<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-23855
U.S. PLASTIC LUMBER CORPORATION
---------------------------------------------
(Name of small business issuer in its charter)
--------------------
Nevada 87-0404343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------
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)
Check here whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---- ----
The number of shares outstanding of the registrant's common stock as of
November 6, 1998 is 17,758,694
<PAGE> 2
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997............. 3
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1998
and 1997....................................................................................... 4
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1998
and 1997....................................................................................... 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998
and 1997....................................................................................... 6
Notes to Condensed Consolidated Financial Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 22
Item 2. Changes in Securities and Use of Proceeds............................................... 22
Item 5. Other Information....................................................................... 23
Item 6. Exhibits and Reports on Form 8-K........................................................ 24
SIGNATURES....................................................................................... 24
</TABLE>
FORWARD LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "projected",
"intends to" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to economic conditions, changes in laws or
regulations, the Company's history of operating losses, demand for products and
services of the Company, newly developing technologies, loss of permits,
conflicts of interest in related party transactions, regulatory matters,
protection of technology, lack of industry standards, raw material commodity
pricing, the ability to receive bid awards, the effects of competition, the
risks and costs associated with the change in the year 2000 and the ability of
the Company to obtain additional financing. Such factors, which are discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to consolidated financial statements, could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with undue reliance on any such forward-looking statements, which speak only as
of the date made. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2
<PAGE> 3
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,065 $ 1,170,120
Accounts receivable (net) 11,477,862 6,940,288
Inventories 3,561,240 1,502,658
Prepaid expenses and other assets 2,672,606 220,728
------------ -----------
TOTAL CURRENT ASSETS 17,772,773 9,833,794
PROPERTY, PLANT AND EQUIPMENT (Net) 13,695,993 5,775,424
OTHER ASSETS:
Acquired intangibles, net 9,676,246 7,009,244
Other assets 2,770,521 552,914
----------- -----------
TOTAL ASSETS $43,915,533 $23,171,376
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,754,543 $ 3,788,714
Notes payable, current portion 1,585,941 2,404,607
Notes payable, affiliates 2,400,000 1,956,810
Accrued expenses 1,520,934 1,737,518
Other liabilities 468,425 420,084
------------ -----------
TOTAL CURRENT LIABILITIES 11,729,844 10,307,733
Notes payable, net of current portion 10,272,217 817,011
Deferred income taxes 703,696 580,433
Minority interest 269,360 --
----------- ----------
TOTAL LIABILITIES 22,975,117 11,705,177
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock, par value $.001; authorized 5,000,000
shares; issued and outstanding 398,693 shares and 208,930 shares,
respectively (aggregate liquidation preference of $8,144,541 and
$4,178,600, respectively) 400 209
Common stock par value $.0001, authorized 50,000,000 shares; issued and
outstanding 17,626,818 shares and 15,621,599 shares, respectively 1,763 1,562
Additional paid-in capital 22,174,341 12,573,026
Accumulated deficit (1,236,088) (1,108,598)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 20,940,416 11,466,199
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,915,533 $23,171,376
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Sales, net $ 10,713,904 $ 8,722,003
Cost of goods sold 7,483,160 6,858,103
------------ -----------
GROSS PROFIT 3,230,744 1,863,900
Selling, general and administrative expenses 2,704,686 1,428,733
------------- -----------
OPERATING INCOME 526,058 435,167
------------- -----------
Interest income 33,586 15,827
Interest expense (341,076) (77,543)
Minority interest in loss of Joint Venture 2,176 --
------------- -----------
INCOME BEFORE INCOME TAXES 220,744 373,451
Provision for income taxes -- 1,569
------------- ------------
NET INCOME 220,744 371,882
Preferred stock dividend earned (263,862) (99,580)
------------- ------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (43,118) $ 272,302
============= ===========
BASIC INCOME (LOSS) PER SHARE $ (.00) $ .02
============= ===========
DILUTED INCOME PER SHARE $ (.00) $ .02
============= ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC 17,190,971 14,987,441
============= ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED 17,190,971 16,498,400
============= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 5
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Sales, net $ 33,388,685 $ 16,458,301
Cost of goods sold 25,892,897 12,404,984
------------- ------------
GROSS PROFIT 7,495,788 4,053,317
Selling, general and administrative expenses 6,164,972 3,523,331
------------- -----------
OPERATING INCOME (LOSS) 1,330,816 529,986
------------- -----------
Interest income 36,046 36,942
Interest expense (731,313) (140,571)
Minority interest in (income) of Joint Venture & loss of subsidiary, net (281,853) --
Gain on sale of assets 105,588 --
------------- -----------
INCOME BEFORE INCOME TAXES 459,284 426,357
Provision for income taxes -- 1,569
------------- ------------
NET INCOME 459,284 424,788
Preferred stock dividend earned (481,810) (304,740)
------------- -----------
Net income (loss) attributable to common
stockholders $ (22,526) $ 120,048
============= ===========
BASIC INCOME (LOSS) PER SHARE $ (.00) $ .01
============= ===========
DILUTED INCOME (LOSS) PER SHARE $ (.00) $ .01
============= ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC 16,569,461 13,672,428
============= ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED 16,569,461 15,229,686
============= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE> 6
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 459,284 $ 424,788
----------- -----------
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation 885,785 386,104
Amortization 378,888 202,464
Amortization of deferred financing costs 178,227 --
Minority interest in income of Joint Venture and subsidiary, net 281,853 --
Gain on sale of assets 105,588 --
Expense related to common shares issued to non-employees 94,868 1,264
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,509,616) (1,565,945)
Inventories (1,213,780) 14,611
Prepaid expenses and other current assets (2,306,571) (220,096)
Other assets (1,387,354) 482,444
Accounts payable 1,321,856 (361,160)
Other liabilities (183,743) (82,000)
Accrued expenses (735,376) (960,101)
----------- -----------
Total adjustments (6,089,375) (2,102,415)
----------- -----------
Net cash used in operating activities (5,630,091) (1,677,627)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,244,636) (1,886,701)
Cash paid for acquisitions, net of cash received (2,760,706) (1,492,186)
----------- -----------
Net cash used in investing activities (9,005,342) (3,378,887)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 2,291,193 --
Proceeds from sales of preferred stock 3,947,632 4,880,000
Proceeds from stock option exercises 12,500 --
Advances (repayment of) due to affiliate 443,190 --
Proceeds from notes payable 8,957,599 2,015,469
Payment of deferred financing costs (206,758) --
Payments of notes payable (1,918,978) (1,081,642)
----------- -----------
Net cash provided by (used in) financing activities 13,526,378 5,813,827
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,109,055) 757,313
CASH AND CASH EQUIVALENTS, beginning of period 1,170,120 854,290
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 61,065 $ 1,611,603
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE> 7
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries (the "Company" or "USPL") 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.
The Company's unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and the regulations of the Securities and Exchange
Commission for quarterly reporting. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, the statements
include all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. Operating results for the
three and nine month periods ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
In July 1997, the Company and Interstate Industrial Corp ("IIC") formed a 50/50
joint venture dredging business. The joint venture had minor operations in 1997
incurring a loss of $263,794. The Company manages the day to day dredging
operations and has consolidated 100% of the assets, liabilities and results of
operations of the joint venture after the Company obtained majority control
effective April 1, 1998. A summary of the 1998 operations of the Joint Venture
follows:
Revenues $3,062,903
Operating costs and expenses 2,260,390
Operating income 802,513
Minority interest (401,256)
----------
Company's portion of income before income taxes $ 401,257
==========
The company provided 100% of the funds to finance the joint venture's operations
and all of its cash advances will be returned before any funds are distributed
to IIC. The IIC minority interest in the net income of the joint venture since
inception totaling $269,360 is shown as minority interest in the accompanying
consolidated balance sheet at September 30, 1998.
RECLASSIFICATIONS
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
7
<PAGE> 8
INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) less
preferred stock dividends by the weighted-average number of shares actually
outstanding. Diluted income (loss) per share further considers the impact of
common stock equivalents to the extent that they are dilutive. The Company's
basic and diluted income (loss) per share are equivalent for both the three and
nine months ended September 30, 1998 because the common stock equivalents are
anti dilutive for both of these periods.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting of Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The adoption of SFAS No. 130
had no impact on the Company's disclosures. SFAS No. 131 has been adopted in
1998 (see Note 6 for segment information). Additional information required by
SFAS No. 131 will be included in the Company's 1998 annual financial statements.
SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING
ACTIVITIES
Interest paid totaled $553,086 and $ 140,571 in the nine months ended September
30, 1998 and 1997, respectively. State income taxes paid totaled $242,704 in the
first nine months of 1998 (none in 1997). See Note 2 for information regarding
common shares and debt issued for acquisitions and noncompete agreements. See
Note 5 for information regarding stock options issued for securing a line of
credit.
2. ACQUISITIONS
1997 ACQUISITIONS
The Company acquired 3 companies in the plastic lumber business and 3 companies
in the environmental services business in 1997. The $3,872,481 total purchase
price for all six acquisitions consisted of 2,190,150 shares of common stock
valued at an aggregate of $2,277,481 and cash payments totaling $1,595,000.
Several of the acquisitions include non compete agreements and earnout
provisions based on achieving specified profitability levels for key employees
and former owners.
A summary of the allocation of the $3,872,481 aggregate purchase price of the
1997 acquisitions to net assets acquired follows:
Working capital (deficit) $ (619,316)
Long-term assets 2,813,281
Long-term debt assumed (1,965,040)
Deferred tax liability (815,885)
Acquired intangibles 4,459,441
-----------
Aggregate purchase price $ 3,872,481
===========
1998 ACQUISITIONS
In January 1998, the Company acquired Green Horizon Environmental, Inc.("GHE"),
an environmental services company located in Norristown, Pennsylvania. In
February 1998, the Company acquired 55% of the stock of Consolidated
Technologies, Inc. ("CTI"), an environmental recycling services company located
in Norristown, Pennsylvania. Effective June 30, 1998 the Company acquired the
remaining 45% of CTI. The $119,403 minority interest in the CTI losses prior to
June 30, 1998 are combined with the minority interest in the joint venture with
IIC in the accompanying income statements.
In March 1998, the Company acquired substantially all of the assets of
Chesapeake Plastic Lumber, Inc. ("CPL"), a manufacturer of plastic lumber in
Denton, Maryland. Effective April 30, 1998 the Company acquired 100% of the
stock of Cycle-Masters, Inc. ("CMI"), a manufacturer of plastic lumber in
Sweetser
8
<PAGE> 9
Indiana. Effective June 30, 1998 the Company acquired 100% of the stock of
Geocore, Inc. ("GCI") a small environmental services company in northern New
Jersey.
The Company purchased substantially all of the assets of Trimax of Long Island,
Inc. and Polymerix, Inc. ("Trimax") with the approval of the U.S. Bankruptcy
Court. The purchase is effective June 30, 1998 and includes two patents for the
manufacture of structural plastic lumber. The $1,650,000 purchase price for
Trimax assets included $650,000 of Company stock. In July 1998 the Company
placed 109,474 shares of stock in escrow. The actual number of shares to be
issued will be adjusted based on the average closing price of the Company's
stock when the complete bankruptcy plan is approved in December 1998.
The $5,625,000 total purchase price for all of the 1998 acquisitions consisted
of 553,474 shares of USPL common stock valued at an aggregate of $1,970,000,
cash payments of $3,205,000 and issuance of $450,000 of debt. Several of the
acquisitions include non compete agreements, stock options and earnout
provisions based on achieving specified profitability levels for key employees
and former owners.
A summary of the allocation of the $5,625,000 aggregate purchase price of the
1998 acquisitions to the net assets acquired follows:
Working capital (deficit) $ (61,124)
Long-term assets 2,770,105
Long-term debt --
Deferred taxes (90,374)
Acquired intangibles 3,006,393
----------
Aggregate purchase price $5,625,000
==========
All of the acquisitions in 1997 and 1998 have been accounted for as purchases.
Accordingly, the results of operations of the acquired companies are included in
the Consolidated Financial Statements for periods subsequent to the date of
acquisition. The excess of the aggregate purchase price over the estimated fair
value of the net assets acquired in all of the acquisitions has been recorded as
acquired intangibles and is being amortized on a straight-line basis over a
period of twenty years from the effective date of each acquisition.
The unaudited pro forma combined results of operations of the Company, and all
of its subsidiaries for the nine months ended September 30, 1998 and year ended
December 31,1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $35,055,141 $38,150,503
=========== ===========
Net income (loss) $ 738,113 $(1,637,381)
=========== ===========
Diluted income (loss) per share $ .02 $ (.14)
=========== ===========
Weighted average shares used in computation 17,541,384 15,174,629
=========== ===========
</TABLE>
The foregoing unaudited pro forma results of operations reflect adjustments for
amortization of goodwill, depreciation on revalued property and equipment. Per
share amounts are calculated after preferred dividends are subtracted from net
income. They do not purport to be indicative of the results of operations which
actually would have resulted had the acquisitions occurred at the beginning of
the period presented, or of future results of operations of the consolidated
entities.
3. CAPITAL STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
Late in 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 The dividend is payable only in
Series A Preferred Stock. No cash dividends will be paid. Each share is
9
<PAGE> 10
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 million in proceeds, is declared effective by the
Securities and Exchange Commission ("SEC"). In the event of any liquidation,
after payment of debts and other liabilities, the holders of Series A Preferred
Stock will be entitled to receive, before the holder of any of the Common stock,
the stated value of $20.00 per share plus any unpaid dividends. The Series A
Preferred Stock can be redeemed at any time at the sole option of the Company
for $25.00 per share. In 1998, 2,431 Series A shares were converted into 17,017
common shares.
A 5% stock dividend of 10,855 Series A shares was declared as of September 30,
1998 to shareholders of record on August 1, 1998. At September 30, 1998
approximately 228,012 Series A shares are outstanding.
SERIES B CONVERTIBLE PREFERRED STOCK
In May 1998 the Company initiated an offering to accredited investors of up to
250,000 shares of the Company's Series B Preferred Stock. The Series B shares
have substantially the same rights and features as the Series A Preferred shares
except that the stated and liquidation value of the Series B shares is $21.00
per share. As of September 30, 1998 the Company had received payments totaling
$4,431,420 for 211,020 shares of Series B Preferred shares.
In the third quarter 47,794 Series B shares were converted into 334,558 common
shares. A 5% stock dividend of 7,455 Series B shares was declared effective
September 30, 1998 for the pro rata portion of the six month period that the
Series B preferred shares were outstanding. Approximately 170,681 Series B
shares are outstanding as of September 30, 1998.
STOCK WARRANTS
The Company previously issued 950,000 of Series A and 950,000 Series B warrants
to purchase the Company common stock at $2.50 and $4.50 per share. The Company
received $2,291,193 from the exercise of 916,477 Series A warrants in 1998. The
33,523 unexercised Series A warrants expired on June 30, 1998.
None of the Series B warrants were exercised and all 950,000 of the Series B
warrants expired in the third quarter of 1998.
EMPLOYEE STOCK OPTIONS
The Company has 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. Employee stock option activity in 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF
WEIGHTED AVERAGE OPTIONS
EXERCISE PRICE OUTSTANDING
---------------- -----------
<S> <C> <C>
Outstanding at December 31, 1997 $3.54 1,350,000
Granted 3.50 335,000
Exercised 2.50 (5,000)
Canceled 4.00 (100,000)
---- ---------
Outstanding at September 30, 1998 $3.53 1,580,000
===== =========
Options exercisable at September 30,1998 $3.46 1,186,668
===== =========
</TABLE>
10
<PAGE> 11
NONEMPLOYEE STOCK OPTIONS
Magellan Finance Corporation ("Magellan"), a stockholder, holds an option to
purchase up to 235,789 shares of the Company's common stock at $1.77 per share.
Magellan exercised 117,895 of the options in September 1998. The remaining
117,894 options expire on June 30, 1999. If Magellan does not exercise its
option to purchase the shares, then the Company is obligated to issue the shares
to certain USPLC stockholders at no cost. The Stout Partnership was granted
320,000 options at $2.25 per share in January 1998 in exchange for guaranteeing
the Debt underlying the Line of Credit (see Note 5). Nonemployee stock option
activity in 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF
WEIGHTED AVERAGE OPTIONS
EXERCISE PRICE OUTSTANDING
---------------- -----------
<S> <C> <C>
Outstanding at December 31, 1997 $1.83 255,789
Granted (see Note 6) 2.29 330,000
Exercised 1.77 (117,895)
Canceled 2.50 (20,000)
---- ---------
Outstanding at September 30, 1998 $2.15 447,894
===== =========
Stock options exercisable at September 30, 1998 $2.15 447,894
===== =========
STOCK RESERVED
At September 30, 1998, common stock was reserved for the following:
USPL and CEI contingently issuable shares (see Note 4) 4,573,686
Conversion of Preferred Stock 2,790,852
Non employee stock options 447,894
Employee stock options 1,580,000
Shares and contingently issuable under earnout provisions 367,000
---------
9,759,432
=========
</TABLE>
4. COMMITMENT AND CONTINGENCIES
EARNOUT AGREEMENT
The Company has an earnout agreement which provides for 4,573,686 shares of the
Company's common stock to be reserved for certain USPL 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 and allocated to acquired
intangibles as an additional cost of the reverse merger of Earth Care Global
Holdings, Inc. into USPL in 1996 and the subsequent reverse merger with Clean
Earth, Inc.
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.
5. LINE OF CREDIT AND NEW CREDIT FACILITY
In January 1998, the Company obtained a $4,000,000 increase in its revolving
line of credit bringing the total line of credit to $5,500,000. In connection
with obtaining the line of credit, the Company granted 320,000 nonemployee stock
options, exercisable at $2.25 per share. The $400,000 value of such options is
being amortized as interest over the original 18 month term of the line of
credit. On August 13, 1998 the Bank added $2,000,000 to the line, bringing the
total line to $7,500,000, and extended the maturity date to
11
<PAGE> 12
September 30, 1999. The line bears interest at .50% under the bank's prime rate
and approximately $7,500,000 was outstanding under the line at September 30,
1998.
In October 1998 the Company negotiated a five year line of credit for
$30,000,000 with a division of Southern Pacific Bank. The draws on the line are
collateralized by specific equipment and/or inventory and eligible accounts
receivable. The line bears interest at 1% over prime on inventory and receivable
loans and 1.25% over prime on equipment loans. Loans secured by specific
equipment are payable over 7 years in equal monthly installments with the unpaid
balance due in October 2003. The total costs of obtaining the line aggregating
approximately $825,000 will be amortized over the five year term of the
agreement as interest expense. In October 1998 the Company made draws of
$9,464,000 including $3,339,000 secured by accounts receivable and $6,125,000
secured by specific equipment. The proceeds were used to payoff the PNC Bank
line and approximately $770,000 of loans secured by specific equipment at six
subsidiary locations. Certain equipment loans were left in place for various
business reasons.
6. SEGMENT REPORTING
The Company's sales generating operations are conducted through its Plastic
Lumber Division and its Environmental Recycling Division. The operating results
of the two segments are set forth as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
----------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
Environmental recycling $ 5,569 $ 5,387 $ 21,942 $11,014
Plastic lumber 5,145 3,335 11,447 5,444
------- ------- -------- -------
Total Sales $ 10,714 $ 8,722 $ 33,389 $16,458
======== ======= ======== =======
Operating Income by Segment:
Environmental recycling $ 545 $ 810 $ 2,657 $ 1,872
Plastic lumber 368 16 (283) (287)
Corporate (387) (391) (1,043) (1,055)
------- ------ -------- -------
Total $ 526 $ 435 $ 1,331 $ 530
======= ====== ======== =======
Depreciation and amortization:
Environmental recycling $ 210 $ 48 $ 482 $ 153
Plastic lumber 320 177 715 300
Corporate 42 24 131 135
------ ------- -------- -------
$ 572 $ 249 $ 1,328 $ 588
====== ====== ======== =======
</TABLE>
The identifiable assets and capital expenditures of the respective segments is
set forth below (in thousands):
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
1998 1997
--------- --------
<S> <C> <C>
Identifiable assets:
Environmental recycling $20,061 $ 8,058
Plastic lumber 23,176 15,113
Corporate 679 --
------- -------
$43,916 $23,171
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT 30, ENDED SEPT. 30,
--------------------- ---------------------
1998 1997 1998 1997
------- -------- --------- --------
<S> <C> <C> <C> <C>
Capital Expenditures
Environmental recycling $1,431 $1,069 $ 3,791 $ 1,228
Plastic lumber 922 375 2,451 659
Corporate 3 -- 3 --
------ ------ ------- -------
$2,356 $1,444 $ 6,245 $ 1,887
====== ====== ======= =======
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations for each of the three and
nine month periods ended September 30, 1998 and 1997. This discussion should be
read in conjunction with consolidated financial statements and notes thereto
which are included elsewhere herein.
BUSINESS
The Company has two distinct business lines-manufacturing plastic lumber and
environmental recycling. The Plastic Lumber Division manufactures structural and
non-structural plastic lumber and a variety of accessory products such as park
and site amenities, made from 100% recycled high density polyethylene. The
structural plastic lumber is manufactured under processes that are protected by
patents.
The Environmental Recycling Division provides environmental recycling services
including environmental construction services, upland disposal of dredge
materials, beneficial re-use of industrial wastes, and on-site recycling
services. The Division also operates two plants providing thermal desorption and
bioremediation of soil brought to the plants by third parties as well as its
sister environmental service companies.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses based on
financial and strategic considerations. There were no acquisitions completed
during the three months ended September 30, 1998.
13
<PAGE> 14
COMPARISON OF THE THIRD QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
The following table sets forth revenue with percentages of total revenue, and
sets forth costs of operations, selling, general and administrative expenses and
operating income with percentages of the applicable segment revenue, for each of
the Company's business segments for the periods indicated:
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER 30
--------------------------------------------
1998 % 1997 %
------- ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Sales:
Plastic Lumber $ 5,145 48.0 $ 3,335 38.2
Environmental Recycling 5,569 52.0 5,387 61.8
------- ----- ------- -----
Total sales 10,714 100.0 8,722 100.0
Cost of Sales:
Plastic Lumber 3,217 62.5 2,659 79.7
Environmental Recycling 3,910 70.2 4,017 74.6
Depreciation:
Plastic Lumber 229 4.5 134 4.0
Environmental Recycling 182 3.3 48 0.9
Corporate 2 0.0 2 0.0
Selling, General and Administrative:
Plastic Lumber 1,240 24.1 483 14.5
Environmental Recycling 904 16.2 512 9.5
Corporate 345 3.2 367 4.2
Amortization:
Plastic Lumber 91 1.8 43 1.3
Environmental Recycling 28 0.5 -- --
Corporate 40 0.4 22 0.3
------- ----- ------- -----
Total Operating Expenses 10,188 95.1 8,287 95.0
------- ----- ------- -----
Total Operating Income 526 4.9 435 5.0
Operating Income by Segment
Plastic Lumber 368 7.2 16 0.5
Environmental Recycling 545 9.8 810 15.0
Corporate (387) (3.6) (391) (4.5)
------- ----- ------- -----
Total Operating Income $ 526 4.9 $ 435 5.0
</TABLE>
CONSOLIDATED SALES AND OPERATING INCOME
The Company recognized increases in both sales and operating income for the
third quarter ended September 30, 1998 compared to the third quarter of 1997.
Sales increased $1,992,000 or 23% in the third quarter of 1998 to $10,714,000
from $8,722,000 in the comparable 1997 period. The increase was primarily due to
contributions from acquired companies in both business segments during 1997 and
1998. The Plastic Lumber Division contributed $5,145,000 or 48%, of the total
sales for the third quarter of 1998 compared with 38% in the comparable 1997
quarter.
Operating income increased by $91,000 or 21% during the third quarter of 1998 to
$526,000 from $435,000 in 1997 due primarily to acquired businesses in the
Plastic Lumber Division. The Plastic
14
<PAGE> 15
Lumber Division also improved plant utilization with additional extrusion lines
coming on stream in the third quarter of 1998.
SALES BY SEGMENT
Plastic Lumber Division sales increased 54% to $5,145,000 for the third quarter
of 1998 compared to $3,335,000 in 1997. Revenue of $1,563,000 or 86% of the
total Plastic Lumber sales increase was due to the 1998 acquisitions of CPL, CMI
and Trimax.
Environmental Recycling Division sales increased by $182,000 over the third
quarter of 1997 due to the acquisitions of Waste Concepts, Inc. (WCI) in
November 1997 and GHE in January 1998, the start up of Cartaret Biocycle (CBC)
in July 1998 and the entrance into the beneficial re-use of dredging materials
market during the second quarter of 1998. The aforementioned sales increases
were substantially offset by delays in commencement dates of certain contracts
in its $10 million backlog of environmental construction service contracts.
GROSS PROFIT
Gross profit increased $1,367,000 in the third quarter of 1998 over the third
quarter of 1997. The Plastic Lumber Division gross profit increased by
$1,166,000 and the Environmental Recycling Division gross profit increased by
$201,000. Plastic Lumber contributed 53% of the consolidated gross profit in the
third quarter of 1998 compared with 29% in the third quarter of 1997.
Acquisitions accounted for $523,000 of the $1,166,000 increase in Plastic lumber
gross profit in the third quarter of 1998 and the remaining $643,000 came from
increased capacity and manufacturing efficiencies at existing Plastic Lumber
plants.
Cost of sales (including depreciation) as a percent of Plastic Lumber sales
improved significantly from 84% in the third quarter of 1997 to 67% in the third
quarter of 1998. Profitability improved at all of the Plastic Lumber plants from
actions started in prior quarters including manufacturing efficiencies in the
Tennessee flow mold facility. The capacity in the Wisconsin facility was tripled
since the third quarter of 1997 to meet the increased demand on the Company's
decking and accessory products.
Environmental Recycling cost of sales (including depreciation) improved slightly
as a percent of sales from 76% in the third quarter of 1997 to 74% in the third
quarter of 1998. Businesses acquired or started since the third quarter of 1997
contributed $799,000 of gross profit in the third quarter of 1998. The gross
profit increase from acquired businesses was offset by a $598,000 reduction in
gross profit on environmental construction contracts and soil remediation
services resulting in a $201,000 net increase in Environmental Recycling gross
profit. Gross profits from environmental construction contracts were negatively
impacted by the aforementioned delays in starting several projects.
The Company expects to see increased gross profit levels in environmental
construction services as the Company has already started several of the
contracts in its $10 million backlog of contractual commitments. The opening of
the CBC facility in late June 1998 contributed $379,000 of gross profit in the
third quarter of 1998 and is expected to make an even greater contribution in
the fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A")
Consolidated S,G&A expenses (excluding amortization) increased $1,127,000 or 83%
during the third quarter of 1998 compared to the third quarter of 1997. As a
percentage of sales S,G &A expenses increased to 23% in the third quarter of
1998 from 16% for the same period in 1997. Acquisitions accounted for $623,000
or 55% of the increase with the remaining increase attributed to developing and
maintaining a national sales distribution network for the Plastic Lumber
Division. Corporate administrative expenses improved by $22,000 to 3% of sales
in the third quarter 1998 from $367,000 or 4% of sales in the third quarter of
1997 despite making several acquisitions.
Plastic Lumber Division S,G&A expenses increased $757,000, from 14% of sales in
the third quarter of 1997 to 24% of sales in the third quarter of 1998.
Approximately $532,000 of the increase is attributed
15
<PAGE> 16
to the establishment of a national sales distribution network and centralized
customer service center starting in the fourth quarter of 1997. The remaining
$225,000 of the increase is due to acquisitions.
Environmental Recycling Division S,G&A expenses (excluding amortization)
increased $392,000, from 9% of sales in the third quarter of 1997 to 16% of
sales in 1998. The increase in S,G&A as a percent of revenue was due to
acquisitions with higher expense ratios combined with the aforementioned lower
environmental construction service sales in the third quarter of 1998.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased $229,000 to $413,000 in the third quarter of 1998
compared to $184,000 in the third quarter of 1997 reflecting the increase in
property, plant and equipment from both acquisitions and capital investments.
Amortization expense increased $94,000 to $159,000 in the third quarter of 1998
from $65,000 in the third quarter of 1997 due to goodwill from acquisitions
completed subsequent to the third quarter of 1997.
INTEREST EXPENSE
Interest expense increased $263,000 to $341,000 in the third quarter of 1998
from $78,000 in the third quarter of 1997. This was primarily a result of
increased borrowings from the bank line of credit used to finance acquisitions,
the start up of dredging operations, and Plastic Lumber Division plant expansion
and debt service assumed from businesses acquired during 1997 and 1998. In
addition, the third quarter of 1998 included $58,000 of amortization of the
deferred financing costs to increase the line of credit at PNC Bank in January
of 1998.
16
<PAGE> 17
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
The following table sets forth revenue with percentages of total revenue, and
sets forth costs of sales, depreciation, selling, general and administrative
expenses and amortization along with percentages of the applicable segment
revenue, for each of the Company's business segments for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------
1998 % 1997 %
------- ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Sales:
Plastic Lumber $11,447 34.3 $ 5,444 33.1
Environmental Recycling 21,942 65.7 11,014 66.9
------- ----- ------- -----
Total revenue 33,389 100.0 16,458 100.0
Cost of Sales:
Plastic Lumber 8,210 71.7 4,434 81.4
Environmental Recycling 16,798 76.6 7,594 68.9
Depreciation:
Plastic Lumber 535 4.7 233 4.3
Environmental Recycling 405 1.8 144 1.3
Corporate 9 0.0 9 0.1
Selling, General and Administrative:
Plastic Lumber 2,805 24.5 997 18.3
Environmental Recycling 2,005 9.1 1,395 12.7
Corporate 912 2.7 920 5.6
Amortization:
Plastic Lumber 180 1.6 67 1.2
Environmental Recycling 77 0.4 9 0.1
Corporate 122 0.4 126 0.8
------- ----- ------- -----
Total Operating Expenses 32,058 96.0 15,928 96.8
Total Operating Income 1,331 4.0 530 3.2
Operating Income by Segment
Plastic Lumber (283) (2.5) (287) (5.3)
Environmental Recycling 2,657 12.1 1,872 17.0
Corporate (1,043) (3.1) (1,055) (6.4)
------- ----- ------- -----
Total Operating Income $ 1,331 4.0 530 3.2
</TABLE>
CONSOLIDATED SALES AND OPERATING INCOME
The Company recognized significant increases in both sales and operating income
for the nine months ended September 30, 1998 compared to the first nine months
of 1997. Sales increased 103% for the first nine months of 1998 to $33,389,000
from $16,458,000 in the comparable 1997 period. Of the $16,931,000 increase in
consolidated revenues, approximately $7,109,000 was attributable to acquisitions
completed subsequent to the third quarter of 1997, $4,556,000 to the start up of
dredging operations and the remaining $5,266,000 to internal growth.
17
<PAGE> 18
Consolidated operating income increased by $801,000 or 151% to $1,331,000 for
the first nine months of 1998 compared to $530,000 in the comparable 1997
period. The increase in operating income was due to businesses acquired
subsequent to September 30, 1997, the entrance into the beneficial reuse of
dredge material market in the second quarter and improved Plastic Lumber plant
utilization.
SALES BY SEGMENT
Plastic Lumber Division sales increased by $6,003,000 or 110% to $11,447,000 in
the first nine months of 1998 compared to $5,444,000 during the same period in
1997. Sales by the original plastic lumber companies and companies acquired
before September 30, 1997 increased $3,744,000 to $9,188,000 for the nine months
ended September 30, 1998 from $5,444,000 for the comparable 1997 period. This
69% increase in "same plant" sales is attributable to establishing a network of
"stocking" distributors and selling to the mass merchant market in 1998. The
remaining $2,259,000 of the increase in Plastic Lumber sales was due to the 1998
acquisitions of CPL, CMI and the assets of Trimax.
Environmental Recycling Division sales for the first nine months of 1998 were
$21,942,000 an increase of $10,928,000 or 99% over the $11,014,000 for the first
nine months of 1997. The acquisitions of WCI, GHE and GeoCore, Inc., which the
Company acquired after the third quarter of 1997, contributed $3,933,000 or 36%
of the total increase. The recently constructed CBC facility, which began
treating contaminated soils bio-organically in June 1998, added sales of
$657,000 or 6% of the increase. The entrance of CTI and the Company's Joint
Venture into the beneficial reuse of dredge material market during the second
quarter of 1998 generated $4,556,000 or 42% of the increase. The remaining
$1,782,000 or 16% of the sales increase came from internal growth due to the
vertical integration of newly acquired companies.
GROSS PROFIT
Consolidated gross profit increased $3,443,000 or 85% to $7,496,000 for the nine
months ended September 30, 1998 compared to $4,053,000 in comparable 1997
period. The increase was attributed to the acquired businesses from both
business segments subsequent to the third quarter of 1997 and to the dredging
operations performed during second quarter of 1998. Business units in both
Divisions continued to eliminate and consolidate duplicate operating expenses
during the first nine months of 1998 however, these units continued to incur
certain non-recurring expenses associated with the unit combinations.
Plastic Lumber Division acquisitions in 1998 accounted for $830,000 or 43% of
the $1,934,000 increase in Plastic Lumber Division gross profit in the first
nine months of 1998. Approximately $631,000 or 33% of the increase came from the
original Plastic Lumber operations and the expanded plant capacity. The
remaining $473,000 or 24% of the increase in gross profit came from Plastic
Lumber acquisitions completed in the first nine months of 1997.
Environmental Recycling Division acquisitions after September 30, 1997 accounted
for $986,000 or 65% of the $1,509,000 increase in gross profit in the first nine
months of 1998 over the same period of 1997. The opening of the CBC facility in
late June 1998 contributed $379,000 of gross profit and the new dredging
operations contributed $578,000 to gross profit for the first nine months of
1998. The soil remediation and environmental construction service companies'
gross profit was $434,000 lower due to the aforementioned third quarter delays
in the commencement dates of certain contracts in the $10 million backlog of
environmental construction service contracts.
Cost of sales (including depreciation) as a percent of Plastic Lumber sales
improved significantly from 86% in the first nine months of 1997 to 76% in 1998.
Profitability improved at all of the Lumber plants from actions started in prior
quarters including implementing manufacturing efficiencies in the Tennessee flow
mold facility and tripling the capacity of the Wisconsin facility. The Plastic
Lumber Division expects continued improvement in gross profit margins with the
national distribution network for residential products, the expansion into
industrial products, the addition of structural lumber and the further
development of railroad ties.
18
<PAGE> 19
Environmental Recycling Division cost of sales (including depreciation)
increased as a percent of sales from 70% in the first nine months of 1997 to 78%
in 1998. The higher gross margins from Environmental Recycling Division
acquisitions was more than offset by the lower gross profit margins on
environmental construction contracts. The Environmental Recycling Division
expects to improve gross profit levels in environmental construction services
and an even greater gross margin contribution from the CBC facility in the
fourth quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A")
Consolidated S,G&A expenses increased $2,410,000 or 73% to $5,722,000 for the
first nine months of 1998 from $3,312,000 in the comparable 1997 period.
However, as a percentage of consolidated sales. S,G&A expenses improved from 20%
for the first nine months of 1997 to 17% in the comparable 1998 period.
Efficiencies in the Environmental Recycling Division more than offset Plastic
Lumber costs incurred to establish a national sales distribution network. Also,
Corporate administrative expenses improved to 3% of sales in the first nine
months of 1998 from 6% in the comparable 1997 period despite making several
acquisitions.
Plastic Lumber S,G&A expenses increased $1,808,000 or 181% for the first nine
months of 1998 compared to the first nine months of 1997.. Acquisitions made
since the beginning of 1997 accounted for $626,000 or 35% of the Plastic Lumber
increase. Plastic Lumber S,G&A as a percent of sales increased from 18% in the
first nine months of 1997 to 25% in 1998. The Plastic Lumber Division incurred
significant expenses developing and maintaining a national sales distribution
network and a centralized customer service center. These expenses included
adding a Vice President of Sales, regional sales and product line managers as
well as personnel for customer service. The Plastic Lumber Division also
incurred significant advertising, trade show and travel expenses to increase the
Company's sales coverage and to integrate acquired manufacturing operations with
existing manufacturing plants. The Plastic Lumber Division also continued to
invest in research and engineering to commercialize the structural lumber and
railroad tie product lines.
Environmental Recycling Division S,G&A expenses improved from 13% of related
revenue in the first nine months of 1997 to 9% in the comparable 1998 period,
despite making several acquisitions and starting up the dredging operations.
INTEREST EXPENSE
Interest expense increased $591,000 to $731,000 for the nine months ended
September 30, 1998 over the same period in 1997. The increase is the result of
increased borrowings from the bank line of credit to finance acquisitions, the
start up of dredging operations and additional Plastic Lumber plant capacity. It
also includes debt service assumed from businesses acquired during 1997 and 1998
and $178,000 of amortization of deferred financing costs of increasing the line
of credit at PNC Bank in December of 1997. Total debt (including amounts owed to
affiliates) increased by $10,582,000 or 288% from $3,675,000 at September 30,
1997 to $14,258,000 at September 30, 1998. Excluding the $178,000 amortization
of deferred financing costs, interest expense increased by $412,000 or 292%
which is proportional to the increase in total debt.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased $563,000 or 146% during the first nine months of
1998 compared to the same period in 1997 reflecting the increase in plant and
equipment from both acquisitions and continued capital investments. Amortization
expense increased $177,000 for the first nine months of 1998 over the comparable
1997 period, due to goodwill from acquisitions completed during 1997 and the
first nine months of 1998.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $61,065 a decrease of $1,110,000 from December
31, 1997 to September 30, 1998. cash used in operating activities was
$5,630,000. The significant increase in revenues during the last 2 quarters
resulted in a significant increase in accounts receivable and Plastic Lumber
inventories. The Company used $1,110,000 of cash and the line of credit with PNC
Bank to finance the increase in accounts receivable and inventories in excess of
the increase in accounts payable and accrued expenses. The Company also used the
line of credit to fund development of the dredge soil reclamation site and the
working capital needed to start up the dredging operations of both Consolidated
Technologies and the Joint Venture.
Cash used in investing activities was primarily for capital expenditures. The
Environmental Recycling Division made capital expenditures totaling $3,791,000
including $2,212,000 for the Carteret Biocycle facility, $639,000 for dredge
material handling and mixing equipment, $516,000 for environmental construction
service equipment and $349,000 to improve its Delaware soil remediation plant.
The Plastic Lumber Division used $2,451,000 to purchase machinery and equipment
to expand capacity at the Wisconsin, Indiana and Tennessee manufacturing
facilities and to establish structural lumber and railroad tie production lines
in its Tennessee facility. The Company also used a total of $2,761,000 to
acquire companies with plant & equipment valued at $2,561,000.
Cash provided by financing activities totaled $13,526,000, including $7,275,000
of net additional debt and $6,251,000 of equity financing. Proceeds from new
borrowings totaled $9,401,000 including $443,000 (net of a $2,400,000 repayment)
from affiliates, $778,000 from an equipment leasing company, $736,000 from an
insurance premium financing company, $550,000 from state governmental agencies
and $340,000 financing for equipment. The remaining $6,554,000 was primarily
drawn from the PNC Bank expanded and extended line of credit. Repayments of
notes payable totaled $1,919,000 and included paying $456,000 of debt assumed in
acquisitions. Equity financing included $2,291,000 in proceeds from the exercise
of A warrants and $3,948,000, net of expenses, from a Private Placement of
Series B Preferred Stock, primarily during the second quarter of 1998.
In January 1998, the Company obtained a $4,000,000 increase in its line of
credit from PNC Bank to $5,500,000 with repayment originally due on June 30,
1999. The line was secured by certain assets of the Company and personal
guarantees of members of Stout Partnership. In addition to the personal
guarantees, the individual members of the partnership pledged $2,000,000 in cash
and securities to PNC Bank on behalf of the Company. August C. Schultes, III,
and Gary J. Ziegler, both directors of the Company, are individual partners in
Stout Partnership. Mark S. Alsentzer, Chairman and President of the Company is
also an individual partner in Stout Partnership. The line was increased to
$7,500,000 and the term extended to September 30, 1999 in the third quarter of
1998. As of September 30, 1998, the Company had borrowed a total of $7,499,000
against the PNC line of credit. The proceeds were used primarily to fund
development of the dredge soil reclamation site, continued investments in the
Carteret Biocycle plant and working capital needed for significant increases in
sales. In October 1998 the PNC Bank line was paid off with proceeds from the $30
million asset based line from a division of Southern Pacific Bank.
In March 1998, the Company secured financing from an equipment leasing company
for six plastic extruder lines to increase plant capacity at the Wisconsin
plastic lumber manufacturing facility. A total of $778,000 of equipment was
financed at 8.6% interest with payment due in 60 equal monthly installments of
$15,470, including interest, and a final payment of $38,900. Payments commenced
in July and the capitalized lease is secured by the related equipment at the
Wisconsin plant.
In July 1998, the Company completed a Series B Preferred Stock Offering. The
Company raised $3,947,632, net of expenses totaling $483,368, from the sale of
211,020 shares of Series B Preferred Stock at $21.00 per share. The Series B
Preferred Stock has a cumulative 10% stock dividend and each preferred share is
convertible into seven common shares.
In July 1998, the Company obtained loans totaling $550,000 from state
governmental agencies secured by dredge material mixing equipment at the soil
reclamation site in Pennsylvania. The loans are secured by the equipment and are
payable over 5 years with interest at 5% on $300,000 and at 5.5% on $250,000.
The company also financed $340,000 of loading equipment at the CBC plant with an
equipment financing company. The loan is payable over 3 years with interest at
6%.
The Company will require additional working capital for the environmental
recycling operations, especially for the dredging opportunities being pursued by
the Company. Although, there are no material
20
<PAGE> 21
commitments in place currently for capital expenditures, the Company also
anticipates requiring additional working capital to expand and upgrade its
plastic lumber manufacturing facilities as sales levels increase and as the
structural lumber and railroad tie products begin to take hold within their
markets. The Company also anticipates using working capital to fund research and
development costs with respect to its new products.
The Company continues to seek acquisition candidates that can be vertically
integrated into either the recycled plastic lumber or environmental recycling
operations. In the recycled plastic lumber operation, targeted companies include
manufacturers and distributors of recycled plastic products as well as raw
material regrind operations. In the environmental recycling operation, targeted
companies include soil recycling companies and construction companies involved
in on-site clean-up and companies with specialized technologies for beneficial
reuse of dredge material, ash and biosolids.
In October 1998 the Company completed negotiations on a $30 million credit
facility with a division of Southern Pacific Bank (see note 5 to the
accompanying financial statements). The revolving credit portion of the line is
secured by eligible accounts receivable and inventories. Specific long-term
assets have been pre-approved and will be pledged as collateral in direct
relation to funds drawn against the line. In October 1998 the Company used this
line to pay off the aforementioned PNC Bank line and $690,000 of notes payable
secured by equipment at six subsidiary locations. The additional unused portion
of the line will be used to expand existing operations, increase working capital
and to finance acquisitions.
The Company believes that the revolving credit facility, the funds expected to
be generated from operations and possible private equity offerings will provide
adequate cash to fund the Company's working capital and other cash needs for the
foreseeable future.
SEASONALITY
The Company experiences a seasonal slow down during the winter months because
its environmental operations are located in the Northeast United States where
adverse weather and normal ground freeing can impact the Company's performance.
Additionally, sales of certain plastic lumber products slow significantly in the
winter months.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 (the
"Year 2000 Issue"). The Company's accounting software is year 2000 compliant at
all subsidiaries except three. The Company plans to upgrade those three
subsidiaries' systems to a Year 2000 compliant system in 1999. The Company is
in the process of conducting an internal audit of its non-information
technology systems (e.g. manufacturing equipment imbedded computer systems) and
its major customers and vendors to determine what issues, if any, exist. Upon
completion of its internal audit, the Company will evaluate the full scope of
issues, related costs, and available remedies to insure the Company's
non-information technology systems and those of its major customers and vendors
continue to meet its internal needs. Anticipated costs for system and software
modifications, if any, will be expensed as incurred.
Based on its preliminary review, the Company does not anticipate a material
financial impact as a result of the Year 2000 Issue nor does it anticipate any
material financial expenditures to remedy the Year 2000 date change within its
own software. However, the Company has no control over Year 2000 compliance by
the customers and vendors of the Company. If the Company's customers and vendors
are not in Year 2000 compliance, this could provide a material adverse financial
impact to the Company, however the Company believes it is unlikely based on the
nature of its business, customers and vendors.
RECENT ACCOUNTING PRONOUNCEMENTS
Set forth below are recent accounting pronouncements which may have a future
effect on the Company's financial reports and disclosures. These pronouncements
should be read in conjunction with the
21
<PAGE> 22
significant accounting policies which are set forth in the notes to the
Company's annual consolidated financial statements included in its Form 10-KSB
filed with the Securities and Exchange Commission.
In June 1997, FASB issued SFAS No. 131 "DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION". SFAS No. 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to stockholders. See note 6 to the financial
statements.
SFAS No. 131 also requires that public business enterprises report certain
information about their products and services, the geographical areas in which
they operate and their major customers. The Company intends to provide any
additional information required in its annual financial statements. However, the
Company does not believe that implementing this pronouncement will have a
significant impact on its financial statement presentation or disclosures.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
From time to time, the Company is involved as plaintiff or defendant in various
legal proceedings arising in the normal course of its business. While the
ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's financial position,
results of operations or liquidity.
Item 2. Changes in Securities and Use of Proceeds
Issuances of unregistered shares during the three months ended September 30,
1998 are as follows:
On July 7, 1998, the Company issued 5,000 shares of common stock to a former
executive officer in exchange for $12,500 pursuant to a stock option grant in
1996.
On July 30, 1998, the Company issued 10,017 shares of common stock to a
preferred shareholder who decided to convert 1,431 shares of Series A Preferred
Stock.
On August 12, 1998, the Company issued 50,001 shares of common stock to a
preferred shareholder who decided to convert 7,143 shares of Series B Preferred
Stock.
22
<PAGE> 23
On August 17, 1998, the Company issued 3,200 shares of common stock to an
employee as an employment incentive bonus.
On September 4, 1998, the Company issued 2,833 shares of common stock to a
former employee in settlement of litigation against the Company.
On September 15, 1998, the Company issued 30,000 shares of common stock to a
financial consultant as compensation for consulting services to be performed
over a three month period.
On September 23, 1998, the Company issued 283,339 shares of common stock to a
preferred shareholder who decided to convert 40,477 shares of Series B Preferred
Stock.
On September 30, 1998, the Company issued 117,895 shares of common stock to a
shareholder in exchange for $208,674 pursuant to the exercise of a 1996 stock
option grant.
The Series A and Series B Convertible Preferred Stock and the underlying common
stock were registered with the SEC effective July 22, 1998.
All of the other transactions were not registered under the Securities Act of
1933 in reliance on the exemption from registration in Section 4(2) of the Act,
as transactions not involving any public offering. These offerings were
completed without any general or public solicitation. In each case the offering
was done to a very limited number of officers, directors and shareholders of the
companies being acquired. The officers, directors and few shareholders had
strong knowledge and experience in business matters as well as pre-existing
business relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment. The
securities issued in all of the foregoing transactions 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
from registration.
The cash proceeds totaling $221,174 from two of these transactions will be used
for general corporate purposes.
Item 5. Other Information
Pursuant to recent amendments to the proxy rules under the Securities Exchange
Act of 1934, as amended, (the "Exchange Act"), the Company's stockholders are
notified that the deadline for providing the Company timely notice of any
stockholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at the Company's 1999 Annual Meeting of Stockholders (the "Annual
Meeting") will be March 15, 1999. As to all such matters which the Company does
not have notice on or prior to March 15, 1999, discretionary authority shall be
granted to the persons designated in the Company's proxy related to the Meeting
to vote on any such proposal. This change in procedure does not affect the Rule
14a-8 requirements applicable to inclusion of stockholder proposal in the
Company's proxy materials related to the Meeting. A stockholder proposal
regarding the Meeting must be submitted to the Company at its office located at
2300 Glades Road, Suite 440W, Boca Raton, FL 33431, by December 29, 1998, to
receive consideration for inclusion in the Company's 1999 proxy materials. Any
such proposal must also comply with the proxy rules under the Exchange Act,
including Rule 14a-8.
23
<PAGE> 24
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Coast Business Credit Loan and Security Agreement
27.1 Financial Data Schedule for the nine months ended September
30, 1998
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ Mark S. Alsentzer
------------------------------
Mark S. Alsentzer, Chairman
CEO and President
/s/ Michael D. Schmidt
-------------------------------
Michael D. Schmidt, Chief
Financial Officer
24
<PAGE> 1
Exhibit 4.1
Coast
LOAN AND SECURITY AGREEMENT
Borrower: RPI Acquisition Corporation Masters Corporation Corporation
Care Products of Tennessee, Inc. Plastic Lumber Company, Inc.
Care Products of Midwest, Inc. Specialty Products, Inc. Earth
of New Castle, Inc. Biocycle Corporation Technologies, Inc.
Acquisition Corporation Concepts, Inc. Horizon Environmental,
Inc. Technical Services, Inc.
Address: 2300 Glades Road, Suite 440 W
Boca Raton, Florida 33431
Date: September ____, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrower(s) named above (JOINTLY AND SEVERALLY, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 1 below.
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General
Intangible.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and records
and the Collateral. "Borrower" has the meaning set forth in the introduction to
this Agreement.
"Borrower's Address" has the meaning set forth in the introduction to
this Agreement.
"Business Day" means a day on which Coast is open for business.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
<PAGE> 2
election of directors or analogous governing body, provided that mergers between
one or more of the Borrowers or with any Guarantor (as defined in the Schedule)
with 30 days prior written notice to Coast shall not be deemed a Change of
Control.
"Clean Earth" shall mean Clean Earth, Inc., Clean Earth of New Castle,
Inc., Carteret Biocycle Corporation, Consolidated Technologies, Inc., GCI
Acquisition Corporation, Waste Concepts, Inc., Green Horizon Environmental,
Inc., Integrated Technical Services, Inc.
"Closing Date" date of the initial funding under this Agreement.
"Coast" has the meaning set forth in the introduction to this
Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Consolidated Tangible Net Worth" means consolidated shareholder's
equity, less goodwill, patents, trademarks, copyrights, franchises, formulas,
leasehold interests, leasehold improvements, non-compete agreements, engineering
plans, deferred tax benefits, organization costs, prepaid items and any other
assets of U.S. Plastic Lumber Corporation that would be treated as intangible
assets on U.S. Plastic Lumber Corporation's balance sheet prepared in accordance
with GAAP.
"Credit Limit" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the
Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"Excess Cash Flow" shall mean Operating Cash Flow/Permitted less each
of (i) Total Contractual Debt Service (as defined in the Schedule); and (ii)
cash dividends actually paid, to the extent permitted hereunder.
"Eligible Foreign Receivables" means Receivables arising from
Borrower's customers located outside the United States which Coast otherwise
approves for borrowing in its sole and absolute discretion. Without limiting the
foregoing, Coast will consider the following in determining the eligibility of
such receivables: (i) whether the Borrower's goods are shipped backed by an
irrevocable letter of credit satisfactory to Coast (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to Coast and is
directly drawable by Coast, or (ii) whether the Borrower's customer is a large
or rated company having a verifiable credit history, or (iii) whether Borrower's
customer is a foreign subsidiary of a customer of Borrower that is a company
that was formed and has its primary place of business within the United States,
or (iv) whether Borrower's customer is a large foreign corporation, or (v)
whether Borrower's customer is a foreign company with a Dun & Bradstreet rating
acceptable to Coast in its discretion, or (vi) whether Borrower's goods are
shipped to a company that has credit insurance acceptable to Coast in its
discretion.
"Eligible Inventory" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of raw material or finished
goods, in good, new and salable condition which is not perishable, not obsolete
or unmerchantable, and is not comprised of work in process, packaging materials
or supplies; (ii) meets all applicable governmental standards; (iii) has been
manufactured in compliance with the Fair Labor Standards Act; (iv) conforms in
all respects to the warranties and representations set forth in this Agreement;
(v) is at all times subject to Coast's duly perfected, first priority security
interest; and (vi) is situated at a one of the locations set forth on the
Schedule.
"Eligible Receivables" means Receivables and Eligible Foreign
Receivables arising in the ordinary course of Borrower's business from the sale
of goods or rendition of services, which Coast, in its sole judgment, shall
<PAGE> 3
deem eligible for borrowing, based on such considerations as Coast may from time
to time deem appropriate. Eligible Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay
within 90 days (120 days for Clean Earth Receivables and Eligible Foreign
Receivables and 120 days for U.S. government Receivables if there has been
compliance with the Federal Assignment of Claims Act) of invoice date or
Accounts with selling terms of more than 60 days, or with respect to dating
Receivables, subject to a sublimit of $1,500,000 and which are otherwise
acceptable to Coast in its discretion reasonable exercised, Receivables for
which the Account Debtor has failed to pay within 30 days past due date not to
exceed 150 days from invoice date;
(b) Receivables owed by an Account Debtor or its Affiliates
where twenty five percent (25%) or more of all Receivables owed by that Account
Debtor (or its Affiliates) are deemed ineligible under clause (a) above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional or Receivables which are subject to bonding;
(e) Receivables, other than Eligible Foreign Receivables, that
are not payable in Dollars or with respect to which the Account Debtor: (i) does
not maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State thereof, or (iii) is
the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Receivable is supported by an irrevocable letter of credit satisfactory
to Coast (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Coast and is directly drawable by Coast, or (z) the
Receivable is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Coast;
(f) Receivables with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Receivables owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower in the aggregate exceed twenty five percent (25%)
of all Eligible Receivables or owing to any individual Borrower in excess of
thirty percent (30%) of all Eligible Receivables owing to such individual
Borrower, to the extent of the obligations owing by such Account Debtor in
excess of such percentage. In order to exceed the above referenced limits,
Borrower must obtain the prior written approval of Coast, which approval is
subject to the discretion of Coast on an Account Debtor by Account Debtor basis;
(i) Receivables with respect to which the Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation proceeding, or becomes insolvent, or goes
out of business;
(j) Receivables the collection of which Coast, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Receivables with respect to which the goods giving rise to
such Receivable have not been shipped and billed to the Account Debtor, the
services giving rise to such Receivable have not been performed and accepted by
the Account Debtor, or the Receivable otherwise does not represent a final sale;
(l) Receivables with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower
<PAGE> 4
has qualified to do business in New Jersey, Minnesota, Indiana, West Virginia,
or such other states, or has filed a Notice of Business Activities Report with
the applicable division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement; and
(m) Receivables that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services unless Coast has obtained a no
offset letter from the account debtor in form and substance acceptable to Coast
in its discretion.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Equipment Acquisition Loans" means the Loans described in Section 2(d)
of the Schedule.
"Event of Default" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, investment property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
of the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Inventory Loans" means the Loans described in Section 2(b) of the
Schedule.
"Investment Property" has the meaning set forth in Section 9115 of the
Code as in effect as of the date hereof.
"Loan Documents" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any
<PAGE> 5
party in connection herewith, or the rights or remedies of Coast hereunder or
thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of the
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of
the Schedule.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"Operating Cash Flow/Permitted" means, for any period, U.S. Plastic
Lumber Corporation's net income or loss (excluding the effect of any
extraordinary gains or losses), determined in accordance with GAAP, plus or
minus each of the following items, to the extent deducted from or added to the
revenues in the calculation of net income or loss: (i) depreciation; (ii)
amortization and other non-cash charges; (iii) interest expense paid or accrued;
and (iv) total federal and state income tax expense determined as the accrued
liability in respect of such period, regardless of what portion of such expense
has actually been paid during such period, and after deduction for each of (a)
federal and state income taxes, to the extent actually paid during such period;
(b) any non-cash income; and (c) all permitted capital expenditures actually
made during such period and not financed.
"Permitted Liens" means the following:
(n) purchase money security interests in specific items of
Equipment;
(o) leases of specific items of Equipment;
(p) liens for taxes not yet payable;
(q) additional security interests and liens consented to in
writing by Coast, which consent shall not be unreasonably withheld;
(r) security interests being terminated substantially
concurrently with this Agreement;
(s) liens of materialmen, mechanics, warehousemen, carriers,
or other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(t) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described above
in clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(u) liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute
therefor of
<PAGE> 6
the Bank of America NT & SA whether or not that rate is the lowest interest rate
charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"Real Property" means Carteret Biocycle Corporation's facility on
leased land located at 34 Middlesex Ave, Carteret, New Jersey.
"Receivable Loans" means the Loans described in Section 2(a) of the
Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is
renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that
this Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal
of this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Term Loan" means the Loans described in Section 2(c) of the Schedule.
"Year 2000 Problem" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"Other Terms" All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 Loans. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time
<PAGE> 7
to time, Borrower shall pay Coast Minimum Monthly Interest during the term of
this Agreement with respect to the Receivable Loans and the Inventory Loans in
the amount set forth on the Schedule.
3.2 Fees. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the first advance
of funds hereunder, of each, every and all of the following conditions:
5.1 Status of Accounts at Closing. No accounts payable shall be due and
unpaid one hundred twenty (120) days past its due date except for such accounts
payable being contested in good faith in appropriate proceedings and for which
adequate reserves have been provided.
5.2 Minimum Availability. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 Landlord Waiver. Coast shall have received duly executed
(a) landlord waivers and access agreements in form and
substance satisfactory to Coast, in Coast's sole and absolute discretion, and,
when deemed appropriate by Coast, in form for recording in the appropriate
recording office, with respect to all leased locations where Borrower maintains
any inventory or equipment.
(b) warehouse waivers in form and substance satisfactory to
Coast, in Coast's sole and absolute discretion, and when deemed appropriate by
Coast, in form for recording in the appropriate recording office, with respect
to all warehouse locations where Borrower maintains any inventory or equipment.
5.4 Real Property. Coast shall have received duly executed mortgages and/or
deeds of trust in form and substance satisfactory to Coast, in Coast's sole and
absolute discretion, in form for recording in the appropriate recording office,
with respect to the Real Property.
5.5 Executed Agreement. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.6 Opinion of Borrower's Counsel. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.7 Priority of Coast's Liens. Coast shall have received the results of "of
record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.8 Insurance. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.
5.9 Borrower's Existence. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
<PAGE> 8
5.10 Organizational Documents. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.11 Taxes. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.
5.12 Due Diligence. Coast shall have completed its due diligence with
respect to Borrower.
5.13 Year 2000 Problem Assessment Certificate. Coast shall have received a
certificate from the relevant officer of Borrower to the effect that Borrower
knows of no facts which would cause Borrower to reasonably believe that the Year
2000 Problem will cause a Material Adverse Effect. Without limiting the
foregoing, Borrower hereby represents that its computer systems, software and
applications will be Year 2000 compliant by April 1, 1999 and that it will
complete its assessments of Year 2000 compatibility of its vendors and
customer's by June 30, 1999.
5.14 Other Documents and Agreements. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
6.1 Existence and Authority. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule. Any
additional location for which Coast has received notice hereunder shall be
deemed added to the Schedule provide that Coast has a first priority security
interest in the assets at such location.
<PAGE> 9
6.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
6.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower,
<PAGE> 10
including, but not limited to, the Fair Labor Standards Act, and those relating
to Borrower's ownership of real or personal property, the conduct and licensing
of Borrower's business, and environmental matters.
6.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
7. RECEIVABLES.
7.1 Representations Relating to Receivables. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct in all material respects and
all such invoices, instruments and other documents and all of Borrower's books
and records are and shall be genuine and in all respects what they purport to
be. All sales and other transactions underlying or giving rise to each
Receivable shall fully comply with all applicable laws and governmental rules
and regulations. All signatures and indorsements on all documents, instruments,
and agreements relating to all Receivables are and shall be genuine, and all
such documents, instruments and agreements are and shall be legally enforceable
in accordance with their terms.
7.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to Coast via facsimile, unless otherwise directed by Coast, at such locations
and at such intervals as Coast may request, transaction reports and loan
requests, schedules of Receivables, and schedules of collections, all on Coast's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Coast's security interest and other
rights in all of Borrower's Receivables, nor shall Coast's failure to advance or
lend against a specific Receivable affect or limit Coast's security interest and
other rights therein. Loan requests received after 10:30 A.M. Los Angeles,
California time, will not be considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition, Borrower
shall deliver to Coast the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary indorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred. Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast,
<PAGE> 11
to be applied to the Obligations in such order as Coast shall determine. Coast
may, in its discretion, require that all proceeds of Collateral be deposited by
Borrower into a lockbox account, or such other "blocked account" as Coast may
specify, pursuant to a blocked account agreement in such form as Coast may
specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables, provided in the
absence of the occurrence and continuance of an Event of Default after any cure
period has expired, Coast will give the form of written notice to Borrower which
it proposes to send to any Account Debtor at least two Business Days prior to
such notice actually being sent to such Account Debtor(s). Borrower may give
Coast during such two Business Day period suggestions on the form of such
notice, which suggestion however shall not be binding on Coast.
7.5 Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
7.6 Disputes. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables in excess of $2,500. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower may
do so, provided that: (a) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Coast on the regular reports provided to
Coast; (b) no Default or Event of Default has occurred and is continuing; and
(c) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit. Coast may, at any time
after the occurrence of an Event of Default, settle or adjust disputes or claims
directly with Account Debtors for amounts and upon terms which Coast considers
advisable in its reasonable credit judgment and, in all cases, Coast shall
credit Borrower's Loan account with only the net amounts received by Coast in
payment of any Receivables.
7.7 Returns. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (a) hold the returned Inventory in trust for
Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.8 Verification. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.9 No Liability. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
<PAGE> 12
8.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 Reports. Borrower, at its expense, shall provide Coast with the written
reports set forth in Section 8 of the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating plans
and other financial documentation), as Coast shall from time to time reasonably
specify. 8.4 Access to Collateral, Books and Records. At reasonable times but
not less frequently than quarterly and on one (1) Business Day's notice, Coast,
or its agents, shall have the right to perform Audits. Coast shall take
reasonable steps to keep confidential all confidential information obtained in
any Audit, but Coast shall have the right to disclose any such information to
its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena
or other legal process. The Audits shall be at Borrower's expense and the charge
for the Audits shall be Seven Hundred Fifty Dollars ($750) per person per day
(or such higher amount as shall represent Coast's then current standard charge
for the same), plus reasonable out-of-pocket expenses. Borrower will not enter
into any agreement with any accounting firm, service bureau or third party to
store Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that this material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will on a timely basis, adequately and
completely address the Year 2000 Problem in all material aspects.
8.5 Negative Covenants. Borrower shall not, without Coast's prior written
consent (which as to clause (b) below only shall be based on Coast's reasonable
business judgment), do any of the following:
(a) merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least fifty percent
(50%) of the ownership interest in the surviving entity immediately after such
merger or consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of the amount set forth in Section 8 of
the Schedule;
(c) enter into any other transaction outside the ordinary
course of business;
(d) sell or transfer any Collateral, except for the sale of
finished Inventory in the ordinary course of Borrower's business, and except for
the sale of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any
warehouseman or other third party unless Coast has obtained a waiver in form
satisfactory to Coast;
(f) sell any Inventory on
<PAGE> 13
a sale-or-return, guaranteed sale, consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i)
advances to customers or suppliers in the ordinary course of business, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business,
which would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity provided that unsecured guaranties by one
individual Borrower of another individual Borrower in which the guaranteed
amount is less than $500,000 shall not be prohibited hereunder and Coast will
consider increases to the $500,000 threshold in its discretion, reasonably
exercised;
(j) pay or declare any dividends or distributions on the
ownership interests in Borrower (except for dividends or distributions payable
solely in stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which
would have a Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.
8.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 Further Assurances. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 Maturity Date. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred twenty (120) days prior to the Maturity Date or
the next Renewal Date, that such party elects to terminate this Agreement
effective on the Maturity Date or such next Renewal Date. If this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on the Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.
9.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of
<PAGE> 14
Coast, nor shall any such termination relieve Borrower of any Obligation to
Coast, until all of the Obligations have been paid and performed in full. Upon
payment and performance in full of all the Obligations and termination of this
Agreement, Coast shall promptly deliver to Borrower termination statements,
requests for reconveyances and such other documents as may be required to fully
terminate Coast's security interests.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence of any of the following events by any
one or more of the Borrowers shall constitute an "Event of Default" under this
Agreement, and Borrower shall give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading and results in a Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any
interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any
time shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral
to Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within fifteen (15) days after the occurrence of
the same; or
(h) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation,
which has or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or
business failure of Borrower or any guarantor of any of the Obligations; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within sixty
(60) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination agreement; or
(o) except as permitted
<PAGE> 15
under Section 8.5(a), Borrower shall suffer or experience any Change of Control
without Coast's prior written consent, which consent shall be in the discretion
of Coast in the exercise of its reasonable business judgment; or
(p) Borrower shall generally not pay its debts as they become
due, or Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(q) there shall be any Material Adverse Effect. Coast may
cease making any Loans or extending any credit hereunder during any of the above
cure periods.
10.2 Remedies. Upon the occurrence, and during the continuance of
any Event of Default, and subsequent to any cure periods, Coast, at its option,
and without notice or demand of any kind (all of which are hereby expressly
waived by Borrower), may do any one or more of the following:
(a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations
to be immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever
it may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Coast deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Coast seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral
and make it available to Coast at places designated by Coast which are
reasonably convenient to Coast and Borrower, and to remove the Collateral to
such locations as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Coast's
benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of,
<PAGE> 16
and collect any Receivables and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Coast to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value;
and
(h) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in connection
with bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional three percent per annum.
10.3 Standards for Determining Commercial Reasonableness. Borrower
and Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least five (5)
days prior to the sale, and, in the case of a public sale, notice of the sale is
published at least five (5) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with
or without the Collateral being present if otherwise commercially reasonable to
do so;
(d) The sale commences at any time between 8:00 a.m. and 6:00
p.m. Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's
check or wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast
may (but is not obligated to) direct any prospective purchaser to ascertain
directly from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 Power of Attorney. Borrower grants to Coast an irrevocable
power of attorney coupled with an interest, authorizing and permitting Coast
(acting through any of its employees, attorneys or agents) at any time, at its
option, but without obligation, with or without notice to Borrower, and at
Borrower's expense, to do any or all of the following, in Borrower's name or
otherwise, but Coast agrees to exercise the following powers in a commercially
reasonable manner and, as to clauses (b), (c), (f), (g) and (h), such powers
shall only be exercised after the occurrence and during the continuance of an
Event of Default (and subsequent to any cure periods) or if Coast is then
directly collecting the Receivables;
(a) Execute on behalf of Borrower any documents that Coast
may, in its sole discretion, deem advisable in order to perfect and maintain
Coast's security interest in the Collateral, or in order to exercise a right of
Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to
any Receivable, any draft against any Account Debtor and any notice to any
Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items
of
<PAGE> 17
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received
by Coast;
(f) Pay, contest or settle any lien, charge, encumbrance,
security interest and adverse claim in or to any of the Collateral, or any
judgment based thereon, or otherwise take any action to terminate or discharge
the same;
(g) Grant extensions of time to pay, compromise claims and
settle Receivables and General Intangibles for less than face value and execute
all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any
books or records belonging to, or relating to, Borrower to give Coast the same
rights of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower
pursuant to this Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney or
any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 Application of Proceeds. All proceeds realized as the result
of any sale of the Collateral shall be applied by Coast first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 Remedies Cumulative. In addition to the rights and remedies
set forth in this Agreement, Coast shall have all the other
<PAGE> 18
rights and remedies accorded a secured party in equity, under the Code, and
under all other applicable laws, and under any other instrument or agreement now
or in the future entered into between Coast and Borrower, and all of such rights
and remedies are cumulative and none is exclusive. Exercise or partial exercise
by Coast of one or more of its rights or remedies shall not be deemed an
election, nor bar Coast from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Coast to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
indefeasibly paid and performed.
11. GENERAL PROVISIONS.
11.1 Interest Computation. In computing interest on the
Obligations, all checks, wire transfers and other items of payment received by
Coast (including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations three (3)
Business Days after receipt by Coast of immediately available funds, and, for
purposes of the foregoing, any such funds received after 10:30 AM Los Angeles,
California time, on any day shall be deemed received on the next Business Day.
Coast shall be entitled to charge Borrower's account for such three (3) Business
Days of "clearance" or "float" at the rate(s) set forth in Section 3 of the
Schedule on all checks, wire transfers and other items received by Coast,
regardless of whether such three (3) Business Days of "clearance" or "float"
actually occur, and shall be deemed to be the equivalent of charging three (3)
Business Days of interest on such collections. This across-the-board three (3)
Business Day clearance or float charge on all collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Coast's financing of
Borrower. Coast shall not, however, be required to credit Borrower's account for
the amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 Application of Payments. Subject to Section 7.5 hereof, all
payments with respect to the Obligations may be applied, and in Coast's sole
discretion reversed and re-applied, to the Obligations, in such order and manner
as Coast shall determine in its sole discretion.
11.3 Charges to Accounts. Coast may, in its discretion, require
that Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest from the date
due to the date paid at the same rate applicable to the Loans.
11.4 Monthly Accountings. Coast shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within forty five (45) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 Notices. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 Severability. Should any provision of this Agreement be held
by any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in full
force and effect.
11.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and
<PAGE> 19
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
11.8 Waivers. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 No Liability for Ordinary Negligence. Neither Coast, nor any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Coast, or any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast, but nothing herein shall relieve Coast
from liability for its own gross negligence or willful misconduct.
11.10 Amendment. The terms and provisions of this Agreement may not
be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 Attorneys Fees, Costs and Charges. Borrower shall reimburse
Coast for all attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Coast, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in
order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned checks
and for wire transfers, in effect from time to time. All attorneys' fees, costs
and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 Benefit of Agreement. The provisions of this Agreement shall
be binding
<PAGE> 20
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Coast; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void. No consent by Coast to any assignment shall release Borrower from its
liability for the Obligations. Coast may assign its rights and delegate its
duties hereunder without the consent of Borrower. Cost reserves the right to
syndicate all or a portion of the transaction created herein or sell, assign,
transfer, negotiate, or grant participations in all or any part of, or any
interest in Coast's rights and benefits hereunder. In connection with any such
syndication, assignment or participation, Coast may disclose all documents and
information which Coast now or hereafter may disclose all documents and
information which Coast now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Coast assigns its rights and obligations
hereunder to at third Person, Coast thereafter shall be released from such
assigned obligations to Borrower.
11.14 Publicity. Coast is hereby authorized, at its expense, to
issue appropriate press releases and to cause a tombstone to be published
announcing the consummation of this transaction and the aggregate amount
thereof.
11.15 Paragraph Headings; Construction. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
11.16 Governing Law; Jurisdiction; Venue This Agreement and all
acts and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the internal laws of the State of California,
without regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 Mutual Waiver of Jury Trial. BORROWER AND COAST EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
<PAGE> 21
BORROWER:
RPI Acquisition Corporation
By
_________________ President or Vice President
Cycle Masters Corporation
By
_________________ President or Vice President
EnviroPlastics Corporation
By
_________________ President or Vice President
Earth Care Products of Tennessee, Inc.
By
_________________ President or Vice President
Chesapeake Plastic Lumber Company, Inc.
By
_________________ President or Vice President
Earth Care Products of Midwest, Inc.
By
_________________ President or Vice President
Environmental Specialty Products, Inc.
By
_________________ President or Vice President
Clean Earth, Inc.
By
_________________ President or Vice President
Clean Earth of New Castle
By
_________________ President or Vice President
Carteret Biocycle Corporation
By
_________________ President or Vice President
Consolidated Technologies, Inc.
By
_________________ President or Vice President
GCI Acquisition Corporation
By
_________________ President or Vice President
<PAGE> 22
Waste Concepts, Inc.
By
_________________ President or Vice President
Green Horizon Environmental, Inc.
By
_________________ President or Vice President
Integrated Technical Services, Inc.
By
_________________ President or Vice President
COAST:
COAST BUSINESS CREDIT, division of
Southern Pacific Bank
By
Title:
<PAGE> 23
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
COAST
SCHEDULE TO AND SECURITY AGREEMENT
BORROWER: RPI ACQUISITION CORPORATION MASTERS CORPORATION
CORPORATION CARE PRODUCTS OF TENNESSEE, INC. PLASTIC
LUMBER COMPANY, INC. CARE PRODUCTS OF MIDWEST, INC. SPECIALTY
PRODUCTS, INC. EARTH OF NEW CASTLE, INC. BIOCYCLE
CORPORATION TECHNOLOGIES, INC. ACQUISITION CORPORATION
CONCEPTS, INC. HORIZON ENVIRONMENTAL TECHNICAL SERVICES, INC.
ADDRESS: 2300 GLADES ROAD, SUITE 440 W
BOCA RATON, FLORIDA 33431
DATE: SEPTEMBER ___, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the
above-borrower of even date.
SECTION 2. CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding to Borrower in the aggregate not
to exceed the lesser of a total of Thirty
Million Dollars ($30,000,000) at any one
time outstanding (the "Maximum Dollar
Amount"), or the sum of (a), (b), (c), (d),
(e) and (f) below:
- --------------------------------------------------------------------------------
(a) Receivable Loans in an amount not to exceed
80%. of the amount of Borrower's Eligible
Receivables (as defined in Section 1 of the
Agreement). Eligible Foreign Receivables
shall be subject to a sublimit of $1,000,000
and dating Eligible Receivables shall be
subject to a sublimit of $1,500,000, plus
- --------------------------------------------------------------------------------
(b) Inventory Loans in an amount not to exceed
the lesser of:
- --------------------------------------------------------------------------------
(1) 60% of the value of Borrower's
Eligible Inventory (as defined in
Section 1 of the Agreement) that
has been appraised by Hilco
calculated at the lower of cost or
market value and determined on a
first in, first out basis, or
- --------------------------------------------------------------------------------
(2) Six Million Dollars ($6,000,000),
PLUS
- --------------------------------------------------------------------------------
(c) A Term Loan in the original principal amount
not to exceed the lesser of:
- --------------------------------------------------------------------------------
(1) Eighty percent (80%) of the
appraised liquidation value of
Borrower's existing Equipment; or
- --------------------------------------------------------------------------------
(2) Six Million Five Hundred Thousand
Dollars ($6,500,000).
- --------------------------------------------------------------------------------
The Term Loan will be repayable in
eighty four (84) equal monthly
installments, commencing one (1)
month after the Closing Date, plus
- --------------------------------------------------------------------------------
(d) A Bridge Loan in the original principal
amount of up to Two
- --------------------------------------------------------------------------------
<PAGE> 24
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Million Dollars ($2,000,000). Upon receipt
and approval by Coast of an appraisal of the
Real Property from an appraiser acceptable
to Coast (and review of any environmental
matters) and provided no Event of Default
has occurred and is continuing and provided
Borrower then has a Total Debt Service
Coverage Ratio of not less than 1.1:1, up to
65% of the appraised value of the Real
Property may be converted from the Bridge
Loan to a Real Estate Loan repayable over a
240 month amortization. Prior to conversion,
the Bridge Loan will be repayable in
eighteen (18) equal monthly installments.
The Bridge Loan and the Real Estate Loan
shall be subject to an annual prepayment of
15% of Excess Cash Flow based on U.S.
Plastic Lumber Corp.'s year end certified
financial statements. Such Excess Cash Flow
payment will be due within 90 days of the
end of each fiscal year of U.S. Plastic
Lumber Corp. and shall be applied to the
last installments owing in the inverse order
of maturity of payments. To the extent the
appraisal of the Real Property as described
above reflects that the unpaid balance of
the Bridge Loan is in excess of the
appraised value, Borrower agrees that up to
the first $500,000 of any new equity shall
be used as a mandatory prepayment of the
Bridge Loan up to the amount of the
deficiency between the Bridge Loan balance
and the appraised value.
"EXCESS CASH FLOW" shall mean the Operating
Cash Flow/Permitted less each of (i) Total Debt
Service and (ii) cash dividends actually paid, to the
extent permitted hereunder.
"TOTAL DEBT SERVICE" shall mean the sum of
all principal, interest and other payments made or
required to be made by U.S. Plastic Lumber Corp. on
indebtedness during the applicable period.
- --------------------------------------------------------------------------------
(e) Equipment Acquisition Loans, to be drawn
within four and one half years from the date
hereof, in minimum advances of One Hundred
Thousand Dollars ($100,000) in a total
amount not to exceed the lesser of:
- --------------------------------------------------------------------------------
(1) Eighty percent (80%) of the cost of new
Equipment (after subtracting taxes,
engineering and installation charges), or up
to eighty (80%) of the appraised forced
liquidation value of used Equipment acquired
by Borrower (after subtracting taxes,
engineering and installation charges); and
- --------------------------------------------------------------------------------
(2) Three Million Dollars ($3,000,000). The
Equipment Acquisition Loans shall be
repayable based on either a 24 month or a 48
month amortization as determined by Coast on
the assets being purchased.
- --------------------------------------------------------------------------------
The Equipment Acquisition Loans shall not be
available unless Borrower has achieved and
maintains a Total Debt Service Coverage
Ratio of not less than 1.25:1 measured
monthly.
Total Debt Service Coverage Ratio shall mean
the quotient of (x) EBITDA less all capital
expenditures except that portion which is
financed, less taxes paid during such
period, divided by (y) the sum of all
principal, interest and other payments made
or required to be made by Borrower on
indebtedness during such period, including
any fees and charges owed by Borrower in
connection with any such indebtedness.
"EBITDA" shall mean, for any period, the net
income for such period of Borrower
determined in accordance with GAAP
(excluding any extraordinary income items,
including, without limitation, gain on sale
- --------------------------------------------------------------------------------
<PAGE> 25
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
of assets, income relating to foreign
exchange, swap or other derivative
transactions and changes in GAAP), plus the
following items, to the extent deducted form
the revenues of Borrower in the calculation
of net income or less: (i) depreciation,
(ii) amortization of intangibles and any
other non-cash items, (iii) cash interest
expense (excluding any interest
paid-in-kind) and (iv) tax expense.
- --------------------------------------------------------------------------------
(f) Asset Acquisition Loans to be funded in the
discretion of Coast in connection with
future acquisitions by Borrower. Potential
eligible collateral includes accounts,
inventory, equipment and real estate of the
target company. Such advances are further
subject to appraisal and audit by Coast and
approval by its credit committee.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE:
A rate equal to the Prime Rate plus the following
percentage per annum, calculated on the basis of a 360-day year for the actual
number of days elapsed:
LOAN PERCENTAGE OVER PRIME
- ---------------------------------------------------------------
Receivables and Inventory one (1)
Term and Equipment Acquisition one and one quarter (1.25)
Real Estate two (2)
Bridge two and one half (2.5)
The interest rate applicable to all Loans
shall be adjusted monthly as of the first
day of each month, and the interest to be
charged for each month shall be based on the
highest Prime Rate in effect during the
prior month, but in no event shall the rate
of interest charged on any Loans in any
month be less than 8.5% per annum.
- --------------------------------------------------------------------------------
SECTION 3.1 - MINIMUM MONTHLY based on $10,000,000 measured on a daily
INTEREST: basis.
- --------------------------------------------------------------------------------
SECTION 3.2 - LOAN FEE: 1.25% based on $20,000,000 payable
concurrently herewith plus $125,000 on the
first day of the sixth month following the
Closing Date plus .25% on each anniversary
of this Agreement based on the average
outstanding Loans measured on a daily basis
for the then prior 12 months.
- --------------------------------------------------------------------------------
SECTION 3.2 - MONITORING FEE $500 per each entity which is a Borrower
hereunder payable on the first day of each
month, provided that if the number of
Borrower's is seven or less, the total fee
shall be $2,500 per month. If any new
borrowers are added hereunder (which is
otherwise subject to Coast's prior written
consent), the Monitoring Fee for such new
borrowers shall be $250 per month for each
environmental type business and $500 per
month for each non environmental type
business.
- --------------------------------------------------------------------------------
SECTION 3.2 - FACILITY FEE: $5,000 per quarter payable on the Closing
Date (prorated for any partial quarter at
the beginning of the term of this Agreement)
and continuing on the first day of each
quarter thereafter.
- --------------------------------------------------------------------------------
SECTION 9.1 - RENEWAL FEE: 0.5% of the Maximum Dollar Amount beginning
in year 6 of the Agreement.
- --------------------------------------------------------------------------------
SECTION 9.2 - EARLY An amount equal to three percent (3%) of the
TERMINATION FEE: Maximum Dollar Amount (as defined in the
Schedule), if termination occurs on or
before the first anniversary of the
effective date of this Agreement; two
percent (2%) of the Maximum Dollar Amount,
if termination occurs after the first
anniversary and on or before the second
anniversary of the effective date of this
Agreement; one percent (1%) of the Maximum
Dollar Amount, if termination occurs after
the second anniversary and on or before the
third anniversary of the effective date of
this Agreement, one half of one percent
(.5%) of the Maximum Dollar Amount, if
termination occurs
<PAGE> 26
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
after the third anniversary and on or before
the fourth anniversary of the effective date
of this Agreement and one quarter of one
percent (.25%) if termination occurs after
the fourth anniversary of the effective date
of this Agreement. Prepayment of the Bridge
Loan or the Real Estate Loan and any
mandatory prepayments of such loans shall
not be subject to any prepayment charge
provided that Borrower hereby grants to
Coast a right of first refusal with respect
to any refinancing of the Real Estate Loan
by another lender. Borrower agrees to give
Coast 30 days prior written notice of the
terms and conditions of any competing offer
and Coast must commit to the loan, if at
all, within the same 30 day time period.
Such commitment shall be on substantially
the same terms and conditions (including the
funding date) as the competing lender.
Prepayments of the Term Loan and Equipment
Acquisition Loans may only be made with the
prior written consent of Coast.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM AVAILABILITY:
$1,000,000 at funding
- --------------------------------------------------------------------------------
SECTION 5.14 - OTHER DOCUMENTS AND 2. Cross Guaranties;
AGREEMENTS: 3. UCC-1 financing statements, fixture filings and termination
statements;
4. Security Agreements (including
those covering copyrights,
patents and trademarks).
5. Mortgage on the Real Property;
6. Secured guaranty from U. S. Plastic Lumber Corporation, U.S.
Plastic Lumber, Ltd. and Clean Earth, Inc. (collectively
"Guarantor"); and
7. Such other documents as reasonably requested by Coast.
- ---------------------------------------------------------------------------------------------------------------------
SECTION 5.15 - OTHER CONDITIONS: 8. All collections shall be a through a combination of blocked
accounts and/or lockboxes approved by Coast.
9. No accounts payable shall be over 120 days past invoice date.
10. All applicable taxes shall be current.
11. Coast shall have a first priority security interest in all of the
assets of Borrower and each guarantor including, without
limitation, on all intellectual property of Borrower and Guarantor.
12. Subordination of shareholder and investor debt in form and
substance acceptable to Coast.
13. All facilities to be cross guarantied and cross collateralized.
14. Upon the closing of the Eaglebrook acquisition, there shall be a
concurrent capital contribution of not less than $5,000,000.
15. If applicable, Coast shall have reviewed and approved of the
acquisition documents for the purchase of Eaglebrook.
16. Coast shall have received such assurances as Coast shall require
confirming that Borrower is in compliance with all environmental
laws and regulations.
17. Coast shall have reviewed and approved of all contracts of
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Borrower including, without limitation, those involving
milestone billings, bonding, the Bio Carteret facility lease etc.
18. Coast shall have received no offset agreements acceptable to
Coast with respect to all milestone contracts.
19. Coast shall have reviewed, approved and received an
assignment of the Rutger's license and royalty agreement in
form and substance acceptable to Coast.
20. Coast shall have reviewed and approved of the Borrower's
environmental liability insurance and Coast shall be
named as an additional insured of said policy.
21. Review and approval by Coast and assignment of the landlord lease
and purchase option for the Bio Carteret facility and a first
mortgage on the Bio Carteret facility provided that if the
Real Estate Loan is not funded on the Closing Date, this
condition shall be required to be satisfied within 30 days
after the Closing Date or in any event prior to funding of the
Real Estate Loan.
22. Borrower shall have obtained landlord waivers and/or Coast
shall have created rent reserves acceptable to Coast.
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF BORROWER: See Schedule 1 hereto.
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6.2 - PRIOR TRADE NAMES See Schedule 1 hereto.
OF BORROWER:
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6.2 - EXISTING TRADE See Schedule 1 hereto.
NAMES OF BORROWER:
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6.3 - OTHER LOCATIONS AND See Schedule 1 hereto.
ADDRESSES:
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6.10 - MATERIAL ADVERSE None.
LITIGATION:
- ---------------------------------------------------------------------------------------------------------------------
SECTION 6.10 - FUTURE CLAIMS AND Borrower will promptly inform Coast in writing of any claim, proceeding,
LITIGATION: litigation or investigation in the future threatened or instituted by or against
Borrower involving any single claim of Fifty Thousand Dollars ($50,000) or more,
or involving One Hundred Thousand Dollars ($100,000) or more in the aggregate.
- ---------------------------------------------------------------------------------------------------------------------
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS AND COVENANTS:
23. All taxes shall be current at all times.
24. Subject to the terms of payment of the Bridge Loan, any equity raised by Borrower or Guarantor in
addition to the $5,000,000 referenced in the conditions precedent may
be used to pay shareholder and investor debt so long no Event of
Default has occurred and is continuing.
25. Borrower and Guarantor shall use its best efforts to merge the
subsidiaries into the holding companies prior to January, 1999.
26. Borrower shall maintain job files with all required supporting documentation.
27. Neither Borrower nor Guarantor shall pay any dividends except with
after tax profits and so long as no Event of Default has occurred and
is continuing.
28. U. S. Plastics Lumber Corporation shall at all times maintain a
Consolidated Tangible Net Worth of not less than 80% of the
Consolidated Tangible Net Worth on the Closing Date.
7. Except with the prior consent of Coast, which consent shall not be
unreasonably with held, at all times Mark Alsentzer shall be the CEO of
U.S. Plastic Lumber Corp., Michael Schmidt shall be the CFO and Bruce
Rosetto shall be the general counsel.
</TABLE>
<PAGE> 28
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
8. Notwithstanding anything to the contrary herein, for the first six months from the Closing Date,
otherwise Eligible Receivables for the Clean Earth portion of the business shall be eligible
for up to 180 days from invoice date and otherwise Eligible Receivables for the U.S. Plastic
portion of the business shall be eligible for up to 120 days from invoice date. All other terms
of eligibility of the Receivables shall otherwise continue to apply.
- --------------------------------------------------------------------------------------------------------------------
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in Section 8.2 of the Agreement, Coast
shall release to Borrower insurance proceeds with respect to Equipment
totaling less than Fifty Thousand Dollars ($50,000).
- --------------------------------------------------------------------------------------------------------------------
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the following:
29. Daily changes to the milestone and affiliate Receivables.
30. Weekly price trends form Plastic News Journal.
31. Monthly Receivable agings, aged by invoice date and by customer in
alphabetical order, within five (5) Business Days after the end of each
month together with a monthly deferred revenue listing to be
sorted by customer in alphabetical order and a monthly Receivables
collection detail.
32. Monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers within five (5) Business Days after
the end of each month.
33. Monthly inventory reports for the Inventory valued on a first-in,
first-out basis at the lower of cost or market (in accordance with
GAAP) with a summary of inventory by categories of type and by entity
or such other inventory reports as are reasonably requested by Coast,
all within five (5) Business Days after the end of each month
34. Monthly internally prepared financial statements, as soon as
available, and in any event within thirty (30) days after the end of
each month.
35. Monthly collection reports broken down by type of collection.
36. Quarterly internally prepared financial statements, as soon as
available, and in any event within forty-five (45) days after the end
of each fiscal quarter of Borrower.
37. Quarterly customer lists, including customer name, address, and phone
number. 38. Annual audited financial statements, as soon as
available, and in any event within ninety (90) days following the end
of Borrower's fiscal year, containing the unqualified opinion
of, and certified by, an independent certified public
accountant acceptable to Coast.
- --------------------------------------------------------------------------------------------------------------------
SECTION 8.5 NEGATIVE COVENANTS Fifty Thousand Dollars ($50,000)
(ACQUIRED ASSETS):
- --------------------------------------------------------------------------------------------------------------------
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE:
the last Business Day of the month five (5) years from the Closing Date, subject to automatic renewal as
provided in Section 9.1 of the Agreement, and early termination as provided in Section 9.2 of the Agreement.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
RPI ACQUISITION CORPORATION
CYCLE MASTERS CORPORATION
ENVIROPLASTICS CORPORATION
EARTH CARE PRODUCTS OF TENNESSEE, INC.
CHESAPEAKE PLASTIC LUMBER COMPANY, INC.
EARTH CARE PRODUCTS OF MIDWEST, INC.
ENVIRONMENTAL SPECIALTY PRODUCTS, INC.
CLEAN EARTH OF NEW CASTLE, INC.
CARTERET BIOCYCLE CORPORATION
CONSOLIDATED TECHNOLOGIES, INC.
GCI ACQUISITION CORPORATION
WASTE CONCEPTS, INC.
GREEN HORIZON ENVIRONMENTAL, INC.
INTEGRATED TECHNICAL SERVICES, INC.
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
Dated as of September ____, 1998
<PAGE> 30
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
1. DEFINITIONS 1
2. CREDIT FACILITIES 7
2.1 Loans 7
3. INTEREST AND FEES 7
3.1 Interest 7
3.2 Fees 7
4. SECURITY INTEREST 7
5. CONDITIONS PRECEDENT 8
5.1 Status of Accounts at
Closing 8
5.2 Minimum Availability 8
5.3 Landlord Waiver 8
5.4 Real Property 8
5.5 Executed Agreement 8
5.6 Opinion of Borrower's
Counsel 8
5.7 Priority of Coast's Liens 8
5.8 Insurance 8
5.9 Borrower's Existence 8
5.10 Organizational Documents 8
5.11 Taxes 8
5.12 Due Diligence 9
5.13 Year 2000 Problem
Assessment Certificate 9
5.14 Other Documents and
Agreements 9
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE BORROWER 9
6.1 Existence and Authority 9
6.2 Name; Trade Names and
Styles 9
6.3 Place of Business;
Location of Collateral 9
6.4 Title to Collateral;
Permitted Liens 9
6.5 Maintenance of Collateral 10
6.6 Books and Records 10
6.7 Financial Condition,
Statements and Reports 10
6.8 Tax Returns and
Payments; Pension
Contributions 10
6.9 Compliance with Law 10
6.10 Litigation 10
6.11 Use of Proceeds 11
6.12 Year 2000 Compliance 11
7. RECEIVABLES 11
7.1 Representations Relating
to Receivables 11
7.2 Representations Relating
to Documents and Legal
Compliance 11
7.3 Schedules and Documents
relating to Receivables 11
7.4 Collection of Receivables 11
7.5 Remittance of Proceeds 12
7.6 Disputes 12
7.7 Returns 12
7.8 Verification 12
7.9 No Liability 12
8. ADDITIONAL DUTIES OF THE BORROWER 12
8.1 Financial and Other
Covenants 12
8.2 Insurance 13
8.3 Reports 13
8.4 Access to Collateral,
Books and Records 13
8.5 Negative Covenants 13
8.6 Litigation Cooperation 14
8.7 Further Assurances 14
9. TERM 14
9.1 Maturity Date 14
9.2 Early Termination 14
9.3 Payment of Obligations 14
10. EVENTS OF DEFAULT AND REMEDIES 15
10.1 Events of Default 15
10.2 Remedies 16
10.3 Standards for
Determining Commercial
Reasonableness 17
10.4 Power of Attorney 18
10.5 Application of Proceeds 19
10.6 Remedies Cumulative 19
11. GENERAL PROVISIONS 19
11.1 Interest Computation 19
11.2 Application of Payments 20
11.3 Charges to Accounts 20
11.4 Monthly Accountings 20
11.5 Notices 20
11.6 Severability 20
11.7 Integration 20
11.8 Waivers 20
11.9 No Liability for
Ordinary Negligence 20
11.10 Amendment 21
11.11 Time of Essence 21
11.12 Attorneys Fees, Costs
and Charges 21
11.13 Benefit of Agreement 21
11.14 Publicity 21
11.15 Paragraph Headings;
Construction 21
11.16 Governing Law;
Jurisdiction; Venue 22
11.17 Mutual Waiver of Jury
Trial 22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 61,065
<SECURITIES> 0
<RECEIVABLES> 11,477,862
<ALLOWANCES> 0
<INVENTORY> 3,561,240
<CURRENT-ASSETS> 17,772,773
<PP&E> 13,695,993
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,915,533
<CURRENT-LIABILITIES> 11,729,844
<BONDS> 0
0
400
<COMMON> 1,763
<OTHER-SE> 22,174,341
<TOTAL-LIABILITY-AND-EQUITY> 43,915,533
<SALES> 33,388,685
<TOTAL-REVENUES> 33,388,685
<CGS> 25,892,897
<TOTAL-COSTS> 25,892,897
<OTHER-EXPENSES> 6,164,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 731,313
<INCOME-PRETAX> 459,284
<INCOME-TAX> 0
<INCOME-CONTINUING> 459,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459,284
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
