during the period and in a
jurisdiction where Licensee has exclusive rights under this
Agreement, neither will notify a third party of the infringement of
any of Rutge rs' Patent Rights without first obtaining consent of
the other Party, which consent shall not be unreasonably denied.
Both parties shall use their best efforts in cooperation with each
other to terminate such infringement without litigation.
26
<PAGE>
17.2 Licensee may request that Rutgers take legal action
against the infringement of Rutgers' Patent Rights. Such request
shall be made in writing and shall include reasonable evidence of
such infringement and damages to Licensee. If the infringing
activity has not been abated within ninety (90) days following the
effective date of such request, Rutgers shall have the right to
(17.2a) commence suit on its own account; or
(17.2b) refuse to participate in such suit;
and Rutgers shall give notice of its election in writing to
Licensee by the end of the sixtieth (60th) day after receiving
notice of such request from Licensee. Licensee may thereafter
bring suit for patent infringement if and only if Rutgers elects
not to commence suit and if the infringement occurred during the
period and in a jurisdiction where Licensee had exclusive rights
under this Agreement. However, in the event Licensee elects to
bring suit in accordance with this paragraph, Rutgers may
thereafter join such suit at its own expense.
17.3 Such legal action as is decided upon shall be at the
expense of the party on account of whom suit is brought and all
recoveries recovered thereby shall belong to such party, provided,
however, that recoveries from legal actions brought jointly by
Rutgers and Licensee shall be shared equally by them, after paying
the reasonable legal expenses of both parties.
27
<PAGE>
17.4 Each party agrees to cooperate with the other in
litigation proceedings instituted hereunder but at the expense of
the party on account of whom suit is brought. Such litigation
shall be controlled by the party bringing the suit. Each party may
be represented by counsel of its choice.
18. INDEMNIFICATION AND INSURANCE
18.1 Licensee shall indemnify, hold harmless and defend
Rutgers, its governors, trustees, officers, employees, students,
agents and the Inventors against any and all claims, suits, losses,
liabilities, damages, costs, fees and expenses (including
reasonable attorneys' fees) resulting from or arising out of the
exercise of this license or any sublicense. This indemnification
shall include, but is not limited to, any and all claims alleging
products liability.
18.2 Licensee shall, throughout the term of this agreement, at
its sole cost and expense, insure its activities in connection with
this Agreement and will maintain and keep in force, with insurers
acceptable to Rutgers, or an equivalent program of self insurance
acceptable to Rutgers the following types of insurance:
(a) Comprehensive or Commercial General Liability which shall
include, but not be limited to, broad form contractual
liability and products/completed operations liability
28
<PAGE>
with minimum limits as follows:
(i) $2,000,000 combined single limit as respects
premises, operations and contractual liability;
(ii) $5,000,000 combined single limit as respects
liability arising out of Products and/or Completed
operations. This coverage may be maintained on
either an occurrence or claims made form. if
Products/Completed Operations coverage is on a
claims made form, Licensee must maintain such
coverage for six years after termination or
expiration of this license.
(iii) $5,000,000 General Aggregate.
(b) Workers' Compensation and Employers Liability insurance,
covering each employee of the Licensee engaged in the
performance of the action required under the contract,
with a limit of liability in accordance with applicable
law, in the case of workers' compensation insurance, and
with the following limits of liability in the case of
employers' liability:
Bodily injury by accident - $100,000 each accident;
Bodily injury by disease - $500,000 policy limit;
29
<PAGE>
Bodily injury by disease - $100,000 each employee.
(c) It is expressly understood and agreed, however, that the
insurance coverage and limits stated in A and B above
shall not in any way limit the liability of Licensee and
that the required insurance shall be primary coverage.
Any insurance Rutgers may purchase will be excess and
noncontributory. Licensee's liability insurance will be
endorsed to specifically name Rutgers as an additional
insured, extend to cover the indemnification pursuant to
Article 18 and provide as primary coverage.
(d) Licensee shall furnish Rutgers with a certificate of
insurance evidencing the coverage and limits required
pursuant to A and B above. The liability certificate
shall:
(i) Provide for thirty (30) day advance written notice
to Rutgers of cancellation or material alteration
of the policy;
(ii) Indicate that Rutgers has been endorsed as an
additional insured under the coverages referred to
above;
(iii) Include a provision that the insurance will be
30
<PAGE>
primary and any valid and collectible insurance or
program of self-insurance carried or maintained by
Rutgers shall be excess and noncontributory.
18.3 Rutgers shall promptly notify Licensee in writing of any
claim or suit brought against Rutgers in respect of which Rutgers
intends to invoke the provisions of Article 18. Licensee shall
keep Rutgers informed on a current basis of its defense of any
claims pursuant to Article 18.
19. NOTICES
19.1 Any notice or payment required to be given to either
party shall be deemed to have been properly given and to be
effective (a) on the date of delivery if delivered in person or (b)
five (5) days after mailing if mailed by first-class certified
mail, postage paid and deposited in the United States mail, to the
respective addresses given below, or to such other address as it
shall designate by written notice given to the other party.
In the case of Licensee: President
U S. Plastics Lumber Company
2300 Glades Rd.
Boca Raton, FL 33431
In the case of Rutgers: Rutgers, The State University of New
31
<PAGE>
Jersey
office of Corporate Liaison and
Technology Transfer
P. 0. Box 1179
ASB Annex II, Bevier Road
Busch Campus
Piscataway, NJ 08855-1179
Attention: Director
20. ASSIGNABILITY
20.1 This Agreement is binding upon and shall inure to the
benefit of Rutgers, its successors and assigns, but shall be
personal to Licensee and assignable by Licensee only with the
written consent of Rutgers, which consent shall not be unreasonably
withheld.
21. LATE PAYMENTS
21.1 In the event any amounts due Rutgers hereunder, including
but not limited to royalty payments, fees and patent cost
reimbursements, are not received when due, Licensee shall pay to
Rutgers an interest charge at a rate of Three (3) percent annually
plus the current prime rate percentage per annum as established by
Citibank on the day such payment was due. Such interest shall be
calculated from the date payment was due until actually received by
32
<PAGE>
Rutgers.
22. WAIVER
22.1 It is agreed that no waiver by either party hereto of any
breach or default of any of the covenants or agreements herein set
forth shall be deemed a waiver as to any subsequent and/or similar
breach or default.
23. FAILURE TO PERFORM
23.1 In the event of a failure of performance due under the
terms of this Agreement and if it becomes necessary for either
party to undertake legal action against the other on account
thereof, then the prevailing party shall be entitled to reasonable
attorney's fees in addition to costs and necessary disbursements.
24, GOVERNING LAWS
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, but the scope
and validity of any patent or patent application shall be governed
by the applicable laws of the country of such patent or patent
application.
33
<PAGE>
25. PREFERENCE FOR UNITED STATES INDUSTRY
25.1 If the U.S. Government sponsored the Invention in whole
or in part, Licensee agrees that any products sold in the United
States embodying this Invention or produced through the use thereo
f will be manufactured substantially in the United States.
26. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION
26.1 If this Agreement or any associated transaction is
required by the law of any nation to be either approved or
registered with any governmental agency, Licensee shall assume all
legal obligations to do so and the costs in connection therewith.
27. EXPORT CONTROL LAWS
27.1 Licensee shall observe all applicable United States and
foreign laws with respect to the transfer of Licensed Products and
related technical data to foreign countries, including, without
limitation, the International Traffic in Arms Regulations (ITAR)
and the Export Administration Regulations.
28. CONFIDENTIALITY
28.1 Licensee shall not use any Data and/or Rutgers
34
Technology except for the sole purpose of performing this
Agreement, shall safeguard Data and/or Rutgers Technology against
disclosure to others with the same degree of care as it exercises
with its own data of a similar nature, and shall not disclose or
permit the disclosure of Data and/or Rutgers Technology to others
(except to its employees, agents or consultants who are bound to
Licensee and Rutgers by a like obligation of confidentiality)
without the express written permission of Rutgers, except that
Licensee shall not be prevented from using or disclosing any Data
and/or Rutgers Technology:
(28.1a) which Licensee can demonstrate by written records
was previously known to it; or
(28.1b) which is now, or becomes in the future, information
generally available to the public in the form
supplied, other than through acts or omissions of
Licensee; or
(28.1c) which is lawfully obtained by Licensee from sources
independent of Rutgers who were entitled to provide
such information to Licensee.
The obligations of Licensee under this section 28.1 shall remain in
effect for five (5) years from the date of termination or
expiration of this Agreement.
35
<PAGE>
29. INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT
29.1 In the event either party receives notice pertaining to
any patent included within Rutgers' Patent Rights pursuant to the
Drug Price Competition and Patent Term Restoration Act of 1984
(Public Law 98-417, hereinafter, "the Act") , including but not
necessarily limited to notices pursuant to Sections 101 and 103 of
the Act from persons who have filed an Abbreviated New Drug
Application ("ANDAII) or a "paper" New Drug Application ("paper
NDAII), or in the case of an infringement of Rutgers' Patent Rights
as defined in Section 271(e) of Title 35 of the United States Code,
such party shall notify the other party promptly but in no event
later than ten (10) days after receipt of such notice.
29.2 If Licensee wishes action to be taken against such
infringement, as provided in the Act, Licensee shall request such
action by written notice to Rutgers. Within thirty (30) days of
receiving said request, Rutgers will give written notice to
Licensee of its election to:
(29.2a) commence suit on its own account; or
(29.2b) refuse to participate in such suit.
Licensee may thereafter bring suit for patent infringement as
provided by the Act if and only if Rutgers elects not to commence
suit and if the infringement occurred during the period that
Licensee had exclusive rights in the United States under this
Agreement. However, in the event Licensee elects to bring suit in
36
<PAGE>
accordance with this paragraph, Rutgers may thereafter join such
suit at its own expense.
29.3 The provisions of paragraphs 17.3 and 17.4 shall likewise
apply to any legal action brought under this Article 29.
29.4 Rutgers hereby authorizes Licensee to include in any NDA
for a Licensed Product a list of patents included within Rutgers'
Patent Rights identifying Rutgers as patent owner.
30. MISCELLANEOUS
30.1 The headings of the several articles are inserted for
convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
30.2 This Agreement will not be binding upon the parties until
it has been signed below on behalf of each party, in which event,
it shall be effective as of the date recited on page one.
30.3 No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed on
behalf of each party.
30.4 This Agreement embodies the entire understanding of the
37
<PAGE>
parties and shall supersede all previous communications,
representations or understandings, either oral or written, between
the parties relating to the subject matter hereof. The Secrecy
Agreement between the parties, dated November 18, 1996 and the
option Agreement between the parties dated June 30, 1996 is hereby
terminated.
30.5 In case any of the provisions contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof, but this Agreement shall be
construed as if such invalid or illegal or unenforceable provisions
had never been contained herein.
30.6 In the event Licensee's current assets at any time become
less than its current liabilities, or in the event Licensee is
consistently unable to meet all of its debts over a three (3) month
period, this Agreement is automatically suspended until Licensee's
financial condition improves to the reasonable satisfaction of
Rutgers, at which time the Agreement shall be reinstated, provided
however, that the Agreement shall automatically terminate if (i) a
voluntary or involuntary petition of bankruptcy is filed against
Licensee, (ii) Licensee becomes insolvent, or (iii) the financial
conditions which caused the suspension are not cured on a
consistent basis within six (6) months of the commencement of the
suspension.
38
<PAGE>
IN WITNESS WHEREOF, both Rutgers and Licensee have executed
this Agreement, in duplicate originals, by their duly authorized
representatives on the day and year hereinafter written.
U.S. PLASTIC LUMBER CORP. Rutgers, The State University
of New Jersey
By By
(Signature) (Signature)
Name Mark Alsentzer Name William T. Adams
(Please Print)
Title President Director
office of Corporate Liaison and
Technology Transfer
Date 2-17-97 Date
39
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS'
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated February 10, 1997 (except as to Note 14 which is as of
February 24, 1997), on our audit of the consolidated financial statements of
U.S. Plastic Lumber Corp. and Subsidiaries. We also consent to the reference
to our firm under the caption "Experts".
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
March 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF U.S. PLASTIC LUMBER CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 854,290 1,199,614
<SECURITIES> 0 0
<RECEIVABLES> 1,559,463 2,811,062
<ALLOWANCES> 262,279 102,052
<INVENTORY> 574,381 509,842
<CURRENT-ASSETS> 3,087,596 4,702,318
<PP&E> 1,198,232 1,486,318
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,510,682 6,434,904
<CURRENT-LIABILITIES> 2,376,035 2,214,767
<BONDS> 0 0
0 0
75 0
<COMMON> 1,167 903
<OTHER-SE> 2,126,675 4,219,234
<TOTAL-LIABILITY-AND-EQUITY> 4,510,682 6,434,904
<SALES> 6,627,242 7,257,995
<TOTAL-REVENUES> 6,627,242 7,257,995
<CGS> 5,898,058 5,225,689
<TOTAL-COSTS> 5,898,058 5,225,689
<OTHER-EXPENSES> 4,387,603 3,081,023
<LOSS-PROVISION> 3,658,419 1,048,717
<INTEREST-EXPENSE> 21,100 87,186
<INCOME-PRETAX> (3,679,519) (1,135,903)
<INCOME-TAX> (61,516) 310,000
<INCOME-CONTINUING> (3,618,003) (1,445,903)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 66,859 0
<CHANGES> 0 0
<NET-INCOME> (3,551,144) (1,445,903)
<EPS-PRIMARY> (.32) (.19)
<EPS-DILUTED> 0 0
</TABLE>
