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As filed with the Securities and Exchange Commission on January 9, 1998
Registration No. 333-22949
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 2)
U.S. PLASTIC LUMBER CORP.
(Name of small business issuer in its charter)
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Nevada 3080 87-0404343
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(561) 394-3511
(Address and telephone number of principal executive offices and
place of business)
Bruce C. Rosetto, Esq.
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(561) 394-3511
(Name, address and 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
(previously submitted)
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.
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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"), is offering, for sale to the
holders of outstanding Series A Common Stock Purchase Warrants (the "Series A
Warrants"), 950,000 shares (the "Shares") of its $.0001 par value common stock,
(the "Common Stock" ) 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 OTC
Electronic Bulletin Board under the Symbol "ECPL" and the current bid price
quotation is $4.50. 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 Common Stock and
there is no assurance that such market will continue in the future.
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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" ON PAGE 5.
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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.
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Price to Commissions & Proceeds to the
Public(1) Discounts(1)(2) Company(2)
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Per Share (Series A).................. $2.50 $0.00 $2.50
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Total Maximum......................... $2,375,000 $0.00 $2,375,000
====================================================================================================================
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(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. See "Use of Proceeds".
The date of this Prospectus is , 1998
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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. The Commission maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
issuers that file such reports electronically with the Commission. Such site is
accessible by the public through any Internet access service provider and is
located at http://www.sec.gov.
Copies of the Company's Annual, Quarterly and other Reports which will
be filed by the Company electronically 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, (561)-394-3511. The Company will provide
without charge to any person who receives a prospectus, upon written or oral
request, a copy of any of the information that was incorporated by reference in
the prospectus by contacting Bruce C. Rosetto, Vice President and General
Counsel/Secretary of the Company at the address and telephone number listed
herein.
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.
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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 a provider of environmental
recycling services. The Company was 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 has two distinct business lines. One division, U.S. Plastic
Lumber Ltd., manufactures structural and non-structural plastic lumber and
fabricates a variety of accessory products, such as park and site amenities,
made from 100% recycled high density polyetheylene. The other division, Clean
Earth, Inc. oversees the environmental recycling services including thermal
desorption and bioremediation plants, environmental construction services,
upland disposal of dredge materials, beneficial re-use management of industrial
wastes, and on-site recycling services. The Company owns and operates five
manufacturing, processing and fabrication facilities in the U.S. The primary
product produced in three of these plants is feedstock and 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 fourth plant is a recycled plastic
processing business which includes the washing, grinding and pelletizing of post
consumer and post industrial plastic waste. Some of this material is used to
supply the raw material needs of the Company's lumber manufacturing facilities.
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 fifth plant operates a process for decontaminating
and recycling soil that has been contaminated with petroleum hydrocarbons and
similar compounds through a process known as thermal desorption. The Company
anticipates a sixth plant to open during the first quarter of 1998 also for
decontaminating and recycling soil through a process which is bio-organic. See
"Business."
THE OFFERING
Securities offered ............... 950,000 Shares of Common Stock, $.0001 par
value ("Common Stock") issuable upon exercise
of outstanding Series A Warrants. See
"Description of Securities".
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Plan of Distribution............. The Shares are being 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."
Offering Price................. $2.50 per share.
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. See "Use of Proceeds."
Securities Outstanding......... The Company is authorized to issue up to
50,000,000 shares of Common Stock and
presently has 15,652,790 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 up to an
additional 7,788,975 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 209,207
Series A preferred shares are presently
issued and outstanding, which are convertible
into 1,464,449 shares of Common Stock of the
Company. The Company has reverse split its
Common Stock on a 1 for 16 basis in March
1996. 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
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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 a net
loss during 1996 of $113,415 and has an
accumulated deficit of $98,229 as of December
31, 1996. 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."
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RISK FACTORS
This prospectus contains certain forward-looking statements.
Prospective investors and other readers are cautioned not to place undue
reliance upon such forward looking statements, which represent only the plans,
beliefs, estimates, expectations and/or anticipation of management as of the
date of this prospectus. These forward looking statements are subject to certain
uncertainties and other factors which could cause actual results in the future
to differ materially from the results contemplated in and by such statements.
Such uncertainties and other factors include, but are not limited to, those
enumerated below as 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 THIS COMPANY
OPERATING LOSSES. The Company incurred a net loss of $113,415 for the
year ended December 31, 1996. The success of operations in the future will be
largely dependent upon the Company's ability to substantially increase its sales
revenue, as to which there is no assurance. See financial statements attached
hereto.
CONFLICTS OF INTEREST INHERENT IN MATERIAL RELATED PARTY TRANSACTIONS.
The Company has recently entered into several significant acquisitions and other
affiliated transactions, the terms of which were, in some instances, determined
without the benefit of arms length bargaining or negotiation and necessarily
involve conflicts between the interests of the related parties and the Company.
These include the recent acquisitions, as wholly owned subsidiaries of the
Company, of Earth Care Global Holdings and Earth Care Partners, Duratech
Industries, Clean Earth, Inc., Recycled Plastics Industries, Inc., Integrated
Technical Services, Inc., Environmental Specialty Plastics, Inc., EnviroPlastics
Corp., Advanced Remediation and Disposal Technologies, Inc., Waste Concepts,
Inc., and Green Horizon Environmental, Inc. as well as the granting or issuance
of various stock, options and other rights to members of management, principal
stockholders, and other affiliates. See "Certain Transactions."
DEPENDENCE ON MANAGEMENT. The development of the Company's business and
operations is dependent upon the efforts and talents of its executive officers,
in particular, Mark Alsentzer, Chief Executive Officer. The loss of the services
of this officer or other executive 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".
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ACCESS TO CAPITAL. The Company has limited access to capital. There can
be no assurances that the Company will have necessary and appropriate levels of
capital to operate its business.
EXPERTISE. The business of the Company requires much expertise in a
wide variety of functions. There can be no assurance that the Company will be
able to maintain employees with the requisite levels of expertise or that the
Company will be able to attract and keep such employees in the future.
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, 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 distributors. Disruption of these supply sources could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company does not rely on contractual arrangements with its raw
materials suppliers and has no 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
environmental recycling division has several large competitors which provide
similar services throughout the Northeast and Mid Atlantic states. The resources
of the competition, financial and otherwise, may be such that it can be very
difficult for the Company to effectively compete. In some instances, the
competitors of the Company have more revenues, market share, and capital
available which can make it difficult for the Company to compete. There can be
no assurances that the Company will be able to effectively compete in any of its
markets.
NEWLY DEVELOPING TECHNOLOGIES. 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 or in developing or maintaining the know how, technology, and
patents to compete effectively. There is a general lack of public awareness of
these newly developing products and services generally, or as alternatives to
more traditional and well established products. To compete effectively, the
Company must increase public knowledge and acceptance of its products and
services and develop and maintain certain levels of know how and technical
expertise, of which there is no assurance.
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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 uniform, recognized standards or methods have only
recently been established for measuring the characteristics of plastic lumber,
potential users may not know of this, to judge whether or not plastic lumber may
be suitable for their particular requirements, without being informed of such
standards by the plastic lumber supplier or otherwise becoming aware of them.
The fact that such standards are not well known for plastic lumber 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 increased
public awareness of such standards, but no assurance can be given that public
awareness will successfully be increased or that increased awareness will
increase the market for the Company's products.
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. Under
current federal regulations (Resource Conservation & Recovery Act, "RCRA" &
Comprehensive Environmental Responsibility, Compensation & Liability Act,
"CERCLA"), the generator of toxic or hazardous waste is financially and legally
responsible for that waste forever, and strictly liable for the clean up and
disposal costs. 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 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.
LOSS OF PERMITS. The Company's business, especially the environmental
recycling division, is dependent upon certain permits and licenses from many
different federal, state, and local agencies. There can be no assurances that
the Company will be able to maintain its permits and licenses in the future or
modify its permits and licenses to be able to compete effectively.
PROTECTION OF TECHNOLOGY. The Company's business involves many
proprietary trade secrets, as well as certain methods, processes and equipment
designs for which the Company has not sought patent protection. Although the
Company has taken measures to safeguard its trade secrets by limiting access to
manufacturing and processing 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. The Company has obtained 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 the Company will be able to maintain such rights for any specific
length of time.
BIDDING. The environmental recycling division consists of certain
subsidiaries which are highly reliant upon contract bidding as a significant
source of revenues. There can be no assurance that the Company will be
successful in obtaining bid work in the future or that if it does obtain bid
work that it will be at suitable profitable margins.
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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, options and earn-out rights to purchase up to
6,838,975 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 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
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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 209,207 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."
POTENTIAL ANTI-TAKEOVER MEASURES. Certain provisions in the articles of
incorporation or bylaws of the Company, such as staggered terms for the Board of
Directors and authorization to issue additional common or preferred stock and
designate the rights and preferences of the preferred stock without further
approval of shareholders, could be used as anti-takeover measures. Provisions
such as these could result in the Company being less attractive to anyone who
might consider a takeover attempt, and result in shareholders receiving less
than they otherwise might in the event of a takeover attempt.
CONTINUATION OF MANAGEMENT CONTROL. Upon completion of this offering,
present shareholders, which includes current management of the Company, will own
a majority of the total outstanding securities and will have absolute control of
the Company. Investors in this offering as a group will have no ability to
remove, control or direct such management. Only one third of the outstanding
shares is required to constitute a quorum at any stockholders' meeting, and
action may be taken by a majority of the voting power present at a meeting, or
may be taken without a meeting by written consent of stockholders holding a
majority of the total voting power. See "Principal Stockholders" and
"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, there can be no assurance that a regular and established market
will continue for the securities upon completion of this 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 15,652,790 shares of the
Company's common stock outstanding prior to the exercise of any Series A
Warrants, 1,808,506 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
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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.
ACQUISITIONS. The Company has been successful in closing upon numerous
acquisitions in the past. These acquisitions have been an important source of
Company growth and increased profitability. There can be no assurance that the
Company will be able to achieve any acquisitions in the future or that if does
accomplish acquisitions that it will have a beneficial impact upon the Company's
business, its results of operations, or its financial condition.
GROWTH. The Company has experienced a high growth rate during the last
year. There can be no assurance that the Company will continue to experience
high growth rates.
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 September 30, 1997, unaudited interim consolidated
financial statements of the Company, the net tangible book value attributable to
the Common Stock of the Company at that date was $1,081,017 or approximately
$.07 per common share. After adjusting for the acquisition of Waste Concepts,
Inc. in November 1997 and Green Horizon Environmental, Inc. in January 1998 and
other issuances of additional stock subsequent to September 30, 1997 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
September 30, 1997, the Company has 15,652,790 shares of Common Stock
outstanding prior to the exercise of any Series A Warrants with an estimated net
tangible book value attributable to Common Stock of $1,412,941 or approximately
$.09 per 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 16,602,790
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 September 30, 1997), would then be
$3,487,941 or approximately
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$.21 per share. This would result in dilution to persons exercising Series A
Warrants of $2.29 per share, or 92% of the exercise price of $2.50 per share.
Net tangible book value per share would increase to the benefit of present
stockholders from $.09 prior to the offering to $.21 after the offering, or an
increase of $.12 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 $.09
Increase attributable to Series A Warrant exercise .12
----
Pro forma NTBV/share after exercise .21
------
Dilution $2.29
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 $300,000 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. 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 OTC 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 and subsequent interim period. The Company reverse split its common
stock on a 1 for 16 basis in March, 1996. Quotations for periods prior to such
split and information regarding the number of shares have been restated here and
elsewhere throughout the prospectus 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
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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
March 31, 1997 $ 6.50 $ 6.00
June 30, 1997 $ 6.13 $ 5.75
September 30, 1997 $ 6.50 $ 5.50
The above prices represent interdealer quotations, without retail
markup, markdown or commissions, and may not represent actual transactions. As
of November 30, 1997, there were approximately 318 record holders of the
Company's Common Stock.
CAPITALIZATION
Primary Shares:
Common Stock (1,808,506 shares
are freely tradeable) 15,652,790
Fully Diluted:
Preferred Shares (convert @ 7:1
common) 1,464,449
Series A Warrants 950,000
Series B Warrants 950,000
Other Warrants and Options 1,996,789
Earn Out shares and Options 268,500
Historical Shareholder earn out 4,573,686
---------
Subtotal 10,203,424
Fully Diluted Equity 25,856,214
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
RESULTS OF OPERATIONS
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PRIOR FISCAL YEAR. On December 30, 1996 the Company completed the acquisition of
Clean Earth, Inc. in a transaction accounted for as a reverse merger stock
purchase. The following results of operations discussed represent those of the
Clean Earth entity which is considered to be the acquiring company for
accounting purposes.
After deduction of interest, general and administrative expenses, the Company
incurred net income of $514,224 OR 8.5% of total sales during the fiscal year
ended December 31, 1995. The Company's total revenues for the period were
$6,043,963 consisting primarily of revenues from treated soils contaminated with
petroleum hydrocarbon wastes. The Company's cost of sales for the year was
$4,116,721 or 68% OF total sales and the Company's general and administrative
expenses were $1,103,018 OR 18% of sales for the fiscal year ended December 31,
1995.
CURRENT FISCAL YEAR COMPARED TO PRIOR FISCAL YEAR. Operating performance in 1996
showed a decline from the previous year as the Company experienced a net loss of
$113,415 in 1996 compared to net income of $514,224 in 1995. The decrease in the
company's net income of $627,639 was primarily due to the lower sales volume
associated with a facility fire that occurred in March of 1996. The plant
retrofit process continued throughout 1996 and adversely affected the plant's
processing capacity that in turn reduced net sales compared to the same period
in 1995. The retrofit process was substantially complete at the end of 1996 and
is not expected to impact plant capacity in 1997. 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.
SALES
Total sales decreased $1,302,024 or 21.5% in 1996 from $6,043,963 in 1995 to
$4,741,939 IN 1996. The sales decrease was 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 in the first
quarter primarily due to 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.
COST OF GOODS SOLD
Cost of Goods Sold decreased $395,213 or 9.6% from $4,116,721 in 1995 to
$3,721,508 in 1996. The Company experienced a decrease in depreciation expense
of $281,747 as a significant portion of the plant had been fully depreciated as
of the end of 1995. In addition, there was a decrease of $167,434 in the amount
recognized for the covenant not to compete which is based on the amount of soil
treated and was less due to the lower volume of treated soil. Soil and rock
disposal costs decreased by $38,680 as the Company had success in negotiating to
have cleaned soil removed from the facility at no charge compared to removal
fees paid in the prior year to remove excess cleaned soil. These decreases were
offset by an increase of $104,117 and heavy equipment rentals which were no
longer needed when the Company purchased its own heavy equipment. The remaining
differences were offsetting changes in other operating expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative Expenses increased $208,137 from $1,103,018 in 1995
to $1,311,155 in 1996. The increase in administrative expenses is primarily due
to an increase in clerical and management salaries of $90,300. In addition there
was an increase of $57,500 in management fees charged by a former related
company (IA Construction), an increase of $25,526 in professional fees
associated with buy out of the former related party with the remaining increase
related to additional general expenses.
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Interest income of $53,156 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. The gain represents the excess of insurance
proceeds received over the loss incurred. The Company and the insurance carrier
have reached a final settlement in the amount of an additional $455,000 of which
a reserve in the amount of $290,000 has been set aside for additional expenses
relating to the fire that were charged to this reserve in 1997.
NINE MONTHS 1997 COMPARED TO NINE MONTHS 1996. The company experienced a 313%
increase in net sales in the first nine months of 1997 compared to the same
period in 1996. This increase was due primarily to increased sales from acquired
businesses in both the recycled plastic lumber segment as well as the
environmental recycling business segment during the past year. Net income of
$507,198 in the first nine months of 1997 improved from a net loss of $426,917
in the first nine months of 1996. This was due to certain one-time general and
administrative expenses that were recognized in the prior year, improved
operating performance in the Clean Earth unit and net income contribution from
acquired companies during 1997.
SALES
During the first nine months of 1997, sales increased $11,699,993 or 313% over
the same period in 1996. This significant increase in sales came primarily from
acquired businesses, which were not part of the Company during the first nine
months of 1996. These acquisitions contributed $11,991,150 of the increase
offset by a decrease of $291,157 in Clean Earth sales during the comparable
period. Both business segments are now into the summer and fall seasons that
historically have been strong sales months for all of the units. The plastic
lumber group has also experienced strong demand for its new "Carefree Decking
System" product that was introduced at the beginning of the year and is expected
to contribute incremental sales to this business for the remainder of the year.
Demand for this product has pushed delivery lead times from the Wisconsin plant
back from 4-6 weeks to 12 weeks. The Company committed to double capacity at
this facility by adding additional machinery and floor space before the end of
1997.
Plastic lumber division sales contributed $5,444,083 or 46.5% Of the total
increase in the first nine months of 1997 compared to the same period in 1996.
In addition to sales contributions of $1,980,418 from the U S Plastic Lumber
division which was acquired in December 1996, the Recycled Plastics Industries
(RPI) and Environmental Specialty Plastics (ESP) and EnviroPlastics (EPC) units
(discussed in detail under Certain Transactions) contributed $3,463,665 to 1997
sales.
In the environmental recycling division, sales increased by $6,255,910 in the
first nine months of 1997 compared to the same period in 1996. The ARDT and ITS
acquisitions (discussed in detail under Certain Transactions ) contributed
incremental sales of $6,547,067 in the first nine months of 1997. The remaining
$291,157 decrease at the Clean Earth unit was primarily due to competitive
conditions which caused a reduction in both price and volume.
GROSS PROFIT
Gross profit increased $3,609,112 from $444,206 in the first nine months of 1996
to $4,053,318 in the first nine months of 1997. The acquired businesses in both
business segments contributed gross profit of $2,542,666 or 70.5% Of the total
increase. The remaining increase was from the Clean Earth unit which experienced
reduced depreciation expense from fully depreciated assets and improved
operating performance during the comparable period.
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The plastic lumber division contributed gross profit of $777,309 most of which
came from the acquired RPI and ESP and EPC units. Gross profit increased by
$2,831,803 in the environmental recycling division for the first nine months of
1997 over the same period in 1996. The ARDT and ITS acquisitions contributed
$1,765,356 or 62.3% Of the increase in the environmental recycling segment's
gross margin during this period. In the Clean Earth unit, the existing plant and
equipment was substantially depreciated in prior years and consequently,
depreciation expense related to these items was lower by $401,393 for the first
nine months of 1997. Plant operation costs were $579,115 less than the
comparable period which included a reduction in plant fuel of $133,188 and a
decrease in transportation costs of $334,027 due to decreases in off-premises
hauling, continued success in negotiating fees to offset hauling out expense
associated with disposal of cleaned earth as well as increased customer bill
back of transportation costs. The remaining reduction was primarily due to
reduced plant maintenance costs during the period. The company continued to
experience replacement of equipment parts that related to last year's facility
fire which were identified and charged to reserves set aside for this purpose.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $2,759,825 or 405.2% In the first
nine months of 1997 compared to the comparable period quarter in 1996 primarily
due to the addition of several acquisitions in both business segments. Acquired
businesses (USPL, RPI, ARDT, ITS, ESP and EPC) contributed an additional
$2,624,349 to general and administrative expenses. This increase was offset by
certain non-recurring expenses in the Clean Earth unit recognized during the
first nine months of the previous year.
The plastic lumber acquisitions contributed $2,036,476 to expenses primarily in
the area of corporate administrative, sales and marketing expenses. The
environmental soil recycling division acquisitions (ARDT and ITS) contributed
$587,873 to general and administrative expenses in the nine months of 1997. A
payment of $303,000 in management service fees was made to IA Construction, a
former owner of Clean Earth, Inc. During the first quarter of 1996. This
management fee is no longer paid in the current year and accounts for most of
the remaining offset in general and administrative expense for the period.
In June 1997, in exchange for reduction of future salary agreements with the
retained officers to terms more favorable to the Company, the Company provided
cash consideration equal to $30,000, and accelerated 150,000 additional earn-out
shares for total compensation of $123,750. The retained officers salaries were
to be increased from a base salary of $50,000 annually to $75,000 and $90,000
annually as certain earn-out targets were reached. Salaries for these officers
were increased to $65,000 base compensation without pre-arranged future base
salaries.
Interest expense increased $140,542 in the first nine months of 1997 compared to
the same period in the prior year directly as a result of debt service acquired
with the acquisitions made since December 26, 1996. ARDT was the only entity
acquired where no debt existed. Interest in the amount of $58,378 on an
unsecured note payable of $1,200,000 to a related party (Schultes, Inc.) (See
Certain Transactions) was paid during the nine month period ending September 30,
1997.
The Company experienced a fire at the plant at the end of March 1996. While the
fire caused a slight loss of revenue in the first quarter of 1996, the resulting
decrease in plant capacity did effect revenues during the summer months of last
year. The Company assessed damages and recorded a provision for fire loss of
$220,000 as an extraordinary item during the first quarter 1996.
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LIQUIDITY AND CAPITAL RESOURCES.
PRIOR FISCAL YEAR.
Cash position increased $66,137 for the twelve months ended December 31, 1995.
Cash generated from operating activities was $273,739 and consisted primarily of
net income of $514,224 and depreciation and amortization expense of $912,905 (a
non-cash item) offset by an increase of Accounts Receivable in the amount of
$1,129,648 due to the strong month of December sales. There was a small amount
of capital expenditures however, the Company did recognize $200,000 in proceeds
from the sale of machinery and equipment during the year. The cash provided by
the financing and operating activities was offset by the payment of cash
dividends of $400,000.
FISCAL YEAR ENDED DECEMBER 31, 1996.
Total cash decreased $255,916 for the twelve months ended December 31, 1996.
Cash from operating activities totaled $1,817,651 and consisted primarily of
collections on accounts receivable totaling $646,996, depreciation (a non-cash
item) totaling $629,697 and an increase in accounts payable and accrued expenses
totaling $436,383 Investing activities totaled $(25,567) and included capital
expenditures of primarily plant equipment and heavy machinery of $251,035 which
was offset by $225,468 of cash received in the CEI/USPL reverse merger
consummated on December 30, 1996 (see Certain Transactions). The cash provided
by operating activities was offset by other financing activities that used cash,
including payments for the purchase of treasury stock of $1,100,000, and the
payment of cash dividends of $948,000 so that the net cash used in financing
activities was $2,048,000.
NINE MONTHS ENDED SEPTEMBER 30, 1996. Net increase in cash for the first nine
months of 1996 totaled $51,057. Despite a net operating loss of $426,917 during
the first nine months of 1996, the Company still managed to generate cash of
$1,706,437 from operating activities. This was primarily due to collections of
accounts receivable from the end of the busier season totaling $926,114,
increases in accounts payable of $409,388 and $526,899 of depreciation (a
non-cash item). The cash generated from operating activities was offset by
dividends of $948,000 paid by Clean Earth and $1,100,000 paid to Stout
Partnership (former owner of Clean Earth) for purchase of treasury stock prior
to the consummation of the CEI/USPL reverse merger. The Company also recognized
$625,000 in proceeds from borrowings on an available bank line of credit, the
proceeds of which were used to purchase treasury stock. The net result of
financing activities was $(1,423,000) for the period. Total investing activities
during this period were $232,380 invested in capital for equipment.
NINE MONTHS ENDED SEPTEMBER 30, 1997. Net cash generated in the first nine
months totaled $757,313 of which $4,880,000 was generated from a private
offering of preferred and common stock and was the principal source of capital
during this period. An additional $2,015,469 of capital was provided by the
issuance of notes payable of which $1,200,000 was issued to Schultes, Inc., a
related party (see certain transactions). As of September 30, 1997 notes payable
to Schultes, Inc. totaled $1,200,000. Proceeds from issued debt were used to
consummate the RPI, ARDT, ESP, ITS and EnviroPlastics acquisitions (see certain
transactions) as well as to pay off other notes and an officer loan payable.
Total cash provided from financing activities totaled $5,813,827 during the
first nine months of 1997. Net cash used in operations was $2,160,071 primarily
due to the increase in accounts receivable of $1,625,137 as a result of
increased sales entering peak season and increases in accrued expenses primarily
due to acquisitions of $960,101 somewhat offset by non-cash depreciation and
amortization of $424,158. Allowance for doubtful accounts were 14.4% Of total
accounts and notes receivable as of December 31, 1996 compared to 6.3% Of total
notes and accounts receivable as of September 30, 1997. Bad debt write-offs
during the first nine months were $15,612. The addition of
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gross accounts receivables from acquisitions was the primary reason for the
decline of doubtful account reserve as a percentage of gross notes and accounts
receivable. An additional provision for bad debts added to the reserve for
doubtful accounts during the first nine months of 1997 for the plastic lumber
segment which totaled $59,192. Investing activities included the acquisitions of
RPI, ESP, ARDT, ITS and EnviroPlastics Corp. (Discussed in detail in certain
transactions) which required $1,492,186 of cash (net of cash received from these
subsidiaries). Another $1,886,701 was required for capital expenditures
consisting primarily of machinery and equipment for the Tennessee and Wisconsin
manufacturing plants and the Clean Earth facility. Cash used in investing
activities totaled $2,896,443.
Due to favorable response to the Company's new "Carefree Decking System", the
Company has committed to expanding the capacity of the RPI subsidiary. The
company will add an additional 15,000 square feet to the existing leased
facility and plans to add six new extruders and vacuum calibration systems in
addition to the two existing extruders at this site. The estimated cost of this
project is $1,000,000 and will be financed through an independent leasing
company or bank. The company has access to an additional $1,100,000 from
Schultes, Inc. At Federal Reserve prime rate plus 1% and the Company's Clean
Earth subsidiary has a commitment for a bank line of credit facility of
$1,500,000 at the bank's prime rate plus .5%. As of September 30, 1997 the
Company had borrowed $443,406 against this line of credit. In addition, the
Company is currently in negotiation for an additional bank credit facility of
$4,000,000.
The Company has also committed to building a bio-organic soil recycling
facility in Carteret, New Jersey as part of a start-up company named Carteret
Biocycle, Inc, which is a wholly owned subsidiary of Clean Earth, Inc. (see
Certain Transactions). This facility is expected to be completed in the first
quarter of 1998 at an estimated cost of $2,000,000 and will be financed through
a conventional bank loan facility.
POSSIBLE FUTURE ACQUISITIONS
The Company continues to seek acquisition candidates that can be vertically
integrated into either the recycled plastic lumber or environmental recycling
divisions. In the recycled plastic lumber division, targeted companies include
manufacturers and distributors of recycled plastic products as well as raw
material regrind operations. In the environmental recycling division targeted
companies include soil recycling companies including bio-organic methodologies,
consulting and construction companies involved in on-site clean-up and potential
joint ventures with dredging operations for remediation and disposal of
contaminated soils.
While the Company has entered into related party acquisitions in the past, it is
not expected to have any further significant dealings with affiliates in the
future. At present there are no known affiliates with which the Company intends
to negotiate an acquisition nor are there any related entities that will be
considered for acquisition in the foreseeable future. If there are dealings with
such entities in the future, the parties will attempt to deal on terms
competitive in the market and on the same terms either party would deal with a
third person. Management will attempt to resolve any conflicts of interest that
may arise in favor of the Company.
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BUSINESS
U.S. Plastic Lumber Corporation is divided into two divisions; the
recycled plastic lumber division, operating under the name U.S. Plastic Lumber
Ltd, and the environmental recycling division, operating under the name Clean
Earth, Inc. The plastic lumber division is comprised of five wholly owned
subsidiaries: Earth Care Products of Tennessee, Inc., which operates a
manufacturing plant in Trenton, Tennessee: Earth Care Products of the Midwest,
Inc., which operates a sales and assembly facility in Lake Odessa, Michigan;
Recycled Plastics Industries, Inc, which operates a sales and manufacturing
facility in Green Bay, Wisconsin; Environmental Specialty Products, Inc., which
runs a sales and distribution center of recycled plastic products in Guasti,
California and EnviroPlastics Corporation, which operates a recycled plastic
regrind plant in Auburn, Massachusetts. The Clean Earth division operates a
plant in New Castle, Delaware and two environmental construction companies:
Integrated Technical Services, Inc. (ITS), in Winslow, New Jersey and Advanced
Remediation and Disposal Technologies, Inc. (ARDT) in Coopersberg, Pennsylvania.
As of November 18, 1997, the Company also acquired Waste Concepts, Inc. which
provides environmental recycling services, transportation, and beneficial re-use
of waste materials. As of January 2 ,1998, the Company also acquired Green
Horizon Environmental, Inc., also an environmental recycling services company.
In addition, the Company has started Carteret Biocycle, Inc. which is
constructing an earth recycling facility in Carteret, New Jersey utilizing a
bio-organic methodology of recycling contaminated soils. It anticipates this
facility will open during the first quarter of 1998.
The Company's plastic lumber division manufactures plastic lumber from
recycled waste plastic 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. 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 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's Clean Earth division, which offers environmental
recycling services, operates several subsidiaries. Clean Earth of New Castle,
Inc. 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. This division also operates Carteret Biocycle Corp. which
plant will remove petroleum hydrocarbons from soil when it opens in the winter
of 1998. The plant is similar to the Clean Earth of New Castle, Inc. (CENC)
facility except that its process involves bio-organic removal of petroleum
hydrocarbons whereas the CENC facility uses natural gas as the energy source to
remove petroleum hydrocarbons from the soil. The remaining environmental
recycling subsidiaries are involved in beneficial re-use management of waste
products, upland re-use of dredge materials, environmental construction
services, and on-site recycling services.
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HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in Utah on July 26, 1983, 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.
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 completed a reverse triangular merger
with Clean Earth, Inc. ("Clean Earth"). Clean Earth 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, Inc. now operates all of environmental
subsidiaries of the Company.
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.
In March, 1997, the Company acquired Environmental Specialty Plastics,
Inc. (ESP), a marketing and distribution company of recycled plastic products in
Guasti, California. The Company also manufactures custom signs out of recycled
plastic lumber utilizing in house routing equipment and is able to personalize
site amenities, such as benches, ash urns and picnic tables, engraving logos and
designs into recycled plastic end products. This acquisition provides the
Company with a presence on the west coast of the U.S. market.
In March of 1997, the Company acquired Integrated Technical Services,
Inc. (ITS) located in Winslow, New Jersey. The Company is engaged in
environmental consulting and clean up of contaminated sites primarily involving
water and soils similar to the operations of ARDT.
In June of 1997, the Company acquired EnviroPlastics Corporation, in
Auburn, Massachusetts, which operates a recycled plastic processing business
which includes the washing, grinding and pelletizing of post-
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consumer and post-industrial plastic waste. In the subsidiary, an estimated 70%
of the $5,230,000 in sales for the year ended December 31, 1996 were from one
major customer, Dupont, who was the prime customer for the pelletized,
post-consumer feedstock product.
In June of 1997 the Company formed Carteret Biocycle Inc. as a wholly
owned subsidiary of Clean Earth, Inc.. The Company will construct an 80,000
square foot soil recycling facility on a 5-acre leased parcel in Carteret, New
Jersey. This facility will recycle contaminated soils utilizing a bio-organic
methodology of removing contaminants. The plant will have the capacity to
process 240,000 tons of contaminated soil annually.
In July of 1997, the Company formed a joint venture partnership with
Interstate Industrial Corp. of Secaucus, New Jersey to bid on dredge/upland
disposal projects. The joint venture company does business as Interstate/U.S.
Plastic Lumber Corp. joint venture.
In November of 1997, the Company acquired Waste Concepts, Inc as a
wholly owned subsidiary of Clean Earth Inc.. This subsidiary is primarily
involved in removing and transporting large volumes of waste products through
the use of subcontractors and consultation on environmental waste issues. This
subsidiary has also been actively involved with the beneficial re-use of dredge
materials and is a critical component of the Company's plans to expand its
operations to include large volume handling of such material.
In January of 1998, the Company acquired Green Horizon Environmental,
Inc. as a wholly owned subsidiary of Waste Concepts, Inc.. This subsidiary is
primarily involved in removing and transporting large volumes of waste products
through the use of subcontractors and consultation on environmental waste
issues. This subsidiary has also been actively involved with the beneficial
re-use of dredge materials and ash and is a critical component of the Company's
plans to expand its operations to include large volume handling of such
material. It operates in the same market area as Waste Concepts, Inc.
CORPORATE STRUCTURE
U.S. Plastic Lumber Corporation, a Nevada corporation, is a holding
company for the Company's wholly owned subsidiaries, U.S. Plastic Lumber Ltd.,
has been formed to act as a holding company for all operating plastic lumber
subsidiaries and Clean Earth, Inc., which owns all operating environmental
recycling subsidiaries.
U.S. Plastic Lumber Ltd., A Delaware corporation:
Earth Care Products of the Midwest, Inc., a Florida corporation
Earth Care Products of Tennessee, Inc., a Florida corporation
RPI Acquisition Corp., a Wisconsin corporation
Environmental Specialty Products, Inc., a California corporation
EnviroPlastics Corp., a Massachusetts corporation
Clean Earch Inc., A Delaware corporation:
Clean Earth of New Castle, Inc., A Delaware Corporation
Advance Remediation and Disposal Technologies, Inc., a Pennsylvania
corporation (eff. 12/31/97 merged into Integrated Technical Services, Inc.)
Integrated Technical Services, Inc. a Delaware corporation
Carteret Biocycle Corp., a Delaware corporation
Waste Concepts, Inc., a Pennsylvania corporation
Green Horizon Environmental, Inc., a Pennsylvania corporation
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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 story office building for which it pays $4,600 per month. The Company has a
total of ten employees at the corporate offices in administration and finance.
One the Company's manufacturing facilities is located in Trenton,
Tennessee. The Company leases, with an option to purchase, a 50,000 square foot
building for $6,846 per month. The Company employs an average of 20 people at
this facility.
The Company also had a manufacturing facility in Lake Odessa, Michigan
which it acquired as part of the DuraTech acquisition. In September, 1997 the
manufacturing operations of the Tennessee and Michigan locations were
consolidated into a larger facility in Tennessee. The Company still leases
16,000 square feet in Lake Odessa, Michigan, in a separate building at $3,333
per month for twelve months, which houses a fabrication shop and employs an
average of 9 people.
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 13 people at this facility.
The Company has required the Landlord to construct a 14,000 sq. ft. addition for
purposes of expanding the capacity of the plant. Revised Lease terms are being
renegotiated at the time of the writing of this document.
The Company also has a non-hazardous waste processing in New Castle,
Delaware which it acquired as part of the Clean Earth acquisition. The Company
leases approximately 72 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 has a sales and distribution office located in Guasti,
California as a result of the ESP acquisition. The company leases 6,120 square
feet of building space as well as 17,427 square feet of outdoor space at a cost
of $1,500 per month on a two year lease. The facilities are utilized as office
and fabrication space as well as a warehouse. This facility employs an average
of five people.
The ITS subsidiary leases 7,000 square feet of office and utility space
on a 3 acre parcel in Winslow, New Jersey at a cost of $ 1,000 per month on a
month to month basis. Office space consisting of 3,000 square feet in
construction trailers is complemented by a utility structure of 4,000 square
feet which is used for light repairs and equipment storage. The Company employs
an average of 31 employees of which seven are located at the premises and the
remaining generally report directly to job sites.
The EnviroPlastics Corp. subsidiary leases 33,494 square feet of
manufacturing and office space that houses a recycled plastic regrind, washing
and pelletizing operation of post consumer and post-industrial plastic waste.
The Company leases the property at $18,143 per month on a five-year lease and
employs an
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average of 47 people.
The Waste Concepts facility leases a two story stand alone office
building at $4,000 per month and employs 16 people.
PLASTIC LUMBER DIVISION -
PRODUCTS
During the past several years, the Company's plastic lumber 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
* 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
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* Engineered products such as pier piling cores
* Sea pilings and marine bulkheads
MANUFACTURING
The Trenton, Tennessee manufacturing facility currently has four 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. This facility also produces lumber in assorted specialty shapes
such as bench ends and table legs.
The fabrication facility in Lake Odessa, Michigan 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
three 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
facility will also manufacture the Company's "Carefree Decking Systems", a
specialty product used for decks and rail systems in commercial and residential
applications.
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 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.
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RAW MATERIALS SUPPLY
The Company obtains approximately 80% of its mixed plastics feedstock
through 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 and industrial
plastic manufacturers for long term supply to mitigate the exaggerated
fluctuation in pricing and supply that the distributors' 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.
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
pursuant to an agreement the Company has with Rutgers University.
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. 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
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* Batelle, Engineering Mechanics Dept.
* US Army Corps of Engineers Research Laboratories
A full set of ASTM standards has been developed and approved for
plastic lumber as of July of 1997. This will greatly expand the potential users
who are required to meet specifications and standards known to the wood
industry. A manual for use of residential decking material is anticipated to be
approved as early as 1998.
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 polymers to produce a
product that is less expensive.
The Company primarily uses only high density polyethylene 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.
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POTENTIAL MARKETS
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 require 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 believes it
is the only plastic lumber manufacturer participating in this project.
Presently there are approximately 180,000 miles of railroad track in
the United States, with approximately 3,100 crossties per mile or a total of
approximately 558,000,000 ties in place. In 1993, 11,300,000 crossties were
replaced. The expected useful 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 DOTs 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.
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.
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MARKETING STRATEGIES
The recycled plastic lumber division 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.
The Company employs Regional Sales Managers 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 relationships;
however, it is the Company's policy not to grant any exclusive territory
arrangements. The Company is seeking to expand its distribution network
nationwide.
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 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 plastic lumber 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.
ENVIRONMENTAL RECYCLING DIVISION -
PRODUCTS & SERVICES
The Company offers a wide array of services in this business line including soil
decontamination through either thermal desorption or bioremediation,
environmental construction services, upland disposal of dredge materials,
environmental transportation services, beneficial re-use management of
industrial wastes, and on-site recycling services.
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Clean Earth of New Castle, Inc. was founded in 1991 to provide a safe, cost
effective and final solution to the environmental problem of dealing with soils
and construction debris 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 1,100
degrees Fahrenheit), 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. The facility is currently seeking two permit
modifications to help reduce costs. One permit modification is seeking to allow
the facility to burn waste oil rather than natural gas to fuel the plant in
winter months. Natural gas is at its highest cost in winter months and waste oil
is at its lowest. The second permit modification has already been approved by
the State of Delaware for accepting sewer sludge into the process. The impact of
this material in the process will significantly reduce the volume of water
consumed by the plant, and increase the volume of clean soil which can be sold.
Carteret Biocycle Corp. was founded in 1997 and anticipates opening its facility
for business in February 1998. This facility serves a similar function as Clean
Earth of New Castle, Inc., except that its remediates soil contaminated with
petroleum hydrocarbons through a bio-organic process. The operational costs for
this facility are substantially less than thermal desorption, yet the Company
anticipates the tipping fee for this facility will be similar to its tip fee at
the Clean Earth of New Castle facility. In addition, Carteret Biocycle is
strategically located to receive materials by truck, rail or barge. This
location is also perfectly suited to receiving dredge materials from the New
York harbor, treating the material and then handling and shipping the material
for disposition in Pennsylvania strip mines. The Company has positioned itself
to be one of very few companies able to take advantage of this new market.
In addition to its plants, the Company has subsidiaries which perform services
in environmental construction, on site remediation, transportation services,
beneficial re-use of industrial wastes, UST removals, landfill capping,
stabilization and treatment of hazardous waste to non-hazardous waste materials,
consulting services and other ancillary environmental services. One of the more
exciting opportunities for the Company is the beneficial re-use of dredge
materials. As of September 1997, the federal government has prohibited off-shore
dumping of dredge material. The Company has positioned itself to take advantage
of this new market opportunity by finding ways to re-use dredge material mixed
with other products to create a grout like substance which can be used for cover
material and clean fill. One example of this is the Company has disposal rights
granted by the Pennsylvania DEP to utilize dredge material mixed with coal ash
or incinerator ash to produce a grout like substance suitable to reclaim strip
mines. Strip mines represent a very significant environmental issue for
Pennsylvania.
REGULATION
The business of decontaminating or otherwise handling waste materials is highly
regulated (Resource Conservation & Recovery-Act, "RCRA" & Comprehensive
Environmental Responsibility, Compensation & Liability-Act, "CERCLA"). The
generator of the waste is financially and legally responsible for that waste
forever, and is strictly liable for the costs of clean up and disposal of such
wastes. 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 which it handles. Once the
waste has successfully been treated by one of its two plants, the contamination
is destroyed and the liability is virtually eliminated. The product, once
treated, is no longer classified as waste, but is a reusable material.
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<PAGE> 31
Landfills are a necessary solution for certain hard to treat wastes; but the
Company 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 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.
SALES AND MARKETING
As indicated, the environmental recycling Division is involved in a number of
markets, including but not limited to remediation of contaminated soil, coal
tar, upland disposal of dredge materials and the recycling of sewer sludge and
municipal incinerator ash to productive use. Each of these markets is
substantial and the markets are tied together via the contracting services arm
of Clean Earth. These service companies can remove, provide on site clean-up,
and transport these materials to other divisions of the Company for recycling
and re-use of the products in an environmentally safe manner.
The Company has recently begun bidding on large contracts to receive dredge
material. Previous to September 1997 dredge material from harbors was dumped in
the oceans. New federal regulations require upland disposal of this material.
Every harbor throughout the country will be faced how to deal with this issue
and abide by these new federal regulations. This market is new, and the Company
has the permits in place to provide for using the dredge spoils to reclaim
abandoned strip mines as opposed to disposing of the material in landfills.
The Company is also expanding the capabilities of its facility in Delaware to
process material such as sewer sludge, for which permitting has already been
obtained, and municipal incinerator ash. These products are currently
landfilled. The Company will process the sewer sludge and recover the nutrients
which will be mixed with the clean soil to provide an improved product for
resale.
The principal sales and marketing advantage that Clean Earth has over its
competitors is a broad range of services allowing customers a one stop shopping
concept- not only contracting services but also the facilities to process
material. In addition, the Company has a distinct advantage built into its
quality control system. Comprehensive disclosure and testing systems ensures
proper tracking of material as well as on site testing confirming that only
acceptable material is permitted onto its site. Rigorous quality control
procedures are essential as they relate to the responsibility and liability in
handling of material not only to the Company but also to its customers.
COMPETITION AND BARRIERS TO ENTRY
Clean Earth has several large competitors which provide similar services within
the northeast and mid-Atlantic states. 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.
There are significant barriers to entry for this line of business. First and
foremost, the siting, permitting and licensing process is time consuming and
costly. Second, there is a large capital investment required to build the plants
and purchase the equipment necessary to operate the facility . Additionally,
contracts
30
<PAGE> 32
must be awarded to obtain the incoming product as well as contracts to
dispose of the material after it has been treated in order to operate an
economically feasible facility. Finally, this type of operation requires
technically trained individuals to operate and ensure that the facility remains
in strict compliance with environmental laws.
PLANT OPERATIONS
The plant operations 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 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.
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<PAGE> 33
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.
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.
<TABLE>
<CAPTION>
Term served
Name of Director/Officer Age (Term expires) Positions with the Company
- ------------------------ --- -------------- --------------------------
<S> <C> <C> <C>
Mark S. Alsentzer 41 May 1994 (2000) Chairman, President & Chief Executive
Officer/Director
Bruce C. Rosetto 39 Secretary/General Counsel
Michael Schmidt 48 Treasurer/Chief Financial Officer
Raymond J. Kiernan 72 Dec 1994 (1999) 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
</TABLE>
32
<PAGE> 34
MARK S. ALSENTZER, CHAIRMAN, 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, SECRETARY 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.
MICHAEL SCHMIDT, TREASURER AND CHIEF FINANCIAL OFFICER - Mr. Schmidt is
responsible for the Company's overall financial direction and reporting,
accounting operations and accounting controls. Mr. Schmidt has over 20 years of
public and private accounting experience including 10 years in the environmental
industry. Prior to joining the Company, Mr. Schmidt served as Chief Financial
Officer of Republic Environmental Systems, Inc., a publicly traded company and a
leading environmental service provider, headquartered in Blue Bell,
Pennsylvania. Mr. Schmidt has a Bachelor of Science in Business Administration
from Rowan College and is a Certified Public Accountant in the State of New
Jersey.
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<PAGE> 35
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. 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.
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
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<PAGE> 36
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 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.
The Operations management of the Company is as follows:
MICHAEL A. LUPO - President - Plastic Lumber Division - Mr. Lupo has extensive
domestic and international experience in sales, marketing, operations, finance,
systems, and stockholders relations serving consumer, industrial and
service-oriented businesses. For the past 15 years, he has served as Executive
Vice President, Chief Financial Officer and a Director in the Building Products
Industry. He has been responsible for directing and negotiating leverage buy
outs, mergers and acquisitions, initial public offerings, secondary and follow
on offerings. He has also directed listings to NASDAQ,
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<PAGE> 37
American and New York Stock Exchanges. Mr. Lupo is a graduate of St. John's
University.
The Environmental Recycling Division of the Company is primarily led by the
following three individuals.
Michael Goebner is President of two subsidiaries for the Company, Carteret
Biocycle Corp., the bioremediation facility, and Clean Earth of New Castle Inc.,
the thermal desorption facility. He also has substantial experience in
industrial waste management, uplands disposal, and regulatory permitting. He has
17 years experience in the environmental recycling business predominately in the
New York, New Jersey marketplace. His former experience included work for
subsidiaries of Republic Environmental Systems, Inc. as a Lab Technician,
Supervisor, Process Control Manager, Hazardous Waste Coordinator/Government
Contracts Administrator and Director of Business Development for Waste
Conversions, Inc. He also served as the General Manager of Innovative Soil
Technologies, Inc. and Vice President/General Manager of Republic Environmental
Recycling, Inc.
Steven C. Sands is President of the Waste Concepts subsidiary and his expertise
is industrial waste management with experience in all phases of construction and
environmental management. Mr. Sands has a B.S. in engineering from Duke
University and subsequently completed education at Exxon for environmental
engineering for service stations and at Owens Corning for installation of UST
systems. Mr. Sands is a pioneer in the beneficial re-use of industrial wastes
and dredge materials and has significant experience in transporting waste
material.
Theodore Budzynski is President of the Integrated Technical Services subsidiary.
His expertise is in environmental construction management and consulting. This
subsidiary specializes in environmental recycling and disposal, in situ and ex
situ remediation, environmental transportation services, and the handling of
many industrial waste products. His former experience was as a Project Manager
with Waste Conversions, Inc., Operations Manager for Enroserv, Inc., Vice
President and General Manager of Enroserv, Vice President and General Manager of
Stout Environmental Company.
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 $100,000 during those years.
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<PAGE> 38
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
- ------------- ------- ------------------------------------- ------------------------ ------------ --------------
Annual Compensation Awards Payouts
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
Name and
Principal Securities
Position Other Annual Restricted Underlying All Other
Compensation Stock Options/ LTIP Compensation
Year Salary($) Bonus($) ($) Awards SARs (#) Payouts ($) ($)
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO - 1996 107,800 955,000(1)
Mark 1995 -0- -0-
Alsentzer 1994 -0- -0-
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
============= ======= ============ ========= ============== =========== ============ ============ ==============
</TABLE>
(1) In 1996 Mr. Alsentzer received 400,000 common stock warrants at the lower of
$2.25 per share or a price equal to $1.75 below the market price per share and
not less than $.01 based on gross sales exceeding $7,500,000 over any
consecutive 12 month period or gross sales of $700,000 per month for three
consecutive months whichever occurs first. Mr. Alsentzer also receives an
additional 50,000 common stock warrants per year for three years at the lower of
$3.50 or market price at date of exercise. Mr. Alsentzer also received an
additional 400,000 common stock warrants as an incentive to induce Mr. Alsentzer
to enter into an employment agreement with the Company at the lower of (i) $4.00
or (ii) the market price on each employment anniversary date over the next ten
years. Mr. Alsentzer also received 5,000 shares of common stock options at $2.50
per share for converting a personal loan owed by the Company into preferred
stock.
EMPLOYMENT AGREEMENTS
Mark S. Alsentzer - Chairman, Chief Executive Officer and President. See
footnote 1 above.
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<PAGE> 39
Bruce C. Rosetto - Vice President and General Counsel/Secretary. Base salary of
$100,000. Option to purchase 10,000 shares of common stock at the fair market
value of the stock on the date of his employment.
Michael Schmidt - Chief Financial Officer/Treasurer. Base salary of $100,000.
Option to purchase 25,000 shares of common stock.
Michael Goebner - President of Carteret Biocylce Corp. and Clean Earth of New
Castle, Inc. Base salary of $100,000 per annum. He is also provided with a
company car. Option to purchase 15,000 shares of common stock at $4.50 per share
with another option at the end of his first year of employment to purchase an
additional 15,000 shares at the market price of the common stock at the end of
the first year of employment. He was also provided an earn out for 5,000 shares
of stock based upon meeting certain EBIT criteria,
Steven C. Sands - President of Waste Concepts, Inc. Base salary of $125,000 per
annum. He receives $7,200 per year as an auto allowance. He has an option to
purchase 10,000 shares of common stock at $6.00 per share. He also has an earn
out of 25,000 shares based upon Waste Concepts meeting certain financial
performance goals at the rate of 5,000 shares per year for each of the next five
years.
DIRECTOR COMPENSATION
Beginning on May 15, 1996, the Board adopted a compensation package for outside
directors at 100 shares of common stock for each meeting attended and 60 shares
of common stock for each Committee meeting attended not held in conjunction with
a regular board meeting.
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-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.
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<PAGE> 40
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:
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent
Name and Address Class Beneficial Ownership of Class
- ---------------- -------- ---------------------- --------
<S> <C> <C> <C>
Harold Gebert Common 461,904 shares 3.0%
David A. Farrow Common 464,232 shares(1) 3.0%
Mark Alsentzer Common 6,033,155 shares(2) 37.7%
Raymond F. Darling Common 330,943 shares 2.1%
Robert W. Johnson Common 103,468 shares 0.7%
Christopher J. Walter Common 68,885 shares 0.4%
Raymond J. Kiernan Common 161,926 shares(3) 1.0%
Eugene Arnold, Jr. Common 98,124 shares(4) 0.6%
Louis H. Jullien III Common 238,781 shares 1.5%
Lester E. Moody Common 189,196 shares(5) 1.2%
James J. Blosser Common 99,800 shares(6) 0.6%
Roger Zitrin Common 336,240 shares(7) 2.2%
August C. Schultes III Common 5,470,522 shares(8) 34.9%
Gary J. Ziegler Common 5,750,200 shares(9) 36.0%
Stephen M. Groth Common 291,777 shares 1.9%
All executive officers and directors as a group Common 9,309,153 shares 54.8%
(19 persons)
Stout Partnership Common 5,400,000 shares 34.5%
Lancer Partners, L.P. Common 500,000 shares 3.2%
Michael Lauer Common 50,000 shares 0.3%
Lancer Voyager Fund Common 50,000 shares 0.3%
Lancer Offshore, Inc. Common 511,111 shares 3.2%
==================================================================================================================
</TABLE>
(1) Includes 116,000 shares not presently outstanding which Mr. Farrow presently
has the right to acquire through the exercise of outstanding earned options.
(2) Includes 955,000 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.
(3) 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.
(4) Includes 5,000 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.
(5) 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.
(6) 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.
(7) Includes 23,170 shares not presently outstanding which Mr. Zitrin presently
has the right to acquire through conversion of outstanding preferred stock.
(8) 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 which
Mr. Schultes is a principal partner.
(9) 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.
The foregoing amounts include all shares these persons are deemed to
beneficially own regardless of the form of ownership. See "Certain
Transactions."
CERTAIN TRANSACTIONS
During the past two fiscal years, the Company has entered into several
significant acquisitions and other transactions with affiliates. The terms of
these transactions were, in some instances, determined without the benefit of
arms length bargaining or negotiation and necessarily involve conflicts between
the interests of the related parties and the Company. These are as follows:
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<PAGE> 41
On February 1, 1996 the Earth Care Global Holdings acquired certain assets of
Earth Care Partners (ECP), a partnership controlled by certain former
officers/stockholders (including the former Chairman of the Company) of the
Company for a total purchase price of $200,000. In exchange therefore, the
partners of ECP received 112,926 shares of the Company's common stock. At
December 31, 1996, $113,535 of receivables due from certain partners of ECP was
included in accounts and notes receivable. Certain partners of ECP have agreed
to pledge 70,579 shares of their holdings in the Company's common stock as
collateral for the repayment of such receivables, although such pledge has not
been formally perfected. At such time as those shares are registered, such
partners have agreed to sell such 70,759 shares 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. Due to the fact that the then Chairman of
the Company was also a partner of ECP, the transaction was negotiated between
the Presidents of both companies, neither of whom had a direct interest in the
other, although the President of ECP was the son of the former Chairman. In
determining the purchase price, the Company considered the fair market value of
assets acquired from ECP. In addition, the Company also considered the fact that
ECP was the Company's largest distributor, had an established customer base, and
would retain three of the partners to establish a national sales office for the
parent company. All of these factors as well as the fact that there was no cash
outlay required for the purchase of ECP were considered in determining the
number of shares eventually issued. In August 1997, one of the former partners
of ECP alleged that the Company wrongfully issued shares to certain of the other
partners of ECP. The Company responded by appointing an independent board
committee to examine the facts surrounding the ECP acquisition. Independent
counsel was retained to thoroughly review the ECP transaction to insure that
this related party transaction was in fact properly authorized and executed.
Independent counsel has reported its findings and made certain recommendations
to the independent board committee. Based upon these recommendations, the
Company is reviewing its legal remedies and simultaneously therewith, ECP and
the Company are currently involved in negotiations to resolve all issues arising
out of the ECP acquisition.
On or about November 5, 1997, Eugene Arnold, Jr. (a former director of
the Company), Vernon C. Walker, and R. Wayne Raffety (collectively "Arnold")
filed suit in the United States District Court for the Eastern District of
Pennsylvania against the Company and former directors David Farrow and Harold
Gebert. Arnold's claims arise out of a venture capital loan made by Arnold to
the Company on January 12, 1995 (the "Loan"). On that date, Arnold loaned the
Company $50,000.00 and, in return, received a Note in that amount executed by
Gebert and Farrow, as well as warrants to purchase shares of the Company's stock
for a designated period. Arnold subsequently agreed to extend the due date on
the Note and forgive past interest and waive the previous grant of warrants from
the Company in exchange for Gebert's and Farrow's personal grant of warrants to
purchase shares of stock in the Company owned by Gebert and Farrow. The Company
paid off the Note when it became due. Arnold contends that at the time that
Gebert and Farrow agreed to the grant of warrants of their stock in the Company,
Gebert and Farrow, on behalf of either the Company or themselves, also made
assurances that Arnold would be protected against any anti-dilution of the
shares of stock. The Company disputes Arnold's claim that the Company extended
any anti-dilution protection; disagrees with Arnold's concept of
"anti-dilution"; and contest Arnold's right to the number of shares sought. The
Company is, however, engaging in negotiations with Arnold and is attempting to
resolve the matter without protracted litigation. In the event settlement
discussions are not successful, the Company shall vigorously defend this matter.
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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. 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).
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 24,772 shares of common stock to the shareholders of DuraTech for a total
purchase price of $65,772 which exceeded the fair value of the net assets of
DuraTech by $125,423. There were a total of five shareholders of DuraTech who
represented 100% ownership of the company none of whom had any relationship to U
S Plastic Lumber prior to negotiations. The purchase price was negotiated, at
arms-length, primarily between the Presidents of both companies. The fair market
value of assets to be acquired was used as a basis for determining a range for
negotiating the purchase price. In addition, the intangible value of the sales
and operating skills of the officers eventually retained to manage the sales and
operations of this facility, the suitablility of the business for vertical
integration and the financial condition of DuraTech were also considered in
determining the final purchase price. As part of the asset purchase, an earn-out
incentive was granted which provides for the issuance of 150,000 additional
shares of common stock if DuraTech meets certain production goals for plastic
lumber by April 30, 1999. In June 1997, in exchange for reduction of future
salary agreements with the retained officers to terms more favorable to the
Company, the Company provided cash consideration equal to $30,000, and
accelerated the 150,000 additional earn-out shares for total compensation of
$123,750. The retained officers salaries were to be increased from a base salary
of
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$50,000 annually to $75,000 and $90,000 annually as certain earn-out targets
were reached. Salaries for these officers were increased to $65,000 base
compensation without pre-arranged future base salaries.
In December, 1996 the Company acquired through a reverse triangular
merger, Clean Earth Inc., and subsidiaries. For financial purposes, Clean Earth,
Inc. is deemed to be the acquiring corporation and has accounted for the
transaction as a reverse merger. The Company tendered 5,400,000 shares of U.S.
Plastic Lumber Corp.'s (USPL) common stock for all outstanding shares of Clean
Earth, Inc. (CEI). The value of USPL's shares in connection with the reverse
merger was $486,000 as determined by an independent appraisal. The purchase
price exceeded the fair value of assets acquired by approximately $758,000 which
represents the intrinsic value of the USPL public shell and will be amortized on
a straight-line basis over a twenty year period. CEI 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 oil,
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, the sole shareholder of Clean Earth, and also granted
earn-out rights with respect to 2,573,686 shares of Company common stock. Gary
Ziegler and August Schultes, two of the principals of Stout Partnership, then
became directors of the Company. Mr. Alsentzer, the remaining principal of Stout
Partnership, had already assumed the position of President and Chief Executive
Officer of the Company prior to merging the two companies. Mr. Alsentzer and the
Stout Partnership held a .45% interest in USPL prior to the acquisition. The
acquisition was negotiated between Mr. Harold Gebert, former Chairman of the
Board of the Company, and Mr. August Schultes, principal of Stout Partnership.
The fair market value of the assets of Clean Earth, its financial stability, and
the fact that the acquisition required no cash were all considered in the
determination of the purchase price.
On December 31, 1996 and simultaneous to the closing of the Clean Earth
merger, the Stout Partnership (owners of Clean Earth, Inc.) extended a note to
the Company in the amount of $500,824 at Federal prime rate plus 1%. The
proceeds were used to pay off the note payable to Magellan Finance Co which
matured on December 31, 1996.
Clean Earth, Inc. incurred administration and service fees to its
stockholders of $500,000 and $450,000 for the years ended December 31, 1996 and
1995, respectively.
On January 23, 1997 Schultes, Inc., loaned the Company an additional
$700,000 at Federal Reserve prime rate plus 1%, the proceeds of which some were
used to partially fund the RPI acquisition. The Company has since borrowed
additional cash from Schultes, Inc. and as of September 30, 1997 owed $1,200,000
on an unsecured line of credit from Schultes, Inc. at Federal Reserve prime rate
plus 1% The total available facility from Schultes, Inc is $2,300,000 and is
renewable on an annual basis.
On January 27, 1997 the Company acquired Recycled Plastics, Inc. (RPI)
which was merged into a newly formed wholly owned subsidiary of the Company. RPI
is engaged in the manufacture and sale of recycled plastic lumber products with
facilities located in Green Bay, WI. The stockholders of RPI received $1,200,000
and 1,000,000 shares of the Company's common stock for a purchase price of
$1,675,000 which exceeded the estimated fair value of the net assets of RPI by
approximately $1,410,000. The excess was recorded as goodwill and will be
amortized on a straight-line basis over a twenty year period. The common stock
tendered was valued at $475,000 based upon an independent appraisal. The four
officers of RPI represented 100% ownership of the company none of which had any
relationship to U S Plastic Lumber Corp. prior to negotiations. The purchase
price was negotiated, at arms length, by the CEO of U S Plastic Lumber and the
President and Treasurer of RPI. The discounted value of normalized historic net
income was calculated to determine a purchase
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price range. In addition, factors such as the intangible value of "vacuum
calibration technology" (not a proprietary technology) which supplemented the
Company's product offering, expertise as well as the financial and operational
skills of two of the officers to be retained were also considered in negotiating
a final purchase price. Subsequent to the purchase of RPI, Steven Groth, the
former Treasurer of the company was elected as a director of U S Plastic Lumber,
Corp. In addition, Lee Anderson, the former President of RPI was retained by the
Company to serve as a Vice President of Manufacturing for the USPL recycled
plastic division and entered into a four-year employment agreement with USPL.
RPI had sales of $1,395,322 and net income of $281,029 for the year ended
December 31, 1996 and management is not aware of any events or conditions that
would not allow this operating trend to continue.
On February 24, 1997, Advanced Remediation and Disposal Technologies,
Inc. (ARDT) of Coopersburg, Pennsylvania was acquired by the Company. ARDT is
engaged in environmental consulting and construction clean-up of contaminated
sites primarily involving water and soils. The stockholders of ARDT received
300,000 shares of the Company's common stock which was valued at $159,000 by an
independent appraisal. The purchase price was less than the fair value of net
assets by approximately $120,000 and this difference was used to reduce the
basis of non-current assets. The shareholders of ARDT were also given a stock
earn-out agreement based on pre-tax profits for 1997 and 1998. ARDT's
shareholders may be awarded up to a range of 25,000 to a maximum of 75,000
shares of common stock per year based on attainment of pre-tax profit levels in
the ARDT subsidiary in 1997 and 1998. The discounted value of normalized
historic net income was calculated to determine a purchase price range. In
addition, the intangible value of the sales and operating skills of the officers
eventually retained as well as the fact that no cash consideration was required
in the transaction were considered in the negotiation. The purchase price was
negotiated, at arms-length, primarily between the Presidents of both companies.
The six officers of ARDT represented 100% of the shareholders of the company and
no relationship existed between ARDT or its officers and USPL prior to
negotiation. Two key officers of ARDT, John O'Donnell, President and Kevin John,
Vice President of ARDT have been retained by the Company to run sales and
operations of the ARDT subsidiary and have entered into three-year employment
contracts with the Company. Both officers were granted a total of 30,000 options
of the Company's common stock for covenants-not-to-compete at the fair market
value of the Company's shares as traded on the OTC Bulletin Board as of the
close of business on February 24, 1997. ARDT had sales of $2,343,047 and a net
income of $217,184 for the year ended December 31, 1996. Management expects
improved performance from this unit due to increased sales volume, improved
margins and elimination of certain general and administrative expenses during
1997. On December 31, 1997, ARDT was merged into its sister company, Integrated
Technical Services, Inc. due to the similarity in services and proximity of
operations.
On March 28, 1997, the Company acquired Environmental Specialty
Plastics (ESP), a marketing and distribution company of recycled plastic lumber
products in Guasti, California. The shareholders of ESP received $110,000 in
cash and 25,150 shares of the Company's common stock for a purchase price of
$123,581 which exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess was recorded as goodwill and will be amortized
on a straight-line basis over a twenty year period. The common stock tendered
was valued at $13,581 based upon an independent appraisal. As additional
compensation, the Company shall pay shareholders of ESP 5% percent of the ESP
subsidiary's gross profit margin each month for a period of 12 months provided
net sales exceed $100,000 in each month. The two officers of ESP represented
100% of the shareholders of the company and no relationship existed between ESP
or its officers and USPL prior to negotiation. The purchase price was
negotiated, at arms-length, primarily between the Presidents of both companies.
The fair market value of assets acquired was used to determine a price range for
ESP. Factors such as the intangible value of sales and operations expertise of
both officers to be retained, gaining a foothold in the California market and
the amount of cash consideration required were also
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considered in negotiating a final purchase price. Both officers of ESP,
Elizabeth Head, President and James Chew, Vice President of ESP have been
retained by the Company to run sales and operations of the ESP subsidiary and
have entered into three-year employment contracts with the Company. ESP had
sales of $1,036,303 and net income of $8,332 for the fiscal year ended February
28, 1997. Management is not aware of any factors that would alter continuation
of this operating trend in 1997.
On March 31, 1997, the Company acquired Integrated Technical Services,
Inc. (ITS) located in Winslow, New Jersey. ITS is an environmental consulting
and construction company which cleans up contaminated sites primarily involving
water and soils. The stockholders of ITS received $110,000 in cash, and 185,000
shares of the Company's common stock for a purchase price of $209,900 which
exceeded the estimated fair value of the net assets of ITS by approximately
$139,000 based upon an independent appraisal. The excess was recorded as
goodwill and will be amortized on a straight-line basis over a twenty year
period. The four officers of ITS represented 100% of the shareholders of the
company and no relationship existed between ITS or its officers and USPL prior
to negotiation. The purchase price was negotiated, at arms-length, primarily
between the Presidents of both companies. The discounted value of normalized
historic net income was calculated to determine a purchase price range. In
addition, the intangible value of the sales and operating skills of the officers
eventually retained as well as the amount of cash consideration required in the
transaction were considered in the negotiation. Two key officers of ITS,
Theodore Budzynski, President and Martin Brubaker, Vice President of ITS have
been retained by the Company to run sales and operations of the ITS subsidiary
and have entered into five-year employment contracts with the Company. These
officers received an additional 47,572 shares of common stock in exchange for
two year non-compete agreements after their employment with the Company. The
retained officers of ITS were also given a stock earn-out agreement based on
pre-tax profits and sales volume for 1997 and 1998. The retained officers may be
awarded up to a range of 8,600 to a maximum of 16,000 shares of common stock per
year based on attainment of pre-tax profit levels and sales volume in the ITS
subsidiary in 1997 and 1998. Both officers were granted a total of 20,000
options of the Company's common stock as an inducement to enter into employment
contracts at the fair market value of the Company's shares as traded on the OTC
Bulletin Board as of the close of business on April 8, 1997. ITS had sales of
$3,905,783 and net loss of $93,751 for the year ended December 31, 1996.
Management expects improved performance from this unit due to increased sales
volume, improved margins and elimination of certain general and administrative
expenses during 1997. ARDT was merged into ITS as of December 31, 1997.
On June 9, 1997, the Company formed Carteret Biocycle Corporation, a
wholly owned subsidiary of Clean Earth, Inc. This start-up company will
construct a recycling facility in Carteret, New Jersey that will recycle
contaminated soils utilizing a bio-organic recycling methodology. The Company
has entered into a 30-year ground lease with two additional 10-year options on a
5-acre parcel of land in Carteret, New Jersey at a rental cost of $210,000 per
year during the initial 30-year rental period. The Company will construct an
80,000 square foot recycling facility at an estimated cost of $2,000,000. The
Company simultaneously entered into a License and Operating Agreement with S D&
G Aggregates, Inc. who holds a license to operate a recycling operation on the
subject rental property. The Company also has right of first refusal to lease
the adjacent 17-acre parcel. The recycling facility is expected to be
operational by first quarter of 1998 and will have the capacity to treat an
estimated 240,000 tons annually. This is an estimate of the plant's potential
capacity and there can be no assurances that these results may be achieved or
that the plant will operate at full capacity year round.
On June 30, 1997, the Company acquired EnviroPlastics Corp., (EPC) a
recycled plastic raw material regrind operation in Auburn, MA. The stockholders
of EPC received 280,000 shares of the Company's common stock which exceeded the
estimated fair value of the net assets of EPC by
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approximately $1,018,000. The excess was recorded as goodwill and will be
amortized on a straight-line basis over a twenty year period. The common stock
tendered was valued at $193,200 based upon an independent appraisal. The
officers of EPC represent 100% of the shareholders of the company and no
relationship exists between the company or its officers and USPL. The purchase
price was negotiated, at arms-length, primarily between the Presidents of both
companies. In addition, the intangible value of the sales and operating skills
of the officers who were retained as well as the suitability of vertical
integration of this business with the Company were considered in the
negotiation. Two key officers of EPC, Bruce Fortin, President and Franco Previd,
Vice President were retained by the Company to run sales and operations of the
subsidiary and entered into five-year employment contracts with the Company.
Both officers received 12,500 shares of the Company's commons stock each in
exchange for non-compete agreements for two years after their employment with
the Company. EPC had sales of $5,229,915 and net income of $1,502,010 for the
year ended December 31, 1996 which included extraordinary income from the
forgiveness of debt totaling $1,807,230. The Company purchased EPC understanding
that a significant investment in relocation expenses to a larger facility of an
estimated $500,000 as well as additional machinery and equipment of $300,000
will be required in order to achieve operating throughput in sufficient quantity
to achieve potential future earnings.
On July 17, 1997 the Company formed a joint venture partnership with
Interstate Industrial Corp. of Secaucus, New Jersey. The Company, identified as
Interstate Industrial Corp./USPL Joint Venture was formed to bid on
dredge/upland disposal projects. The Company was recently low bidder on a
$4,700,000 dredge/disposal contract over a one year period and is awaiting award
of the contract.
On July 23, 1997 the Company agreed, in principle, to purchase certain
assets of Tri-Max Lumber, Inc. a manufacturer of recycled plastic lumber
products in New York approved for certain structural uses. Consummation of the
acquisition is subject to a number of conditions including, but not limited to,
the renegotiation of the terms of certain liabilities and results of due
diligence. Due to the contingencies involved, the Company cannot predict whether
or when the acquisition will be consummated.
On November 18, 1997 the Company acquired 100% of the outstanding
shares of Waste Concepts, Inc Waste Concepts, Inc. is in the environmental
recycling construction, service and consulting business. The stockholder of WCI
received $175,000 in cash at Closing plus 400,000 shares of the Company's common
stock. The common stock was valued based upon an independent appraisal at
$314,000 for a total purchase price of $489,000. which exceeded the estimated
fair value of WCI by approximately $453,000. The excess was recorded as goodwill
which will be amortized on a straight-line basis over a twenty year period. The
purchase price was negotiated, at arms length, primarily between the Presidents
of both companies. In addition, the intangible value of the sales and operating
skills of the President of WCI who was retained, as well as the suitability of
vertical integration of this business with the company and management's
knowledge of the dredging business were considered in the negotiation. The
stockholder, Steven C. Sands, has also received a five year employment agreement
with the Company. The stockholder also received an earn-out compensation package
which awards him with 5,000 shares of stock for each of the next five years in
the event Waste Concepts, Inc. meets certain EBIT levels. Finally, the
stockholder will receive royalty compensation, based upon certain events
occurring, at a set fee based upon tonnage volumes of waste received at a
facility to be operated by Browning Ferris Industries at the Company's property
in Carteret, New Jersey. WCI had sales of $4,814,731 and net loss of $33,502 for
the year ended December 31, 1996. Management expects improved performance from
this unit due to increased sales
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volume and improved margins during 1997.
In November 1997, the Company executed an agreement to acquire 25% of
the outstanding shares of Consolidated Technologies, Inc. , "CTI", ( a start-up
company) with an option to buy the remaining 75% interest in CTI. CTI is in the
process of obtaining a final contract with the Pennsylvania Department of
Environmental Protection to permit CTI to use dredge materials mixed with ash to
create a grout like substance to reclaim strip mine property at a designated
site in western Pennsylvania. This permit is an important link in the Company's
ability to competitively bid on large contracts to receive dredge material.
Steven C. Sands, the sole shareholder of Waste Concepts, Inc. at the time of the
Closing of that acquisition by the Company, is a 20% shareholder of CTI. Michael
Roscoe, an employee of Waste Concepts, Inc., owns 5% of CTI. The shareholders of
Green Horizon Environmental, Inc., Timothy Fogerty and Al Silkroski, together
own 25% of CTI.
On January 2, 1998, the Company acquired Green Horizon Environmental,
Inc. (GH) in a stock purchase transaction. The Company tendered 50,000 shares of
common stock of the Company. The common stock was valued at a total purchase
price of $39,250. The estimated fair value of net assets exceeded purchase price
by approximately $73,000 which was recorded as negative goodwill to be amortized
on a straight-line basis over a twenty year period. GH had sales of $281,600 and
a net loss of $17,942 for the year ended December 31, 1996. Management expects
improved performance from this unit due to increased sales volume and improved
margins during 1997.
The Company also leases other office space and manufacturing facilities
from entities controlled by individuals who are stockholders. The Company leased
a small office in Blue Bell, Pennsylvania at a monthly rental of $1,173 on a
month to month basis, which lease term is ending on December 31, 1997. Harold
Gebert is a 21% owner of the building in which the office is located. The
Company previously leased the manufacturing facility located in Tennessee from
the entity from which the Company acquired the assets used in such manufacturing
operation, and the owners of which became stockholders of the Company in such
acquisition. The Company has terminated this lease and relocated its facility
into a larger rented facility in a nearby Tennessee location. The Company's RPI
subsidiary leases approximately 20,000 square feet of office and manufacturing
space at a cost of $4,432 per month from Plastic Properties, LLC. The lease
provides for minimum rentals of $265,945 through December 31, 2001 with an
option to renew for an additional 5-year terms. Lee Anderson, Vice President of
Operations of RPI and Steven Groth, Company Director are principal shareholders
in Plastic Properties, LLC. This lease is being renegotiated as the Company has
required the Landlord to expand the building by 14,000 square feet to allow the
Company to expand its equipment capacity at that facility.
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.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF MANAGEMENT
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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 15,652,790 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.
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, except as set forth relative to the Earth Care
Partners transaction discussed in the Certain Transactions section. 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
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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 issued 209,207 shares of
Series A Preferred Stock. Each share of Series A Preferred Stock is 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. 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 stockholders of
any Common Stock, the stated value of $20 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
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
48
<PAGE> 50
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.
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 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.
49
<PAGE> 51
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.
EARN-OUT SHARES AND OPTIONS
Pursuant to various agreements entered into between the Company and the
former shareholders of Earth Care, Clean Earth, ARDT, ITS and EPC as part of the
acquisitions of those companies, up to a total of 4,842,186 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 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 an aggregate of up to 87,500 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. Upon
issuance the Company will record compensation expense equal to the current
market value of the shares.
Two key operating officers at ITS are entitled to receive an aggregate
of up to 16,000 additional shares of the Company's stock during 1997 and 1998 in
the event that ITS reaches certain specified levels of sales and profits, as
defined in the acquisition agreement, during each of those years. Upon issuance
the Company will record compensation expense equal to the excess of the then
current market value over the $5.00 per share exercise price.
Two key operating officers of EnviroPlastics Corp. have been granted
options to purchase an aggregate of up to 90,000 shares on a pro rata basis of
the Company's common stock at an exercise price of $5.00 per share during 1997,
1998 and 1999 provided certain specified levels profits as defined in the
agreement during each of those years.
The stockholder of Waste Concepts, Inc. has been provided with the
right to earn additional shares of the Company's stock equal to 25,000 shares
over the next five years in the event Waste Concepts, Inc. meets certain EBIT
levels during each of those years.
The stockholders of Green Horizon Environmental, Inc. have been
provided with the right to earn additional shares, not to exceed 12,500 shares
per year for each of the next four years, based upon EBIT for each of those
years.
50
<PAGE> 52
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 at an aggregate amount of
$626,021 for all 353,684 shares, with the option expiring as to 117,895 shares
on December 31, 1997 (these shares have been exercised by shareholder and
consideration has been paid to the Company), 117,895 shares on December 31, 1998
and 117,894 shares on June 30, 1999. 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 at no cost, in proportion to the Earth Care shares they owned
immediately prior to closing the Acquisition.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 15,652,790 shares of the Company's common stock outstanding
prior to the exercise of any Warrants, 1,808,506 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 at least one year has 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 two 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,
51
<PAGE> 53
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.
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
against the Company except as disclosed the Certain Transactions section of this
registration document. 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 consolidated financial statements as of December 31, 1996 and for
the years ended December 31, 1996 and 1995 of the Company, the consolidated
financial statements as of and for the years ended December 31, 1996 and 1995 of
Clean Earth, Inc. and subsidiaries, Advanced Remediation and Disposal
Technologies, Inc. and Recycled Plastic Industries, Inc., and the financial
statements as of and for the years ended December 31,1996 of Waste Concepts,
Inc. and Integrated Technical Services, Inc. included in this Prospectus have
been audited by Kuntz Lesher Siegrist & Martini, LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance on such reports given upon the authority of that
firm as experts in accounting and auditing.
The December 31, 1996 and 1995 financial statements of EPC included in
this Prospectus have been audited by Love, Bollus, Lynch & Rogers, 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.
52
<PAGE> 54
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
U.S. Plastic Lumber Corp. and Subsidiaries
Audited Financial Statements as of December 31, 1996 and for the years
ended December 31, 1996 and 1995
Unaudited Financial Statements as of September 30, 1997 and for the
nine months ended September 30, 1997 and 1996
Pro Forma Balance Sheet as of September 30, 1997 (unaudited) and Pro
Forma Statements of Operations for the nine months ended September 30,
1997 (unaudited) and for the year ended December 31, 1996 (unaudited)
Clean Earth, Inc. and Subsidiaries
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Recycled Plastics Industries, Inc.
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Advanced Remediation and Disposal Technology, Inc.
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Integrated Technical Services, Inc.
Audited Financial Statements as of and for the year ended December 31,
1996
Waste Concepts, Inc.
Audited Financial Statements as of and for the year ended December 31,
1996
EnviroPlastics Corporation
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
<PAGE> 55
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 56
-----------------------------------
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 sheet of U.S.
Plastic Lumber Corp. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31,1996 and 1995. 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 the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 18, 1997
Page 1
<PAGE> 57
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 854,290
Receivables:
Trade, net of allowance for doubtful accounts of $148,744 1,559,463
Affiliate, net of allowance for doubtful accounts of $113,535 --
Insurance settlement 455,000
Inventories 486,978
Prepaid expenses and other current assets 99,462
----------
TOTAL CURRENT ASSETS 3,455,193
Property and equipment, net 935,718
Intangible assets 758,328
Other assets 9,655
----------
TOTAL ASSETS $5,158,894
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 707,582
Payables:
Trade 1,065,081
Stockholder 200,000
Accrued expenses 701,257
Deferred revenue 162,819
Other liabilities 27,654
----------
TOTAL CURRENT LIABILITIES 2,864,393
Notes payable, net of current portion 6,730
----------
TOTAL LIABILITIES 2,871,123
----------
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 shares 1,167
Additional paid-in capital 2,384,758
Accumulated deficit (98,229)
----------
TOTAL STOCKHOLDERS' EQUITY 2,287,771
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,158,894
==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 2
<PAGE> 58
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 4,741,939 $6,043,963
Cost of goods sold 3,721,508 4,116,721
----------- ----------
GROSS PROFIT 1,020,431 1,927,242
General and administrative expenses 1,311,155 1,103,018
----------- ----------
OPERATING INCOME (LOSS) (290,724) 824,224
Interest income 53,156 --
Interest expense (8,397) --
----------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES AND
EXTRAORDINARY ITEM (245,965) 824,224
Provision for (benefit from) income taxes (65,691) 310,000
----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (180,274) 514,224
Extraordinary item - gain on involuntary conversion
(net of income taxes of $44,500 for the year ended
December 31, 1996) 66,859 --
----------- ----------
NET INCOME (LOSS) $ (113,415) $ 514,224
=========== ==========
Primary earnings (loss) per share:
Income (loss) before extraordinary item $ (.03) $ .06
Extraordinary item .01 --
----------- ----------
NET INCOME (LOSS) $ (.02) $ .06
=========== ==========
Weighted-average number of shares outstanding 6,696,805 7,714,286
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE> 59
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ---------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1994, as originally reported -- $-- 100 $ 100
Restatement for new capital structure acquired
with the merger of U. S. Plastic Lumber Corp.
(see Note 2) -- -- 7,714,186 671
------ --- ---------- -------
Balance, December 31, 1994, as restated -- -- 7,714,286 771
Cash dividends paid -- -- -- --
Net income -- -- -- --
------ --- ---------- -------
Balance, December 31, 1995 -- -- 7,714,286 771
Purchase and retirement of treasury stock -- -- (2,314,286) (231)
Cash dividends paid -- -- -- --
Merger with U.S. Plastic Lumber Corp.
(see Note 2) 74,970 75 6,272,349 627
Net loss -- -- -- --
------ --- ---------- -------
Balance, December 31, 1996 74,970 $75 11,672,349 $ 1,167
====== === ========== =======
<CAPTION>
ADDITIONAL ACCUMULATED
PAID-IN CAPITAL EARNINGS (DEFICIT) TOTAL
--------------- ------------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1994, as originally reported $ 2,999,900 $ 848,962 $ 3,848,962
Restatement for new capital structure acquired
with the merger of U. S. Plastic Lumber Corp.
(see Note 2) (671) -- --
----------- --------- -----------
Balance, December 31, 1994, as restated 2,999,229 848,962 3,848,962
Cash dividends paid -- (400,000) (400,000)
Net income -- 514,224 514,224
----------- --------- -----------
Balance, December 31, 1995 2,999,229 963,186 3,963,186
Purchase and retirement of treasury stock (1,099,769) -- (1,100,000)
Cash dividends paid -- (948,000) (948,000)
Merger with U.S. Plastic Lumber Corp.
(see Note 2) 485,298 -- 486,000
Net loss -- (113,415) (113,415)
----------- --------- -----------
Balance, December 31, 1996 $ 2,384,758 $ (98,229) $ 2,287,771
=========== ========= ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE> 60
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (113,415) $ 514,224
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 629,697 912,905
Provision for losses on accounts and notes receivable 21,704 (5,000)
Write-off of abandoned and fire damaged property and equipment 68,085 --
Gain on sale of assets -- (84,500)
Deferred income taxes 121,300 (120,000)
Increase (decrease) in cash due to changes in operating assets and
liabilities, net of effects of acquisition:
Accounts receivable 646,996 (1,129,648)
Inventories (39,630) (6,074)
Prepaid expenses and other current assets 72,767 40,914
Accounts payable 243,363 (217,385)
Accrued expenses 193,020 179,248
Deferred revenue (26,236) 189,055
----------- -----------
Total adjustments 1,931,066 (240,485)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,817,651 273,739
----------- -----------
Cash flows from investing activities:
Capital expenditures (251,035) (7,602)
Proceeds from sale of property and equipment -- 200,000
Cash received in acquisition 225,468 --
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (25,567) 192,398
----------- -----------
Cash flows from financing activities:
Dividends paid (948,000) (400,000)
Payment for purchase of treasury stock (1,100,000) --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,048,000) (400,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (255,916) 66,137
Cash and cash equivalent - beginning of year 1,110,206 1,044,069
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 854,290 $ 1,110,206
=========== ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE> 61
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company's soil recycling customers
are located primarily in the Northeastern United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of U.S. Plastic Lumber Corp. and its wholly-owned subsidiaries
Earth Care Products of America, Inc., Earth Care Products of Tennessee,
Inc., Earth Care Products of the Midwest, Inc., Earth Care Products of
New Jersey, Inc., Clean Earth, Inc., Clean Earth of New Castle, Inc.,
Clean Earth In-Situ, and Delaware Improvement Corp., (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.
INTANGIBLE ASSETS
Intangible assets consist of goodwill, which represents the
excess cost of a company acquired over the fair value of its net assets
at the date of acquisition and is amortized on a straight-line basis
over a period of twenty years. Goodwill is reviewed for impairment
annually or whenever events or circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount, a loss is
recognized for the difference between the fair value and the carrying
value of the goodwill.
Page 6
<PAGE> 62
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The adoption of SFAS No. 121 did not have an impact on
the Company's financial position or results of operations.
DEFERRED REVENUE
Revenue from soil recycling is recognized upon treatment and
certification. Billings for untreated soils are recorded as deferred
revenue.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123 -
"Accounting for Stock-Based Compensation." As permitted by SFAS No.
123, the Company will continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations and will disclose the additional information
relative to issued stock options and proforma net income and earnings
per share, as if the options granted were expensed at their estimated
fair value at the time of grant. The adoption of SFAS No. 123 did not
have an impact on the Company's financial position or results of
operations.
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 $18,500 and $17,600 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,
the Company had bank balances of approximately $548,000 in excess of
amounts 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 sheet for these financial
instruments approximate their fair value due to their short-term
nature.
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is computed by dividing net
income (loss) by the weighted-average number of shares actually
outstanding in 1996 and 1995. Common stock equivalents have been
excluded as they are anti-dilutive. Fully diluted loss per share
amounts are not presented as they are anti-dilutive. There were no
common stock equivalents or other potentially dilutive securities
outstanding during 1995.
RECLASSIFICATION
The 1995 consolidated financial statements have been
reclassified to conform to the current year presentation.
Page 7
<PAGE> 63
NOTE 2 - ACQUISITIONS
Effective December 30, 1996, Clean Earth, Inc. and
Subsidiaries (CEI) were acquired as a wholly-owned subsidiary of U.S.
Plastic Lumber Corp. and Subsidiaries (USPLC), a publicly-held
corporation, trading on the NASD Electronic Bulletin Board, through the
exchange of 77,142.86 shares of USPLC for each outstanding share of CEI
for a total of 5,400,000 shares. For financial reporting purposes, CEI
is deemed to be the acquiring corporation and has accounted for the
transaction as a reverse merger with the historical financial
statements prior to December 30, 1996 being those of CEI. The
determination of CEI as the acquirer for financial reporting purposes
was based upon the following factors: (i) former shareholders of CEI
held the right to control a majority of board seats immediately
subsequent to the acquisition, (ii) the chief executive officer and
certain board of directors of the merged companies were individuals who
were holding such positions at CEI, (iii) the assets and revenues of
CEI substantially exceeded those of USPLC, and (iv) although the former
shareholders did not receive a majority share of USPLC common stock
after the acquisition, when taking into account the number of preferred
shares and stock options held by these individuals, if such preferred
shares were converted and stock options were exercised, a majority
ownership position would be obtained. 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 USPLC. The merger agreement provides
for the issuance of an additional 2,573,686 shares of common stock to
the former shareholders of CEI upon the ultimate resolution of the
contingency related to the issuance of shares to certain USPLC
stockholders as discussed in Note 11 to the consolidated financial
statements. Upon final resolution of this contingency, the additional
shares issued, if any, will be issued at their then current fair value
as an additional cost of the acquisition and allocated to goodwill.
The purchase price allocation to USPLC assets and liabilities
are based on preliminary estimates of the fair value of the assets and
liabilities acquired and are subject to adjustment as additional
information becomes available. The value of the USPLC shares issued in
connection with the reverse acquisition was $486,000, as determined by
an independent appraisal. The purchase price exceeded the fair value of
the net assets acquired by approximately $ 758,000. Such amount
represents the intrinsic value of the USPLC public shell. Accordingly,
the excess is being amortized on a straight-line basis over a period of
twenty years.
The following unaudited pro forma information presents a
summary of consolidated results of operations of the USPLC and CEI as
if the acquisition had occurred January 1, 1996:
<TABLE>
<S> <C>
Net sales $ 6,627,000
===========
Loss before extraordinary item $(2,241,000)
===========
Net loss $(2,174,000)
===========
Primary loss per share:
Loss before extraordinary item $ (.17)
Extraordinary item --
-----------
Net loss $ (.17)
===========
</TABLE>
These unaudited pro forma results have been prepared for
comparison purposes only and include adjustments for depreciation on
revalued property and equipment, amortization of goodwill, and to
reflect the provision for income taxes at an effective statutory rate
of 40%.. 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.
NOTE 3 - INVENTORIES
Inventories consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Supplies $ 71,143
Raw materials 83,887
Finished goods 331,948
--------
$486,978
========
</TABLE>
Page 8
<PAGE> 64
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December
31, 1996:
<TABLE>
<S> <C>
Machinery and equipment $ 3,779,540
Leasehold improvements 409,470
Furniture and fixtures 23,822
-----------
4,212,832
Less accumulated depreciation (3,277,114)
-----------
$ 935,718
===========
</TABLE>
Depreciation expense was $621,452 and $903,199 for the years
ended December 31, 1996 and 1995, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
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
Promissory bank note, payable in monthly installments 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. (A) 50,000
Other notes payable 28,764
--------
714,312
Current portion 707,582
--------
$ 6,730
========
</TABLE>
(A) 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. This
option was exercised by the holder prior to its expiration.
The Company's subsidiary, Clean Earth, Inc., had 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. In June
1997, the Company obtained a new revolving discretionary line of credit
with availability of $1,500,000, bearing interest at the bank's prime
rate plus .50%. Advances under the line of credit will be made at the
sole discretion of the lender.
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 or mandatorily on the date 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
$20.00 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.
Page 9
<PAGE> 65
NOTE 6 - CAPITAL STOCK (Continued)
TREASURY STOCK
Prior to the merger, Clean Earth, Inc. acquired 2,314,286
shares of its common stock from its sole stockholder for $1,100,000
during June and September 1996. Effective with the merger, those
treasury shares were cancelled and retired.
STOCK WARRANTS
At December 31, 1996, the Company had outstanding 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 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. As of December 18, 1997, the Company has not registered the
underlying common stock for the Series A and Series B Warrants.
STOCK OPTIONS
During 1996, the Company granted 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:
<TABLE>
<CAPTION>
WEIGHTED - AVERAGE
EXERCISE PRICE
------------------
<S> <C> <C>
Outstanding, December 31, 1995 -- $ --
Granted 1,300,000 3.44
Exercised (5,000) 2.50
Cancelled (13,000) 4.75
--------- -----
Outstanding, December 31, 1996 1,282,000 $3.43
========= =====
Stock options exercisable 625,000 $3.94
========= =====
</TABLE>
The Company granted 550,000 stock options to a key employee which will
be earned upon the achievement of the following:
200,000 options will be earned at the time the Company reaches
gross sales of $5,000,000 over a consecutive twelve month
period or if gross sales reach a monthly average of $500,000
over a consecutive three month period prior to January 2002;
An additional 200,000 options will be earned at the time the
Company reaches gross sales of $7,500,000 over a consecutive
twelve month period or if gross sales reach a monthly average
of $700,000 over a consecutive three month period prior to
January 2002.
The initial exercise price for the options will be $2.25 per
share and will be adjusted every ninety days to be the lower
of $2.25 per share or a price equal to $1.75 below the market
value of the Company's freely trading shares. The options have
a term of ten years.
Upon the achievement of the above sales goal or no later than
January, 1999, the employee will earn an additional 50,000
options for each of the next three years. The initial exercise
price for the options will be $3.50 per share and will be
adjusted every ninety days to be the lower of $3.50, or the
price per share from the previous quarter, or the market value
of the Company's freely trading shares. The options have a
term of ten years.
When earned, the Company will recognize compensation expense
equal to the difference between the then fair market value of the
underlying shares and the exercise price of the options earned.
Page 10
<PAGE> 66
NOTE 6 - CAPITAL STOCK (Continued)
The Company accounts for its stock-based compensation plans
under APB No 25. Accordingly, compensation expense is only recognized
when the exercise price is less than the estimated fair market value of
the stock at the time of grant. Had compensation cost for the Company's
plans been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's net loss
and primary loss per share would not have been different from that as
determined in accordance with APB No. 25.
The fair value is estimated on the date of grant using the
Black-Scholes option-pricing model. The assumptions used were as
follows: dividend yield of 0%, expected volatility of 75%, risk-free
interest rate of 6.2%, and expected lives of approximately 10 years.
STOCK RESERVATIONS
At December 31, 1996, common stock was reserved for the
following reasons:
<TABLE>
<S> <C>
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
Exercise of stock options 732,000
Exercise of stock options contingency issuable
under performance goals 550,000
---------
8,868,855
=========
</TABLE>
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.
NOTE 8 - 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:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal $(144,812) $ 357,800
State (42,179) 72,200
--------- ---------
(186,991) 430,000
--------- ---------
Deferred:
Federal 94,918 (93,800)
State 26,382 (26,200)
--------- ---------
121,300 (120,000)
--------- ---------
$ (65,691) $ 310,000
========= =========
</TABLE>
Page 11
<PAGE> 67
NOTE 8 - INCOME TAXES (Continued)
The following is a summary of the significant components of
the Company's deferred tax assets and liabilities at December 31, 1996:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 2,271,000
Property and equipment 303,000
Inventory 35,000
Accounts and notes receivable 105,000
Accrued expenses 81,000
Intangibles 91,000
-----------
2,886,000
Valuation allowance (2,820,000)
-----------
Net deferred tax assets $ 66,000
Deferred tax liabilities:
Insurance settlement receivable 66,000
-----------
NET DEFERRED TAXES $ --
===========
</TABLE>
For federal tax purposes, the Company has net operating loss
carryforwards of approximately $5,678,000 at December 31, 1996. These
losses expire in the years 2008 through 2011. The Company is subject to
Internal Revenue Code regulations section 382 which limit the annual
utilization of net operating loss carryforwards after a change in
control, as defined, occurs. The Company estimates that, after such
limitations, approximately $500,000 of net operating loss carryforwards
will be available to offset future taxable income.
NOTE 9 - GAIN ON INVOLUNTARY CONVERSION
During March 1996, fire damaged equipment at the Company's
Clean Earth, Inc. subsidiary. The extraordinary gain represents the
excess of insurance proceeds received over the loss incurred. The
Company and the insurance carrier have reached a final settlement in
February 1997 for an additional $455,000. This amount is reflected in
the December 31, 1996 balance sheet as a receivable. Total insurance
proceeds amounted to $805,000 for the year ended December 31, 1996.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company incurred administrative and service fees to
various stockholders and directors for the years ended December 31,
1996 and 1995 totalling $500,000 and $450,000, respectively.
During the year ended December 31, 1996, certain stockholders
and directors loaned the Company $120,000 which was later converted
into 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, $113,415 of notes receivable are due
from certain partners of Earth Care Partners (ECP). ECP was a
partnership controlled by an officer/stockholder of USPLC. USPLC
acquired ECP in February 1996. Shares issued in connection with the
acquisition were to be pledged as collateral and subsequently sold when
registered to repay the notes. As there were no plans to register such
shares, an allowance equal to the notes receivable was recorded. In
August 1997, a former partner of ECP alleged that the Company had
wrongfully issued shares to the other partners of ECP in connection
with acquisition. The Company, through an outside counsel, reviewed the
transaction and concluded that the stock issued to certain ECP partners
was not properly authorized. The affected ECP partners have disputed
this conclusion. The Company and the affected ECP partners are in
negotiations to resolve these issues. The Company believes that the
ultimate outcome will not have a material effect on the financial
position or results of operations of the Company.
Page 12
<PAGE> 68
NOTE 11 - 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:
<TABLE>
<S> <C>
1997 $191,000
1998 191,000
1999 70,000
</TABLE>
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. The manufacturing facility lease was terminated in
December 1997.
Rent expense for all operating leases for the years ended
December 31, 1996 and 1995 was approximately $300,000 and $213,000,
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.
MAGELLAN FINANCE CORPORATION OPTIONS
Magellan Finance Corporation (Magellan), a stockholder, holds
an option to purchase up to 353,684 shares of the Company's common
stock at $1.77 per share. The option expires on December 31, 1997. If
Magellan does not exercise its option to purchase the shares, then the
Company is obligated to issue the 353,684 shares to certain USPLC
stockholders, as defined, at no cost. In July 1997 the Company extended
the expiration date of the option as follows, 117,895 shares expire on
December 31, 1997, 117,895 options expire on September 30, 1998, and
117,894 options expire on June 30, 1999.
EARNOUT AGREEMENT
The Company has earnout agreement which provides for 2,000,000
shares of the Company's common stock to be reserved for certain USPLC
stockholders, as defined, to be issued upon the Company meeting certain
production or sales goals for plastic lumber product prior to December
31, 2000. The additional shares, if any, will be issued at their then
current fair value as an additional cost of the acquisition of Earth
Care Global Holdings, Inc. and subsidiaries by USPLC and allocated to
goodwill.
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.
Page 13
<PAGE> 69
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Cash paid during the year for:
Interest $ 8,397 $ --
======= ========
Income taxes $50,000 $210,000
======= ========
</TABLE>
The Company acquired the net assets of USPLC in a transaction
accounted for as a reverse merger during the year ended December 31,
1996. The details the transaction is as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 2,158,617
Liabilities assumed (1,672,617)
Common stock issued (486,000)
Cash Paid --
Less cash acquired (225,468)
-----------
Net cash acquired in acquisition $ (225,458)
===========
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
ACQUISITIONS
On January 27, 1997, the Company acquired Recycled Plastics
Industries, Inc. (RPI) a recycled plastic lumber manufacturer for
$1,200,000 in cash and 1,000,000 shares of the Company's common stock.
The common stock was valued based on an independent appraisal at
$475,000. The total purchase price of $1,675,000 exceeded the estimated
fair value of the net assets of RPI by approximately $1,410,000. The
excess will be recorded as goodwill and amortized on a straight-line
basis over a period of twenty years.
On February 24, 1997, the Company acquired Advanced
Remediation and Disposal Technologies, Inc. (ARDT) an environmental
consulting and remediation company for 300,000 shares of the Company's
common stock. The common stock was valued based on an independent
appraisal at $159,000 which was less than the estimated fair value of
the net assets of ARDT by approximately $120,000. The difference will
be used to reduce the basis of noncurrent assets. The purchase
agreement also provides for the issuance of up to an additional 150,000
shares of the Company's common stock if ARDT meets certain
profitability levels during the years ending December 31, 1997 and
1998. The additional shares will be issued at their then current fair
value and reflected as compensation expense when earned.
On March 28, 1997, the Company acquired Environmental
Specialty Products, Inc. (ESP) a sales and marketing company of
recycled plastic lumber products for $110,000 in cash and 25,150 shares
of the Company's common stock. The common stock was valued based on an
independent appraisal at $13,581. The total purchase price of $123,581
exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess will be recorded as goodwill and
amortized on a straight-line basis over a period of twenty years.
On March 31, 1997, the Company acquired Integrated Technical
Services, Inc. (ITS) an environmental consulting and remediation
company for $110,000 in cash and 185,000 shares of the Company's common
stock. The common stock was valued based on an independent appraisal at
$99,900. The total purchase price of $209,900 exceeded the estimated
fair value of the net assets of ITS by approximately $139,000. The
excess will be recorded as goodwill and amortized on a straight-line
basis over a period of twenty years. The purchase agreement also
provides for the issuance of up to an additional 16,000 shares of the
Company's common stock to certain former stockholders if ITS meets
certain profitability levels during the years ending December 31, 1997
and 1998. The additional shares will be issued at their then current
fair value and reflected as compensation expense when earned.
On June 30, 1997, the Company acquired EnviroPlastics
Corporation (EPC) a recycler of post consumer plastic for 280,000
shares of the Company's common stock. The common stock was valued based
on an independent appraisal at $193,200 which exceeded the estimated
fair value of the net assets of EPC by approximately $1,018,000. The
excess will be recorded as goodwill and amortized on a straight-line
basis over a period of twenty years. The Company has the right to
rescind the acquisition at any time prior to December 31, 1997. The
purchase agreement also provides for the issuance of up to 90,000 stock
options for shares of the Company's common stock, at an exercise price
of $5.00 per share, if EPC meets certain profitability levels during
the years ending December 31, 1997, 1998, and 1999. When earned, the
Company will recognize compensation expense equal to the difference
between the then fair value of the underlying shares and the exercise
price of the options earned.
Page 14
<PAGE> 70
NOTE 13 - SUBSEQUENT EVENTS (Continued)
ACQUISITIONS (Continued)
On November 18, 1997, the Company acquired Waste Concepts,
Inc. (WCI) an environmental consulting and remediation company for
$175,000 in cash and 400,000 shares of the Company's common stock. The
common stock was valued based on an independent appraisal at $314,000.
The total purchase price of $489,000 exceeded the estimated fair value
of the net assets of WCI by approximately $453,000. The excess will be
recorded as goodwill and amortized on a straight-line basis over a
period of twenty years. The purchase agreement also provides for the
issuance of up to an additional 25,000 shares of the Company's common
stock if WCI meets certain profitability levels during the five year
period ending December 31, 2002. The additional shares will be issued
at their then current fair value and reflected as compensation expense
when earned.
The acquisitions will be accounted for as a purchase and,
accordingly, the results of operations of the acquired companies will
be included with those of the Company for periods subsequent to the
date of acquisition. The purchase price allocations are based on
preliminary estimates of the fair value of the net assets acquired and
are subject to adjustment as additional information becomes available.
The unaudited pro forma combined results of operations of the
Company, RPI, ARDT, ESP, ITS, EPC, and WCI for the year ended December
31, 1996 after giving effect to certain pro forma adjustments are as
follows:
<TABLE>
<S> <C>
Net sales $ 23,042,000
==============
Loss before extraordinary items $ (57,000)
==============
Net income $ 1,094,000
==============
Primary earnings per share:
Income before extraordinary items $ (.01)
Extraordinary items .13
--------------
Net income $ .12
==============
</TABLE>
The foregoing unaudited pro forma results of operations
reflect adjustments for interest on notes issued to fund the purchase
price, amortization of goodwill, depreciation on revalued property and
equipment, and to reflect income taxes at an effective statutory rate
of 40%. 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.
BUSINESS FORMATIONS
In June 1997, the Company formed Carteret Biocycle Corporation
(CBC), as a wholly-owned subsidiary of Clean Earth, Inc. CBC will
operate a bio-organic recycling facility for contaminated soils. In
connection with the formation of CBC, the Company anticipates
constructing a recycling facility for approximately $2,000,000. The
Company entered into a thirty year lease for land at a lease rate of
$210,000 annually. The lease provides for two ten year renewal options.
Additionally the Company entered into a license and operating agreement
with SD&G Aggregates, Inc. (SD&G) to conduct remediation of
contaminated soils. The Company will pay SD&G a royalty of 2% of sales.
In July 1997, the Company and Interstate Industrial Corp.
formed a joint venture to operate a dredging company. The Company will
account for its investment on the equity method.
STOCK TRANSACTIONS
Through December 18, 1997, the Company issued 119,000 shares
of its 10% convertible preferred stock for net proceeds of $2,380,000.
On June 20, 1997, the Company issued 1,111,111 shares of its
common stock for net proceeds of $2,500,000.
Page 15
<PAGE> 71
NOTE 13 - SUBSEQUENT EVENTS (Continued)
LEGAL PROCEEDINGS
In November 1997, a suit was filed against the Company and
certain former directors by a former director and other affected
individuals alleging that options granted to them were protected from
any dilution and that they are entitled to additional options. The
Company has disputed the claim and is negotiating with the affected
parties to resolve this issue. The Company believes that the ultimate
outcome will not have a material effect of the financial position or
results of operations of the Company.
Page 16
<PAGE> 72
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<PAGE> 73
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,611,603
Accounts and notes receivable, net of allowance for
doubtful accounts of $377,001 5,578,503
Inventories 1,387,656
Prepaid expenses and other current assets 401,860
-----------
TOTAL CURRENT ASSETS 8,979,622
Property and equipment, net 5,020,173
Intangible and other assets, net 3,478,926
-----------
TOTAL ASSETS $17,478,721
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 2,108,258
Accounts payable 2,927,409
Accrued expenses and other liabilities 1,207,419
Deferred revenue 212,183
Deferred income taxes 312,137
-----------
TOTAL CURRENT LIABILITIES 6,767,406
Deferred income taxes 400,000
Notes payable, net of current portion 1,567,232
-----------
TOTAL LIABILITIES 8,734,638
-----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001; authorized 5,000,000
shares; issued and outstanding 209,207 shares
(aggregate liquidation value of $4,184,140) 210
Common stock par value $.0001, authorized 50,000,000
shares; issued and outstanding 15,000,200 shares 1,500
Additional paid-in capital 8,638,144
Retained earnings 104,229
-----------
TOTAL STOCKHOLDERS' EQUITY 8,744,083
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,478,721
===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 1
<PAGE> 74
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Net sales $ 15,432,537 $ 3,732,544
Cost of goods sold 11,379,219 3,288,338
------------ -----------
GROSS PROFIT 4,053,318 444,206
General and administrative expenses 3,440,921 681,096
------------ -----------
OPERATING INCOME (LOSS) 612,397 (236,890)
Other income (expense):
Interest income 36,942 30,003
Interest expense (140,572) (30)
------------ -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM 508,767 (206,917)
Provision for income taxes 1,569 --
------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 507,198 (206,917)
Extraordinary item - loss on involuntary conversion -- (220,000)
------------ -----------
NET INCOME (LOSS) 507,198 (426,917)
Preferred stock dividends (304,740) --
------------ -----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 202,458 $ (426,917)
============ ===========
Primary earnings (loss) per share:
Income (loss) before extraordinary item $ .01 $ (.03)
Extraordinary item -- (.03)
------------ -----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ .01 $ (.06)
============ ===========
Weighted-average number of shares outstanding 13,660,767 7,084,145
============ ===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 2
<PAGE> 75
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 507,198 $ (426,917)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 424,158 526,899
Issuance of common stock for services 1,264 --
Provision for bad debts 59,192 --
Increase (decrease) in cash due to changes in operating
assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,625,137) 926,114
Inventories 14,611 (18,560)
Prepaid expenses and other current assets (220,096) 256,883
Accounts payable (360,605) 409,388
Accrued expenses (960,101) 82,260
Deferred revenue (555) (49,630)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,160,071) 1,706,437
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,886,701) (232,380)
Payment for acquisitions, net of cash received (1,492,186) --
Payments for deferred expenses 482,444 --
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (2,896,443) (232,380)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of capital stock 4,880,000 --
Dividends paid -- (948,000)
Proceeds from issuance of notes payable 2,015,469 625,000
Purchase of treasury stock -- (1,100,000)
Payments on notes payable (1,081,642) --
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,813,827 (1,423,000)
----------- -----------
NET INCREASE IN CASH 757,313 51,057
Cash at beginning of period 854,290 1,110,206
----------- -----------
CASH AT END OF PERIOD $ 1,611,603 $ 1,161,263
=========== ===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 3
<PAGE> 76
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
SELECTIVE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated
financial statements of U.S. Plastic Lumber Corp. and Subsidiaries (the
"Company") includes all adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the
periods presented. These consolidated financial statements should be
read in connection with the consolidated financial statements and notes
thereto included in the December 31, 1996 consolidated financial
statements of the Company. The results of the operations for the nine
months ended September 30, 1997 are not necessarily indicative of the
results expected for the year.
NOTE 2 - ACQUISITIONS
On January 27, 1997, the Company acquired Recycled Plastics
Industries, Inc. (RPI), a recycled plastic lumber manufacturer for
$1,200,000 in cash and 1,000,000 shares of the Company's common stock.
The common stock was valued based on an independent appraisal at
$475,000. The total purchase price of $1,675,000 exceeded the estimated
fair value of the net assets of RPI by approximately $1,410,000. The
excess was recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years.
On February 24, 1997, the Company acquired Advanced
Remediation and Disposal Technologies, Inc. (ARDT), an environmental
consulting and remediation company. The common stock was valued based
on an independent appraisal at $159,000 which was less than the
estimated fair value of the net assets of ARDT by approximately
$120,000. The difference will be used to reduce the basis of noncurrent
assets. The purchase agreement also provides for the issuance of up to
an additional 150,000 shares of the Company's common stock if ARDT
meets certain profitability levels during the years ending December 31,
1997 and 1998. The additional shares will be issued at their current
fair value and reflected as compensation expense when earned.
On March 28, 1997, the Company acquired Environmental
Specialty Products, Inc. (ESP). a sales and marketing company of
recycled plastic lumber products for $110,000 in cash and 25,150 in
shares of the Company's common stock. The common stock was valued based
on an independent appraisal at $13,581. The total purchase price of
$123,581 exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess was recorded as goodwill and is being
amortized on a straight-line basis over a period of twenty years.
On March 31,1997, the Company acquired Integrated Technical
Services, Inc. (ITS), an environmental consulting and remediation
company for $110,000 in cash and 185,000 shares of the Company's common
stock. The common stock was valued based on an independent appraisal at
$99,900. The total purchase price of $209,900 exceeded the estimated
fair value of the net assets of ITS by approximately $139,000. The
excess was recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years. The purchase
agreement also provides for the issuance of up to an additional 16,000
shares of the Company's common stock to certain former stockholders if
ITS meets certain profitability levels during the years ending December
31, 1997 and 1998. The additional shares will be issued at their then
current fair value and reflected as compensation expense when earned.
Page 4
<PAGE> 77
NOTE 2 - ACQUISITIONS (CONTINUED)
On June 30,1997, the Company acquired EnviroPlastics
Corporation (EPC), a recycler of post consumer plastic for 280,000
shares of the Company's common stock. The common stock was valued based
on an independent appraisal at $193,200 which exceeded the estimated
fair value of the net assets of EPC by approximately $1,018,000. The
excess was recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years. The Company has the
right to rescind the acquisition at any time prior to December 31,
1997. The purchase agreement also provides for the issuance of up to
90,000 stock options for shares of the Company's common stock, at an
exercise price of $5.00 per share, if EPC meets certain profitability
levels during the years ending December 31, 1997, 1998, and 1999. When
earned, the Company will recognize compensation expense equal to the
difference between the then fair market value of the underlying shares
and the exercise price of the options earned.
ACQUISITIONS UNDER AGREEMENT
In July 1997, the Company agreed in principle to acquire
certain net assets of Tri-Max Lumber, Inc. a manufacturer of recycled
plastic lumber. Consummation of the acquisition is subject to a number
of conditions including, but not limited to, the results of the
Company's due diligence. Due to the contingencies involved, the Company
cannot predict whether or when the acquisition will be consummated.
FORMATION OF BUSINESS PARTNERSHIP
In July 1997, the Company and Interstate Industrial Corp.
formed a joint venture to operate a dredging operation. The Company
will account for its investment on the equity method.
NOTE 3 - CAPITAL STOCK
STOCK ISSUANCES
Through September 30, 1997, the Company issued 119,000 shares
of 10% convertible preferred stock for net proceeds of $2,380,000.
On June 20, 1997, the Company issued 1,111,111 shares of
common stock for proceeds of $2,500,000.
CONVERTIBLE PREFERRED STOCK DIVIDEND
During the nine months ended September 30, 1997, the Company
declared and paid a preferred stock dividend of $304,740. The dividend
was paid in the form of 15,237 shares of convertible preferred stock.
PRIMARY EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is computed by dividing net
income (loss), adjusted for dividends on convertible preferred stock,
by the weighted-average number of shares outstanding during the nine
months ended September 30, 1997 and 1996. Common stock equivalents have
been excluded as they are not materially dilutive for the nine months
ended September 30,1997. Fully diluted earnings per share amounts are
not presented as they are not materially dilutive for the nine months
ended September 30, 1997. There were no common stock equivalents or
other potentially dilutive securities outstanding during the nine month
period ended September 30, 1996.
Page 5
<PAGE> 78
NOTE 4 - NOTES PAYABLE
During the nine months ended September 30, 1997, the Company
borrowed $1,200,000 from an affiliate of a director/stockholder of the
Company. The note payable is due on demand, bears interest at prime
plus 1% (9.5% as of September 30, 1997), and is uncollateralized. The
Company may borrow up to $2,300,000 under the note.
In June 1997, the Company obtained a new revolving
discretionary line of credit with availability of $1,500,000, bearing
interest at the bank's prime rate plus .50%. Advances under the line of
credit will be made at the sole discretion of the lender.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
FORMATION OF NEW SUBSIDIARY
In September 1997, the Company formed Carteret Biocycle
Corporation (Carteret), as a wholly-owned subsidiary of Clean Earth,
Inc. Carteret will operate a bio-organic recycling facility for
contaminated soils. In connection with the formation of Carteret, the
Company anticipates constructing a recycling facility for approximately
$1,500,000. The Company also entered into a 30 year lease for land at a
lease rate of $210,000 per year. The lease contains two ten year
renewal options. Additionally, the Company entered into a license and
operating agreement with SD&G Aggregates, Inc. (SD&G) to conduct
remediation of contaminated soils. The Company will pay SD&G a royalty
of 2% of sales.
LICENSE AND RESEARCH AGREEMENT
In March 1997, the Company entered into a license agreement
with Rutgers University (Rutgers) for an exclusive worldwide license
related to the recycled plastic composite railroad tie technology. The
Company paid Rutgers initial consideration of $10,000 in cash and
187,500 shares of the Company's common stock valued by an independent
appraisal at $101,250 and has committed to pay Rutgers annual
maintenance fees of $5,000 beginning in 1998 and increasing to $10,000
per year thereafter. The initial consideration of $110,250 will be
amortized on a straight-line basis over the life of the agreement. In
addition, the Company will pay a royalty of 3% of product sales with
minimum royalties of $60,000 per year after the initial two year
period.
In March 1997, the Company entered into a research agreement
with Rutgers for a one year period to conclude certain research issues
relating to the marketability of the recycled plastic composite
railroad tie technology. The Company will pay Rutgers approximately
$100,000 for the research.
LEGAL PROCEEDINGS
In August 1997, a former partner of ECP alleged that the
Company had wrongfully issued shares to the other partners of ECP in
connection with acquisition. The Company, through an outside counsel,
reviewed the transaction and concluded that the stock issued to certain
ECP partners was not properly authorized. The affected ECP partners
have disputed this conclusion. The Company and the affected ECP
partners are in negotiations to resolve these issues. The Company
believes that the ultimate outcome will not have a material effect of
the financial position or results of operations of the Company.
Page 6
<PAGE> 79
NOTE 6 - SUBSEQUENT EVENTS
ACQUISITIONS
On November 18, 1997, the company acquired Waste Concepts,
Inc. (WCI) an environmental consulting and remediation company for
$175,000 in cash and 400,000 shares of the Company's common stock. The
common stock was valued based on an independent appraisal at $314,000.
The total purchase price of $489,000 exceeded the estimated fair value
of the net assets of WCI by approximately $453,000. The excess will be
recorded as goodwill and amortized on a straight-line basis over a
period of twenty years. The purchase agreement also provides for the
issuance of up to an additional 25,000 shares of the Company's common
stock if WCI meets certain profitability levels during the five year
period ending December 31, 2002. The additional shares will be issued
at their then current fair value and reflected as compensation expense
when earned.
On January 2, 1998, the Company acquired Green Horizon
Environmental, Inc. (GHE), an environmental recycling services company
for 50,000 shares of the Company's common stock. The common stock was
valued based on an independent appraisal at $39,250 which was less than
the estimated fair value of the net assets of GHE by approximately
$73,000. The difference will be recorded as negative goodwill and
amortized on a straight-line basis over a period of twenty years. The
purchase agreement also provides for the issuance of up to an 50,000
stock options for shares of the Company's common stock if GHE meets
certain profitability levels during the four year ending December 31,
2001. When earned, the Company will recognize compensation expense
equal to the difference between the then fair value of the underlying
shares and the exercise price of the options earned.
The acquisitions will be accounted for as a purchase and,
accordingly, the results of operations will be included with those of
the Company for periods subsequent to the date of acquisition. The
purchase price allocations are based on preliminary estimates of the
fair value of the net assets acquired and are subject to adjustment as
additional information becomes available.
LEGAL PROCEEDING
In November 1997, a suit was filed against the Company and
certain former directors by a former director and other affected
individuals alleging that options granted to them were protected from
any dilution and that they are entitled to additional options. The
Company has disputed the claim and is negotiating with the affected
parties to resolve this issue. The Company believes that the ultimate
outcome will not have a material effect of the financial position or
results of operations of the Company.
OPTIONS
In December 1997, the Company received proceeds of $208,675
when Magellen Finance Corporation exercised 117,895 of its options.
Page 7
<PAGE> 80
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
<PAGE> 81
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma consolidated financial information
gives effect to the combination of Clean Earth, Inc., (USPLC) the acquiror for
financial reporting purposes with the following:
U.S. Plastic Lumber Corp., the legal acquiror and parent (Parent),
acquired December 30, 1996
Recycled Plastics Industries, Inc. (RPI), acquired January 27, 1997
Advanced Remediation and Disposal Technologies, Inc. (ARDT), acquired
February 24, 1997
Environmental Speciality Products, Inc. (ESP), acquired March 28, 1997
Integrated Technical Services, Inc. (ITS), acquired March 31, 1997
EnviroPlastics Corporation (EPC), acquired June 30, 1997
Waste Concepts, Inc. (WCI), acquired November 18, 1997
The pro forma consolidated financial information is based in the
historical financial statements of the Parent, USPLC, RPI, ARDT, ESP, ITS, EPC,
and WCI, estimates and assumptions set forth below and in the notes to the pro
forma consolidated financial information.
The pro forma consolidated balance sheet gives effect to the combination
of USPLC and WCI as if the acquisition had occurred on the latest balance sheet
date, September 30, 1997. As of September 30, 1997 the balance sheets of the
Parent, RPI, ARDT, ITS, ESP, and EPC are included in the USPLC consolidated
balance sheet.
The pro forma consolidated statements of operations present pro forma
results from operations for the year ended December 31, 1996 and the nine months
ended September 30, 1997. For purposes of the pro forma consolidated statements
of operations, the acquisitions of the Parent, RPI, ARDT, ESP, EPC, and WCI are
included as if the acquisitions had occurred on January 1, 1996.
The pro forma consolidated statements of operations for the nine months
ended September 30, 1997 includes: (i) the unaudited financial information of
USPLC for the nine months ended September 30, 1997 (which includes the Parent
for the nine months ended September 30, 1997, RPI for the eight months ended
September 30, 1997, ARDT for the seven months ended September 30, 1997, ESP and
ITS for the six months ended September 30, 1997, and EPC for the three months
ended September 30, 1997; (ii) the unaudited financial information of RPI for
the one month period ended January 31, 1997; (iii) the unaudited financial
information of ARDT for the two months ended February 28,1997; (iv) the
unaudited financial information of ESP and ITS for the three months ended March
31, 1997; (v) the unaudited financial information of EPC for the six months
ended June 30, 1997; and (vi) the unaudited financial information of WCI for the
nine months ended September 30, 1997.
The pro forma consolidated statements of operations for the year ended
December 31, 1996 includes: (i) the audited financial information of the Parent,
RPI, ARDT, EPC, and WCI for the year ended December 31, 1996, and (ii) the
unaudited financial information of ESP for the year ended December 31, 1996.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial information presented herein is not
necessarily indicative of the results the companies would have obtained had such
events occurred at the beginning of the period, as assumed, or of the future
results of the companies. The pro forma consolidated financial information
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in the Prospectus.
<PAGE> 82
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
USPLC WCI ADJUSTMENTS BALANCE SHEET
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,611,603 $ 17,961 a $(175,000) $ 1,454,564
Accounts and notes receivable, net 5,578,503 1,738,463 -- 7,316,966
Inventories 1,387,656 -- -- 1,387,656
Prepaid expenses and other
current assets 401,860 61,527 -- 463,387
----------- ----------- --------- ------------
TOTAL CURRENT ASSETS 8,979,622 1,817,951 (175,000) 10,622,573
Property and equipment, net 5,020,173 169,970 c 95,000 5,285,143
Intangible and other assets, net 3,478,926 47,916 c 339,069 3,865,911
----------- ----------- --------- ------------
TOTAL ASSETS $17,478,721 $ 2,035,837 $ 259,069 $ 19,773,627
=========== =========== ========= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 2,108,258 $ 20,000 $ -- $ 2,128,258
Line of credit -- 224,643 -- 224,643
Loan from stockholder -- 95,100 -- 95,100
Accounts payable 2,927,409 1,611,630 c (81,000) 4,458,039
Accrued expenses and other
liabilities 1,207,419 2,878 -- 1,210,297
Deferred revenue 212,183 -- -- 212,183
Deferred income taxes 312,137 -- c 26,000 338,137
----------- ----------- --------- ------------
TOTAL CURRENT LIABILITIES 6,767,406 1,954,251 (55,000) 8,666,657
Deferred income taxes 400,000 -- -- 400,000
Notes payable, net of current portion 1,567,232 81,655 -- 1,648,887
----------- ----------- --------- ------------
TOTAL LIABILITIES 8,734,638 2,035,906 (55,000) 10,715,544
----------- ----------- --------- ------------
STOCKHOLDERS' EQUITY
Preferred stock 210 -- -- 210
Common stock 1,500 1,000 a 40 1,540
b (1,000)
Additional paid-in capital 8,638,144 40,683 a 313,960 8,952,104
b (40,683)
Retained earnings 104,229 (41,752) b 41,752 104,229
----------- ----------- --------- ------------
TOTAL STOCKHOLDERS'
EQUITY 8,744,083 (69) 314,069 9,058,083
----------- ----------- --------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $17,478,721 $ 2,035,837 $ 259,069 $ 19,773,627
=========== =========== ========= ============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 83
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
USPLC RPI ARDT ESP ITS
------------ -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 15,432,537 $ 82,868 $ 38,276 $ 147,145 $ 1,785,026
Cost of goods sold 11,379,219 62,604 59,984 137,434 1,483,824
------------ -------- -------- --------- -----------
GROSS PROFIT (LOSS) 4,053,318 20,264 (21,708) 9,711 301,202
General and administrative expenses 3,440,921 13,032 38,432 131,545 188,586
------------ -------- -------- --------- -----------
OPERATING INCOME
(LOSS) 612,397 7,232 (60,140) (121,834) 112,616
Interest income 36,942 189 -- -- --
Interest expense (140,572) (2,055) (1,911) (1,693) (4,638)
Other income (expense) -- -- -- -- --
------------ -------- -------- --------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES 508,767 5,366 (62,051) (123,527) 107,978
Provision for (benefit from)
income taxes 1,569 -- -- (29,918) 18,738
------------ -------- -------- --------- -----------
NET INCOME (LOSS) 507,198 5,366 (62,051) (93,609) 89,240
Preferred stock dividends (304,740) -- -- -- --
------------ -------- -------- --------- -----------
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
STOCKHOLDERS $ 202,458 $ 5,366 $(62,051) $ (93,609) $ 89,240
============ ======== ======== ========= ===========
Primary loss per share:
Net loss attributable to
common stockholders
Weighted-average number of shares outstanding
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA STATEMENT
EPC WCI ADJUSTMENTS OF OPERATIONS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 2,891,508 $ 4,791,242 a $(981,000) $ 24,187,602
Cost of goods sold 3,125,953 3,903,960 a (981,000) 19,087,978
d (84,000)
----------- ----------- --------- ------------
GROSS PROFIT (LOSS) (234,445) 887,282 84,000 5,099,624
General and administrative expenses 285,019 953,229 b (23,000) 5,078,764
c 51,000
----------- ----------- --------- ------------
OPERATING INCOME
(LOSS) (519,464) (65,947) 56,000 20,860
Interest income -- -- -- 37,131
Interest expense (51,639) (24,823) e (4,800) (230,231)
f 1,900
Other income (expense) 97,822 (16,665) -- 81,157
----------- ----------- --------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES (473,281) (107,435) 53,100 (91,083)
Provision for (benefit from)
income taxes -- -- g (26,822) (36,433)
----------- ----------- --------- ------------
NET INCOME (LOSS) (473,281) (107,435) 79,922 (54,650)
Preferred stock dividends -- -- -- (304,740)
----------- ----------- --------- ------------
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
STOCKHOLDERS $ (473,281) $ (107,435) $ 79,922 $ (359,390)
=========== =========== ========= ============
Primary loss per share:
Net loss attributable to
common stockholders $ (.03)
============
Weighted-average number of shares outstanding h 13,862,499
============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 84
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PARENT USPLC RPI ARDT ESP
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,885,303 $ 4,741,939 $ 1,395,322 $ 2,343,047 $ 1,036,303
Cost of goods sold 2,568,433 3,721,508 857,056 1,646,099 737,979
------------ ----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) (683,130) 1,020,431 538,266 696,948 298,324
General and administrative expenses 2,603,948 1,311,155 235,553 468,826 286,539
------------ ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (3,287,078) (290,724) 302,713 228,122 11,785
Interest income 3,115 53,156 2,060 -- --
Interest expense (75,441) (8,397) (23,744) (14,007) (1,524)
Other income (expense) (199,087) -- -- 3,069 --
------------ ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (3,558,491) (245,965) 281,029 217,184 10,261
Provision for (benefit from) income taxes -- (65,691) -- -- 1,929
------------ ----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (3,558,491) $ (180,274) $ 281,029 $ 217,184 $ 8,332
============ =========== =========== =========== ===========
Primary loss per share:
Loss from continuing
operations
Weighted-average number of
shares outstanding
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA STATEMENTS
ITS ENVIRO WCI ADJUSTMENTS OF OPERATIONS
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 3,905,783 $ 5,229,915 $ 4,814,731 a $ (425,000) $ 24,927,343
Cost of goods sold 3,225,836 4,529,969 4,133,973 d (299,000) 20,696,853
a (425,000)
----------- ----------- ----------- ----------- ------------
GROSS PROFIT (LOSS) 679,947 699,946 680,758 299,000 4,230,490
General and administrative expenses 735,236 478,220 690,204 b (53,000) 6,947,031
c 190,350
----------- ----------- ----------- ----------- ------------
OPERATING INCOME (LOSS) (55,289) 221,726 (9,446) 161,650 (2,716,541)
Interest income -- -- -- -- 58,331
Interest expense (25,914) (161,543) (24,835) e (58,000) (379,405)
f 14,000
Other income (expense) -- (352,152) 779 -- (547,391)
----------- ----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (81,203) (291,969) (33,502) 117,650 (3,585,006)
Provision for (benefit from) income taxes 12,548 13,251 -- g (1,396,039) (1,434,002)
----------- ----------- ----------- ----------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (93,751) $ (305,220) $ (33,502) $ 1,513,689 $ (2,151,004)
=========== =========== =========== =========== ============
Primary loss per share:
Loss from continuing
operations
$ (.14)
============
Weighted-average number of
shares outstanding h 15,125,028
============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 85
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
1. Unaudited Pro Forma Consolidated Balance Sheet Adjustments
a Adjustment to reflect the payment of cash and issuance of
stock to effect the acquisition of Waste Concepts, Inc.
b Adjustment to eliminate the common stock, additional paid-in
capital and retained earnings of Waste Concepts, Inc.
c Adjustment to reflect the purchase price allocation of
acquired assets and liabilities to estimated fair value
2. Unaudited Pro Forma Consolidated Statements of Operations
a Adjustment to reflect the elimination of intercompany sales
b Adjustment to reflect the reduction in amortization expense
related to the amortization of goodwill which was recorded on
the historical financial statements of the Parent and WCI
c Adjustment to reflect increase in amortization expense on the
goodwill recorded related to the acquisitions of the Parent,
RPI, ARDT, ESP, ITS, EPC, and WCI
d Adjustment to reflect the net decrease in depreciation expense
on property and equipment recorded at the estimated fair value
e Adjustment to reflect increase in interest expense for the
notes payable incurred to partially fund the RPI acquisition
f Adjustment to reflect the decrease in interest expense for
notes payable not assumed in the acquisition of ARDT
g Adjustment to calculate the provision for income taxes on the
consolidated pro forma results at the effective statutory tax
rates of 40%
h The weighted average shares outstanding used to calculate pro
forma loss per share is based on the historical average number
of shares of common stock outstanding during the period
adjusted for the acquisitions as if they had occurred on
January 1, 1996. For the year ended December 31, 1996 and the
nine months ended September 30, 1997, common stock equivalents
have been excluded and fully diluted loss per share amounts
are not presented as they are both anti-dilutive.
<PAGE> 86
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 87
CONTENTS
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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 9
</TABLE>
<PAGE> 88
-----------------------------------
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 Stockholder
Clean Earth, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Clean
Earth, Inc. 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. These 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Clean Earth,
Inc. 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.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 18, 1997
Page 1
<PAGE> 89
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 628,822 $1,110,206
Receivables:
Accounts, net of allowance for doubtful accounts
of $61,704 and $40,000 in 1996 and 1995, respectively 1,319,471 2,443,171
Insurance settlement 455,000 --
Inventories 71,143 31,513
Prepaid expenses and other current assets 80,468 153,235
----------- ----------
TOTAL CURRENT ASSETS 2,554,904 3,738,125
Property and equipment, net 435,718 874,220
Deferred income taxes -- 121,300
Deferred expenses 9,655 17,900
----------- ----------
TOTAL ASSETS $ 3,000,277 $4,751,545
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 652,576 $ 409,213
Accrued expenses 383,111 190,091
Deferred revenue 162,819 189,055
----------- ----------
TOTAL LIABILITIES 1,198,506 788,359
STOCKHOLDERS' EQUITY
Common stock par value $1.00, authorized 700 shares; issued and
outstanding 70 shares and 100 shares at December 31, 1996 and 1995,
respectively 70 100
Additional paid-in capital 1,899,930 2,999,900
Retained earnings (deficit) (98,229) 963,186
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,801,771 3,963,186
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,000,277 $4,751,545
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 2
<PAGE> 90
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 4,741,939 $6,043,963
Cost of goods sold 3,721,508 4,116,721
----------- ----------
GROSS PROFIT 1,020,431 1,927,242
General and administrative expenses 1,311,155 1,103,018
----------- ----------
OPERATING INCOME (LOSS) (290,724) 824,224
Interest income 53,156 --
Interest expense (8,397) --
----------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES (245,965) 824,224
Provision for (benefit from) income taxes (65,691) 310,000
----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (180,274) 514,224
Extraordinary item - gain on involuntary conversion (net of
income taxes of $44,500) 66,859 --
----------- ----------
NET INCOME (LOSS) $ (113,415) $ 514,224
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 3
<PAGE> 91
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
COMMON ADDITIONAL EARNINGS
STOCK PAID-IN CAPITAL (DEFICIT) TOTAL
----- --------------- --------- -----------
<S> <C> <C> <C> <C>
Balance January 1, 1995 $ 100 $ 2,999,900 $ 848,962 $ 3,848,962
Net income -- -- 514,224 514,224
Cash dividend paid -- -- (400,000) (400,000)
----- ----------- --------- -----------
Balance December 31, 1995 100 2,999,900 963,186 3,963,186
Purchase and retirement of treasury
stock (30) (1,099,970) -- (1,100,000)
Net loss -- -- (113,415) (113,415)
Cash dividend paid -- -- (948,000) (948,000)
----- ----------- --------- -----------
Balance December 31, 1996 $ 70 $ 1,899,930 $ (98,229) $ 1,801,771
===== =========== ========= ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 4
<PAGE> 92
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (113,415) $ 514,224
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 629,697 912,905
Provision for losses on accounts receivable 21,704 (5,000)
Gain on sale of property and equipment -- (84,500)
Write-off of fire damaged equipment 68,085 --
Deferred income taxes 121,300 (120,000)
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable 646,996 (1,129,648)
Inventories (39,630) (6,074)
Prepaid expenses and other assets 72,767 40,914
Accounts payable 243,363 (217,385)
Accrued expenses 193,020 179,248
Deferred revenue (26,236) 189,055
----------- -----------
Total adjustments 1,931,066 (240,485)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,817,651 273,739
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 200,000
Capital expenditures (251,035) (7,602)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (251,035) 192,398
----------- -----------
Cash flows from financing activities:
Payment for purchase of treasury stock (1,100,000) --
Dividends paid (948,000) (400,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,048,000) (400,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (481,384) 66,137
Cash and cash equivalent - beginning of year 1,110,206 1,044,069
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 628,822 $ 1,110,206
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,397 $ --
=========== ===========
Income taxes $ 50,000 $ 210,000
=========== ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 5
<PAGE> 93
CLEAN EARTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Clean Earth, Inc. and its subsidiaries are engaged in the
recycling of soils which have been exposed to hydrocarbons. The
Company's soil recycling customers are located primarily in the
Northeastern United States.
On December 30, 1996, Clean Earth, Inc. and its wholly-owned
subsidiaries were acquired by U.S. Plastic Lumber corp. (USPLC) in an
exchange of 5,400,000 shares of USPLC for all of the outstanding shares
of Clean Earth, Inc. The acquisition will be accounted for as a reverse
merger, and accordingly, Clean Earth, Inc. and Subsidiaries will be
considered the acquiror for financial reporting purposes.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Clean Earth, Inc. and its wholly-owned subsidiaries, Clean
Earth of New Castle, Inc., Clean Earth In-Situ and Delaware Improvement
Corp., (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. Inventories consist
primarily of supplies.
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.
Depreciation expense was $621,452 and $903,199 for the years
ended December 31, 1996 and 1995, respectively.
Page 6
<PAGE> 94
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED EXPENSES
Deferred expenses consist primarily of covenants not to
compete 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.
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 $18,500 and $17,600 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 two financial institutions which are located
in the Northeastern United States. At December 31, 1996 and 1995, the
Company had bank balances of approximately $548,000 and $968,000,
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.
RECLASSIFICATION
The 1995 consolidated financial statements have been
reclassified to conform to the current year presentation.
NOTE 2 - TREASURY STOCK
In March 1996, Clean Earth, Inc. acquired 30 shares of its
common stock from its sole stockholder for $1,100,000. Effective with
the reverse merger, those treasury shares were cancelled and retired.
NOTE 3 - EMPLOYEE BENEFIT PLANS
The Company 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 7
<PAGE> 95
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Machinery and equipment $ 3,301,111 $ 3,194,235
Leasehold improvements 409,470 406,971
Furniture and fixtures 2,250 2,250
----------- -----------
3,712,831 3,603,456
Less accumulated depreciation (3,277,113) (2,729,236)
----------- -----------
$ 435,718 $ 874,220
=========== ===========
</TABLE>
NOTE 5 - INCOME TAXES (Continued)
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:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal $(144,812) $ 357,800
State (42,179) 72,200
--------- ---------
(186,991) 430,000
--------- ---------
Deferred:
Federal 94,918 (93,800)
State 26,382 (26,200)
--------- ---------
121,300 (120,000)
--------- ---------
$ (65,691) $ 310,000
========= =========
</TABLE>
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 25,000 $ 16,000
Property and equipment 241,000 192,000
Accrued expenses 30,600 --
--------- ---------
296,600 208,000
Valuation allowance (230,600) (86,700)
--------- ---------
Net deferred tax assets $ 66,000 $ 121,300
Deferred tax liabilities:
Insurance settlement receivable $ 66,000 $ --
--------- ---------
NET DEFERRED TAXES $ -- $ 121,300
========= =========
</TABLE>
Page 8
<PAGE> 96
NOTE 6 - 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 reached a final settlement in February, 1997, for an
additional $455,000. This amount is reflected in the December 31, 1996
balance sheet as a receivable. Total insurance proceeds amounted to
$805,000 for the year ended December 31, 1996.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company incurred administration and services fees to its
stockholders of $500,000 and $450,000 for the years ended December 31,
1996 and 1995, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
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. Rent expense was approximately $300,000 and
$213,000 for the years ended December 31, 1996 and 1995, 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 July, 1998. 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.
Page 9
<PAGE> 97
RECYCLED PLASTICS INDUSTRIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 98
-----------------------------------
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
Recycled Plastics Industries, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of Recycled Plastics
Industries, Inc. as of December 31, 1996 and 1995, and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We 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 financial statements referred to above present
fairly, in all material respects, the financial position of Recycled Plastics
Industries, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
November 24, 1997
Page 1
<PAGE> 99
RECYCLED PLASTICS INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash $ 11,532 $ 39,586
Accounts receivable, net of allowance for
doubtful accounts of $22,463 and $23,730 89,283 100,295
Inventories 300,774 194,366
-------- --------
TOTAL CURRENT ASSETS 401,589 334,247
Property and equipment, net 132,094 144,316
Other assets 5,373 9,125
-------- --------
TOTAL ASSETS $539,056 $487,688
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 57,875 $ 68,498
Accounts payable 47,144 35,092
Accrued expenses 30,916 36,784
-------- --------
TOTAL CURRENT LIABILITIES 135,935 140,374
Long-term debt, net of current portion 231,305 --
Loans from shareholders -- 60,000
-------- --------
TOTAL LIABILITIES 367,240 200,374
-------- --------
STOCKHOLDERS' EQUITY
Common stock par value $.01, authorized 10,000
shares; issued and outstanding 4,000 shares 40 40
Additional paid-in capital 64,960 64,960
Retained earnings 106,816 222,314
-------- --------
TOTAL STOCKHOLDERS' EQUITY 171,816 287,314
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $539,056 $487,688
======== ========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 100
RECYCLED PLASTICS INDUSTRIES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Net sales $ 1,395,322 $ 1,133,335
Cost of goods sold 857,056 716,551
----------- -----------
GROSS PROFIT 538,266 416,784
General and administrative expenses 235,553 272,427
----------- -----------
OPERATING INCOME 302,713 144,357
Other income (expense)
Interest income 2,060 4,358
Interest expense (23,744) (16,382)
----------- -----------
NET INCOME 281,029 132,333
Retained earnings, beginning of year: 222,314 161,981
Distributions to stockholders (396,527) (72,000)
----------- -----------
RETAINED EARNINGS, END OF YEAR: $ 106,816 $ 222,314
=========== ===========
- ---------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 101
RECYCLED PLASTICS INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 281,029 $ 132,333
--------- ---------
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 49,793 58,514
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable 11,013 12,704
Inventories (106,408) (51,443)
Accounts payable 12,052 (41,504)
Accrued expense (5,868) (17,262)
Other assets 2,295 5,795
--------- ---------
Total adjustments (37,123) (33,196)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 243,906 99,137
--------- ---------
Cash flows from investing activities:
Capital expenditures (36,115) (33,706)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (36,115) (33,706)
--------- ---------
Cash flows from financing activities:
Principal payments on stockholders' loans (60,000) (25,000)
Principal payments on long-term debt (104,318) (65,044)
Proceeds from issuance of long-term debt 325,000 --
Distributions to stockholders (396,527) (72,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (235,845) (162,044)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (28,054) (96,613)
Cash and cash equivalents, beginning of year 39,586 136,199
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 11,532 $ 39,586
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 23,744 $ 16,382
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 102
RECYCLED PLASTICS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Recycled Plastics Industries, Inc. (the Company) is engaged in the
manufacturing of recycled plastic lumber from post-consumer plastic waste. The
Company's customers are primarily located throughout the North Central United
States.
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.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of SFAS No.
121 did not have an impact on the Company's financial position or results of
operations.
Page 5
<PAGE> 103
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company has elected under the Internal Revenue Code to be taxed as
an S corporation. In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal and state income taxes
has been included in these financial statements.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and were
approximately $7,200 and $2,500 during the years ended December 31, 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 one financial institution which is located in Wisconsin. Trade
receivables generally are concentrated in the North Central United States.
However, one customer accounted for 15.4% and 14.0% of net sales during the
years ended December 31, 1996 and 1995, respectively. The Company generally does
not require collateral from its customers.
NOTE 2 - INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Raw materials $ 70,622 $ 68,232
Finished goods 230,152 126,134
--------- ---------
$ 300,774 $ 194,366
========= =========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Machinery and equipment $348,000 $ 317,211
Leasehold improvements 8,831 8,831
Furniture and fixtures 18,783 13,456
-------- --------
375,614 339,498
Less accumulated depreciation (243,520) (195,182)
------- ---------
$132,094 $ 144,316
======== =========
</TABLE>
Depreciation expense was $48,338 and $56,621 for the years ended
December 31, 1996 and 1995, respectively.
Page 6
<PAGE> 104
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Promissory bank note, payable in monthly installments
of $6,630, including interest at a fixed rate of 8.25%,
balloon payment due in April 1999. $289,180 $ --
Promissory bank note, payable in monthly installments
of $6,190, including interest at a fixed rate of 8.75%,
balloon payment due in December 1996. -- 68,498
-------- ---------
289,180 68,498
Less current portion 57,875 68,498
-------- ---------
$231,305 $ --
======== =========
</TABLE>
The Company had available a $125,000 line of credit bearing interest at
the bank's prime rate plus .25% (8.50% at December 31, 1996). At December 31,
1995 the Company had available a $65,000 line of credit bearing interest at the
bank's prime rate plus 1.00% (9.50% at December 31, 1995).
Future maturities of long-term debt are as follows:
1997 $ 57,875
1998 62,835
1999 168,470
NOTE 5 - RELATED PARTY TRANSACTIONS
As of December 31, 1995, a loan payable of $60,000 was payable to the
shareholders of the Company. Interest is payable at 10% annually. Interest
expense was $2,000 and $7,146 for the years ended December 31, 1996 and 1995.
This loan was repaid in 1996.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
RELATED PARTY OPERATING LEASE
The Company leases office space and manufacturing facilities under a
non-cancelable operating lease from an entity controlled by individuals who are
also stockholders of the Company. The lease expires in December 1999 and may be
extended by the Company for a period of five years.
Future minimum payments are as follows for the years ending December 31:
1997 $ 53,189
1998 53,189
1999 53,189
Rent expense for all operating leases for the year ended December 31,
1996 and 1995 was $53,189 in each year.
Page 7
<PAGE> 105
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
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 7 - SUBSEQUENT EVENT
Effective January 27, 1997, all of the Company's issued and outstanding
shares of common stock was sold to U.S. Plastic Lumber Corporation (USPLC). The
accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 8
<PAGE> 106
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 107
-----------------------------------
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
Advanced Remediation and Disposal
Technologies, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of Advanced Remediation
and Disposal Technologies, Inc. as of December 31, 1996 and 1995, and the
related statements of operations and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We 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 financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Remediation
and Disposal Technologies, Inc. as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 29, 1997
Page 1
<PAGE> 108
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 18,335 $ 109,090
Accounts receivable, net of allowance for
doubtful accounts of $132,848 and $0 726,669 240,379
Prepaid expenses 24,726 16,919
Investments -- 31,500
--------- ---------
TOTAL CURRENT ASSETS 769,730 397,888
Property and equipment, net 90,729 138,345
Other assets 972 1,420
--------- ---------
TOTAL ASSETS $ 861,431 $ 537,653
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 33,015 $ 67,083
Line of credit 120,000 150,000
Accounts payable 252,131 30,579
Accrued expenses 27,184 45,059
--------- ---------
TOTAL CURRENT LIABILITIES 432,330 292,721
Long-term debt, net of current portion -- 33,015
--------- ---------
TOTAL LIABILITIES 432,330 325,736
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $1, authorized 10,000 shares;
issued and outstanding 1,200 shares 1,200 1,200
Additional paid-in capital 4,300 4,300
Retained earnings 423,601 206,417
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 429,101 211,917
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 861,431 $ 537,653
========= =========
</TABLE>
- ---------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 109
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net sales $2,343,047 $1,865,194
Cost of goods sold 1,646,099 1,426,582
---------- ----------
GROSS PROFIT 696,948 438,612
General and administrative expenses 468,826 252,971
---------- ----------
OPERATING INCOME 228,122 185,641
Other income (expense)
Gain on sale of assets 3,069 --
Interest expense (14,007) (9,413)
---------- ----------
NET INCOME 217,184 176,228
Retained earnings, beginning of year: 206,417 90,189
Distributions to shareholders -- 60,000
---------- ----------
RETAINED EARNINGS, END OF YEAR: $ 423,601 $ 206,417
========== ==========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 110
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 217,184 $ 176,228
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 43,854 29,713
Gain on sale of asset (3,069) --
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable (486,290) (50,606)
Prepaid expenses (7,807) (4,099)
Accounts payable 221,552 (49,222)
Accrued expenses (12,375) 32,423
--------- ---------
Total adjustments (244,135) (41,791)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,951) 134,437
Cash flows from investing activities:
Purchase of capital equipment (13,727) (157,118)
Purchase of securities -- (31,500)
Proceeds from sale of assets 47,006 --
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 33,279 (188,618)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit borrowings -- 130,000
Proceeds from issuance of long-term debt -- 108,637
Principal payments on notes payable (67,083) (8,539)
Payments on line of credit (30,000) --
Principal payments on shareholders' loans -- (11,644)
Distributions to shareholders -- (60,000)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (97,083) 158,454
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (90,755) 104,273
Cash and cash equivalents, beginning of year 109,090 4,817
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 18,335 $ 109,090
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 14,662 $ 7,423
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 111
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company provides remediation, waste handling and disposal services
in the Philadelphia area environmental market.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals of a minor nature are charged against earnings
as incurred. Major improvements and betterments are capitalized. Depreciation is
provided by the use of the straight-line and accelerated methods over the
estimated useful lives of the related assets.
INCOME TAXES
The Company has elected S corporation status for federal and state
income tax purposes. Under such election, federal and state income taxes are the
responsibility of the shareholders personally and are included on their
individual income tax returns. Accordingly, the financial statements do not
contain a provision for income taxes.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Office fixtures and equipment $ 13,062 $ 8,823
Field equipment 31,186 21,698
Transportation equipment 115,473 138,920
--------- ----------
159,721 169,441
Less accumulated depreciation (68,992) (31,096)
--------- ----------
$ 90,729 $ 138,345
========= ==========
</TABLE>
Depreciation expense was $43,406 and $29,265 for the years ended
December 31, 1996 and 1995, respectively.
Page 5
<PAGE> 112
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Promissory bank note, payable in monthly installments of $1,427, including
interest at the Wall Street Journal's prime rate plus 1.5% (9.75% and 10.0% at
December 31, 1996 and 1995, respectively) collateralized by equipment and
guaranteed by the stockholders. The note was retired in February 1997. $ 33,015 $ 65,646
Installment note payable, due in 60 monthly installments of $405 including
interest at 12% through January 2000, collateralized by transportation equipment. -- 15,611
Installment note payable, due in 60 monthly installments of $488 including
interest at 12% through January 2000, collateralized by transportation equipment. -- 18,841
-------- --------
$ 33,015 $100,098
Less current portion 33,015 67,083
-------- --------
$ -- $ 33,015
======== ========
</TABLE>
The Company had available a $500,000 line of credit bearing interest at
the Wall Street Journal's prime rate plus 1.5% (9.75% and 10.0% at December 31,
1996 and 1995, respectively). The outstanding balance was $120,000 and $150,000
at December 31, 1996 and 1995, respectively.
NOTE D - RETIREMENT PLAN
The Company started a Simplified Employee Pension for all employees not
covered under a collective bargaining agreement in 1995. To be eligible the
employee must be 21 years of age and have three years of employment.
Contributions under this plan were $15,000 for the years ended December 31, 1996
and 1995, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Three minority shareholders of the Company are also shareholders of
Corrosion Control Corporation. The Company and Corrosion Control Corporation
have entered into several transactions. The following is a summary of such
transactions with Corrosion Control Corporation for the years ended December 31,
1996 and 1995:
Aggregate sales during the years ended December 31, 1996 and 1995 were
approximately $75,000 and $0, respectively.
Aggregate services purchased during the years ended December 31, 1996
and 1995 were approximately $400 and $91,000, respectively.
Page 6
<PAGE> 113
NOTE F - SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company had substantial contracts with various entities. During the
years ended December 31, 1996 and 1995, approximate sales to these entities were
as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Entity A 28% --
Entity B 14% --
Entity C -- 36%
Entity D -- 29%
Entity E -- 14%
Entity F -- 11%
</TABLE>
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash with high credit quality institutions.
At times such investments may be in excess of the FDIC insurance limit.
Credit risk with respect to trade receivables generally are concentrated
in the Northeastern United States. The Company's top five customers accounted
for approximately 69% and 93% of sales in 1996 and 1995, respectively, and 59%
and 76% of accounts receivable at December 31, 1996 and 1995, respectively. One
customer accounted for 28% of the Company's account receivable at December 31,
1996. Another customer accounted for 48% of accounts receivable at December 31,
1995. The Company generally does not require collateral from its customers.
NOTE G - SUBSEQUENT EVENT
Effective February 24, 1997, all of the Company's issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corporation (USPLC).
The accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 7
<PAGE> 114
INTEGRATED TECHNICAL SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE> 115
-----------------------------------
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
Integrated Technical Services, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheet of Integrated Technical
Services, Inc. as of December 31, 1996, and the related statements of operations
and retained earnings and cash flows for the year then ended. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Technical
Services, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
August 7, 1997
Page 1
<PAGE> 116
INTEGRATED TECHNICAL SERVICES, INC.
BALANCE SHEETS
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 61,626
Accounts receivable, net of allowance for
doubtful accounts of $45,000 in 1996 760,614
Cost and estimated earnings in excess of billings
on uncompleted contracts 7,467
Prepaid expenses 62,997
-----------
TOTAL CURRENT ASSETS 892,704
Property and equipment, net 206,519
Deferred expenses, net 1,200
-----------
TOTAL ASSETS $ 1,100,423
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 116,698
Notes payable, stockholders 115,000
Accounts payable 391,431
Accrued expenses 107,893
Billings in excess of costs and estimated earnings on
uncompleted contracts 95,745
Deferred income taxes 91,447
-----------
TOTAL CURRENT LIABILITIES 918,214
Long-term debt, net of current portion 79,984
-----------
TOTAL LIABILITIES 998,198
-----------
STOCKHOLDERS' EQUITY
Common stock par value $1, authorized 1,000 shares;
issued and outstanding 1,000 shares 1,000
Additional paid-in capital 3,000
Retained earnings 98,225
-----------
TOTAL STOCKHOLDERS' EQUITY 102,225
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,100,423
===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 117
INTEGRATED TECHNICAL SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue $ 3,905,783
Cost of goods sold 3,225,836
------------
GROSS PROFIT 679,947
Selling, general and administrative expenses 735,236
------------
INCOME (LOSS) FROM OPERATIONS (55,289)
Interest expense 25,914
------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (81,203)
Provision for income taxes 12,548
------------
NET INCOME (LOSS) (93,751)
Retained earnings - beginning of year 191,976
------------
RETAINED EARNINGS - END OF YEAR $ 98,225
============
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 118
INTEGRATED TECHNICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (93,751)
Adjustments to reconcile net income (loss) to net ---------
cash provided by operating activities:
Depreciation and amortization 71,638
Deferred income taxes (36,855)
Increase (decrease) in cash due to changes in operating assets and
liabilities:
Accounts receivable (7,157)
Cost and estimated earnings in excess of billings
on uncompleted contracts 53,754
Prepaid expenses 48,485
Accounts payable (35,602)
Accrued expenses 51,488
Billings in excess of costs and estimated earnings
on uncompleted contracts 59,220
---------
Total adjustments 204,971
---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 111,220
---------
Cash flows from investing activities:
Capital expenditures (58,190)
---------
NET CASH USED IN INVESTING
ACTIVITIES (58,190)
---------
Cash flows from financing activities:
Principal payments on notes payable - stockholders (10,000)
Principal payments on long-term debt (102,602)
Proceeds from issuance of long-term debt 15,000
---------
NET CASH USED IN FINANCING
ACTIVITIES (97,602)
---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (44,572)
Cash and cash equivalent - beginning of the year 106,198
---------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 61,626
=========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 119
INTEGRATED TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Integrated Technical Services, Inc. is engaged in environmental
remediation and consulting services. The Company's customers are located
primarily in the state of New Jersey.
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.
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.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of
SFAS No. 121 did not have an impact on the Company's financial position or
results of operations.
REVENUE AND COST RECOGNITION
Revenues are recognized for fixed-price contracts on the
percentage-of-completion method measured by the total costs incurred to date to
estimated total costs for each contract. Revenues from time-and-material
contracts are recognized currently as the work is performed.
Contract costs include all direct material, labor and other costs and
those indirect costs related to contract performance, such as indirect labor,
fringe benefits, general insurance, repairs and depreciation. General and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. No losses were anticipated on any jobs in process at
December 31, 1996. Changes in job conditions and estimated profitability may
result in revisions to costs and income and are recognized in the period in
which such revisions are determined. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
can be reliably estimated.
Page 5
<PAGE> 120
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues recognized.
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 $2,200 in 1996.
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 located in the state of New Jersey. At
December 31, 1996, the Company had bank balances of approximately $113,000 in
excess of amount insured by federal deposit insurance. Trade receivables are
concentrated primarily in the state of New Jersey. The Company generally does
not require collateral from its customers.
NOTE 2 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs incurred on uncompleted contracts $ 284,136
Estimated earnings on uncompleted contracts 139,399
---------
423,535
Less billings on uncompleted contracts 511,813
----------
$ (88,278)
=========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 7,467
Billings in excess of costs and estimated
earnings on uncompleted contracts (95,745)
---------
$ (88,278)
=========
Page 6
<PAGE> 121
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
Machinery and equipment $180,162
Vehicles 145,448
--------
325,610
Less accumulated depreciation (119,091)
--------
$206,519
========
Depreciation expense was $70,438 for the year ended December 31, 1996.
NOTE 4 - NOTES PAYABLE - STOCKHOLDERS
The Company has notes payable from its stockholders, bearing interest
ranging from 7.5% to 10%. The notes are payable on demand and are
uncollateralized.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996:
Notes payable, monthly principal and interest payments of
$5,560, bearing interest at 9.0% to 10.45%, collateralized by
related equipment. $135,227
Note payable, monthly principal and interest payments
of $1,798, bearing interest at 10.75%, uncollateralized. 10,457
Note payable, monthly principal and interest payments
of $4,165, bearing interest at 9.81%, uncollateralized. 35,998
Bank line of credit, bearing interest at prime plus 1.25%
(9.50% as of December 31, 1996), maximum availability of
$100,000. 15,000
--------
196,682
Less current portion 116,698
--------
$ 79,984
========
Future maturities of long-term debt are as follows:
1997 $116,698
1998 58,996
1999 17,848
2000 3,140
--------
$196,682
========
Page 7
<PAGE> 122
NOTE 6 - 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 year ended December 31, 1996 are as follows:
Current:
Federal $ 36,849
State 12,554
---------
49,403
---------
Deferred:
Federal (28,735)
State (8,120)
---------
(36,855)
---------
$ 12,548
=========
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996:
Deferred tax assets:
Accounts payable $ 159,900
Accrued expenses 23,302
Billings in excess of costs and estimated
earnings on uncompleted contracts 36,062
---------
Gross deferred tax assets 219,264
Deferred tax liabilities:
Accounts receivable 310,711
---------
Net deferred tax liabilities $ 91,447
=========
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company routinely subcontracts services to one of its stockholders.
During the year ended December 31, 1996, such subcontracts amounted to
approximately $277,000. As of December 31, 1996, $21,358 was included in
accounts payable to the stockholder.
Page 8
<PAGE> 123
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
The Company leases a vehicle under a non-cancelable operating lease which
expires in November 2000.
Future minimum payments are as follows for the years ending December 31:
1997 $ 5,256
1998 5,256
1999 5,256
2000 4,818
Rent expense for the year ended December 31, 1996 was approximately
$15,200.
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 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the year ended
December 31, 1996:
Cash paid during the year for:
Interest $ 16,584
Income taxes $ --
Supplemental schedule of noncash investing and financing activities for
the year ended December 31, 1996:
Long-term debt issued for capital expenditures $152,744
Long-term debt issued for prepaid expenses $ 51,477
NOTE 10 - SUBSEQUENT EVENTS
Effective March 31, 1997, all of the Company=s issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corp. (USPLC). The
accompanying financial statements do not reflect any adjustments related to
USPLC=s acquisition of the Company.
Page 9
<PAGE> 124
WASTE CONCEPTS, INC.
FINANCIAL STATEMENTS
<PAGE> 125
-----------------------------------
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
Waste Concepts, Inc.
We have audited the accompanying balance sheet of Waste Concepts, Inc.
as of December 31, 1996, and the related statements of operations and retained
earnings (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Waste Concepts, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 8, 1997
Page 1
<PAGE> 126
WASTE CONCEPTS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 24,435 $ 17,961
Accounts receivable, net of allowance for doubtful
accounts of $253,735 at December 31, 1996 and
$691,786 at September 30, 1997 1,453,357 1,686,337
Loan receivable 13,642 52,126
Prepaid expenses 171,496 61,527
----------- -----------
TOTAL CURRENT ASSETS 1,662,930 1,817,951
----------- -----------
Property and equipment, net 164,439 169,970
Intangible assets 65,166 47,916
----------- -----------
TOTAL ASSETS $ 1,892,535 $ 2,035,837
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current portion of long-term debt $ 31,895 $ 20,000
Loan from shareholder 95,100 95,100
Line of credit 362,500 224,643
Accounts payable 1,099,071 1,611,630
Accrued expenses 119,997 2,878
----------- -----------
TOTAL CURRENT LIABILITIES 1,708,563 1,954,251
Long-term debt, net of current portion 76,606 81,655
----------- -----------
TOTAL LIABILITIES 1,785,169 2,035,906
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock par value $1, authorized 100,000 shares;
issued and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 40,683 40,683
Retained earnings (deficit) 65,683 (41,752)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 107,366 (69)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,892,535 $ 2,035,837
=========== ===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 127
WASTE CONCEPTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, 1996 ENDED SEPTEMBER 30, 1997
------------------ ------------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 4,814,731 $ 4,791,242
Cost of goods sold 4,133,973 3,903,960
----------- -----------
GROSS PROFIT 680,758 887,282
General and administrative expenses 690,204 953,229
----------- -----------
OPERATING LOSS (9,446) (65,947)
Other income and (expenses)
Gain (loss) on sale of equipment 779 (16,665)
Interest expense (24,835) (24,823)
----------- -----------
NET LOSS (33,502) (107,435)
Retained earnings, beginning of period: 99,185 65,683
----------- -----------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD: $ 65,683 $ (41,752)
=========== ===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 128
WASTE CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (33,502) $(107,435)
--------- ---------
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 71,292 55,350
(Gain) loss on sale of asset (779) 16,665
Increase (decrease) in cash due to changes
in operating assets and
liabilities:
Accounts receivable (762,050) (232,980)
Loans receivable (36,702) (38,484)
Prepaid expenses (7,332) 109,969
Accounts payable 477,838 512,559
Accrued expenses 25,317 (117,119)
--------- ---------
Total adjustments (232,416) 305,960
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (265,918) 198,525
--------- ---------
Cash flow from investing activities:
Purchase of capital equipment (47,169) (68,746)
Proceeds from sale of equipment 2,500 8,450
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (44,669) (60,296)
--------- ---------
Cash flow from financing activities:
Borrowings on notes payable 30,357 -
Principal payments on notes payable (28,461) (24,880)
Payments on line of credit - (137,857)
Proceeds from note payable - 18,034
Borrowings on line of credit 325,000 -
--------- ---------
NET CASH FLOW PROVIDED BY
(USED IN) FINANCING ACTIVITIES 326,896 (144,703)
--------- ---------
NET INCREASE (DECREASE) IN CASH 16,309 (6,474)
Cash and cash equivalents, beginning of period 8,126 24,435
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 24,435 $ 17,961
========= =========
Supplemental disclosures of cash flows information:
Cash paid during the year for interest $ 24,835 $ 24,823
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 129
WASTE CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Waste Concepts, Inc. (the Company) is engaged in the business of removing
and transporting waste products through the use of subcontractors in addition to
consultation on environmental waste issues. The Company's customers are located
throughout the Northeastern United States.
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.
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.
INCOME TAXES
The Company has elected under the Internal Revenue Code to be taxed as an
S corporation. In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal and state income taxes
has been included in these financial statements.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and a covenant not to compete,
which are being amortized on a straight-line basis over five years.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments
necessary for a fair presentation of financial position as of September 30,
1997, and of the results of operations, and cash flows for the nine months ended
September 30, 1997, as presented in the accompanying unaudited interim financial
statements. The results of operations for the nine month period ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
Page 5
<PAGE> 130
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Equipment $ 174,509
Furniture and fixtures 156,538
---------
331,047
Less accumulated depreciation (166,608)
---------
$ 164,439
=========
</TABLE>
Depreciation expense was $48,292 for the year ended December 31, 1996.
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Promissory bank note, payable in monthly installments of $296, including
interest at a fixed rate of 8.5% The note is collateralized by equipment. $ 9,370
Promissory note, payable in monthly installments of $334, including
interest at a fixed rate of 9.99%
The note is collateralized by related equipment. 14,885
Promissory bank note, payable in monthly installments of $364, including
interest at a fixed rate of 9.25%
The note is collateralized by related equipment. 13,625
Promissory note to a former shareholder, payable in
monthly installments of $2,328, including interest
at a fixed rate of 9.0%. 70,621
---------
108,501
Less current portion (31,895)
---------
$ 76,606
=========
</TABLE>
Maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 31,895
1998 34,660
1999 32,991
2000 6,383
2001 2,572
--------
$108,501
========
</TABLE>
The Company has available a $375,000 line of credit bearing interest at
the bank's prime rate plus 1.5% (9.75% at December 31, 1996). The line balance
is payable on demand and is collateralized by all Company assets. The balance on
this line as of December 31, 1996 was $362,500.
NOTE 4 - LOANS FROM SHAREHOLDERS
As of December 31, 1996, the Company has a loan payable of $95,100 to the
sole stockholder. The loan is payable on demand and bears interest at 8%.
Page 6
<PAGE> 131
NOTE 5 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, the Company received 25,000
cubic yards of landfill airspace, valued at $150,000, from its sole stockholder
in full satisfaction of $116,132 of notes receivable from the stockholder. The
$33,868 balance was credited to additional paid-in capital as a capital
contribution.
NOTE 6 - RETIREMENT PLANS
The Company has a 401(k) plan that covers substantially all employees.
The 401(k) provision permits employees to elect to defer current taxation on the
portion of their salary contributed to the plan. The Company is required to
match a portion of any employee contributions. The Company's contributions to
the plan totaled $3,160 for the year ended December 31, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under various operating
leases expiring through December, 1999.
Future minimum payments are as follows for the years ending December 31:
<TABLE>
<S> <C>
1997 $40,509
1998 36,000
1999 36,000
</TABLE>
Rent expenses for all operating leases was $72,609 for the year ended
December 31, 1996.
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 8 - SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company had substantial contracts with various entities. During the
year ended December 31, 1996, approximate sales to these entities were as
follows:
<TABLE>
<S> <C>
Entity A 11.8%
Entity B 10.7%
</TABLE>
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with various
financial institutions which are located in Pennsylvania. At December 31, 1996,
the Company had bank balances of approximately $87,000 in excess of the amount
insured by federal deposit insurance.
Credit risk with respect to trade receivables generally are concentrated
in the Northeastern United States. The Company's top five customers accounted
for approximately 43% of sales in 1996, and 49% of accounts receivable at
December 31, 1996. One customer accounted for 24% of the Company's account
receivable at December 31, 1996. The Company generally does not require
collateral from its customers.
Page 7
<PAGE> 132
NOTE 9 - SUBSEQUENT EVENT
Effective November 18, 1997, all of the Company's issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corporation (USPLC).
The accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 8
<PAGE> 133
ENVIROPLASTICS CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 134
ENVIROPLASTICS CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Earnings (Loss) and Retained Earnings (Deficit) 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 9
</TABLE>
<PAGE> 135
LOVE, BOLLUS, LYNCH & ROGERS
Certified Public Accountants and Consultants
10 Mechanic Street, Worcester, Massachusetts 01608
Telephone 508-755-7107 Facsimile 508-755-3896
INDEPENDENT AUDITORS' REPORT
Board of Directors
EnviroPlastics Corporation
We have audited the accompanying balance sheets of EnviroPlastics Corporation as
of December 31, 1996 and 1995, and the related statements of earnings (loss) and
retained earnings (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EnviroPlastics Corporation as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Love, Bollus, Lynch & Rogers
Worcester, Massachusetts
July 25, 1997
<PAGE> 136
ENVIROPLASTICS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 81,650 $ 87,539
Accounts receivable, trade 211,787 82,935
Inventories 58,100 54,114
Prepaid expense 55,333 50,674
Total current assets 406,870 275,262
Property and equipment 3,172,720 3,336,103
Less: Accumulated depreciation
and amortization 1,055,434 882,569
2,117,286 2,453,534
Other assets
Security and other deposits 42,681 44,681
Due from affiliate - 115,215
Deferred charge, net of
amortization of $43,874 in 1995 - 95,657
42,681 255,553
$2,566,837 $2,984,349
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term det $ 199,790 $ 1,267,900
Accounts payable, trade 542,670 387,109
Accrued and other liabilities 36,425 31,340
Deferred revenue 53,400 -
Total current liabilities 832,285 1,686,349
Long-term debt, less current maturities 983,079 2,048,537
Stockholders' equity
Common stock, $.01 par value, 200,000
shares authorized, 22,692 shares
issued and outstanding 227 227
Additional paid-in capital 299,773 299,773
Retained earnings (deficit) 451,473 (1,050,537)
751,473 (750,537)
$2,566,837 $2,984,349
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 137
ENVIROPLASTICS CORPORATION
STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenue $ 5,229,915 $ 7,187,469
Cost of revenue 4,529,969 6,360,022
Gross profit 699,946 827,447
General and administrative expenses 478,220 220,547
Operating profit 221,726 606,900
Other income (expenses)
Interest income - 408
Interest expense (161,543) (217,280)
Loss on advance - affiliate (147,851) -
Miscellaneous income - -
Loss on acquisition of building (66,297) -
Loss on disposal of property and equipment (138,004) -
(513,695) (216,872)
Earnings (loss) before income taxes and
extraordinary item (291,969) 390,028
Income taxes 13,251 8,908
Earnings (loss) before extraordinary item (305,220) 381,120
Extraordinary item
Forgiveness of debt 1,807,230 -
Net earnings (loss) 1,502,010 381,120
Retained earnings (deficit), beginning of year (1,050,537) (1,431,657)
Less: Distributions to stockholders - -
Retained earnings (deficit), end of year $ 451,473 $(1,050,537)
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 138
ENVIROPLASTICS CORPORATION
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,502,010 $ 381,120
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss on advance to affiliate 147,851 -
Depreciation and amortization 315,861 295,358
Forgiveness of debt (1,807,230) -
Loss on disposal of property and equipment 138,004 -
Distributions to stockholders - -
(Increase) decrease in operating assets:
Accounts receivable, trade (128,852) 327,002
Inventories (3,986) 54,059
Prepaid expenses (4,659) (14,534)
Increase (decrease) in operating liabilities:
Accounts payable, trade 155,561 (263,503)
Accrued and other liabilities 5,085 (9,634)
Deferred revenue 53,400 -
Total adjustments (1,128,965) 388,748
Net cash provided by operating
activities 373,045 769,868
Cash flows from investing activities:
Expenditures for property and equipment (106,617) (395,717)
(Increase) decrease in security and other deposits 2,000 19,966
Advance to affiliate (32,636) (49,655)
Net cash (used in) investing
activities (137,253) (425,406)
Cash flows from financing activities:
Additional borrowing from long-term debt - -
Principal payments of long-term debt (241,681) (292,266)
Net cash (used in) financing
activities (241,681) (292,266)
Net increase (decrease) in cash and cash equivalents (5,889) 52,196
Cash and cash equivalents, beginning of year 87,539 35,343
Cash and cash equivalents, end of year $ 81,650 $ 87,539
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 114,482 $ 146,705
Income taxes 9,531 2,120
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 139
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
EnviroPlastics Corporation recycles post consumer plastics into high
quality clear and colored resins that are sold as raw materials for plastic
products. A significant amount of sales for both years were primarily generated
by one customer.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses. Actual results
could differ from those estimates.
Cash and cash equivalents
For financial statement purposes, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents.
Inventories
Inventories are valued at the lower of cost or market. Raw materials
mainly consist of recycled milk bottles and colored laundry detergent bottles.
Cost is determined principally on the basis of the first-in, first-out (FIFO)
method.
Property and equipment
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method.
Deferred charge
Deferred charge represents legal fees and other costs incurred in
organizing the Company and negotiating the Master Recycling Agreement as
discussed in Note 5. Because of the termination of the Master Recycling
Agreement, the balance of the unamortized charge was fully amortized in 1996.
Income taxes
The Company has elected to be taxed as a small business corporation under
the provisions of the Internal Revenue Code (S Corporation). Under those
provisions, the Company does not pay federal and only certain state corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual income taxes on their respective shares of the Company's taxable
income. The Company distributes earnings to the stockholders to the extent
necessary to pay these income taxes.
<PAGE> 140
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
Impairment of long-lived assets
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of ". SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Adoption of this statement
did not have a material impact on the Company's financial position, results of
operations, or liquidity.
Deferred revenue
Deferred revenue represents advanced payments on product sales.
2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $41,500 $31,204
Work in process 4,000 9,910
Finished goods 12,600 13,000
$58,100 $54,114
</TABLE>
3 - PROPERTY AND EQUIPMENT
Property and equipment, together with estimated useful lives, consists of
the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1996 1995
<S> <C> <C> <C>
Leasehold improvements 31 years $ 100,476 $ 100,476
Manufacturing system 10 years 1,790,374 2,060,374
Manufacturing support equipment 10 - 12 years 1,142,721 1,036,104
Office furniture and fixtures 7 years 139,149 139,149
$3,172,720 $3,336,103
</TABLE>
Depreciation and amortization expense was $304,861 and $283,358 in 1996
and 1995, respectively.
4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable - Bank. Collateralized by primary lien
on all assets of the business and is guaranteed by
four of the Company's stockholders. Due in monthly
principal payments of $7,083, plus interest at the
prime rate plus 2%, through September 1998, at
which time the entire principal and interest
shall be due and payable. $403,738 $488,750
</TABLE>
<PAGE> 141
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - LONG-TERM DEBT, continued
<TABLE>
<S> <C> <C>
Note payable - Guaranteed by the Small Business
Administration. Collateralized by secondary lien on
all assets of the business and is guaranteed by four
of the Company's stockholders. Due in monthly payments
of $9,288 including interest at 7.565%, through April
2002. 462,319 531,450
Economic Development note payable - Town of Auburn, MA.
Subordinated loan collateralized by third lien on all
assets of the business and is guaranteed by four of the
Company's stockholders. Due in monthly payments of
$6,293, including interest at 10% through December
1998, at which time the entire principal is due
and payable. 316,812 395,411
Bond payable - Occidental Chemical Corporation. Interest
is being accrued at a rate of 8.5% compounded
quarterly payable on the maturity date of the bond
which is September 1, 1996. The bond is convertible
to common shares of the company at any time after
the maturity date up to and including
September 1, 2001. - 980,826
Advance payable - Occidental Chemical Corporation.
Collateralized by primary lien on the equipment
purchased from the proceeds of this Advance. Due
December, 1997, provided certain financial
covenants are maintained. - 864,000
Economic Development note payable - Town of Auburn, MA.
Collateralized by second mortgages on four of the
Company's stockholders' principal residences.
Due in monthly payments of $7,200, plus
interest at 7.5% through May, 1996. - 36,000
Note payable - Other collateralized by equipment.
Due in monthly installments of $5,000,
through April, 1996. - 20,000
1,182,869 3,316,437
Less: Current Maturities of long-term debt 199,790 1,267,900
$ 983,079 $2,048,537
</TABLE>
<PAGE> 142
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - LONG-TERM DEBT, continued
Maturities of long-term debt in subsequent years are as follows:
<TABLE>
<S> <C>
1997 $ 199,790
1998 675,692
1999 86,682
2000 93,472
2001 100,794
Thereafter 26,439
$ 1,182,869
</TABLE>
The debt contains certain usual financial covenants which the company was
not in compliance with at December 31, 1996. Management is currently in
negotiations to resolve the defaults. Management believes that they will be able
to successfully negotiate the debt and therefore the presentation has remained
consistent with the original terms and conditions.
5 - FORGIVENESS OF DEBT
EnviroPlastics and Occidental Chemical Corporation, a New York
Corporation ("Oxychem"), entered into an agreement dated August 30, 1991,
amended on April 15, 1993 (as amended, the "Master Recycling Agreement"),
wherein EnviroPlastics agreed to supply Oxychem with quantities of post-
consumer recycled plastic. The initial term of the agreement was 15 years.
Contemporaneously with the Master Recycling Agreement, Enviroplastics
entered into an agreement with Oxychem dated as of August 30, 1991 (the "Bond
Purchase Agreement") in which Oxychem advanced funds to EnviroPlastics to fund
the design, procurement, construction, start up and initial capital requirements
to construct and operate a facility for the processing of post consumer recycled
plastic.
Under the terms of the Bond Purchase Agreement, EnviroPlastics issued and
delivered to Oxychem, a bond dated August 30, 1991 in the principal amount of
$1,027,887 for the original issue discounted price of $675,000 (the "Bond"), due
on September 1, 1996.
Under an intercreditor agreement dated April 15, 1993 between
EnviroPlastics, Oxychem, Shawmut Bank, N.A. and the United States Small Business
Administration, Oxychem advanced EnviroPlastics an additional $864,000 for
working capital with regard to the operation of the plastic recycling facility
(as defined in the intercreditor agreement, the "Oxychem Advance").
On May 1, 1995, Lyondell acquired certain assets of Oxychem and as a
result, became the successor in interest to Oxychem in the Master Recycling
Agreement, the Bond Purchase Agreement, the Bond, and the Oxychem Advance.
<PAGE> 143
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
5 - FORGIVENESS OF DEBT, continued
On November 30, 1996, EnviroPlastics and Lyondell mutually agreed to
terminate the Master Recycling Agreement. Under the terms of the agreement,
Lyondell forever canceled, released and forgave the obligation of EnviroPlastics
to redeem the bond and to pay the interest accrued since the issuance of the
bond. As of the date of the Agreement, the principal amount due on the bond was
$1,027,887. In addition, Lyondell forgave, canceled and released the Company
from any obligation under the Oxychem Advance in the amount of $864,000.
The forgiveness of debt is presented as an extraordinary item in the
Statement of Earnings (Loss) and Retained Earnings (Deficit). It is comprised of
$1,891,887 of the total principal due to Lyondell on the date of forgiveness,
net of the remaining unamortized deferred charges of $84,657.
6 - MAJOR CUSTOMERS
The approximate sales and accounts receivable, trade and related
percentages to the Company's major customers were as follows:
<TABLE>
<CAPTION>
Sales for the year ended
December 31, 1996 December 31, 1995
Customer Amount % Amount %
<S> <C> <C> <C> <C>
A $4,491,281 85.9% $6,731,469 94.0%
Accounts receivable, trade
December 31, 1996 December 31, 1995
Customer Amount % Amount %
A $ 15,486 7.2% $ 52,735 60.8%
</TABLE>
7 - RELATED PARTY TRANSACTIONS
The Company made operating advances to an affiliated company,
EnviroProducts Corporation, to support general business activities. The balance
due to the Company as of December 31, 1995 was $115,215 which increased to a
total of $147,851 during 1996. EnviroProducts suspended operations during 1996
and was unable to repay the Company. As a result, the company wrote off the
$147,851 due from the affiliate.
<PAGE> 144
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
8 - LOSS ON ACQUISITION OF BUILDING
The Company made a $5,000 security deposit and incurred $66,297 of pre-
development costs for a new production facility. The efforts to purchase the
building were terminated in 1996 due to factors outside of the company's
control. As a result, the $66,297 was recorded as a loss in 1996. The $5,000
security deposit was returned to the company early in 1997.
9 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances with a financial institution. The
balances at this institution are insured by the Federal Deposit Insurance
Corporation. The uninsured cash balances totaled $59,000 as of December 31,
1996.
10 - LEASE OF BUILDING
The Company's five year lease that began July 1, 1991, expired on June
30, 1996. The rent expense payment at the end of the lease agreement was $6.50
per square foot. The Company and lessor amended the lease to extend the term by
one year, beginning July 1, 1996, and negotiated the rent payment to remain the
same as of June 30, 1996. The rent expense was $255,627 and $209,337 for
December 31, 1996 and 1995 respectively.
<PAGE> 145
---------------------
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...................................... 6
DILUTION.......................................... 11
USE OF PROCEEDS................................... 12
MARKET INFORMATION & DIVIDEND POLICY.............. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS.............. 14
BUSINESS.......................................... 19
MANAGEMENT........................................ 33
CERTAIN TRANSACTIONS.............................. 41
DESCRIPTION OF SECURITIES......................... 48
PLAN OF DISTRIBUTION.............................. 52
LEGAL MATTERS..................................... 53
EXPERTS........................................... 53
FINANCIAL STATEMENTS........................See Index
---------------------
U.S. PLASTIC LUMBER CORP.
950,000 SHARES
COMMON STOCK
PROSPECTUS
, 1998
----------------
---------------------
<PAGE> 146
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
<PAGE> 147
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
<PAGE> 148
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.
<PAGE> 149
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 $ 720.00
Blue sky fees and expenses 5,000.00
Printing and shipping expenses 7,500.00
Legal fees and expenses 85,000.00
Accounting fees and expenses 137,000.00
Appraisal Valuation 53,000.00
Transfer and Miscellaneous expenses 11,780.00
-----------
Total $300,000.00
===========
* 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
<PAGE> 150
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.
<PAGE> 151
In December, 1996, the Company formed the Clean Earth, Inc. and through it
acquired 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, 1996 through February, 1997, the Company has
offered and issued 209,207 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.
<PAGE> 152
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 in compliance with an exemption.
On March 28, 1997, the Company acquired Environmental Specialty Plastics (ESP),
a marketing and distribution company of recycled plastic lumber products in
Guasti, California. The shareholders of ESP received $110,000 in cash and 25,150
shares of the Company's common stock for a purchase price of $123,581. 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 in compliance with an exemption.
On March 31, 1997, the Company acquired Integrated Technical Services, Inc.
(ITS), an environmental consulting and construction company in Winslow, New
Jersey. The stockholders of ITS received as acquisition consideration, cash plus
185,000 shares of the Company's common stock, and an additional 47,572 shares of
common stock for the for the non-compete agreements. 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
in compliance with an exemption.
<PAGE> 153
On June 20, 1997, the Company issued 1,111,111 shares of Common Stock to two
investment funds, a partnership, and one accredited private investor. These
transactions were not registered under the Act in reliance on the exemption from
registration in Rule 506 of Regulation D, promulgated under Section 4(2), as
transactions not involving any public offering, consisting of sales made solely
to accredited investors. Each entity investor has assets substantially in excess
of $5,000,000 and was not formed for the purpose of investing in the securities.
The natural person who invested has net worth substantially in excess of
$1,000,000. 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.
On June 30, 1997, the Company acquired EnviroPlastics Corp., (EPC) a recycled
plastic raw material regrind operation in Auburn, MA. The stockholders of EPC
received 280,000 shares of the Company's common stock as the purchase price plus
25,000 shares as consideration for non-compete agreements. 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 in compliance with an exemption.
On June 30, 1997, the Company issued 150,000 shares to the former shareholders
of DuraTech Industries, Inc. as part of an earn out provision in the purchase
documents of that acquisition. These earn out shares were accelerated in part in
exchange for salary concessions made by the former shareholders of DuraTech
Industries, Inc. 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 in compliance with an exemption.
On November 18, 1997, the Company acquired Waste Concepts, Inc. (WCI), an
environmental recycling services company located in Norristown, PA. The
stockholder of WCI received $175,000 at Closing plus 400,000 shares of common
stock of the Company. 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 in compliance with an exemption.
<PAGE> 154
On or about January 2, 1998, the Company acquired Green Horizon Environmental,
Inc. (GH), an environmental recycling services company located in Norristown,
PA. The stockholders of GH received 50,000 shares of common stock of the
Company. 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 in compliance with an exemption.
ITEM 27. EXHIBITS INDEX
<TABLE>
<CAPTION>
SEC NO. DOCUMENT EXHIBIT NO.
<S> <C> <C>
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 Amendment (Educational Resources) 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*
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
<S> <C> <C>
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 ESP Acquisition Agreement 10.10*
10 ITS Acquisition Agreement 10.11*
10 EPC Acquisition Agreement 10.12*
10 ICC/USPL Joint Venture Agreement 10.13*
10 S D & G License and Operating Agreement 10.14*
10 Ground Lease Agreement (Carteret Biocycle) 10.15*
10 Lease Agreement (Brock Mgt/Earth Care TN) 10.16*
10 Lease Agreement (APEC/Earth Care Midwest) 10.17*
10 Lease Agreement (Plastic Properties LLC/RPI) 10.18*
10 Lease Agreement (Dalphon Sr./Clean Earth) 10.19*
10 Lease Agreement (Glades Twin Plaza/Earth Care) 10.20*
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
<S> <C> <C>
10 Lease Agreement (Consol. Realty/EPC) 10.21*
10 Lease Agreement (Waste Concepts, Inc.) 10.22
10 Lease Agreement (Earth Care Partners of Tennessee) 10.23
10 WCI Acquisition Agreement 10.24
10 CTI Stock Purchase Agreement 10.25
10 Employment Agreement - Steven Sands 10.26
10 Employment Agreement - Bruce Rosetto 10.27
10 ICC/USPL Joint Venture II 10.28
11 Statement re computation of per share earnings 11.1*
21 List of subsidiaries 21.1*
23 Consent of Accountants (USP) 23.1
23 Consent of Accountants (CEI) 23.1
23 Consent of Accountants (RPI) 23.1
23 Consent of Accountants (ARDT) 23.1
23 Consent of Accountants (ITS) 23.1
23 Consent of Accountants (WCI) 23.1
23 Consent of Accountants (EPC) 23.1
27 Financial Data Schedules 27
</TABLE>
* Exhibit previously filed
<PAGE> 157
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> 158
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 January 8, 1998.
U.S. PLASTIC LUMBER CORP.
By: /s/ Mark S. Alsentzer
------------------------------------
Mark S. Alsentzer, President (Chief Executive Officer)
By: /s/ Michael Schmidt
------------------------------------
Michael Schmidt, (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/ Mark S. Alsentzer Date: January 8, 1998
---------------------------------- -----------
Mark S. Alsentzer, President & Director
Signature: /s/ Raymond J. Kiernan Date: January 8, 1998
------------------------------- ----------
Raymond J. Kiernan, Director
<PAGE> 159
Signature: /s/ Lester E. Moody Date: January 8, 1998
--------------------------------- ---------
Lester E. Moody, Director
Signature: /s/ James Blosser Date: January 8, 1998
----------------------------------- ---------
James Blosser, Director
Signature: /s/ Roger Zitrin Date: January 8, 1998
----------------------------------- ---------
Roger Zitrin, Director
Signature: /s/ August C. Schultes III Date: January 8, 1998
----------------------------------- ---------
August C. Schultes, III, Director
Signature: /s/ Gary J. Ziegler Date: January 8, 1998
----------------------------------- ---------
Gary J. Ziegler, Director
Signature: /s/ Steve Groth Date: January 8, 1998
----------------------------------- ---------
Steve Groth, Director
<PAGE> 1
LEASE AGREEMENT Exhibit 10.22
THIS AGREEMENT, made the 22nd day of September one thousand nine hundred and
ninety-two (1992), by and between MARY B. CARFAGNO (hereinafter called Lessor),
of the one part, and WASTE CONCEPTS, INC., a Pennsylvania corporation
(hereinafter called Lessee), of the other part.
WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that
certain lot or piece of ground with buildings and improvements erected
thereon known as 2230 DeKalb Street, East Norriton Township, Montgomery County,
PA, zoned R-O Residential - Office
in the County of Montgomery, State of Pennsylvania, to be used and occupied as
offices
for the term of two (2) years beginning the 1st day of July one thousand nine
hundred and ninety-two (1992), and ending the 30th day of June one thousand nine
hundred and ninety-four (1994), for the minimum annual rental of Thirty-Six
Thousand Dollars (Dollars) ($36,000.00), lawful money of the United States of
America, payable in monthly installments in advance during the said term of this
lease, or any renewal hereof, in sums of Three Thousand Dollars Dollars
($3,000.00) on the 1st day of each month, rent to begin from the 1st day of
July, 1992, the first installment to be paid at the time of signing this lease.
If Lessor is unable to give Lessee possession of the demised premises, as
herein provided, by reason of the holding over a previous occupant, or by reason
of any cause beyond the control of the Lessor, the Lessor shall not be liable
in damages to the Lessee therefor, and during the period that the Lessor is
unable to give possession, all rights and remedies of both parties hereunder
shall be suspended.
(a) Lessee agrees to pay as rent in addition to the minimum rental herein
reserved any and all sums which may become due by reason of the failure of
Lessee to comply with all the convenants of this lease and pay any and all
damages, costs and expenses which the Lessor may suffer or incur by reason of
any default of the Lessee or failure on his part to comply with the covenants of
this lease, and each of them, and also any and all damages of the demised
premises caused by any act or neglect of the Lessee.
XXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XX
XXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X XXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXXX XXXX XXXXXXXX XXXXXXX
XXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXX XXXXXXXXXXX XXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XX XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX XXXXXXXXXXXX
All rents shall be payable without prior notice or demand at the office of
Lessor in 187 Valley Stream Lane, Chesterbrook, Wayne, PA 19087 or at such
other place as Lessor may from time to time designate by notice in writing.
Lessee convenants and agrees that he will without demand
(a) Pay the rent and all other charges herein reserved as rent on the days
and times and at the place that the same are made payable, without fail, and if
Lessor shall at any time or times accept said rent or rent charges after the
same shall have become due and payable, such acceptance shall not excuse delay
upon subsequent occasions, or constitute or be construed as a waiver of any of
Lessor's rights. Lessee agrees that any charge or payment herein reserved,
included or agreed to be treated or collected as rent and/or any other charges
or taxes, expenses, or costs herein agreed to be paid by the Lessee may be
proceeded for and recovered by the Lessor by distraint or other process in the
same manner as rent due and in arrears.
(b) Keep the demised premises clean and free from all ashes, dirt and other
refuse matter; replace all glass windows, doors, etc., broken; keep all waste
and drain pipes open; repair all damage to plumbing and to the premises in
general keep the same in good order and repair as they now are, reasonable wear
and tear and damage by accidental fire or other casualty not occurring through
negligence of Lessee has herein agreed to deep the same during the continuance
of this lease.
(c) Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statue or local
ordinance or regulation applicable to Lessee or his use of the demised premises,
and save Lessor harmless from penalties, fines, costs or damages resulting from
failure to do so.
(d) Use every reasonable precaution against fire.
(e) Comply with rules and regulations of Lessor promulgated as hereinafter
provided.
(f) Peaceably deliver up surrender possession of the demised premises to
the Lessor at the expiration or sooner termination of this lease, promptly
delivering to Lessor at his office all keys for the demised
premises.
(g) Give to Lessor prompt written notice of any accident, fire, or damage
occurring on or to the demised premises.
(h) Lessee shall be responsible for the condition of the pavement, curb,
cellar doors, awnings and other erections in the pavement during the term of
this lease; shall keep the pavement free from snow and ice; and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged to
be due to their defective condition, or to any accumulations of snow and ice.
XXXXXXXX XXXXXXXXXXXX XXXXXXXXXXXX XXXXXXXXX XXXXXXX XXXXXXXXX XXXXXXXXXXXXXX
XXXXXXX XXXXXXXX XXXXXXXXX XXXXXX XX XXXXXXXXXXXXXXXXXXXXXXXX XXXX XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXX XXXXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXXXXX
XXXXXXXX XXXXXXXX XXX XXXXXXXXX XXXXXXXXXXXXXXX
Lessee covenants and agrees that he will do none of the following things
without the consent in writing of Lessor first had and obtained:
(a) Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) Assign, mortgage or pledge this lease under-let or sub-lease the
demised premises, or any part thereof, or permit any other person, firm or
corporation to occupy the demised premises, or any part thereof; nor shall any
assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease,
without an additional written consent by the Lessor, and without such consent
no such assignment, mortgage or pledge shall be valid. If the Lessee
becomes embarrassed or insolvent, or makes an assignment for the benefit of
creditors, or if a petition in bankruptcy is filed by or against the Lessee or
a bill in equity or other proceeding for the appointment of a receiver for the
Lessee is filed, or if the real or personal property of the Lessee shall be sold
or leveled upon by any Sheriff, Marshall or Constable, the same shall be a
violation of this covenant.
<PAGE> 2
(c) Place or allow to be placed any stand, booth, or show case upon the
doorsteps, vestibules or outside walls or pavements of said premises, or paint,
place, erect or cause to be painted, placed or erected any projection or device
on or in any part of the premises. Lessee shall remove any projection or device
painted, placed or erected if permission has been granted and restore the
walls, etc.,to their former conditions, at or prior to the expiration of this
lease. In case of the breach of this covenant (in addition to all other
remedies given to Lessor in case of breach of any conditions or covenants
of this lease). Lessor shall have the privilege of removing said
stand, booth, show case, projection or device, and restoring said walls, etc.,
to their former condition, and Lessee, at Lessor's option, shall be liable to
Lessor for any and all expenses so incurred by Lessor.
(d) Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures, whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner determination of this lease and become the
property of Lessor, unless Lessor shall, prior to the determination of this
lease, have given written notice to Lessee to remove the same, in which event
Lessee will remove such alterations, improvements and additions and restore the
premises to the same good order and condition in which they now are. Should
Lessee fail so to do, Lessor may do so, collecting, at Lessor's option, the
cost and expense thereof from Lessee as additional rent.
(e) Use or operate any machinery that, in Lessor's opinion, is harmful to
the building or disturbing to other tenants occupying other parts thereof.
(f) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the structure.
(g) Do or suffer to be done, any act, matter or thing objectionable to the
fire insurance companies whereby the fire insurance or any other insurance now
in force or hereafter to be placed on the demised premises, or any part thereof,
or on the building of which the demised premise may be a part, shall become void
or suspended, or whereby the same shall be rated as a more hazardous risk than
at the date of execution of this lease, or employ any person or persons
objectionable to the fire insurance companies or carry or have any benzine or
explosive matter of any kind in and about the demised premises. In case of a
breach of this covenant (in addition to all other remedies given to Lessor in
case of the breach of any of the conditions or covenants of this lease) Lessee
agrees to pay to Lessor as additional rent any and all increase or increases of
premiums on insurance carried by Lessor on the demised premises, or any part
thereof, or on the building of which the demised premises may be a part, caused
in any way by the occupancy of Lessee.
(h) Remove, attempt to remove or manifest an intention to remove Lessee's
goods or property from or out of the demised premises otherwise than in the
ordinary and usual course of business, without having first paid and satisfied
Lessor for all rent which may become due during the entire term of this lease.
(i) Vacate or desert said premises during the term of this lease, or permit
the same to be empty and unoccupied.
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
(a) At all reasonable times by himself or his duly authorized agents to go
upon and inspect the demised premises and every part thereof, and/or at his
option to make repairs, alterations and additions to the demised premises or the
building of which the demised premises is a part.
(b) At any time or times and from time to time to make such rules and
regulations as in his judgment may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein. Such rules and regulations shall, when noticed thereof is given
to Lessee, form a part of this lease.
(c) To display a "For Sale" sign at any time, and also, after notice from
either party of intention to determine this lease, or at any time within three
months prior to the expiration of this lease, a "For Rent" sign, or both "For
Rent" and "For Sale" signs; and all of said signs shall be placed upon such
part of the premises as Lessor may elect and may contain such matter as Lessor
shall require. Prospective purchasers or tenants authorized by Lessor may
inspect the premises at reasonable hours at any time.
(d) The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly covenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
(a) Lessee agrees to be responsible for and to relieve and hereby relieves
the Lessor from all liability by reason of any injury or damage to any person or
property in the demised premises, whether belonging to the Lessee or any other
person, caused by any fire, breakage or leakage in any part or portion of the
demised premises, or any part or portion of the building of which the demised
premises is a part, or from water, rain or snow that may leak into, issue or
flow from any part of the said premises, or of the building of which the demised
premises is a part, or from the drains, pipes, or plumbing work of the same, or
from any place or quarter, whether such breakage, leakage, injury or damage be
caused by or result from the negligence of Lessor or his servants or agents or
any person or persons whatsoever.
(b) Lessee also agrees to be responsible for and to relieve and hereby
relieves Lessor from all liability by reason of any damage or injury to any
person or thing which may arise from or be due to the use, misuse or abuse of
all or any of the elevators, hatches, openings, stairways, hallways, of any kind
whatsoever which may exist or hereafter be erected or constructed on the said
premises, or from any kind of injury which may arise from any other cause
whatsoever on the said premises or the building of which the demised premises
is a part, whether such damage, injury, use, misuse or abuse be caused by or
result from the negligence of Lessor, his servants or agents or any other person
or persons whatsoever.
(a) In the event that the demised premises is totally destroyed or so
damaged by fire or other casualty not occurring through fault or negligence of
the Lessee or those employed by or acting for him, that the same cannot be
repaired or restored within a reasonable time, this lease shall absolutely cease
and determine, and the rent shall abate for the balance of the term.
(b) If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time, the
Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building of
which the demised premises is a part, even though the effect of such entry be to
render the demised premises or a part thereof untenantable. In either event the
rent shall be apportioned and suspended during the time the Lessor is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of the Lessor's possession. If a dispute arises
as to the amount of rent due under this clause, Lessee agrees to pay the full
amount claimed by Lessor. Lessee shall, however, have the right to proceed by
law to recover the excess payment, if any.
(c) Lessor shall make such election to repair the premises or terminate
this lease by giving notice thereof to Lessee at the leased premises within
thirty days from the day Lessor received notice that the demised premises had
been destroyed or damaged by fire or other casualty.
(d) Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing any
portion of the building, the interruption in the use of the premises, or the
termination of this lease by reason of the destruction of the premises.
(e) The Lessor has let the demised premises in their present condition and
without any representations on the part of the Lessor, his officers, employees,
servants and/or agents. It is understood and agreed that Lessor is under no
duty to make repairs or alterations at the time of letting or at any time
thereafter.
(f) It is understood and agreed that the Lessor hereof does not warrant or
undertake that the Lessee shall be able to obtain a permit under any Zoning
Ordinance or Regulation for such use as Lessee intends to make of the said
premises, and nothing in this lease contained shall obligate the Lessor to
assist Lessee in obtaining said permits, the Lessee further agrees that in the
event a permit cannot be obtained by Lessee under any Zoning Ordinance or
Regulation, this lease shall not terminate without Lessor's consent, and the
Lessee shall use the premises only in a manner permitted under such Zoning
Ordinance or Regulation.
(a) No contact entered into or that may be subsequently entered into by
Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
Lessor or his agents or contractors of such alterations, additions,
improvements or repairs shall in any way affect the payment of the rent or said
other charges at the time specified in this lease.
XXXXX XXXXXXXX XXXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXX XXXXXXX
XXXXXXXXXXX XXXXXXXXXXXXXXX XXXXXXX XXXXXX XXXXXXX XXXXXXXXXXXXX XXXXXXXXX
XXXXXXXXXXX XXXXXXXXXXXXXXX XXXXXXX XXXXXX XXXXXXX XXXXXXXXXXXXX XXXXXXXXX
(c) It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times; and, further, that the failure of
Lessor at any time or times to enforce his rights under said covenants and
provisions strictly in accordance with the same shall not be construed as having
created a custom in any way or manner ordinary to the specific terms, provisions
and covenants of this lease or as having in any way or manner modified the
same.
(d) This lease is granted upon the express condition that Lessee and/or the
occupants of the premises herein leased, shall not conduct themselves in a
manner which the Lessor in his sole opinion may deem improper or objectionable,
and that if at any time during the term of this lease or any extension or
continuation thereof, Lessee or any occupier of the said premises shall have
conducted himself, herself or themselves in a manner which Lessor in his sole
opinion deems improper or objectionable. Lessee shall be taken to have broken
the covenants and conditions of this lease, and Lessor will be entitled to all
of the rights and remedies granted and reserved herein for the Lessee's failure
to observe any of the covenants and conditions of this lease.
(e) In the event of the failure of Lessee promptly to perform the covenants
of Section 8(b) hereof, Lessor may go upon the demised premises and perform such
covenants, the cost thereof, at the sole option of Lessor, to be charged to
Lessee as additional and delinquent rent.
If the Lessee
(a) Does not pay in full when due any and all installments of rent and/or
any other charge or payment herein reserved, included, or agreed to be treated
or collected as rent and/or any other charge, expense, or cost herein agreed to
be paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against the
Lessee, or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if proceedings for reorganization or for
composition with creditors under any State or Federal law be instituted by or
against Lessee, or if the real or personal property of the Lessee shall be sold
or levied upon by any Sheriff, Marshall or Constable;---------------------------
then and in any or either of said events, there shall be deemed to be a
breach of this lease, and thereupon ipso facto and without entry or other
action by Lessor:
(1) The rent for the entire unexpired balance of the term of the lease, as
well as all other charges, payments, costs and expenses herein agreed to be paid
by the Lessee, or at the option of Lessor any part thereof, and also all costs
and officers, commissions including watchmen's wages and further including the
five percent chargeable by Act of Assembly to the Lessor, shall, in addition to
any and all installments of rent already due and payable and in arrears and/or
any other charge or payment herein reserved, included or agreed to be treated or
collected as rent, and/or any other charge, expense or cost herein agreed to be
paid by the Lessee which may be due and payable and in arrears, be taken to be
due and payable and in arrears as if by the terms and provisions of this lease,
the whole balance of unpaid rent and other charges, payments, taxes, costs and
expenses were on that date payable in advance, and if this lease or any part
thereof is assigned, or if the premises or any part thereof is sub-let, Lessee
hereby irrevocably constitutes and appoints Lessor Lessee's agent to collect
the rents due by such assignee or sub-lease and apply the same to the rent due
hereunder without in any way affecting Lessee's obligation to pay any unpaid
balance of rent due hereunder;
<PAGE> 3
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
terms or covenant broken, whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair value of the said demised
premises, for the residue of said term.
In the event of any default as above set forth in Section 14, the Lessor,
or anyone acting on Lessor's behalf, at Lessor's option:
(a) May without notice or demand enter the demised premises, breaking open
locked doors if necessary to affect entrances, without liability to action for
prosecution or damages for such entry or for the manner thereof, for the purpose
of distraining or levying and for any other purposes, and take possession of and
sell all goods and chattels at auction, on three days' notice served in person
on the Lessee or left on the premises, and pay the said Lessor out of the
proceeds, and even if the rent be not due and unpaid, should the Lessee at any
time remove or attempt to remove goods and chattels from the premises without
leaving enough thereon to meet the next periodical payment, Lessor authorizes
the Lessor to follow for a period of ninety days after such removal, take
possession of and sell at auction, upon like notice, sufficient of such goods to
meet the proportion of rent accrued at the time of such removal; and the Lessee
hereby releases and discharges the Lessor, and his agents, from all claims,
actions, suits, damages, and penalties, for or by reason or on account of any
entry, distraint, levy, appraisement or sale: and/or
(b) May enter the premises, and without demand proceed by distress and sale
of the goods there found to levy the rent and/or other charges herein payable as
rent, and all costs and officers' commissions, including watchmen's wages and
sums chargeable to Lessor, and further including a sum equal to 5% of the amount
of the levy as commissions to the constable or other person making the levy,
shall be paid by the Lessee, and in such case all costs, officers' commission
and other charges shall immediately attach and become part of the claim of
Lessor for rent, and any tender of rent without said costs, commission and
charges made after the issue of a warrant of distress shall not be sufficient to
satisfy the claim of the Lessor, Lessee hereby expressly waives in favor of
Lessor the benefit of all laws now made or which may hereafter be made regarding
any limitation as to the goods upon which, or the time within which, distress is
to be made after removal of goods, and further relieves the Lessor of the
obligations of proving or identifying such goods, it being the purpose and
intent of this provision that all goods of Lessee, whether upon the demised
premises or not, shall be liable to distress for rent. Lessee waives in favor
of Lessor all rights under the Act of Assembly of April 6, 1951, P.L. 69, and
all supplements and amendments thereto that have been or may hereafter be
passed, and authorizes the sale of any goods distrained for rent at any time
after five days from said distraint without any appraisement and/or condemnation
thereof.
(c) The Lessee further waives the right to issue a Writ of Replevin under
the Pennsylvania Rules of Civil Procedure, No. 1071 Act and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and now
in force, of which may be hereafter enacted, for the recovery of any articles,
household goods, furniture, etc., seized under a distress for rent or levy upon
an execution for rent, damages or otherwise; all waivers hereinbefore mentioned
are hereby extended to apply to any such actions and/or
(d) May lease said premises or any part or parts thereof to such person or
persons as may in Lessor's discretion seen best and the Lessee shall be liable
for any loss of rent for the balance of the then current term.
If rent and/or any charges hereby reserved as rent shall remain unpaid on
any day when the same ought to be paid, Lessee hereby empowers any Prothonotary,
Clerk of Court or attorney of any Court of Record to appear for Lessee in any
and all actions which may be brought for rent and/or the charges, payments,
costs and expenses, and in said rules or in said amicable action or actions to
confess judgment against Leesee for all or any part of the rent specified in
this lease and then unpaid including, at Lessor's option, the rent for the
entire unexpired balance of the term of this lease, and/or other charges,
payments, costs and expenses reserved as rent, or agreed to be paid by the
Lessee and/or to sign for Lessor an agreement for entering in any competent
Court and amicable action or actions for the recovery of rent or other charges,
payments, costs and expenses reserved as rent or agreed to be paid by the
Lessee, and for interact and costs together with any attorney's commission of
5%. Such authority shall not be exhausted by one exercise thereof, but
judgment may be confessed as aforesaid from time to time as often as any of said
rent and/or other charges, payments, costs and expenses, reserved as rent shall
fall due or be in arrears, and such powers may be exercised as well after the
expiration of the original term and/or during any extension or renewal of this
lease.
When this lease shall be determined by condition broken, either during the
original term of this lease or any renewal or extension thereof, and also when
and as soon as the term hereby created or any extension thereof shall have
expired, it shall be lawful of any attorney as attorney for Lessee to file an
agreement for entering in any competent Court an amicable action and judgment in
ejectment against Lessee and all persons claiming under Lessor for the recovery
by Lessor of possession of the herein demised premises, for which this lease
shall be his sufficient warrant, whereupon, if Lessor so declares, a writ of
Execution or of Possession may issue forthwith, without any prior writ or
proceedings whatsoever, and provided that if for any reason after such action
shall have been commenced the same shall be determined and the possession of the
premises hereby demised remain in or be restored to Lessee, Lessor shall have
the right upon any subsequent default or defaults, or upon the termination of
this lease as hereinbefore set forth, to bring one of more amicable action or
actions as hereinbefore set forth to recover possession of the said premises.
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such action an affidavit made by him or someone
acting for him setting forth the facts necessary to authorize the entry of
judgment, of which facts such affidavit shall be conclusive evidence and if a
true copy of this lease (and of the truth of the copy such affidavit shall be
sufficient evidence) be filed in such action, it shall not be necessary to file
the original as a warrant of attorney, any rule of Court, custom or practice to
the contrary notwithstanding.
Lessor expressly agrees that any judgment, order or decree entered against
him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of the same,
and releases to Lessor and to any and all attorneys who may appear for Lessee
all errors in the said proceedings, and all liability therefor, Lessee expressly
waives the benefits of all laws, now or hereafter in force, exempting any goods
on the demised premises, or elsewhere from distraint, levy or sale in any legal
proceedings taken by the Lessor to enforce any rights under the lease. Lessee
further waives the right of inquisition on any real estate that may be levied
upon to collect any amount which may become due under the terms and conditions
of this lease, and does hereby voluntarily condemn the same and authorizes the
Prohonotary or Clerk of Court to issue a Writ of Execution or other process upon
Lessee's voluntary condemnation, and further agrees that the said real estate
may be sold on a Writ of Execution or other process. If proceedings shall be
commenced by Lessor to recover possession under the Acts of Assembly, either at
the end of the term or sooner termination of this lease, or for nonpayment of
rent or any other reason Lessee specifically waives the right to the three
months' notice and/or the fifteen or thirty days' notice required by the Act of
April 6, 1951, P.L. 69, and agrees that five days' notice shall be sufficient in
either or any other case.
The right to enter judgment against Lessee and to enforce all of the other
provisions of this lease hereinabove provided for may, at the option of any
assignee of this lease, be exercised by any assignee of this Lessor's right,
title and interest in this lease in his, her or their own name, notwithstanding
the fact that any or all assignments of the said right, title and interest may
not be executed and/or witnessed in accordance with the Act of Assembly of May
28, 1715, I Sm. L. 90, and all supplements and amendments thereto that have been
or may hereafter be passed and Lessee hereby expressly waives the requirements
of said Act of Assembly and any and all laws regulating the manner and/or form
in which such assignments shall be executed and witnessed.
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent. No
determination of this lease or the taking or recovering of the premises shall
deprive Lessor of any of his remedies or actions against the Lessee for rent due
at the time or which, under the terms hereof, would in the future become due as
if there had been no determination, or for any and all sums due at the time or
which, under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
premises.
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor, and rent
shall abate in proportion to the square feet of leased space taken or condemned
or shall cease if the entire premises be so taken. In either event the Lessee
waives all claims against the Lessor by reason of the complete or partial taking
of the demised premises, and it is agreed that the Lessee shall not be entitled
to any notice whatsoever of the partial or complete termination of this lease by
reason of the aforesaid.
This Agreement of Lease and all its terms, covenants and provisions are and
each of them is subject and subordinate to any lease or other arrangement or
right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and of
the land or buildings of which the demised premises are a part, to all rights of
the Lessor's landlord and to any and all mortgages and other encumbrances now or
hereafter placed upon the demised premises or upon the land and/or the buildings
containing the same; and Lessees expressly agrees that if Lessor's tenancy,
control, or right to possession shall terminate either by expiration, forfeiture
or otherwise, then this lease shall thereupon immediately terminate and the
Lessee shall, thereupon, give immediate possession, and Lessee hereby waives any
and all claims for damages or otherwise by reason of such termination as
aforesaid.
It is hereby mutually agreed that either party hereto may terminate this
lease at the end of said term by giving to the other party written notice
thereof at least ninety (90) prior thereto, but in default of such notice, this
lease shall continue upon the same terms and conditions in force immediately
prior to the expiration of the term hereof as are herein contained for a further
period of one month and so on from month to month unless or until terminated by
either party hereto, giving the other 90 days written notice for removal
previous to expiration of the then current term; PROVIDED, however, that should
this lease be continued for a further period under the terms hereinabove
mentioned, any allowances given Lessee on the rent during the original term
shall not extend beyond such intention to change the terms and conditions of
this lease, and Lessee shall not within 30 days from such notice notify Lessor
of Lessee's intention to vacate the demised premises at the end of the then
current term, Lessee shall be considered as Lessee under the terms and
conditions mentioned in such notice for a further term as above provided, or for
such further term as may be stated in such notice. In the event that Lessee
shall give notice, as refuse so to vacate the same on the date designated by
such notice, then it is expressly agreed that Lessor shall have the option
either (a) to disregard the notice so given as having no affect, in which case
all the terms and conditions of this lease shall continue thereafter with full
force precisely as if such notice had not been given, or (b) Lessor may, at any
time within thirty days after the present term or any renewal or extension
thereof, as aforesaid, give the said Lessee ten days' written notice of his
intention to terminate the said lease; whereupon the Lessee expressly agrees to
vacate said premises at the expiration of the said period of ten days specified
in said notice. All powers granted to Lessor by this lease may be exercised and
all obligations imposed upon Lessee by this lease shall be performed by Lessee
as well during any extension of this original term of this lease as during the
original term itself.
All notices required to be given by Lessor to Lessee shall be sufficiently
given by leaving the same upon the demised premises, but notices given by
Lessee to Lessor must be given by registered mail, and as against Lessor the
only admissible evidence that notice has been given by Lessee shall be a
registry return receipt signed by Lessor or his agent.
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between Lessor
or his Agent and Lessee relative to the demised premises, and that there are no
promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. It is further understood and
agreed that, except, as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this lease shall be binding upon Lessor or
Lessee unless reduced to writing and signed by them.
**subject to the terms of the Addendum attached hereto and the Lessee's option
to renew the Lease for a term of three (3) years as set forth therein
<PAGE> 4
ADDENDUM TO LEASE AGREEMENT DATED ,1992
BY AND BETWEEN MARY B. CARFAGNO, LESSOR, AND
WASTE CONCEPTS, INC., A PA CORPORATION, LESSEE,
RE: 2230 DeKALB STREET, EAST NORRITON TWP., MONTGOMERY CO., PA
----------------------------------------------------------------
With intent to be legally bound hereby, the parties hereto do agree that
the following terms and conditions are made part of the aforementioned Lease in
like manner as if they were directly set forth therein;
31. In the event of any inconsistency between the terms of this Addendum
and the terms of the preprinted Lease Agreement (Uniform Lease No. 50, revised
June, 1970), the terms of this Addendum shall control.
32. Lessee shall pay as additional rent all charges for utilities and
services used or consumed in or supplied to the demised premises including,
but not limited to, electric, gas, heating oil and water and sewer. Lessee
shall make all such payments directly to the authority or company providing
such service. Lessee shall make its own arrangements for such utilities.
Lessor shall be under no obligation to furnish any utilities to the demised
premises.
33. Lessee shall be responsible for all repairs and maintenance to the
demised premises including, but not limited to, landscaping, lawn care, snow
removal, structural and nonstructural repairs, trash removal and janitorial
services, provided, however, that Lessor shall be responsible for structural
repairs to the exterior walls and structural columns at the demised premises;
provided further that Lessee shall give Lessor notice of the necessity for such
structural repairs and provided further that the necessity for such structural
repairs shall not arise from nor be caused by the negligence or willful acts of
Lessee, its agents, officers, employees, licensees, invitees or contractors.
34. Lessee shall make no alterations, improvements or changes to the
demised premises without the Lessor's prior written consent. Lessor reserves
the right to condition such consent on, among other things, receipt, review and
approval by Lessor of all Plans and specifications relating thereto. Lessee
shall also submit on request completed As-Built Plans and specifications to the
Lessor upon completion of any such alteration, improvement or change.
<PAGE> 5
35. Lessee shall be solely responsible for all costs (including, but not
limited to, plans, engineering, construction, remodeling, architectural fees,
building permits, sewer permits, licenses, use and occupancy permits, land
development approval and all other permits or work required by any governmental
authority) incurred in connection with use of the demised premises as offices,
and Lessee shall be solely responsible for obtaining any and all such approvals
and permits in order to use the demised premises for offices.
36. (a) Lessee, at its expense, shall maintain during the term of this
Lease comprehensive general liability insurance and property damage insurance
under policies issued by insurers of recognized responsibility having a
combined single limit for any one occurrence of not less than $1,000,000.00
for personal injury, bodily injury, death, disease and damage or injury to or
destruction of property (including this loss of use) occurring upon, in or
about the demised premises and for contractual liability assumed under this
Lease. Lessee shall also maintain such other insurance in form and amounts as
Lessor may reasonably require.
(b) Lessee, at its expense, shall maintain all risk insurance in form
and amount satisfactory to Lessor on Lessee's fixtures, furnishings, wall
coverings, carpeting, drapes, equipment and all other items of personal
property of Lessee located on or within the demised premises.
(c) Such policies shall name Lessor as additional insured and shall
provide that Lessor shall receive thirty (30) days' prior written notice of any
proposed cancellation, non-renewal of or material change in any such policy.
Original certified policies or certificates as Lessee shall elect of all such
policies shall be obtained by Lessee and provided to Lessor.
(d) Lessee shall not obtain any insurance through policies written
on a claims-made basis without Lessor's prior written consent, which consent
may be conditioned upon any requirements which Lessor may impose.
37. Any security system installed in the demised premises by Lessor on
behalf of Lessee shall remain a part of the demised premises and shall be
turned over to Lessor, including any keys and/or
-2-
<PAGE> 6
combinations, without any cost to Lessor upon termination of this Lease or
Lessee's default hereunder.
38. Lessee shall have the right to erect and maintain signs on the demised
premises, provided that said signs shall comply with all applicable ordinances
and regulations of the public authorities having jurisdiction. Prior to
installation of any exterior signs, the Lessee shall submit a sketch plan
indicating the size, color, type and location of each sign to the Lessor for her
approval, which approval shall not be unreasonably withheld.
39. The subject premises is being leased in "AS IS" condition, and
the Lessee accepts the responsibility for any renovations, alterations,
improvements and decorating that Lessee may require in Lessee's use of the
demised premises for offices.
40. The demised premises shall be finished by Lessor in the following
(a) Lessor shall install a central airconditioning system which shall
be operational prior to the commencement date of this Lease.
(b) Lessor shall install a paved parking area consisting of 7
parking spaces and accessways as shown on the Plan attached hereto as
Exhibit "B".
(c) The existing electrical system shall be completely overhauled,
upgraded and made operational to serve Lessee's needs.
(d) All other work on the interior or exterior of the demised
premises including, but not limited to, any special plumbing, partitions, floor
coverings, and decorating shall be the responsibility of Lessee. Before Lessee
undertakes to perform any such work, Lessee shall submit plans and
specifications to Lessor for Lessor's approval, which shall be granted or
denied by the Lessor within fifteen (15) days. All work done by Lessee shall
be completed with materials of equal or better quality as presently exists and
in good and workmanlike manner.
41. In consideration of the payment by Lessee to Lessor of the sum of
Five Hundred ($500.00) Dollars payable upon Lessor's execution of this Lease,
Lessor grants to Lessee an option (the "Option")
- 3 -
<PAGE> 7
to purchase the demised premises for the price and upon the terms and
conditions set forth as follows:
(a) The Option hereby granted shall end and expire on July 1, 1994
(the "Option Period"), time being of the absolute essence of this Option. If
Lessee fails to exercise the Option in the manner proscribed herein and to
complete settlement under the Agreement of Sale before the expiration of the
Option Period, then the Option shall expire and be of no further force and
effect.
(b) The Option shall be exercised as follows: Lessee shall execute
and date the Agreement of Sale attached hereto as Exhibit "A" and shall deliver
said Agreement to Lessor, said Agreement to be executed and delivered prior to
the expiration of the Option Period.
(c) In the event Lessee exercises the Option, the terms and conditions
of the Agreement of Sale attached hereto as Exhibit "A" shall apply and shall on
the date the Option is exercised become and constitute the Agreement of the
Lessor to sell and the Lessee to purchase the demised Premises.
42. Lessee shall have the right to renew this Lease for one (1) additional
term of three (3) years (the "Renewal Term") commencing on the day following the
end of the initial two (2) year term (the "Initial Term") hereof on the same
terms and conditions as are in effect immediately prior to the expiration of the
Initial Term except for the adjustment of the minimum rent as hereinafter set
forth, and further provided that:
(a) Lessee shall give Lessor a written notice of Lessee's election to
renew for the Renewal Term at least three (3) months prior to the expiration of
the Initial Term; and
(b) Lessee shall not be in default as of the date of the giving of
such notice of election to renew or as of the commencement date of the Renewal
Term; and
(c) The minimum rent during the Renewal Term shall be the greater of
(1) Three Thousand ($3,000.00) Dollars per month or (2) Three Thousand
($3,000.00) Dollars per month plus an additional sum equal to the amount
necessary to compensate Lessor for Lessor's inability to use the lifetime One
Hundred Twenty-Five Thousand
-4-
<PAGE> 8
($125,000.00) Dollar capital gains exclusion under the Internal Revenue Code
for the sale of Lessor's primary residence on or before June 30, 1994, pro
rated monthly over the Renewal Term; and
(d) If Lessee does not exercise the Option and purchase the demised
premises on or before June 30, 1994 and does not exercise the option to renew
the Lease for the Renewal Term, Lessee shall pay to Lessor as liquidated
damages and not as a penalty the sum necessary to compensate Lessor for
Lessor's inability to use the life-time One Hundred Twenty-Five Thousand
($125,000.00) Dollar capital gains exclusion under the Internal Revenue Code
for the sale of Lessor's primary residence on or before June 30, 1994, which
sum shall be held in an interest bearing escrow account by William L. McKennan
C.P.A. (the "Escrow Agent") (interest to follow principal) for a period of six
(6) months or until the demised premises are sold, whichever first occurs.
If the demised premises are sold and settled within six (6) months, the
escrow funds shall be distributed by the Escrow Agent as follows:
(1) Lessee shall receive an amount equal to thirty percent
(30%) of the amount by which the purchase price of the demised premises exceeds
Four Hundred Thousand ($400,000.00) Dollars, up to the full amount of the
escrow account.
(2) The balance, if any, shall be paid to Lessor.
If the demised premises are not sold and settled within six (6) months, the
Escrow Agent shall pay the escrow funds to the Lessor.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals this 22nd day of September,
1992.
WITNESS: LESSOR:
/s/Mary B. Carfagno
- --------------------------------------- -----------------------------------
MARY B. CARFAGNO
LESSEE:
WASTE CONCEPTS, INC.
ATTEST:
/s/ [ILLEGIBLE], V. Pres.
- --------------------------------------- By: [ILLEGIBLE], Pres.
--------------------------------
<PAGE> 9
S & C 1969B Residential
(Rev. 7-90)
AGREEMENT FOR THE SALE OF REAL ESTATE
COPYRIGHT PENNSYLVANIA ASSOCIATION OF REALTORS 1973
AGENT FOR THE SELLER SUBAGENT FOR SELLER
-------------------- -------------------
PA. LICENSED BROKER PA. LICENSED BROKER
THIS AGREEMENT, this day of A.D. 19
-------------- ---------------- ----------- ----
1. PRINCIPALS (1-78) Between MARY B. CAFAGNO
--------------------------------------------------
----------------------------------------------------------------------------
(residing at Zip Code ) hereinafter called Seller,
------------------ -------
and WASTE CONCEPTS, INC., a Pennsylvania corporation
------------------------------------------------------------------------
---------------------------------------------------------------------------
(residing at Zip Code ) hereinafter called Buyer.
--------------- -------
2. PROPERTY (7-80) Seller hereby agrees to sell and convey to Buyer, who hereby
agrees to purchase;
ALL THAT CERTAIN lot or piece of ground with buildings and improvements
thereon erected, if any, known as:
2230 DeKalb Street
----------------------------------------------------------------------------
in the Township of East Norriton
------------------------------ ---------------- ------------------
County of Montgomery State of Pennsylvania Zip Code 19401
--------------------- ---------------- ----------
Zoning Classification R-O Residential - Office
------------------------------------------------------
Failure of this agreement to contain the zoning classification (except in
cases where the property (and each parcel thereof, if subdividable) is
zoned solely or primarily to permit single-family dwellings) shall render
this agreement voidable at the option of the Buyer, and if voided, any
deposits tendered by the Buyer shall be returned to the Buyer without any
requirement for class action.
3. TERMS (3-85)(A) Purchase Price Four Hundred Thousand
---------------------------------------------
---------------------------------------------------------------------Dollars
which shall be paid to the Seller by the Buyer as follows:
(B) Cash or check at signing this agreement: $
-------------- -----------
(C) Cash or check to be paid on or before 10 days from $ 20,000.00
--------------- -----------
(D) Seller's execution of this Agreement $
---------------------------------------------------- -----------
(E) Cash or certified check at time of settlement $380,000.00
------- -----------
TOTAL $400,000.00
-----------
(F) Written approval of Seller to be on or before: 10 days of Buyer's
--------------------
execution of this Agreement
-------------------------------------------------------------------
(G) Settlement to be made on or before: 60 days of Seller's execution
-------------------------------
of this Agreement but in no event later than June 30, 1994
-------------------------------------------------------------------
(H) Conveyance from Seller will be by fee simple deed of special
warranty.
(I) Payment of transfer taxes will be divided equally between Buyer
and Seller.
(J) The following shall be apportioned pro-rata as of and at time of
settlement; taxes as levied and assessed, rents, interest on
mortgage assumptions, condominium fees and homeowner association
fees, if any, water and sewer rents, if any, together with any
other lienable municipal services.
MORTGAGE CONTINGENCY (3-85) This sale is NOT contingent upon any mortgage
financing except as hereinafter provided.
SPECIAL CLAUSES
<PAGE> 10
6. NOTICES & ASSESSMENTS (7-80)
(A) Seller represents as of the approval date of this agreement that no
public improvement, condominium or homeowner association assessments
have been made against the premises which remain unpaid and that no
notice by any government or public authority has been served upon the
Seller or anyone on the Seller's behalf, including notices relating to
violations of zoning, housing, building, safety or fire ordinances
which remain uncorrected unless otherwise specified herein.
(B) If required by law, Seller shall deliver to Buyer on or before
settlement, a certification from the appropriate municipal department
or departments disclosing notice of any uncorrected violation of
zoning, housing, building, safety or fire ordinances.
(C) Buyer is advised that access to a public road may require issuance of
a highway occupancy permit from the Department of Transportation.
(D) Seller will be responsible for any notice of improvements or
assessments received on or before the date of Seller's approval of
this agreement, unless improvements consist of sewer or water lines
not in use.
(E) Buyer will be responsible for any notice served upon Seller after the
approval date of this agreement and for the payment thereafter of
any public improvement, condominium or homeowner association
assessments.
7. TITLE AND COST (1-88)
(A) The premises are to be conveyed free and clear of all liens,
encumbrances, and easements, EXCEPTING HOWEVER, the following:
existing building restrictions, ordinances, easements of roads,
easements visible upon the ground, privileges or rights of public
service companies, if any; otherwise the title to the above
described real estate shall be good and marketable and such as will
be insured by a reputable Title Insurance Company at the regular
rates.
(B) In the event the Seller is unable to give a good and marketable title
and such as will be insured by a reputable Title Company, subject to
aforesaid, Buyer shall have the option of taking such title as the
Seller can give without abatement of price of being repaid all monies
paid by Buyer to the Seller on account of the purchase price and the
Seller will reimburse the Buyer for any costs incurred by the Buyer
for those items specified in paragraph 7(C) Items (1),(2),(3), and in
paragraph 7(D); and in the latter event there shall be no further
liability or obligation on either of the parties hereto and this
agreement shall become NULL AND VOID and all copies will be returned
to Seller's Agent for cancellation.
(C) The Buyer will pay for the following:
(1) The premium for mechanics lien insurance and/or title search,
or fee for cancellation of same, if any.
(2) The premiums for flood insurance and/or fire insurance with
extended coverage, insurance binder charges or cancellation
fee, if any.
(3) Appraisal fees and charges paid in advance to mortgagee if any.
(4) Buyer's normal settlement costs and accruals.
(D) Any survey or surveys which may be required by the Title Insurance
Company or the abstracting attorney, for the preparation of an
adequate legal description of the premises (or the correction
thereof), shall be accrued and paid for by the Seller. However, any
survey or surveys desired by the Buyer or required by his/her
mortgagee shall be accrued and paid for by the Buyer.
8. FIXTURES, TREES, SHRUBBERY, ETC.(1-81) All existing plumbing, heating and
lighting fixtures (including chandeliers) and systems appurtenant thereto
and forming a part thereof, and other permanent fixures, as well as all
ranges, laundry tubs, T.V. antennas, masts and rotor systems, together with
wall to wall carpeting, screens, storm sash and/or doors, shades, awnings,
venetian blinds, couplings for automatic washers and dryers, etc., radiator
covers, cornices, kitchen cabinets, drapery rods, drapery rod hardware,
curtain rods, curtain rod hardware, all trees, shrubbery, plantings now in
or on property, if any, unless specifically excepted in this agreement, are
included in the sale and purchase price. None of the above mentioned items
shall be removed by the Seller from the premises after the date of this
agreement. Any remaining heating and/or cooking fuels stored on the
premises at time of settlement are also included under this agreement.
Seller herby warrants that he will deliver good title to all of the articles
described in this paragraph, and any other fixtures or items of personalty
specifically scheduled and to be included in this sale.
9. DEPOSIT AND RECOVERY FUND (4-98) Deposits, regardless of the form of payment
and the person designated as payee, shall be paid to Agent for the Seller
who shall retain them in an escrow account until consummation or termination
of this Agreement in conformity with all applicable laws and regulations.
Agent for the Seller may, at his or her sole option, hold any uncashed
check tendered as deposit, pending the acceptance of this offer. Buyer and
Seller agree that, in the event the Agent and/or Subagent are/is joined in
litigation for the return of deposit monies, the Agent's and/or Subagent's
attorney fees and costs will be paid by the party joining the Agent or
Subagent.
A Real Estate Recovery Fund exists to reimburse any persons who have
obtained a final civil judgment against Pennsylvania real estate licensee
owing to fraud, misrepresentation, or deceit in a real estate transaction
and who have been unable to collect the judgment after exhausting all legal
and equitable remedies. For complete details about the Fund, call (717)
783- 3658.
10. POSSESSION AND TENDER (3-98)
(A) Possession is to be delivered by deed, keys and physical possession
to a vacant building (if any) broom clean, free of debris at day
and time of settlement, or by deed and assignment of existing lease(s)
at time of settlement if premises are tenant occupied at the signing
of this agreement, unless otherwise specified herein. Buyer will
acknowledge existing lease(s) by initialing said lease(s) at time of
signing of this agreement of sale if tenant occupied.
(B) Seller will not enter into any new leases, written extension of
existing leases, if any, or additional leases for the premises without
expressed written consent of the Buyer.
(C) Formal tender of an executed deed and purchase money is hereby waived.
(D) Buyer reserves the right to make a pre-settlement inspection of the
subject premises.
11. MAINTENANCE AND RISK OF LOSS (3-55)
(A) Seller shall maintain the property (including all items mentioned in
paragraph #8 herein) and any personal property specifically scheduled
herein in its present condition, normal wear and tear excepted.
(B) Seller shall bear risk of loss from fire or other casualties until
time of settlement In the event of damage to any property included
in this sale by fire or other casualties, not repaired or replaced
prior to settlement. Buyer shall have the option of rescinding this
agreement and receiving all monies paid on account or of accepting the
property in its then condition together with the proceeds of any
insurance recovery obtainable by Seller. Buyer is hereby notified
that he may insure his equitable interest in this property as of the
time of the acceptance of this agreement.
12. RECORDING (3-85) This agreement shall not be recorded in the Office for the
Recording of Deeds or in any other office or place of public record and if
Buyer causes or permits this agreement to be recorded, Seller may elect to
treat such act as a breach of this agreement.
13. ASSIGNMENT (3-85) This agreement shall be binding upon the parties, their
respective heirs, personal representatives, guardians and successors, and
to the extent assignable, on the assigns of the parties hereto, it being
expressly understood, however, that the Buyer shall not transfer or assign
this agreement without the written consent of the Seller.
14. DEFAULT-TIME OF THE ESSENCE (1-79) The said time for settlement and all
other times referred to for the performance of any of the obligations
of this agrement are hereby agreed to be of the essence of this agreement.
Should the Buyer:
(A) Fail to make any additional payments as specified in paragraph #3, or
(B) Furnish false or incomplete information to the Seller, the Seller's
Agent, or the mortgage lender, concerning the Buyer's legal or
financial status, or fail to cooperate in the processing of the
mortgage loan application, which acts would result in the failure to
obtain the approval of a mortgage loan commitment or
(C) Violate or fail to fulfill and perform any other terms or conditions
of this agreement,
then in such case, all deposit money and other sums paid by the Buyer on
account of the purchase price, whether required by this agreement or not,
may be retained by the Seller: (1) On account of the purchase, or (2) As
monies to be assigned to the Seller's damages, or (3) As liquidated damages
for such breach, as the Seller may elect and in the event that the Seller
elects to retain the monies as liquidated damages in accordance with
paragraph #14(3), the Seller shall be released from all liability or
obligations and this agreement shall be NULL AND VOID and all copies will
be returned to the Seller's Agent for cancellation.
15. AGENT(S)(3-85)It is expressly understood and agreed between the parties
that the named Agent, Broker, and any Subagent, Broker and their
salespeople, employees, officers and or partners, are Agent(s) for the
Seller, not the Buyer, however, the Agent(s) may perform services for the
Buyer in connection with financing, insurance and document preparation.
16. REPRESENTATIONS(3-85)It is understood that Buyer has inspected the
property, or hereby waives the right to do so and has agreed to purchase
it as a result of such inspection and not because of or in reliance upon
any representation made by the Seller or any other officer, partner or
employees of Seller, or by the Agent, Subagent, if any, of the Seller,
their salespeople and employees, officers and or partners.
The Buyer has agreed to purchase it in its present condition unless
specified herein. It is further understood that this agreement contains
the whole agreement between the Seller and the Buyer and there are no other
terms, obligations, covenants, representations, statements or conditions,
oral or otherwise of any kind whatsoever concerning this sale.
Furthermore, this agreement shall not be altered, amended, changed or
modified except in writing disputed by the parties.
APPROVAL BY BUYER BUYER (SEAL)
-----------------------
WITNESS AS
TO BUYER BUYER (SEAL)
---------------------------------- -----------------------
WITNESS AS
TO BUYER BUYER (SEAL)
---------------------------------- ------------------------
APPROVAL BY SELLER
Seller herby approves the above contract this day of A.D. 19
------- ------ ---
WITNESS AS
TO SELLER SELLER (SEAL)
---------------------------------- ------------------------
WITNESS AS
TO SELLER SELLER (SEAL)
---------------------------------- ------------------------
AGENT BY: SELLER (SEAL)
----------------------------------- -----------------------
TO: (Agent) Date 19
--------------------------------- ------------------------- ---
In conjunction with the purchase of the premises described in this agreement of
sale attached hereto, I/We hereby authorize your firm to perform the services
as indicated below by my/our inititals.
A. Order Title Insurance in any reputable
title insurance company (INITIALS)
------------------------------- ----------
B. Order Insurance in the amount of $ [ ] Homeowner
---------------------
[ ] Fire & Extended Coverage [ ] Flood (INITIALS)
----------
C. (INITIALS)
------------------------------------------------------- ----------
<PAGE> 11
FILE
APM:fbg
May 16, 1994
292185.3
AMENDMENT TO LEASE AGREEMENT
----------------------------
THIS AMENDMENT TO LEASE AGREEMENT by and between CSR ASSOCIATES, a
Pennsylvania General Partnership ("Lessor"), with an address c/o Carmen S.
Carfagno, Crompco Corporation, 735 Morris Road, Blue Bell, PA 19422 and WASTE
CONCEPTS, INC., a Pennsylvania Corporation ("Lessee"), with an address of 2230
DeKalb Pike, East Norriton Township, PA 19401
WITNESSETH:
-----------
WHEREAS, Lessee entered into a certain Lease Agreement (the "Lease
Agreement") with Mary B. Carfagno, as Lessor, dated September 22, 1992, for the
rental of certain real property located at 2230 Dekalb Pike, East Norriton
Township, Pennsylvania (the "Leased Premises");
WHEREAS, the Lessor purchased the Leased Premises from Mary B. Carfagno on
December 30, 1993;
WHEREAS, pursuant to an Addendum to the Lease Agreement dated September
22, 1992, ("Addendum") the Lessee has an option to purchase the Leased Premises
on or before June 30, 1994 ("Option Date");
WHEREAS, the Addendum further provides that the Lessee will pay a penalty
in the event that it does not exercise its option to purchase the Leased
Premises or on before the Option Date;
WHEREAS, the Lessor and Lessee have agreed to modify Lessee's option to
purchase the Leased Premises and to grant to Lessee the option to terminate the
Lease Agreement
<PAGE> 12
in consideration for the Lessor's agreement to waive the penalty for failure to
exercise such option; and
WHEREAS, the Lessor and the Lessee desire to amend the Lease Agreement and
Addendum in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
together with other good and valuable consideration acknowledged to have been
exchanged and received, and with the foregoing recital paragraphs incorporated
herein by this reference, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The term of the Lease Agreement shall be three (3) years commencing
on January 1, 1994. Notwithstanding the preceding sentence, Lessee shall have
the right to terminate this Lease Agreement at any time prior to the expiration
of the term thereof upon one hundred eighty (180) days prior written notice to
Lessor, provided that either (i) Lessor obtains a new tenant to lease the
Leased Premises for the balance of the term upon identical terms and conditions
as set forth in the Lease Agreement as amended, or (ii) Lessee obtains a new
tenant that shall be satisfactory to Lessor, at Lessor's sole discretion, to
lease the Leased Premises for the balance of the term upon identical terms and
conditions as set forth in the Lease Agreement, as amended.
2. The rent during the term of the Lease Agreement shall be THREE
THOUSAND ($3,000.00) DOLLARS per month payable on the first day of each month
effective as of January 1, 1994.
-2-
<PAGE> 13
3. Paragraph 41 of the Addendum, granting the Lessee the option to
purchase the Leased Premises, is hereby deleted in its entirety and shall be
replaced with the following:
PURCHASE OPTION. The Lessee shall have the exclusive option to
purchase the Leased Premises at its Fair Market Value, as hereinafter
defined, during the term of this Lease ("Purchase Option"). The Purchase
Option is exercisable only on the first business day of each calendar year
commencing in 1995 by providing the Lessor written notice, sent by
certified mail, return receipt requested, and postmarked on the first
business day subsequent to the beginning of each calendar year. Once the
Purchase Option is exercised, the Fair Market Value shall be determined by
the Lessor and the Lessee selecting a mutually acceptable appraiser to
determine the Fair Market Value of the Leased Premises, whose determination
shall be conclusive and binding upon the Lessor and Lessee. The purchase
price for the Leased Premises shall be payable in full in certified or
other same day funds without any contingencies for financing or otherwise
at the closing, which shall be thirty (30) days subsequent to the exercise
of the Purchase Option. The parties shall further execute an Agreement of
Sale upon such terms and conditions that are mutually agreeable by the
parties, and which shall provide for marketable title insurable by a title
insurance company selected by the Lessee.
4. Subparagraph 42(c) of the Addendum, granting the Lessee the option to
renew the Lease Agreement, is hereby deleted in its entirety and amended to
read as follows:
The minimum rent during the Renewal Term shall be THREE THOUSAND
THREE HUNDRED ($3,300.00) DOLLARS per month.
5. Subparagraph 42(d) of the Addendum is hereby deleted in its entirety.
6. All of the remaining terms and conditions of the Lease Agreement and
the Addendum shall remain in full force and effect during the term of the Lease
Agreement and any renewals thereof.
7. Lessor hereby grants to Lessee the right of first refusal to acquire
the Leased Premises upon the terms and conditions set forth in this Paragraph
7. In the event that the Lessor receives a bona fide offer during the term of
this Agreement to purchase the Leased Premises (the "Offer"), the Lessor shall
give notice of the Offer to the Lessee by certified
-3-
<PAGE> 14
mail, return receipt requested. The Lessee shall then have thirty (30) days in
which to elect to acquire the Leased Premises upon terms and conditions
identical to those set forth in the Offer. The thirty day period shall commence
upon receipt of the Offer by the Lessee. If an election to purchase the Leased
Premises is made by the Lessee, written notice of such election must be mailed
to the Lessor by certified mail, return receipt requested, within the thirty
day period. Failure of the Lessee to accept the Offer in the manner provided
herein shall be deemed a rejection of the Offer. If the Lessee accepts the
Offer, it shall purchase the Leased Premises upon the same terms and conditions
as are set forth in the Offer. In the event that Lessee shall not exercise the
option to purchase the Leased Premises, the Lessor shall be free to dispose of
the Leased Premises pursuant to the terms of the Offer without the approval of
the Lessee.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
LESSEE:
ATTEST: WASTE CONCEPTS, INC.
By: /s/ [ILLEGIBLE]
- -------------------------------- -----------------------------
(Asst.) Secretary President
LESSOR:
WITNESS: CSR ASSOCIATES
/s/ [ILLEGIBLE] By: /s/ Carmen S. Carfagno
- -------------------------------- -----------------------------------
Carmen S. Carfagno, General Partner
-4-
<PAGE> 15
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
This second amendment to Lease Agreement ("Second Amendment") is made by
and between CSR Associates, a Pennsylvania General Partnership ("Lessor"), with
an address of c/o Carmen S. Carfagno, Crompco Corporation, 735 Morris Road,
Blue Bell, Pennsylvania 19422 and Waste Concepts, Inc., a Pennsylvania
Corporation ("Lessee"), with an address of 2230 DeKalb Pike, Norristown,
Pennsylvania 19401.
WITNESSETH:
Whereas, Lessee entered into a certain Lease Agreement, (the "Lease
Agreement"), along with Addendum to Lease Agreement ("Addendum") with Mary B.
Carfagno, as Lessor, dated September 23, 1992, for the rental of certain real
property located at 2230 DeKalb Pike, Norristown, Pennsylvania (the "Leased
Premises");
Whereas, the Lessor purchased the Leased Premised from Mary B. Carfagno on
December 30, 1993;
Whereas, an Amendment to Lease Agreement (the "Amendment") was entered
into Lessor and Lessee on or about May 16, 1994 (the Lease Agreement, Addendum
and Amendment shall hereinafter collectively be referred to as the "Lease"); and
Whereas, the Lessor and Lessee have agreed to modify the Lease based upon
the terms hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
together with other good and valuable consideration acknowledged to have been
exchanged and received, and with the foregoing recital paragraphs incorporated
herein by this reference, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Notwithstanding any term to the contrary in the Lease, commencing on
January 1, 1997, the minimum rent during the Renewal Term, which is January
1, 1997 to December 31, 1999 ("Renewal Term"), shall be Four Thousand
($4,000.00) dollars per month. Accordingly, the amount of the minimum rent
set forth in paragraph 4 of the Amendment is hereby deleted and the sum of
$4,000.00 is substituted for the sum of $3,300.00.
2. Paragraph 33 of the Addendum is deleted in its entirety and is amended to
read follows:
Commencing on January 1, 1997 and continuing through the Renewal Term,
Lessee, except as provided below in this paragraph 2, shall be responsible
for all repairs and maintenance to the Leased Premises including, but not
limited to, trash removal and janitorial services. Notwithstanding any term
to the contrary in this Lease, commencing on January 1, 1997 and continuing
through the Renewal Term, Lessor shall be responsible for HVAC system
repairs and maintenance, structural repairs and structural maintenance of
the exterior walls and for
<PAGE> 16
the repair and maintenance of the structural columns of the Leased
Premises, repair and maintenance of the exterior of the improvements on the
Leased Premises, the condition, repair and maintenance of the pavement and
curb, landscaping, snow removal, lawn care and cutting and dead maintenance
of the foliage on the Leased Premises.
3. The following is added to the beginning of subparagraph 8(b) of the Lease
Agreement:
Except for those items which are responsibility of the Lessor, unless
otherwise provided in this Second Amendment, all of the remaining terms and
conditions of the Lease remain in full force and effect in accordance with
the terms thereof.
4. The following is added to the end of subparagraph 11(a) of the Lease
Agreement:
provided, however, that this subparagraph is inapplicable to any such
breakage, leakage, injury or damage resulting to any items which are the
responsibility of the Lessor under this Lease.
5. The following is added to the end of subparagraph 11(b) of the Lease
Agreement:
provided, however, that this subparagraph is inapplicable to any such use,
misuse, abuse, injury or damage relating to any items which are the
responsibility of the Lessor under this Lease.
6. The following is added to the beginning of the second sentence of
subparagraph 12(e) of the Lease Agreement:
Except as otherwise provided in this Lease,
7. All references to "term" or "Term" (which designate the length of time of
the Lease) in paragraph 24 of the Lease Agreement and in paragraphs 1, 3,
and 7 of the Amendment shall include the Renewal Term of January 1, 1997 to
December 31, 1999. The foregoing paragraph numbers are not an exhaustive
list of the paragraph numbers in which "term" or "Term" includes the
Renewal term of January 1, 1997 to December 31, 1999.
8. Unless otherwise provided in this Second Amendment, all of the remaining
terms and conditions of the Lease shall remain in full force and effect in
accordance with the terms thereof.
9. The Lease and this Second Amendment are the sole and entire agreement
between the parties hereto with respect to the Leased Premises and there
are no other terms, obligations, covenants, oral or otherwise, of any kind
whatsoever, pertaining to the Leased Premises. This Second Amendment may
not be modified, altered, or changed, except by an instrument in writing
executed by the parties hereto.
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
this, the 18 day of Dec, 1996.
LESSEE:
Attest: Waste Concepts, Inc.
/s/ [ILLEGIBLE] By: /s/ Steven C. Sands
- ----------------------------- -----------------------------------
(Asst. Secretary) Steven C. Sands, President
LESSOR:
Witness: CSR Associates
/s/ [ILLEGIBLE] By: /s/ Carmen S. Carfagno
- ----------------------------- -----------------------------------
Carmen S. Carfagno, General Partner
<PAGE> 1
Exhibit 10.23
Prepared by
Richard Gossum
Attorney #6265
103 W. Court Square - P.O. Box 491
Trenton, Tn. 38382-0491
901-855-0681
LEASE
- --------------------------------------------------------------------------------
This agreement made and entered into this the 4th day of September, 1997,
by and between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF TRENTON,
TENNESSEE, hereinafter referred to as LESSOR, and Earth Care Products of
Tennessee, Inc., a corporation authorized to do business in the State of
Tennessee, hereinafter referred to as LESSEE,
WITNESSETH:
That subject to the terms and conditions hereinafter set forth, Lessor
does hereby lease unto Lessee and said Lessee does hereby accept as Lessee of
Lessor the property described on Exhibit A, being designated as 801 Industrial
Park Drive, and in the City of Trenton, 7th Civil District of Gibson County,
Tennessee.
THE TERMS AND CONDITIONS OF THIS AGREEMENT ARE AS FOLLOWS:
1. Lessor and Lessee mutually agree that the primary term of the lease
shall be 61 months, beginning the first day of September, 1997, and
ending the last day of September, 2002. The monthly lease payment
shall be equal to a mortgage payment based on $675,000.00 purchase
price at 9% for 180 months, or $6,846.33 per month. The first lease
payment is waived by Lessor. The next three (3) monthly payments will
be credited from the funds which Lessee has deposited in escrow with
the Board. Lessee's first actual payment under the lease will be due
on or before January 1, 1998.
2. Lessor agrees that, at the conclusion of the lease term set out in
paragraph 1 above, Lessee shall have the option to renew this lease
for an additional five (5) year term. The monthly lease payment for
the five (5) year term shall be equal to $675,000.00 amortized over
180 months at New York Prime plus 1/2 percent. New York Prime is
defined as the highest prime rate published in the Wall Street Journal
on the date the lease term described in paragraph 1 expires. Lessee
agrees to give written notice of its intent to exercise its option on
or before the 30th day of June, 2002.
<PAGE> 2
3. Lessor agrees that, at the conclusion of the lease term set out in
paragraph 2 above, Lessee shall have the option to renew this lease
for an additional five (5) year term. The monthly lease payment for
the five (5) year term shall be equal to $675,000.00 amortized over
180 months at New York Prime plus 1/2 percent. New York Prime is
defined as the highest prime rate published in the Wall Street Journal
on the date the lease term described in paragraph 2 expires. Lessee
agrees to give written notice of its intent to exercise its option on
or before the 30th day of June, 2007. As long as Lessee is not in
default, notwithstanding anything to the contrary, in the event Lessee
exercises the option to extend the lease term through September 1,
2012 pursuant to this paragraph, then title and ownership to the
premises shall vest automatically in the Lessee as of September 1,
2012 and Lessor will fully cooperate in executing any documents
necessary to document unencumbered title and ownership to Lessee as of
such date.
4. Lessor further agrees that Lessee shall have the option to purchase
the property described in Exhibit A. The final purchase price shall be
$675,000 less all principal payments made during the term of the Lease
based upon the mortgage amortization as described in paragraphs 1
through 3. The exact amount will be determined on a per diem basis
figured to the date of payment. All lease payments made by Lessee
shall be deducted from the original purchase price on an amortized
basis; i.e., the principal portion of Lessee's payment shall reduce
the purchase price.
5. Lessee agrees that, in the event Lessee does not exercise its
purchase option pursuant to paragraph 4, it will, at the expiration of
the lease term or any extensions or renewals thereof, deliver said
property into the possession of Lessor in as good condition as the
same now is, ordinary wear and tear excepted.
6. Lessee shall have the right to assign this agreement or sublet the
premises only with the prior written permission of Lessor, which shall
not be unreasonably withheld. Notwithstanding anything to the
contrary, Lessee may assign or sublet this lease without the consent
of Lessor in the event Lessee makes such assignment or subletting to
any of its parents, subsidiaries, or
<PAGE> 3
At the conclusion of Lessee's occupancy of the premises, Lessee agrees
to obtain at its expense an environmental assessment by a certified
environmental consulting and engineering firm to determine Lessee's
liability, if any.
13. If ten percent (10%) or more of the improvements are condemned
or taken in any manner (including without limitation any conveyance in
lieu thereof) for any public or quasi-public use, Lessee may terminate
this Lease if it determines in the exercise of its discretion, that
the restoration or continued operation of the Improvements would not
be economic. If a portion of the Land (but not the Improvements) is
condemned or taken resulting in that the use of the Improvements is
significantly and adversely affected thereby, then Lessee may
terminate this Lease. Lessee shall notify Lessor of Lessee's election
to terminate the Lease as provided herein within sixty (60) days after
being notified of such condemnation or taking.
If this Lease is not terminated following such a condemnation or
taking, Lessee, as soon as reasonably practicable after such
condemnation or taking and the determination and payment to Lessee of
the award on account thereof, shall restore the Improvements to an
architectural unit as nearly like its condition prior to such taking
as shall be practicable; provided however the Lessee shall not be
obligated to expend any sums in excess of that awarded to Lessee
pursuant to any condemnation proceeding or taking.
14. Lessee hereby covenants and agrees that if a default shall be made in
the payment of rent or if Lessee shall violate any of the covenants of
this lease, then Lessee shall become a Lessee at sufferance, and upon
thirty (30) days' notice or demand Lessor shall be entitled to
re-enter and re-take possession of the premises if default is not
cured to Lessor's reasonable satisfaction. In the event of litigation
on any matter pertaining to collection of rents or enforcement of any
of the covenants or agreements herein,the prevailing party shall be
entitled to court costs and attorney's fees.
15. Lessor agrees that at all times when Lessee is not in default under
the provisions and during the term of this Lease, Lessee's quiet and
peaceable
<PAGE> 4
enjoyment of the Premises will not be disturbed or interfered with
by Lessor or any person claiming by, through, or under the Lessor.
16. This lease shall be construed and enforced in accordance with the
laws of the State of Tennessee.
17. If any provision of this lease shall be determined by any court to be
invalid, illegal or unenforceable to any extent, then the remainder of
this lease shall not be affected, and this lease shall be construed as
if the invalid, illegal or unenforceable provision had never been
contained in this lease.
18. Lessee agrees that this Lease will be subject and subordinate to any
present or future mortgage encumbering the Premises and all renewals
and extensions thereof, subject to the terms of this Section 18. The
Lessor agrees to deliver Lessee simultaneously with the execution of
this Lease and thereafter simultaneously with the creation of any
mortgage by Lessor, as a condition of this Lease, a Subordination,
Nondisturbance and Attornment Agreement substantially in the form of
Exhibit "B" attached hereto, signed by Lessor and its mortgagee, which
will subordinate Lessee's interest hereunder to the interest of any
mortgagee holding a mortgage lien upon the Premises subject to the
nondisturbance provisions contained therein. Lessee agrees to execute
and deliver the same agreement to Lessor.
19. Lessor, within twenty (20) days after request (at any time or times)
by Lessee, will execute and deliver to Lessee, an estoppel
certificate, in form acceptable to Lessee, certifying; (i) to the
Commencement Date and expiration dates of the Term; (ii) that this
Lease is unmodified and in full force and effect, or is in full force
and effect as modified, stating the modifications; (iii) that Lessor
does not claim any right of setoff, or listing such right of setoff,
(iv) to the amount of rent and other sums due hereunder as of the date
of the certificate, the date to which the rent and other sums have
been paid in advance, and the amount of any prepaid rent; and (v) such
other matters as may be reasonably requested by Lessee. Any such
certificate may be relied on by any prospective purchaser, mortgagee,
assignee or sub-Lessee of the Premises or any part thereof.
<PAGE> 5
20. In the event Lessee is prohibited by a court of competent
jurisdiction from moving its operation from Sharon, Tennessee, to the
property which is the subject of this lease, Lessee will have the
right to terminate this agreement. However, Lessee agrees to post any
bond such court may require, to undertake all necessary measures to
fulfill Lessee's obligations under this lease, and to exercise its
right to terminate only as a last resort.
IN WITNESS WHEREOF, the parties have executed this lease in duplicate on the
date first above written.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF TRENTON, TENNESSEE
By: /s/ Ed Norman
-----------------------------------
Ed Norman, President
ATTEST:
/s/ Dotty Jones
- -----------------------------------
Dotty Jones
Secretary
LESSOR
EARTH CARE PRODUCTS OF TENNESSEE, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------
President
ATTEST:
/s/ [ILLEGIBLE]
- -----------------------------------
Secretary
LESSEE
<PAGE> 6
STATE OF TENNESSEE
COUNTY OF GIBSON
Before me, the undersigned Notary Public of the state and county
mentioned, personally appeared ED NORMAN AND DOTTY JONES, with whom I am
personally acquainted or proved to me on the basis of satisfactory evidence,
and who, upon oaths, acknowledged themselves to be the President and Secretary,
respectively, of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF TRENTON,
TENNESSEE, the within named bargainor, a corporation, and that they as such
President and Secretary extcuted the foregoing instrument for the purposes
therein contained, by personally signing the name of the corporation by the
said ED NORMAN as President, and attesting the same by the said DOTTY JONES as
Secretary.
Witness my hand and notarial seal, this 28th day of August, 1997.
/s/ Kathy L. Stewart
------------------------------
NOTARY PUBLIC
My commission expires:
5-13-2001
- ----------------------
STATE OF FLORIDA
----------------
COUNTY OF PALM BEACH
---------------
Before me, the undersigned Notary Public of the state and county
mentioned, personally appeared Mark Alsentzer, AND Bruce Rosetto with whom I am
-------------- ------------
personally acquainted or proved to me on the basis of satisfactory evidence,
and who, upon oaths, acknowledged themselves to be the President and Secretary,
respectively, of U.S. PLASTIC LUMBER, CORPORATION, d/b/a EARTH CARE PRODUCTS
the within named bargainor, a corporation, and that they as such President and
Secretary executed the foregoing instrument for the purposes therein contained,
by personally signing the name of the corporation by the said Mark Alsenzer, as
-------------
President, and attesting the same by the said Bruce Rosetto as Secretary.
-------------
Witness my hand and notarial seal, this 4th day of September, 1997.
Notary Seal Nancy K. Farrow
My Commission CC632503 /s/ Nancy K. Farrow
Expires March 24, 2001 ------------------------
NOTARY PUBLIC
My commission expires:
3/24/2001
----------------------
<PAGE> 7
EXHIBIT A
----------
Beginning at a point in the south property line of the Gibson County
Fairgrounds, same point situated 368.09 feet from the east margin of the West
Tennessee Railroad; thence north 89 degrees 35' 39" east with the south line of
the Gibson County Fairgrounds property for a distance of 700.25 feet to a point
in the right of way of a curve in an asphalt street named Industrial Drive
(properties of the curve are: included angle 62 degrees 56' 3", radius 326.48
length 358.61 feet); thence south 29 degrees 28' 01" west for a chord distance
of 340.85 feet; thence south 2 degrees 00' 00" east with the west margin of
Industrial Drive for a distance of 499.11 feet; thence south 88 degrees 00' 00"
west cutting a new line through the City of Trenton's Industrial Park for a
distance of 522.0 feet to a point; thence north 2 degrees 00' 00" west cutting
a new line through the City of Trenton's Industrial Park for a distance of
810.93 feet to the point of beginning, and containing 10.00 acres.
<PAGE> 1
EXHIBIT 10.24
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into
as of November 18, 1997 among U.S. PLASTIC LUMBER CORPORATION, a Nevada
corporation ("Purchaser") AND WASTE CONCEPTS, INC. ("Company") and STEVEN C.
SANDS ("Shareholder").
RECITALS
A. The Shareholder owns all of the issued and outstanding capital stock
of the Company.
B. The Shareholder wishes to sell, and the Purchaser wishes to purchase,
one hundred percent (100%) 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.
1
<PAGE> 2
"Agreements" shall mean this Securities Purchase Agreement, the
Employment Agreement with Steven C. Sands ("Sands"), the Stockholder Agreement
with Sands, the Stock Escrow Agreement with the Company and Sands, and all of
the Schedules and Exhibits attached hereto and thereto.
"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,
2
<PAGE> 3
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 Commonwealth
of Pennsylvania.
(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) evidenced
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
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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.
"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.
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"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 Exhibit "A".
"Shares" shall mean the shares of Common Stock of the Company held by
the Shareholder.
"Stock" shall mean shares of common stock issued by the Purchaser to
the Shareholder 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,
alternative 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. Shareholder agrees to sell and deliver to
Purchaser, and Purchaser agrees to purchase and accept from 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, being 200 Shares, constitute one hundred percent (100%) of the
outstanding capital stock of the
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Company.
2.2 Purchase Price. The Purchase Price for one hundred percent of
the Shares shall be equal to One Hundred and Seventy-five Thousand Dollars
($175,000) plus Four Hundred Thousand Shares (400,000) of non registered common
stock of U.S. Plastic Lumber Corp.
2.3 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 November 18, 1997,
simultaneously at the offices of the Purchaser, 2300 Glades Rd., Suite 440W,
Boca Raton, Florida and at the office of the general counsel for the Company,
401 City Ave, Suite 612, Bala Cynwyd, PA, among the Shareholder 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". Time is
of the essence in Closing this transaction. At the Closing:
(a) 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 the 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 the
Shareholder pursuant to Section 8.1 hereof; and
(iii) access, during normal business hours and with
reasonable prior notice, to all records, documents, and files
of the Company, including, without limitation, all minute
books, stock records, stock certificate books, and internal
accounting records.
(iv) an executed Stock Escrow Agreement, in the form
attached hereto as Exhibit F and incorporated by reference
herein, holding 200,000 shares of Stock in escrow as
collateral against the collectability of accounts receivable
outstanding as of the Closing Date as represented by
Shareholder in Section 4.6 of this Agreement, and to support
the indemnity provisions of Section 10 of this Agreement.
(v) an executed Stock Sale Restriction Agreement in the
form attached hereto as Exhibit H and incorporated by
reference herein.
(b) Purchaser shall deliver or cause to be delivered to the Company,
against delivery of
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the certificate or certificates representing the Shares:
(i) Four Hundred Thousand (400,000) shares of Stock and One
Hundred and Seventy-five Thousand Dollars in cash or wire
transfer;
(ii) all of the documents, if any, required to be delivered
by Purchaser pursuant to Section 8.2 hereof;
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDER
The Shareholder hereby represents and warrants to, and covenants and
agree with, Purchaser that:
3.1 Ownership of Shares. The Shareholder owns of record and
beneficially the number of Shares set forth opposite the name of the
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, except (i) as it relates to a lien by a
former Shareholder, Carmine "Rusty" Carfagno ("Carfagno"), pursuant to a Stock
Purchase Agreement as collateral for payment of purchase price by a loan by the
Shareholder to Carfagno, and (ii) a right of first refusal pursuant to a
Shareholder's Agreement between the Shareholder and Carfagno.
3.2 Delivery of Good Title. Upon delivery of the Shares to be sold
by the 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. All consents, approvals, and
authorizations necessary for the execution, delivery and performance by the
Shareholder of this Agreement (including, without limitation, the transfer and
sale of the Shares to be sold by the Shareholder to Purchaser) have been duly
and lawfully obtained, and the 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 the
Shareholder and constitutes a legal, valid and binding agreement of the
Shareholder enforceable against the 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 the Shareholder or the Shareholder's Shares are bound, or
violate any Legal Requirement applicable to or binding upon the Shareholder.
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<PAGE> 8
3.5 No Brokers. No broker, finder or similar agent has been employed
by or on behalf of the Shareholder in connection with this Agreement or the
transactions contemplated hereby, and the 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 Shareholder hereby represents and warrants 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 Commonwealth 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 the
Agreements and the consummation of the transactions contemplated thereby 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 thereby. The Purchaser agrees that the
Consents listed on Schedule 4.2 are not a condition to Closing nor are they a
post closing requirement.
4.3 Capitalization. The authorized capital stock of the Company
consists solely of (1,000) shares of Common Stock having a par value of $1.00
per share, of which only the
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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
Shareholder 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 June 30,
1997 (the "Balance Sheet Date"), and the related unaudited statements of income
for the six (6) months then ended, (ii) the reviewed balance sheet of the
Company at December 31, 1996 and the related reviewed statements of income,
Shareholder' equity and cash flow for the fiscal year then ended (together with
the report thereon of William McKernan, 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, to the best of Shareholder's knowledge, 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 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
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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 Shareholder has 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 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, 1996 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 Purchaser heretofore, as well as copies
of any title reports, surveys or environmental reports or audits, relating to
any Leased Real Property, which are in the possession of the Company. 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) comprise 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):
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(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 to the Company
or, to the Shareholder's knowledge, the lessor 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, to the knowledge of the Shareholder, are
provided via permanent, irrevocable, appurtenant easements in favor of
the lessor;
(iii) To the knowledge of the Shareholder, no condemnation
proceeding is pending or threatened which would impair the occupancy,
use or value of any Real Property;
(iv) To the knowledge of Shareholder, 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) To the knowledge of Shareholder, 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) To the knowledge of Shareholder, 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 Shareholder' 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
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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, except as set forth on Schedule 4.6. 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) To the knowledge of Shareholder, 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
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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 Shareholder' 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. To the knowledge of
Shareholder, 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. To
the knowledge of Shareholder, 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
Shareholder's 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.
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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 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 Shareholder 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) 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 to the
knowledge of Shareholder threatened against the Company's officers, directors
or employees relating to the Company or its business or (iv) to the knowledge
of Shareholder 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) To the knowledge of Shareholder, 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)
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<PAGE> 15
taxable years, and of all reports of, and communications from, any Governmental
Entities relating to such period. To the knowledge of Shareholder, 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, 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) To the knowledge of Shareholder, 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).
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4.13 Questionable Payments. Neither the Company nor, to the
Shareholder' 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. For
purposes of this Section 4.14, the term "Plan" shall mean any plan maintained
by the Company which is either an "employee benefit plan" as defined in Section
3(3) of ERISA or a "fringe benefit plan" as defined in Section 6039D of the
Code. 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'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.
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<PAGE> 17
(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 Shareholder's 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 Shareholder have no knowledge of any facts that could form the basis of any
such Action. There is no pending or, to the Shareholder's knowledge, threatened
or contemplated Action by any Governmental Entity with respect to any Plan, and
the Shareholder 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.
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<PAGE> 18
(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 Permits
(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 Shareholder's 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. Except as listed on Schedule 4.17, 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 Shareholder' 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,
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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 in 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
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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, (collectively "Contracts") in writing and, to the best of
Shareholder's knowledge all oral Contracts, of the Company with any officer,
director, consultant, employee or Affiliate of the Company or with any
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) to the knowledge of Shareholder, 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, or to the Shareholder's knowledge 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 in
writing, or to the Shareholder's
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knowledge, oral, 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
contracts, agreements, plans, arrangements, commitments and understandings
(written and to the Shareholder's knowledge, oral) pertaining to terms of
employment, compensation, bonuses, profit sharing, stock purchases, stock
repurchases, stock options, commissions, incentives, loans
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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 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 Shareholder's 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 Shareholder's knowledge, no union
or other labor organization has attempted to organize any of the employees of
the Company.
(e) To the knowledge of Shareholder, the Company has complied
with all Legal Requirements relating to employment and labor, and 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
Shareholder, any officer, director or key employee of the Company 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, except as listed in Schedule 4.23(a), since that
date no such customer has terminated its relationship with or, to the
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knowledge of Shareholder, 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, except as listed on Schedule 4.23 (b), since that date
no such supplier has terminated its relationship with or, to the Shareholder's
knowledge, 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 Shareholder' 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) To the knowledge of Shareholder, 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 Shareholder's 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
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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, to
the knowledge of Shareholder, 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) To the knowledge of Shareholder, 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) To the knowledge of Shareholder, 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 the Agreements or
the transactions contemplated thereby, 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 the Agreements or the transactions contemplated thereby.
4.30 Disclosure.
(a) No representation or warranty of any Shareholder in the
Agreements and no information contained in any Schedule or other writing
delivered pursuant to the Agreements or
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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 Shareholder has not
disclosed to Purchaser in writing that has had or, insofar as the Shareholder
can now foresee, may have a Material Adverse Effect on the ability of the
Shareholder to perform fully this Agreement.
(b) To the extent that any representation or warranty in this
Article 4 is qualified to the Shareholder' "knowledge," the Shareholder
represents and warrants that he has 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 to, and covenants and agrees
with, each of the Shareholder 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 the
Agreements and to consummate the transactions contemplated thereby. Purchaser
has the requisite corporate power and authority to own, lease and operate its
properties and conduct its business as currently conducted.
5.2 Execution and Delivery. The Agreements have been duly authorized
by all necessary corporate action on the part of Purchaser, have been duly
executed and delivered by Purchaser and constitute 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 the
Agreements by Purchaser and the consummation by Purchaser of the transactions
contemplated thereby will not conflict with or result in the violation of the
provisions of the Articles of Incorporation or Bylaws of Purchaser.
5.4 No Registration. Purchaser understands that the Shares have not
been and will not be registered under applicable federal or state securities
law and may not be sold or transferred except in compliance with such laws or
an exemption therefrom.
5.5 Brokers' Fees. No broker, finder or similar agent has been
employed by or on behalf of the Company in connection with the Agreements or
the transactions contemplated thereby, 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 the Agreements or the transactions contemplated thereby.
5.6 Delivery and Good Title. Purchaser shall deliver to Shareholder
pursuant to the
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terms of this Agreement good and marketable title to the Stock to be delivered
free and clear of all liens.
5.7 No Adverse Action. There are no actions, suits, claims or other
proceedings pending or, to the best of Purchaser's knowledge, threatened, or
injunctions or orders entered, pending or, to the best of Purchaser's
knowledge, threatened against Purchaser, to restrain or prohibit the
consummation of the transactions contemplated hereby.
5.8 Material Misstatements or Omissions. Neither the Agreements nor
any other documents, certificate or statement furnished to the Shareholder by
or on behalf of Purchaser in connection with the Agreements, including but not
limited to Purchaser's August 1997 SB-2 Registration Statement currently
pending at the Securities and Exchange Commission ("SEC") and Financial
Statements contain any untrue statement of a material fact, or omit any
material act necessary to make the statements contained therein not misleading;
except, however, that Purchaser will be required to restate its 1996 and 1997
Financial Statements based upon SEC comments denying pooling of interest
accounting with regard to a purchase conducted by the Company in December 1996
and mandating purchase accounting with respect to said transaction in lieu
thereof.
5.9 No Material Adverse Changes. Since the date of Purchaser's
August 1997 SB-2 filing, there have been no changes materially adverse to the
assets, financial condition, operating results or business condition of
Purchaser and its Affiliates, taken as a whole; except, however, that Purchaser
will be required to restate its 1996 and 1997 Financial Statements based upon
SEC comments denying pooling of interest accounting with regard to a purchase
conducted by the Company in December 1996 and mandating purchase accounting
with respect to said transaction in lieu thereof.
5.10 Inspection and Value. The Shareholders' representations and
warranties include only the express written warranties that are contained in
the Agreements or any other documents furnished to Purchaser by Shareholder.
The Shareholder and the Company have given Purchaser ample opportunity to
conduct its due diligence.
5.11 Compliance with Applicable Law. Neither Purchaser nor any of its
Affiliates has received any notice or information of any violation, possible
violation, or default by Purchaser or any of Purchaser's Affiliates under any
applicable law, regulation or order of any governmental department, commission,
board or agency or instrumentality, domestic or foreign, having jurisdiction
over Purchaser's or any of its Affiliate's operations which could materially
adversely affect the ability to consummate the transaction contemplated hereby.
5.12 Consents and Approvals. The execution and delivery by Purchaser
of the Agreements, and the performance by Purchaser of its obligations
thereunder, do not require Purchaser to obtain any consent, approval or action
of, or make any filing with or give any notice to, any corporation, person or
firm or any public, governmental or judicial authority.
5.13 Litigation. There are no actions, proceedings or investigations
pending or, to
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Purchaser's knowledge, threatened against Purchaser or any of its Affiliates
before any court or administrative agency which could materially adversely
affect the Purchaser's ability to consummate the transaction contemplated by
the Agreements.
5.14 No known Adverse Effects. There is no material adverse fact
known to Purchaser, which when taken as a whole, would materially adversely
affect the financial ability of Purchaser to perform its financial obligations
under the Agreements.
6. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Shareholder covenants and agrees (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
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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.
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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
Shareholder 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.
7. ADDITIONAL COVENANTS
7.1 Covenants of the Shareholder. During the period from the date
hereof through the Closing Date, the 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;
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(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 Shareholder in connection with any such requirements imposed upon the
Shareholder 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 Shareholder 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 to it by the Shareholder or the Company
concerning the Company and shall not disclose such information to any third
party
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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 Shareholder
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.
The provisions of this Section 7.3 (b) shall survive the Closing of this
transaction.
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, and information pursuant to a Legal
Requirement will be submitted to the other party for comments before the
information is disclosed, 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
Shareholder 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
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necessary or convenient documentation.
7.8 Competing Offers; Merger or Liquidation. The Shareholder 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 Shareholder 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 Shareholder 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 Shareholder 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 Shareholder 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 Shareholder in this Agreement to be untrue, incorrect, incomplete or
misleading.
7.10 Post-Termination Employment. Except for the employment agreement
to be executed by Steven C. Sands, the Shareholder acknowledges and agrees
that after the Closing neither Purchaser nor the Company shall be required to
employ or retain any employee of the Company or any other Person.
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 Shareholder
in the Agreements 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 Shareholder shall have complied with all
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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 Barry Furman, Esq.,
counsel for the Shareholder and the Company, a written opinion dated the
Closing date and addressed to Purchaser, in substantially the form attached as
Exhibit B 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 C hereto;
(e) The Shareholder shall have entered into a Stock Escrow
Agreement with Purchaser and the Company in substantially the form attached as
Exhibit F hereto, (the "Stock Escrow Agreement");
(f) Steven C. Sands shall have executed an Employment
Agreement and Stock Sale Restriction Agreement substantially in the form
attached as Exhibit G and H, respectively, hereto.
(g) The Board of Directors of the Company shall have executed
a Board Resolution substantially in the form of Exhibit J.
(h) 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;
(i) 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;
(j) 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 Shareholder. Notwithstanding any other
provision of this Agreement, and except as set forth below, the obligations of
the Shareholder to consummate the transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing, of the following
representations:
(a) the condition set forth in subsection (a) of Section 8.1;
(b) the condition that the representations and warranties of
Purchaser in the Agreements 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
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or prior to the Closing Date;
(c) Purchaser shall have executed the Agreements in the forms of
Exhibit F, and G attached hereto and incorporated by reference herein and shall
have further provided the Certificate of the Secretary of the Purchaser and
Certificate of the President of the Purchaser in the form of Exhibits E and K,
respectively;
(d) 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 the form and
substance satisfactory to Shareholder and its counsel;
(e) All consents from third parties, including any Governmental
Entity, landlord or other Person, necessary for the consummation of the
transactions contemplated hereby shall have been obtained;
(f) No act, event or condition shall have occurred after the
date hereof which Shareholder determines has had or could have had a Material
Adverse Effect.
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 Shareholder;
(b) by Purchaser if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by the 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 Shareholder 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, the
Shareholder is not 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(b) 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,
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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 Shareholder. 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 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, after which neither party can bring
suit against the other; 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; 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 Shareholder covenants and agrees 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 the 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 the Shareholder to
perform or observe fully any covenant, agreement or provision to be performed
or observed by such Shareholder pursuant to this
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Agreement, the Stock Escrow Agreement, Stock Sale Restriction Agreement or the
Employment Agreement.
(b) Purchaser covenants and agrees to defend, indemnify and hold
harmless the Shareholder 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 fully any covenant, agreement or provision to be performed
or observed by it pursuant to this Agreement, Stock Escrow Agreement, or the
Employment Agreement; or (iii) in the event Purchaser treats this transaction
as a pooling of interest, and due to no fault of the Shareholder a liability or
claim exists, the Purchaser shall indemnify and hold harmless the Shareholder.
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, within ten days from the date the Indemnified Party received
notice, 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
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
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settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.3 to the contrary
notwithstanding, the Shareholder shall not be entitled to assume the defense,
but shall be permitted to participate in the settlement or defense by counsel
chosen by Shareholder, 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 Shareholder. Notwithstanding the
contrary, Purchaser agrees to set-off against any stock held by Shareholder in
USPL prior to exercising its rights of set-off against any sums of cash due
Shareholder by Purchaser, such as but not limited to sums paid by the Company
to Shareholder pursuant to the royalty letter agreement involving the BFI
contract. The remedies provided in this Article shall be cumulative, shall
survive the termination of this Agreement, 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. POST CLOSING COVENANTS
Notwithstanding anything to the contrary herein, the obligations of
the parties below shall survive the Closing of this transaction.
11.1 Corporate Status. The Company, currently being a Subchapter S
corporation, will terminate its Subchapter S status within a reasonable period
of time subsequent to the Closing.
11.2 Personal Guarantees of Shareholder. The Purchaser agrees to
utilize its best efforts immediately after Closing to remove the Shareholder
from any personal guarantees Shareholder has executed on behalf of the Company.
11.3 Waste Concepts of New York, Inc. The Shareholder, being the sole
shareholder of Waste Concepts of New York, Inc. agrees to transfer all shares
of Waste Concepts of New York, Inc. to Purchaser without any additional
consideration within ten days after the date of Closing.
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11.4 Shareholder Loans. Note #3 of the Financial Statements of the
Company as of June 30, 1997 shows a Shareholder loan owed to Shareholder, the
balance as of that date being $95,100. Note #2 of the Financial Statements of
the Company as of June 30, 1997 shows a loan of $29,374 owed to the Company by
the Shareholder. Purchaser agrees to pay Shareholder the balance due as of the
Closing date on any monies due from the loan indicated in Note #3 and any
additional loans from Shareholder less any monies due from Shareholder by the
loan indicated in Note #2 and any other loans to Shareholder. The settlement of
these transactions shall be paid within 60 days from the date of Closing.
11.5 Collection of Accounts Receivables. The Purchaser agrees to use
its best efforts to collect the accounts receivable of the Company outstanding
as of the Closing Date before exercising any set-off rights under Section 10.5
of this Agreement. Purchaser agrees to transfer and assign to the Shareholder
all of its rights, title and interest in the accounts receivable existing on
the Closing Date which Purchaser deems uncollectible after the expiration of
eighteen months and for which Purchaser exercises its set-off rights.
12. GENERAL PROVISIONS
12.1 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 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 Shareholder, addressed to
Steven C. Sands
2230 DeKalb Street
Norristown, PA 19401
Telecopy: (610)-278-6915
With a copy to:
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Barry A. Furman, Esq.
Furman & Halpern, P.C.
401 City Ave Suite 612
Bala Cynwyd, PA 19004
Telecopy: (610) 668-5455
12.2 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.
12.3 Enforcement. In the event of any breach or enforcement of this
Agreement by either Purchaser or Shareholder, the prevailing party in any
litigation shall be entitled to an award of reasonable attorneys' fees and
litigation costs.
12.4 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.
12.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Purchaser and the Shareholder 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.
12.6 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.
12.7 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.
12.8 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
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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.
12.9 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.
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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"
United States Plastic Lumber, Inc.,
By: /s/ Mark S. Alsentzer
-------------------------------
Mark S. Alsentzer, President
SHAREHOLDER:
/s/ Steven C. Sands
-----------------------------------
Steven C. Sands
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<PAGE> 42
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A List of Shareholders
Exhibit B Opinion of Counsel
Exhibit C Certificate of President of WCI
Exhibit D Intentionally omitted
Exhibit E Certificate of Secretary of USPL
Exhibit F Stock Escrow Agreement
Exhibit G Employment Agreement
Exhibit H Stock Sale Restriction Agreement
Exhibit I Intentionally omitted
Exhibit J Board Resolution of WCI
Exhibit K Certificate of President of USPL
SCHEDULES
4.1(a) Foreign Corp status
4.1(b) Subsidiaries
4.2 No Conflicts
4.3 Capitalization
4.4 Financial Statements
4.5(a) Liens
4.5(b) List of Real Property
4.5(c) List of Tangible Property
4.5(d) List of Leases
4.5(f) Realty representations
4.6 List of Accounts Receivable
4.7 Inventories
4.8(a) List of Patents and Trademarks
4.8(b) Registered Rights
4.8(c) Licenses
4.9(a) List of Banks
4.9(b) Insurance Policies
4.10(a) Indebtedness
4.10(b) Guaranties
4.11 Judgments
4.12 Income Taxes
4.13 Questionable Payments
4.14 Employee Benefit Plans
4.15 Undisclosed Liabilities
4.16 Permits
4.17 Regulatory Filings
4.18 Consents
4.19(a) Sales Orders
4.19(b) Purchase Orders
4.19(c) Sales Reps
4.19(d) Non-Compete Agreements
4.19(e) Contracts (inside)
4.19(f) Contracts (outside)
4.19(g) Legality
4.20 Absence of Changes
4.21(a) List of Employees
4.21(b) Labor Agreements
4.22 Affiliation
4.23(a) Customer Lists
4.23(b) Supplier Lists
4.24 Compliance with Law
4.25 Product Return
4.26 Warranties
4.28 Hazardous Materials
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EXHIBIT 10.25
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of October 9, 1997 among U.S. PLASTIC LUMBER CORPORATION, a Nevada corporation
(the "Purchaser") AND CONSOLIDATED TECHNOLOGIES, INC. 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 Consolidated Technologies, Inc. (the "Company").
B. The Shareholders wish to sell, and the Purchaser wishes to purchase,
twenty five percent (25%) 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:
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<PAGE> 2
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
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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
Pennsylvania.
(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
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<PAGE> 4
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
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<PAGE> 5
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 Exhibit "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,
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capital stock, franchise, profits, withholding, social security (or similar),
employment, disability, real property, personal property, sales, use, transfer,
registration, value added, alternative 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 twenty five percent (25%) of the outstanding capital stock
of the Company.
2.2 Purchase Price. The Purchase Price for twenty five percent of the
Shares shall be equal to Five Hundred Thousand ($500,000), to be paid to the
Company as a capital contribution. These monies shall be utilized by the Company
solely for purposes relating to the dredged material demonstration project at
Bark Camp, regardless of the source of the dredged material, and shall not be
used for any other purposes. Notwithstanding this provision, the Company may use
up to $150,000 of the purchase price consideration to re-pay a portion of the
accrued expenses in the development of the demonstration project at Bark Camp,
subject to the approval of the Purchaser.
2.3 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 , simultaneously at the offices of the
Purchaser, 2300 Glades Rd., Suite 440W, Boca Raton, Florida 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) The Company shall deliver or cause to be delivered to Purchaser,
against the n payment by Purchaser of the Purchase Price to such the
Company:
(i) a certificate representing 250 Shares being sold by the
Company 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
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caused to be delivered, by the Company or any Shareholder
pursuant to Section 8.1 hereof; and
(iii) access to 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 the Company,
against delivery of the certificate or certificates representing the
Shares:
(i) the sum of Five Hundred Thousand dollars ($500,000);
(ii) all of the documents, if any, required to be delivered by
Purchaser pursuant to Section 8.2 hereof;
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 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 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.
3.3 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.
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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.
(c) Delivery of Good Title. Upon delivery of the 250 Shares to
be sold by the Company hereunder and delivery of the Purchase Price
consideration therefor pursuant to this Agreement, Purchaser will have good and
marketable title to such Shares free and clear of all Liens.
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
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of the transactions contemplated hereby.
4.3 Capitalization. The authorized capital stock of the Company
consists solely of (1,000) shares of Common Stock having a par value of $1.00
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 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 June 30,
1997 (the "Balance Sheet Date"), and the related unaudited statements of income
for the six (6) 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.
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
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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 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, 1996 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 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.
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(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
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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
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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
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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 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) 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
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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,
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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. For
purposes of this Section 4.14, the term "Plan" shall mean any plan maintained by
the Company which is either an "employee benefit plan" as defined in Section
3(3) of ERISA or a "fringe benefit plan" as defined in Section 6039D of the
Code. 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'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
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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
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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 Permits (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. Except as set forth on Schedule 4.17, 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
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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 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.
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(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
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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 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.
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(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
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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
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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.
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5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants 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.
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
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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,
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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.
7. ADDITIONAL COVENANTS
7.1 Covenants of the Shareholders. During the period from the
date hereof through
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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
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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
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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. 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.
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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 Dwight L. Koerber, Jr.,
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 B 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 C hereto;
(e) Purchaser shall have received from each Shareholder a
certificate dated the Closing Date in substantially the form attached as Exhibit
D hereto;
(f) Purchaser shall have received a certificate of the
Secretary of the Company in substantially the form attached as Exhibit E hereto;
(g) Each Shareholder shall have entered into a Stockholders'
Agreement with Purchaser and the Company in the form attached as Exhibit F
hereto, (collectively, the "Stockholders' Agreements");
(h) Each Shareholder shall have executed a Personal Guaranty
substantially in the form attached as Exhibit G hereto.
(i) The Company shall have executed a Promissory Note
8uisubstantially in the form of Exhibit H hereto.
(j) Each Shareholder shall have executed a Stockholders
Agreement substantially in the form of Exhibit I hereto.
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<PAGE> 32
(k) The Board of Directors of the Company shall have executed
a Board Resolution substantially in the form of Exhibit J.
(m) 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;
(n) 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;
(o) 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.;
(p) 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;
(q) The Board of Directors of Purchaser shall have authorized
and approved this Agreement and the transactions contemplated hereby;
(r) 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.
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
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<PAGE> 33
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 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
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<PAGE> 34
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 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.
(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
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<PAGE> 35
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 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 or for any breach of the Stockholders Agreement,
Stock Restriction Agreement, Promissory Note and Personal Guaranty to the extent
any of the Shareholders are 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, shall survive the
termination of this Agreement, 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. POST CLOSING COVENANTS
Notwithstanding anything to the contrary herein, the obligations of the
parties below shall survive the Closing of this transaction.
11.1 Corporate Status. The Company, currently being a Subchapter S
corporation, will
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<PAGE> 36
file for Subchapter C status within a reasonable period of time subsequent to
the Closing.
11.2 Dredge Sales. The parties hereto agree to allow the Purchaser
to manage certain dredge projects so as to allow the sales of such projects to
be invoiced through the Purchaser. In the event, the parties agree to manage any
sales in this manner, the Purchaser shall distribute to each of the Shareholders
of the Company their respective pro rata share of any earnings, defined as net
income before taxes utilizing generally accepted accounting principles, from
said projects.
11.3 Use of Proceeds. The Company may not use the proceeds provided
hereunder as a capital contribution by the Purchaser to the Company for any
purpose other than relating to the dredged material demonstration project at
Bark Camp, regardless of the source of the dredged material, unless approved by
Purchaser in writing or as otherwise set forth in Section 2.2. Such monies shall
not be used as distributions or dividends to any Shareholder, payments to any
subcontractors who are related entities or in some other manner are affiliated
with any Shareholder of the Company, or as an investment in any subsidiary,
affiliate, sister, or parent company of the Company.
11.4 Anti-Dilution Protection. The Company and the Shareholders
agree to fully protect the Purchaser from receiving any dilution of its pro rata
share interest of twenty five percent of the equity of the Company at all times
hereafter and shall take no actions which result in any dilution of Purchaser's
pro rata interest. For purposes of this Agreement, dilution shall mean any sale
of security, stock splits, dividends or other distributions convertible into
common stock or other securities, the issuance of any additional shares of
common stock or other securities convertible into common stock, mergers,
consolidations, new stock offerings, the issuance of warrants or options
convertible into common stock, or any other subdivision which has the effect of
reducing the pro rata holdings of the Purchaser within the Company to less than
twenty five percent (25%).
12. GENERAL PROVISIONS
12.1 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
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<PAGE> 37
(b) If to any Shareholder, to the address set
forth below such Shareholder's name on
Exhibit "A" hereto:
With a copy to:
Dwight L. Koerber, Jr., Esquire
110 N. Second St., P. O. Box 1320
Clearfield, PA 16830
12.2 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.
12.3 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.
12.4 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.
12.5 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.
12.6 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.
12.7 Construction.
(a) The article, section and subsection headings used herein
are inserted for
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<PAGE> 38
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.
12.8 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"
United States Plastic Lumber, Inc.
By:/s/ Mark S. Alsentzer
-------------------------------
Mark S. Alsentzer, President
SHAREHOLDERS:
/s/ Steven C. Sands
----------------------------------
Steven C. Sands
/s/ Ernest T. Rosselli
----------------------------------
Ernest T. Rosselli
/s/ Timothy M. Fogerty
----------------------------------
Timothy M. Fogerty
/s/ Al Silkoski
----------------------------------
Al Silkoski
/s/ Michael S. Roscoe
----------------------------------
Michael S. Roscoe
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<PAGE> 39
<TABLE>
<CAPTION>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
<S> <C>
Exhibit A List of Shareholders
Exhibit B Opinion of Counsel
Exhibit C Certificate of President of CTI
Exhibit D Consent of Shareholders of CTI
Exhibit E Certificate of Secretary of USPL
Exhibit F Stockholder Agreement
Exhibit G Personal Guaranty
Exhibit H Promissory Note
Exhibit I Stockholders Agreement
Exhibit J Board Resolution of CTI
Exhibit K Certificate of President of USPL
<CAPTION>
SCHEDULES
- ---------
<S> <C>
3.3 Consents
3.4 Conflicts
4.1(a) Foreign Corp status
4.1(b) Subsidiaries
4.2 No Conflicts
4.3 Capitalization
4.4 Financial Statements
4.5(a) Liens
4.5(b) List of Real Property
4.5(c) List of Tangible Property
4.5(d) List of Leases
4.5(f) Realty representations
4.6 List of Accounts Receivable
4.7 Inventories
4.8(a) List of Patents and Trademarks
4.8(b) Registered Rights
4.8(c) Licenses
4.9(a) List of Banks
4.9(b) Insurance Policies
4.10(a) Indebtedness
4.10(b) Guaranties
4.11 Judgments
4.12 Income Taxes
4.13 Questionable Payments
4.14 Employee Benefit Plans
4.15 Undisclosed Liabilities
4.16 Permits
4.17 Regulatory Filings
4.18 Consents
4.19(a) Sales Orders
4.19(b) Purchase Orders
4.19(c) Sales Reps
4.19(d) Non-Compete Agreements
4.19(e) Contracts (inside)
4.19(f) Contracts (outside)
4.19(g) Legality
4.20 Absence of Changes
4.21(a) List of Employees
4.21(b) Labor Agreements
4.22 Affiliation
4.23(a) Customer Lists
4.23(b) Supplier Lists
4.24 Compliance with Law
4.25 Product Return
4.26 Warranties
4.28 Hazardous Materials
</TABLE>
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<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of November 18th, 1997, is between U.S. Plastic
Lumber Corp., a Nevada corporation ("USPL"), Waste Concepts, Inc., a
Pennsylvania corporation ("WCI") and all of their affiliates, subsidiaries, and
sister companies (collectively the "Company"), and Steven C. Sands, located at
2230 Dekalb Street, Norristown, PA. (the "Executive").
RECITALS
A. Executive has been employed as the principal executive officer of
WCI, and as such has made a unique contribution to the business of WCI.
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 receipt and
sufficiency of which are hereby acknowledged, the Company and Executive hereby
agree as follows:
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<PAGE> 2
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 of five (5) years commencing as of the date hereof and ending on the five
(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").
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company in a senior executive capacity, retaining his current position, as
President of WCI and such other companies as U.S. Plastic Lumber Corp. may
determine to merge or otherwise consolidate into WCI (collectively "WCI
Companies") for the duration of the Employment Agreement, with such duties
consistent therewith, and shall perform such other services for the Company
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.
(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company ; 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 , 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 current executive offices of WCI 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.
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 $125,000 per year 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 semi-monthly
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.
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<PAGE> 3
(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 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 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.
(e) VACATION. The Executive shall be entitled to three (3) weeks vacation
per year.
(f) NON-COMPETE PAYMENT. Executive will be granted stock options equal to
10,000 non-registered voting common shares of USPL contemporaneous with the
execution of this Agreement as a material inducement to comply with Section 4 of
this Agreement. The exercise price for these stock options shall be at $6.00 per
share and shall be exercisable in accordance with the Stock Option Plan as
approved by the Board of Directors of USPL.
(g) INCENTIVE COMPENSATION. Executive shall be entitled to incentive
compensation, in addition to any other compensation within this Agreement as
follows:
(i) In the event WCI achieves net earnings before income taxes, in
accordance with generally accepted accounting principles, as set forth
below, then Executive shall be entitled to receive 5,000 shares of USPL
stock for each year in which Executive meets the performance criteria
listed below.
Year Performance Criteria Shares Earned
1998 EBIT > $700,000 5,000
1999 EBIT > $770,000 5,000
2000 EBIT > $847,000 5,000
2001 EBIT > $932,000 5,000
2002 EBIT > $1,025,000 5,000
(h) AUTO ALLOWANCE. During the term of this Agreement, the Executive
shall receive an auto allowance in the amount of $650.00 per month.
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<PAGE> 4
4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING, AND DIVULGING
CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete, as defined herein, with the Company and, further,
that he will not Compete with the Company during the one (1) year period
beginning on the date of termination of this Agreement. During the Employment
period and the one year period subsequent to termination, the Executive shall
not within the United States directly or indirectly, either for Executive's own
account, or as a partner, shareholder (other than shares regularly traded in a
recognized market), officer, director, employee, agent, consultant or otherwise,
be employed by connected with, participate in, consult or otherwise associate
with any other business, enterprise or venture that is the same as, similar to
or competitive with the Company. During employment and for a period of two years
thereafter, the Executive shall not, directly or indirectly, solicit for
employment or employ any employee of the Company. Notwithstanding anything to
the contrary herein, the Executive shall be allowed to act as a passive investor
in GeoCore and not active in any day to day affairs of GeoCore and this
provision shall not prohibit Executive from performing any function with
Consolidated Technologies, Inc.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
purchasing Company and in the development of a list of its Customers, which list
is not available to the general public or the Company's ordinary employees, and
that this list contains other information about the customers not available to
the general public and that the Executive will be privileged to this list. The
Executive also acknowledges and agrees that many of the Customers on this list
do not have an advertised place of business, the Company's competitors could not
recreate this list without substantial efforts, and the Company's business would
be irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to the USPL's agreement to
purchase the stock of WCI and issuing stock to the Executive, the Executive will
not solicit or do business with, or attempt to solicit or do business with,
directly or indirectly any of the Company's Customers except on the Company's
behalf and will not solicit or do business with or attempt to solicit or do
business with, directly or indirectly, any of the Company's Customers during the
two (2) year period beginning on the termination of this Agreement; provided
however, that the Executive shall not be prohibited from soliciting the
Company's Customers for a business in which the Company has not been engaged.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, at great expense and over a great
amount of time. The parties acknowledge that this confidential information gives
the Company a competitive advantage over other businesses in its field of
endeavor and that the Company's business will be greatly and irreparably damaged
by the release or use of this confidential information outside of its own
business. Therefore, as a material inducement to signing this Agreement, the
Executive will not, while he is a Stockholder of USPL or an employee of the
Company, or during the two (2) year period beginning on the termination of this
Agreement, either disclose or divulge this confidential information to anyone or
use this confidential information in any manner to Compete with the Company. A
partial list of this confidential information may be included as a schedule to
the original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time in
writing signed by both parties, is true and accurate, but that it is not
necessarily a complete list of such information, and that the restrictions in
this Section shall apply to all such information and not merely to the
information listed
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on such schedule. Confidential information, as defined herein, shall not include
any information which (i) is or becomes publicly available through no act of
Executive, (ii) is rightfully received by Executive from a third party without
restrictions, (iii) is independently developed by Executive or (iv) is disclosed
by Executive pursuant to an administrative or judicial subpoena or order.
(d) ENFORCEMENT. The Company may enforce the provisions of this section
by suit for damages, injunction, or both.
(i) The Company would be irreparably injured by the breach of
any provision of this Section, and money damages alone would not be
an appropriate measure of the harm to the Company from such
continuing breach. Therefore, equitable relief, including specific
performance of these provisions by injunction, would be an
appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of
any breach of this Section, the breaching party shall render a full
and complete accounting of the gross receipts, expenses, and net
profits that have resulted from such breach and shall be liable for
money damages equal to twenty-five percent (25%) of the gross amount
derived by such breaching party from all transactions in breach of
this Section, such amount representing the amount of profit the
Company could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such
breaching party from all transactions in breach of this Section, such
amount representing the amount of profit the Company could have
derived from its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of Section 4 of
this Agreement shall survive and shall be in full force and effect
for the applicable period commencing from the date of actual
termination of employment of the Executive.
(a) Definitions. For the purposes of this Agreement, the
following definitions are applicable:
(1) "Compete." "To Compete" and "to Compete with the
Company" both mean to engage in the same or any similar
business as the Company, beginning with the time this
Agreement terminates, in any manner whatsoever, including
competing as a proprietor, partner, investor, stockholder
(other than as a stockholder with shares regularly traded
in a recognized market), director, officer, employee,
consultant, independent contractor, or otherwise, within
the United States.
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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 (5th) anniversary
of the date hereof, unless this Agreement is renewed;
(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
or 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 upon 60 days prior written notice, unless (A) the
Company materially breaches this Agreement and fails to cure such
breach within 30 days after receiving written notice from
Executive of such breach, then in such event Executive may
terminate this Agreement immediately, or (B) Executive gives the
Company written notice that the Company has acted in bad faith
under this Agreement by imposing one or more enumerated conditions
of employment hereunder ("Conditions"), and the Company fails to
cure the Conditions within 30 days after receiving such written
notice from Executive.
(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), 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 subsections (a)(v) of this Section 5 or
if a Court of competent jurisdiction finds that either subsections
a(iv)(A) or a(iv)(B) of this Section 5 applies, 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 12 equal monthly installments, less any amounts
required to be withheld by the Company under
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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 ("COBRA"), 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 an 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,
except for any earned but unpaid compensation which shall be payable when due
and COBRA rights; provided, however, that Executive's obligations under Section
4 hereof and the Company's obligations under subsection (b)(ii) of this Section
5 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.
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.
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 440W
Boca Raton, FL 33431
Attention: Mr. Mark Alsentzer, President and CEO
Telecopy: (561) 394-5335
(b) If to Executive, addressed to:
Steven C. Sands
2230 DeKalb Street
Norristown, PA 19401
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With a copy to:
Barry Furman, Esq.
Furman & Halpern, P.C.
401 City Ave. Suite 612
Bala Cynwyd, PA 19004
Addresses may be changed by notice in writing signed by the addressee.
8. MISCELLANEOUS.
(a) In the event of any breach or enforcement of this Agreement by either
party, the prevailing party in any litigation shall be entitled to an award of
reasonable attorneys' fees and litigation costs.
(b) 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 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 Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
By: /s/ Mark Alsentzer
- --------------------- --------------------
Mark Alsentzer, President
"EXECUTIVE"
By: /s/ Steven C. Sands
- --------------------- --------------------
Steven C. Sands
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EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of March 1, 1997, is between U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation or any of its affiliates, or
subsidiaries (the "Company"), and Bruce C. Rosetto, residing at 1398 S.W. 21st
Lane, Boca Raton, FL 33486 (the "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
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive hereby agree as follows:
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 of three (3) years commencing as of the date hereof and ending on the
third (3rd) anniversary of the date hereof, subject to termination as
hereinafter provided (the period from the date hereof through the third (3rd)
anniversary of the date hereof or the date of such termination, as the case may
be, being the "Employment Period").
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company and its subsidiaries in a senior Executive capacity, currently
functioning as Executive Vice President and General Counsel 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.
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(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company and its parent, subsidiaries and affiliates; 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 current executive offices located at 2300 Glades Rd., Boca Raton, FL
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.
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 per year 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
semi-monthly 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.
(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 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 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
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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.
(i) Notwithstanding anything to the contrary herein,
the Executive shall receive a monthly granting of stock options
beginning on the 60th day from the date of the signing of this
Agreement and continuing on the first day for each month thereafter
up to a maximum of 10,000 shares. The number of options to be
granted hereunder shall be 2,000 options per month. The exercise
price for all options granted hereunder shall be the fair market
value of the stock as traded on the NASD OTC Bulletin Board as of
the close of business on the date of the signing of this Agreement.
(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.
(e) NON-COMPETITION PAYMENT. At the time of the signing of this
Agreement, Executive will be granted stock options in accordance with Section
3(c)(i) above of U.S. Plastic Lumber Corp. as a material inducement to comply
with Section 4 of this agreement. These options are to be exercised at the fair
market value as traded on the NASD OTC Bulletin Board as of the close of
business on the date of the signing of this Agreement.
(f) LEGAL SERVICES. As part of this Agreement, the Company
guarantees to retain the independent legal services of Bruce C. Rosetto in
conjunction with its business activities not to exceed $48,000 during the next
twelve months. The law offices of Bruce C. Rosetto will invoice its legal
services separately hereunder for all work performed including customary
documentation as would be provided any other client for which similar services
would be offered.
(g) VACATION. The Executive shall be entitled to three (3) weeks
vacation per year.
4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING,
AND DIVULGING CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete with the Company and, further, that he will not
Compete with the Company during the two (2) year period beginning on the date of
termination of this Agreement. During the Employment period and the two year
period subsequent to termination, the Executive shall not within the United
States directly or indirectly, either for Executive's own account, or as a
partner, shareholder
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(other than shares regularly traded in a recognized market), officer, director,
employee, agent, consultant or otherwise, be employed by connected with,
participate in, consult or otherwise associate with any other business,
enterprise or venture that is the same as, similar to or competitive with the
Company. During employment and for a period of two years thereafter, the
Executive shall not, directly or indirectly, solicit for employment or employ
any employee of the Company.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
in the development of a list of its Customers, which list is not available to
the general public or the Company's ordinary employees, and that this list
contains other information about the customers not available to the general
public and that the Executive will be privileged to this list. The Executive
also acknowledges and agrees that many of the Customers on this list do not have
an advertised place of business, the Company's competitors could not recreate
this list without substantial efforts, and the Company's business would be
irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to the employment of Executive
and issuing stock options as set forth in Section 3(e) to the Executive, the
Executive will not solicit or do business with, or attempt to solicit or do
business with, directly or indirectly any of the Company's Customers except on
the Company's behalf and will not solicit or do business with or attempt to
solicit or do business with, directly or indirectly, any of the Company's
Customers during the two (2) year period beginning on the termination of this
Agreement.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, and its parent, its subsidiaries
and affiliates, at great expense and over a great amount of time. The parties
acknowledge that this confidential information gives the Company a competitive
advantage over other businesses in its field of endeavor and that the Company's
business will be greatly and irreparably damaged by the release or use of this
confidential information outside of its own business. Therefore, as a material
inducement to signing this Agreement, the Executive will not, while he is a
Stockholder of U.S. PLASTIC LUMBER CORP. or an employee of the Company, or
during the two (2) year period beginning on the termination of this Agreement,
either disclose or divulge this confidential information to anyone or use this
confidential information in any manner to Compete with the Company. A partial
list of this confidential information may be included as a schedule to the
original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time, is
true and accurate, but that it is not necessarily a complete list of such
information, and that the restrictions in this Section shall apply to all such
information and not merely to the information listed on such schedule.
(d) ENFORCEMENT. The Company may enforce the provisions of this
section by suit for damages, injunction, or both.
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(i) The Company would be irreparably injured by the breach of
any provision of this Section , and money damages alone would not be
an appropriate measure of the harm to the Company from such
continuing breach. Therefore, equitable relief, including specific
performance of these provisions by injunction, would be an
appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of
any breach of this Section, the breaching party shall render a full
and complete accounting of the gross receipts, expenses, and net
profits that have resulted from such breach and shall be liable for
money damages equal to twenty-five percent (25%) of the gross amount
derived by such breaching party from all transactions in breach of
this Section, such amount representing the amount of profit the
Company could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such
breaching party from all transactions in breach of this Section, such
amount representing the amount of profit the Company could have
derived from its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of this Agreement
shall survive and shall be in full force and effect for the period
commencing from the date of actual termination of employment of the
Executive.
(a) Definitions. For the purposes of this Agreement,
the following definitions are applicable:
(1) "Compete." "To Compete" and "to Compete with
the Company" both mean to engage in the same or any
similar business as the Company in any manner
whatsoever, including competing as a proprietor,
partner, investor, stockholder, director, officer,
employee, consultant, independent contractor, or
otherwise, within the United States.
(2) "Customer." A "Customer" of the Company is
any person for whom it has performed or attempted to
perform services or sold or attempted to sell any
product or service, whether or not for compensation,
and regardless of the date of such rendition, sale, or
attempted rendition or sale. A partial list of the
Company's Customers may be included as a schedule to
the original of this Agreement maintained by the
Company's Secretary, and all parties agree and
acknowledge that this list, as amended from time to
time, is true and accurate, but that it is not
necessarily a
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complete list of the Customers and that the
restrictions in this section shall apply to all of
the Customers and not merely to those listed on such
schedule.
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 third (3rd) 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 or 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 upon 120 days prior written notice;
(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
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(ii) pursuant to subsection (a)(v) of this Section 5 and
subsequent to January 15, 1998, 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 12 equal
monthly 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 an
amount in excess of that to which Executive would have been entitled
had this Agreement not been so terminated.
(iii) pursuant to Section (a)(v), if the Executive is terminated
prior to January 15, 1998, the Company shall have no additional
liability under this Agreement except as set forth in Section
5(b)(i).
(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.
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.
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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 440W
Boca Raton, FL 33431
Attention: Mr. Mark Alsentzer, President and CEO
Telecopy: (561) 394-5335
(b) If to Executive, addressed to:
Bruce C. Rosetto
1398 S.W. 21st Lane
Boca Raton, FL. 33486
Addresses may be changed by notice in writing signed by the addressee.
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 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 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 Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
United States Plastic Lumber Corp.
- -------------------------- a Nevada corporation
By: /s/ Mark Alsentzer
----------------------
Mark Alsentzer, President
"EXECUTIVE"
- -------------------------- /s/ Bruce C. Rosetto
--------------------------
Bruce C. Rosetto
<PAGE> 1
EXHIBIT 10.28
JOINT VENTURE AGREEMENT (II)
THIS AGREEMENT entered into this 31st day of December, 1997 by and
between Interstate Industrial Corp., with its main office at 348 New County
Road, Secaucus, New Jersey, 07094, U.S.A. (hereafter referred to as "IIC"), and
U.S. Plastic Lumber Corp., with its main office at 2300 Glades Road, Suite 440W,
Boca Raton, Florida 33431 (hereinafter referred to as (U.S.P.L.)), (referred to
herein singularly or collectively as "Party" or "Parties").
RECITALS
The Parties have agreed to cooperate in a Joint Venture to be called
IIC/U.S.P.L. Joint Venture (hereinafter referred to as the "Joint Venture") for
the purpose of submitting and performing a bid (hereinafter referred to as the
"Tender") issued by the Department of Sanitation, New York, (hereinafter
referred to as the "Owner") for the Dredging Services Invitation to Bid #
S999DREDG (hereinafter referred to as the "Contract").
The Parties hereto desire to enter into a Joint Venture Agreement, in
order to fix and define between themselves their respective interests and
liabilities in connection with the performance of the Contract if and when it is
awarded.
NOW THEREFORE, it is hereby agreed as follows:
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ARTICLE 1
Object of Agreement
1.1 Formation. The Parties hereby agree to form the Joint Venture and
constitute themselves as Joint Venturers pursuant to the provisions hereof for
the limited purposes and scope set forth in this Agreement.
1.2 Purpose. This Joint Venture is entered into solely for the purpose of
performing the Contract and for no other purpose. IIC, simultaneously with the
signing of this Agreement, hereby assigns all of its rights, interests and title
to the Contract to this Joint Venture. The Parties shall have the power to do
all things incidental to carrying out the obligations of the Joint Venture in
completing the Contract. The Parties agree that the Joint Venture is a temporary
association and that it will not place any limitation or liability on the
Parties beyond the specific undertakings contained in this Agreement nor will
the Joint Venture be entitled to or be used by the Parties to bid on other
projects or contracts except as may be specifically agreed by the Parties in
writing.
1.3 No General Agent. To the fullest extent permissible under New Jersey
Law, the Parties agree that their relationship is confined to the limited
purpose set forth in Section 1.2.
Nothing herein contained shall constitute any Party the general agent of the
other Party, or in any way prevent or hinder either Party from carrying on its
respective business or businesses for its own benefit.
1.4 Name and Trade Name Certificate. The name of the Joint Venture shall
be IIC/U.S.P.L. J.V.. The Executive Committee (as defined herein) shall file a
trade name certificate in all places required by law indicating that the Parties
are doing business under the name "IIC/U.S.P.L. J.V.."
1.5 Contracts With Parties. The Joint Venture may (and the Parties may
agree to) enter into contracts with the Parties or affiliates in connection with
the performance of the Contract. Said contracts, if entered into, will only be
entered into by the Parties in their capacity as contractors and not in their
capacity as Parties such that the transactions between the Joint Venture and a
Party will be transactions between a partnership (for tax purposes) and its
partner not acting in a capacity of a partner within the meaning of Section
707(a) of the Code.
ARTICLE 2
Duration
2.1 Commencement Term. The Joint Venture shall commence as of the date
hereof. The term of this Joint Venture shall continue until the earlier of: (i)
final completion of the Contract, including all distributions of net profits,
cash flow and assets have been made and the Parties conclude that the purposes
for which the Joint Venture was formed have been discharged and completed, (ii)
the agreement of all the Parties to dissolve, (iii) the election of the
Non-Defaulter pursuant to Section 14.3.
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2.2 Withdrawal of a Party. No Party shall withdraw from the Joint Venture
except upon written approval of the other Party in its sole discretion.
ARTICLE 3
Participation
3.1 Interest of the Parties. Except as otherwise provided in this
Agreement, the respective interests of the Parties (the "Percentage Interests")
in the Joint Venture and the Venture's capital, assets, Distributable Cash and
Net Profits (as defined herein) are as follows:
<TABLE>
<CAPTION>
Party Percentage Interest
<S> <C>
IIC 51%
U.S.P.L. 49%
</TABLE>
3.2 Obligations. Each of the parties will be jointly and severally liable
to the Owner or to the other third parties in connection with any liabilities,
damages, expenses or claims under or arising out of this Agreement, the Contract
or the performance of work in connection with the Contract. Any such liability
to the Owner or other third parties shall be subject to allocation between the
parties in accordance with their Percentage Interest in the Joint Venture.
3.3 Any capital contribution and distribution shall be made by both
Parties in accordance with Schedule A.
ARTICLE 4
The Executive Committee
4.1 Executive Committee. The business and affairs of the Joint Venture
shall be managed by an executive committee composed of three persons who shall
be responsible for the overall management of the Joint Venture (the "Executive
Committee"), as follows: Frank DiTommaso and Allen Shwartz from IIC and Mark
Alsentzer from USPL..
ARTICLE 5
Duties and Responsibilities of Executive Committee
5.1 The Executive Committee shall have total control over the Joint
Venture. It shall supervise Joint Venture activities and may look into all
matters and questions related to the performance of the Contract.
5.2 Chairman. The Representative appointed by IIC, that is either Frank
DiTommasso or Allen Shwartz, shall preside as the Chairman of the Executive
Committee (hereinafter referred to
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as the "Chairman"). In the absence of the Chairman at any meeting of the
Executive Committee, the Representative appointed by IIC shall act as Chairman.
5.3 Schedule and Notice. The Chairman shall call Executive Committee
meetings when necessary in his opinion or when requested in writing, fax or
telex, but in any case at intervals of less than two months during the course of
the Project. If a meeting shall not have been convened by the Chairman so as to
take place within ten (10) days after the request of the other Party's
Representative, such Representative shall have power to call an Executive
Committee meeting on not less than ten (10) days notice, and shall have a
similar right in case a meeting shall not have been called within two (2) months
of the previous meeting. Notice for a meeting may be by registered mail, telex
or fax on ten days notice, and shall always contain the agenda of the meeting in
question.
5.4 Quorum. A quorum shall be constituted only when both the IIC
Representative and USPL representative are present at an Executive Committee
meeting. Decisions of the Executive Committee shall be unanimous.
5.5 Impasse. Where there is an impasse on any part of the agenda, the
issue shall be resolved by the Managing Partner, which decision shall be final
and binding upon the Joint Venture, except that if the issue to be resolved is a
non-operational issue then such issue will be resolved pursuant to Article 19.
5.6 Minutes. The Chairman shall ensure that minutes of meetings be taken
and shall forward the same to the Parties in due time. The minutes of meetings
shall be deemed approved if within a period of 14 days after receipt of such
minutes, no objections are raised.
5.7 Written Consent. The Executive Committee may make decisions without a
meeting being held provided both Representatives are in favor of such a
procedure and give their unanimous consent in writing, by telex or by fax. A
decision so taken shall be included in the minutes of the next meeting with the
date on which it was taken.
5.8 Implementation. The Chairman shall ensure that all resolutions
approved by the Executive Committee are properly implemented.
ARTICLE 6
The "Managing Partner"
6.1 IIC is appointed as the Managing Partner and shall provide and
maintain monthly progress reports for each job performed hereunder.
6.2 The Joint Venture shall maintain or cause to be maintained monthly
financial statements. U.S.P.L. shall maintain or cause to be maintained a
complete set of records, statements, and accounts concerning the total
operations of the Joint Venture, in which books
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shall be entered, on a monthly basis, fully and accurately, each transaction
pertaining to the Joint Venture. Each party to this venture may inspect such
books at any reasonable time. Periodic audits shall be made of such books at
such times and by such persons as the parties may direct or upon the written
request of a party and copies of the audit reports shall be furnished to each
party. Upon completion of the Construction Contract, a final audit shall be made
and copies of such audit report shall be furnished to each of the parties.
6.3 Fee. The parties agree that the fee from an independent accounting
firm shall be payable by the Joint Venture for its services as defined in the
Agreement.
ARTICLE 7
Project Management
7.1 Project Executive. Except as provided otherwise herein, the
supervision and management of the work called for by the Contract and any and
all matters relating thereto, including supervision of activities in the field,
project management, purchasing, and, in addition, the processing and checking
and approval of shop drawings, the making of change estimates, and the control
of information for the field, shall be under the general charge and supervision
of a Project Executive. The Project Executive shall report to and be subject to
the overall control, management and direction of the Executive Committee.
7.2 Duties. Subject to other provisions of this Agreement, the duties of
the Project Executive shall include:
i. responsibility for the day to day supervision, direction and
management of the Project in accordance with the policies and the
procedures established by the Executive Committee;
ii. coordination of the work for the Project, including that of
subcontractors;
iii. enter into, execute, modify and amend subcontracts with respect to
the Contract subject to guidelines of the Executive Committee;
iv. execute change orders with subcontractors, approve requisitions,
withhold progress payments for inadequate work, provide releases
and make final payment to subcontractors subject to guidelines of
the Executive Committee; and
v. execute Owner change orders and perform under notices to proceed
with the Owner, subject to guidelines of the Executive Committee.
7.3 Reports. The Project Executive shall provide the following reports to
the Executive Committee:
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i. Monthly progress and cost monitoring report showing the status of
the Project, including:
a. Description of actual progress made during the month
compared with scheduled progress, including plans to
correct negative float items;
b. Status of RFI's, Change Orders, or other modifications to
the contract. Report to be in form approved by the
Executive Committee;
c. Cost performance vis-a-vis budget with commentary on
planned approach to improving negative variances;
d. Cost to complete and job profitability analysis;
e. Status of all disputes, claims and update on administrative
strategy relative thereto;
f. Quality Assurance and Safety Program compliance; and
g. EEO and DBE requirement compliance.
7.4 Information. During the Contract term, the Project Executive shall
also provide the Executive Committee and Managing Partner periodically, at its
request, with the following which it shall retain for the Venture: (i) a copy of
the change order log, (ii) copies of all contracts, change orders and purchase
orders of the Venture, (iii) copies of monthly requisitions to the Project; (iv)
disputed change orders, (v) a copy of the OSHA log, (vi) evidence of the payment
of all withholding taxes and insurance premiums for all personnel employed in
connection with the Contract by any Party, (vii) a daily log book, and (viii)
any other appropriate information required by the Executive Committee.
7.5 The obligation of the Joint Venture as set forth in Section 7.5
shall exist on the Contract or on any future bids or contracts with which the
Joint Venture chooses to pursue.
ARTICLE 8
Construction Equipment
8.1 Equipment. All equipment ("Equipment") which the Executive
Committee deems necessary to enable the Joint Venture to complete the Contract,
either at the port transfer facility or at the mine reclamation site, shall be
obtained by the Joint Venture in the manner approved by the Executive Committee.
Equipment may be purchased, or in the event that it is more economical, such
Equipment may be leased (including the leasing of equipment from either Party)
at rates and terms to be approved by the Executive Committee, except that if
equipment is
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leased from either party it will be done on a cost basis. All Equipment will be
purchased from funds available in the Accounts. The proceeds of any sale of
equipment will be deposited into the Accounts and will become the funds of the
Joint Venture.
ARTICLE 9
Staff and Personnel
9.1 Project Executive. The site organization shall be headed by the
Project Executive. The Parties shall agree upon the key technical and
administrative staff that shall be made available by the Parties to the Joint
Venture. All other personnel and labor shall be engaged and discharged directly
by the Joint Venture. IIC shall provide the expertise and local support
personnel for operations at the port transfer facility at the sole cost and
expense of the Joint Venture.
9.2 Replacements. The Project Executive is entitled to request the
replacement of any senior staff (such level to be determined by the Executive
Committee) provided that Executive Committee approval is obtained. The
replacement shall be effected as soon as is practically possible. Executive
Committee approval is not necessary in the case of the dismissal and replacement
of staff other than senior staff.
ARTICLE 10
Accounting
10.1 Joint Venture Accounting. Separate books of account for the Joint
Venture shall be kept and maintained by U.S.P.L. at the Joint Venture's expense
for the entry of all accounts.
10.2 Fiscal Year. The fiscal year and all the accounting or tax matters
of the Joint Venture shall be maintained on a fiscal and calendar year basis,
commencing on January 1 and ending December 31.
10.3 Selection of Accountants. The accountants ("Accountants") of the
Joint Venture shall be a firm of independent certified public accountants
selected by the Managing Partner.
10.4 Accountant's Duties. The Accountants shall prepare an audited
balance sheet of the Joint Venture as at the end of each fiscal year, together
with related statements of income and retained earnings and changes in financial
position with respect to such fiscal year, and a calculation of Distributable
Cash and the means used to calculate such items. Within ninety (90)
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days after the end of each year, the Joint Venture shall furnish copies of such
financial statement to each Party.
ARTICLE 11
Income Tax Returns; Tax Accounting; Tax Elections
11.1 Preparation of Tax Returns. Federal, state and local income tax
returns of the Joint Venture shall be prepared, as required, by the Accountants
for the Joint Venture. Copies of all tax returns of the Joint Venture shall be
furnished for review and approval by the Executive Committee at least thirty
(30) days prior to the statutory date for filing, including extension thereof,
if any. If the Executive Committee shall fail to approve any such return, an
application for extension of time to file shall be timely filed by the Managing
Partner. All tax returns shall be prepared using the % of completion contract
method of accounting, to the extent permissible, except for interest and
miscellaneous income and expenses, which shall be reported currently.
11.2 Method of Allocation. The proportionate part of each item of income
gain, deduction or credit earned, realized or available by or to the Joint
Venture shall be allocated to the Parties in accordance with the Percentage
Interest of each Party. Losses shall be allocated as provided in Section 3.2.
11.3 Section 754 Election. The Joint Venture shall, if requested by
either Party, make the election under Section 754 of the Internal Revenue Code.
11.4 Tax Decision Not Specified. Tax decisions and elections for the
Joint Venture not provided for herein must be approved by the Executive
Committee.
11.5 Notice of Tax Audit. Prompt written notice shall be given to the
Parties upon receipt of advice that the Internal Revenue Service intends to
examine Joint Venture income tax returns for any year.
ARTICLE 12
Guaranties and Insurance
12.1 Joint Venture Insurance. The Executive Committee shall obtain
insurance coverage for the Joint Venture from an agency or agencies selected by
the Executive Committee. The amounts and types of insurance shall be determined
by the Executive Committee in at least the minimum amounts set forth in the
Contract so as to adequately protect the Joint Venture and the Parties from any
accident or claim which may arise in the course of completing the Project. The
cost of insurance attributable to the Joint Venture shall be chargeable thereto.
12.2 Additional Insurance. The Parties shall maintain the levels and
kinds of insurance coverage that they carried prior to entering this Agreement
throughout the term of the Joint
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Venture. Each Party shall also maintain such insurance as may be required of it
pursuant to any separate contract entered into between the Joint Venture and the
Party.
12.3 Bonding. The Joint Venture shall procure payment and performance
bonds in the penal sum of the Contract as required by the Owner. The bonds may
be procured in the name of the Joint Venture and shall be an expense of the
Joint Venture. IIC and U.S.P.L. shall sign as Guarantors on the bonds, if
necessary. Each of the Parties agrees to execute applications and indemnity
agreements required in connection with bonds, guaranties or other securities
furnished with respect to the Project, provided that all Obligations assumed by
the Parties or any of them as guarantors or indemnitors in connection with any
such bonds or other security shall be shared and limited in accordance with the
Percentage Interests set forth in Section 3.2 herein. If for any reason, a Party
sustains any Obligations (whether in the nature of joint and several or
otherwise) or is required to pay any losses arising out of or directly connected
with the performance of the Contract, or the execution of its Percentage
Interest, the other Party shall promptly reimburse such Party the amount or
amounts of losses paid and/or Obligations assumed by such Party of such Party's
Percentage Interest as set forth in Section 3.2.
ARTICLE 13
Liability
13.1 Indemnity. If for any reason a Party sustains any Obligations
(whether in the nature of joint and several or otherwise) or is required to pay
any losses arising out of or directly connected with the performance of the
contract or the execution of any surety bonds or indemnity agreements in
connection therewith which are in excess of its Percentage Interest, as set
forth in Section 3.2, the other Party shall promptly reimburse such Party the
amount or amounts of the losses paid and/or Obligations assumed by such Party in
excess of such Party's Percentage Interest, as set forth in Section 3.2,
provided that any such losses and/or Obligations are not the result of such
Party's gross negligence, reckless acts or omissions or unlawful conduct and, in
furtherance thereof, each of the Parties hereby agrees to indemnify the other
Party against and to hold the other Party harmless from any and all such losses
and provided further, however, that the provisions of this subparagraph shall be
limited to losses or that are directly connected with, or arise out of the
performance of the Contract or the execution of any bonds or indemnity
agreements in connection therewith and shall not relate to or include any
incidental, indirect or consequential losses that may be sustained or suffered
by a Party nor any losses and/or Obligations resulting from a Party's gross
negligence, reckless acts or omissions or unlawful conduct.
ARTICLE 14
Termination
14.1 Default. Upon the occurrence of an Event of Default, as defined in
this Section, with respect to a Party ("Defaulter"), the non-defaulting Party
("Non-Defaulter") may seek money
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damages and/or an equitable remedy in accordance with Articles 22 and 23 of this
Agreement. All such remedies may be pursued simultaneously by the Non-Defaulter
and such remedies may be cumulatively granted. Should the Managing Partner
default the other Party shall become the Managing Partner, automatically and
immediately upon serving written notice.
14.2 Definitions and Cure Period. The occurrence of any of the following
events shall constitute an event of default ("Event of Default") hereunder on
the part of Defaulter if within thirty (30) days following notice of such
default from the Non-Defaulter (ten (10) days if the default results solely from
the nonpayment of monies), the Defaulter fails to pay such monies, or in the
case of non-monetary defaults, fails to commence substantial efforts to cure
such default and thereafter fails within a reasonable time not to exceed an
additional thirty (30) days to prosecute to completion with diligence and
continuity the curing of such default.
i. the failure by a Non-Contributing Party to make any Capital
Contribution to the Joint Venture'
ii. a material breach or violation by a Party of any of the terms,
agreements, representations, covenants or provisions of this
Agreement;
iii. institution by a Party of proceedings of any nature under any laws
of the United States or of any state, whether now existing or
subsequently enacted or amended, for the relief of debtors,
including, but not limited to , any chapter of the Federal
Bankruptcy Code wherein such Party is seeking relief as a debtor;
iv. a general assignment by a Party for the benefit of creditors;
v. the institution against a Party of a case or other proceeding
under any section or chapter of the Federal Bankruptcy Code as now
existing or hereafter amended or becoming effective, which
proceeding is not dismissed, stayed or discharged within a period
of twenty (20) days after the filing thereof, or if stayed, which
stay is thereafter lifted without a contemporaneous discharge or
dismissal of such proceeding;
vi. admission by a Party in writing of its inability to pay its debts
as they mature; or
vii. execution or other judicial seizure of all or any substantial part
of a Party's assets or Joint Venture interest, or any part
thereof, or the appointment of a receiver, custodian, trustee or
like officer, to take possession of assets if such attachment,
execution, seizure or appointment: (a) exceeds $100,000.00; (b)
remains undismissed or undischarged for a period of twenty (20)
days after the levy or appointment; or (c) if the occurrence of
such attachment, execution or other judicial seizure or
appointment may have a materially adverse effect upon the
performance by said Party of its obligations under this Agreement
as determined by the Non-Defaulter; provided, however, that said
attachment, execution, seizure
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or appointment shall not constitute an Event of Default
hereunder if said Party posts a bond sufficient to fully
satisfy the amount of such claim or judgment within fifteen
(15) days after the levy thereof or appointment and the
Party's assets are thereby released from the lien of such
attachment or the appointment is vacated.
14.3 Rights of Non-Defaulting Party.
14.3.1 On occurrence of an Event of Default, the Non-Defaulter
shall have the right (subject to Section 18.3.4) to: (i) exclude the Defaulter
from further participation in the Joint Venture and in the management and
control thereof and may take over its interest under this Agreement without
releasing the Defaulter from its obligation to bear its share of Net Losses, or
(ii) terminate the Joint Venture and do all thing necessary to wind up the
affairs of the Joint Venture, including the completion of the Project. The
Non-Defaulter shall have the opportunity to assume the responsibilities of the
Defaulter under this Agreement without incurring liability of any kind to the
Defaulter for the Net Profit earned after the Event of Default. No share in any
Distributable Cash shall be payable to the Defaulter before completion of the
Project and the collection of all receipts and the payment of all Obligations.
14.4.1 The Non-Defaulter shall have the right to retain for the
completion of the Project all assets of the Joint Venture and all Equipment and
materials provided by the Parties or hired, purchased or acquired by the
Defaulter until the completion of the Project. The Defaulter shall execute and
do all deeds and documents and things necessary or expedient to facilitate the
exercise of such right and allow the Non-Defaulter to proceed with the
performance of the Contract (including without prejudice to the generality of
the foregoing the operation of any Accounts in the name of the Joint Venture
without reference to the Non-Defaulter). In such event all reference in this
Agreement to the administration and direction of the Joint Venture by the
Parties (or the Executive Committee) shall be deemed to exclude the Defaulter.
14.3.3 Upon completion or sooner termination of the Contract and
receipt of all amounts due under it the Non-Defaulter shall account to the
Defaulting Party (who shall be entitled to receive) an amount equal to its
Capital Contribution together with its share of any Net Profits earned and
received as assessed up to the date when it was excluded from the management of
the Joint Venture.
14.3.4 Upon the occurrence of any Event of Default set forth in
subparagraphs (iii), (iv), (v) or (vi) of Section 17.2, the Joint Venture or the
Party which is not subject to the aforesaid provisions (the "Remaining Party"),
shall be entitled to request that the Party which is subject to the aforesaid
provisions (the "Bankrupt Party"), or its successor, provide adequate assurances
of future performance. Failure to provide such adequate assurances within a
thirty (30) day period of request therefore, shall entitle the Remaining Party
to declare that the Bankrupt Party shall cease to have any voice in the
management of the Project, including a loss of its right to a vote in the
Executive Committee or any interest in the performance of the Contract
thereafter, or in the Joint Venture or in any of the Joint Venture's assets, and
its delegation of authority to its
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representative to the Executive Committee shall be deemed cancelled. The
representative to the Executive Committee designated by the Remaining Party
shall have full power and authority to proceed, and wherever it is provided in
this Agreement that any act, consent or decision of the Parties or the Executive
Committee required, shall be deemed to mean the act, consent or decision of the
solvent Party, excluding the Insolvent Party.
14.3. Dissolution and Liquidation.
14.4.1 Upon the happening of any one of the events set forth in
Section 2.1, the Joint Venture shall be immediately dissolved.
14.4.2 Upon the expiration or termination of the Joint Venture or
following the Parties' decision to terminate the Joint Venture, the Joint
Venture shall immediately commence to wind up its affairs and the Executive
Committee shall proceed with reasonable promptness to liquidate the Joint
Venture. During the period of winding up, the Executive Committee shall continue
to act as such and shall make all decisions relating to the conduct of the
business or operations of the Joint Venture, within the power delegated to it
under this Agreement, during the winding up period. Every reasonable effort
shall be made to dispose of the assets of the Joint Venture so that the
distribution may be made to the Parties in cash. If it becomes necessary to
distribute non-cash assets, such assets shall be distributed according to the
Parties' Percentage Interests, based upon the net fair market value of the
distributed assets.
14.4.3 Liquidation proceeds shall be distributed and applied in
the following order or priority:
i. To the payment of debts and Obligations of the Joint
Venture including the completion of the Contract and
expenses of liquidation.
ii. Repayment of the working capital loan of U.S.P.L. as
set forth in Article 8.
iii. To the setting up of any reserves which the
Executive Committee may deem reasonably necessary
for any contingent or unforeseen liability or
obligations for the Joint Venture, such reserves to
be maintained for a period not longer than one (1)
year except to the extent any claims may have been
made or threatened against the Joint Venture during
such period and which are then unliquidated, and
then only until the liquidation of such claims.
iv. To the Parties having balances in their Capital
Accounts in the amount thereof.
14.4.4 If after allocation of any gains or loss on sale or
disposition of all or substantially all of the Joint Venture's property and
distribution of all assets of the Joint Venture, the Capital Account balance of
any Party indicates a debit balance and the Capital Account balance of the other
Party indicates a credit balance, the Party having the debit balance shall be
required to
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contribute to the Joint Venture sufficient cash to eliminate all such debit
balances. Such cash shall be distributed together with the other proceeds of
liquidation as provided in Section 14.4.3.
ARTICLE 15
Confidential Information
15.1 Confidential Information. All documentation, data and information,
whether technical, business, financial or otherwise, acquired by a Party from
the other Party shall be treated as confidential and proprietary by the
recipient and shall not be used other than for the purposes of performing such
acquiring Party's duties as set forth in the Agreement or the Contract without
the prior written consent of the Party from which the information was acquired,
unless such information:
i. Is, or later becomes, public knowledge other than by breach of
responsibilities in the foregoing paragraph;
ii. Is in the possession of the recipient with the full right to
disclose prior to receipt from another Party; or
iii. Is independently received by the recipient from a third party,
with no restrictions on disclosure.
ARTICLE 16
Publicity
16.1 Publicity. Either of the Parties may advertise as it thinks
desirable subject to consultation with the other Party. When the subject matter
of any advertisement involves the other Party or the Project, such
advertisements and relevant publications shall be subject to the prior written
approval of the other Party and where practicable make due reference to and
acknowledgment of the Project performed or to be performed by the other Party
under the Contract.
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ARTICLE 17
Assignment
17.1 No Assignment. No Party hereto shall sell or assign or otherwise
transfer in any manner its Percentage Interest (including any rights to Net
Profits or Distributable Cash or any other proceeds), or any part thereof, in
the Joint Venture without first obtaining in advance the written consent of the
other Party, which consent may be withheld in the sole and absolute discretion
of the Party. Any purported transfer without such consent shall be void and of
no effect. Upon transfer of a Party's interest, with consent of the other Party,
the transferee shall assume in writing and agree to be bound by all of the
transferring Party's obligations.
17.2 Tax Consideration. Notwithstanding any provision to the contrary
contained herein, no Party shall transfer all or part of its Percentage Interest
in the Joint Venture to any person or entity if such transfer would result in a
termination of the Joint Venture under Section 708(b)(1)(B) of the code or any
successor section. The non-transferring Party shall have the power to require
postponement of the transfer of all or any potion of a Party's interest for such
period of time as may be required to prevent the termination of the Joint
Venture. As a condition to the consummation of any transfer, the Party proposing
to transfer all or any part of its Percentage Interest shall, at its cost,
provide an unqualified opinion of counsel, which opinion, and counsel must be
satisfactory to the non-transferring Party. The Party proposes to transfer all
or any part of its interest to any person or entity shall defend, indemnify and
hold harmless the other Party from any loss, cost, damage (including additional
taxes which the Party or the non-transferring Party is required to pay as a
result of such termination), or expenses resulting from a transfer in violation
of this section.
ARTICLE 18
Governing Law
18.1 Governing Law. This Agreement shall be construed, interpreted,
enforced and governed by and in accordance with the laws of the State of New
Jersey without giving effect to its choice of laws rules.
ARTICLE 19
Dispute Resolution
19.1 All disputes arising in connection with the interpretation and/or
application of this Agreement shall be referred to the Chief Executive Officers
of both Parties for their decision.
19.2 If the dispute cannot be settled amicably by the Chief Executive
Officers within thirty (30) days of the reference thereto, then either party
shall be entitled to submit the dispute to a mutually acceptable outside
mediator by written notice to the other. Such mediation shall be concluded
within thirty (30) days of properly being requested. Any such mediation shall be
confidential and non-binding on the parties.
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19.3 If the mediation fails to resolve the dispute, or if the mediation
cannot be concluded within the aforementioned thirty (30) day period, then
either party may refer to the dispute to a panel of three arbitrators to be
resolved in accordance with the current Construction Industry Arbitration Rules
of the American Arbitration Association. Within thirty (30) days from the date
when either party refers the matter to arbitration, each party shall nominate
its respective arbitrator. The two arbitrators so named shall, within thirty
(30) days from the date of their nomination, nominate the third arbitrator, who
will preside over the arbitration panel. If either party fails to nominate its
arbitrator, or if the two arbitrators fail to agree on the choice of the third
arbitrator within the period provided for above, the American Arbitration
Association shall appoint the said arbitrator or arbitrators at the request of
either party within 10 days.
19.4 The parties agree that the decision of the arbitration panel shall
be rendered no later than ninety (90) days from the date of designation of the
third arbitrator.
19.5 The place of arbitration shall be in the State of New Jersey.
19.6 In the event of proceedings before an arbitration panel, the losing
party in such proceedings agrees to pay the reasonable legal fees and other
costs incurred by the prevailing party.
19.7 The decision of the arbitration panel shall be final and binding on
both parties.
19.8 Pending resolution of any dispute, both parties agree to continue
diligent performance of this Agreement and the Contract.
ARTICLE 20
USPL Responsibility
20.1 The parties agree to structure this transaction within 30 days from
the date of signing this Agreement to allow USPL to account for all revenue
generated from this Contract on its books and records as a public reporting
entity. The parties agree to take whatever action is necessary and appropriate
to effectuate such reporting without jeopardizing the Joint Venture's management
and control of the Contract.
ARTICLE 21
Business Address and Language
21.1 Address. The business address of the Joint Venture shall be in:
348 New County Road
Secaucus, New Jersey 07094
112
<PAGE> 16
ARTICLE 22
Validity
22.1 Validity. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument. No changes, amendments or Modifications of this Agreement shall
be valid unless reduced to writing and signed by both Parties hereto.
ARTICLE 23
Severability
23.1 Severability. The provisions of this Agreement shall be deemed
independent and severable and the invalidity or partial invalidity or
enforceability of any one provisions or portion thereof shall not affect the
validity or enforceability of any other provision hereof.
ARTICLE 24
Offset
24.1 Right to Offset. The Joint Venture shall have the right to deduct
from amounts which are due and payable to each Party by the Joint Venture any
amounts which are due and payable by each Party to the Joint Venture.
ARTICLE 25
Soliciting Employees
25.1 No Solicitation. Each Party agrees that upon entering into this
Agreement and for a period of not less than two years following the final
completion of the Contract, said Party will refrain from making offers,
enticements and/or inducements to cause employees of the opposite Party to leave
the employ of that Party and enter into employment with the other Party, and/or
any subsidiary of the Party, making such offers, enticements and/or inducements
without the written consent of the appropriate Party. This provision is limited
to employees with whom a Party worked on this Project.
ARTICLE 26
Force Majeure
26.1 Excuse of Performance. Neither Party shall be considered in default
of its obligations hereunder to the extent that any such obligation is prevented
or delayed by any cause, existing or future, which is beyond the reasonable
control of such party.
113
<PAGE> 17
ARTICLE 27
Amendments
27.1 Amendment. This Agreement supercedes all prior agreements between
the Party in connection with the Joint Venture, written or oral. Any amendments
or modifications to the terms hereof shall only be effected in writing signed by
both Parties.
114
<PAGE> 18
IN WITNESS WHEREOF, the Parties hereto have caused this Joint Venture
Agreement to be duly executed as of the date set forth above.
WITNESS U.S. Plastic Lumber Corp.
/s/ Bruce C. Rosetto By: Mark Alsentzer
- --------------------- -------------------------------
INTERSTATE INDUSTRIAL CORPORATION
/s/ Earle R. Tockman By: /s/ Frank Di Tomasso
- --------------------- -------------------------------
STATE OF NEW JERSEY }
} December 31, 1997
COUNTY OF HUDSON }
Before me, Jo-Ann Miller, the undersigned officer, personally appeared
Frank Di Tomasso and Mark Alsentzer, know to me, or satisfactorily proven, to be
the persons whose name is subscribed to the within instrument and acknowledged
that he/she executed the same for the purposes therein contained.
IN WITNESS WHEREOF I hereunto set my hand.
/s/ Jo-Ann Miller
----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires:
115
<PAGE> 19
SCHEDULE A
1. USPL shall provide all cash requirements necessary for the full
performance of this contract.
2. USPL will advance a cash deposit of $500,000 ("Cash Balance") in the
Joint Venture bank accounts of Five Hundred Thousand Dollars ($500,000). During
the performance of the contract, the Executive Committee will review the cash
required to perform the services. The Executive Committee will reduce the Cash
Balance in the event that cash requirements fall below $500,000 as projected for
the remainder of the project. All excess cash greater than $500,000 will be paid
to USPL together with accumulated interest until USPL's Cash Balance is paid off
in full.
3. Any interest accumulated on the Cash Balance shall be an asset of USPL.
116
<PAGE> 20
SCHEDULE B
Insurance
Insurance Coverage ...................................Minimum Amount
Coverages to be determined by the Executive Committee.
117
<PAGE> 1
EXHIBIT 23.1
-----------------------------------
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 December 18, 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".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.2
-----------------------------------
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 December 18, 1997, on our audit of the consolidated
financial statements of Clean Earth, Inc. and Subsidiaries. We also consent to
the reference to our firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.3
-----------------------------------
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 November 24, 1997, on our audit of the financial statements
of Recycled Plastics Industries, Inc. We also consent to the reference to our
firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.4
-----------------------------------
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 December 29, 1997, on our audit of the financial statements
of Advanced Remediation and Disposal Technologies, Inc. We also consent to the
reference to our firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.5
-----------------------------------
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 August 7, 1997, on our audit of the financial statements of
Integrated Technical Services, Inc. We also consent to the reference to our firm
under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.6
-----------------------------------
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 December 8, 1997, on our audit of the financial statements
of Waste Concepts, Inc. We also consent to the reference to our firm under the
caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
January 7, 1998
<PAGE> 1
EXHIBIT 23.7
LOVE, BOLLUS, LYNCH & ROGERS
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
10 Mechanic Street * Worcester, Massachusetts 01608
Telephone 508-755-7107 * Facsimile 508-755-3896
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form SB (No. 2)
of our report, dated July 25, 1997, relating to the financial statements of
EnvironPlastics Corporation. We also consent to the reference to our Firm under
the captions "Experts" and "Selected Financial Data" in the Prospectus.
/s/ Love, Bollus, Lynch & Rogers
----------------------------------
Love, Bollus, Lynch & Rogers
Worcester, Massachusetts
January 2, 1998
MCGLADREY NETWORK
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF U.S. PLASTIC LUMBER CORPORATION FOR THE TWELVE MONTHS
ENDED, DECEMBER 31, 1996 AND NINE MONTHS ENDED, SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 854,290 1,611,603
<SECURITIES> 0 0
<RECEIVABLES> 1,821,742 5,955,504
<ALLOWANCES> 262,279 377,001
<INVENTORY> 486,978 1,387,656
<CURRENT-ASSETS> 3,455,193 8,979,622
<PP&E> 4,212,832 8,584,532
<DEPRECIATION> 3,277,114 3,564,359
<TOTAL-ASSETS> 5,158,894 17,478,721
<CURRENT-LIABILITIES> 2,864,393 6,767,406
<BONDS> 714,312 3,675,490
0 0
75 210
<COMMON> 1,167 1,500
<OTHER-SE> 2,286,529 8,742,373
<TOTAL-LIABILITY-AND-EQUITY> 5,158,894 17,478,721
<SALES> 4,741,939 15,432,537
<TOTAL-REVENUES> 4,741,939 15,432,537
<CGS> 3,721,508 11,379,219
<TOTAL-COSTS> 3,721,508 11,379,219
<OTHER-EXPENSES> 1,311,155 3,440,921
<LOSS-PROVISION> 21,704 59,192
<INTEREST-EXPENSE> 8,397 140,572
<INCOME-PRETAX> (245,965) 508,767
<INCOME-TAX> (65,691) 1,569
<INCOME-CONTINUING> (180,274) 507,198
<DISCONTINUED> 0 0
<EXTRAORDINARY> 66,859 0
<CHANGES> 0 0
<NET-INCOME> (113,415) 507,198
<EPS-PRIMARY> (.02) .01
<EPS-DILUTED> .00 .00
</TABLE>
