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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 000-23855
U.S. PLASTIC LUMBER CORP.
(Name of small business issuer in its charter)
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NEVADA 87-0404343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
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2300 W. GLADES ROAD, SUITE 440 W, BOCA RATON, FLORIDA 33431
(561) 394-3511
(Address and telephone number of principal executive offices and place of
business)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, Par Value $.0001
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year was $138,544,512.
The aggregate market value of the voting common equity held by
non-affiliates of the registrant on February 29, 2000 based on the average bid
and asked price on such date, of $8.00 per share, was $186,194,520.
The number of shares outstanding of the registrant's common stock as of
February 29, 2000 is 32,819,080.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III -- Portions of the Registrant's definitive Proxy Statement
relating to its 2000 Annual Meeting of Stockholders which will be filed with the
Commission within 120 days after the end of the registrant's fiscal year.
Certain exhibits are incorporated by reference to the Registrants' Registration
Statement on Form SB-2 and amendments thereto filed with the Securities and
Exchange Commission on February 11, 1998 and July 22, 1998, respectively.
Transitional Small Business Disclosure Format (check one): Yes [ ] No
[X]
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PART I
ITEM 1. BUSINESS
GENERAL
U.S. Plastic Lumber Corp. (the "Company"), a Nevada Corporation
incorporated in June, 1992, is a manufacturer and marketer of recycled plastic
lumber products and a provider of environmental recycling services. In March
1996, when the Company acquired Earth Care Global Holdings, Inc. ("Earth Care")
as a wholly owned subsidiary, through the acquisition of all the issued and
outstanding stock of Earth Care in a stock for stock exchange (the
"Acquisition") it changed its name from Educational Storybooks International,
Inc. to U.S. Plastic Lumber Corp.
The Company has two distinct business lines, the plastic division and the
environmental recycling division. The plastic division operates through U.S.
Plastic Lumber Ltd., manufactures structural and non-structural plastic lumber
and fabricates a variety of accessory products, such as park and site amenities,
made from 100% recycled high density polyetheylene. The Company also
manufactures a composite product made from plastic and wood fiber in addition to
plastic sheet products, cornerboards and other items for the packaging industry.
U.S. Plastic Lumber Ltd. has one wholly owned subsidiary, The Eaglebrook Group,
Inc.("EGI"). EGI operates the Chicago plastic recycling and manufacturing
operations of the Company. The second division, Clean Earth, Inc., provides
environmental recycling services including fixed based plants providing thermal
desorption and bioremediation, environmental construction services, upland
disposal of dredge materials, beneficial re-use of industrial wastes, and
on-site recycling services.
Within the plastic division, the Company owns and operates a total of ten
manufacturing, processing, recycling and fabrication facilities throughout the
U.S. The primary product produced in six of these plants is plastic lumber
profiles made from recycled plastic waste. Recycled plastic lumber is
manufactured in a variety of colors, profiles and shapes including standard
lumber dimensions and many custom engineered profiles and shapes. Two of the
plants are recycled plastic processing facilities, which include washing,
grinding and pelletizing of post consumer and post industrial plastic waste.
Some of the product from these facilities are used as raw material for the
manufacturing plants owned and operated by the Company. Two of the six
manufacturing plants also include recycled plastic processing operations. Two
plants are manufacturers of plastic slip sheets and tier sheets for use in
industrial packaging. Plastic lumber's principal intended use is as an
environmentally friendly and non-toxic alternative to pressure treated lumber
and rain forest hardwoods, which is suitable for and provides superior
performance in most outdoor applications.
Within the environmental operations, the Company operates five facilities.
Two of the plants treat and recycle soil that has been contaminated with
petroleum hydrocarbons and similar compounds through a process known as thermal
desorption. The Company's third plant treats and recycles soil through a
process, which is bio-organic in nature. The fourth plant treats and recycles
soil through a mixture and dilution process. Finally, the Company has a plant
that recycles oils, solvents and heavy metal contaminated waste.
The Company's plastic lumber operation manufactures plastic lumber from
recycled waste plastic, and plastic composite lumber with additives including
wood and fiberglass, to produce a high quality, long lasting alternative to
pressure treated lumber. Plastic lumber provides superior performance in outdoor
uses and is suitable for most nonstructural and structural applications. The
Company has a license to use a patented technology and also owns two patents to
manufacture structural plastic lumber. By producing a high quality recycled
plastic lumber product, the Company believes that it conserves natural resources
by reducing the need for lumber products made from wood and at the same time
reduces the amount of plastic waste going into landfills while providing a
longer lasting, useful product. The Company's plastic lumber products are
intended as an excellent replacement for pressure treated lumber, which is
treated with toxic chemicals to retard decay and insect infestation. Plastic
lumber is not subject to decay or insect infestation and so will outlast wood,
especially in applications exposed to moisture. Recycled plastic lumber is
environmentally friendly because it eliminates potential pollution from leaching
of such toxic chemicals into the environment.
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Clean Earth, Inc. operates plants in New Castle, Delaware, Philadelphia,
Pennsylvania, Carteret, New Jersey, Hagerstown, Maryland and Kearny, New Jersey.
It also owns two environmental construction companies: Integrated Technical
Services, Inc. (ITS), in Winslow, New Jersey and Barbella Environmental
Technologies, Inc. in Somerville, New Jersey. Clean Earth, Inc. also owns
Consolidated Technologies, Inc. (CTI) which provides beneficial re-use of dredge
materials and upland re-use of dredge materials to reclaim strip mines and
brownfields properties .
The Company's environmental division offers environmental recycling
services and operates several subsidiaries. Clean Earth of New Castle, Inc.
(CENC) and Soil Remediation of Philadelphia, Inc.(SRP) operate low temperature
thermal desorption treatment plants that ensures that contaminated soil is
treated in accordance with local, state and federal regulations. This thermal
treatment process removes petroleum hydrocarbons from the soil and has been
recognized by federal and state agencies (including Delaware, New Jersey, New
York, Maryland and Pennsylvania) as a cost effective technology. Contaminated
solids, soils and construction debris are recycled and reused in construction
and industrial applications. The Company's recycling center in New Castle,
Delaware is in a prime location for servicing the Northeast and Mid-Atlantic
regions, where extensive remodeling and rebuilding of infrastructure and
abandoned industrial property is ongoing. This division also operates Carteret
Biocycle Corp., (CBC) a bioremediation plant located in Carteret, NJ, which also
removes petroleum hydrocarbons from soil. The plant is similar to the CENC
facility except that its process involves bio-organic destruction of petroleum
hydrocarbons whereas the CENC facility uses low temperature thermal desorption
to remove petroleum hydrocarbons from the soil. The Clean Earth, Inc. division
also has a subsidiary, Clean Rock Industries, Inc. located in Hagerstown,
Maryland that provides soil recycling services in the Maryland/Washington D.C.
region. The Clean Earth, Inc. division also has a subsidiary, S & W Waste, Inc.,
which is involved in the recycling and beneficial re-use of industrial wastes.
The plant is a permitted RCRA facility. The remaining environmental recycling
subsidiaries, Integrated Technical Services, Inc., Barbella Environmental
Technologies, Inc. and Consolidated Technologies, Inc., are involved in
beneficial re-use of waste products, upland re-use of dredge materials in strip
mines and brownfields properties, environmental construction services, and
on-site recycling services.
FORWARD LOOKING STATEMENTS
When used in this Annual Report, 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, exposure on providing extended warranties on products, demand for
products and services of the Company, access to capital, dilution, expertise,
newly developing technologies, loss of permits, conflicts of interest and
related party transactions, regulatory matters, protection of technology,
environmental concerns, ability to implement the Company's growth strategy,
seasonality, operating hazards and insurance coverage, lack of industry
standards, raw material commodity pricing, the ability to receive bid awards,
the effects of competition and the ability of the Company to obtain additional
financing. Such factors, which are discussed in "Risk Factors," "Business" and
"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 "Risk Factors", "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SUBSEQUENT EVENTS
On February 2, 2000 the Company issued an additional $7,500,000 of 5%
Convertible Subordinated debentures to the holder of 61.54% of the debentures
outstanding at December 31, 1999. In conjunction with the issuance of the
debentures, the Company issued 200,000 warrants to purchase Common stock at
$10.09125. The Company has filed a Registration statement with the SEC to
register the shares underlying the debenture and warrant agreements. The
proceeds were used for working capital purposes. On March 1,
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2000 this same debenture holder converted all $4,000,000 of its debentures and
unpaid interest from December 31, 1999 to March 1, 2000 into 762,462 shares of
common stock. See "Management Discussion and Analysis."
On February 10, 2000, the Company acquired the assets of Baron Enterprises,
Inc. ("Baron"), a manufacturer of plastic slip sheets and tier sheets used in
the packaging and transportation industries for 300,000 shares of the common
stock of the Company. Baron operated two facilities, Denver, CO and Reidsville,
NC. Both plants manufacture products for industrial use, specifically involving
tier sheets and slip sheets used in handling freight. The Company manufactures
similar products in its Chicago facility. The combination of the Company's
production in these product lines and the acquired assets of Baron's provides
the Company with a significant market position for these products in the United
States.
HISTORY AND DEVELOPMENT OF THE COMPANY
In March 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), a
manufacturer and marketer of recycled plastic products. Pursuant to the
Agreement, the Company effected a reverse split of its common stock on a 1 for
16 basis, and then issued 4,196,316 post split shares of its authorized but
previously unissued common stock to acquire all the issued and outstanding stock
of Earth Care in a stock for stock exchange (the "Acquisition") which was
intended to be a tax free reorganization under Section 368(a) of the Internal
Revenue Code. See "Certain Transactions" for additional information.
In April 1996, the Company acquired all of the assets of DuraTech
Industries, a manufacturer of recycled plastic lumber, recycled plastic shapes
and value added products located in Lake Odessa, Michigan since 1986. This
acquisition doubled the Company's recycled plastic lumber sales at that time.
In December 1996, the Company completed a reverse triangular merger with
Clean Earth, Inc. ("Clean Earth"). Clean Earth has been in operation since 1991,
and has treated over 600,000 tons of soil and construction debris that was
contaminated with petroleum hydrocarbon wastes, such as fuels, lubricating oils,
tars and gasoline. Clean Earth, Inc. now operates all of the environmental
subsidiaries of the Company. See "Certain Transactions" for additional
information.
In January 1997, the Company acquired Recycled Plastics Industries, Inc.
(RPI), located in Green Bay, Wisconsin. RPI, formed in 1989, is a manufacturer
of specialty profile recycled plastic lumber products. RPI's production process
utilizes an automated continuous flow extrusion process with vacuum calibration
forming technology.
In February 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental construction and
clean up of contaminated industrial sites primarily involving water and soils.
On December 31, 1997, ARDT was merged into another wholly-owned subsidiary of
the Company, Integrated Technical Services, Inc., due to the similarity in
services and proximity of operations to one another.
In March 1997, the Company acquired Environmental Specialty Plastics, Inc.
(ESP), a marketing, fabrication and distribution company of recycled plastic
products in Guasti, California. ESP also manufactures custom signs out of
recycled plastic lumber utilizing in house routing equipment and is able to
personalize site amenities, such as benches, ash urns and picnic tables,
engraving logos and designs into recycled plastic end products. This acquisition
provides the Company with a market presence on the west coast.
In March 1997, the Company acquired Integrated Technical Services, Inc.
(ITS) located in Winslow, New Jersey. ITS is engaged in environmental
construction and clean up of contaminated industrial sites primarily involving
water and soils similar to the operations of ARDT.
In June 1997, the Company acquired EnviroPlastics Corporation ("EPC"), in
Auburn, Massachusetts, which operates a recycled plastic processing plant
including the washing, grinding and pelletizing of post-consumer and
post-industrial plastic waste. A significant portion of the sales of EPC for the
year ended
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December 31, 1998 were from one major customer, Dupont, with which EPC has an
exclusive contract to provide pelletized, post-consumer feedstock product.
In June 1997, the Company formed Carteret Biocycle Corp. ("CBC") as a
wholly owned subsidiary of Clean Earth, Inc. CBC has an 80,000 square foot soil
recycling facility, on a 5-acre leased parcel in Carteret, New Jersey. This
facility recycles contaminated soils utilizing a bio-organic technology of
removing contaminants. The plant has the capacity to process approximately
320,000 tons of contaminated soil annually. This is an estimate of the plant's
potential capacity and there can be no assurances that these results may be
achieved or that the plant will operate at full capacity year round. CBC has
entered into a 30 year ground lease with two additional ten year options at a
rental cost of $210,000 per year for the initial 30 year term. CBC
simultaneously entered into a License and Operating Agreement with S D & G
Aggregates, Inc., which holds a license to operate a recycling operation on the
leased premises. CBC also has a right of first refusal to lease an adjacent 17
acre parcel for potential dredge transfer operations in conjunction with CTI's
dredging operations.
In July 1997, the Company formed a joint venture partnership with
Interstate Industrial Corp. of Clifton, New Jersey to bid on dredging and upland
disposal projects. The joint venture company does business as Interstate/U.S.
Plastic Lumber Corp. joint venture.
In November 1997, the Company acquired Waste Concepts, Inc. ("WCI") as a
wholly owned subsidiary of Clean Earth, Inc. WCI is primarily involved in
removing and recycling large volumes of waste products for beneficial reuse as
well as providing construction and permitting services for reuse and disposal of
dredge materials. The Company plans to expand its operations to include large
volume handling of dredge material and incinerator ash. See "Recent Sales of
Unregistered Securities for the Last Three Years" for additional information.
In January 1998, the Company acquired Green Horizon Environmental, Inc.
("GHI") as a wholly owned subsidiary of Waste Concepts, Inc. GHI is primarily
involved in removing and recycling large volumes of incinerator ash, paper pulp
and sewer sludges for beneficial reuse in strip mines. GHI has also been
actively involved with the beneficial re-use of dredge materials and incinerator
ash and is a critical component of the Company's plans to expand its dredging
operations. It operates in the same market area as Waste Concepts, Inc. See
"Recent Sales of Unregistered Securities for the Last Three Years" for
additional information.
In February and June 1998, the Company acquired an additional interest in
Consolidated Technologies, Inc. ("CTI") having previously been a 25% minority
stockholder as of November, 1997. The Company now owns 100% interest in CTI. CTI
was a start-up company at the time of the initial investment by the Company, but
it had the only permit with the Commonwealth of Pennsylvania to allow it to
dispose of dredge materials mixed with municipal ash to create a grout like
substance used in the reclamation of strip mines. CTI's permits will enable the
Company to bid on dredge projects within reasonable transportation distance from
the strip mine locations in Pennsylvania. See "Certain Transactions" and "Recent
Sales of Unregistered Securities for the Last Three Years" for additional
information.
In March 1998, the Company acquired substantially all of the assets of
Chesapeake Recycled Lumber, Inc. The Company formed Chesapeake Plastic Lumber,
Inc. ("CPL") as a wholly-owned subsidiary of U.S. Plastic Lumber Ltd. to own and
operate these assets. The assets primarily consist of plastic lumber
manufacturing equipment and an existing customer base. CPL provides the Company
with additional plant capacity and a regional manufacturing plant located in the
Mid-Atlantic market. See "Recent Sales of Unregistered Securities for the Last
Three Years" for additional information.
In May 1998, the Company acquired Cycle-Masters, Inc. ("CMI"), which owns
and operates a plastic lumber manufacturing facility in Sweetser, Indiana. CMI
provides the Company with additional manufacturing capacity and institutional
sales for our plastic lumber division. See "Recent Sales of Unregistered
Securities for the Last Three Years" for additional information.
In June 1998, the Company acquired GeoCore, Inc. ("GCI"), which operates an
environmental services company in New Jersey. GCI provides the Company with
additional remediation services to offer its customer
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base, including tank cleaning and remediation services. See "Recent Sales of
Unregistered Securities for the Last Three Years" for additional information.
In June 1998, the Company acquired substantially all of the assets of
Trimax of Long Island, Inc. and Polymerix, Inc. Trimax was a manufacturer of
structural plastic lumber made from recycled plastic and operated in Ronkokoma,
Long Island. Polymerix owned two patents relative to the structural lumber
manufacturing process. These assets were purchased by the Company with the
approval of the U.S. Bankruptcy Court for the Eastern District of New York as
Trimax and Polymerix had filed a bankruptcy petition in January 1998. See
"Recent Sales of Unregistered Securities for the Last Three Years" for
additional information.
In December 1998, the Company acquired S & W Waste, Inc., a RCRA facility
that recycles and provides beneficial re-use of industrial waste and disposes of
contaminated materials. See "Recent Sales of Unregistered Securities for the
Last Three Years" for additional information.
The Company implemented a corporate restructuring as of December 31, 1998
in which it merged many of the subsidiaries together. Recycled Plastic
Industries, Environmental Specialty Products, EnviroPlastics, Earth Care of the
Midwest, Earth Care of Tennessee, Chesapeake Plastic Lumber, and CycleMasters
were merged into U.S. Plastic Lumber Ltd. Within the environmental division,
Green Horizon Environmental was merged into Waste Concepts Inc, then Waste
Concepts Inc and GeoCore were merged into Integrated Technical Services.
Advanced Remediation & Disposal had previously been merged into Integrated
Technical Services.
In January 1999, the Company acquired Eaglebrook Plastics, Inc. and
Eaglebrook Products, Inc. which own and operate a plastic lumber manufacturing
facility in Chicago, Illinois. These two companies were subsequently merged into
The Eaglebrook Group, Inc., a wholly owned subsidiary of U.S. Plastic Lumber
Ltd. Eaglebrook provides the Company with substantial additional manufacturing
capacity, entry into the composite deck market and packaging products for
industry. See "Recent Sales of Unregistered Securities for the Last Three Years"
for additional information.
In March 1999, the Company acquired Brass Investments, Inc., a holding
company that had two wholly owned subsidiaries, Soil Remediation of
Philadelphia, Inc.("SRP") and Allied Waste Services, Inc.("AWS"). SRP operates a
soil remediation facility in Philadelphia, PA similar to the Company's soil
remediation facility in New Castle, DE. AWS provides environmental services. See
"Recent Sales of Unregistered Securities for the Last Three Years" for
additional information.
In June 1999, the Company acquired Brigadoon Industries, Inc., which
operates a packaging product manufacturing facility in Ocala, Florida. Brigadoon
provides the Company with additional manufacturing capacity on most of the
product lines of the Company and includes the bulk of sales in our packaging
division, a substantial portion of which are international. Brigadoon was merged
into U.S. Plastic Lumber Ltd. at the time of sale. See "Recent Sales of
Unregistered Securities for the Last Three Years" for additional information.
Additionally, the Company acquired a facility consisting of approximately
140,000 sq. ft. located on approximately 37 acres in Ocala, Florida. The Company
uses this facility as its southeastern hub manufacturing and recycling facility.
In June 1999, the Company acquired Barbella Environmental Technologies,
Inc. Barbella is engaged in environmental construction and clean up of
contaminated industrial sites primarily involving water and soils similar to the
operations of ITS. See "Recent Sales of Unregistered Securities for the Last
Three Years" for additional information.
In September 1999, the Company acquired Eureka Plastics, Inc., which
recycles and processes film plastics in Southern California. See "Recent Sales
of Unregistered Securities for the Last Three Years" for additional information.
In September 1999, the Company acquired Ecosource Plastics, Inc., which
recycles and processes plastics in Southern California. See "Recent Sales of
Unregistered Securities for the Last Three Years" for additional information.
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In December 1999, the Company acquired Clean Rock Industries, Inc. and
Clean Rock Properties, Ltd., a company that recycles and provides recycling
services and disposal of contaminated soils. Clean Rock Properties, Ltd. is a
holding company for the real estate at which the Clean Rock operation is located
and functions. See "Recent Sales of Unregistered Securities for the Last Three
Years" for additional information.
In February 2000, the Company acquired the assets of Baron Enterprises,
Inc., a company that produces tier sheets and slip sheets manufactured from
recycled plastic for industrial use. This product line is the same as that
manufactured by the Company in its Chicago plant. See "Recent Sales of
Unregistered Securities for the Last Three Years" for additional information.
CORPORATE STRUCTURE
The Company is a holding company for the Company's wholly-owned
subsidiaries: (i) U.S. Plastic Lumber Ltd., a Delaware corporation, which has
been formed to act as a holding company for all operating recycled plastic
lumber subsidiaries, (ii) Clean Earth, Inc., a Delaware corporation, is the
holding company which owns all operating environmental recycling subsidiaries,
and (iii) U.S. Plastic Lumber Finance Corporation, a Delaware holding company
established to provide financing to the subsidiaries of the Company. The
following is a list of the Company's indirect subsidiaries:
The Company implemented a corporate restructuring as of December 31, 1998
in which it merged many of the subsidiaries together. Recycled Plastic
Industries, Environmental Specialty Products, EnviroPlastics, Earth Care of the
Midwest, Earth Care of Tennessee, Chesapeake Plastic Lumber, and CycleMasters
were merged into U.S. Plastic Lumber Ltd. Within the environmental division,
Green Horizon Environmental was merged into Waste Concepts Inc, then Waste
Concepts Inc and GeoCore were merged into Integrated Technical Services.
Advanced Remediation & Disposal had previously been merged into Integrated
Technical Services.
U.S. PLASTIC LUMBER LTD. SUBSIDIARY:
The Eaglebrook Group, Inc., a Delaware corporation
CLEAN EARTH, INC. SUBSIDIARIES:
Advanced Remediation of Delaware, Inc., a Delaware corporation
Allied Waste Services, Inc., a Delaware corporation
Barbella Environmental Technologies, Inc., a New Jersey corporation
Carteret Biocycle Corporation, a Delaware corporation
Clean Earth of New Castle, Inc., a Delaware corporation
Clean Rock Industries, Inc., a Maryland corporation
Clean Rock Properties, Ltd., a Maryland corporation
Consolidated Technologies, Inc., a Pennsylvania corporation
Integrated Technical Services, Inc. a Delaware corporation
S & W Waste, Inc., a New Jersey corporation
Soil Remediation of Philadelphia, Inc., a Delaware corporation
U.S. PLASTIC LUMBER FINANCE CORPORATION SUBSIDIARY:
U.S. Plastic Lumber IP Corporation, a Delaware corporation
RECYCLED PLASTIC LUMBER OPERATION
Products
During the past several years, the Company's recycled plastic lumber
division has positioned itself to be a leading manufacturer of recycled plastic
lumber, a newly emerging industry. Recycled plastic lumber is manufactured in a
variety of colors, profiles and shapes including standard lumber dimensions and
a variety of custom engineered profiles and shapes.
The Company's recycled plastic lumber products are primarily made from 100%
recycled, post-consumer and post-industrial plastics and are used for numerous
municipal, commercial and residential applications.
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The Company also manufactures a composite lumber product consisting of plastic
and wood fiber. The products of the Company are primarily manufactured for the
building products industry, custom commercial and industrial uses, and the
packaging/shipping industry. The products manufactured by the Company are a
non-toxic material that is an environmentally friendly alternative to pressure
treated lumber and rare woods and provides superior performance for most
nonstructural, outdoor applications where traditional wood is subject to
moisture damage and rotting. The Company also produces structural plastic lumber
manufactured from a patented process. The Company believes its products offer
these unique advantages:
- Environmentally friendly and non-toxic
- Virtually maintenance free
- Saves trees and reduces use of exotic rain forest hardwoods
- Can be worked with conventional tools
- Aesthetically pleasing wood-like textured surface
- Splinter proof -- never rots
- Not affected by termites, ants or other wood borers
- Not affected by moisture
- No splitting, cracking or chipping
- Holds nails and screws 40% better than wood
- No toxic leaching into soil or groundwater
- Most graffiti easily washes off
Products built with the Company's recycled plastic lumber have the
appearance of freshly stained or painted wood but the longevity and
maintenance-free qualities of plastic. Recycled plastic products are an ideal
replacement for wood, metal and concrete in numerous applications, including
most non-structural exterior functions. Some of the potential applications are:
- Decking systems and platforms, including supporting structures and
railings, for residential and commercial projects.
- Packaging products such as cornerboards used in shipping produce
worldwide or slip sheets used in material handling applications.
- Commercial, municipal and residential applications such as park benches,
picnic tables, trash receptacles, stadium seats, planters, landscaping
ties and similar other uses.
- Trailer, farm equipment and railroad box car flooring.
- Industrial applications such as pallets, walkways in chemical plants,
catwalks on factory roofs, coil cradles and other specialized
applications.
- Sanitary animal pen flooring.
- Railroad ties.
- Sea pilings and marine bulkheads.
- OEM custom profiles.
Distribution of the products varies by the type of product. OEM,
transportation and packaging products are sold directly to end-users. Our
decking and railing systems are primarily distributed through a two-step
distribution process, whereby the Company sells to a building supply company
who, in turn, distributes to mass merchants, lumber yards, and others. For
products that we fabricate, such as park benches, trash
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receptacles and other such products, they are primarily distributed directly to
end-users or in response to government bidding.
Manufacturing and Recycling Facilities
The Chicago, Illinois manufacturing facility (approximately 260,000 sq.
ft.) operates eleven extruders that utilize a vacuum calibration continuous flow
forming manufacturing line. This process allows for the manufacture of many
special profiles, in any length, that are not able to be produced with
conventional roll forming or closed mold systems. This facility also provides
processing of post consumer and post industrial plastics utilized by the Company
as raw material. This facility is the headquarters to all of the plastic lumber
operations of the Company. One of the specialty products developed at this
facility is "Smart Deck"(R), a composite product, consisting of plastic and
wood, used for decks in commercial and residential applications. The Smart
Deck(R) product line was developed to compete directly with several
manufacturers of composite deck product throughout the country. In addition, a
100% plastic slip sheet product, DuraPack(R), is manufactured at this facility
to service the packaging industry. The Company intends to expand its production
capacity at this facility to include up to an additional 13 extruders during the
current year.
The Ocala, Florida manufacturing facility currently operates four extruders
utilizing continuous flow production. It produces product for the packaging
division for the Company primarily consisting of corner board for the produce
shipping industry worldwide. The facility consists of approximately 140,000
sq.ft. on 37 acres of land. The Company has recently installed four additional
extruders in this facility to manufacture the Company's "Smart Deck"(R) product
line. These lines are under varying stages of start-up and should begin to be
fully operational by the end of the first quarter of 2000. The Company currently
intends to increase production capacity in this facility by adding four
additional extruders to service the "Carefree Decking Systems"(R) product line
and an additional two lines for "Smart Deck"(R). This facility also provides
processing of post consumer and post industrial plastics utilized by the Company
as raw material.
The Green Bay, Wisconsin manufacturing facility (approximately 36,000 sq.
ft.) operates seven extruders that utilize a vacuum calibration continuous flow
forming process. This process allows for the manufacture of many special
profiles, in any length, that are not able to be produced with conventional roll
forming or closed mold systems. The facility specializes in the manufacture of
the Company's "Carefree Decking Systems"(R), a specialty product used for decks
and rail systems in commercial and residential applications.
The Sweetser, Indiana manufacturing facility currently has five extruders
utilizing continuous flow production and is approximately 15,600 sq.ft. It
produces lumber product primarily for industrial and commercial customers. The
product in this facility is often customized to meet the specifications of an
OEM manufacturer. The Company currently intends to increase production capacity
in this facility by adding an additional extruder.
The Denton, Maryland manufacturing facility currently has eight extruders
utilizing continuous flow production. It produces lumber product similar to that
of the Green Bay facility and focuses on production of the Company's "Carefree
Decking Systems"(R). The plant contains 80,000 square feet. The Company
currently intends to increase production capacity in this facility by adding an
additional four extruders.
The Trenton, Tennessee manufacturing facility currently has one continuous
flow extruder and is expanding the facility with one more extruder. It is
approximately 90,000 sq. ft. The focus of the production in Tennessee is large
dimensional plastic lumber, such as structural lumber, engineered products such
as marine piling cores, retaining wall timbers and prototype products including
the railroad crosstie, highway guardrail posts, and highway spacer blocks. This
facility also produces plastic in assorted specialty shapes such as bench ends
and table legs produced in a mold rather than an extruder.
The Fontana, California facility is the Company's newest operation and
consists of approximately 136,000 sq. ft. The Company currently intends to make
the Fontana facility a regional hub similar to the Company's Chicago and Ocala
plants. The Company has two operations near the Fontana plant, located in Chino
and Vernon California, that process post consumer and post industrial plastics
utilized by the Company as raw material. These facilities will provide the raw
material for the manufacturing operations to be built in the
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Fontana location. The Company intends to install up to 15 new extruders in the
Fontana plant to manufacture "Carefree Decking Systems"(R), "Smart Deck"(R), and
the Company's packaging products, including but not limited to cornerboard and
slip sheets.
During 1999, the fabrication facility in Guasti, CA housed the assembly
process that fabricates most of the value added products sold by the Company
such as picnic tables, park benches and trash receptacles. A regional sales
office is also maintained at these locations. The Guasti facility has been moved
in the first quarter of 2000 to its new location within the Fontana, California
plant. The Chicago facility also provides fabrication of value added products on
behalf of the Company.
The Company's manufacturing process involves proprietary technologies and
specialized manufacturing equipment that was custom built or modified to the
Company's specifications. The manufacturing process utilizes granulated and/or
densified recycled plastic, which in certain cases, contains additives
formulated for desired end use characteristics of the product. A key advantage
of the process is the ability to utilize recycled plastic waste to create a
consistent material that can be extruded into a desired shape. While the end
product maintains many of the desirable properties of traditional wood
materials, it also has superior characteristics such as moisture resistance,
which give it an advantage over wood for many applications.
The primary product of the Company's manufacturing process is plastic
lumber in various sizes ranging from 3/8" x 1", to 10" diameter profiles in
various lengths. The Company also markets and sells various engineered or value
added products for specific applications, in which the plastic lumber is used to
make the finished product.
The manufacturing process primarily uses 100% recycled plastic raw material
and consists of three stages. First, the recycled plastic materials received at
the plant are identified and categorized by resin type. These materials are
processed through a series of grinding, densifying and other operations to a
consistent particle size. The ground plastic resins are then blended with other
ingredients such as colorant and UV stabilizers to prepare specific mixes for
the products being produced by the plant. Second, the plastics are heated, mixed
and compounded into a thick molten composite which is extruded through either
closed mold, roll forming or vacuum calibration finishing lines into specified
shapes or profiles using equipment specifically designed for processing recycled
materials. Finally, the extruded products are cooled in a downstream process,
and the resulting profiles are inspected and cut to specific lengths. The
product is then ready to be packaged for shipping. The Company utilizes only
recycled polyethylenes and does not use plastics with PVC, toxic chemicals,
insecticide or paint residues. The Company does use other composite material for
manufacturing its structural lumber product line and its Smart Deck(R) line of
products. The Company's manufacturing process produces no harmful environmental
by-products or hazardous waste.
Raw Materials Supply
The Company obtains most of its mixed plastics feedstock through its own
operations or firms who obtain such materials from a large variety of recycling
facilities, including municipal recycling programs as well as plastics discarded
in various industrial and manufacturing processes. The Company is not dependent
on any one source to obtain its supplies. The Company believes the raw material
feedstock is currently purchased from sources that are dependable and adequate
for at least short term and medium term manufacturing requirements. Availability
of raw material has not been a problem for the Company. Generally, the Company
attempts to maintain raw materials inventory sufficient to supply its
manufacturing requirements for approximately two months, and management believes
that suitable alternative sources are available in the event of disruption. In
the past, the Company has not experienced any significant disruptions from a
lack of raw material availability or other supply problems. However, the cost of
recycled plastics has been subject to cyclical market fluctuations over the past
several years based on supply and demand. Therefore, no assurances can be given
that raw materials will always be available at commercially reasonable prices.
The Company is generally of the belief that if significant increases in demand
for recycled plastics of a lasting nature were to occur, the potential supply of
recycled plastics could easily be expanded to meet any lasting increase in
demand. The Company believes that both supply and demand will continue to
increase as public awareness of
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the need to recycle plastic waste increases. However, any disruption of supply
arrangements or significant lasting increases in raw materials prices could have
a material adverse effect on the Company's operations.
Research and Development
Extensive testing of recycled plastic lumber has been performed for the
past several years at Rutgers University's Center for Plastics Recycling
Research, Louisiana State University and other research facilities. The Company
has been an active participant along with others in the research and development
process, and the Company has spent in excess of $2,000,000 developing new
products. Since its formation, the Company has also devoted significant efforts
on its own, testing and refining its manufacturing processes, molds and recipes
to improve its finished products.
In May, 1996, after a long period of research and development with the
Company, Rutgers University was granted U.S. Patent Protection for its recycled
plastic composite railroad cross tie and its related manufacturing technology.
These patents are held by Rutgers University, with the Company being the
exclusive worldwide licensee for the manufacturing and sale of this and related
products pursuant to an agreement the Company has with Rutgers University.
The Company is also the owner of two patents purchased in June 1998 with
the assets of Polymerix and Trimax providing the Company with the technology and
process to manufacture a structural plastic lumber product. The Company
continues to evaluate its patents to determine if improvements can be made
providing the Company with additional protection from its competitors.
A group of plastic lumber manufacturers founded the Plastic Lumber Trade
Association (PLTA) to promote the benefits of plastic lumber and create proper
testing standards. PLTA holds committee meetings three times a year in
conjunction with the American Society of Testing & Materials (ASTM). Complete
ASTM standards are being established for plastic lumber and preliminary test
results are now available from the following institutions:
- Rutgers University's Center for Plastics Recycling Research
- University of Massachusetts at Lowell, Dept. of Engineering
- Batelle, Engineering Mechanics Dept.
- US Army Corps of Engineers Research Laboratories
Several ASTM standards have been developed and approved for plastic lumber
as of July of 1997. Many more are under consideration. This will greatly expand
the potential users who are required to meet specifications and standards known
to the wood industry
The Company is the only manufacturer of 100% recycled plastic lumber that
has received a successful evaluation report from BOCA Evaluation Services, Inc.,
("BOCA") indicating compliance of the Company's Carefree Decking(R) and
Carefree(R) Guardrail System with national building code requirements. BOCA is a
national testing organization that evaluates building products through
independent testing by qualified third party laboratories and determines
compliance with national building code standards.
PROPRIETARY TECHNOLOGY
The Company is generally of the belief that maintaining state of the art
technology in its recipes, molds and manufacturing processes and maintaining the
proprietary nature of that technology through trade secrecy is more important to
maintaining a competitive position in the industry than seeking any legal
protections that patents may provide. However, the Company owns two patents on
its structural lumber product and has an exclusive worldwide license on the
Rutgers patent. The two patents were purchased as part of the Polymerix/Trimax
asset acquisition through the bankruptcy court. The first Trimax patent expires
on July 9, 2008 and the second patent expires on May 18, 2010. The Company has a
patent application pending for process and composition relating to the
manufacture of wood fiber and polymer composite. The Company believes these
patents are important to provide it with a competitive position in the market.
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The Company has several license agreements relative to patented
technologies of others. The Rutgers patent expires on August 4, 2015. Our
license agreement with Rutgers has a duration that extends the life of the
patent depending upon the Company maintaining its contract rights thereunder.
The Company has a license with Paul Adam for the manufacturing and commercial
sale of contaminated or impacted dredge material from a wide variety of
industrial waste streams that it uses in it environmental division. The Adam
License extends for the duration of the Adam patent, December 5, 2011, unless
either party seeks to terminate the agreement earlier for reasons set forth in
the License Agreement. The Company also has a non-exclusive license with the
Strandex Corporation to manufacture composite lumber products. The Strandex
License Agreement expires on April 22, 2011. The Company believes these licenses
are important to provide it with a competitive position in the market.
The Company has several registered trademarks and several more currently
pending application for registration. The registered trademarks of the Company
are as follows: Carefree Decking System(R), Smartdeck(R), Clean Earth(R),
Integrated Technical Services(R), Recyclemaid(R), Cyclewood(R)(in Japan only),
Trimax(R), Durawood(R), Durapack(R), RecycleDesign(R), Global Garden(R),
SmartTrim(R), Duratie(R), CrushGuard(R), GripGuard(R) and Cyclewood(R). The
Company takes an aggressive attitude toward the protection of its proprietary
technology.
COMPETITION AND BARRIERS TO ENTRY
The recycled plastic lumber industry is a young, highly fragmented industry
with over 20 small manufacturers and many more marketers of recycled plastic
lumber. Including the Company, there are approximately 22 members of the Plastic
Lumber Trade Association ("PLTA"). The competition is broken down into two
separate categories: plastic lumber manufacturers using strictly high density
polyethylene and manufacturers that use a mixture of high density and other
polymers to produce a product that is less expensive.
The Company primarily uses only high density polyethylene and additives at
all of its plants. The major competitors in this segment of the market include
NEW Plastics Corp., Luxemburg, Wisconsin and a variety of small "mom and pop"
organizations. The Company attempts to compete with these competitors on the
basis of price, quality and service. Two competitors manufacture commingled
plastic are The Plastic Lumber Company, Inc., Akron, Ohio and Hammer's Plastics
Recycling, Iowa Falls, Iowa.
There are several competitors that manufacture a composite product that
consists of a mixture of wood and plastic. TREX(R), TimberTech and AERT are
competitors of the Company using a plastic composite material made with sawdust
used to manufacture primarily deckboard. TREX(R) has a strong distribution
system in place, and therefore, is the most widely disseminated product of all
of the competitors of the Company. The Company competes directly against the
composite deck manufacturers through the Smart Deck(R) product.
The Company believes that its competitive position in the market has
increased substantially over the last twelve months. In large part this is due
to several factors, including but not limited to, wider distribution of the
Company's products nationally, cross-selling of separate products to the entire
distribution network, increased purchasing power which can lower the Company's
cost basis, and a strong management team with a long history of success in this
industry.
In most of its applications, the recycled plastic lumber manufactured by
the Company will also be in direct competition with conventional wood. At
present, the principal competitive disadvantage of recycled plastic lumber
compared to wood is that it is generally more expensive to purchase. Recycled
plastic lumber is comparable in price to high grade cedar and redwood. Composite
lumber is about 20% less expensive than recycled plastic lumber. Although
recycled plastic lumber and composite lumber can be more expensive to initially
purchase than comparable wood, plastic lumber and composite lumber can
substantially outlast wood, particularly in applications where the lumber is
exposed to the elements, and can therefore be more cost effective in the long
run. The Company also believes that environmental restrictions are presently
impeding forestry operations in United States forests. A second factor impeding
the use of pressure treated wood is the toxic leaching characteristics.
Chemicals injected into pressure treated wood contain hazardous constituents
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that are released into the soil and create potentially toxic and hazardous
conditions. Such factors may reduce if not eliminate any price advantage that
pressure treated wood presently has with respect to its initial cost.
There are significant barriers to entry for this line of business. First
and foremost, the technology and cost of development of a successful product is
time consuming and costly. Second, there is a large capital investment required
to build the plants, purchase the equipment necessary to operate the facilities,
and market the product on a national level. In order to penetrate the market
successfully, a company needs to establish a national presence with the ability
to produce in sufficient volumes to attract major distributors. Finally, this
type of operation requires technically trained individuals to operate and ensure
that the facility remains in strict compliance with our formulas and quality
control procedures to maintain consistency of the product at a national level.
Some of our competitors are national companies with greater name recognition,
greater economic resources and significantly larger business size.
Potential Markets
By producing a suitable recycled plastic lumber and composite lumber
product, the Company conserves natural resources, reduces the plastic waste
entering landfills and provides a useful, maintenance-free product that
satisfies this growing market. One of the major markets for recycled plastic
lumber and composite lumber is as a substitute for pressure treated lumber.
There are currently a number of states that have either passed laws or have on
their legislative agenda, restrictions on the use and disposal of pressure
treated lumber. The pressure treating process injects copper, chromium and
arsenic (all carcinogens) into the wood. Pressure treated wood has legislative
restrictions in some states on its disposal methods which require disposal in
toxic waste landfills. Plastic lumber is a safe alternative that is fully
recyclable and maintenance-free. Home Depot, Inc., a leading home improvement
retailer and supplier of the Company's Carefree Deck System(R) in some of its
stores, has announced during the last year that it will curtail purchases of
certain hardwood lumber that are having an adverse environmental impact. The
Company's product consists of both structural and non-structural profiles, which
are an excellent substitute for many exterior uses for traditional wood lumber.
In July 1994 the Company was selected to participate in a cooperative
venture with Rutgers University, Norfolk & Southern Railroad, Conrail and the US
Army Corps of Engineers Research Laboratories to develop a prototype railroad
crosstie made from recycled commingled plastic. Rutgers University has performed
extensive tests on many formulas and the Company has developed a prototype that
is superior in many ways to the creosote wood crosstie. Norfolk & Southern and
Conrail are currently track testing the new prototype. As of February 1999, the
Company's cross ties have approximately 300 MGT (million gross tons) of service
and are performing without any measurable defects. In contrast, creosote wood
ties installed at the same time have experienced noticeable wear.
Presently there are approximately 180,000 miles of class 1 railroad track
in the United States, with approximately 3,334 crossties per mile or a total of
over 600,000,000 ties in place. In 1999, 15,000,000 crossties were replaced in
the United States, 93% of which were wood ties, and 65,000,000 cross ties were
replaced worldwide. In 1999, the worldwide market for replacing crossties was
approximately $2.5 billion. In certain applications, the creosote wood crosstie
may have an expected useful life of less than 5 years, creating a large demand
for the more durable recycled plastic crossties that have an estimated useful
life in excess of 50 years. Conditions which shorten creosote wood tie life are
moisture, extreme temperature fluctuations and location relative to curves and
switches. Railroads know from extensive experience which locations require
highest maintenance and these will be the initial target areas for the Company's
longer lasting polymer crossties.
Although the plastic railroad tie is still undergoing testing, sufficient
test data exists which shows the plastic railroad tie is performing well enough
to enable the Company to market its railroad tie product to the railroad
industry. The primary issue in the Company's growth plans regarding the plastic
railroad tie is cost. The Company's current pricing structure is significantly
more expensive than the cost of a comparable wood tie. The Company markets its
tie on the basis of life cycle cost savings. There can be no assurances that the
Company's marketing strategy will be successful in creating demand for the
Company's railroad tie product.
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The Company is currently in the process of developing new products for a
variety of uses. There can be no assurance that the Company's marketing and
sales strategy will be successful in creating demand for any of the Company's
new products.
Marketing Strategies
The business and operations of the Company is itself divided into four
distinct divisions. These are (i) building products, including Carefree
Decking(R), Smartdeck(R) and Trimax structural lumber, (ii) engineered products,
including fabricated products, railroad ties, marine & government and
OEM/industrial businesses; (iii) packaging sheet division, including DuraPack(R)
plastic slipsheets, tier sheets, corner board and other related packaging
products; and (iv) recycled resins division, including post consumer &
industrial plastic processing and trading of engineering grade resins.
The Company employs market focused Sales Specialists and industry specific
representatives to market and sell its products utilizing traditional sources of
sales including but not limited to attending trade shows, select advertising,
cold calling, customer referrals, and the like. The Company also markets and
sells through distributor relationships. The Company is seeking to expand its
distribution network nationwide in certain markets.
The focus of the Company's selling strategy is the high quality,
maintenance-free aspect of its product along with superior customer service. The
Company also focuses on the benefits of its products including such items as
being maintenance free, 100% recycled, environmentally sensitive, aesthetically
pleasing in appearance, free from rot and insect infestation, and durable. The
Company's sales are not dependent upon a few customers, but rather the Company
is currently positioned whereby it has a broad base of customers.
The Company has experienced a seasonal slow-down in the winter months
during the past three years but the Company is attempting to reduce the
seasonality of its sales by increasing its marketing efforts in warmer climates
of the U.S. during winter months, by supplying product for custom items which
are not as seasonal and by increasing its industrial sales which tend to be less
seasonal in nature.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Although the recycled plastic and composite lumber operations do not
generate significant quantities of waste materials or hazardous substances
resulting in hazardous emissions, the Company's operations are and will in the
future be subject to numerous existing and proposed laws and regulations
designed to protect the environment from waste materials and particularly
hazardous wastes emissions. The Company is subject to federal, state and local
laws regarding the environment, occupational health and safety and other
regulations applicable to the Company's business. (See Regulation under the
Environmental Recycling Division section for additional discussion of
environmental regulations affecting the Company's business.) The primary
regulations affecting the plastic lumber divisions are air quality emissions
from our manufacturing plants, disposal of solid and liquid wastes, waste water,
and storm water discharge. The Company does not believe that its waste disposal
practices and manufacturing processes will be in violation of any existing or
presently proposed law or regulation or require special handling permits or
procedures or otherwise result in significant capital expenditures that would
have a material adverse effect on operations. Currently, costs of compliance
with regulatory requirements for the plastic lumber division do not materially
impact the financial condition of the Company, although many times the delays in
approving permit modifications can slow the ability of the Company to quickly
adapt to changing market conditions. However, there can be no assurance that
regulatory requirements will not in the future adversely affect operations or
require the introduction of costly additional manufacturing or waste disposal
practices, which could adversely affect the financial condition of the Company.
Additionally, as with manufacturing practices in general, in the event of a
release or threat of release of any hazardous substance by the Company, such a
release could have a material adverse effect upon the Company whether said
release or threat of release is (i) directly or indirectly caused by the Company
or (ii) from any of the properties owned or leased by the Company or (iii) any
associated offsite disposal of the wastes of the Company or (iv) from prior
activities on property now owned or leased by the Company.
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ENVIRONMENTAL RECYCLING OPERATION
Products & Services
The Company offers a wide array of services in this operation including
soil treatment through either thermal desorption or bioremediation,
environmental construction services, upland disposal of dredge materials,
beneficial re-use of industrial wastes, and on-site recycling services. The
Company is not dependent on a few large customers, but has a broad base of
customers.
Clean Earth of New Castle, Inc. and Soil Remediation of Philadelphia, Inc.
provide a safe, cost effective and final solution to the environmental problem
of dealing with soils and construction debris contaminated with petroleum
hydrocarbons such as diesel fuel, heating fuel, kerosene, jet fuel and gasoline,
by treating such soils so they can be recycled as clean fill. The treatment
process heats the contaminated soils in a controlled environment to a point that
the contaminants are volatized into a gas phase and then incinerated in an
afterburner. In 1995, Clean Earth modified its plant to recycle products at
higher temperatures (up to 1,100 degrees Fahrenheit), and is now capable of
treating soils contaminated with heavier products such as number 6 oil, refinery
wastes, waste oils and coal distillates such as coal tar. The facility is
currently seeking two permit modifications from the Delaware Environment and
Natural Resources Commission ("DENRC") to help reduce costs. One permit
modification, which is still pending, is to allow the facility to burn waste oil
rather than natural gas in winter months. Natural gas is at its highest cost in
winter months and waste oil is generally less expensive. Switching to waste oil
as a fuel in the winter months will enable more efficient costs translating to
improved operating margins. The second permit modification has already been
approved by the DENRC for accepting sewer sludge into the process. The addition
of sewer sludge will significantly reduce the volume of water consumed by the
plant, increase the volume of clean soil, and generate additional revenue for
the Company.
Carteret Biocycle Corp. was founded in 1997 and opened its facility for
business in the third quarter of 1998 in Carteret, New Jersey. This facility
serves a similar function as Clean Earth of New Castle, Inc., except that its
remediates soil contaminated with petroleum hydrocarbons through a bio-organic
process. The operational costs for this facility are substantially less than
thermal desorption, yet the tipping fee (the fee charged its customers to treat
wastes at the facility) is similar to its tip fee at the Clean Earth of New
Castle facility. In addition, Carteret Biocycle is strategically located to
receive materials by truck, rail or barge. This location is also well suited to
receive dredge materials from the New York/New Jersey harbor, transferring the
dredge materials to rail and shipping the material for disposition in
Pennsylvania strip mines. The Company believes it has positioned itself to be
one of very few companies able to take advantage of this new market.
The Company also acquired Clean Rock Industries, Inc. in December 1999.
This is also a soil recycling facility. Located in Hagerstown, Maryland, this
site is well positioned to take advantage of the soil market from Washington
D.C. through Maryland. In conjunction with our Delaware, Philadelphia and New
Jersey facilities, the Company has strategically positioned itself to be a
dominant influence in the soil recycling market in the New York to Washington
D.C. corridor.
The Company's beneficial re-use operation, known as Consolidated
Technologies, Inc. ("CTI"), was acquired in early to mid 1998. CTI oversees the
business of beneficial re-use of industrial wastes including the upland re-use
of dredge materials. The Company believes that this area will provide one of the
most important strategic growth opportunities available to the Company, and in
the environmental industry in general. CTI is an environmental industry group
which was formed with a mission to provide research and operations for the
beneficial re-use of dredged materials from the Raritan Estuary (New York/New
Jersey Harbor) as recyclable fill for the remediation and reclamation of
Pennsylvania strip mines. CTI has experimented with numerous samples of dredge
sediments and has identified proprietary recipes for the creation of engineered
fill materials through solidification and stabilization of the dredged
sediments. Essentially, these mix designs are formulated from 100 percent waste
materials and industry by-products.
In September 1997, the federal government prohibited off-shore dumping of
contaminated dredge material. The Company has positioned itself to take
advantage of this new market opportunity by finding alternative ways to re-use
contaminated dredge material mixed with other products to create a pozzolonic
fill
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which can be used for cover material and clean fill. One example of this is the
Company has disposal rights granted by the Pennsylvania DEP to utilize dredge
material mixed with coal ash or incinerator ash to produce a grout like
substance suitable to reclaim strip mines. Strip mines represent a very
significant environmental issue for Pennsylvania.
CTI has been successful in the permitting of a 550,000 cubic yard
demonstration project involving the beneficial re-use of treated dredge
materials for the reclamation of an abandoned strip mine known as the Bark Camp
Mine Complex. The Company has entered into a No-Cost Contract with the
Commonwealth of Pennsylvania Department of Environmental Protection (PADEP) to
reclaim a portion of the Bark Camp site with dredge materials and other
industrial by-products. The Company has marketed a turnkey concept for this
demonstration which incorporates everything from the physical dredging
activities in the New York Harbor to the final placement of the engineered fill
product at the Bark Camp Strip Mine site.
The Company believes CTI is strategically positioned to capture a major
share of the New York/New Jersey Harbor dredge disposal market. CTI has obtained
the first and only beneficial re-use permit for utilizing manufactured fill
created from dredge material for abandoned strip mine reclamation in
Pennsylvania.
In addition to its plants, the Company has two subsidiaries, Integrated
Technical Services, Inc. and Barbella Environmental Technology, Inc. which
perform services in environmental construction, on site remediation, beneficial
re-use of industrial wastes, UST (underground storage tanks) removals, landfill
capping, on-site stabilization and treatment of hazardous waste to non-hazardous
waste materials, consulting services and other ancillary environmental services.
Regulatory Matters
All of the Company's principal business activities within the environmental
division are subject to extensive and evolving environmental, health, safety,
and transportation laws and regulations at the federal, state and local levels.
These regulations are administered by the United States EPA and various other
federal, state, and local environmental, zoning, health, and safety agencies in
the United States and elsewhere, many of which periodically examine the
Company's operations to monitor compliance with such laws and regulations. Many
of the facilities of the Company operate under permits granted by one or more
federal, state, or local agencies. Obtaining necessary permits to operate the
facilities of the Company are often times difficult, time-consuming, expensive
and may be opposed by local citizens as well as environmental groups. Once
obtained, operating permits are subject to modification and revocation by the
issuing agency. Compliance with current and future regulatory requirements may
require the Company, as well as others in our industry, from time to time, to
make significant capital and operating expenditures. Federal, state, and local
governments have from time to time proposed or adopted other types of laws,
regulations, or initiatives with respect to the environmental services industry,
including laws, regulations, and initiatives to ban or restrict the
international, interstate, or intrastate shipment of wastes, impose higher taxes
on out-of-state waste shipments than upon in-state shipments, limit the type of
waste that may be disposed of at existing facilities, mandate waste minimization
initiatives, and re-classify certain categories of non-hazardous waste as
hazardous. Such regulations, laws and initiatives can create situations which
have a material adverse effect on the Company's environmental business.
The Company makes a continuing effort to anticipate regulatory, political,
and legal developments that might affect operations, but is not always able to
do so. The Company cannot predict the extent to which any legislation or
regulation that may be enacted, amended, repealed, re-interpreted, or enforced
in the future may affect its operations. Such actions could adversely affect the
Company's operations for impact the Company's financial condition or earnings.
Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. During the ordinary course of its operations, the Company
may from time to time receive citations or notices from such authorities that a
facility is not in full compliance with applicable environmental or health and
safety regulations. Upon receipt of such citations or notices, the Company will
work with the authorities to address their concerns. Failure to correct the
problems
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to the satisfaction of the authorities could lead to monetary penalties,
curtailed operations, jail terms, facility closure, or an inability to obtain
permits for additional sites or modifications to permits an existing sites.
As a result of changing government in the public attitudes in the area of
environmental regulation and enforcement, management anticipates that
continually changing health, safety, and environmental protection laws will
require the Company and others engaged in the environmental industry to
continually modify and upgrade various facilities including altering methods of
operations and cost that may be substantial. To date, the Company has not had to
expend material amounts to modify or alter any of its existing facilities
resulting from changes in environmental protection laws. To our knowledge, the
Company is currently in compliance in all material respects with all applicable
federal, state, and local laws, permits, regulations, and orders affecting its
operations or noncompliance would resulting in the material adverse effect on
the Company's financial condition, results of operations or cash flows. There is
no assurance the Company will not have to expend substantial amounts for such
actions the future.
The Company may grow in part by acquisition of additional environmental
facilities. Although the Company conducts due diligence investigations of the
past practices of the businesses that it acquires, it can have no assurance
that, through its investigation, it will identify all potential environmental
problems or risks. As a result, the Company may have acquired, or in the future
acquire, facilities that have unknown environmental problems and related
liabilities. The Company seeks to mitigate the foregoing risks by obtaining
environmental representations and indemnities from the sellers of the businesses
that it acquires. However, there can be no assurances that the Company will be
able to rely on any such indemnities if an environmental liability exists.
Generally, under environmental laws, the generator of the waste is
financially and legally responsible for that waste forever, and is strictly
liable for the costs of clean up and disposal of such wastes. Disposing of the
waste in a landfill or mixing it with other materials does not eliminate that
liability. Therefore, proper control and tracking of all wastes materials
handled by the Company is essential for avoiding any liabilities with respect to
such wastes. The Company takes precaution not only to eliminate, if possible,
the liability of its customers, who are the generators of the contaminated soil
and debris, but also to maintain proper control and tracking of each waste
stream. Once the waste has successfully been treated, the liability is
significantly reduced. The product, once treated, is no longer classified as
waste, but is, generally, a reusable material.
It may be necessary to expend considerable time, effort and money to keep
the Company in compliance with applicable environmental, zoning, health and
safety regulations. In addition, due to the possibility of unanticipated factual
or regulatory developments, the amounts and timing of future environmental
expenditures and compliance could vary substantially from those currently
anticipated.
Federal Regulations
The primary U.S. federal statutes affecting the business of the Company are
summarized below.
(1) The Resource Conservation and Recovery Act of 1976, as amended ("RCRA")
establishes the framework for federal, state, and local government cooperation
in controlling the management of non-hazardous and hazardous solid waste. These
regulations established minimum standards for environmental facilities and may
impose significant liabilities and costs upon the Company. The Company does not
believe that the cost of complying with such standards will have a material
adverse effect its operations.
(2) The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended ("CERCLA") provides for the cleanup of sites from where
there is a release or threatened release of a hazardous substance into the
environment. CERCLA imposes joint and several liability for the cost of cleanup
and for damages to natural resources upon the present and former owners or
operators of facilities or sites from which there is a release or threatened
release of hazardous substances to the extent the disposal of hazardous
substances for which there is a release, occurred during their period of
ownership or operation. Waste generators and transporters also have strict
liability under this statute. Liability under CERCLA is not dependent upon the
intentional disposal of "hazardous wastes"' as defined under RCRA. It can be
founded upon the release or threatened release, even as result of lawful,
unintentional, and non-negligent action, of any
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one of more than 700 "hazardous substances," including very small quantities of
such substances. Therefore, if the Company has transported waste material and
lawfully disposed of it at a properly licensed facility, the Company can still
have CERCLA liability which can be very substantial. The Company does have
environmental liability insurance, however, there can be no assurances that the
amount of such insurance would be sufficient to cover costs pursuant to the
statute. The Company attempts to minimize its exposure under this statute by
selecting disposal facilities and transporters who the Company believes maintain
strict compliance its with all environmental laws and who carry environmental
liability insurance of their own.
(3) The Clean Air Act. This statute provides for the federal, state and
local regulation for the emission of air pollutants. These regulations impose
emission limitations and monitoring and reporting requirements on various
operations of the Company, including its soil treatment facilities and its S&W
Waste facility. It is not anticipated by the Company that the cost of compliance
with this statute will have a material adverse effect on the Company, however,
there can be no assurance that the Company will be successful in maintaining
compliance with this statute.
(4) The Occupational Safety and Health Act of 1970 (the "OSHA Act"). The
OSHA act authorizes the Occupational Safety and Health Administration to
promulgate occupational safety and health standards. Various of the standards,
including standards for notices of hazards, safety within the workplace, and
handling of hazardous substances, may apply to the Company's operations.
(5) The Federal Water Pollution Control Act of 1972 (the "Clean Water Act")
establishes rules for regulating the discharge of pollutants into streams,
rivers, groundwater, or other surface waters from a variety of sources,
including hazardous and non-hazardous disposal sites. Runoff from the Company's
facilities could require the Company to apply for and obtain discharge permits,
conduct a sampling and monitoring, and, under certain circumstances, reduce the
quantity of pollutants, if any, in those discharges. Generally, the Company
would be required to obtain a storm water discharge permit even before the time
it begins development of a facility so it is likely to affect the construction
or expansion of existing facilities. The Clean Water Act provides civil,
criminal, and administrative penalties for violation of its provisions.
State and Local Regulation
The states in which the Company operates have their own laws and
regulations that may be more strict than comparable federal laws and regulations
governing hazardous and non-hazardous waste disposal, water and air pollution
releases and cleanup of hazardous substances and the liability for such matters.
The states also have adopted regulations governing the siting, design,
operation, maintenance, closure, and post closure maintenance of disposal
facilities. The Company's facilities and operations are likely to be subject to
many, if not all, of these types of requirements. There can be no assurance that
these laws and regulations will not have a material adverse effect on the
operations or financial condition of the Company.
Sales and Marketing
The environmental recycling operation is involved in a number of markets,
including but not limited to remediation of contaminated soil, coal tar, upland
disposal of dredge materials and the recycling of sewer sludge and municipal
incinerator ash for beneficial re-use. Each of these markets is substantial and
the markets are tied together via the contracting services arm of Clean Earth.
These service companies can provide on site clean-up, removal and transportation
of these materials to other divisions of the Company for recycling and
beneficial re-use of the products in an environmentally safe manner.
The Company has recently begun bidding on large contracts to receive dredge
material. Prior to September 1997, contaminated dredge material from harbors was
dumped in the oceans. New federal regulations require upland disposal of this
material. The Company believes most harbors throughout the United States will be
faced with this issue and will be required to abide by these new government
regulations. This market is new, and the Company has permits in place to provide
for using the dredge materials to reclaim abandoned strip mines as opposed to
disposing of the material in landfills.
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The Company is also expanding the capabilities of its facilities in
Delaware and Philadelphia to process and re-use material such as sewer sludge,
for which permitting has already been obtained, and municipal incinerator ash.
These products are currently landfilled. The Company will process the sewer
sludge and recover the nutrients which will be mixed with the clean soil to
provide an improved product for resale.
The principal sales and marketing advantage that Clean Earth has over its
competitors is a broad range of services allowing customers a one stop shopping
concept through not only contracting services but also the facilities to process
material. One distinct advantage of the Company is its quality control system.
The Company's comprehensive disclosure and testing systems ensures proper
tracking of material as well as on site testing to insure that only acceptable
material is permitted onto its sites. Rigorous quality control procedures are
essential as they relate to the responsibility and liability in handling of
material not only to the Company but also to its customers.
The Company does experience a seasonal slow down during the winter months
due to the fact that its environmental operations are located in the Northeast
United States, and therefore, adverse weather can impact the Company's
performance.
Competition and Barriers to Entry
Clean Earth has several large competitors that provide similar services
within the northeast and mid-Atlantic states. These competitors include R-3
Technologies in Bristol, Pennsylvania, TPST in Baltimore, Maryland, and MART in
Vineland, NJ. Clean Earth has obtained a permit to treat coal tar materials from
Delaware Natural Resources and Environmental Commission ("DNREC") and believes
that this provides a niche market as very few competitors have this capability.
There are significant barriers to entry for this line of business. First
and foremost, the siting, permitting and licensing process is time consuming and
costly. Second, there is a large capital investment required to build the plants
and purchase the equipment necessary to operate the facility. Additionally,
contracts must be awarded to obtain the incoming product as well as contracts to
dispose of the material after it has been treated in order to operate an
economically feasible facility. Finally, this type of operation requires
technically trained individuals to operate and ensure that the facility remains
in strict compliance with environmental laws. Some of our competitors are
national companies with greater name recognition, greater economic resources and
significantly larger business size.
PLANT OPERATIONS
The soil treatment plants and the S & W Waste RCRA facility are operated
with a strict commitment to safety, health and environmental issues coupled with
a rigorous system of controls. This provides credibility to the "Certificate of
Destruction and Recycling" issued to each waste generator.
The Waste Tracking System starts before the contaminated soil is accepted
at the plant gate. A comprehensive disclosure testing and manifesting system
ensures that the solids brought to the facility fall well within the limits of
Clean Earth's permits and treatment capacities. This system mirrors the
procedures of hazardous waste facilities. Furthermore, Clean Earth runs an EOX
test (Extractable Organic Halogens) on every load of material before it is
authorized for unloading in the storage buildings. In addition, management runs
several spot checks with the comprehensive on-site laboratory with respect to:
GC (Gas Chromatographer) for PCB's (Poly Chlorinated Biphenyls)
GC for VOC identification (Volatile Organic Compounds)
GC with a high temperature desorber for THC (Total Hydrocarbons) and
Desorption Temperatures
EOX analyzer and the screening equipment for fines content
These tests enable Clean Earth to determine quickly and efficiently that
the materials that are received are in accordance with their characterization by
the generator. This sizable investment in equipment and personnel protects both
the facility and the customers against the possibility of receiving undesirable
wastes.
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The storage buildings at each facility are large, fully enclosed structures
and are built on continuous concrete slabs. Runoffs from the buildings are
collected and checked regularly. The buildings are divided into small
compartments to maintain rigorous separation and tracking of each waste stream
and minimizes commingling. This mitigates the potential liability to a small
quantity in the case an undesirable waste is detected after it has been
accepted. This also ties into the sophisticated waste tracking system that
mobilizes a network of eight micro-computers so as to monitor each load of
material from the time of reception, to the final treatment test results. These
computers function on-line and enable operators to view and analyze, at any
time, all the information relative to a given shipment.
In addition, there is a comprehensive control system with recording devices
that insures compliance with the various permit requirements, Clean Earth
further guarantees the facility's performance by testing the production daily.
As recommended in EPA publication #SW846, Clean Earth composites a sample for
every 300 tons of production and tests it for BTEX with a GC and for TPH by the
EPA 418 method, using an independent State certified laboratory. For coal tars,
the treated materials are also tested for PAH's (Polynuclear Aromatic
Hydrocarbons) by the EPA 8270 method. It is the Company's belief that this
treatment plant is the first in the industry to control its emissions with a
C.E.M. (Continuous Emissions Monitoring) system. Information is collected minute
by minute and stored on computers for control purposes; this information is
available to both customers and regulators. The property itself is monitored
through several monitoring wells, that are tested quarterly. The test results
are reported to DNREC.
LIABILITY INSURANCE AND BONDING CAPABILITIES
Clean Earth has fully bonded the costs of a closure plan approved by DNREC.
In addition, Clean Earth has secured a total of $7 million of General Liability
and of Environmental Impairment Liability insurance coverages. The waste
generating companies recycled product is also protected with $1 million
single/$2 million aggregate Products and Completed Operations coverage that
includes a five year tail coverage.
The Clean Earth division has also obtained a $130,000,000 performance bond
capability to enable the environmental remediation companies to participate in
more significant projects.
EMPLOYEES
The Company and its subsidiaries employ on a full time basis a total of
approximately 680 employees through the United States. Of this number,
approximately 419 employees are full time permanent employees of the plastic
lumber operations; and 251 persons are full time permanent employees in the
environmental recycling operations. There are 10 full time permanent employees
at the corporate headquarters.
RISK FACTORS
Our limited access to capital could result in our inability to obtain
financing in adequate amounts and on acceptable terms, which could have an
adverse effect on our business, financial condition and results of operations.
We have limited access to capital and there is no assurance that we will be
able to obtain the capital necessary and appropriate to operate our business. We
will require additional capital in order to:
- manufacture, market and sell our products;
- open new manufacturing facilities
- develop new products;
- manufacture, market and sell our new product lines;
- consolidate our existing operations;
- implement our plan of operations;
- to fund other working capital needs; and
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- capital expenditures.
While we do have existing lines of credit, we cannot be sure that this debt
financing will be available to us in the future or that it will be available in
the amounts we require or on terms acceptable to us. Our failure to obtain
financing in adequate amounts and on acceptable terms could have an adverse
effect on our business, financial condition and results of operations.
Our plastic lumber products carry long warranties, as much as 50 years on
some products. As the product is fairly new, we do not have sufficient
historical track record to determine the future liability that may result from
offering extended warranties or from product liability matters, which could have
a material adverse affect on our business, financial condition and results of
operation.
Our plastic lumber products are fairly new and have not been on the market
for long periods of time and may be used in applications that we may have no
knowledge of or limited experience in. Our plastic lumber products are used in
applications that we have little or no historical track record to measure our
potential liability as it relates to product warranty or product liability
issues. If our products fail to perform over the extended warranty periods,
which for some products is as long as 50 years, we may not have the ability to
adequately protect ourself against such potential liability which can cause a
material adverse affect on our business, financial condition and results of
operation.
If we are not able to attract and keep employees with the requisite levels
of expertise, it could have a material adverse effect on our business, financial
condition and results of operation.
Our business requires a significant amount of expertise in a wide variety
of functions. We cannot assure you that we will be able to maintain employees
with the requisite levels of expertise or that we will be able to attract and
keep these employees in the future. Our failure to attract and keep employees
with the requisite levels of expertise could have a material adverse effect on
our business, financial condition and results of operation.
Several of our directors, officers and employees are affiliated with
entities which are significant shareholders of ours, which could result in a
conflict of interest.
Several of our directors, officers and employees are affiliated, through
ownership or otherwise, with the Stout Partnership and Schultes, Inc., each of
which is a significant shareholder. When our directors who are affiliated with
these entities are faced with decisions where we have interests adverse to those
entities, a conflict of interest could arise. Since a majority of our directors
are affiliated with those entities, agreements related to monies provided by
those entities were not the result of arm's-length negotiations. We have
attempted to have these agreements be as similar to those negotiated by us with
third parties, however, these agreements may include terms and conditions that
may be more or less favorable to us than terms contained in similar agreements
negotiated with third parties.
If we are unable to successfully implement our growth strategy, it could
have a material adverse effect on our business, financial condition and results
of operations.
The success of our growth strategy depends on our ability to continue to
increase profit margins through:
- integration of acquisitions;
- consolidation of plants and operations;
- increased consumer acceptance of alternative wood products;
- an increased distribution network;
- increased production capacity; and
- ability to finance growth.
Our ability to implement this strategy will depend in large part on whether
we are able to:
- expand through strategic acquisitions of companies in new and
complementary industries;
- obtain adequate financing on favorable terms to fund this growth
strategy;
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- develop and expand its customer base;
- hire, train and retain skilled employees;
- strengthen brand identity and successfully implement its marketing
campaigns;
- continue to expand in the face of increasing competition;
- continue to negotiate our supply contacts and sales agreements on terms
that increase or maintain our current profit margins; and
- create sufficient demand for plastic lumber and other products.
Our inability to implement any or all of these strategies could have a
material adverse effect on our business, financial condition and results of
operations.
Our growth strategy includes acquisitions and if we are unable to make
acquisitions, or if those acquisitions are not successful, it could have a
material adverse effect on our business, financial condition and results of
operations.
As part of our growth strategy, we have made, and plan to continue to make
acquisitions of other companies. We may not be able to make acquisitions in the
future. In addition, any acquisition that we make could have a material adverse
effect on our business, financial condition and results of operations. Future
acquisitions are subject to many risks, including the risks that:
- we may not be able to identify suitable companies to buy;
- we may not be able to purchase companies at favorable prices, or at all;
- we may not be able to obtain financing on favorable terms, or at all, to
pay for future acquisitions; and
- we may not be able to effectively integrate the acquired businesses or
technologies into our operations.
In addition, in order to consummate future acquisitions, we may be required
to borrow money or incur other liabilities, which could have a material adverse
effect on our liquidity and capital resources. We may also be required to issue
additional shares of stock, which could result in dilution to our shareholders.
As a result of our acquisition or lease of real estate, we may become
liable for the remediation and/or removal of hazardous or toxic substances from
that real estate.
From time to time, we acquire or lease storage facilities or other
properties in connection with the operation of our business. Under various U.S.
federal, state or local environmental laws, ordinances and regulations, we could
be required to investigate and clean up hazardous or toxic substances or
chemical releases at property we acquire or lease. We could also be held liable
to a governmental entity or to third parties for property damage, personal
injury and investigation and cleanup costs incurred by those parties in
connection with any contamination. The costs of investigation, remediation or
removal of hazardous or toxic substances may be substantial, and the presence of
those substances, or the failure to properly remediate the property, may
adversely affect our ability to sell or rent the property or to borrow using the
property as collateral. In addition, we could be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from these properties.
The seasonal nature of our business could have an adverse affect on our
business, financial condition and results of operations.
Our business is seasonal in nature. Historically, we have generated a
substantial portion of our revenues and profits during the second and third
quarters of our fiscal year. If for any reason our revenues fall below those
normally expected during the second and third quarters of our fiscal year, our
business, financial condition and results of operation could be adversely
affected.
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Some of our businesses operate in relatively new industries which
prospective customers may resist.
The reclamation and recycling of plastic and the manufacture of plastic
lumber for use in construction, and other composite materials containing
recycled plastics, are relatively new industries. There is a general reluctance
in the construction industry to use new materials before they have been
extensively tested, particularly in certain segments which have exacting
performance standards for component materials. In the case of our recycled
plastic lumber and composite materials in particular, this testing may be
extensive for each prospective customer and may require substantial additional
time and resources. In addition, we may experience resistance from prospective
customers who are accustomed to more conventional, non-artificial wood
materials. Moreover, we may not have sufficient financial and other resources to
undertake extensive marketing and advertising activities or to afford the cost
of the necessary marketing and sales personnel when it becomes appropriate to
broaden our marketing efforts.
If we are not able to obtain our raw materials at commercially reasonable
terms, it could have a material adverse effect on our business, financial
condition and results of operations.
The availability of low-cost raw materials, namely post-consumer and
industrial plastic waste products, is a material factor in our costs of
operations. Historically, suppliers have provided adequate quantities of these
raw materials at favorable costs. We believe that our current sources of raw
materials will continue to be available on commercially reasonable terms.
However, unavailability, scarcity or increased cost of these raw materials could
have a material adverse effect upon our business. We purchase most of our raw
materials through generators of post-consumer and industrial recycled plastic
materials. We do not rely on contractual arrangements with our raw materials
suppliers and we have no long-term supply contracts. Disruption of our supply
sources could have a material adverse effect on our business, financial
condition and results of operations.
If we are unable to develop new technologies, we may not be able to compete
effectively which could have an adverse effect on our business, financial
condition and results of operations.
Our products and services involve newly developing technologies and we
cannot be sure that we will be able to compete effectively in developing and
marketing new products and services or in developing or maintaining the
know-how, technology, and patents to compete effectively. There is a general
lack of public awareness of these newly developing products and services
generally, or as alternatives to more traditional and well established products.
To compete effectively, we must increase public knowledge and acceptance of our
products and services and develop and maintain certain levels of know-how and
technical expertise. Our failure to compete effectively could have an adverse
effect on our business, financial condition and results of operations.
There is a lack of uniform standards in the plastic lumber industry in
which we operate which could restrict the growth of plastic lumber products and
limit the market for these products.
The American Society for Testing and Materials and other industry trade
organizations have established general standards and methods for measuring the
characteristics of specific building materials. Users of building materials (and
frequently, issuers of building codes) generally specify that the building
materials comply with the standards relative to the proposed applications. Since
uniform, recognized standards or methods have only recently been established for
measuring the characteristics of plastic lumber, potential users may not be
aware of this method of judging whether or not plastic lumber may be suitable
for their particular requirements, without being informed of such standards by
the plastic lumber supplier or otherwise becoming aware of them. The fact that
these standards are not well known for plastic lumber may limit the market
potential for our building materials and make potential purchasers of such
building materials reluctant to use them. The Plastic Lumber Trade Association,
of which we are a member, is pursuing increased public awareness of such
standards, but we cannot be sure that public awareness will successfully be
increased or that increased awareness will increase the market for our products.
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The industries in which we operate are subject to extensive regulation and
the cost of complying with those regulations, or the liability for not
complying, could become substantial, which could have a material adverse effect
on our business, financial condition and results of operations.
Our businesses are subject to extensive laws and regulations designed to
protect the environment from toxic wastes and hazardous substances or emissions
and to provide a safe workplace for employees. Under current federal
regulations, the Resource Conservation & Recovery Act, and Comprehensive
Environmental Responsibility, Compensation and Liability Act, the generator of
toxic or hazardous waste is financially and legally responsible for that waste
forever, and strictly liable for the clean up and disposal costs. In particular,
the business of treating or otherwise handling toxic or hazardous waste
materials is fraught with potential liability to such handlers if the handling
and tracking of such wastes is not completed properly. We believe we are either
in material compliance with all currently applicable laws and regulations or
that we are operating in accordance with appropriate variances or similar
arrangements, but we cannot be sure that we will always be deemed in compliance,
nor can we be sure that compliance with current laws and regulations will not
require significant capital expenditures that could have a material adverse
effect on our operations. These laws and regulations are always subject to
change and could become more stringent in the future. Although state and federal
legislation currently provide for certain procurement preferences for recycled
materials, the preferences for materials containing waste plastics are dependent
upon the eventual promulgation of product or performance standard guidelines by
state or federal regulatory agencies. The guidelines for recycled plastic
building materials may not be released or, if released, the product performance
standards required by those guidelines may be incompatible with our
manufacturing capabilities. It may be necessary to expend considerable time,
effort and money to keep our existing or acquired facilities in compliance with
applicable environmental, zoning, health and safety regulations and as to which
there may not be adequate insurance coverage. In addition, due to the
possibility of unanticipated factual or regulatory developments, the amounts and
timing of future environmental expenditures and compliance could vary
substantially from those currently anticipated.
If we are not able to maintain our permits and licenses, it could have an
adverse affect on our business.
Our business, especially our environmental recycling operation, depends on
our maintaining permits and licenses from many different federal, state, and
local agencies. We cannot assure you that we will be able to maintain our
permits and licenses in the future or that we will be able to modify our permits
and licenses, if necessary, to be able to compete effectively.
We rely significantly on our trade secrets and our inability to protect
those trade secrets could have a material adverse effect on our business,
financial condition and results of operations.
Our businesses involve many proprietary trade secrets, including certain
methods, processes and equipment designs for which we have not sought patent
protection. Although we have taken measures to safeguard our trade secrets by
limiting access to manufacturing and processing facilities and requiring
confidentiality and nondisclosure agreements with third parties, we cannot
assure you that our trade secrets will not be disclosed or that others will not
independently develop comparable or superior technology. Rather than rely on
patent protection, we have generally chosen to rely on the unique and
proprietary nature of our processes. We have obtained exclusive worldwide
licensing rights with respect to patent technology related to railroad crossties
and the process to manufacture them, but there is no assurance we will be able
to maintain those rights for any specific length of time. We also purchased
patents to manufacture structural lumber.
To the extent we do have patents on some of our technology there can be no
assurances that our patents will adequately protect us from similar technology
being developed with different formulations or from use in countries in which we
do not have patent protection. The Company will seek to protect itself against
known infringement cases against our patents, but there can be no assurance that
our efforts will be successful.
If we are not able to successfully obtain bid work at suitable profitable
margins, it could have a material adverse effect on our business, financial
condition and results of operations.
Our environmental recycling operation consists of certain subsidiaries
which are highly reliant upon contract bidding as a significant source of
revenues. We cannot assure you that we will be successful in
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obtaining bid work in the future or that if we do obtain bid work that it will
be at suitable profitable margins. Our failure to successfully obtain bid work
at suitable profitable margins could have a material adverse effect on our
business, financial condition and results of operations.
The occurrence of an event not fully covered by insurance could have a
material adverse effect on our business, financial condition and results of
operations.
Our business could be disrupted by a variety of occurrences, including:
- fires, explosions or blow outs;
- environmental hazards;
- hurricanes, floods, fires or other acts of God; or
- product liability occurrences.
Any of these occurrences could result in substantial losses due to:
- injury;
- loss of life;
- severe damage;
- clean-up responsibilities;
- regulatory investigation; or
- penalties and suspension of operations.
We maintain insurance coverage against some, but not all, potential risks.
However, we cannot assure you that our insurance will:
- be adequate to cover all losses or exposure for liability;
- continue to be available at premium levels that justify its purchase; or
- continue to be available at all.
If an event occurs which is not fully covered by insurance, it could have a
material adverse effect on our business, financial condition and results of
operation.
A substantial increase in interest rates could have a material adverse
effect on our business, financial condition and results of operation, while a
failure to comply with our credit agreements could have a material adverse
effect on our liquidity and capital resources.
A substantial portion of our outstanding indebtedness is at floating
interest rates. Therefore, a substantial increase in interest rates could
adversely affect our cost of borrowed money, which could have an adverse effect
on our business, financial condition and results of operation. In addition, most
of our debt instruments contain covenants establishing certain financial and
operating restrictions. Our failure to comply with any covenant or obligation
contained in any credit agreement could result in an event of default which
could accelerate debt repayment terms under certain other credit agreements, all
of which could have a material adverse effect on our liquidity and capital
resources.
Our pending or future administration and legal proceedings could result in
a significant judgment against us, the loss of a significant permit or license
or the imposition of a significant fine, any of which could have a material
adverse effect on our business, financial condition and results of operations.
A lawsuit was filed against our former Chairman in a matter entitled, Waste
Management, Inc. vs. Paolino, et al, U.S. District Court, District of Delaware.
Although we are not a named party in the lawsuit, it is not possible for us to
predict the implications of this lawsuit against Mr. Paolino and others at the
current time. Mr. Paolino and others have filed a lawsuit against Waste
Management, Inc. We are also not a named party in that litigation.
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This dispute between Waste Management, Inc. and Mr. Paolino and others may
continue for a long period of time. The effects of this litigation may have wide
ranging implications on us which may result in material adverse effects upon the
business, financial condition and/or operating results of our Company which
cannot be reasonably foreseen by us at the current time.
We have not established any reserves on our Balance Sheet as a result of
any pending or threatened litigation.
We are generally involved in administrative and legal proceedings in the
ordinary course of our business. Citizen's groups have become increasingly
active in challenging the grant or renewal of permits and licenses for waste
facilities and responding to these challenges has further increased the costs
associated with establishing new facilities or expanding current facilities. A
significant judgment against us, the loss of a significant permit or license or
the imposition of a significant fine could have a material adverse effect on our
business, financial condition and results of operations.
The industries in which we operate are very competitive and our inability
to compete effectively could have a material adverse effect on our business,
financial condition and results of operations.
All of our businesses operate in highly competitive industries. Our
recycled plastic lumber business faces competition from other producers of
recycled plastic lumber as well as producers of vinyl and aluminum decking, and
traditional wood, especially pressured treated wood. We compete against other
makers of recycled plastic principally upon the basis of price and quality, as
well as the immediate availability of the product, and compete against other
products such as pressure treated lumber by emphasizing the superior suitability
characteristics of plastic lumber for certain applications, as well as appealing
to the environmental consciousness of consumers. Our environmental recycling
operations face competition from several large competitors that provide similar
services throughout the northeast and midatlantic states. The resources of these
competitors, financial or otherwise are such that it is very difficult for us to
effectively compete. In some instances, our competitors have more revenues,
market share, better name recognition and capital available which could make it
difficult for us to compete. In addition, the environmental industry is changing
as a result of rapid consolidation and our future success may be affected by
those changes. Our failure to compete successfully in either the plastic lumber
or the environmental industry could have a material adverse effect on our
business, financial condition and results of operations.
Future sales of our common stock in the public market could adversely
affect our stock price and our ability to raise funds in new stock offerings.
There were approximately 32.1 million shares of our common stock
outstanding as of December 31, 1999. In addition, we intend to continue to issue
common stock in connection with acquisitions, financings or in other
transactions. Future sales of substantial amounts of our common stock in the
public market, or the perception that these sales could occur, could adversely
affect prevailing market prices of our common stock and could impair our ability
to raise capital through future offerings of equity securities.
Our success depends on our key personnel and, if we are not able to retain
them, it could have a material adverse effect upon our business, financial
condition and results of operations
We believe that our success is dependent to a significant extent upon the
continued employment of certain key executive officers. The loss of services of
Mark S. Alsentzer, our Chief Executive Officer, John W. Poling, our Chief
Financial Officer, Bruce C. Rosetto, our Vice President and General Counsel, or
Michael D. Schmidt, our Vice President and Controller and Chief Accounting
Officer, for any reason could have a material adverse effect upon our business,
financial condition and results of operations.
Anti-takeover provisions may make it more difficult for a third party to
acquire control of us, could adversely affect the market price of our common
stock and could reduce the amount that shareholders might receive if we are
sold.
"Anti-takeover" provisions contained in Nevada law and in our articles of
incorporation, bylaws and contracts could make it more difficult for a third
party to acquire control of us, even if that change in control would be
beneficial to shareholders. These provisions could adversely affect the market
price of our common
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stock and could reduce the amount that shareholders might receive if we are
sold. These anti-takeover provisions include the following:
- Our articles of incorporation give our board of directors the authority
to issue shares of preferred stock without shareholder approval. Any
preferred stock could have rights, preferences and privileges that could
adversely affect the voting power and the other rights of the holders of
our common stock.
- Our articles of incorporation and bylaws provide for staggered terms for
the members of the board of directors, with each board member serving a
staggered four year term.
- Options to purchase our common stock will immediately become exercisable
upon a change in control.
DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth the directors and executive officers of the
Company, their ages, terms of office and all positions. Directors are divided
into classes which are elected for staggered terms of four years, and serve
until the annual meeting of the year in which the terms expire, or until their
successors are duly elected by the stockholders and qualify. Officers serve
generally pursuant to employment agreements each has with the Company, and, if
no such written agreement exists, then until the next annual meeting of the
Board of Directors or until their successor are elected.
<TABLE>
<CAPTION>
NAME OF DIRECTOR/OFFICER AGE DIR. SINCE (TERM EXPIRES) POSITIONS WITH THE COMPANY
- ------------------------ --- -------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Mark S. Alsentzer........... 44 May 1994 (2000) Chairman, President & Chief
Executive Officer/Director
August C. Schultes III...... 53 Feb. 1997 (2000) Director
Roger Zitrin................ 52 Nov. 1996 (2002) Director
Kenneth Leung............... 55 July 1999 (2002) Director
Gary J. Ziegler............. 51 Feb. 1997 (2003) Director
Louis D. Paolino, Jr........ 43 May 1999 (2003) Director(1)
John W. Poling.............. 54 Chief Financial Officer
Bruce C. Rosetto............ 41 Secretary/Vice President and
General Counsel
Michael D. Schmidt.......... 51 Treasurer/Vice President and
Controller, Chief Accounting
Officer
</TABLE>
- ---------------
(1) Resigned effective March 29, 2000.
The following is a description of the biographical information of each of
the Company's directors for the last five years unless otherwise indicated:
Mark S. Alsentzer, Chairman, Director, President & CEO. Mr. Alsentzer
has served as a director since May 1994. As former President of Stout
Environmental, Inc. Mr. Alsentzer developed that company from $2 million to
$90 million in revenues and 46 to 700 employees. In 1992, Stout
Environmental merged with Republic Industries, where Mr. Alsentzer remained
as Vice President of Republic Environmental Systems, Inc. In addition, Mr.
Alsentzer was Director of Cemtech, a company which grew from $3 to $21
million and was sold to Waste Management in 1991. Mr. Alsentzer founded
Clean Earth, which is currently a wholly owned subsidiary of the Company
and a leading recycler of contaminated soil and debris located in the
northeast. Mr. Alsentzer has a B.S. in Chemical Engineering from Lehigh
University and an MBA from Farleigh Dickenson University.
Roger N. Zitrin, Director. Dr. Zitrin has served as a director since
November 1996. Dr. Zitrin was the founder and President of the Heart
Association of Palm Beach County where he was a practicing physician
specializing in cardiology until he retired in 1992. He is presently acting
as an independent
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investor and investment advisor. Dr. Zitrin is the founder of Florida
Medical Laser Corp. and Gold Coast Specialty Lab and co-founder of
Physicians Cardiac Imaging. He is presently acting as financial advisor to
Gold Coast Ventures, Inc. and serving as a Board member of Associated Home
Health. Dr. Zitrin is a graduate of Rutgers College of Medicine and
Dentistry.
August C. Schultes III, Director. Mr. Schultes has served as a
director since February 1997. Mr. Schultes is Chairman of the Board and CEO
of A.C. Schultes, Inc., a contracting and service organization specializing
in water well drilling, water and waste water treatment, and pump and motor
repair services with offices in Maryland, Delaware and two (2) locations in
New Jersey for over seventy -- five years. He is also the Chairman of the
Board and CEO of Life Care Institute, a medical diagnostic center with
facilities to perform stress tests, CAT scans, MRI scans and physical
therapy located in New Jersey. He was also the founder, Chairman of the
Board and CEO of Stout Environmental, Inc., a full service hazardous waste
environmental company. Mr. Schultes is a graduate of Penn State University
and has a BS in Civil Engineering.
Gary J. Ziegler, Director. Mr. Ziegler has served as a director since
February 1997. Mr. Ziegler is President of Consultants and Planners, Inc.,
which provides operating services to several water utility companies in New
Jersey. Mr. Ziegler is a Professional Engineer and Professional Planner in
New Jersey, a Professional Engineer in Maryland, Pennsylvania, Ohio and New
York and a member of the American Society of Civil Engineers and the
National Society of Professional Engineers. He was President of W.C.
Services, Inc. and Vice President of Stout Environmental, Inc. Mr. Ziegler
is a graduate of Clemson University with a BS degree in Civil Engineering.
Louis D. Paolino, Jr. Director. Mr. Paolino resigned from the Board
of Directors effective March 29, 2000. Mr. Paolino has served as Chairman,
President, and CEO of Mace Security International, Inc. since July 1999.
Prior to that he was Chairman, President and CEO of Eastern Environmental
Services, Inc. from June 1996 through December 1998. Mr. Paolino has 16
years of experience in the environmental industry. From September 1993 to
June 1996, Mr. Paolino served as Vice President of U.S.A. Waste Services,
Inc. From November 1995 to January 1996, Mr. Paolino served on the Board of
Directors of Metal Management, Inc., a publicly traded company. Mr. Paolino
received a B.S. degree in Civil Engineering from Drexel University.
Kenneth Ch'uan-K'ai Leung Director. Mr. Leung heads the Corporate
Finance Department of Sanders Morris Mundy in New York City and is the
Chief Investment Officer of Environmental Opportunities Funds I and II.
Prior to joining Sanders Morris Mundy in 1995, Mr. Leung was a Managing
Director at Smith Barney from 1978 to 1994. He has been an Institutional
Investor "All Star" analyst for twenty-one years and has been involved in
many of the major environmental service investment banking transactions
over the last sixteen years. Mr. Leung was a Vice President at F. Eberstadt
& Co. from 1974 to 1978 and an Assistant Treasurer at Chemical Bank from
1967 to 1974. Mr. Leung holds an M.B.A. in Finance from Columbia University
and a B.A. in History from Fordham College. He serves on the Board of
Directors of Zahren Alternative Power Corp., Capital Environmental Resource
Inc., Avista Resources, Inc., Synagro Technologies, Inc. and Northstar
Passenger Services Ltd.
The following is a description of the Company's officers who are not also
directors:
John W. Poling, Age 54, Chief Financial Officer. He is responsible
for the Company's overall financial direction and SEC reporting, accounting
operations and accounting controls. Prior to joining the Company in early
1999, Mr. Poling was Vice President of Finance at Eastern Environmental
from 1996 to 1999. Mr. Poling has held senior financial positions in
publicly-held environmental services companies since 1979, and served as
Vice President and Treasurer of Smith Technology Inc. from 1994 to 1996,
Vice President, Finance and Chief Financial Officer of Envirogen, Inc. from
1993 to 1994, President of Tier Inc. from December 1992 to September 1993,
and Vice President-Finance and Chief Financial Officer of Roy F. Weston,
Inc. from 1989 to 1992. Mr. Poling received a B.S. degree in Accounting
from Rutgers University.
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<PAGE> 29
Bruce C. Rosetto, Age 41. Vice President and General
Counsel/Secretary. Mr. Rosetto joined the Company in January, 1997 and his
primary responsibilities are acting as General Counsel to the Company,
mergers and acquisitions, SEC reporting investor relations and performing
the functions as corporate secretary. Mr. Rosetto was a partner in a New
Jersey law firm; Paschon, Feurey, and Rosetto from 1982-86. In 1986, Mr.
Rosetto became Chairman and CEO of Consolidated Waste Services of America,
Inc., a fully integrated environmental company, building that company
primarily through mergers and acquisitions into one of the largest
privately owned environmental companies in New Jersey until its acquisition
by USA Waste Services. In 1994, he became Chairman and CEO of Hemo
Biologics International, Inc., a biologic products company. He graduated
from LaSalle University in 1979 with a BA Degree in Political Science, and
from Villanova University School of Law in 1982, with a JD Degree. He is
currently a member of the Florida and New Jersey Bar.
Michael Schmidt, Age 50, Treasurer, Vice President and Controller,
Chief Accounting Officer. Mr. Schmidt joined the Company in December 1997.
Mr. Schmidt has over 20 years of public and private accounting experience
including 10 years in the environmental industry. Prior to joining the
Company, Mr. Schmidt served as Chief Financial Officer of Republic
Environmental Systems, Inc., a publicly traded company and a leading
environmental service provider, headquartered in Blue Bell, Pennsylvania, a
position he held for approximately ten years. Mr. Schmidt has a Bachelor of
Science in Business Administration from Rowan University and is a Certified
Public Accountant in the State of New Jersey.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information contained in the Proxy Statement under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" relating to the 2000 Annual
Meeting is incorporated herein by reference.
ITEM 2. PROPERTIES
The properties of the Company consist of administrative offices,
manufacturing plants, fabrication and assembly facilities, and sales offices.
All of the properties of the Company are leased with the exception of the
properties at the S & W Waste, Inc. facility in Kearny, New Jersey, the SRP
facility in Philadelphia, Pennsylvania, the Clean Rock facility in Hagerstown,
Maryland and the USPL Ltd facility in Ocala, Florida. The Company has options to
purchase on several of the properties it leases.
The primary properties of the Company are as follows:
Corporate Office
Boca Raton, Florida: This location consists of approximately 3,300 sq. ft.
and serves as the Corporate Offices of the Company. There are presently
approximately 10 people employed in this location. The property is in good
condition and is leased. The lease expires in November 2000 and the monthly
rental is $5,067.
Plastic Lumber Operating Facilities
Auburn, Massachusetts: This location consists of approximately 34,000 sq.
ft. and its function consists of receiving and processing HDPE plastic for use
as raw material for the Company's manufacturing plants and for re-sale to the
marketplace. The process includes sorting, regrinding, washing, and pelletizing
HDPE. The property is in good condition and is leased. The lease is a month to
month tenancy, and the monthly rental is $18,142.
Chicago, Illinois: This location consists of approximately 260,000 sq. ft.
This location is the headquarters of the Company's plastic division. It produces
plastic and composite lumber profiles through a continuous extrusion process. It
manufactures the Smart DeckR product line. It also processes, sorts, grinds and
washes HDPE, much of it used by the Company as a raw material for its
manufacturing plants. The property is in good condition and is leased with an
option to purchase. The lease expires in January 2009 and the monthly rental is
$39,181 per month.
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<PAGE> 30
Ocala, Florida: This location consists of approximately 143,200 sq. ft..
This facility houses the southern Regional office of the Company as well as
consisting of a manufacturing, distribution warehouse, and recycling of resins
for use as raw material. The property is in good condition and is owned by the
Company.
Green Bay, Wisconsin: This location consists of approximately 38,000 sq.
ft. It produces plastic lumber through a continuous extrusion process and
manufactures the Carefree DeckR product line. The property is in good condition
and is leased. The lease expires in January 2008, and the monthly rental is
$11,875.
Sweetser, Indiana: This location consists of approximately 15,600 sq. ft.
and 7.5 acres. The facility manufactures plastic lumber primarily for industrial
and commercial applications through the continuous extrusion process. The
property is in good condition and is leased with an option to purchase. The
lease expires on April 30, 2003 and the monthly rental is currently $2,000 per
month.
Trenton, Tennessee: This location consists of approximately 90,000 sq. ft.
The plant is also a manufacturer of plastic lumber. One line of this plant is
also dedicated to the manufacture of structural lumber, and one line is
dedicated to the manufacture of railroad ties. The property is in good condition
and is leased with an option to purchase. The lease expires in September 2002
and the monthly rental is $13,491.
Denton, Maryland: This location consists of approximately 80,000 sq. ft.
It currently has several continuous extrusion lines manufacturing a wide variety
of plastic lumber profiles. The property is in good condition and is leased. The
lease expires in February 2003, and the monthly rental is $6,000.
Fontana, California: This location consists of approximately 138,000 sq.
ft.. This facility houses the western Regional office of USPL Ltd. which
includes a manufacturing, distribution warehouse, and fabrication facility. The
property is in good condition and is leased. The lease expires on September 2004
and the monthly rental is $34,907.
Chino, California: This location consists of approximately 33,571 sq. ft..
This facility is used for recycling of resins, in part, used as raw material in
our manufacturing operations. The property is in good condition and is leased.
The lease expires on February 2001 and the monthly rental is $13,000.
Vernon, California: This location consists of two buildings totaling
approximately 45,000 sq. ft. This facility is used for recycling of resins, in
part, used as raw material in our manufacturing operations. The property is in
good condition and is leased. The lease expires on February 2001 and the monthly
rental is $19,390.50.
Environmental Recycling Operating Facilities
Mt. Laurel, New Jersey: This office consists of approximately 3,000 sq.
ft. and is the headquarters for the Clean Earth, Inc.division. The property is
in good condition and is leased. The lease expires in October 2004 and the
monthly rental is approximately $5,130.
Blue Bell, Pennsylvania: This facility serves as an administrative office
for Consolidated Technologies, Inc. consisting of 1,570 sq. ft. The lease
expires in December 2000 and the monthly rental is approximately $2,100.
New Castle, Delaware: This property consists of 7.5 acres of buildings and
property consisting of the Thermal Desorption soil recycling operation. The
property is in good condition and is leased. The lease expires in August 2003,
and the monthly rental is based upon the volume of tonnage received at the
facility.
Philadelphia, Pennsylvania: This property consists of 9 acres with a
building of approximately 27,900 sq. ft. The property consists of a Thermal
Desorption soil recycling operation. The property is in good condition and is
owned by the Company. The property is in good condition and is owned by the
Company.
Hagerstown, Maryland: This property consists of 13.67 acres and contains
buildings totaling approximately 33,000 sq. ft. The property is consists of a
soil recycling plant. The property is in good condition and is owned by the
Company.
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<PAGE> 31
Carteret, New Jersey: This facility consists of approximately 80,000 sq.
ft. and five acres of property. This facility recycles soil through a
bio-organic process. The property is in good condition and is leased with an
option to purchase the leased premises and adjacent property. The lease expires
in December 2027, and the monthly rental is $18,050.
Kearny, New Jersey: This facility is the administrative offices and
treatment, storage and disposal facility for the S & W Waste operations of the
Company. It consists of approximately 7 acres and is owned by the Company. The
facility is in good condition.
Somerville, New Jersey: This facility is an administrative office for the
Company's environmental construction services company. The property is in good
condition and is leased. This lease has a rental of $2,730 per month and expires
on July 31, 2000.
Winslow, New Jersey: This facility is an administrative office for the
Company's environmental construction services company. The property is in good
condition and is leased. This lease has a rental of $2,500 per month and expires
on February 2001.
Merrick, New York: This facility is an administrative office for the
Company's environmental construction services company. The property is in good
condition and is leased. This lease has a rental of $2,640 per month.
ITEM 3. LEGAL MATTERS
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.
A lawsuit was filed against our former Chairman in a matter entitled, Waste
Management, Inc. vs. Paolino, et al, U.S. District Court, District of Delaware.
Mr. Paolino resigned from the Board of Directors effective March 29, 2000.
Although we are not a named party in the lawsuit, it is not possible for us to
predict the implications of this lawsuit against Mr. Paolino and others at the
current time. Mr. Paolino and others have filed a lawsuit against Waste
Management, Inc. We are also not a named party in that litigation.
This dispute between Waste Management, Inc. and Mr. Paolino and others may
continue for a long period of time. The effects of this litigation may have wide
ranging implications on us which may result in material adverse effects upon the
business, financial condition and/or operating results of our Company which
cannot be reasonably foreseen by us at the current time.
We have not established any reserves on our Balance Sheet as a result of
any pending or threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year end 1999, no matters were
submitted to a vote of the security holders, through proxy solicitation or
otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Transactions in the Company's Common Stock are reported on the NASDAQ
National Market System. The Common Stock of the Company is quoted under the
symbol "USPL". Prior to June 1998, the Company traded sporadically on the OTC
Electronic Bulletin Board under the symbol "ECPL". The following table sets
forth the high and low bid price quotations during each quarter specified below
during the last two fiscal years.
<TABLE>
<CAPTION>
QUARTER ENDED LOW BID HIGH BID
- ------------- -------- --------
<S> <C> <C>
March 31, 1998.............................................. $ 8.75 $ 3.375
June 30, 1998............................................... $ 7.375 $ 4.375
September 30, 1998.......................................... $ 6.4375 $ 2.6875
December 31, 1998........................................... $ 6.0625 $ 2.125
March 31, 1999.............................................. $ 9.125 $ 4.5625
June 30, 1999............................................... $10.50 $ 7.00
September 30, 1999.......................................... $13.25 $ 7.00
December 31, 1999........................................... $16.50 $ 7.5
</TABLE>
The above prices represent interdealer quotations, without retail markup,
markdown or commissions, and may not represent actual transactions. As of
February 29, 2000, there were approximately 793 record holders of the Company's
Common Stock.
DIVIDEND POLICY
The Company has not previously paid any cash dividends on its Common Stock
and does not anticipate or contemplate paying dividends on Common Stock in the
foreseeable future. It is the present intention of management of the Company to
utilize all available funds for the development of the Company's business. Under
Nevada corporate law, no dividends or other distributions may be made which
would render the Company insolvent or reduce assets to less than the sum of its
liabilities plus the amount needed to satisfy outstanding liquidation
preferences.
RECENT SALES OF SECURITIES DURING THE LAST THREE YEARS
In January 1997, the Company acquired Recycled Plastics Industries, Inc.
(RPI), located in Green Bay, Wisconsin. The Company paid cash and issued
1,000,000 shares of its Common Stock to the shareholders of RPI in the
acquisition. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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.
In February 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting and clean
up of contaminated sites primarily involving water and soils. The Company issued
300,000 shares of its Common Stock to the former shareholders of ARDT. This
transaction was not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company 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.
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<PAGE> 33
During the period from June 1996 through February 1997, the Company has
offered and sold 208,930 shares of Class A Preferred Stock to investors at $20
per share, and raised $4,178,600 in gross proceeds. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. The
securities were sold primarily to officers, directors or other acquaintances who
were familiar with the business of the Company and were able to assess the risks
and merits of the investment.
During 1996, the Company issued a total of 5,565 shares of Common Stock
pursuant to the exercise of outstanding options held by two individuals who were
officers or directors of the Company. In 1997, the Company issued 500 shares to
directors for attendance at meetings. These transactions were not registered
under the Act in reliance on the exemption from registration in Section 4(2) of
the Act, as transactions not involving any public offering.
During February 1997, the Company issued 187,500 shares plus cash and
royalty fees in connection with the licensing agreement with Rutgers University.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. The offering was made to a single investor which had
knowledge and experience in business matters to enable them to evaluate the
risks and merits of the investment. This investor also had a pre-existing
business relationship with the Company.
On March 28, 1997, the Company acquired Environmental Specialty Plastics
(ESP), a marketing and distribution company of recycled plastic lumber products
in Guasti, California. The shareholders of ESP received cash plus 25,150 shares
of the Company's common stock (see Footnote 2 of Financial Statements for
additional information). These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering was completed
without any general or public solicitation. In each case the offering was made
to a very limited number of officers, directors and shareholders of the company
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.
On March 31, 1997, the Company acquired Integrated Technical Services, Inc.
(ITS), an environmental consulting and construction company in Winslow, New
Jersey. The stockholders of ITS received as acquisition consideration, cash plus
185,000 shares of the Company's common stock, and an additional 47,572 shares of
common stock for the non-compete agreements (see Footnote 2 of Financial
Statements for additional information). These transactions were not registered
under the Act in reliance on the exemption from registration in Section 4(2) of
the Act, as transactions not involving any public offering. This offering made
was completed without any general or public solicitation. In each case the
offering was made to a very limited number of officers, directors and
shareholders of the company 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.
On June 20, 1997, the Company issued 1,111,111 shares of Common Stock to
two investment funds, a partnership, and one accredited private investor. These
transactions were not registered under the Act in reliance on the exemption from
registration in Rule 506 of Regulation D, promulgated under Section 4(2) of the
Act, as transactions not involving any public offering, consisting of sales made
solely to accredited investors. Each entity investor has assets substantially in
excess of $5,000,000 and was not formed for the purpose of investing in the
securities. The natural person who invested has net worth substantially in
excess of $1,000,000.
On June 30, 1997, the Company acquired EnviroPlastics Corp., (EPC) a
recycled plastic raw material regrind operation in Auburn, MA. The stockholders
of EPC received 280,000 shares of the Company's common stock as the purchase
price plus 25,000 shares as consideration for non-compete agreements (see
Footnote 2 of Financial Statements for additional information). These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving
32
<PAGE> 34
any public offering. This offering made was completed without any general or
public solicitation. In each case the offering was made to a very limited number
of officers, directors and shareholders of the company 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.
On June 30, 1997, the Company issued 150,000 shares to the former
shareholders of DuraTech Industries, Inc. as part of an earn out provision in
the purchase documents of that acquisition. These earn out shares were
accelerated in part in exchange for salary concessions made by the former
shareholders of DuraTech Industries, Inc. These transactions were not registered
under the Act in reliance on the exemption from registration in Section 4(2) of
the Act, as transactions not involving any public offering.
On November 18, 1997, the Company acquired Waste Concepts, Inc. (WCI), an
environmental recycling services company located in Norristown, PA. The
stockholder of WCI received cash at Closing plus 400,000 shares of common stock
of the Company (see Footnote 2 of Financial Statements for additional
information). These transactions were not registered under the Act in reliance
on the exemption from registration in Section 4(2) of the Act, as transactions
not involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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.
On January 2, 1998, the Company acquired Green Horizon Environmental, Inc.
(GHI), an environmental recycling services company located in Norristown, PA.
The stockholders of GHI received 50,000 shares of common stock of the Company.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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.
On February 6, 1998, the Company acquired an additional twenty five percent
interest in Consolidated Technologies, Inc. (CTI), an environmental recycling
services company located in Norristown, PA., having previously purchased a 25%
interest on October 9, 1997 for the sum of $500,000. The stockholders of this
company received 35,000 shares of Common Stock of the Company. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company 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.
On February 27, 1998, the Company acquired substantially all the assets of
Chesapeake Recycled Lumber, Inc. (CRL), a plastic lumber manufacturing company
located in Denton, MD. The stockholders of CRL received cash at closing plus
97,500 shares of common stock of the Company. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering made was completed without any general or public solicitation. In each
case the offering was made to a very limited number of officers, directors and
shareholders of the company being acquired. The officers, directors and primary
shareholder 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.
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<PAGE> 35
On February 27, 1998, the Company acquired a five percent interest in
Consolidated Technologies, Inc. (CTI), an environmental recycling services
company located in Norristown, PA. The stockholder of this company received
1,500 shares of Common Stock of the Company. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering made was completed without any general or public solicitation. In each
case the offering was made to a very limited number of officers, directors and
shareholders of the company 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 this individual enabled him to evaluate the risks and merits of
the investment.
Effective April 30, 1998 the Company acquired 100% of the stock of
Cycle-Masters, Inc. ("CMI"), a manufacturer of plastic lumber in Sweetser,
Indiana. The stockholder of CMI received 200,000 shares of common stock of the
Company. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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 him
to evaluate the risks and merits of the investment.
During the period from April 1998 through June 1998, the Company had
offered and sold 211,020 shares of Class B Preferred Stock to investors at $21
per share, and raised $4,431,420 in proceeds. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. The
securities were sold primarily to accredited investors, officers, directors or
other acquaintances who were familiar with the business of the Company and were
able to assess the risks and merits of the investment.
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
stockholder of GCI received 30,000 shares of common stock of the Company. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company 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 this individual enabled him to evaluate
the risks and merits of the investment.
On June 30, 1998, the Company acquired the remaining forty-five percent
interest in Consolidated Technologies, Inc. (CTI), an environmental recycling
services company located in Norristown, PA. The stockholder of this company
received 40,000 shares of common stock of the Company with additional shares to
be paid in the event certain performance criteria are met. These transactions
were not registered under the Act in reliance on the exemption from registration
in Section 4(2) of the Act, as transactions not involving any public offering.
This offering made was completed without any general or public solicitation. In
each case the offering was made to a very limited number of officers, directors
and shareholders of the company 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 this individual enabled him to evaluate the risks and merits of
the investment.
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 was effective June 30, 1998 and includes two
patents for the manufacture of structural plastic lumber. Upon approval of the
Bankruptcy Plan in December 1998, the Company issued 118,391 shares of common
stock. This offering made was completed without any general or public
solicitation. The Company obtained a "No Action" letter from the Securities and
Exchange Commission regarding the ability of the creditors before the bankruptcy
court to sell the stock being issued pursuant to the Plan without restriction.
34
<PAGE> 36
On December 31, 1998, the Company acquired the stock of S & W Waste, Inc.
(S & W), an environmental recycling services company located in Kearny, NJ. The
stockholder of S & W received 320,000 shares of common stock of the Company.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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 this individual enabled him to
evaluate the risks and merits of the investment.
On December 22, 1998 and January 26, 1999, the Company raised $6,500,000 in
the form of convertible securities from Halifax Fund LP and Societe de General
LP. The transaction is structured as a convertible debenture carrying a 5%
coupon. See Exhibits 10.33 and 10.34. As part of the transaction, the Company
has agreed to register Common Stock underlying the Debentures at which point the
investment funds can elect to convert all or any portion of their Debentures
into Common Stock. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering made was completed
without any general or public solicitation. The Common Stock underlying the
Debentures was registered pursuant to a registration statement filed with the
Securities and Exchange Commission on May 14, 1999. On March 2, 2000, the
Halifax Fund LP converted their entire portion of the Debenture, being
$4,000,000, to Common Stock.
On January 28, 1999, the Company acquired the stock of Eaglebrook Plastics,
Inc. and Eaglebrook Products, Inc., a plastic recycling and manufacturing
company located in Chicago, IL. In addition to cash and a convertible debenture,
the stockholders of these companies received 1,668,025 shares of common stock of
the Company. These transactions were not registered under the Act in reliance on
the exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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 this individual enabled him to
evaluate the risks and merits of the investment.
On March 23, 1999, the Company acquired all of the outstanding stock of
Brass Investment Co. ("Brass"), which owns all the stock of Soil Remediation of
Philadelphia ("SRP") and Allied Waste, Inc. ("AWI"). SRP operates a soil
remediation facility in Philadelphia, PA which is very similar to the Company's
soil remediation facility in New Castle, DE and has been a competitor of the
Company. AWI provides environmental services which are very similar to that
provided by the Company environmental services division. The Company purchased
Brass for cash plus 2,000,000 shares of common stock and granted 500,000
warrants to Louis Paolino, Jr. to purchase common stock of the Company. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company 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 this individual enabled him to evaluate
the risks and merits of the investment.
On April 1, 1999, the Company entered into a Management Agreement with
Brigadoon Industries, Inc., ("Brigadoon") taking over all responsibility for
day-to-day management and financial control as of that date and entitling the
Company to all net profits or losses after April 1, 1999. Brigadoon manufactures
corner boards from recycled plastic for use by the packaging industry. The
Company acquired 100% of the stock of Brigadoon on June 30, 1999. The Company
also purchased a 140,000 sq. ft. facility situated on approximately 39 acres in
Ocala, Florida. The Ocala plant will house expanded operations of Brigadoon plus
a large number of new extruders to manufacture other products for the plastic
lumber division. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering made was completed
without any general or public
35
<PAGE> 37
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company 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 this individual enabled him to evaluate
the risks and merits of the investment.
On June 25, 1999, the Company acquired 100% of the stock of Barbella
Environmental Technology, Inc. ("BET"), an environmental remediation and
construction service company located in Somerville, New Jersey. The Company
incurred merger costs totaling $595,000 in the BET transaction that were written
off in the second quarter of 1999. These transactions were not registered under
the Act in reliance on the exemption from registration in Section 4(2) of the
Act, as transactions not involving any public offering. This offering made was
completed without any general or public solicitation. In each case the offering
was made to a very limited number of officers, directors and shareholders of the
company 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 this individual
enabled him to evaluate the risks and merits of the investment.
On September 28, 1999, the Company acquired 100% of the stock of Eureka
Plastics of California, Inc. ("Eureka") for 236,600 shares, and Ecosource
Corporation ("Ecosource") for 392,000 shares, in unrelated transactions for
common stock of the Company. Both of these companies recycle and process
plastics in Southern California. The Company incurred $ 810,000 of costs related
to these mergers that were written off in the third quarter of 1999. This
offering made was completed without any general or public solicitation. In each
case the offering was made to a very limited number of officers, directors and
shareholders of the company 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 this individual enabled him to evaluate the risks and merits of
the investment.
On December 14, 1999, the Company acquired 100% of the stock of Clean Rock
Industries, Inc. and Clean Rock Properties, Ltd. for 422,164 shares. Clean Rock
Industries, Inc. is a soil recycling facility located in Hagerstown, Maryland.
Clean Rock Properties, Ltd. is a holding company that owns the real estate upon
which this business operates. This offering made was completed without any
general or public solicitation. In each case the offering was made to a very
limited number of officers, directors and shareholders of the company 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 this individual enabled him to
evaluate the risks and merits of the investment.
Late in 1996, the Company initiated an offering of up to 250,000 shares of
the Company's Series A Preferred Stock. The shares were non-voting and earned a
10% cumulative stock dividend payable semi-annually. Each share was convertible
into seven shares of the Company's common stock at the option of the
stockholder. In the event of any liquidation, after payment of debts and other
liabilities, the holders of Series A Preferred Stock were 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 were redeemable at
any time at the sole option of the Company for $25.00 per share. In the first
quarter of 1999, 1,050 Series A shares were converted into 7,350 shares of
Common Stock. A 5% stock dividend of 11,351 Series A shares was declared as of
March 31, 1999 to shareholders of record on March 1, 1999. In the second quarter
of 1999, the Company notified all Series A Preferred shareholders of its intent
to redeem the Series A Preferred Shares at the $25 per share redemption price
unless the shareholder elected to convert the shares to Common Stock prior to
the redemption date set by the Company. A dividend for the pro rata period from
Apri1 1, 1999 to the redemption date totaling 2,285 Series A preferred shares
was paid to shareholders. Every Series A Preferred shareholder elected to
convert to Common Stock. A total of 1,584,187 common shares were issued in the
second quarter on conversion of all outstanding Series A Preferred shares. At
December 31, 1999 there were no Series A Preferred shares outstanding.
In the summer of 1998, the Company issued 211,020 shares of the Company's
Series B Preferred Stock to accredited investors. 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. In the
36
<PAGE> 38
first quarter of 1999, 48,113 Series B shares were converted into 336,790 common
shares. A 5% stock dividend of 6,565 Series B shares was declared effective
March 31, 1999 to shareholders of record on March 1, 1999. In July 1999, the
Company notified all Series B Preferred shareholders of its intent to redeem the
Series B Preferred Shares at the $25 per share redemption price, unless the
Series B Preferred shareholders elected to convert their Series B Preferred
Shares to Common Stock prior to the redemption date set by the Company. A
dividend for the pro rata period from Apri1 1, 1999 to the August 31, 1999
redemption date totaling 4,747 Series B preferred shares was paid to
shareholders of record July 1, 1999. All Series B shareholders elected to
convert and, as a result, 825,865 shares of common stock were issued in the
third quarter of 1999. As of December 31, 1999 there were no Series B Preferred
shares outstanding.
The Company issued 4,090,171 shares of common stock in 1999 through several
private placements and received gross proceeds of $26,574,000.
EARN-OUT SHARES AND OPTIONS
Pursuant to various agreements entered into between the Company and the
former shareholders of acquired companies, up to a total of 70,000 shares of the
Company's Common Stock is subject to the right of such shareholders to receive
such stock under certain conditions relating to earnings, sales or production
levels reached by the Company, certain subsidiaries of the Company or by the
entities of which these person were formerly shareholders.
The Company had previously reserved 4,609,386 shares for issuance pursuant
to earnout provisions in the Agreement and Plan of Reorganization entered into
by the Company on December 15, 1995 and subsequently in an Earn Out Rights
Agreement dated October, 1997. The parties to the agreement specified that the
shares would be paid to certain shareholders (Historical Shareholders), who held
the common stock as of the date of the Agreement and Plan of Reorganization,
when net sales or production of Earth Care Global Holdings, on a consolidated
basis, meet or exceed 2.0 million pounds of plastic lumber per month for three
consecutive months, subject to certain limitations contained in the Agreement.
Certain questions arose with respect to the meaning of the production quotas set
forth in these agreements and the Company appointed a committee of independent
directors who selected independent counsel to review this matter. The
independent committee has reported back to the Board of Directors. Thereupon,
the Company sought to resolve the matter with the Historical Shareholders.
The Company entered into Settlement Agreements with approximately 99% of
the Historical Shareholders (representing 4,553,606 shares of the total
4,609,386 earn out shares) whereby each Historical Shareholder agreed to accept
15% of the original earnout shares. If the remaining 1% of the Historical
Shareholders do not accept the settlement offer, the Company will continue to
have exposure to issue approximately 55,000 additional earnout shares under the
original formula. The 1% of the Historical Shareholders who have not executed
the Settlement Agreement are due either to their refusal to sign the Settlement
Agreement or the inability of the Company to locate the Historical Shareholder
after a diligent search.
The stockholder of Waste Concepts, Inc. (WCI) has been provided with the
right to earn additional shares of the Company's stock equal to 20,000 shares
over the next four years in the event WCI meets certain operating income levels
during each of those years. This offering made was 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 this individual enabled him to evaluate
the risks and merits of the investment.
The stockholder of Integrated Technical Services, Inc. (ITS) has been
provided with the right to earn additional shares of the Company's stock equal
to 23,000 shares over the next year in the event ITS meets certain operating
income levels during the 1999 fiscal year. This offering made was 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.
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<PAGE> 39
The knowledge and experience of this individual enabled him to evaluate the
risks and merits of the investment.
The stockholders of Consolidated Technologies, Inc. (CTI), whose interest
was purchased by the Company, have the right to earn additional shares based
upon meeting certain performance objectives by June 1, 1999. These former
stockholders of CTI have the right to earn 70,000 shares of the Company on a
cumulative basis. This offering made was 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 this individual enabled him to evaluate
the risks and merits of the investment.
There are numerous members of the management of the Company and its
subsidiaries who have been granted options to purchase 3,872,418 shares subject
to each manager meeting certain performance criteria.
OTHER OUTSTANDING OPTIONS
On or about December 12, 1997, the Board of Directors granted options to
Stout Partnership providing it the right to purchase 320,000 shares at an
exercise price of $2.25 per share, of which 250,000 have already been exercised.
This grant was in consideration of Stout Partnership and each of the individual
members of the partnership personally guaranteeing a revolving discretionary
line of credit in the amount of $4,000,000 on behalf of the Company with PNC
Bank of Delaware. In addition to the personal guarantees, the individual members
of the partnership pledged $2,000,000 in cash or 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.
On or about September 16, 1998 the Company granted 10,000 options to a
consultant at an exercise price of $3.50 per share as a result of his assisting
the Company in raising money.
On or about December 22, 1998, the Company granted 50,000 warrants to each
Halifax Fund LP and Societe de General LP at an exercise price of $7.21 per
share as part of the consideration of a $4,000,000 investment made in the
Company by convertible securities.
In January 1999, the Company issued a total of 67,500 options at an
exercise price of $7.50 per share and 110,000 options at an exercise price of
$5.00 per share to various consultants who assisted the Company in raising money
or finding acquisitions.
On January 26, 1999, the Company granted 37,500 warrants to Halifax Fund,
L.P. and 25,000 warrants to Societe de General LP. The warrants were issued at
an exercise price of $7.22 per share as part of the consideration of a
$2,500,000 investment made in the Company by convertible securities.
On February 1, 1999, the Company granted 55,0000 warrants to Coast Business
Credit at an exercise price of $5.00 per share in consideration of a loan and
credit line provided to the Company in the amount of $30,000,000.
On March 23, 1999, the Company granted 500,000 warrants to shareholders of
Brass Investments, Inc., a company acquired on that date by the Company, at an
exercise price of $6.00 per share.
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<PAGE> 40
The Table below sets forth the capitalization structure of the Company as
of December 31, 1999.
CAPITALIZATION
(AS OF DECEMBER 31, 1999)
<TABLE>
<S> <C>
PRIMARY SHARES:
Common Stock (shares are freely tradable)................... 32,077,636
FULLY DILUTED:
Convertible Debentures...................................... 1,228,733
Warrants and Options........................................ 4,914,918
Earn Out shares............................................. 758,678
----------
Subtotal.................................................. 6,902,329
Fully Diluted Equity...................................... 38,979,965
</TABLE>
On or about February 2, 2000, the Company granted 200,000 warrants to
Halifax Fund, L.P. at an exercise price of $10.09 per share as part of the
consideration of a $7,500,000 investment made in the Company by convertible
securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations is attached hereto and made a part hereof.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are incorporated herein as being filed
with the Form 10-KSB:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information contained in the Proxy Statement under the caption "Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure"
relating to the 2000 Annual Meeting and which is incorporated herein by
reference.
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<PAGE> 41
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated by
reference from the heading in the Proxy Statement for the 2000 Annual Meeting
which will be filed with the SEC within 120 days of the Company's fiscal year
end.
Information regarding the officers of the Company who are not also
directors is incorporated by reference from ITEM 1, DIRECTORS AND OFFICERS OF
THE REGISTRANT.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption
"Executive Compensation" relating to the 2000 Annual Meeting is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" relating to the
2000 Annual Meeting is incorporated herein by reference. Such Proxy Statement
will be filed within 120 days of December 31, 1999.
ITEM 12. CERTAIN TRANSACTIONS
The information contained in the Proxy Statement under the caption "Certain
Transactions" relating to the 1999 Annual Meeting is incorporated herein by
reference.
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<PAGE> 42
PART IV
ITEM 13. EXHIBITS AND REPORTS
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
2.1 -- Agreement & Plan of Reorganization [Earth Care/Educational
Storybooks] (Incorporated by reference from Exhibit 2.1 to
the Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on March 7, 1997)
3.1 -- Articles of Incorporation of Front Street, Inc., the
predecessor of the Company (Incorporated by reference from
Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 (File No 333-22949) filed with the SEC on March 7,
1997)
3.2 -- Articles of Amendment of Front Street, Inc., the predecessor
of the Company (Incorporated by reference from Exhibit 3.2
to the Company's Registration Statement on Form SB-2 (File
No. 333-22949) filed with the SEC on March 7, 1997)
3.3 -- Articles of Amendment to the Articles of Incorporation of
Educational Storybooks, Inc., the predecessor of the Company
(Incorporated by reference from Exhibit 3.3 to the Company's
Registration Statement on Form SB-2 (File No. 333-22949)
filed with the SEC on March 7, 1997)
3.4 -- Articles of Amendment to the Articles of Incorporation of
Educational Storybooks, Inc., the predecessor of the
Company(Incorporated by reference from Exhibit 3.4 to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on March 7, 1997)
3.5 -- Articles of Merger [Educational Storybooks and U.S. Plastic
Lumber Corp.] (Incorporated by reference from Exhibit 3.5 to
the Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on March 7, 1997)
3.6 -- By-Laws (Incorporated by reference from Exhibit 3.6 to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on March 7, 1997)
4.1 -- Common Stock Specimen Certificate (Incorporated by reference
from Exhibit 4.1 to the Company's Registration Statement on
Form SB-2 (File No. 333-22949) filed with the SEC on March
7, 1997)
4.2 -- Warrant Agreement (Incorporated by reference from Exhibit
4.2 to the Company's Registration Statement on Form SB-2
(File No. 333-22949) filed with the SEC on March 7, 1997)
4.3 -- Series A Warrant Certificate (Incorporated by reference from
Exhibit 4.3 to the Company's Registration Statement on Form
SB-2 (File No. 333-22949) filed with the SEC on March 7,
1997)
4.4 -- Series B Warrant Certificate (Incorporated by reference from
Exhibit 4.4 to the Company's Registration Statement on Form
SB-2 (File No. 333-22949) filed with the SEC on March 7,
1997)
10.1 -- Jeanell Sales Corp. Acquisition Agreement (Incorporated by
reference from Exhibit 10.1 to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on March 7, 1997)
10.2 -- Duratech Acquisition Agreement (Incorporated by reference
from Exhibit 10.2 to the Company's Registration Statement on
Form SB-2 (File No. 333-22949) filed with the SEC on March
7, 1997)
10.3 -- Clean Earth Acquisition Agreement (Incorporated by reference
from Exhibit 10.3 to the Company's Registration Statement on
Form SB-2 (File No. 333-22949) filed with the SEC on March
7, 1997)
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
10.4 -- RPI Acquisition Agreement (Incorporated by reference from
Exhibit 10.4 to the Company's Registration Statement on Form
SB-2 (File No. 333-22949) filed with the SEC on March 7,
1997)
10.5 -- ARDT Acquisition Agreement (Incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on Form
SB-2 (File No. 333-22949) filed with the SEC on March 7,
1997)
10.6 -- Employment Agreement -- Mark Alsentzer (Incorporated by
reference from Exhibit 10.6 to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on March 7, 1997)
10.7 -- Employment Agreement -- Harold Gebert (Incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on March 7, 1997)
10.8 -- Employment Agreement -- David Farrow (Incorporated by
reference from Exhibit 10.8 to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on March 7, 1997)
10.9 -- Rutgers Licensing Agreement (Incorporated by reference from
Exhibit 10.9 to the Company's Registration Statement on Form
SB-2 (File No. 333-22949) filed with the SEC on March 7,
1997)
10.10 -- ESP Acquisition Agreement (Incorporated by reference from
Exhibit 10.10 of Amendment One to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on August 26, 1997)
10.11 -- ITS Acquisition Agreement (Incorporated by reference from
Exhibit 10.11 of Amendment One to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on August 26, 1997)
10.12 -- EPC Acquisition Agreement (Incorporated by reference from
Exhibit 10.12 of Amendment One to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on August 26, 1997)
10.13 -- IIC/USPL Joint Venture Agreement (Incorporated by reference
from Exhibit 10.13 of Amendment One to the Company's
Registration Statement on Form SB-2 (File No. 333-22949)
filed with the SEC on August 26, 1997)
10.14 -- S D & G License and Operating Agreement (Incorporated by
reference from Exhibit 10.14 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.15 -- Ground Lease Agreement (Carteret Biocycle) (Incorporated by
reference from Exhibit 10.15 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.16 -- Lease Agreement (Brock Mgt/Earth Care TN) (Incorporated by
reference from Exhibit 10.16 of amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.17 -- Lease Agreement (APEC/Earth Care Midwest) (Incorporated by
reference from Exhibit 10.17 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.18 -- Lease Agreement (Plastic Properties LLC/RPI) (Incorporated
by reference from Exhibit 10.18 of amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
10.19 -- Lease Agreement (Dalphon Sr./Clean Earth) (Incorporated by
reference from Exhibit 10.10 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.20 -- Lease Agreement (Glades Twin Plaza/Earth Care) (Incorporated
by reference from Exhibit 10.20 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.21 -- Lease Agreement (Consol. Realty/EPC) (Incorporated by
reference from Exhibit 10.21 of Amendment One to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on August 26, 1997)
10.22 -- Lease Agreement (Waste Concepts, Inc.) (Incorporated by
reference from Exhibit 10.22 of Amendment Two to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on January 9, 1998)
10.23 -- Lease Agreement (Earth Care Partners of Tennessee)
(Incorporated by reference from Exhibit 10.22 of Amendment
Two to the Company's Registration Statement on Form SB-2
(File No. 333-22949) filed with the SEC on January 9, 1998)
10.24 -- WCI Acquisition Agreement (Incorporated by reference from
Exhibit 10.22 of Amendment Two to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on January 9, 1998)
10.25 -- CTI Stock Purchase Agreement (Incorporated by reference from
Exhibit 10.22 of Amendment Two to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on January 9, 1998)
10.26 -- Employment Agreement -- Steven Sands (Incorporated by
reference from Exhibit 10.22 of Amendment Two to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on January 9, 1998)
10.27 -- Employment Agreement -- Bruce Rosetto (Incorporated by
reference from Exhibit 10.22 of Amendment Two to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on January 9, 1998)
10.28 -- ICC/USPL Joint Venture II (Incorporated by reference from
Exhibit 10.22 of Amendment Two to the Company's Registration
Statement on Form SB-2 (File No. 333-22949) filed with the
SEC on January 9, 1998)
10.29 -- PNC Bank of Delaware -- Promissory Note (Incorporated by
reference from Exhibit 10.22 of Amendment Two to the
Company's Registration Statement on Form SB-2 (File No.
333-22949) filed with the SEC on January 9, 1998)
10.30 -- Letter Employment Agreement -- Michael D. Schmidt
(Incorporated by reference from Exhibit 10.30 of the Form
10KSB filed on March 31,1998)
10.31 -- Eaglebrook Plastics, Inc. Stock Purchase Agreement
(Incorporated by reference from Exhibit 10.31 of the Form 8K
filed on February 10,1999)
10.32 -- Eaglebrook Plastics, Inc. Stock Purchase Agreement
(Incorporated by reference from Exhibit 10.32 of the Form 8K
filed on February 10,1999)
10.33 -- Coast Business Credit Loan and Security Agreement; Amendment
to Loan and Security Agreement; Second Amendment to Loan and
Security Agreement; Third Amendment to Loan and Security
Agreement; and Fourth Amendment to Loan and Security
Agreement (Incorporated by reference from Exhibit 10.33 of
the Form 10KSB filed with the SEC on March 30, 1999)
10.34 -- Convertible Debenture Purchase Agreements with Halifax Fund,
L.P. dated December 22, 1998 and January 26, 1999
(Incorporated by reference from Exhibit 10.34 of the Form
10KSB filed with the SEC on March 30, 1999)
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
10.35 -- Convertible Debenture Purchase Agreement with Societe
Generale, L.P. dated December 22, 1998 and January 26, 1999
(Incorporated by reference from Exhibit 10.35 of the Form
10KSB filed with the SEC on March 30, 1999)
10.36 -- 1999 Employee Stock Option Plan (Incorporated by reference
from Exhibit 10.36 of the Form 10KSB filed with the SEC on
March 30, 1999)
10.37 -- 1999 Non-Employee Director Stock Option Plan (Incorporated
by reference from Exhibit 10.37 of the Form 10KSB filed with
the SEC on March 30, 1999)
10.38 -- Amendment to 1999 Employee Stock Option Plan
10.39 -- Employment Agreement of Bruce C. Rosetto
10.40 -- Employment Agreement of Michael D. Schmidt
10.41 -- Employment Agreement of John W. Poling
10.42 -- Employment Agreement of Mark S. Alsentzer
10.43 -- Private Placement Stock Purchase Agreement dated August 1999
21.1 -- List of subsidiaries
27 -- Financial Data Schedule
</TABLE>
44
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. Plastic Lumber Corporation
By: /s/ MARK S. ALSENTZER
------------------------------------
Mark S. Alsentzer,
Chairman of the Board
Chief Executive Officer and
President
Date: March 29, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
/s/ MARK S. ALSENTZER Date: March 29, 2000
- -----------------------------------------------------
Mark S. Alsentzer
Chairman of the Board, Chief Executive Officer and
President
/s/ JOHN W. POLING Date: March 29, 2000
- -----------------------------------------------------
John W. Poling
Chief Financial Officer
/s/ MICHAEL D. SCHMIDT Date: March 29, 2000
- -----------------------------------------------------
Michael D. Schmidt
Vice President and Controller, Chief Accounting
Officer/Treasurer
/s/ AUGUST C. SCHULTES Date: March 29, 2000
- -----------------------------------------------------
August C. Schultes III
Director
/s/ GARY J. ZIEGLER Date: March 29, 2000
- -----------------------------------------------------
Gary J. Ziegler
Director
/s/ ROGER N. ZITRIN Date: March 29, 2000
- -----------------------------------------------------
Roger N. Zitrin
Director
/s/ KENNETH LEUNG Date: March 29, 2000
- -----------------------------------------------------
Kenneth Leung
Director
</TABLE>
45
<PAGE> 47
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 the years ended
December 31, 1999 and 1998. This discussion should be read in conjunction with
consolidated financial statements and notes thereto included elsewhere herein.
BUSINESS SEGMENTS
The Company has two distinct business segments-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. See Note 2 to the consolidated financial
statements for summaries of the business combinations completed in 1999 and
1998. Several of the 1999 acquisitions were accounted for as a pooling of
interests. Accordingly, all amounts in the financial statements and related
notes have been restated to include the accounts of the pooled companies as if
the mergers took place on January 1, 1998. Non-recurring charges for merger
related expenses totaling $1,035,000 in the Environmental Division and $810,000
in the Plastic Lumber Division were recorded in 1999.
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.
NON-RECURRING RESTRUCTURING, EQUIPMENT AND INVENTORY REVALUATION CHARGES IN 1999
In conjunction with the aforementioned significant acquisitions in each
division in the first quarter of 1999, the Company restructured and consolidated
its two operating divisions and facilities. A restructuring charge totaling
$5,745,000 was recorded in the first quarter of 1999 including $4,365,000 by the
plastic lumber division and $1,380,000 by the environmental recycling division.
In addition to consolidating several plants, the Company discontinued the
labor intensive flow mold process and converted entirely to a continuous
extrusion method of manufacturing plastic lumber.
As a result, the Company recorded the following charges during the first
quarter of 1999:
<TABLE>
<CAPTION>
<S> <C>
Write-down of flow mold inventory to its raw material
value..................................................... $2,025,000
Write-down of flow mold equipment to its salvage value...... 1,315,000
Severance costs in connection with the restructuring........ 1,075,000
Exit costs in connection with the restructuring............. 1,330,000
----------
$5,745,000
==========
</TABLE>
46
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
The following table sets forth revenue, with percentages of total revenue,
and 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 two business segments. The following amounts do not
include the aforementioned non-recurring merger and restructuring, inventory and
equipment revaluation charges. The amounts for 1998 have been restated to
reflect the pooled results as if the mergers had taken place on January 1, 1998.
<TABLE>
<CAPTION>
1999 % 1998 %
------- -------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales:
Plastic Lumber........................................... $53,046 38.3 $21,250 29.2
Environmental Recycling.................................. 85,498 61.7 51,544 70.8
------- -------- ------- -----
Total revenue.................................... 138,544 100.0 72,794 100.0
Cost of Sales excluding depreciation:
Plastic Lumber........................................... 34,359 64.8 14,986 70.5
Environmental Recycling.................................. 62,117 72.7 40,228 78.0
Depreciation:
Plastic Lumber........................................... 2,022 3.8 1,104 5.2
Environmental Recycling.................................. 1,832 2.1 1,154 2.2
Corporate................................................ 27 0.0 8 0.0
Selling, General and Administrative:
Plastic Lumber........................................... 8,487 16.0 5,518 26.0
Environmental Recycling.................................. 8,503 9.9 6,220 12.1
Corporate................................................ 1,881 1.4 1,344 1.8
Amortization:
Plastic Lumber........................................... 529 1.0 264 1.2
Environmental Recycling.................................. 693 0.8 118 0.2
Corporate................................................ 266 0.2 162 0.2
------- -------- ------- -----
Total Operating Expenses......................... 120,716 87.1 71,106 97.7
Total Operating Income........................... 17,828 12.9 1,688 2.3
Operating Income (Loss) by Segment
Plastic Lumber........................................... 7,649 14.4 (622) (2.9)
Environmental Recycling.................................. 12,353 14.4 3,824 7.4
Corporate................................................ (2,174) (1.6) (1,514) (2.1)
------- -------- ------- -----
Total Operating Income........................... $17,828 12.9 $ 1,688 2.3
</TABLE>
CONSOLIDATED REVENUES AND OPERATING INCOME
The Company recognized significant increases in both revenues and operating
income for 1999 compared to 1998. Revenues increased 90% to $138,544,000 in 1999
from $72,794,000 in 1998. Approximately $23,808,000 of the increase resulted
from internal growth and $41,942,000 of the increase was attributable to
companies purchased in 1999. Consolidated operating income increased by
$16,140,000 to $17,828,000 in 1999 compared to $1,688,000 in 1998, an increase
of 956%. Approximately $9,678,000 of the increase in operating income came from
internal growth and $6,462,000 came from businesses purchased in 1999. The
Company expects to continue to realize significant efficiencies from the plant
consolidations and restructuring undertaken in the first quarter of 1999 and the
major expansion in plastic lumber capacity to be completed in the second and
third quarters of 2000.
47
<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
REVENUES BY SEGMENT
Plastic lumber division revenues increased 150% to $53,046,000 in 1999
compared to $21,250,000 in 1998. Approximately $4,936,000 or 16% of the
$31,796,000 increase was from internal growth and $26,860,000 was attributable
to the purchases of Eaglebrook and Brigadoon in 1999. Environmental recycling
division revenues increased 66% to $85,498,000 in 1999 from $51,544,000 in 1998.
The purchase of Brass contributed $15,082,000 of the $33,954,000 increase in
environmental recycling division revenues and internal growth contributed
$18,872,000.
GROSS PROFIT
Consolidated gross profit, excluding the restructuring and inventory
revaluation charge and depreciation, increased $24,485,000 or 139% to
$42,064,000 for 1999 as compared to $17,579,000 in 1998. The gross profit as a
percent of revenue improved by 6 percentage points from 24% in 1998 to 30% in
1999. Approximately $11,011,000 of the $24,485,000 increase in gross profit came
from internal growth and $13,474,000 of the increase was attributed to purchases
of companies in both business segments in 1999.
Plastic lumber acquisitions in 1999 accounted for $9,784,000 or 79% of the
$12,423,000 increase in plastic lumber division's gross profit before
depreciation and restructuring charges in 1999. Approximately $2,639,000 of the
increase came from internal growth. Internal growth contributed approximately
$4,913,000 of the $12,061,000 increase in gross profit in the environmental
recycling division and $7,148,000 of the increase in gross profit came from the
purchases of S&W at the end of 1998 and Brass.
Gross profit, excluding the restructuring and inventory revaluation charge
and depreciation, as a percent of plastic lumber revenues improved significantly
from 29.5% in 1998 to 35.2% in 1999. Most of the plastic business units
contributed to the improvement in plastic lumber profit margins.
The environmental recycling division's gross profit margin also improved
significantly from 22.0% of revenues in 1998 to 27.3% in 1999. Several of the
environmental owned and pooled business units contributed to the improvement
along with the higher gross margin S&W acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
Consolidated SG&A expenses increased $5,790,000 to $18,871,000 in 1999 from
$13,081,000 in 1998. As a percentage of revenue, the consolidated SG&A improved
by 4.4% from 1998 to 1999 . The plastic lumber division's SG&A expenses as a
percent of sales improved by 10 percentage points, from 26% of revenues to 16%.
The environmental recycling division's SG&A expenses as a percent of revenues
also improved from 12% of revenues in 1998 to 10% of revenues in 1999. The
Corporate administrative expense percent improved to 1.4% of revenues in 1999
from 1.8% in 1998. The economies of scale of consolidating administrative
functions, increased purchasing power with vendors and spreading fixed expenses
over a larger revenue base as a result of the numerous acquisitions in the past
two years continue to benefit the entire Company.
INTEREST EXPENSE
Interest expense increased $3,898,000 to $5,465,000 in 1999 over the
$1,567,000 in 1998. $722,000 of the increase is the write-off of the entire
discount assigned to the $6,500,000 convertible debentures proceeds in December
1998 and January 1999 (see note 6 to the consolidated financial statements).
There was no similar charge in 1998. The $7,500,000 of debentures issued in
February 2000 do not have a similar favorable conversion feature and the Company
did not incur significant costs to issue the new debentures.
Interest expense also includes $439,000 of amortization of deferred
financing costs, an increase of $167,000 over the $272,000 of amortization in
1998. The increase is entirely attributable to costs of obtain the new credit
agreement form Southern Pacific Bank (SPB) in October 1998. Interest expense for
1999 also
48
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
includes $249,000 of amortization of costs related to the issuance of $6,500,000
of convertible debentures in December 1998 and January 1999. There was no
similar charge in 1998. Approximately $613,000 of the $1,039,000 unamortized
debenture issuance cost at December 31, 1999 will be charged to additional paid
in capital in 2000 related to the conversion of $4,000,000 of the $6,500,000 of
old debentures. Total amortization of debt and debenture issuance costs should
be significantly lower in 2000.
Most of the increase in interest expense is the result of the following
additional borrowings:
- A weighted average outstanding balance of $17,488,000 under the $30
million SPB credit facility in 1999;
- Issuing $6,500,000 of convertible debentures;
- Issuing $4,000,000 of convertible debentures and a $3,000,000
capitalized lease in the Eaglebrook purchase;
- Issuing $6,000,000 of additional debt to affiliates; and
- Issuing other loans and capitalized leases secured by specific
equipment.
Interest expense also increased as a result of debt service requirements
assumed from businesses acquired during 1998 and 1999.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased $1,615,000 or 71% to $3,881,000 in 1999
compared to $2,266,000 in 1998, reflecting the significant increase in plant and
equipment from both acquisitions and continued capital investments. Amortization
of intangibles also increased $944,000 to $1,488,000 in 1999 from $544,000 in
1998 due to the numerous acquisitions completed during 1998 and 1999.
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 freezing can impact the Company's
performance. Additionally, sales of certain plastic lumber products slow
significantly in the winter months.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,807,000 at December 31, 1999, a
decrease of $1,246,000 from the $3,053,000 at December 31, 1998. Cash provided
by operating activities was $5,960,000 in the year ended December 31, 1999. The
significant increase in sales during the second half of 1999 resulted in a much
greater increase in accounts receivable and inventories than the increase in
accounts payable.
Cash used in investing activities was primarily for acquisitions and
purchases of equipment. The environmental recycling division made capital
expenditures in 1999 for plant and equipment totaling $10,745,000. The plastic
lumber division made plant and equipment purchases totaling $21,040,000
primarily to expand capacity at three of the manufacturing facilities and to
convert the Tennessee facility from flow mold of plastic lumber to extrusion of
the patented structural lumber. The Company also used a total of $15,098,000 of
cash as part of the consideration to purchase companies with property, plant &
equipment valued at $29,508,000.
Cash provided by financing activities in 1999 included $23,128,000 of net
additional bank and equipment financings, $2,500,000 of net proceeds from the
issuance of additional 5% convertible subordinated debentures (see Note 7 of the
Notes to Consolidated Financial Statements) and $6,000,000 net proceeds from
loans from
49
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
affiliates. In addition, the Company assumed $8,870,000 of debt owed by acquired
companies and incurred $4,800,000 of additional debt to make the acquisitions.
Proceeds from new bank and capital lease borrowings included $14,256,000
under the new SPB credit agreement, a $1,200,000 real estate loan on the Brass
property, $888,000 of insurance premium financing and $873,000 of equipment
loans and capital leases. The $1,290,000 of costs incurred in 1998 and 1999 to
obtain the SPB credit agreement is being amortized over the agreement's 5 year
term. $ 8,870,000 of the proceeds of the SPB loans were used to pay off debt
assumed on acquisitions and the remaining $5,386,000 was used to purchase
equipment and to make scheduled payments on term loans and capital leases.
Equity financing in 1999 consisted of several private placements generating
a total of $26,574,000. The Company also received approximately $1,924,000 from
the exercise of stock options granted in prior years. The Company paid
$1,367,000 of costs related to stock issuances in 1999. The net proceeds of the
equity financings were used to make acquisitions, to purchase equipment and to
pay off $4,000,000 of debt issued to acquire Eaglebrook.
Equity financings in 1998 included $2,292,000 of proceeds from the exercise
of common stock warrants issued in prior years and $4,431,420 from a Private
Placement of 211,020 shares of Series B Preferred Stock for $21 per share. The
Series B Preferred Stock carried a cumulative 10% stock dividend and each share
of preferred stock was convertible into seven common shares. All of the Series B
Preferred stock was converted into common shares in 1999. The Company incurred
expenses totaling $484,000 to register the common stock underlying the common
stock warrants and the convertible preferred stock in 1998. The proceeds of the
equity financings in 1998 were used to make acquisitions and to fund working
capital. The proceeds from $25,227,000 of bank and capital lease financings in
1998 were used to purchase or lease equipment and to fund working capital.
The company has committed to purchase approximately $14,600,000 of plastic
lumber extruders and related processing equipment over the next two quarters. In
January 2000 the Company negotiated 100% financing collateralized by the
extruders and processing equipment. The Company has also committed to invest
approximately $6,000,000 to expand its plastic lumber manufacturing facilities
in Chicago, Florida and California. The Company will also require additional
working capital for the dredging opportunities being pursued by the Company and
approximately $4,800,000 to purchase equipment for the environmental recycling
operations.
On July 29, 1999, the Company filed a "shelf registration" statement on
Form S-4 with the Securities and Exchange Commission to issue up to a total of
10,000,000 common shares. The Company wants to have the ability to issue
registered shares for acquisitions. Approximately 899,497 of these shares have
been issued in acquisitions in 1999.
SUBSEQUENT EVENTS
ACQUISITION OF BARON IN 2000
On February 10, 2000, the Company acquired the assets of Baron Enterprises,
Inc. ("Baron"), a manufacturer of plastic slip and tier sheets, for 300,000
shares of the common stock. Baron operates facilities in Denver, CO and
Reidsville, NC. Both plants manufacture tier and slip sheets that are used in
handling freight. The Company manufactures similar products in its Chicago
facility. The combination with the production capacity and customer base of
Baron's provides the Company with a significant market position for these
products in the United States.
50
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
ISSUANCE OF ADDITIONAL CONVERTIBLE SUBORDINATED DEBENTURES AND PARTIAL
CONVERSION OF OLD DEBENTURES IN 2000
On February 2, 2000 the Company issued an additional $7,500,000 of 5%
Convertible Subordinated debentures to the holder of 61.54% of the debentures
outstanding at December 31, 1999. The debentures have substantially the same
terms as the existing debentures with the following differences:
- The conversion price is the lower of $10.09 or the current market
price but not less than $8.25.
- The debenture holder can force the Company to redeem the debentures
at a 10% premium after one year if the market price stays below
$8.25 for 10 consecutive trading days
- The Company can force conversion of the debentures if the market
price stays above $16.84 for 20 consecutive trading days
In conjunction with the issuance of the debentures, the Company issued
200,000 warrants to purchase Common stock at $10.09 per share. The Company has
filed a Registration statement with the SEC to register the shares underlying
the debenture and warrant agreements. The proceeds were used for working
capital.
On March 1, 2000 this same debenture holder converted all $4,000,000 of its
debentures and unpaid interest from December 31, 1999 to March 1, 2000 into
762,465 shares of common stock.
51
<PAGE> 53
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Certified Public Accountants......... 53
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 55
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998................................ 56
Consolidated Statements of Stockholders' Equity for the
Years Ended
December 31, 1999 and 1998................................ 57
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998................................ 58
Notes to Consolidated Financial Statements.................. 59
</TABLE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of U.S. Plastic Lumber Corporation:
We have audited the accompanying consolidated balance sheet of U.S. Plastic
Lumber Corporation (a Nevada Corporation) and subsidiaries as of December 31,
1999 and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Plastic
Lumber Corporation and subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Miami, Florida
March 28, 2000
52
<PAGE> 54
To U.S. Plastic Lumber Corporation:
We have audited the accompanying consolidated balance sheet of U.S. Plastic
Lumber Corporation (a Nevada Corporation) and subsidiaries as of December 31,
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of Barbella Environmental Technology, Inc., a company
acquired during 1999 in a transaction accounted for as a pooling of interests,
as discussed in Note 2. Such statements are included in the consolidated
financial statements of U.S. Plastic Lumber Corporation and subsidiaries and
reflect total assets and total revenues of 12% and 25%, respectively, of the
related consolidated totals for 1998. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for Barbella Environmental Technology, Inc., is
based solely upon the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the report of other auditors provide
a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of U.S. Plastic Lumber Corporation and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 28, 2000.
53
<PAGE> 55
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
Barbella Environmental Technology, Inc.
Somerville, New Jersey
We have audited the accompanying balance sheets of BARBELLA ENVIRONMENTAL
TECHNOLOGY, INC. as of December 31, 1998 and 1997, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of BARBELLA
ENVIRONMENTAL TECHNOLOGY, INC. as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ CALLAHAN & COMPANY P.C.
Neptune, New Jersey
March 12, 1999
54
<PAGE> 56
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
RESTATED
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,807,588 $ 3,052,518
Accounts receivable, net of allowance for doubtful
accounts of $1,139,870 and $460,907 in 1999 and 1998,
respectively........................................... 32,915,420 17,618,768
Inventories............................................... 7,339,543 4,963,975
Prepaid expenses and other assets......................... 2,636,812 1,537,808
------------ -----------
Total current assets.............................. 44,699,363 27,173,069
Property, plant and equipment (net)......................... 80,423,952 21,201,386
Acquired intangibles (net).................................. 35,837,568 9,553,642
Other assets................................................ 5,350,549 5,408,341
------------ -----------
Total assets...................................... $166,311,432 $63,336,438
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 20,180,807 $ 7,604,954
Notes and capital leases payable, current portion......... 5,867,779 4,921,253
Accrued expenses.......................................... 4,111,309 2,399,393
Restructuring reserves.................................... 734,661 --
Other liabilities......................................... 1,615,800 1,825,186
------------ -----------
Total current liabilities......................... 32,510,356 16,750,786
Notes and capital leases payable, net of current portion.... 36,322,452 17,110,709
Notes payable, affiliates -- long term...................... 6,000,000 582,448
Deferred income taxes and other liabilities................. 1,718,061 498,602
Minority interest........................................... 250,165 250,165
Convertible subordinated debentures, net of unamortized
discount.................................................. 6,500,000 3,555,556
------------ -----------
Total liabilities................................. 83,301,034 38,748,266
------------ -----------
COMMITMENTS AND CONTINGENCIES -- NOTE 12.................... -- --
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock, par value $.001;
authorized 5,000,000 shares; issued and outstanding
none and 382,709 shares, respectively.................. -- 383
Common stock par value $.0001, authorized 50,000,000
shares; issued and outstanding 32,077,632 and
20,091,292 shares, respectively........................ 3,208 2,009
Additional paid-in capital................................ 81,171,322 25,126,549
Retained earnings (deficit)............................... 1,835,868 (540,769)
------------ -----------
Total stockholders' equity........................ 83,010,398 24,588,172
------------ -----------
Total liabilities and stockholders' equity........ $166,311,432 $63,336,438
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE> 57
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
RESTATED
1999 1998
------------ -----------
<S> <C> <C>
Sales, net.................................................. $138,544,512 $72,794,387
Cost of goods sold.......................................... 100,176,431 57,344,285
Inventory revaluation charges............................... 2,025,000 --
------------ -----------
Gross profit.............................................. 36,343,081 15,450,102
Selling, general and administrative expenses................ 20,539,660 13,762,466
Merger costs................................................ 1,845,000 --
Restructuring and asset equipment revaluation charges....... 3,720,000 --
------------ -----------
Operating income.......................................... 10,238,421 1,687,636
Interest and other income................................... 106,275 383,776
Interest expense............................................ (5,464,880) (1,566,854)
Minority interest in income of Joint Venture & Subsidiary,
net....................................................... -- (262,659)
------------ -----------
Income before income taxes................................ 4,879,816 241,899
Provision for (benefit from) income taxes................... 1,731,000 (62,181)
------------ -----------
Net income................................................ 3,148,816 304,080
Preferred stock dividend earned............................. (316,782) (677,078)
------------ -----------
Net income (loss) attributable to common stockholders..... $ 2,832,034 $ (372,998)
============ ===========
Basic income (loss) per share............................... $ 0.10 $ (0.02)
============ ===========
Diluted income (loss) per share............................. $ 0.09 $ (0.02)
============ ===========
Weighted average common shares outstanding -- basic......... 28,171,655 18,737,415
============ ===========
Weighted average common shares outstanding -- diluted....... 30,199,499 18,737,415
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
56
<PAGE> 58
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 (RESTATED)
<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK ADDITIONAL RETAINED
PREFERRED STOCK -------------------------- PAID-IN- EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------------- ---------- ---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1997, restated............ 208,930 $ 209 17,482,363 $ 1,748 $13,030,328 $ (258,075) $12,774,210
Business acquisitions and
earnout agreements........ -- -- 952,875 96 3,455,857 -- 3,455,953
Sale of Series B preferred
stock..................... 211,020 211 -- -- 4,431,209 -- 4,431,420
Exercise of options and
warrants.................. -- -- 1,044,372 105 2,524,762 -- 2,524,867
Costs of issuing common and
preferred shares.......... -- -- -- -- (483,788) -- (483,788)
Shares and value of options
issued to directors and
Stout Partnership......... -- -- 4,400 -- 512,685 -- 512,685
Stock issued in connection
with convertible
debentures................ -- -- 114,800 11 548,949 -- 548,960
Debenture proceeds allocated
to 10% conversion
discount.................. -- -- -- -- 444,444 -- 444,444
Other issuances............. -- -- 29,030 3 75,338 -- 75,341
Conversion of Preferred to
Common.................... (66,207) (66) 463,452 46 20 -- --
Preferred stock dividends... 28,966 29 -- -- 586,745 (586,774) --
Net income.................. -- -- -- -- -- 304,080 304,080
Balance at December 31,
1998, restated............ 382,709 383 20,091,292 2,009 25,126,549 (540,769) 24,588,172
Business acquisitions and
earnout agreements........ -- -- 4,074,711 407 19,380,593 -- 19,381,000
Settlement of Historical
Shareholders' earnout
agreements................ -- -- -- -- 5,166,005 -- 5,166,005
Value of warrants issued on
acquisitions.............. -- -- -- -- 1,219,892 -- 1,219,892
Exercise of options and
warrants.................. -- -- 761,226 76 3,009,100 -- 3,009,176
Cost of issuing common and
preferred shares.......... -- -- -- -- (1,978,509) -- (1,978,509)
Private placements of common
shares.................... -- -- 4,090,171 409 26,573,681 -- 26,574,090
Stock issued in conjunction
with private placements... -- -- 35,000 4 288,747 -- 288,751
Stock & options issued in
conjunction with debt
agreement and subordinated
debentures................ -- -- 10,000 1 516,733 -- 516,734
Debenture proceeds allocated
to 10% conversion
discount.................. -- -- -- -- 277,777 -- 277,777
Other issuances............. -- -- 161,040 16 1,078,605 -- 1,078,621
Distributions to sub S
shareholders prior to
pooling................... -- -- -- -- -- (260,127) (260,127)
Conversion of Preferred to
common.................... (407,742) (408) 2,854,192 286 122 -- 0
Preferred stock dividends... 25,033 25 -- -- 512,027 (512,052) 0
Net income.................. -- -- -- -- -- 3,148,816 3,148,816
-- -- -- -- -- -- --
-------- ---------- ---------- ------------- ----------- ----------- -----------
Balance at December 31,
1999...................... -- $ -- 32,077,632 $ 3,208 $81,171,322 $ 1,835,868 $83,010,398
======== ========== ========== ============= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
57
<PAGE> 59
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
RESTATED
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,148,816 $ 304,080
------------ ------------
Adjustments:
Depreciation........................................... 3,880,752 2,265,561
Amortization of intangibles and dredge site development
costs................................................. 2,491,769 635,829
Amortization of deferred financing and debenture
discount costs........................................ 1,442,646 272,366
Income tax provision above (below) amounts paid........ 1,026,547 --
Restructuring charge and inventory write-down.......... 3,972,142 --
Non cash merger charges................................ 1,461,766 --
Other Adjustments...................................... 42,946 (195,574)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................... (13,028,090) (5,385,858)
Inventories............................................ (3,276,013) (2,620,970)
Prepaid expenses and other current assets.............. (769,129) (1,060,050)
Other assets........................................... 139,088 (377,205)
Accounts payable....................................... 6,966,968 (583,173)
Other liabilities...................................... (89,635) 563,075
Accrued expenses....................................... (1,449,962) (1,275,185)
------------ ------------
Net cash provided by (used in) operating activities....... 5,960,611 (7,457,104)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (31,909,978) (8,486,863)
Capital expenditures for dredge disposal site permits and
costs.................................................. -- (2,045,436)
Non compete agreements and other assets in 1999, disposal
of assets in 1998...................................... (841,591) 76,500
Cash paid for acquisitions, net of cash received.......... (15,098,104) (3,885,197)
------------ ------------
Net cash used in investing activities.................. (47,849,673) (14,340,996)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants........................ -- 2,291,193
Proceeds from sales of common and preferred stock......... 26,574,090 4,431,420
Costs of issuing common and preferred stock............... (1,367,478) (483,788)
Proceeds from issuance of convertible debentures.......... 2,500,000 4,000,000
Proceeds from stock option exercises...................... 1,924,381 233,674
Advances (repayment of) due to affiliates, net............ 6,000,000 (1,730,317)
Proceeds from notes payable and capital leases............ 23,128,118 25,227,300
Payments of deferred financing and convertible debenture
issue costs............................................ (632,373) (715,946)
Distributions to shareholders of pooled companies......... (260,128) (509,299)
Payments of notes payable and capital leases.............. (17,222,478) (12,500,320)
------------ ------------
Net cash provided by financing activities.............. 40,644,132 20,243,917
------------ ------------
Net change in cash and cash equivalents..................... (1,244,930) (1,554,183)
Cash and cash equivalents, beginning of period.............. 3,052,518 4,606,701
------------ ------------
Cash and cash equivalents, end of period.................... $ 1,807,588 $ 3,052,518
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
58
<PAGE> 60
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries (collectively the "Company")
are engaged in the manufacturing of recycled plastic lumber and other products
and environmental remediation services, including recycling of soils which have
been exposed to hydrocarbons and the beneficial reuse of dredge materials. The
Company's plastic lumber customers are located throughout the United States. The
Company's environmental remediation, dredge and soil recycling customers are
located primarily in the Northeastern United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
U.S. Plastic Lumber Corp. and its wholly-owned subsidiaries U.S. Plastic Lumber
LTD, Eaglebrook Group, Inc., Clean Earth, Inc., Carteret Biocycle Corp. ("CBC"),
Clean Earth of New Castle, Inc., ("CENC") Consolidated Technologies, Inc.
("CTI"), Integrated Technical Services, Inc. ("ITS"), S&W Waste, Inc. ("S&W"),
Barbella Environmental Technologies, Inc.("Barbella") and Clean Rock Industries,
Inc. and Clean Rock Properties, Inc. (See Note 2 for restatement of accompanying
1998 financial statements for acquisitions accounted for under the pooling of
interests accounting method). All significant intercompany 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 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:
<TABLE>
<S> <C>
Revenues.................................................. $3,062,903
Operating costs and expenses.............................. 2,298,779
----------
Operating income.......................................... 764,124
Minority interest......................................... (382,062)
----------
Company's portion of income before income taxes........... $ 382,062
</TABLE>
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 $250,165 is shown as minority interest in the
accompanying consolidated balance sheet at December 31, 1998. The $119,403
minority interest in the CTI losses prior to June 30, 1998 are combined with the
$382,062 minority interest in the IIC joint venture in the statement of
Operations for the year ended December 31, 1998. The ICC joint venture had no
operating activity in 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
59
<PAGE> 61
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial statement purposes by the use of the straight-line method over the
estimated useful lives of the assets. Accelerated methods of computing
depreciation are used for tax purposes. Upon sale or retirement, the cost and
related accumulated depreciation of such assets are removed from the accounts
and any resulting gain or loss realized is credited or charged to income during
the period. Expenditures for maintenance and repairs are charged to operations
as incurred. Significant renewals, improvements and betterments are capitalized.
ACQUIRED INTANGIBLES
The excess of cost over the fair value of net assets of businesses acquired
is amortized on a straight-line basis over a period of twenty years to forty
years. Acquired intangibles include $10,172,000 assigned to a permit on the SRP
land. The permit is being amortized over 25 years. Amortization expense for
acquired intangibles was $1,399,000 in 1999 and $468,449 in 1998. Accumulated
amortization of acquired intangibles excluding the Trimax patents was $2,037,776
at December 31, 1999 and $716,039 at December 31, 1998.
IMPAIRMENT OF LONG LIVED ASSETS
It is the Company's policy to review the carrying value of acquired
intangibles and property and equipment based on an evaluation of such factors as
the occurrence of a significant adverse event or change in the environment in
which the business operates or if the expected undiscounted future net cash
flows are less than the carrying amount of the asset. An impairment loss would
be recorded in the period such determination is made. See note 8 Non-Recurring
Restructuring, Merger and flow Mold Inventory Write-down Charges in 1999.
OTHER ASSETS
The Company incurred $2,083,307 of costs to permit and develop dredge
material disposal sites in strip mines in Pennsylvania. The costs are being
amortized over the total number of yards currently permitted for disposal
including $1,003,519 and $71,071 of amortization in 1999 and 1998, respectively.
The $825,000 cost of non compete agreements is being amortized over 6 years
including $39,600 in 1999 (none in 1998). The $614,250 value assigned to the
Trimax patents acquired in 1998 is being amortized over 15 years including
$50,269 and $25,000 of amortization in 1999 and 1998, respectively. Other assets
are summarized as follows at December 31, 1999:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Dredge disposal permits and site development,
net.......................................... $1,008,717 $1,974,365
Deferred credit agreement financing costs,
net.......................................... 1,014,085 799,425
Deferred convertible debenture costs, net....... 1,038,898 686,280
Non compete agreements, net..................... 762,500 392,223
Patents, net.................................... 538,981 333,478
Other........................................... 987,368 1,222,570
---------- ----------
$5,350,549 $5,408,341
========== ==========
</TABLE>
60
<PAGE> 62
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenues from the Company's plastic lumber division are recognized at the
date the products are shipped. Revenues from the environmental recycling
division are recognized on the percentage of completion method when services are
performed or upon treatment and certification for disposal of contaminated soil.
Under the percentage of completion method, contract revenue is recognized in the
ratio of contract costs incurred to date to the estimated total costs to
complete the project. Contract costs include all direct and indirect labor,
material and equipment depreciation required to complete the contract. A
liability is recorded for estimated losses, if any, on uncompleted contracts.
Billings in excess of costs incurred and estimated profit recognized are
included in other liabilities. Costs incurred and profits recognized in excess
of billings on applicable contracts are included in accounts receivable. Many of
the contracts permit the customer to retain a specified percentage of amounts
billed until all contracted work is performed and accepted by the customer. As
of December 31, 1999 and 1998 accounts receivable include retainages of
$1,573,534 and $911,776, respectively.
The following is a summary of the costs and estimated earnings on
uncompleted contracts at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts........... $ 18,697,161 $ 11,912,140
Estimated profit.................................. 4,520,207 521,604
------------ ------------
Total included in sales................. 23,217,368 12,433,744
Less billings to date............................. (21,387,899) (13,071,445)
------------ ------------
Billings under (over) costs and estimated
profits......................................... 1,829,418 $ (637,701)
============ ============
</TABLE>
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." In accounting for
stock-based transactions with nonemployees, the Company records compensation
expense when these types of options are issued. As permitted by SFAS No. 123,
the Company accounts for stock-based compensation granted to employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement basis and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to be settled or realized. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. For the year ended December 31,
1998 a valuation allowance was recorded as a result of the assessment of
expected future taxable income and the likelihood of realization of the
realization of deferred tax assets related to net operating loss carryforwards.
No such allowance was required at December 31, 1999. See note 10 Income Taxes.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and were
approximately $391,581 and $106,022 in 1999 and 1998, respectively.
61
<PAGE> 63
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade receivables. The Company maintains its cash and cash equivalents with
various financial institutions which are primarily located in the Eastern United
States. At December 31, 1999, the Company had bank balances of approximately
$1,244,000 (including issued but not cleared checks) in excess of amounts
insured by federal deposit insurance. Trade receivables are concentrated
primarily in the Northeastern United States. The Company does not require
collateral from its customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, receivables,
accounts payable, due to affiliates, notes payable and convertible subordinated
debentures. The carrying amounts reported in the consolidated balance sheet for
these financial instruments approximate their fair value. For certain
instruments, including cash and cash equivalents, trade accounts receivable,
other current assets, other assets, accounts payable and accrued expenses, the
carrying amount approximates fair value due their short maturity.
INCOME (LOSS) PER SHARE
Basic income or loss per share is computed by dividing net income or loss
less preferred stock dividends by the weighted average number of shares actually
outstanding. Diluted income or loss per share attributable to common
stockholders further considers the impact of common stock equivalents to the
extent that they are dilutive. The difference between basic and diluted income
per share is due to options and warrants calculated under the treasury stock
method. The Company's basic and diluted loss per share are the same for 1998
because the common stock equivalents are anti dilutive. See Notes 6 and 7 for
potentially dilutive securities.
COMPREHENSIVE INCOME
During the years ended December 31, 1999 and 1998 the Company did not have
any changes in its stockholders equity resulting from non-owner sources.
Accordingly, comprehensive income as set forth in SFAS No. 130 was equal to the
net loss amounts presented in the statements of operations.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year totaled $3,372,631 and $1,191,281 for interest in
the years ended December 31, 1999 and 1998, respectively, and $704,453 and
$683,980 for income taxes in 1999 and 1998, respectively.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
See Notes 2, 5, 6, 7, 11 and 14 for information regarding common shares,
stock options, stock warrants and debt issued for acquisitions, non compete
agreements, licensing agreement, earnout agreements, the convertible
subordinated debentures and loan guarantees.
2. ACQUISITIONS
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.
62
<PAGE> 64
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 28, 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
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.
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 statement of
Operations.
Effective June 30, 1998 the Company purchased substantially all of the
assets of Trimax of Long Island, Inc. and Polymerix, Inc. ("Trimax") through the
U.S. Bankruptcy Court. The Trimax purchase includes two patents for the
manufacture of structural plastic lumber.
On December 30, 1998 the Company acquired 100% of S&W Waste, Inc. ("S&W").
S&W recycles and beneficially re-uses industrial wastes and disposes of
contaminated materials, located in northern New Jersey.
The total purchase price of $ 8,517,273 for all of the 1998 acquisitions
consisted of 952,875 shares of USPL common stock valued at an aggregate of
$3,535,660, cash payments of $3,705,000, issuance of debt totaling $954,952,
costs totaling $303,868 and $17,793 assigned to options granted to a former
owner. 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 aggregate purchase price of the 1998
acquisitions follows:
<TABLE>
<S> <C>
Working capital (deficit)................................. $ (846,926)
Long-term assets.......................................... 7,101,976
Net deferred tax assets................................... 333,303
Long-term debt............................................ (1,535,609)
Acquired intangibles...................................... 3,464,529
-----------
Aggregate purchase price.................................. $ 8,517,273
===========
</TABLE>
All of the acquisitions in 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 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 (15 years for the Trimax patents).
Effective December 31, 1998 all of the companies in the Plastic Lumber
division were merged into U.S. Plastic Lumber, LTD and Waste Concepts, Inc., GHE
and GCI were merged into ITS.
1999 ACQUISITIONS
PURCHASE TRANSACTIONS
On March 23, 1999, the Company acquired all of the stock of Brass
Investment Co. ("Brass") and its wholly owned subsidiaries Soil Remediation of
Philadelphia ("SRP") and Allied Waste, Inc. ("AWI").
SRP operates a soil remediation facility in Philadelphia, PA. AWI provides
environmental services. The Company entered into a Management Contract taking
over all responsibility for day to day management and
63
<PAGE> 65
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial control of SRP and AWI as of January 7, 1999 and entitling the Company
to all net profits or losses after January 4, 1999.
On January 28, 1999, the Company acquired 100% of the stock of Eaglebrook
Plastics, Inc. and Eaglebrook Products, Inc. (collectively "Eaglebrook"), a
plastic recycling and plastic lumber manufacturing company located in Chicago,
IL. The Company is leasing the 300,000 square foot Chicago facility from the
sellers for ten years at a monthly rental of $39,181 with an option to purchase
the facility for $3,000,000. The Company intends to purchase the Chicago
facility and has recorded the appraised value of the land and building in
property and equipment and the applicable lease payments and the option price in
notes and capital leases payable.
On April 1, 1999, the Company signed a Management Contract with Brigadoon
Industries, Inc., ("Brigadoon") taking over all responsibility for day-to-day
management and financial control as of that date and entitling the Company to
all net profits or losses after April 1, 1999. Brigadoon manufactures corner
boards from recycled plastic for use by the packaging industry. The Company
acquired 100% of the stock of Brigadoon on June 30, 1999. The Company also
purchased a 140,000 sq. ft. facility situated on approximately 39 acres in
Ocala, Florida. The Ocala plant will house expanded operations of Brigadoon plus
a large number of new extruders to manufacture other products for the plastic
lumber division.
The $41,965,833 total purchase price for all of the 1999 acquisitions
consisted of 4,244,525 shares of the Company's common stock valued at an
aggregate of $19,343,714, cash payments of $14,800,000 and issuance of debt
totaling $5,763,494, costs totaling $838,733 and $1,219,892 assigned to warrants
granted to a former owner. 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 $41,965,833 aggregate purchase price of the 1999 acquisitions
to the net assets acquired follows:
<TABLE>
<S> <C>
Working capital (deficit)................................... $(9,296,459)
Long-term assets............................................ 29,517,927
Deferred tax liabilities.................................... (2,655,384)
Acquired intangibles........................................ 24,399,749
-----------
Aggregate purchase price.................................... $41,965,833
===========
</TABLE>
All of the aforementioned acquisitions in 1998 and 1999 have been accounted
for as purchases. Accordingly, the results of operations of the purchased
companies are included in the consolidated financial statements for periods
subsequent to the date of acquisition or the date management obtained day to day
management and financial control. 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. The acquired intangibles
are being amortized on a straight-line basis over a period of twenty to forty
years.
The unaudited pro forma combined results of operations of the Company and
all of its subsidiaries for the years ended December 31,1999 and 1998, after
giving effect to certain pro forma adjustments as if the acquisitions had taken
place on January 1, 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net sales......................................... $141,401,003 $118,546,650
============ ============
Net income........................................ $ 3,117,343 $ 845,244
============ ============
Net income attributable to common stockholders.... $ 2,800,561 $ 168,166
============ ============
Net income per share-diluted...................... $ .09 $ .01
============ ============
Weighted average shares used in computation....... 30,467,766 24,357,338
============ ============
</TABLE>
64
<PAGE> 66
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The foregoing unaudited pro forma results of operations reflect adjustments
for amortization of goodwill, depreciation on re-valued buildings and equipment
and interest on cash paid to the sellers. 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 January 1, 1998 or of future results of operations
of the consolidated entities.
POOLING TRANSACTIONS
On June 25, 1999, the Company acquired 100% of the stock of Barbella
Environmental Technology, Inc. ("Barbella"), an environmental remediation and
construction service company located in Somerville, New Jersey. The Company
incurred merger costs totaling $595,000 in the Barbella transaction which were
charged to expenses in the second quarter of 1999. On September 28, 1999, the
Company acquired 100% of the stock of Eureka Plastics of California, Inc.
("Eureka"), and Ecosource Corporation ("Ecosource"), in unrelated transactions.
Both of these companies recycle and process plastics in Southern California. The
Company incurred $ 810,000 of costs related to these mergers that were written
off in the third quarter of 1999. On December 14, 1999, the Company acquired
100% of the stock of Clean Rock Industries, Inc. and Clean Rock Properties, Ltd.
Clean Rock Industries, Inc. is a soil recycling facility located in Hagerstown,
Maryland. Clean Rock Properties, Ltd. is a holding company that owns the real
estate upon which this business operates. The Company incurred $440,000 of costs
related to the Clean Rock merger which were charged to expense in the fourth
quarter of 1999.
The Company has accounted for each of the Barbella, Eureka, Ecosource and
Clean Rock transactions as a pooling of interests. Accordingly, the 1998
financial statements have been restated to include the applicable amounts for
the pooled companies as if the acquisitions had taken place on January 1, 1998.
Following is a summary of the amounts included in the accompanying restated
income statements for the years ended December 31 for all of the pooled
companies:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net sales........................................ $ 34,480,025 $27,089,447
============ ===========
Net income....................................... 1,747,110 208,282
============ ===========
Net income per share............................. $ .06 $ .01
============ ===========
</TABLE>
The statement of stockholders' equity has also been restated to include
$850,521 of retained earnings and $457,488 of additional paid in capital for all
of the pooled companies as of January 1, 1998.
3. INVENTORIES
Inventories consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Raw materials.................................... $ 2,673,427 $ 1,131,895
Finished goods................................... 4,666,116 3,832,080
------------ -----------
$ 7,339,543 $ 4,963,975
============ ===========
</TABLE>
65
<PAGE> 67
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
USEFUL LIVES 1999 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Land.............................................. $ 6,264,240 $ 2,807,500
Buildings......................................... 30 to 40 years 19,868,966 3,829,796
Machinery & equipment in use...................... 5 to 20 years 41,543,210 21,206,242
Machinery & equipment being installed............. 5 to 20 years 21,447,443 --
Leasehold improvements............................ Life of lease 1,327,298 466,207
Furniture and office equipment.................... 5 to 7 years 1,433,380 738,442
------------ ------------
91,884,537 29,048,187
Less - accumulated depreciation................... (11,460,585) (7,846,801)
------------ ------------
$ 80,423,952 $ 21,201,386
============ ============
</TABLE>
Depreciation expense was $3,880,752 and $2,265,651 for the years ended
December 31, 1999 and 1998, respectively.
5. NOTES AND CAPITAL LEASES PAYABLE
NEW CREDIT FACILITY
In October 1998 the Company negotiated a five year line of credit for
$30,000,000 with a division of Southern Pacific Bank ("SPB"). 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, 1.25% over prime on equipment loans and 2% over prime on real
estate loans. The prime rate was 8.5% on December 31, 1999. Loans secured by
specific equipment are payable over terms up to 7 years in equal monthly
installments with the unpaid balance due in October 2003. The agreement requires
the Company to maintain tangible net shareholders equity of at least
$35,500,000. The total costs of obtaining the line aggregating approximately
$1,255,000 are being amortized over the five year term of the agreement as
interest expense. The total amount available under the line of credit at
December 31, 1999 is approximately $2,800,000.
Notes payable and capital leases consist of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Low interest bearing money purchase mortgage note
payable in monthly installments of $18,939
through December 31, 2009 including interest
imputed at 8.5%, collateralized by the S&W
facility........................................ 1,535,610 1,620,637
Insurance premium finance agreement payable in
monthly installments including interest ranging
from 5.64% to 7.12%............................. 375,732 311,352
Real estate loan payable in monthly installments
of approximately $14,720 bearing interest at
.50% over prime, collateralized by the SRP
facility........................................ 1,159,538 --
Bridge loan converted to Real Estate Loan under
the loan agreement with SPB on March 1, 1999
payable in monthly installments of $6,000 with a
balloon payment due October 10, 2003, bearing
interest at 2% over prime, collateralized by the
CBC facility.................................... 1,386,000 1,666,667
</TABLE>
66
<PAGE> 68
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Equipment term loans under loan agreement with
SPB, due in monthly installments with a balloon
payment due October 9, 2003, bearing interest at
prime plus 1.25%, collateralized by equipment of
certain subsidiaries of the Company............. 11,137,073 6,396,250
Note payable in monthly installments through April
1, 2002, bearing interest at 7.565%,
collateralized by all assets at the Auburn, MA
facility, paid in first quarter 1999............ -- 318,382
Notes payable to government agency, payable in
monthly installments totaling $9,505, including
interest at at 5% to 5.5%....................... 387,427 486,184
Non interest bearing note with customer, payable
at $.01 per pound of plastic shipped to the
customer (approximately 700,000 pounds per
month).......................................... 39,153 239,663
Receivables and Inventory loans under loan
agreement with SPB, interest payments due
monthly at prime plus 1%, collateralized by
substantially all accounts receivable and
inventories of subsidiaries of the Company...... 14,679,515 4,883,766
Other notes payable to financial institutions, in
monthly installments of $20,479, including
interest at 8.15% to 8.5%, through 2014......... 891,050 2,126,977
Capital lease payable on real estate in monthly
installments of $39,181 bearing interest of 10%
collateralized by Chicago facility.............. 3,013,813 --
Note payable to sellers of CMI, bearing interest
at 8.5%, paid on May 31, 1999................... -- 436,605
Note payable to seller of S&W, bearing interest at
prime, plus 1%, repaid on February 2, 1999...... -- 500,000
Note payable assumed in acquisition of Brass,
payable in annual installments of $267,000
beginning December 31, 2000 plus interest
accrued at 5% (interest imputed at 8.5%)........ 800,000 --
Other notes and capital leases payable monthly,
maturing from November 8, 2000 to October 9,
2003, with interest ranging from 5.9% to 11.9%,
collateralized by various equipment of
subsidiaries of the Company..................... 6,785,320 3,045,479
----------- -----------
Total notes payable and capital
leases................................ 42,190,231 22,031,962
Less current portion.............................. (5,867,779) (4,921,253)
----------- -----------
Long-term portion................................. $36,322,452 $17,110,709
=========== ===========
</TABLE>
67
<PAGE> 69
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable and capital leases mature as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNTS
- ----------- -------------------
<S> <C>
2000...................................................... $ 5,867,779
2001...................................................... 8,400,612
2002...................................................... 4,691,914
2003...................................................... 19,288,913
2004...................................................... 2,341,904
2005 and later............................................ 1,599,109
-----------
$42,190,231
===========
</TABLE>
6. CONVERTIBLE SUBORDINATED DEBENTURES
On December 22, 1998 the Company issued $4,000,000 of convertible
subordinated debentures and on January 22, 1999 the Company issued another
$2,500,000 to the same debenture holders. The debentures are convertible into
common stock at the lower of $5.29 or 90% of the lowest trading price in the
four days preceding the conversion date. The $722,222 allocated to the 10%
discount on conversion was recorded as additional paid-in-capital and will
accrete to the debentures outstanding as additional interest expense over the
period to the earliest conversion date. The conversion price is adjustable
downward if, in the one year period after each issuance, the Company issues
convertible securities or common stock at a more favorable price than the
debenture conversion price. The 5% per annum debenture interest is payable 1.25%
per quarter starting April 1, 1999. The Company issued the debenture holders
warrants to purchase 100,000 and 62,500 shares of common stock at any time
before December 22, 2003 and January 22, 2004, respectively, for $7.22 per
share.
The Company incurred costs totaling $1,289,703 related to the $6,500,000
debentures including $335,852 assigned to the 162,500 warrants. These costs are
being amortized as additional interest expense over the five year term of the
debentures. The unamortized balance is included in other assets. If the
debentures are converted into common stock the unamortized balance will be
charged to additional paid-in-capital. The debentures mature five years after
each issuance, however, the debenture holders have the right to force the
Company to redeem up to $1,000,000 of debentures at a 10% premium (i.e.
$1,100,000 for $1,000,000 of debentures). The debenture holders can force the
Company to issue up to $4,000,000 of debentures on the same terms at any time
until December 22, 2000. The Company must issue additional warrants in the same
proportion (2.5%) as any additional debentures are issued. These rights expire
upon conversion of the debentures.
7. CAPITAL STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
The Series A preferred shares are non-voting and have a 10% cumulative
stock dividend payable semi-annually. Each share was convertible into seven
shares of the Company's common stock at the option of the stockholder. In the
event of any liquidation, after payment of debts and other liabilities, the
holders of Series A Preferred Stock were 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 were redeemable at any time at the sole
option of the Company for $25.00 per share.
In 1998 approximately 2,431 Series A shares were converted into 17,017
common shares. Semi annual 5% stock dividends were declared as of March 31 and
September 30 for a total of 21,511 Series A shares in 1998. At December 31, 1998
approximately 228,012 Series A shares were outstanding.
In the first quarter of 1999, 1,050 Series A shares were converted into
7,350 shares of Common Stock. A 5% stock dividend of 11,351 Series A shares was
declared as of March 31, 1999 to shareholders of record on March 1, 1999. In the
second quarter of 1999, the Company notified all Series A Preferred shareholders
of its
68
<PAGE> 70
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
intent to redeem the Series A Preferred Shares at the $25 per share redemption
price unless the shareholder elected to convert the shares to Common Stock prior
to the May 5, 1999 redemption date set by the Company. A dividend for the pro
rata period from April 1, 1999 to May 5, 1999 totaling 2,285 Series A preferred
shares was paid to shareholders in May. All Series A Preferred shareholders
elected to convert to Common Stock resulting in the issuance of 1,684,187 common
shares in the second quarter of 1999. At December 31, 1999 no Series A Preferred
shares were outstanding.
SERIES B CONVERTIBLE PREFERRED STOCK
In the summer of 1998, the Company issued 211,020 shares of the Company's
Series B Preferred Stock to accredited investors. The Series B shares had
substantially the same rights and features as the Series A Preferred shares
except that the stated and liquidation value of the Series B shares was $21.00
per share. A 5% stock dividend of 7,455 Series B shares was declared as of
September 30, 1998 for the pro rata portion of the six month period that the
Series B preferred shares were outstanding. In 1998 approximately 63,776 Series
B shares were converted into 446,432 common shares. At December 31, 1998
approximately 154,697 Series B shares were outstanding.
In the first quarter of 1999, 48,113 Series B shares were converted into
336,790 common shares. A 5% stock dividend of 6,565 Series B shares was declared
effective March 31, 1999 to shareholders of record on March 1, 1999. In July
1999, the Company notified all Series B Preferred shareholders of its intent to
redeem the Series B Preferred Shares at the $25 per share redemption price,
unless the Series B Preferred shareholders elected to convert their Series B
Preferred Shares to Common Stock prior to the August 31, 1999 redemption date
set by the Company. A dividend for the pro rata period from Apri1 1, 1999 to
August 31, 1999 totaling 4,747 Series B preferred shares was paid to
shareholders of record July 1, 1999. All Series B shareholders elected to
convert resulting in the issuance of 825,865 shares of common stock in the third
quarter of 1999. As of December 31, 1999 no Series B Preferred shares were
outstanding.
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 by the Company generally vest ratably over a period of three years.
Employee stock option activity in 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE OPTIONS
PRICE OUTSTANDING
-------- -----------
<S> <C> <C>
Outstanding at December 31, 1997....................... $3.54 1,350,000
Granted........................................... 3.65 536,000
Exercised......................................... -- --
Canceled.......................................... 4.43 (215,000)
----- ---------
Outstanding at December 31, 1998....................... $3.46 1,671,000
Granted........................................... 6.93 3,040,250
Exercised......................................... 2.94 (343,332)
Canceled.......................................... 5.04 (465,500)
----- ---------
Outstanding at December 31, 1999....................... $6.01 3,902,418
===== =========
Options exercisable at December 31, 1999............... $4.59 1,467,041
===== =========
</TABLE>
69
<PAGE> 71
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average remaining contractual life of all outstanding employee
options is 8.6 years at December 31, 1999. Additional information regarding
options outstanding at December 31, 1999 follows:
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING EXERCISABLE
--------------------- ---------------------
RANGE OF WEIGHTED WEIGHTED
EXERCISE PRICES AVERAGE AVERAGE
- --------------- EXERCISE EXERCISE
LOW HIGH NUMBER PRICE NUMBER PRICE
- ---- ------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
1998:
$2.25 $ 4.00 1,533,500 $ 3.30 1,109,833 $ 3.23
4.50 7.22 137,500 5.24 97,501 5.42
------ --------- -------- --------- --------
$2.25 $ 7.22 1,671,000 $ 3.46 1,207,334 $ 3.41
====== ========= ======== ========= ========
1999:
$2.25 $ 6.00 2,406,918 $ 4.45 1,182,875 $ 3.71
7.22 12.50 1,495,500 8.53 284,166 8.27
------ --------- -------- --------- --------
$2.25 $12.50 3,902,418 $ 6.01 1,467,041 $ 4.59
====== ========= ======== ========= ========
</TABLE>
The following table summarizes the pro forma consolidated results of
operations of the Company as though the fair value based accounting method in
SFAS 123 had been used in accounting for employee stock options for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
As reported results of operations:
Net Income..................................... $3,148,816 $ 304,080
========== ==========
Net Income (loss) attributable to common
stockholders................................. $2,832,034 $ (372,998)
========== ==========
Basic income (loss) per share.................. $ .10 $ (.02)
========== ==========
Diluted income (loss) per share................ $ .09 $ (.02)
========== ==========
Pro forma results of operations:
Net income..................................... $1,086,001 $ 107,460
========== ==========
Net loss attributable to common stockholders... $ 769,219 $ (569,618)
========== ==========
Basic income (loss) per share.................. $ (.03) $ (.03)
========== ==========
Diluted income (loss) per share................ $ (.03) $ (.03)
========== ==========
</TABLE>
For purposes of the above disclosure, the determination of the fair value
of stock options granted in 1999 and 1998 was based on the following: (i) a risk
free interest rate of 7.5%; (ii) expected option lives of seven years; (iii)
expected volatility in the market price of the Company's common stock of 75%;
and (iv) no expected dividends on the underlying common stock.
NONEMPLOYEE STOCK OPTIONS
Magellan Finance Corporation ("Magellan"), a stockholder, was originally
granted options to purchase up to 353,684 shares of the Company's common stock
at $1.77 per share. Magellan exercised 117,895 of the options in 1997 and
another 117,895 options in September 1998. The remaining 117,894 options were
exercised on June 30, 1999.
70
<PAGE> 72
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Stout Partnership was granted 320,000 options at $2.25 per share in
January 1998 in exchange for enabling the Company to obtain a line of credit by
providing guarantees (see Notes 5 and 13). Stout Partnership exercised 250,000
shares in September 1999.
Nonemployee stock option activity in 1999 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF
WEIGHTED AVERAGE OPTIONS
EXERCISE PRICE OUTSTANDING
---------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997............... $1.83 255,790
Granted................................... 2.55 387,500
Exercised................................. 1.80 (122,895)
Canceled.................................. -- --
Outstanding at December 31, 1998............... $2.37 520,395
Granted................................... 7.38 25,000
Exercised................................. 2.32 (427,895)
Canceled.................................. -- --
----- --------
Outstanding at December 31, 1999............... $3.38 117,500
===== ========
Stock options exercisable...................... $3.38 117,500
===== ========
</TABLE>
STOCK WARRANTS
Warrants to purchase 62,500 common shares at $7.22 per share were issued to
the purchasers of $2,500,000 of convertible subordinated debentures in January
1999. Another 85,000 and 42,500 warrants to purchase common stock at $5.00 and
$7.50, respectively, were also issued in conjunction with the sale of the
$2,500,000 convertible subordinated debentures in 1999. The Company issued
500,000 warrants to purchase the Company's common stock at $6.00 per share to
the shareholders of Brass Investment Company as part of the acquisition
consideration. At December 31, 1999 a total of 895,000 warrants are outstanding.
EARNOUT AGREEMENT WITH "HISTORICAL SHAREHOLDERS"
The Company had previously reserved 4,609,386 shares for issuance pursuant
to earnout provisions in the Agreement and Plan of Reorganization entered into
by the Company on December 15, 1995 and subsequently in an Earn Out Rights
Agreement dated October, 1997. The parties to the agreement specified that the
shares would be paid to certain shareholders (Historical Shareholders), who held
the common stock as of the date of the Agreement and Plan of Reorganization,
when net sales or production of Earth Care Global Holdings, on a consolidated
basis, meet or exceed 2.0 million pounds of plastic lumber per month for three
consecutive months, subject to certain limitations contained in the Agreement.
As of December 31, 1999 the Company entered into Settlement Agreements with
approximately 99% of the Historical Shareholders (representing 4,553,606 shares
of the total 4,609,386 earn out shares) whereby each Historical Shareholder
agreed to accept 15% of the original earnout shares. If the remaining 1% of the
Historical Shareholders do no accept the settlement offer, the Company will
continue to have exposure to issue approximately 55,000 additional earnout
shares under the original formula.
Of the Historical Shareholders who accepted the Settlement Agreement, the
Company issued 633,380 shares on January 17, 2000. The Company has included the
$5,166,005 value of the shares issued in acquired intangibles and additional
paid in capital on the balance sheet as of December 31, 1999. During the fourth
quarter of 1999, the Company began amortizing the acquired intangibles over 17
years as additional cost of the merger of the Company with Clean Earth, Inc. in
December 1996. The total amortization expense relating to the settlement was
$78,897 in 1999.
71
<PAGE> 73
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK RESERVED
At December 31, 1999, common stock was reserved for the following:
<TABLE>
<S> <C>
Shares contingently issuable to USPL and CEI shareholders... 688,678
Non employee stock options............................. 117,500
Employee stock options................................. 3,902,418
Shares contingently issuable under other earnout
provisions............................................ 70,000
Warrants issued to convertible debenture holders....... 895,000
Convertible debentures................................. 1,228,733
---------
6,902,329
=========
</TABLE>
8. NON-RECURRING RESTRUCTURING AND MERGER CHARGES IN 1999
In conjunction with the significant acquisitions in each division during
the first quarter of 1999, the Company committed to a plan to restructure and
consolidate its two operating divisions and facilities. As part of this plan,
the plastic lumber division discontinued the labor intensive flow mold process
and converted entirely to the more efficient continuous extrusion method of
manufacturing plastic lumber. As a result, the Company recorded the following
charges during the first quarter of 1999:
<TABLE>
<S> <C>
Write-down of flow mold inventory to its raw material
value..................................................... $2,025,000
Write-down of flow mold equipment to its salvage value...... 1,315,000
Severance costs in connection with the restructuring........ 1,075,000
Exit costs in connection with the restructuring............. 1,330,000
----------
$5,745,000
==========
</TABLE>
Of the total charges recorded $4,365,000 was recorded by the plastic lumber
division and $1,380,000 was recorded by the environmental division. The
write-down of flow mold inventory was recorded as a component of gross profit
within the accompanying consolidated statement of operations. Severance costs
relates to the employees from plants that were planned to be closed during the
years. Exit costs consist primarily of lease termination and idle plant costs
during the changeover.
During 1999, the Company terminated employees and paid $697,000 in
severance costs. In addition, the Company charged $973,000 to the exit cost
accrual primarily for lease termination and idle plant costs. As of December 31,
1999, the Company has approximately $378,000 remaining in severance reserves and
approximately $357,000 remaining in exit cost reserves, which are primarily for
lease termination costs.
As a result of the June 1999 merger with Barbella, the September 1999
mergers with Ecosource and Eureka, and the December 1999 merger with Clean Rock
a total charge of $1,845,000 was recorded in 1999 for merger related costs.
9. EMPLOYEE BENEFIT PLANS
The Company has defined contribution 401(k) and profit sharing plans that
cover substantially all employees who have met the eligibility requirements.
Employees may contribute up to the maximum allowable under current regulations
to the 401(k). There are no employee contributions to the profit sharing plan.
The Company's contribution to each plan is at the discretion of the Company. The
Company contributed $132,493 and $5,772 in 1999 and 1998, respectively.
72
<PAGE> 74
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The provision for income taxes (benefit) includes federal and state taxes
currently payable and those deferred because of temporary differences between
financial statement and tax basis of assets and liabilities. The components of
the provision for income taxes (benefit) included in the consolidated statements
of operations is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Current:
Federal.......................................... $ 178,647 $ 485,595
State............................................ 404,204 313,968
---------- ---------
582,851 799,563
---------- ---------
Deferred:
Federal.......................................... 1,225,417 (563,758)
State............................................ (77,268) (297,986)
---------- ---------
1,148,149 (861,744)
---------- ---------
$1,731,000 $ (62,181)
========== =========
</TABLE>
The provision for income taxes (benefit) differed from the amount obtained
by applying the federal statutory income tax rate to pre-tax accounting income
(loss), as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Tax at statutory rate of 34%.......................... $1,659,136 $ 82,246
State taxes, net of Federal benefit................... 198,518 10,820
Nondeductible goodwill amortization................... 656,910 155,601
Earnings of Pooled Sub S corporations................. (223,412) (157,494)
Increases (decreases) in valuation reserves........... (435,500) 39,957
Other................................................. (124,652) (193,311)
---------- ---------
Income tax expense (benefit)..................... $1,731,000 $ (62,181)
========== =========
</TABLE>
In 1999 the Company used approximately $8,200,000 of Federal net operating
loss carryforwards to reduce taxes that would otherwise be payable. For
financial reporting purposes a valuation allowance of $2,824,000 had been
established to offset the net deferred tax assets related to these carryforwards
at December 31, 1998. With the realization of the tax benefit of these loss
carryforwards in 1999, the valuation allowance was no longer needed and
$2,388,500 of the reduction in the valuation allowance was recorded as a
reduction of acquired intangible assets in 1999. The remaining $435,500 decrease
in the valuation allowance was recorded as a reduction of income tax expense in
1999.
The Company also realized $1,084,796 of tax benefits related to the
exercise of non qualified stock options. The $1,084,796 of tax benefits and
$1,439,966 net proceeds on the exercise of stock options was recorded as
additional paid in capital in 1999.
73
<PAGE> 75
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences between financial statement carrying amounts and tax
basis of assets and liabilities that give rise to significant deferred tax
assets and liabilities as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Goodwill.................................................... $ 2,994,000 $ 409,000
Merger reserves and accrued expenses........................ 1,176,000 113,000
Allowance for doubtful accounts............................. 383,000 173,000
Original issue discount on debentures....................... 289,000 --
Net operating loss.......................................... 1,134,000 2,565,000
Inventory overhead.......................................... 252,000 57,000
Other....................................................... 74,000 6,000
----------- -----------
Total deferred tax assets......................... 6,302,000 3,323,000
Less valuation allowance.................................... -- (2,834,000)
----------- -----------
Net deferred tax asset............................ 6,302,000 499,000
Deferred tax liabilities:
Property and equipment basis difference..................... 6,585,000 219,000
Goodwill on asset purchases................................. 250,000 --
Long term contracts......................................... 226,000 360,000
Other....................................................... 178,000 430,000
----------- -----------
Total gross deferred tax liabilities.............. 7,239,000 1,009,000
----------- -----------
Deferred tax liabilities, net..................... $ 937,000 $ 510,000
=========== ===========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In 1999 and 1998, the Company borrowed up to $2,400,000 under a $2,500,000
line of credit agreement from a company controlled by a member of the Board of
Directors and his family. The line of credit bears interest at prime plus 1% and
expires on June 30, 2001. At December 31, 1999 $1,500,000 was outstanding under
the line. No balance was outstanding at December 31, 1998. The Company paid
$109,933 and $171,849 in interest on this line in 1999 and 1998, respectively.
On February 2, 1999 the Stout Partnership made a $5,000,000 unsecured loan
to the Company. The loan bears interest at 10% and matures on June 30, 2001. The
proceeds were used in the purchase of Eaglebrook. The Stout Partnership borrowed
the $5,000,000 from PNC Bank and the individual partners have personally
guaranteed the loan. At December 31, 1999, the balance outstanding on this loan
was $4,500,000. The Company paid $321,644 in interest on this loan in 1999.
In June 1999 the Company entered into an agreement to charter air services
from a company owned by a director. Under the agreement a dedicated number of
hours of flight time is available to the company for $50,000 per month plus
expenses over the term of the agreement which expires on June 30, 2001. The
Company leases approximately 3,240 square feet of office space for $51,000 per
year from that same director. The lease expires in October 2004.
74
<PAGE> 76
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENT AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, equipment, manufacturing facilities, and
land under non-cancelable operating leases that expire at various dates through
year 2028. Rent expense for all operating leases for the years ended December
31, 1999 and 1998 was approximately $2,186,000 and $1,013,000, respectively.
Future minimum payments are as follows for the year ending December 31:
<TABLE>
<S> <C>
2000........................................................ $ 2,512,000
2001........................................................ 1,874,000
2002........................................................ 1,422,000
2003........................................................ 1,161,000
2004........................................................ 768,000
Thereafter.................................................. 5,505,000
-----------
Total............................................. $13,242,000
===========
</TABLE>
The Company leases approximately 7.5 acres of land at its Delaware soil
recycling facility at a rental of $1.00 per ton of soil received with a minimum
rental of $50,000 per year. Rent expense under this lease was $190,000 and
$219,986 in 1999 and 1998, respectively. The lease was renewed for five years in
1998 and contains two five-year renewal options. The lessor has the right and
option at the time of renewal to require the Company to purchase the property at
a purchase price of $100,000 per acre subject to annual escalation based on the
Consumer Price Index from inception of the lease. The Company currently leases
approximately 5 acres of land under the New Jersey soil recycling facility. The
lease term is 30 years with two renewal options.
EMPLOYMENT AGREEMENTS
At December 31, 1999, the Company had employment agreements with certain
officers and key employees. Salaries and benefits expense recorded under the
Agreements totaled approximately $2,544,000 and $1,714,000 during years ended
December 31, 1999 and 1998, respectively. Future minimum payments under these
employment agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
2000...................................................... $3,398,000
2001...................................................... 3,105,000
2002...................................................... 1,431,000
2003...................................................... 46,000
2004...................................................... --
----------
$7,980,000
==========
</TABLE>
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.
A lawsuit was filed against the Company's former Chairman in a matter
entitled, Waste Management, Inc. vs. Paolino, et al, U.S. District Court,
District of Delaware. Mr. Paolino and others have filed a lawsuit against Waste
Management, Inc. Mr. Paolino resigned from the Board of Directors effective
March 29, 2000. This dispute between Waste Management, Inc. and Mr. Paolino and
others may continue for a long period of time. The effects of this litigation
may have wide ranging implications on the Company which may result in material
adverse effects upon the business, financial condition and/or operating results
which cannot be reasonably foreseen at the current time.
75
<PAGE> 77
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although the Company is not a named party in either of these lawsuits, it
is not possible to predict the implications of these lawsuits upon the Company.
The Company has not established reserves on its Balance Sheet for any pending or
threatened litigation.
LICENSING AGREEMENT
During February of 1997, the Company entered into a licensing agreement
with Rutgers University for the rights to commercially develop, manufacture and
sell a composite building material from recycled waste. In exchange for $10,000
in cash and 187,500 shares of the Company's common stock, the Company received
an exclusive license to use this material for certain applications, including
railroad ties, marine pilings and building materials. The total consideration
was valued at $103,750 and has been recorded as a component of other assets in
the consolidated balance sheet. This agreement is in effect for at least ten
years from the date of the initial product sales and requires the Company to pay
a maintenance fee and a 3% royalty fee. Such fees are subject to certain minimum
future payment thresholds, as follows:
<TABLE>
<CAPTION>
MAINTENANCE ROYALTY
FEE FEE
----------- --------
<S> <C> <C>
2000................................................... 10,000 60,000
2001................................................... 10,000 60,000
2002................................................... 10,000 60,000
2003................................................... 10,000 60,000
Thereafter............................................. 60,000 340,000
-------- --------
1$00,000.. $580,000
======== ========
</TABLE>
The Company had minimal initial product sales in 1998 and paid $21,667 of
maintenance and prorated royalty fees in 1998 after the initial shipments of
railroad ties were made to potential customers for testing. The company had no
sales in 1999.
EQUIPMENT PURCHASE COMMITMENTS
At December 31, 1999 the Company has outstanding commitments to purchase
plastic lumber extrusion and processing equipment totaling $4,744,000, including
$4,206,000 in accounts payable for equipment received but not installed at
December 31, 1999.
ROYALTY AGREEMENT
Carteret Biocycle Corp. ("CBC") has a license and operating agreement with
SD&G Aggregates, Inc. ("SD&G") to conduct remediation of contaminated soils. The
Company pays SD&G a royalty of 2% of CBC's sales. CBC commenced operations in
July 1998 and recorded royalty expense of $77,790 and $33,360 in 1999 and 1998,
respectively.
13. SEGMENT REPORTING
The Company's sales generating operations are conducted through its Plastic
Lumber Division and its Environmental Recycling Division. Separate monthly
consolidated financial statements are prepared for each division. There are no
inter segment or foreign revenues. The corporate administrative expenses consist
of the executive officers of the Company and include the legal, accounting and
enterprise wide cash management functions and public company expenses.
Substantially all of the debt and related interest expense is also retained at
corporate. The corporate administrative and interest expenses are not allocated
to the two Divisions for management reports. The operating income of each of the
Divisions is the principal measurement tool used to manage the two segments. The
operating results of each segment, excluding the aforementioned non-recurring
merger and restructuring, inventory and equipment revaluation charges, and the
reconciliation of
76
<PAGE> 78
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
each element to the consolidated statement of operations for each of the years
ended December 31, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Environmental recycling............................... $ 85,498 $ 51,544
Plastic lumber........................................ 53,046 21,250
---------- ----------
$138,544,.. $ 72,794
========== ==========
Operating income (loss):
Environmental recycling............................... $ 12,353 $ 3,824
Plastic lumber........................................ 7,649 (622)
Corporate............................................. (2,174) (1,514)
---------- ----------
$ 17,828 $ 1,688
========== ==========
Depreciation and amortization:
Environmental recycling............................... $ 2,525 $ 1,272
Plastic lumber........................................ 2,551 1,368
Corporate............................................. 293 170
---------- ----------
$ 5,369 $ 2,810
========== ==========
</TABLE>
Information with respect to assets and capital expenditures of the segments
and reconciliation to the financial statements is set forth below (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Segment assets at December 31:
Environmental recycling............................... $ 85,045 $ 36,716
Plastic lumber........................................ 77,471 24,091
Corporate............................................. 3,795 2,529
---------- ----------
$ 166,311 $ 63,326
========== ==========
Capital expenditures for the years ended December 31:
Environmental recycling............................... $ 10,745 $ 5,572
Plastic lumber........................................ 21,040 2,892
Corporate............................................. 125 23
---------- ----------
$ 31,910 $ 8,487
========== ==========
</TABLE>
14. SUBSEQUENT EVENTS
ACQUISITION OF BARON'S IN 2000
On February 10, 2000, the Company acquired the assets of Baron Enterprises,
Inc. ("Baron"), a manufacturer of plastic slip and tier sheets, for 300,000
shares of common stock.. Baron operates facilities in Denver, CO and Reidsville,
NC. Both plants manufacture tier and slip sheets that are used in handling
freight. The Company manufactures similar products in its Chicago facility.
77
<PAGE> 79
U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ISSUANCE OF ADDITIONAL CONVERTIBLE SUBORDINATED DEBENTURES AND PARTIAL
CONVERSION OF OLD DEBENTURES IN 2000
On February 2, 2000 the Company issued an additional $7,500,000 of 5%
Convertible Subordinated debentures to the holder of 61.54% of the debentures
outstanding at December 31, 1999. The debentures have substantially the same
terms as the existing debentures with the following differences:
- The conversion price is the lower of $10.09 or the current market
price but not less than $8.25.
- The debenture holder can force the Company to redeem the debentures
at a 10% premium after one year if the market price stays below
$8.25 for 10 consecutive trading days
- The Company can force conversion of the debentures if the market
price stays above $16.84 for 20 consecutive trading days
In conjunction with the issuance of the debentures, the Company issued
200,000 warrants to purchase Common stock at $10.09. The Company has filed a
Registration statement with the SEC to register the shares underlying the
debenture and warrant agreements.
On March 1, 2000 this same debenture holder converted all $4,000,000 of its
debentures and unpaid interest from December 31, 1999 to March 1, 2000 into
762,462 shares of common stock.
78
<PAGE> 1
Exhibit 10.38
AMENDED AND RESTATED
1999 EMPLOYEE STOCK OPTION PLAN
U.S. Plastic Lumber Corporation and ("USPL") hereby adopts this
Amendment to the 1999 Employee Stock Option Plan (the "Plan") the terms of which
shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of USPL by providing
eligible individuals (as designated pursuant to section 4 below) with an
opportunity to acquire or increase a proprietary interest in USPL, which thereby
will create a stronger incentive to expend maximum effort for the growth and
success of USPL and its subsidiaries, and will encourage such eligible
individuals to remain in the employ of USPL or one or more of its subsidiaries
and to attract and retain officers, key employees and key independent
contractors. Each stock option granted under the plan (an "Option") shall be an
option that is not intended to constitute an "incentive stock option"
("Incentive Stock Option") within the meaning of section 422 of the Internal
Revenue Code of 1986, or the corresponding provision of any subsequently enacted
tax statute, as amended from time to time (the "Code") unless such Option is
granted to an employee of USPL or a "subsidiary corporation" (a "Subsidiary")
thereof within the meaning of Section 424(f) of the Code and is specifically
designated at the time of grant as being an Incentive Stock Option. Any Option
so designated shall constitute an Incentive Stock Option only to the extent that
it does not exceed the limitations set forth in Section 7 below.
2. ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors of USPL (the "Committee"), which shall have the full power
and authority to take all actions, and to make all determinations required or
provided for under the Plan or in the Option granted or Option Agreement (as
defined in section 8 below) entered into under the Plan and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate to
the administration of the Plan or any Option granted or Option Agreement entered
into hereunder. All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Committee present at a meeting at which
any issue relating to the Plan is properly raised for consideration or without a
meeting by written consent of the Committee executed in accordance with USPL's
Certificate of Incorporation and Bylaws, and with applicable law. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted or Option Agreement entered into hereunder shall be final
and conclusive.
1
<PAGE> 2
(b) The Board may from time to time appoint a Compensation Committee
(the "Committee") consisting of not less than two members of the Board, none of
whom shall be an officer or other salaried employee of USPL or any Subsidiary.
The Board may remove members, add members, and fill vacancies on the Committee
from time to time, all in accordance with USPL's Certificate of Incorporation
and Bylaws, and Nevada applicable law. The majority vote of the Committee, or
acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted or Option Agreement entered into hereunder.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of common stock, $.0001 par value, of USPL (the "Stock"), which
shares may be treasury shares or authorized but unissued shares. The number of
shares of Stock that may be issued pursuant to Options granted under the Plan
shall not exceed in the aggregate 4,300,000 shares, subject to adjustment as
provided in Section 17 below. If any Option expires, terminates, or is
terminated or canceled for any reason prior to exercise in full, the shares of
Stock that were subject to the unexercised portion of such Option shall be
available for future Options granted under the Plan.
4. ELIGIBILITY
(a) EMPLOYEES. Options may be granted under the Plan to any employee of
USPL, a Subsidiary or any other entity of which on the relevant date at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions ("Voting Securities") are at the time owned
directly or indirectly by USPL or any Subsidiary (an "Affiliate"), including any
such employee who is an officer or director of USPL, a Subsidiary or an
Affiliate, as the Board shall determine and designate from time to time prior to
expiration or termination of the Plan. The maximum number of shares of Stock
subject to Options that may be granted during any calendar year under the Plan
to any executive officer or other employee of USPL or any Subsidiary or
Affiliate whose compensation is or may be subject to Code Section 162(m) is 95%
of the shares available for issuance under the Plan (subject to adjustment as
provided in section 17 hereof).
(b) INDEPENDENT CONTRACTORS. Options may be granted to independent
contractors, who are individuals or companies, performing services for USPL or
any Subsidiary or Affiliate as determined by the Board from time to time on the
basis of their importance to the business of USPL or such Subsidiary or
Affiliate. Independent contractors shall not be eligible to receive options
intended to constitute Incentive Stock Options. Non-employee directors of USPL
shall not be eligible to receive options under the Plan.
2
<PAGE> 3
(c) MULTIPLE GRANTS. An individual may hold more than one Option,
subject to such restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of
adoption by the Board, March 10, 1999, subject to approval of the Plan, within
one year of such effective date, by the stockholders of USPL by a majority of
votes present and entitled to vote at a duly held meeting of the stockholders at
which a quorum representing a majority of all outstanding voting stock is
present, either in person or by proxy or by written consent in accordance with
USPL's Certificate of Incorporation and Bylaws; provided, however, that upon
approval of the Plan by the stockholders of USPL set forth above, all Options
granted under the Plan on or after the effective date shall be fully effective
as if the stockholders of USPL approved the Plan on the effective date. If the
stockholders fail to approve the Plan within one year of such effective date,
any options granted hereunder shall be null and void and of no effect.
(b) TERM. The Plan shall terminate when all options awarded under the
Plan have been exercised, provided that no options may be granted under the Plan
more than 10 years from the earlier of the date the Plan is adopted by the
Company or initially approved by the shareholders of the Company.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may, at
any time and from time to time, prior to the date of termination of the Plan,
grant to such eligible individuals as the Committee may determine ("Optionees"),
Options to purchase such number of shares of the Stock on such terms and
conditions as the Committee may determine. The date on which the Committee
approved the grant of an Option (or such later date as specified by the
Committee) shall be considered the date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option intended to constitute an Incentive Stock Option (and so
designated at the time of grant) shall qualify as an Incentive Stock Option only
to the extent that the aggregate fair market value (determined at the time the
option is granted) of the stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under the Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporation's within the meaning of Section 422(d) of
the Code) does not exceed $100,000. This limitation shall be applied by taking
Options into account in the order in which they were granted.
3
<PAGE> 4
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by USPL and by the Optionee, in
such form or forms as the Committee shall from time to time determine. Option
Agreements covering Options granted from time to time or at the same time need
not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Board and stated in each Option Agreement,
and shall be not less than 100 percent of the closing price of a share of the
Stock, as reported on NASDAQ or other exchange on which the Company's stock
normally trades or if the Company's stock is not traded on the NASDAQ or other
exchange, as determined in good faith by the Board of Directors, on the date the
Option is granted; provided, however, then in the event the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock
ownership of more than 10 percent), the Option Price of an Option that is
intended to be an Incentive Stock Option shall be not less than 110 percent of
the fair market value of a share of Stock at the time such Option is granted.
10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD. Each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder shall cease upon the expiration of
ten years from the date such Option is granted, or on such date prior thereto as
may be fixed by the Board and stated in the Option Agreement relating to such
Option; provided, however, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of
more than 10 percent), an Option granted to such Optionee that is intended to be
an Incentive Stock Option shall in no event be exercisable after the expiration
of five years from the date it is granted.
4
<PAGE> 5
(b) VESTING AND LIMITATION ON EXERCISE. Except as otherwise provided
herein, each Option shall become exercisable with respect to 33 1/3 percent of
the total number of shares subject to the Option one year after the date of its
grant (the "Vesting Date") and with respect to an additional 33 1/3 percent of
the number of such shares on each of the next two succeeding anniversaries of
the Vesting Date; provided, however, that the Board may in its discretion
provide that an Option may be exercised, in whole or in part, at any time from
time to time, over a period commencing on or after the date of grant and ending
upon the expiration or termination of the Option, as the Board shall determine
and set forth in the Option Agreement relating to such Option. Without limiting
the foregoing, the Board, subject to the terms and conditions of the Plan, may
in its sole discretion provide that an Option may be exercised immediately upon
grant or that it may not be exercised in whole or in part for any period or
periods of time during which such Option is outstanding; provided, however, that
any vesting requirements or other such limitation on the exercise of an Option
may be rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the date of grant of such Option, so as to
accelerate the time at which the Option may be exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to USPL on any business day, at its principal office,
addressed to the attention of the Vice President and General Counsel, of written
notice of exercise, which notice shall specify the number of shares with respect
to which the Option is being exercised, and shall be accompanied by payment in
full of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to USPL of shares of
Stock, which shares shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their fair market value
(determined in the manner described in Section 9 above) on the date of exercise;
(iii) by delivering a written direction to USPL that the Option be exercised
pursuant to a "cashless" exercise/sale procedure (pursuant to which funds to pay
for exercise of the Option are delivered to USPL by a broker upon receipt of
stock certificates from USPL) or a cashless exercise/loan procedure (pursuant to
which the Optionees would obtain a margin loan from a broker to fund the
exercise) through a licensed broker acceptable to USPL whereby the stock
certificate or certificates for the shares of Stock for which the Option is
exercised will be delivered to such broker as the agent for the individual
exercising the Option and the broker will deliver to USPL cash (or cash
equivalent acceptable to USPL)
5
<PAGE> 6
equal to the Option Price for the shares of Stock purchased pursuant to the
exercise of the Option plus the amount (if any) of federal and other taxes that
USPL, may, in its sole judgment, be required to withhold with respect to the
exercise of the Option; (iv) to the extent permitted by applicable law and under
the terms of the Option Agreement with respect to such Option, by the delivery
of a promissory note of the Optionee to USPL on such terms as shall be set out
in such Option Agreement and acceptable to the Company in its sole discretion;
or (v) by combination of methods described in (i), (ii), (iii) and (iv). Payment
in full of the Option Price need not accompany the written notice of exercise if
the Option is exercised pursuant to the cashless exercise/sale procedure
described above. An attempt to exercise any Option granted hereunder other than
as set forth above shall be invalid and of no force and effect. Promptly after
the exercise of an Option, the individual exercising the Option shall be
entitled to the issuance of the Stock certificate or certificates evidencing his
ownership of such shares. A separate Stock certificate or certificates shall be
issued for any shares purchased pursuant to the exercise of an Option that is
intended to be an Incentive Stock Option, which certificate or certificates
shall not include any shares purchased pursuant to the exercise of an Option
that is not an Incentive Stock Option. An individual holding or exercising an
Option shall have none of the rights of a shareholder until the shares of Stock
covered thereby are fully paid and issued to him and, except as provided in
Section 18 below, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.
(d) CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), except as the Board shall otherwise provide in an Option Agreement with
respect to an Option granted under the Plan, all outstanding Options shall
become immediately exercisable in full. For purposes of the Plan, a "Change in
Control" shall be deemed to occur (a)) if any person, other than the Stout
Partnership, shall acquire direct or indirect beneficial ownership of more than
40% of the total combined voting power with respect to the election of directors
of the issued and outstanding stock of USPL (except that no Change in Control
shall be deemed to have occurred if the persons who are stockholders of USPL
immediately before such acquisition own all or substantially all of the voting
stock or other interests of such person immediately after such transaction), or
(b) have the power (whether as result of stock ownership, revocable or
irrevocable proxies, contract or otherwise) or ability to elect or cause the
election of directors consisting at the time of such election of the majority of
the Board. A "person" for this purpose shall mean any person, corporation,
partnership, joint venture or other entity or any group (as such term is defined
for purposes of Section 13(d) of the Exchange Act) and a person shall be deemed
to be a beneficial owner as that term is used in Rule 13d-3 under the Exchange
Act. The amount payable under this Section 10(d) shall be remitted by USPL in
cash or by certified or bank check, reduced by applicable tax withholding.
(e) Notwithstanding any other provision of the Plan, no Option granted
to an Optionee under the Plan shall be exercisable in whole or in part prior to
the date the Plan is approved by the stockholders of USPL has provided in
section 5 above.
6
<PAGE> 7
11. TRANSFERABILITY OF OPTIONS
Non-Qualified Stock Options granted under the Plan may be transferred
only by gift or qualified domestic relations order to a family member (as
defined below) of a director of the Company. The term "family member" includes
any child, stepchild, grandchild, parent, step parent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the employee's household (other than a tenant
or employee), a trust which these persons have more than 50 percent of the
beneficial interest, a foundation which these persons (or the employee) control
management of assets, and any other entity in which these persons (or the
employee) own more than 50 percent of the voting interest.
Incentive Stock Options granted under the Plan are not assignable or
transferable, otherwise than by will or by the laws of descent and distribution.
Except in the event of death or disability, all Incentive Stock Options granted
under the Plan are exercisable, during the lifetime of an optionee, and are
exercisable only by such optionee.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) GENERAL. Except as otherwise provided herein, upon the termination
of employment or other service of an Optionee with USPL, a Subsidiary, or an
Affiliate, or the death or "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Optionee, any Option granted to an
Optionee pursuant to the Plan shall terminate upon the expiration of thirty days
from the date of such termination of employment or service and such Optionee
shall have no further right to purchase shares of Stock pursuant to such Option.
Notwithstanding the foregoing provisions of this Section 12, the Board may
provide, in its discretion, that following the termination of employment or
service of an Optionee with USPL, a Subsidiary, or Affiliate, an Optionee may
exercise an Option, in whole or in part, at any time subsequent to such
termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
vesting or other limitations on exercise imposed pursuant to Section 10(b)
above.
(b) Whether a leave of absence or lien on military or government
service shall constitute a termination of employment of service for purposes of
the Plan shall be determined by the Board, which determination shall be final
and conclusive. For purposes of the Plan, the termination of employment or
service with USPL, a Subsidiary, or Affiliate shall not be deemed to occur if
the Optionee is immediately thereafter employed by or otherwise providing
services to USPL, any Subsidiary or Affiliate.
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13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) DEATH. If an Optionee dies while in the employ or service of USPL,
a Subsidiary or Affiliate or within the period following termination of
employment or service for which the Option is exercisable under Section 12 above
or Section 13(b) below, all Options held by such Optionee prior to death shall
become immediately exercisable in full and the executors or administrators or
legatees or distributees of such Optionee's estate shall have the right, at any
time within twelve months after the date of such Optionee's death and prior to
termination of the Option pursuant to Section 10(a) above, to exercise any
Option held by such Optionee at the date of such Optionee's death; provided,
however, that the Board may provide, in its discretion, that following the death
of an Optionee, the executors or administrators or legatees or distributees of
such Optionee's estate may exercise an Option, in whole or in part, at any time
subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
vesting or other limitation on exercise imposed pursuant to Section 10(b)
above.
(b) DISABILITY. If an Optionee terminates employment or service with
USPL, a Subsidiary or Affiliate by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, then all Options held by such Optionee shall become immediately
exercisable in full and the Optionee shall have the right, at any time within
twelve months after such termination of employment or service and prior to
termination of the Option pursuant to Section 10(a) above, to exercise, in
whole or in part, any Option held by such Optionee at the date of such
termination of employment or service; provided, however, that the Board may
provide, in its discretion, that an Optionee may, in the event of the
termination of employment or service of the Optionee with USPL, the Subsidiary
or Affiliate by reason of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) of such Optionee, exercise an Option
in whole or in part, at any time subsequent to such termination of employment or
service and prior to termination of the Option pursuant to Section 10(a) above,
either subject to or without regard to any vesting or other limitation on
exercise imposed pursuant to Section 10(b) above. Whether a termination of
employment or service is to be considered by reason of "permanent and total
disability" for purposes of this Plan shall be determined by the Board, which
termination shall be final and conclusive.
14. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. USPL shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or USPL of any
provisions of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. Any
determination in this connection by the Board
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shall be final, binding, and conclusive. USPL shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
(b) COMPLIANCE WITH RULE 16b-3. The intent of this Plan is to qualify
for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent
any provision of the Plan does not comply with the requirements of Rule 16b-3,
it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board and shall not affect the validity of the Plan. In the
event Rule 16b-3 is revised or replaced, the Board, or the Committee acting on
behalf of the Board, may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
(c) COMPLIANCE WITH SECURITIES ACT OF 1933. The following two paragraphs
shall be applicable if, on the date of exercise of this option, the Common Stock
to be purchased pursuant to such exercise has not been registered under the
Securities Act of 1933, as amended, and under applicable state securities laws,
and shall continue to be applicable for so long as such registration has not
occurred:
(i) The Optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own
account for investment purposes only, and not with a view to, or in
connection with, any resale or other distribution of any of such
shares, except as hereafter permitted. The Optionee further agrees that
he will not at any time make any offer, sale, transfer pledge or other
disposition of such Common Stock to be issued hereunder without an
effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion
of counsel acceptable to the Company to the effect that the proposed
transaction will be exempt from such registration. The Optionee shall
execute such instruments, representations, acknowledgments and
agreements as the Company may, in its sole discretion, deem advisable
to avoid any violation of federal, state, local, or securities exchange
rule, regulation or law.
(ii) The certificates for Common Stock to be issued to the
Optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under applicable state securities
laws. The shares have been acquired for investment and may not be offered, sold,
transferred, pledged or otherwise disposed of without an effective registration
statement under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state laws or upon receipt of an opinion of counsel acceptable to the Company
that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act
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of 1933, as amended, and any applicable state securities laws.
15. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held
meeting of the stockholders of USPL at which a quorum representing a majority of
all outstanding voting stock is, either in person or by proxy, present and
voting on the amendment, or by written consent in accordance with applicable
state law and the Certificate of Incorporation and Bylaws of USPL, change the
requirements as to eligibility to receive Options that are intended to qualify
as Incentive Stock Options, increased maximum number of shares of Stock in the
aggregate that may be sold pursuant to Options that are intended to qualify as
Incentive Stock Options granted under the Plan (except as permitted under
Section 17 hereof) or modify the Plan so that Options granted under the Plan
cannot satisfy the applicable requirements of Code Section 162(m). Except as
permitted under Section 17 hereof, no amendment, suspension or termination of
the Plan shall, without the consent of the holder of the Option, alter or impair
rights or obligations under any Option theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) RECAPITALIZATION. If the outstanding shares of Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of USPL by reason of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
USPL, occurring after the effective date of the Plan, the number and kinds of
shares for the purchase of which Options may be granted under the Plan shall be
adjusted proportionately and accordingly by USPL. In addition, the number and
kind of
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shares for which Options are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the holder of the Option
immediately following such event, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding and shall include a
corresponding proportionate adjustment in the Option Price per share. If there
is a distribution payable in the capital stock of a subsidiary corporation (a
"Spin-off Corporation") of USPL ("Spin-off Shares"), to the extent consistent
with Treasury Regulation Section 1.425-1(a)(6) or the corresponding provision of
any subsequent regulation, each outstanding Option shall thereafter additionally
pertain to the number of Spin-off Shares that would have been received in such
distribution by a shareholder of USPL who owns a number of shares of Common
Stock equal to the number of shares that are subject to the Option at the time
of such distribution, the aggregate Option Price of the Option shall be
allocated between the Spin-off Shares and the Common Stock in proportion to the
relative fair market values of a Spin-off Share and a share of Common Stock
immediately after the distribution of Spin-off Shares, and the Option shall be
exercisable separately as to the shares of Common Stock and Spin-off Shares
covered thereby.
(b) REORGANIZATION IN WHICH USPL IS THE SURVIVING CORPORATION. Subject
to the discretion of the Compensation Committee of the Board of Directors, if
USPL shall be the surviving corporation in any reorganization, merger, or
consolidation of USPL with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
(c) DISSOLUTION OR LIQUIDATION; REORGANIZATION IN WHICH USPL IS NOT THE
SURVIVING CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or
liquidation of USPL, the Plan and all Options outstanding hereunder shall
terminate. In the event of any termination of the Plan under this Section
17(c), each individual holding an Option shall have the right, immediately
prior to the occurrence of such termination and during such reasonable period as
the Board in its sole discretion shall determine and designate, to exercise such
Option in whole or in part, whether or not such Option was otherwise exercisable
at the time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above. In connection
with a merger, consolidation, reorganization or other business combination of
USPL with one or more other entities in which USPL is not the surviving entity,
or upon a sale of all or substantially all of the assets of USPL to another
entity, or upon any transaction (including, without limitation, a merger or
reorganization in which USPL is surviving corporation) that results in any
person or entity (or persons or entities acting as a group or otherwise in
concert) owning more than 40 percent of the combined voting power of all classes
of stock of USPL, USPL and the acquiring or surviving entity shall provide for
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<PAGE> 12
the continuation of the Plan and the assumption of the Options theretofore
granted, or for the substitution for such Options with new options covering the
stock of a successor entity, or a parent or subsidiaries thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices. The Board shall send prior written notice of the occurrence of an event
described in this Section 17(c) to all individuals who hold Options not later
than the time at which USPL gives notice to of stockholders left such event is
proposed.
(d) ADJUSTMENTS. Adjustments under this Section 17 related to Stock or
securities of USPL shall be made by the Board, whose determination in that
respect shall be final, binding, and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATION ON CORPORATION. The grant of an Option pursuant to
the Plan shall not affect or limit in anyway the right of or power of USPL to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve liquidate, were to sell
or transferable or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confirm upon any
individual the right to remain in the employ of USPL, any Subsidiary, any
Spin-off Corporation or Affiliate, or to interfere in any way with the right and
authority of USPL, any Subsidiary, any Spin-off Corporation or Affiliate either
to increase or decrease the compensation of any individual at any time, or to
terminate any employment or other relationship between any individual and USPL,
any Subsidiary, any Spin-off Corporation or Affiliate.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of USPL for approval shall be construed as creating any limitations
upon the right and authority of the Board to adopt such other incentive
compensation arrangements (which arrangements may be applicable either generally
to a class or classes of individuals or specifically to a particular individual
or individuals) as the Board in its discretion determines desirable, including,
without limitation, the granting of stock options or stock appreciation rights
otherwise than under the Plan.
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This Amended and Restated Plan was duly adopted and approved by be
Board of Directors of USPL effective as of the 29th day of March, 2000, subject
to approval and adoption by the stockholders of USPL.
/s/ Bruce C. Rosetto
-----------------------------------
Bruce C. Rosetto, Secretary
This Amended and Restated Plan was duly approved and adopted by the
stockholders of USPL at a meeting held the 24th day of May, 2000.
/s/ Bruce C. Rosetto
-----------------------------------
Bruce C. Rosetto, Secretary
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Exhibit 10.39
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of October 27, 1999, is between U. S. Plastic
Lumber Corporation., a Nevada corporation or any of its affiliates,
subsidiaries, or sister companies (the "Company"), and Bruce C. Rosetto (the
"Executive").
RECITALS
A. Executive has been employed as a principal executive officer of the
Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive hereby agree as follows:
1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period of three (3) years commencing as of the date hereof and ending on the
third (3rd) anniversary of the date hereof, subject to termination as
hereinafter provided (the period from the date hereof through the third (3rd)
anniversary of the date hereof or the date of such termination, as the case may
be, being the "Employment Period"). The Employment Period shall automatically
continue and be renewed on a year to year basis after the completion of the
third anniversary, unless one party provides the other with written notice at
least 90 days prior to the end of each respective Employment Period that this
Agreement is being terminated.
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company and its subsidiaries in a senior executive position, for the
duration of the Employment Agreement, with such duties consistent therewith, and
shall perform such other services for the Company and its subsidiaries
consistent with the position of a senior executive officer, as may be reasonably
assigned to him from time to time by the Board of Directors of the Company.
(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company and its parent, subsidiaries and affiliates; however, Executive
shall be excused from performing any services for the Company hereunder during
periods of temporary illness or incapacity and during reasonable vacations, and
Executive may devote a reasonable amount of time to the handling of his personal
affairs, without thereby in any way affecting the compensation to which he is
entitled hereunder. Although it is acknowledged that the duties of a senior
executive officer may require from time to time attention to business at times
other than normal business hours, it is intended by the parties
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hereto that Executive shall perform his duties hereunder during normal business
hours. During the Employment Period, Executive shall, to the best of his skill
and ability, use his best efforts and endeavors to the extension and promotion
of the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) LOCATION AND TRAVEL. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be performable)
at the corporate headquarters in Boca Raton, FL or such other location as
reasonably determined by the Company. Executive agrees to travel for business
purposes in a reasonable amount for reasonable lengths of time, commensurate
with Executive's senior executive position.
3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) SALARY. The Company shall pay Executive a salary at the annual rate
of $130,000 per year or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal bi-weekly
installments, less any amounts required to be withheld by the Company from time
to time from such salary under any applicable federal, state or local income tax
laws or similar laws then in effect.
(b) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies established from time to time by the Board
of Directors of the Company.
(c) FURTHER BENEFITS. Executive shall be entitled to participate in any
health, accident, retirement or similar employee benefit plans provided by the
Company generally to its employees to the extent commensurate with the
participation therein of executives of the Company. Executive shall be entitled
to participate in any present or future bonus, insurance, pension, retirement,
profit sharing or other compensation or incentive plans adopted by the Company,
for the general and overall benefit of executives of the Company, the extent and
manner of participation to be determined by the Board of Directors of the
Company. The benefits provided in this subsection (c) shall be in addition to
the compensation and benefits provided in the other subsections of this Section
3.
(d) OFFICES. Executive agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices or as a director of any
of the Company's subsidiaries, provided, however, that Executive shall not be
required to serve as an officer or director of any subsidiary if such service
would expose him to adverse financial consequences.
(e) VACATION. The Executive shall be entitled to three (3) weeks
vacation per year.
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4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING, AND
DIVULGING CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete with the Company and, further, that he will not
Compete with the Company during the one (1) year period beginning on the date of
termination of this Agreement. During the Employment period and the two year
period subsequent to termination, the Executive shall not within the United
States directly or indirectly, either for Executive's own account, or as a
partner, shareholder ( other than shares regularly traded in a recognized
market), officer, director, employee, agent, consultant or otherwise, be
employed by connected with, participate in, consult or otherwise associate with
any other business, enterprise or venture that is the same as, similar to or
competitive with the Company. During employment and for a period of one year
thereafter, the Executive shall not, directly or indirectly, solicit for
employment or employ any employee of the Company.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
purchasing Company and in the development of a list of its Customers, which list
is not available to the general public or the Company's ordinary employees, and
that this list contains other information about the customers not available to
the general public and that the Executive will be privileged to this list. The
Executive also acknowledges and agrees that many of the Customers on this list
do not have an advertised place of business, the Company's competitors could not
recreate this list without substantial efforts, and the Company's business would
be irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to theto enter into this
Agreement, the Executive will not solicit or do business with, or attempt to
solicit or do business with, directly or indirectly any of the Company's
Customers except on the Company's behalf and will not solicit or do business
with or attempt to solicit or do business with, directly or indirectly, any of
the Company's Customers during the tone (1) year period beginning on the
termination of this Agreement.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, and its parent, its subsidiaries
and affiliates, at great expense and over a great amount of time. The parties
acknowledge that this confidential information gives the Company a competitive
advantage over other businesses in its field of endeavor and that the Company's
business will be greatly and irreparably damaged by the release or use of this
confidential information outside of its own business. Therefore, as a material
inducement to signing this Agreement, the Executive will not, while he is a
Stockholder of U.S. PLASTIC LUMBER CORP. or an employee of the Company, or
during the one (1) year period beginning on the termination of this Agreement,
either disclose or divulge this confidential information to anyone or use this
confidential information in any manner to Compete with the Company. A partial
list of this confidential information may be included as a schedule to the
original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time, is
true and accurate, but that it is not necessarily a complete list of such
information, and that the restrictions in this Section shall apply to all such
information and not merely to the information listed on such schedule.
(d) ENFORCEMENT. The Company may enforce the provisions of this section
by suit for damages, injunction, or both.
(i) The Company would be irreparably injured by the breach of
any provision of this Section, and money damages alone would not be an
appropriate measure of the harm to the Company from such continuing
breach. Therefore, equitable relief,
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including specific performance of these provisions by injunction, would
be an appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of any
breach of this Section, the breaching party shall render a full and
complete accounting of the gross receipts, expenses, and net profits
that have resulted from such breach and shall be liable for money
damages equal to twenty-five percent (25%) of the gross amount derived
by such breaching party from all transactions in breach of this
Section, such amount representing the amount of profit the Company
could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such breaching
party from all transactions in breach of this Section, such amount
representing the amount of profit the Company could have derived from
its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of this Agreement
shall survive and shall be in full force and effect for the period
commencing from the date of actual termination of employment of the
Executive.
(a) DEFINITIONS. For the purposes of this Agreement,
the following definitions are applicable:
(1) "COMPETE." "To Compete" and "to Compete
with the Company" both mean to engage in the same or
any similar business as the Company in any manner
whatsoever, including competing as a proprietor,
partner, investor, stockholder, director, officer,
employee, consultant, independent contractor, or
otherwise, within the United States.
(2) "CUSTOMER." A "Customer" of the Company
is any person for whom it has performed or attempted
to perform services or sold or attempted to sell any
product or service, whether or not for compensation,
and regardless of the date of such rendition, sale,
or attempted rendition or sale. A partial list of the
Company's Customers may be included as a schedule to
the original of this Agreement maintained by the
Company's Secretary, and all parties agree and
acknowledge that this list, as amended from time to
time, is true and accurate, but that it is not
necessarily a complete list of the Customers and that
the restrictions in this section shall apply to all
of the Customers and not merely to those listed on
such schedule.
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5. TERMINATION OF AGREEMENT.
(a) EVENTS OF TERMINATION. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the third (3rd) anniversary of
the date hereof in the event one party provides written notice to the
other of their desire not to have this Agreement automatically renew
for a one year period;
(ii) the death of Executive;
(iii) termination of Executive's employment for Cause. For the
purpose of this Agreement, the Company shall have "CAUSE" to terminate
Executive's employment hereunder upon (A) the failure by Executive to
substantially perform his duties hereunder, other than any such failure
resulting from incapacity due to physical or mental illness, (B) the
engaging by Executive in gross negligence or willful misconduct
injurious to the Company, (C) the violation by Executive of the
provisions of Section 4 hereof, or (D) the conviction of Executive of a
felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment
hereunder upon 120 days prior written notice;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of
this Agreement, the "permanent disability" of Executive shall mean
Executive's inability, because of his injury, illness, or other
incapacity (physical or mental), to perform the services to the Company
contemplated hereby for a continuous period of 150 days or for 180 days
out of a continuous period of 300 days. Such permanent disability shall
be deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(vii) upon the occurrence of a change in control of U.S.
Plastic Lumber Corporation. A change in control is deemed to occur (i)
if Mark Alsentzer is no longer President and CEO of USPL; or (ii) if
any person, other than Stout Partnership, shall acquire direct or
indirect beneficial ownership of more than 50% of the total combined
voting power with respect to the election of directors of the issued
and outstanding stock of USPL (except that no Change in Control shall
be deemed to have occurred if the persons who are stockholders of USPL
immediately before such acquisition own all or substantially all of the
voting stock or other interests of such person immediately after such
transaction), or (iii) have the power (whether as result of stock
ownership, revocable or irrevocable proxies, contract or otherwise) or
ability to elect or cause the election of directors consisting at the
time of such election of the majority of the Board. A "person" for this
purpose shall mean any person, corporation, partnership, joint venture
or other entity or any group (as such term is defined for purposes of
Section 13(d) of the Exchange Act) and a person shall be deemed to be
a beneficial owner as that term is used in Rule 13d-3 under the
Exchange Act.
(b) COMPENSATION UPON TERMINATION. If the Employment Period shall cease
and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv),
or (a)(vi) of this Section 5, the Company shall pay to Executive (or
his estate in the case of subsection (a)(ii)) his
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Base Salary pursuant to Section 3(a) hereof and the reimbursable
expenses incurred under Section 3(b) hereof through the date of
termination. The Company shall have no additional or further liability
to Executive hereunder; or
(ii) pursuant to subsection (a)(v) and (vii) of this Section
5, the Company shall (A) pay to Executive his Base Salary pursuant to
Section 3(a) hereof and the reimbursable expenses incurred under
Section 3(b) hereof through the date of termination, (B) pay to
Executive an amount equal to $260,000, such amount to be payable in one
lump sum, less any amounts required to be withheld by the Company under
any applicable federal, State or local income tax laws or similar laws
then in effect, and (C) continue for a period of two years from the
date of termination (but only if permitted by the applicable plan) all
fringe benefits to which Executive is then entitled pursuant to Section
3(c) hereof (including payment for any benefits to which Executive
would be entitled to receive under the Consolidated Omnibus Budget
Reconciliation Act of 1985, the benefit period with respect to which
shall commence on the date of termination); PROVIDED, HOWEVER, that the
Employment Period shall be deemed to have expired on the date of
termination for the purposes of any vesting period.
(iii) upon termination for any reason other than for cause,
all stock options granted to Employee shall immediately vest in full.
(c) EFFECT OF TERMINATION. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate effective
upon any termination of the Employment Period permitted by this Agreement;
provided, however, that Executive's obligations under Section 4 hereof shall
survive any such termination.
(d) REMEDIES. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof.
6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except
that the Company shall have the right to assign its rights hereunder to any
direct or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that any
such assignment shall not relieve the Company of any of its obligations
hereunder.
7. NOTICES.
All notices requests, demands and other communications hereunder must
be in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
Michael D. Schmidt, Vice President of Finance
2300 Glades Rd. Suite 440 W
Boca Raton, FL 33431
(b) If to Executive, addressed to:
Bruce C. Rosetto
1398 S.W. 21st Lane
Boca Raton, FL 33486
Addresses may be changed by notice in writing signed by the addressee.
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<PAGE> 7
8. INVENTIONS.
Employee shall disclose promptly to Company any and all conceptions and
ideas for inventions, improvements, and valuable discoveries, whether patentable
or not, which are conceived or made by Employee solely or jointly with another
during the period of employment or within one year thereafter and which are
related to the business or activities of the Company. Employee hereby assigns
and agrees to assign all his interest therein to Company or its nominee.
Whenever requested by the Company, Employee shall execute any and all
applications, assigns or other instruments that Company shall deem necessary to
apply for and obtain Letters of Patents of the United States or any foreign
country or to otherwise protect Company's interest therein. These obligations
shall continue beyond termination of employment with respect to inventions,
improvements and valuable discoveries, whether patentable or not, conceived,
made or acquired by Employee during the period of employment or within one year
thereafter, and shall be binding upon Employee's heirs, assigns, executors,
administrators and other legal representatives.
9. RETURN OF PROPERTY.
All correspondence, reports, charts, products, records, designs,
patents, plans, manuals, sales and marketing material, memorandum, advertising
materials, customer lists, telephones, beepers, portable computers, and any
other such data, information or property collected by or delivered to Employee
by or on behalf of the Company, their representatives, customers, suppliers or
others and all other materials compiled by Employee which pertain to the
business of the Company shall be and shall remain the property of the Company
and shall be delivered to the Company promptly upon its request at any time and
without respect upon completion or other termination of Employee's employment
hereunder for any reason.
10. REPRESENTATIONS OF EMPLOYEE.
Employee represents and warrants to the Company that he is not subject to any
restriction or non-competition covenant in favor of a former employer or any
other person or entity, and that the execution of this Agreement by Employee and
his provision of services to the company and the performance of his obligations
hereunder will not violate or be a breach of any agreement with a former
employer or any other person or entity. Further, Employee agrees to indemnify
Company for any claim, including but not limited to attorneys' fees and expenses
of investigation, by any such third party that such third party may now have or
may hereafter have against the Company based upon any noncompetition agreement,
invention or secrecy agreement between Employee and such third party.
11. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
Any prior employment agreement between the Company and Executive shall be deemed
to be superseded for all purposes by this Agreement and, upon the execution and
delivery of this Agreement by Executive and the Company, any such prior
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<PAGE> 8
employment agreement shall be deemed to be canceled and of no further force or
effect. The headings in this Agreement are for convenience of reference only and
shall not be considered as part of this Agreement or to limit or otherwise
effect the meaning hereof. If any provisions of this Agreement shall be held
invalid, illegal or unenforceable in whole or in part, neither the validity of
the remaining part of such provisions nor the validity of any other provisions
of this Agreement shall in any way be affected thereby. This agreement shall in
all respects be governed by and construed in accordance with the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
By: /s/ Mark S. Alsentzer
- -------------------------- -----------------------------
Mark S. Alsentzer
"EXECUTIVE"
/s/ Bruce C. Rosetto
- -------------------------- -----------------------------
Bruce C. Rosetto
8
<PAGE> 1
Exhibit 10.40
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of October 27, 1999, is between U. S. Plastic
Lumber Corporation., a Nevada corporation or any of its affiliates,
subsidiaries, or sister companies (the "Company"), and Michael D. Schmidt (the
"Executive").
RECITALS
A. Executive has been employed as a principal executive officer of the
Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive hereby agree as follows:
1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period of three (3) years commencing as of the date hereof and ending on the
third (3rd) anniversary of the date hereof, subject to termination as
hereinafter provided (the period from the date hereof through the third (3rd)
anniversary of the date hereof or the date of such termination, as the case may
be, being the "Employment Period"). The Employment Period shall automatically
continue and be renewed on a year to year basis after the completion of the
third anniversary, unless one party provides the other with written notice at
least 90 days prior to the end of each respective Employment Period that this
Agreement is being terminated.
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company and its subsidiaries in a senior executive position, for the
duration of the Employment Agreement, with such duties consistent therewith, and
shall perform such other services for the Company and its subsidiaries
consistent with the position of a senior executive officer, as may be reasonably
assigned to him from time to time by the Board of Directors of the Company.
(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company and its parent, subsidiaries and affiliates; however, Executive
shall be excused from performing any services for the Company hereunder during
periods of temporary illness or incapacity and during reasonable vacations, and
Executive may devote a reasonable amount of time to the handling of his personal
affairs, without thereby in any way affecting the compensation to which he is
entitled hereunder. Although it is acknowledged that the duties of a senior
executive officer may require from time to time attention to business at times
other than normal business hours, it is intended by the parties
<PAGE> 2
hereto that Executive shall perform his duties hereunder during normal business
hours. During the Employment Period, Executive shall, to the best of his skill
and ability, use his best efforts and endeavors to the extension and promotion
of the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) LOCATION AND TRAVEL. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be performable)
at the corporate headquarters in Boca Raton, FL or such other location as
reasonably determined by the Company. Executive agrees to travel for business
purposes in a reasonable amount for reasonable lengths of time, commensurate
with Executive's senior executive position.
3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) SALARY. The Company shall pay Executive a salary at the annual rate
of $100,000 per year or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal bi-weekly
installments, less any amounts required to be withheld by the Company from time
to time from such salary under any applicable federal, state or local income tax
laws or similar laws then in effect.
(b) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies established from time to time by the Board
of Directors of the Company.
(c) FURTHER BENEFITS. Executive shall be entitled to participate in any
health, accident, retirement or similar employee benefit plans provided by the
Company generally to its employees to the extent commensurate with the
participation therein of executives of the Company. Executive shall be entitled
to participate in any present or future bonus, insurance, pension, retirement,
profit sharing or other compensation or incentive plans adopted by the Company,
for the general and overall benefit of executives of the Company, the extent and
manner of participation to be determined by the Board of Directors of the
Company. The benefits provided in this subsection (c) shall be in addition to
the compensation and benefits provided in the other subsections of this Section
3.
(d) OFFICES. Executive agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices or as a director of any
of the Company's subsidiaries, provided, however, that Executive shall not be
required to serve as an officer or director of any subsidiary if such service
would expose him to adverse financial consequences.
(e) VACATION. The Executive shall be entitled to three (3) weeks
vacation per year.
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<PAGE> 3
4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING, AND
DIVULGING CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete with the Company and, further, that he will not
Compete with the Company during the one (1) year period beginning on the date of
termination of this Agreement. During the Employment period and the two year
period subsequent to termination, the Executive shall not within the United
States directly or indirectly, either for Executive's own account, or as a
partner, shareholder ( other than shares regularly traded in a recognized
market), officer, director, employee, agent, consultant or otherwise, be
employed by connected with, participate in, consult or otherwise associate with
any other business, enterprise or venture that is the same as, similar to or
competitive with the Company. During employment and for a period of one year
thereafter, the Executive shall not, directly or indirectly, solicit for
employment or employ any employee of the Company.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
purchasing Company and in the development of a list of its Customers, which list
is not available to the general public or the Company's ordinary employees, and
that this list contains other information about the customers not available to
the general public and that the Executive will be privileged to this list. The
Executive also acknowledges and agrees that many of the Customers on this list
do not have an advertised place of business, the Company's competitors could not
recreate this list without substantial efforts, and the Company's business would
be irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to theto enter into this
Agreement, the Executive will not solicit or do business with, or attempt to
solicit or do business with, directly or indirectly any of the Company's
Customers except on the Company's behalf and will not solicit or do business
with or attempt to solicit or do business with, directly or indirectly, any of
the Company's Customers during the tone (1) year period beginning on the
termination of this Agreement.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, and its parent, its subsidiaries
and affiliates, at great expense and over a great amount of time. The parties
acknowledge that this confidential information gives the Company a competitive
advantage over other businesses in its field of endeavor and that the Company's
business will be greatly and irreparably damaged by the release or use of this
confidential information outside of its own business. Therefore, as a material
inducement to signing this Agreement, the Executive will not, while he is a
Stockholder of U.S. PLASTIC LUMBER CORP. or an employee of the Company, or
during the one (1) year period beginning on the termination of this Agreement,
either disclose or divulge this confidential information to anyone or use this
confidential information in any manner to Compete with the Company. A partial
list of this confidential information may be included as a schedule to the
original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time, is
true and accurate, but that it is not necessarily a complete list of such
information, and that the restrictions in this Section shall apply to all such
information and not merely to the information listed on such schedule.
(d) ENFORCEMENT. The Company may enforce the provisions of this section
by suit for damages, injunction, or both.
(i) The Company would be irreparably injured by the breach of
any provision of this Section, and money damages alone would not be an
appropriate measure of the harm to the Company from such continuing
breach. Therefore, equitable relief,
3
<PAGE> 4
including specific performance of these provisions by injunction, would
be an appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of any
breach of this Section, the breaching party shall render a full and
complete accounting of the gross receipts, expenses, and net profits
that have resulted from such breach and shall be liable for money
damages equal to twenty-five percent (25%) of the gross amount derived
by such breaching party from all transactions in breach of this
Section, such amount representing the amount of profit the Company
could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such breaching
party from all transactions in breach of this Section, such amount
representing the amount of profit the Company could have derived from
its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of this Agreement
shall survive and shall be in full force and effect for the period
commencing from the date of actual termination of employment of the
Executive.
(a) DEFINITIONS. For the purposes of this Agreement,
the following definitions are applicable:
(1) "COMPETE." "To Compete" and "to Compete
with the Company" both mean to engage in the same or
any similar business as the Company in any manner
whatsoever, including competing as a proprietor,
partner, investor, stockholder, director, officer,
employee, consultant, independent contractor, or
otherwise, within the United States.
(2) "CUSTOMER." A "Customer" of the Company
is any person for whom it has performed or attempted
to perform services or sold or attempted to sell any
product or service, whether or not for compensation,
and regardless of the date of such rendition, sale,
or attempted rendition or sale. A partial list of the
Company's Customers may be included as a schedule to
the original of this Agreement maintained by the
Company's Secretary, and all parties agree and
acknowledge that this list, as amended from time to
time, is true and accurate, but that it is not
necessarily a complete list of the Customers and that
the restrictions in this section shall apply to all
of the Customers and not merely to those listed on
such schedule.
4
<PAGE> 5
5. TERMINATION OF AGREEMENT.
(a) EVENTS OF TERMINATION. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the third (3rd) anniversary of
the date hereof in the event one party provides written notice to the
other of their desire not to have this Agreement automatically renew
for a one year period;
(ii) the death of Executive;
(iii) termination of Executive's employment for Cause. For the
purpose of this Agreement, the Company shall have "CAUSE" to terminate
Executive's employment hereunder upon (A) the failure by Executive to
substantially perform his duties hereunder, other than any such failure
resulting from incapacity due to physical or mental illness, (B) the
engaging by Executive in gross negligence or willful misconduct
injurious to the Company, (C) the violation by Executive of the
provisions of Section 4 hereof, or (D) the conviction of Executive of a
felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment
hereunder upon 120 days prior written notice;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of
this Agreement, the "permanent disability" of Executive shall mean
Executive's inability, because of his injury, illness, or other
incapacity (physical or mental), to perform the services to the Company
contemplated hereby for a continuous period of 150 days or for 180 days
out of a continuous period of 300 days. Such permanent disability shall
be deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(vii) upon the occurrence of a change in control of U.S.
Plastic Lumber Corporation. A change in control is deemed to occur (i)
if Mark Alsentzer is no longer President and CEO of USPL; or (ii) if
any person, other than Stout Partnership, shall acquire direct or
indirect beneficial ownership of more than 50% of the total combined
voting power with respect to the election of directors of the issued
and outstanding stock of USPL (except that no Change in Control shall
be deemed to have occurred if the persons who are stockholders of USPL
immediately before such acquisition own all or substantially all of the
voting stock or other interests of such person immediately after such
transaction), or (iii) have the power (whether as result of stock
ownership, revocable or irrevocable proxies, contract or otherwise) or
ability to elect or cause the election of directors consisting at the
time of such election of the majority of the Board. A "person" for this
purpose shall mean any person, corporation, partnership, joint venture
or other entity or any group (as such term is defined for purposes of
Section 13(d) of the Exchange Act) and a person shall be deemed to be
a beneficial owner as that term is used in Rule 13d-3 under the
Exchange Act.
(b) COMPENSATION UPON TERMINATION. If the Employment Period shall cease
and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv),
or (a)(vi) of this Section 5, the Company shall pay to Executive (or
his estate in the case of subsection (a)(ii)) his Base Salary pursuant
to Section 3(a) hereof and the reimbursable expenses incurred
5
<PAGE> 6
under Section 3(b) hereof through the date of termination. The Company
shall have no additional or further liability to Executive hereunder;
or
(ii) pursuant to subsection (a)(v) and (vii) of this Section
5, the Company shall (A) pay to Executive his Base Salary pursuant to
Section 3(a) hereof and the reimbursable expenses incurred under
Section 3(b) hereof through the date of termination, (B) pay to
Executive an amount equal to his then current annual Base Salary
multiplied by 200%, such amount to be payable in one lump sum, less any
amounts required to be withheld by the Company under any applicable
federal, State or local income tax laws or similar laws then in effect,
and (C) continue for a period of two years from the date of termination
(but only if permitted by the applicable plan) all fringe benefits to
which Executive is then entitled pursuant to Section 3(c) hereof
(including payment for any benefits to which Executive would be
entitled to receive under the Consolidated Omnibus Budget
Reconciliation Act of 1985, the benefit period with respect to which
shall commence on the date of termination); PROVIDED, HOWEVER, that the
Employment Period shall be deemed to have expired on the date of
termination for the purposes of any vesting period.
(iii) upon termination for any reason other than for cause,
all stock options granted to Employee shall immediately vest in full.
(c) EFFECT OF TERMINATION. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate effective
upon any termination of the Employment Period permitted by this Agreement;
provided, however, that Executive's obligations under Section 4 hereof shall
survive any such termination.
(d) REMEDIES. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof.
6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except
that the Company shall have the right to assign its rights hereunder to any
direct or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that any
such assignment shall not relieve the Company of any of its obligations
hereunder.
7. NOTICES.
All notices requests, demands and other communications hereunder must
be in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
Bruce C. Rosetto, Vice president and General Counsel
2300 Glades Rd. Suite 440 W
Boca Raton, FL 33431
(b) If to Executive, addressed to:
Michael D. Schmidt
2300 Glades Road
Suite 440W
Boca Raton, FL 33431
Addresses may be changed by notice in writing signed by the addressee.
6
<PAGE> 7
8. INVENTIONS.
Employee shall disclose promptly to Company any and all conceptions and
ideas for inventions, improvements, and valuable discoveries, whether patentable
or not, which are conceived or made by Employee solely or jointly with another
during the period of employment or within one year thereafter and which are
related to the business or activities of the Company. Employee hereby assigns
and agrees to assign all his interest therein to Company or its nominee.
Whenever requested by the Company, Employee shall execute any and all
applications, assigns or other instruments that Company shall deem necessary to
apply for and obtain Letters of Patents of the United States or any foreign
country or to otherwise protect Company's interest therein. These obligations
shall continue beyond termination of employment with respect to inventions,
improvements and valuable discoveries, whether patentable or not, conceived,
made or acquired by Employee during the period of employment or within one year
thereafter, and shall be binding upon Employee's heirs, assigns, executors,
administrators and other legal representatives.
9. RETURN OF PROPERTY.
All correspondence, reports, charts, products, records, designs,
patents, plans, manuals, sales and marketing material, memorandum, advertising
materials, customer lists, telephones, beepers, portable computers, and any
other such data, information or property collected by or delivered to Employee
by or on behalf of the Company, their representatives, customers, suppliers or
others and all other materials compiled by Employee which pertain to the
business of the Company shall be and shall remain the property of the Company
and shall be delivered to the Company promptly upon its request at any time and
without respect upon completion or other termination of Employee's employment
hereunder for any reason.
10. REPRESENTATIONS OF EMPLOYEE.
Employee represents and warrants to the Company that he is not subject to any
restriction or non-competition covenant in favor of a former employer or any
other person or entity, and that the execution of this Agreement by Employee and
his provision of services to the company and the performance of his obligations
hereunder will not violate or be a breach of any agreement with a former
employer or any other person or entity. Further, Employee agrees to indemnify
Company for any claim, including but not limited to attorneys' fees and expenses
of investigation, by any such third party that such third party may now have or
may hereafter have against the Company based upon any noncompetition agreement,
invention or secrecy agreement between Employee and such third party.
11. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
Any prior employment agreement between the Company and Executive shall be deemed
to be superseded for all purposes by this Agreement and, upon the execution and
delivery of this Agreement by Executive and the Company, any such prior
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<PAGE> 8
employment agreement shall be deemed to be canceled and of no further force or
effect. The headings in this Agreement are for convenience of reference only and
shall not be considered as part of this Agreement or to limit or otherwise
effect the meaning hereof. If any provisions of this Agreement shall be held
invalid, illegal or unenforceable in whole or in part, neither the validity of
the remaining part of such provisions nor the validity of any other provisions
of this Agreement shall in any way be affected thereby. This agreement shall in
all respects be governed by and construed in accordance with the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
By: /s/ Bruce C. Rosetto
- -------------------------- ----------------------------------
Bruce C. Rosetto
Vice President and General Counsel
"EXECUTIVE"
/s/ Michael D. Schmidt
- -------------------------- -------------------------------------
Michael D. Schmidt
8
<PAGE> 1
Exhibit 10.41
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of October 27, 1999, is between U. S. Plastic
Lumber Corporation., a Nevada corporation or any of its affiliates,
subsidiaries, or sister companies (the "Company"), and John W. Poling (the
"Executive").
RECITALS
A. Executive has been employed as a principal executive officer of the
Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive hereby agree as follows:
1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period of three (3) years commencing as of the date hereof and ending on the
third (3rd) anniversary of the date hereof, subject to termination as
hereinafter provided (the period from the date hereof through the third (3rd)
anniversary of the date hereof or the date of such termination, as the case may
be, being the "Employment Period"). The Employment Period shall automatically
continue and be renewed on a year to year basis after the completion of the
third anniversary, unless one party provides the other with written notice at
least 90 days prior to the end of each respective Employment Period that this
Agreement is being terminated.
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company and its subsidiaries in a senior executive position, for the
duration of the Employment Agreement, with such duties consistent therewith, and
shall perform such other services for the Company and its subsidiaries
consistent with the position of a senior executive officer, as may be reasonably
assigned to him from time to time by the Board of Directors of the Company.
(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company and its parent, subsidiaries and affiliates; however, Executive
shall be excused from performing any services for the Company hereunder during
periods of temporary illness or incapacity and during reasonable vacations, and
Executive may devote a reasonable amount of time to the handling of his personal
affairs, without thereby in any way affecting the compensation to which he is
entitled hereunder. Although it is acknowledged that the duties of a senior
executive officer may require from time to time attention to business at times
other than normal business hours, it is intended by the parties
<PAGE> 2
hereto that Executive shall perform his duties hereunder during normal business
hours. During the Employment Period, Executive shall, to the best of his skill
and ability, use his best efforts and endeavors to the extension and promotion
of the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) LOCATION AND TRAVEL. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be performable)
at either the Mt. Laurel, New Jersey office or the corporate headquarters in
Boca Raton, FL or such other location as reasonably determined by the Company.
Executive agrees to travel for business purposes in a reasonable amount for
reasonable lengths of time, commensurate with Executive's senior executive
position.
3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) SALARY. The Company shall pay Executive a salary at the annual rate
of $100,000 per year or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal bi-weekly
installments, less any amounts required to be withheld by the Company from time
to time from such salary under any applicable federal, state or local income tax
laws or similar laws then in effect.
(b) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies established from time to time by the Board
of Directors of the Company.
(c) FURTHER BENEFITS. Executive shall be entitled to participate in any
health, accident, retirement or similar employee benefit plans provided by the
Company generally to its employees to the extent commensurate with the
participation therein of executives of the Company. Executive shall be entitled
to participate in any present or future bonus, insurance, pension, retirement,
profit sharing or other compensation or incentive plans adopted by the Company,
for the general and overall benefit of executives of the Company, the extent and
manner of participation to be determined by the Board of Directors of the
Company. The benefits provided in this subsection (c) shall be in addition to
the compensation and benefits provided in the other subsections of this Section
3.
(d) OFFICES. Executive agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices or as a director of any
of the Company's subsidiaries, provided, however, that Executive shall not be
required to serve as an officer or director of any subsidiary if such service
would expose him to adverse financial consequences.
(e) VACATION. The Executive shall be entitled to three (3) weeks
vacation per year.
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<PAGE> 3
4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING, AND
DIVULGING CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete with the Company and, further, that he will not
Compete with the Company during the one (1) year period beginning on the date of
termination of this Agreement. During the Employment period and the two year
period subsequent to termination, the Executive shall not within the United
States directly or indirectly, either for Executive's own account, or as a
partner, shareholder (other than shares regularly traded in a recognized
market), officer, director, employee, agent, consultant or otherwise, be
employed by connected with, participate in, consult or otherwise associate with
any other business, enterprise or venture that is the same as, similar to or
competitive with the Company. During employment and for a period of one year
thereafter, the Executive shall not, directly or indirectly, solicit for
employment or employ any employee of the Company.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
purchasing Company and in the development of a list of its Customers, which list
is not available to the general public or the Company's ordinary employees, and
that this list contains other information about the customers not available to
the general public and that the Executive will be privileged to this list. The
Executive also acknowledges and agrees that many of the Customers on this list
do not have an advertised place of business, the Company's competitors could not
recreate this list without substantial efforts, and the Company's business would
be irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to theto enter into this
Agreement, the Executive will not solicit or do business with, or attempt to
solicit or do business with, directly or indirectly any of the Company's
Customers except on the Company's behalf and will not solicit or do business
with or attempt to solicit or do business with, directly or indirectly, any of
the Company's Customers during the tone (1) year period beginning on the
termination of this Agreement.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, and its parent, its subsidiaries
and affiliates, at great expense and over a great amount of time. The parties
acknowledge that this confidential information gives the Company a competitive
advantage over other businesses in its field of endeavor and that the Company's
business will be greatly and irreparably damaged by the release or use of this
confidential information outside of its own business. Therefore, as a material
inducement to signing this Agreement, the Executive will not, while he is a
Stockholder of U.S. PLASTIC LUMBER CORP. or an employee of the Company, or
during the one (1) year period beginning on the termination of this Agreement,
either disclose or divulge this confidential information to anyone or use this
confidential information in any manner to Compete with the Company. A partial
list of this confidential information may be included as a schedule to the
original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time, is
true and accurate, but that it is not necessarily a complete list of such
information, and that the restrictions in this Section shall apply to all such
information and not merely to the information listed on such schedule.
(d) ENFORCEMENT. The Company may enforce the provisions of this section
by suit for damages, injunction, or both.
(i) The Company would be irreparably injured by the breach of
any provision of this Section, and money damages alone would not be an
appropriate measure of the harm to the Company from such continuing
breach. Therefore, equitable relief,
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<PAGE> 4
including specific performance of these provisions by injunction, would
be an appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of any
breach of this Section, the breaching party shall render a full and
complete accounting of the gross receipts, expenses, and net profits
that have resulted from such breach and shall be liable for money
damages equal to twenty-five percent (25%) of the gross amount derived
by such breaching party from all transactions in breach of this
Section, such amount representing the amount of profit the Company
could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such breaching
party from all transactions in breach of this Section, such amount
representing the amount of profit the Company could have derived from
its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of this Agreement
shall survive and shall be in full force and effect for the period
commencing from the date of actual termination of employment of the
Executive.
(a) DEFINITIONS. For the purposes of this Agreement,
the following definitions are applicable:
(1) "COMPETE." "To Compete" and "to Compete
with the Company" both mean to engage in the same or
any similar business as the Company in any manner
whatsoever, including competing as a proprietor,
partner, investor, stockholder, director, officer,
employee, consultant, independent contractor, or
otherwise, within the United States.
(2) "CUSTOMER." A "Customer" of the Company
is any person for whom it has performed or attempted
to perform services or sold or attempted to sell any
product or service, whether or not for compensation,
and regardless of the date of such rendition, sale,
or attempted rendition or sale. A partial list of the
Company's Customers may be included as a schedule to
the original of this Agreement maintained by the
Company's Secretary, and all parties agree and
acknowledge that this list, as amended from time to
time, is true and accurate, but that it is not
necessarily a complete list of the Customers and that
the restrictions in this section shall apply to all
of the Customers and not merely to those listed on
such schedule.
4
<PAGE> 5
5. TERMINATION OF AGREEMENT.
(a) EVENTS OF TERMINATION. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the third (3rd) anniversary of
the date hereof in the event one party provides written notice to the
other of their desire not to have this Agreement automatically renew
for a one year period;
(ii) the death of Executive;
(iii) termination of Executive's employment for Cause. For the
purpose of this Agreement, the Company shall have "CAUSE" to terminate
Executive's employment hereunder upon (A) the failure by Executive to
substantially perform his duties hereunder, other than any such failure
resulting from incapacity due to physical or mental illness, (B) the
engaging by Executive in gross negligence or willful misconduct
injurious to the Company, (C) the violation by Executive of the
provisions of Section 4 hereof, or (D) the conviction of Executive of a
felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment
hereunder upon 120 days prior written notice;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of
this Agreement, the "permanent disability" of Executive shall mean
Executive's inability, because of his injury, illness, or other
incapacity (physical or mental), to perform the services to the Company
contemplated hereby for a continuous period of 150 days or for 180 days
out of a continuous period of 300 days. Such permanent disability shall
be deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(vii) upon the occurrence of a change in control of U.S.
Plastic Lumber Corporation. A change in control is deemed to occur (i)
if Mark Alsentzer is no longer President and CEO of USPL; or (ii) if
any person, other than Stout Partnership, shall acquire direct or
indirect beneficial ownership of more than 50% of the total combined
voting power with respect to the election of directors of the issued
and outstanding stock of USPL (except that no Change in Control shall
be deemed to have occurred if the persons who are stockholders of USPL
immediately before such acquisition own all or substantially all of the
voting stock or other interests of such person immediately after such
transaction), or (iii) have the power (whether as result of stock
ownership, revocable or irrevocable proxies, contract or otherwise) or
ability to elect or cause the election of directors consisting at the
time of such election of the majority of the Board. A "person" for this
purpose shall mean any person, corporation, partnership, joint venture
or other entity or any group (as such term is defined for purposes of
Section 13(d) of the Exchange Act) and a person shall be deemed to be
a beneficial owner as that term is used in Rule 13d-3 under the
Exchange Act.
(b) COMPENSATION UPON TERMINATION. If the Employment Period shall cease
and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv),
or (a)(vi) of this Section 5, the Company shall pay to Executive (or
his estate in the case of subsection (a)(ii)) his
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<PAGE> 6
Base Salary pursuant to Section 3(a) hereof and the reimbursable
expenses incurred under Section 3(b) hereof through the date of
termination. The Company shall have no additional or further liability
to Executive hereunder; or
(ii) pursuant to subsection (a)(v) and (vii) of this Section
5, the Company shall (A) pay to Executive his Base Salary pursuant to
Section 3(a) hereof and the reimbursable expenses incurred under
Section 3(b) hereof through the date of termination, (B) pay to
Executive an amount equal to his then current annual Base Salary
multiplied by 200%, such amount to be payable in one lump sum, less any
amounts required to be withheld by the Company under any applicable
federal, State or local income tax laws or similar laws then in effect,
and (C) continue for a period of two years from the date of termination
(but only if permitted by the applicable plan) all fringe benefits to
which Executive is then entitled pursuant to Section 3(c) hereof
(including payment for any benefits to which Executive would be
entitled to receive under the Consolidated Omnibus Budget
Reconciliation Act of 1985, the benefit period with respect to which
shall commence on the date of termination); PROVIDED, HOWEVER, that the
Employment Period shall be deemed to have expired on the date of
termination for the purposes of any vesting period.
(iii) upon termination for any reason other than for cause,
all stock options granted to Employee shall immediately vest in full.
(c) EFFECT OF TERMINATION. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate effective
upon any termination of the Employment Period permitted by this Agreement;
provided, however, that Executive's obligations under Section 4 hereof shall
survive any such termination.
(d) REMEDIES. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof.
6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except
that the Company shall have the right to assign its rights hereunder to any
direct or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that any
such assignment shall not relieve the Company of any of its obligations
hereunder.
7. NOTICES.
All notices requests, demands and other communications hereunder must
be in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
Bruce C. Rosetto, Vice president and General Counsel
2300 Glades Rd. Suite 440 W
Boca Raton, FL 33431
(b) If to Executive, addressed to:
John W. Poling
1308 Barkway Lane
West Chester, PA 19380
Addresses may be changed by notice in writing signed by the addressee.
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<PAGE> 7
8. INVENTIONS.
Employee shall disclose promptly to Company any and all conceptions and
ideas for inventions, improvements, and valuable discoveries, whether patentable
or not, which are conceived or made by Employee solely or jointly with another
during the period of employment or within one year thereafter and which are
related to the business or activities of the Company. Employee hereby assigns
and agrees to assign all his interest therein to Company or its nominee.
Whenever requested by the Company, Employee shall execute any and all
applications, assigns or other instruments that Company shall deem necessary to
apply for and obtain Letters of Patents of the United States or any foreign
country or to otherwise protect Company's interest therein. These obligations
shall continue beyond termination of employment with respect to inventions,
improvements and valuable discoveries, whether patentable or not, conceived,
made or acquired by Employee during the period of employment or within one year
thereafter, and shall be binding upon Employee's heirs, assigns, executors,
administrators and other legal representatives.
9. RETURN OF PROPERTY.
All correspondence, reports, charts, products, records, designs,
patents, plans, manuals, sales and marketing material, memorandum, advertising
materials, customer lists, telephones, beepers, portable computers, and any
other such data, information or property collected by or delivered to Employee
by or on behalf of the Company, their representatives, customers, suppliers or
others and all other materials compiled by Employee which pertain to the
business of the Company shall be and shall remain the property of the Company
and shall be delivered to the Company promptly upon its request at any time and
without respect upon completion or other termination of Employee's employment
hereunder for any reason.
10. REPRESENTATIONS OF EMPLOYEE.
Employee represents and warrants to the Company that he is not subject
to any restriction or non-competition covenant in favor of a former employer or
any other person or entity, and that the execution of this Agreement by Employee
and his provision of services to the company and the performance of his
obligations hereunder will not violate or be a breach of any agreement with a
former employer or any other person or entity. Further, Employee agrees to
indemnify Company for any claim, including but not limited to attorneys' fees
and expenses of investigation, by any such third party that such third party may
now have or may hereafter have against the Company based upon any noncompetition
agreement, invention or secrecy agreement between Employee and such third party.
11. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
Any prior employment agreement between the Company and Executive shall be deemed
to be superseded for all purposes by this Agreement and, upon the execution and
delivery of this Agreement by Executive and the Company, any such prior
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<PAGE> 8
employment agreement shall be deemed to be canceled and of no further force or
effect. The headings in this Agreement are for convenience of reference only and
shall not be considered as part of this Agreement or to limit or otherwise
effect the meaning hereof. If any provisions of this Agreement shall be held
invalid, illegal or unenforceable in whole or in part, neither the validity of
the remaining part of such provisions nor the validity of any other provisions
of this Agreement shall in any way be affected thereby. This agreement shall in
all respects be governed by and construed in accordance with the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
By: /s/ Bruce C. Rosetto
- -------------------------- -----------------------------
Bruce C. Rosetto
Vice President and General Counsel
"EXECUTIVE"
/s/ John W. Poling
- -------------------------- -------------------------------
John W. Poling
8
<PAGE> 1
Exhibit 10.42
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of October 27, 1999, is between U. S. Plastic
Lumber Corporation., a Nevada corporation or any of its affiliates,
subsidiaries, or sister companies (the "Company"), and Mark S. Alsentzer (the
"Executive").
RECITALS
A. Executive has been employed as a principal executive officer of the
Company, and as such has made a unique contribution to the business of the
Company.
B. The Board of Directors of the Company believes that the continued
services of Executive would be of great value to the Company and desires
retaining his services for a number of years.
C. Executive is willing to accept employment by the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and of the mutual benefits herein provided, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive hereby agree as follows:
1. TERM OF EMPLOYMENT.
The Company shall employ Executive and Executive hereby accepts
employment by the Company, on the terms and conditions herein contained, for a
period of three (3) years commencing as of the date hereof and ending on the
third (3rd) anniversary of the date hereof, subject to termination as
hereinafter provided (the period from the date hereof through the third (3rd)
anniversary of the date hereof or the date of such termination, as the case may
be, being the "Employment Period"). The Employment Period shall automatically
continue and be renewed on a year to year basis after the completion of the
third anniversary, unless one party provides the other with written notice at
least 90 days prior to the end of each respective Employment Period that this
Agreement is being terminated.
2. DUTIES.
(a) GENERAL DUTIES. During the Employment Period, Executive shall serve
the Company and its subsidiaries in a senior executive position, for the
duration of the Employment Agreement, with such duties consistent therewith, and
shall perform such other services for the Company and its subsidiaries
consistent with the position of a senior executive officer, as may be reasonably
assigned to him from time to time by the Board of Directors of the Company.
(b) PRIMARY ACTIVITY. During the Employment Period, Executive shall
devote his full business efforts, time and energy to the interests and business
of the Company and its parent, subsidiaries and affiliates; however, Executive
shall be excused from performing any services for the Company hereunder during
periods of temporary illness or incapacity and during reasonable vacations, and
Executive may devote a reasonable amount of time to the handling of his personal
affairs, without thereby in any way affecting the compensation to which he is
entitled hereunder. Although it is acknowledged that the duties of a senior
executive officer may require from time to time attention to business at times
other than normal business hours, it is intended by the parties
<PAGE> 2
hereto that Executive shall perform his duties hereunder during normal business
hours. During the Employment Period, Executive shall, to the best of his skill
and ability, use his best efforts and endeavors to the extension and promotion
of the business of the Company and its subsidiaries, to the proper servicing of
such business and to the protection of the good will of such business, both as
now enjoyed and hereafter acquired.
(c) LOCATION AND TRAVEL. During the Employment Period, Executive's
business office shall be located (and his duties shall generally be performable)
at either the Mt. Laurel, New Jersey office or the corporate headquarters in
Boca Raton, FL or such other location as reasonably determined by the Company.
Executive agrees to travel for business purposes in a reasonable amount for
reasonable lengths of time, commensurate with Executive's senior executive
position.
3. COMPENSATION.
As full compensation to Executive for performance of his services
hereunder, the Company agrees to pay Executive and Executive agrees to accept
the following salary and other benefits during the Employment Period:
(a) SALARY. The Company shall pay Executive a salary at the annual rate
of $280,000 per year or such greater annual rate of compensation as the Board of
Directors of the Company may from time to time determine ("Base Salary"). The
Base Salary due Executive hereunder shall be payable in equal bi-weekly
installments, less any amounts required to be withheld by the Company from time
to time from such salary under any applicable federal, state or local income tax
laws or similar laws then in effect.
(b) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive
for all expenses properly incurred by him in the performance of his duties
hereunder in accordance with policies established from time to time by the Board
of Directors of the Company. The Company shall further provide Executive with a
monthly stipend of $3,000 per month as reimbursement for living expenses so
Executive can maintain a home near the corporate headquarters.
(c) FURTHER BENEFITS. Executive shall be entitled to participate in any
health, accident, retirement or similar employee benefit plans provided by the
Company generally to its employees to the extent commensurate with the
participation therein of executives of the Company. Executive shall be entitled
to participate in any present or future bonus, insurance, pension, retirement,
profit sharing or other compensation or incentive plans adopted by the Company,
for the general and overall benefit of executives of the Company, the extent and
manner of participation to be determined by the Board of Directors of the
Company. The benefits provided in this subsection (c) shall be in addition to
the compensation and benefits provided in the other subsections of this Section
3.
(d) OFFICES. Executive agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices or as a director of any
of the Company's subsidiaries, provided, however, that Executive shall not be
required to serve as an officer or director of any subsidiary if such service
would expose him to adverse financial consequences.
(e) VACATION. The Executive shall be entitled to three (3) weeks
vacation per year.
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<PAGE> 3
4. RESTRICTIONS AGAINST COMPETITION, SOLICITATION, SERVICING, AND
DIVULGING CORPORATE CONFIDENTIAL DATA
(a) COVENANT NOT TO COMPETE. As a material inducement to sign this
Agreement, the Executive agrees that as long as he is an employee of the
Company, he will not Compete with the Company and, further, that he will not
Compete with the Company during the one (1) year period beginning on the date of
termination of this Agreement. During the Employment period and the two year
period subsequent to termination, the Executive shall not within the United
States directly or indirectly, either for Executive's own account, or as a
partner, shareholder ( other than shares regularly traded in a recognized
market), officer, director, employee, agent, consultant or otherwise, be
employed by connected with, participate in, consult or otherwise associate with
any other business, enterprise or venture that is the same as, similar to or
competitive with the Company. During employment and for a period of one year
thereafter, the Executive shall not, directly or indirectly, solicit for
employment or employ any employee of the Company.
(b) COVENANT NOT TO SOLICIT OR SERVICE. The Executive acknowledges and
agrees that the Company's parent has spent significant amounts of time and money
purchasing Company and in the development of a list of its Customers, which list
is not available to the general public or the Company's ordinary employees, and
that this list contains other information about the customers not available to
the general public and that the Executive will be privileged to this list. The
Executive also acknowledges and agrees that many of the Customers on this list
do not have an advertised place of business, the Company's competitors could not
recreate this list without substantial efforts, and the Company's business would
be irreparably and greatly damaged by the use of this information other than for
its benefit. Therefore, as a material inducement to theto enter into this
Agreement, the Executive will not solicit or do business with, or attempt to
solicit or do business with, directly or indirectly any of the Company's
Customers except on the Company's behalf and will not solicit or do business
with or attempt to solicit or do business with, directly or indirectly, any of
the Company's Customers during the tone (1) year period beginning on the
termination of this Agreement.
(c) COVENANT NOT TO VIOLATE CORPORATE CONFIDENCES. The Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, business secrets, and business
techniques not generally available to the public, and this confidential
information has been compiled by the Company, and its parent, its subsidiaries
and affiliates, at great expense and over a great amount of time. The parties
acknowledge that this confidential information gives the Company a competitive
advantage over other businesses in its field of endeavor and that the Company's
business will be greatly and irreparably damaged by the release or use of this
confidential information outside of its own business. Therefore, as a material
inducement to signing this Agreement, the Executive will not, while he is a
Stockholder of U.S. PLASTIC LUMBER CORP. or an employee of the Company, or
during the one (1) year period beginning on the termination of this Agreement,
either disclose or divulge this confidential information to anyone or use this
confidential information in any manner to Compete with the Company. A partial
list of this confidential information may be included as a schedule to the
original of this Agreement maintained by the Company's Secretary, and all
parties agree and acknowledge that this list, as amended from time to time, is
true and accurate, but that it is not necessarily a complete list of such
information, and that the restrictions in this Section shall apply to all such
information and not merely to the information listed on such schedule.
(d) ENFORCEMENT. The Company may enforce the provisions of this section
by suit for damages, injunction, or both.
(i) The Company would be irreparably injured by the breach of
any provision of this Section, and money damages alone would not be an
appropriate measure of the harm to the Company from such continuing
breach. Therefore, equitable relief,
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<PAGE> 4
including specific performance of these provisions by injunction, would
be an appropriate remedy for the breach of these provisions.
(ii) Money damages will be appropriate with respect to any
past breach of any provision of this Section. Therefore, in case of any
breach of this Section, the breaching party shall render a full and
complete accounting of the gross receipts, expenses, and net profits
that have resulted from such breach and shall be liable for money
damages equal to twenty-five percent (25%) of the gross amount derived
by such breaching party from all transactions in breach of this
Section, such amount representing the amount of profit the Company
could have derived from its own transaction of such business.
(iii) Should a court of competent jurisdiction determine that
equitable relief is not available to remedy the continuous breach of
any or all of the provision of this Section, an amount of liquidated
damages shall be paid to the Company by the breaching party equal to
twenty-five percent (25%) of the gross amount derived by such breaching
party from all transactions in breach of this Section, such amount
representing the amount of profit the Company could have derived from
its own transaction of such business.
(iv) If this Agreement is terminated for any reason
whatsoever, not renewed or extended, the provisions of this Agreement
shall survive and shall be in full force and effect for the period
commencing from the date of actual termination of employment of the
Executive.
(a) DEFINITIONS. For the purposes of this Agreement,
the following definitions are applicable:
(1) "COMPETE." "To Compete" and "to Compete
with the Company" both mean to engage in the same or
any similar business as the Company in any manner
whatsoever, including competing as a proprietor,
partner, investor, stockholder, director, officer,
employee, consultant, independent contractor, or
otherwise, within the United States.
(2) "CUSTOMER." A "Customer" of the Company
is any person for whom it has performed or attempted
to perform services or sold or attempted to sell any
product or service, whether or not for compensation,
and regardless of the date of such rendition, sale,
or attempted rendition or sale. A partial list of the
Company's Customers may be included as a schedule to
the original of this Agreement maintained by the
Company's Secretary, and all parties agree and
acknowledge that this list, as amended from time to
time, is true and accurate, but that it is not
necessarily a complete list of the Customers and that
the restrictions in this section shall apply to all
of the Customers and not merely to those listed on
such schedule.
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5. TERMINATION OF AGREEMENT.
(a) EVENTS OF TERMINATION. The Employment Period shall cease and
terminate upon the earliest to occur of the events specified below:
(i) The close of business on the third (3rd) anniversary of
the date hereof in the event one party provides written notice to the
other of their desire not to have this Agreement automatically renew
for a one year period;
(ii) the death of Executive;
(iii) termination of Executive's employment for Cause. For the
purpose of this Agreement, the Company shall have "CAUSE" to terminate
Executive's employment hereunder upon (A) the failure by Executive to
substantially perform his duties hereunder, other than any such failure
resulting from incapacity due to physical or mental illness, (B) the
engaging by Executive in gross negligence or willful misconduct
injurious to the Company, (C) the violation by Executive of the
provisions of Section 4 hereof, or (D) the conviction of Executive of a
felony of a crime involving moral turpitude.
(iv) the election by Executive to terminate his employment
hereunder upon 120 days prior written notice;
(v) the election by the Company to terminate Executive's
employment hereunder; or
(vi) the permanent disability of Executive. For the purpose of
this Agreement, the "permanent disability" of Executive shall mean
Executive's inability, because of his injury, illness, or other
incapacity (physical or mental), to perform the services to the Company
contemplated hereby for a continuous period of 150 days or for 180 days
out of a continuous period of 300 days. Such permanent disability shall
be deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(vii) upon the occurrence of a change in control of U.S.
Plastic Lumber Corporation. A change in control is deemed to occur (i)
if Executive is no longer President and CEO of USPL; or (ii) if any
person, other than Stout Partnership, shall acquire direct or indirect
beneficial ownership of more than 50% of the total combined voting
power with respect to the election of directors of the issued and
outstanding stock of USPL (except that no Change in Control shall be
deemed to have occurred if the persons who are stockholders of USPL
immediately before such acquisition own all or substantially all of the
voting stock or other interests of such person immediately after such
transaction), or (iii) have the power (whether as result of stock
ownership, revocable or irrevocable proxies, contract or otherwise) or
ability to elect or cause the election of directors consisting at the
time of such election of the majority of the Board. A "person" for this
purpose shall mean any person, corporation, partnership, joint venture
or other entity or any group (as such term is defined for purposes of
Section 13(d) of the Exchange Act) and a person shall be deemed to be
a beneficial owner as that term is used in Rule 13d-3 under the
Exchange Act.
(b) COMPENSATION UPON TERMINATION. If the Employment Period shall cease
and terminate hereunder:
(i) pursuant to subsection (a)(i), (a)(ii), (a)(iii), (a)(iv),
or (a)(vi) of this Section 5, the Company shall pay to Executive (or
his estate in the case of subsection (a)(ii)) his
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<PAGE> 6
Base Salary pursuant to Section 3(a) hereof and the reimbursable
expenses incurred under Section 3(b) hereof through the date of
termination. The Company shall have no additional or further liability
to Executive hereunder; or
(ii) pursuant to subsection (a)(v) and (vii) of this Section
5, the Company shall (A) pay to Executive his Base Salary pursuant to
Section 3(a) hereof and the reimbursable expenses incurred under
Section 3(b) hereof through the date of termination, (B) pay to
Executive an amount equal to his then current annual Base Salary
multiplied by 200%, such amount to be payable in one lump sum, less any
amounts required to be withheld by the Company under any applicable
federal, State or local income tax laws or similar laws then in effect,
and (C) continue for a period of two years from the date of termination
(but only if permitted by the applicable plan) all fringe benefits to
which Executive is then entitled pursuant to Section 3(c) hereof
(including payment for any benefits to which Executive would be
entitled to receive under the Consolidated Omnibus Budget
Reconciliation Act of 1985, the benefit period with respect to which
shall commence on the date of termination); PROVIDED, HOWEVER, that the
Employment Period shall be deemed to have expired on the date of
termination for the purposes of any vesting period.
(iii) upon termination for any reason other than for cause,
all stock options granted to Employee shall immediately vest in full.
(c) EFFECT OF TERMINATION. This Agreement and all liabilities and
obligations of the parties hereto hereunder shall cease and terminate effective
upon any termination of the Employment Period permitted by this Agreement;
provided, however, that Executive's obligations under Section 4 hereof shall
survive any such termination.
(d) REMEDIES. Nothing herein contained shall be construed as
prohibiting any party hereto from pursuing any other remedies available to it
for any breach of any provision hereof.
6. ASSIGNMENT.
This Agreement shall not be assigned by either party hereto, except
that the Company shall have the right to assign its rights hereunder to any
direct or indirect subsidiary of the Company, any successor in interest of the
Company whether by merger, consolidation, purchase of assets or otherwise, and
any person controlling or which controls or is under common control with the
Company, any such subsidiary or any such successor; provided, however, that any
such assignment shall not relieve the Company of any of its obligations
hereunder.
7. NOTICES.
All notices requests, demands and other communications hereunder must
be in writing and shall be deemed to have been given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage and
registry fees prepaid and addressed as follows:
(a) If to the Company:
Bruce C. Rosetto, Vice President and General Counsel
2300 Glades Rd. Suite 440 W
Boca Raton, FL 33431
(b) If to Executive, addressed to:
Mark S. Alsentzer
604 Creek Lane
Flourtown, PA 19031
Addresses may be changed by notice in writing signed by the addressee.
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<PAGE> 7
8. INVENTIONS.
Employee shall disclose promptly to Company any and all conceptions and
ideas for inventions, improvements, and valuable discoveries, whether patentable
or not, which are conceived or made by Employee solely or jointly with another
during the period of employment or within one year thereafter and which are
related to the business or activities of the Company. Employee hereby assigns
and agrees to assign all his interest therein to Company or its nominee.
Whenever requested by the Company, Employee shall execute any and all
applications, assigns or other instruments that Company shall deem necessary to
apply for and obtain Letters of Patents of the United States or any foreign
country or to otherwise protect Company's interest therein. These obligations
shall continue beyond termination of employment with respect to inventions,
improvements and valuable discoveries, whether patentable or not, conceived,
made or acquired by Employee during the period of employment or within one year
thereafter, and shall be binding upon Employee's heirs, assigns, executors,
administrators and other legal representatives.
9. RETURN OF PROPERTY.
All correspondence, reports, charts, products, records, designs,
patents, plans, manuals, sales and marketing material, memorandum, advertising
materials, customer lists, telephones, beepers, portable computers, and any
other such data, information or property collected by or delivered to Employee
by or on behalf of the Company, their representatives, customers, suppliers or
others and all other materials compiled by Employee which pertain to the
business of the Company shall be and shall remain the property of the Company
and shall be delivered to the Company promptly upon its request at any time and
without respect upon completion or other termination of Employee's employment
hereunder for any reason.
10. REPRESENTATIONS OF EMPLOYEE.
Employee represents and warrants to the Company that he is not subject
to any restriction or non-competition covenant in favor of a former employer or
any other person or entity, and that the execution of this Agreement by Employee
and his provision of services to the company and the performance of his
obligations hereunder will not violate or be a breach of any agreement with a
former employer or any other person or entity. Further, Employee agrees to
indemnify Company for any claim, including but not limited to attorneys' fees
and expenses of investigation, by any such third party that such third party may
now have or may hereafter have against the Company based upon any noncompetition
agreement, invention or secrecy agreement between Employee and such third party.
11. MISCELLANEOUS.
This Agreement embodies the entire understanding between the parties
hereto respecting the subject matter hereof and no change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
Any prior employment agreement between the Company and Executive shall be deemed
to be superseded for all purposes by this Agreement and, upon the execution and
delivery of this Agreement by Executive and the Company, any such prior
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<PAGE> 8
employment agreement shall be deemed to be canceled and of no further force or
effect. The headings in this Agreement are for convenience of reference only and
shall not be considered as part of this Agreement or to limit or otherwise
effect the meaning hereof. If any provisions of this Agreement shall be held
invalid, illegal or unenforceable in whole or in part, neither the validity of
the remaining part of such provisions nor the validity of any other provisions
of this Agreement shall in any way be affected thereby. This agreement shall in
all respects be governed by and construed in accordance with the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Witnesses: "COMPANY"
By: /s/ Bruce C. Rosetto
- -------------------------- ----------------------------------
Bruce C. Rosetto
Vice President and General Counsel
"EXECUTIVE"
/s/ John W. Poling
- -------------------------- -------------------------------------
John W. Poling
8
<PAGE> 1
Exhibit 10.43
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of August
20, 1999, by and among U.S. Plastic Lumber Corporation, a Nevada corporation
(the "Corporation"), and the purchasers listed on SCHEDULES A AND B hereto (each
a "Purchaser" and collectively, the "Purchasers").
The Corporation and the Purchasers hereby agree as follows:
SECTION 1.
AUTHORIZATION, PURCHASE AND SALE OF THE STOCK
1.1 AUTHORIZATION OF THE STOCK. The Corporation has authorized the
issuance and sale to the Purchasers of up to Two Million One Hundred Thousand
(2,100,000) shares of the Corporation's common stock (the "Stock").
1.2 SALE AND PURCHASE OF THE STOCK. At the Closing (as defined herein),
subject to the terms and conditions hereof and in reliance upon the
representations, warranties and agreements contained herein, each Purchaser
agrees, severally, to purchase at the Closing and the Corporation agrees to sell
and issue to each Purchaser at the Closing, that number of shares of the Stock
set forth opposite such Purchaser's name on SCHEDULES A AND B hereto for the
purchase price set forth thereon. All Purchasers shall purchase their shares
simultaneously for the same price per share.
SECTION 2.
CLOSING, PAYMENT AND DELIVERY
2.1 CLOSING DATE AND PLACE OF CLOSING. The purchase and sale of the
stock shall take place at the offices of the Corporation, 2300 Glades Road,
Suite 440 West, Boca Raton, FL 33431, at 10:00 a.m., on August 25, 1999, or at
such other time and place as the Corporation and the Purchasers mutually agree
upon orally or in writing (which time and place are designated as the
"Closing"). The parties intend that the Closing will occur on the third business
day subsequent to the signing of this Agreement; provided however, that if this
Agreement does not Close on or before August 28, 1999 either the Purchasers
listed on Schedule A or the Corporation may cancel this Agreement by providing
written notice of cancellation to the other.
2.2 PAYMENT AND DELIVERY. At the Closing, the Corporation will deliver
to Purchasers' counsel a certificate representing that portion of the Stock that
each such Purchaser is purchasing against payment of the purchase price therefor
by check or wire transfer of same-day funds to the Corporation's bank account
listed on EXHIBIT A attached hereto.
<PAGE> 2
2.3 COVENANT OF BEST EFFORTS AND GOOD FAITH. The Corporation and each
Purchaser agree to use their respective best efforts and to act in good faith to
cause to occur all conditions to Closing which are in their respective control.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation hereby represents and warrants to each Purchaser that:
3.1 INCORPORATION. The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
is qualified to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect upon
the Corporation's financial condition, business, assets or results of operations
(hereafter, a "Material Adverse Effect"). The Corporation has all requisite
corporate power and authority to carry on its business as now conducted.
3.2 CAPITALIZATION. The authorized capital stock of the Corporation
consists of (i) 50,000,000 shares of common stock, par value $.0001 per share,
and (ii) 5,000,000 shares of preferred stock, shares of each of which class of
the capital stock of the Corporation have been issued and are outstanding as set
forth in Schedule 3.2 hereto. The terms, preferences and privileges of the
outstanding shares of capital stock are set forth in the Corporation's
Certificate of Incorporation, as amended (the "Certificate"). Except as set
forth in Schedule 3.2 hereto, there are no existing options, warrants, calls,
preemptive (or similar) rights, subscriptions or other rights, agreements,
arrangements or commitments of any character obligating the Corporation to
issue, transfer or sell, or cause to be issued, transferred or sold, any shares
of the capital stock of the Corporation or other equity interests in the
Corporation or any securities convertible into or exchangeable for such shares
of capital stock or other equity interests (collectively, "Securities"), and
there are no outstanding contractual obligations of the Corporation to
repurchase, redeem or otherwise acquire any shares of its capital stock or other
equity interests. Schedule 3.2 sets forth the number of stock options
outstanding under the Corporation's stock incentive plans, and the number of
shares reserved for issuance under such plans that are not subject to
outstanding options. Except as set forth in Schedule 3.2 no holder of any
capital stock or Securities of the Corporation has any outstanding registration
rights. For purposes of this transaction, the preemptive rights issued to
Environmental Opportunities Fund II, L.P. and Environmental Opportunities Fund
II,(Institutional) L.P. have been waived.
3.3 AUTHORIZATION. All corporate action on the part of the Corporation,
its officers, directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein has been taken. When executed and delivered
by the Corporation, this Agreement shall constitute the legal, valid and binding
obligation of the Corporation, enforceable against the Corporation in accordance
with its terms, except (i) as limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally; (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies; and (iii) to the
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extent the indemnification provisions contained in this Agreement may be limited
by applicable federal or state securities laws. The Corporation has all
requisite corporate power to enter into this Agreement and to carry out and
perform its obligations under the terms of this Agreement.
3.4 VALID ISSUANCE OF THE STOCK. The Stock being purchased by the
Purchasers hereunder will, upon issuance pursuant to the terms hereof, be duly
authorized and validly issued, fully paid, nonassessable and free of any liens
or encumbrances created by the Corporation and will, assuming the accuracy of
the representations and warranties made by each of the Purchasers to the
Corporation, be in compliance with applicable state and federal securities laws.
3.5 SEC DOCUMENTS. The Corporation has furnished to each Purchaser a
true and complete copy of the Corporation's Annual Report on Form 10-KSB for the
year ended December 31, 1998 and the Company's Quarterly Report on Form 10-QSB
for the six month period ended on June 30, 1999, and any other statement,
report, registration statement (other than registration statements on Form S-8)
or definitive proxy statement filed by the Corporation with the Securities and
Exchange Commission (the "SEC") during the period commencing June 30, 1999 and
ending on the date hereof. The Corporation will, promptly upon the filing
thereof, also furnish to each Purchaser all statements, reports, (including,
without limitation, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K), registration statements and definitive proxy
statements filed by the Corporation with the SEC during the period commencing on
the date hereof and ending on the Closing Date (all such materials required to
be furnished to each Purchaser pursuant to this sentence or pursuant to the next
preceding sentence of this Section 3.5 being called, collectively, the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied or
will comply in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the Securities Act of
1933, as amended (the "Securities Act"), as applicable, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, as of their respective filing dates, except to the extent
corrected by a subsequently filed SEC Document. The Corporation has not filed
any amendment to its Annual Report on Form 10-KSB for the year ended December
31, 1998 or its Company's Quarterly Report on Form 10-QSB for the six month
period ended on June 30, 1999. The Corporation has not filed any Current Reports
on Form 8-K with respect to any event occurring between June 30, 1999 and the
date hereof.
3.6 FINANCIAL STATEMENTS. The Corporation's audited Consolidated
Statements of Operations, Stockholders' Equity and Cash Flows for the fiscal
year ended December 31, 1998 and the Corporation's audited Consolidated Balance
Sheet as of December 31, 1998 are included in the Corporation's Annual Report on
Form 10-KSB for the year ended December 31, 1998, a copy of which has been
delivered to the Purchasers. The Company's unaudited Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for the six month period ended
June 30, 1999 and the Company's unaudited Consolidated Balance Sheet as of June
30, 1999 are included in the Company's Quarterly Report on Form 10-QSB for the
six month period ended on June 30, 1999, copies of which have been delivered to
the Purchasers. All of the financial statements referred to above in this
Section 3.6 are hereinafter referred to
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collectively, as the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, and fairly present, in all
material respects, the financial position of the Corporation and the results of
its operations as of the date and for the periods indicated thereon, except that
those Financial Statements that are unaudited may not have been prepared in
accordance with generally accepted accounting principles solely because of the
absence of footnotes normally contained therein and may be subject to normal
year-end audit adjustments which, individually, and in the aggregate, will not
be material.
3.7 CONSENTS. All consents, approval, orders, authorizations,
registrations, qualifications, and filings required on the part of the
Corporation to be obtained or made prior to the Closing in connection with the
execution, delivery or performance of this Agreement, and the consummation of
the transactions contemplated herein have been obtained or made or will be
obtained or made, prior to the Closing.
3.8 NO CONFLICT. The execution and delivery of this Agreement by the
Corporation and the consummation of the transactions contemplated hereby will
not conflict with or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to a loss of a material
benefit or give rise to an event which results in the creation of any lien,
charge or encumbrance upon any of the Corporation's properties or assets under
(i) any provision of the Certificate or Bylaws of the Corporation or (ii) any
agreement or instrument, permit, franchise, license, judgment, order, statute,
law, ordinance, rule or regulations, applicable to the Corporation or its
respective properties or assets.
3.9 ABSENCE OF LITIGATION. There is no action, suit or proceeding or,
to the Corporation's knowledge, any investigation, pending, or to the
Corporation's knowledge, threatened against the Corporation and in which an
unfavorable outcome, ruling or finding in any said matter, or for all matters
taken as a whole, might have a Material Adverse Effect. There is not pending or
threatened any such action, suit, proceeding or investigation that questions
this Agreement or the right of the Corporation to execute, deliver and perform
under same.
3.10 NASDAQ NATIONAL MARKET. The Common Stock is currently traded on
the Nasdaq National Market.
3.11 BROKERS OR FINDERS. Except for Pacific Growth Equities, Inc., the
Corporation has not dealt with any broker or finder in connection with the
transactions contemplated by this Agreement, and the Corporation has not
incurred, and shall not incur, directly or indirectly, any liability for any
brokerage or finders' fees or agents commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby. All fees
payable to Pacific Growth Equities, Inc. will be paid by the Corporation.
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3.12 COMPLIANCE WITH CHARTER, LAWS, ETC. The Corporation is in
compliance in all material respects with the terms of its Certificate and
By-laws as currently in effect, true and complete copies of which have been
delivered to each Purchaser, and each of the Certificate and By-laws of the
Corporation (in the form, provided to the Purchasers), is in full force and
effect as of the Closing Date. To the best of the Corporation's knowledge and
after due investigation, the Corporation has complied, and is in compliance
with, all federal, state, county, local and foreign laws, rules, regulations,
ordinances, decrees and orders applicable to the operation of its business or to
the real property or personal property that it owns or leases (including,
without limitation, all such laws, rules, ordinances, decrees and orders
relating to antitrust, currency exchange, environmental protection, occupational
safety and health, equal opportunity, pension, securities and
trading-with-the-enemy matters), except where any such failures to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.13 PRIVATE OFFERING. During the six months preceding the date of this
Agreement, neither the Corporation nor any person acting on its behalf has,
directly or through any agent, sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of any security (as defined in the Securities
Act) that is or may be integrated with the sale of the Stock in a manner that
would require the registration of the issuance and sale by the Corporation of
the Stock under the Securities Act. During the six months preceding the date of
this Agreement, neither the Corporation nor any person acting on its behalf has
offered or sold any Stock by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act. Assuming
the accuracy of the Purchasers' representations in Section 4 hereof, the
offering and sale of the Stock will satisfy the requirements of Rule 506 under
the Securities Act.
3.14 CHANGES.
(a) Since June 30, 1999, except as disclosed or in SEC Documents or
press releases prepared through or as of a date subsequent to June 30, 1999, of
which the Company has delivered all press releases since June 30, 1999 to
Zesiger Capital Group LLC, there has not been:
(i) any damage, destruction or loss (whether or not covered by
insurance) to its assets which has had or is reasonably expected to
have a Material Adverse Effect;
(ii) any material change in the accounting methods or
practices followed by the Corporation;
(iii) any material debt, obligation or liability (whether
absolute or contingent) incurred by the Corporation (whether or not
presently outstanding) except (x) current liabilities incurred, and
obligations under agreements entered into, in the ordinary course of
business and (y) obligations or liabilities entered into or incurred in
connection with the execution of this Agreement;
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<PAGE> 6
(iv) any sale, lease, abandonment or other disposition by the
Corporation of any real property or, other than in the ordinary course
of business, of any equipment or other operating properties or, other
than in the ordinary course of business, any sale, assignment,
transfer, license or other disposition by the Corporation of any
intellectual property or other intangible asset;
(v) any dividends or other distributions of cash or other
property paid by the Corporation in respect of any of its capital stock
(except for the issuance of shares of the Corporation's Common Stock
upon exercise of rights under, or conversion of, the Corporation's
other Securities);
(vi) any waivers or releases by the Corporation of any
material debt or obligation owed to the Corporation; or
(vii) to the best of the Corporation's knowledge, any other
event that could reasonably be expected to result in a Material Adverse
Effect.
(b) Notwithstanding anything to the contrary in this Agreement, if,
after the date of this Agreement the Corporation discloses to the Purchasers or
the Purchasers otherwise become aware of any information concerning an event
that renders the representation and warranty set forth in this Section 3.14
inaccurate, and such information is material and not otherwise available to the
public generally, the Purchasers agree not to sell, assign or otherwise transfer
any of the Stock based on such material non-public information until such
material non-public information is made available to the public generally. In
the event that the Closing contemplated hereby actually occurs, the Corporation
shall disclose such material nonpublic information in the registration statement
required to Section 7 of this Agreement.
3.15 LABOR MATTERS. Except as set forth in Schedule 3.15, the
Corporation has no collective bargaining agreement with any of its employees
and, to the Corporation's knowledge, there is no labor union organizing activity
pending or threatened with respect to the Corporation. There are no disputes
pending or, to the knowledge of the Corporation, threatened between the
Corporation, on the one hand, and any of its employees, on the other hand, other
than employee grievances arising in the ordinary course of business which would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents, warrants and covenants to the
Corporation that:
4.1 AUTHORIZATION. Such Purchaser has full right, power and authority
to enter into this Agreement, and such agreement constitutes its valid and
legally binding obligation, enforceable in
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accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, and (iii) to the extent the indemnification provisions
contained in this Agreement may be limited by applicable federal or state
securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with such
Purchaser in reliance upon such Purchaser's representation to the Corporation,
which by such Purchaser's execution of this Agreement such Purchaser hereby
confirms, that the Stock to be received by such Purchaser will be acquired for
investment for such Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Purchaser has no present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement, such Purchaser
further represents that such Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Stock.
4.3 DISCLOSURE OF INFORMATION. Such Purchaser, individually or through
its investment advisor, Zesiger Capital Group LLC, believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock. Such Purchaser further represents that, individually or
through its investment advisor, Zesiger Capital Group LLC, it has had an
opportunity to ask questions and receive answers from the Corporation regarding
the terms and conditions of the offering of the Stock and the business,
properties, prospects and financial condition of the Corporation.
4.4 INVESTMENT EXPERIENCE. Such Purchaser acknowledges that it can bear
the economic risk of its investment, and has, individually or through its
investment advisor, Zesiger Capital Group LLC, such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Stock. If other than an individual, such
Purchaser also represents it has not been organized for the purpose of acquiring
the Stock.
4.5 ACCREDITED INVESTOR. Such Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D as presently in effect.
4.6 RESTRICTED SECURITIES. Such Purchaser understands that the Stock it
is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Corporation in a
transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the Act only in certain limited circumstances. In the absence of an effective
registration statement covering the Securities or an available exemption from
registration under the Act, the Stock must be held indefinitely. In this
connection, such Purchaser represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act, including without limitation the Rule 144 condition that current
information about the Corporation be available to the public.
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4.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, such Purchaser further agrees not to make any
disposition of all or any portion of the Stock unless:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) it is made in compliance with Rule 144; or
(c) such Purchaser shall have (i) notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, (ii)
provided a written agreement from the transferee for the benefit of the
Corporation to be bound by the Section 4, and (iii) if requested by the
Corporation, such Purchaser shall have furnished the Corporation with an opinion
of counsel, reasonably satisfactory to the Corporation that such disposition
will not require registration of such shares under the Act. It is agreed that
the Corporation will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
(d) Notwithstanding any of the foregoing, transfers to principals
of or investment advisory clients of Zesiger Capital Group LLC shall be
permitted without any consent, statement or legal opinion.
4.8 LEGENDS. It is understood that the certificates evidencing the
Stock it is purchasing may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
4.9 PURCHASER COUNSEL. Such Purchaser acknowledges that such Purchaser
and, if applicable, its advisors, Zesiger Capital Group LLC, has had the
opportunity to review this Agreement, the exhibits and schedules attached hereto
and the transactions contemplated by this Agreement with such Purchaser's own
legal counsel. Each such Purchaser is relying solely on such Purchaser's legal
counsel and not on the Corporation's legal counsel, for legal advice with
respect to this investment or the transactions contemplated by this Agreement.
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4.10 AUTHORITY OF ZESIGER CAPITAL GROUP LLC. Such Purchaser as listed
on Schedule A acknowledges that Zesiger Capital Group LLC has full right power
and authority to cause Purchaser to enter into this Agreement, bind Purchaser,
and consummate the transactions contemplated by this Agreement.
SECTION 5.
CONDITIONS TO OBLIGATIONS OF THE PURCHASERS
The obligation of the Purchasers to purchase the Stock is subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Corporation shall be true and correct in all material respects on the
Closing Date as if made on such Date and the Corporation shall have an officer
provide a certificate as of the Closing Date attesting to such fact.
5.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Corporation on or prior
to the Closing Date shall have been performed or complied with in all material
respects.
5.3 OPINION OF CORPORATION'S COUNSEL. The Purchasers shall have
received from counsel to the Corporation an opinion in the form attached hereto.
5.4 LEGAL ISSUANCE. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the Purchasers and the Corporation are subject.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in form and
substance to the Purchasers and their counsel.
SECTION 6.
CONDITIONS TO OBLIGATIONS OF THE CORPORATION
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Purchasers shall be true and correct in all material respects on the
Closing Date.
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<PAGE> 10
6.2 LEGAL ISSUANCE. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the Purchasers and the Corporation are subject.
6.3 PAYMENT. The Corporation shall concurrently receive payment for the
Stock as provided in Section 2.
SECTION 7.
COVENANT TO REGISTER
7.1 For purposes of this Section 7, the following definitions shall
apply:
(1) The terms "register", "registered", and "registration" refer to
a registration under the Securities Act effected by preparing and filing a
registration statement or similar documents in compliance with the Securities
Act or an amendment thereto, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(2) The term "Registrable Securities" means the Stock issued to the
Purchasers pursuant to the Agreement and any securities of the Corporation or
securities of any successor corporation issued as, or issuable upon the
conversion or exercise of any warrant, right or other security that is issued
as, a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Stock.
7.2 The Corporation agrees to file within ten (10) business days of the
Closing Date, a registration statement on Form S-3 (or other appropriate form)
in order to register the resale of the Registrable Securities and use its
reasonable best efforts to cause such registration statement to be declared
effective within 180 days after the filing of the Registration Statement (the
end of such period, the "Effectiveness Date"). If the Registration Statement is
not declared effective prior to or on the Effectiveness Date, the Company shall
pay to each Investor, in cash or additional shares (at the Company's option), an
amount equal to 1% of the product of (i) the number of Purchased Shares held by
such Investor, multiplied by (ii) the Purchase Price hereunder, being $8.25 per
share, for each 30 day period subsequent to the Effectiveness Date during which
the Registration Statement is not effective. Any additional shares so issued
will be valued on the Purchase Price and such payment will be made as soon as
practicable after each such 30 day period.
7.3 If the Corporation proposes to register (including for this purpose
a registration effected by the Corporation for shareholders other than the
Purchaser) any of its stock or other securities under the Securities Act in
connection with a public offering of such securities (other than a registration
on Form S-4, Form S-8 or other limited purpose form or a registration effected
pursuant to agreements to register in effect on the date hereof) and the
Registrable Securities have not heretofore been included in a registration
statement under Section 7.2, which remains effective, the Corporation shall, at
such time, promptly give the Purchasers written notice of such registration.
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<PAGE> 11
Upon the written request of any Purchaser given within 10 days after receipt of
such notice by such Purchaser, the Corporation shall cause to be registered
under the Securities Act all of the Registrable Securities that such Purchaser
has requested to be registered. However, the Corporation shall have no
obligation under this Section 7.3 to the extent that, with respect to a public
offering registration, any underwriter of such public offering reasonably
requests that the Registrable Securities or a portion thereof be excluded
therefrom. Notwithstanding the foregoing, nothing in this Section 7.3 shall
limit the Corporation's obligations under Section 7.2 above.
7.4 Whenever required under this Section 7 to effect the registration
of any Registrable Securities, the Corporation shall, as expeditiously as
reasonably possible:
(1) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration to become effective and, to keep such registration statement
effective for so long as such Purchaser desires to dispose of the securities
covered by such registration statement or, if earlier, at such time as such
Purchaser could sell all of such Registrable Securities under Rule 144(k)
without limitation or delay. The registration statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the holders of the
Registrable Securities and their counsel at least 5 days prior to its filing or
other submission, which approval shall be promptly provided and shall not be
unreasonably withheld.
(2) Prepare and file with the SEC such amendments and supplements
to such registration statements and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(3) Furnish to the Purchasers such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Purchasers
may reasonably request in order to facilitate the disposition of Registrable
Securities owned by the Purchasers.
(4) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Purchasers,
provided that the Corporation shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(5) Notify Purchasers of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. In such an event, the
Corporation shall promptly file with the SEC all appropriate amendments and
supplements to such prospectus.
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<PAGE> 12
(6) Furnish, at the request of any Purchaser, an opinion of counsel
of the Corporation, dated the effective date of the registration statement, as
to the due authorization and issuance of the securities being registered and
compliance with securities laws by the Corporation in connection with the
authorization and issuance thereof.
(7) Furnish to any Purchaser such copies of the Prospectus included
in the Registration Statement and any amendments and supplements as such
Purchaser shall reasonably request.
7.5 Each Purchaser will furnish to the Corporation in connection with
any registration under this Section 7 such information regarding itself, the
Registrable Securities and other securities of the Corporation held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by such Purchaser.
7.6 (i) The Corporation shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of this Section 7, Zesiger Capital Group LLC, any
underwriter (as defined in the Securities Act) for such holder, and the
directors, officers, members and controlling persons of, Zesiger Capital Group
LLC, such holder or underwriter from and against, and shall reimburse all of
them with respect to, any and all claims, suits, demands, causes of action,
losses, damages, liabilities, costs or expenses ("Liabilities") to which any of
them may become subject under the Securities Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements herein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Corporation shall not be
liable in any such case to the extent that any such Liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such person
in writing specifically for use in the preparation thereof.
(ii) Each holder of Registrable Securities included in a
registration pursuant to the provision of this Section 7 shall indemnify, defend
and hold harmless the Corporation, its directors and officers, and shall
reimburse the Corporation its directors and officers with respect to, any and
all Liabilities to which any of them may become subject under the Securities Act
or otherwise, arising from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
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<PAGE> 13
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of Sections 7.6(i) or 7.6(ii) of notice of the commencement of
any action involving the subject matter of the foregoing indemnity provisions,
such indemnified party shall, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Sections 7.6(i) or 7.6(ii),
promptly notify the indemnifying party of the commencement thereof; provided,
however, that the failure to so notify the indemnifying party shall not relieve
it from its indemnification obligations hereunder except to the extent that the
indemnifying party is materially prejudiced by such failure. If such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there may
be legal defenses different from or in addition to those available to the
indemnifying party, or if there is conflict of interest which would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party pursuant to Sections 7.6(i) or 7.6(ii) for any
expense of counsel subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
(A) the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence, or (B) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action. An indemnifying party shall not be responsible for amounts paid
in settlement without its consent, provided that its consent may not be
unreasonably withheld or delayed. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
7.7 (i) With respect to the including of Registrable Securities in a
registration statement pursuant to this Section 7, all fees, costs and expenses
of and incidental to such registration, inclusion and public offering shall be
borne by the Corporation; provided, however, that any security holders
participating in such registration shall bear their pro rata share of the
underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne
by the Corporation as provided in this Section 7.7 shall include, without
limitation, all registration, filing and NASD fees,
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<PAGE> 14
printing expenses, fees and disbursements of counsel and accountants for the
Corporation, fees and disbursements of one counsel to the Purchasers, and all
legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified.
7.8 The rights to cause the Corporation to register all or any portion
of Registrable Securities pursuant to this Section 7 may be assigned by the
Purchasers to a transferee or assignee of the Registrable Securities. Within a
reasonable time after such transfer the Purchasers shall notify the Corporation
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act. Any transferee asserting registration rights hereunder shall
be bound by the provision of this Section 7.
7.9 From and after the date of this Agreement, the Corporation shall
not agree to allow the holders of any securities of the Corporation to include
any of their securities in any registration statement filed by the Corporation
pursuant to Section 7.2 unless the inclusion of such securities will not reduce
the amount of the Registrable Securities included therein.
7.10 In connection with any primary offering involving an underwriting
of shares of the Corporation's common stock, the Corporation shall not be
required under this Section 7 to include any Purchaser's securities in such
underwriting unless such Purchaser accepts the terms of the underwriting as
agreed upon between the Corporation and the underwriters selected by it, and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Corporation.
7.11 The Corporation may suspend the effectiveness of a registration
statement required by this Section 7 for a period of not more than 30 days if
the Corporation is engaged in confidential negotiations or other confidential
business activities the disclosure of which (in the reasonable opinion of
outside counsel to the Corporation) would be required in such registration
statement and would not be required if such registration statement were not
filed and effective, and the Board of Directors of the Corporation determines in
good faith that such disclosure would be materially detrimental to the
Corporation and its stockholders, provided, however, that the Corporation shall
not utilize this right more than twice in any twelve-month period and not sooner
than 30 days after the prior use of such right. The Corporation will provide
simultaneous notice of any suspension to Zesiger Capital Group LLC.
SECTION 8.
AFFIRMATIVE COVENANTS OF THE CORPORATION
The Corporation hereby covenants that, during such time as any
Purchaser (or one of such Purchaser's affiliates)(for such purposes all shares
owned by all Zesiger Capital Group LLC clients
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<PAGE> 15
and principals will be aggregated as if a single purchaser) owns any shares of
Stock totaling in excess of 300,000 shares.
8.1 Reports and Financial Statements
(a) The Corporation will cause its common stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under the Exchange Act, and
will not take any action or file any documents (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act. The Corporation will take all action necessary to continue the
listing or trading of its common stock on any national securities exchange or
the Automated Quotation System of the National Association of Securities Dealers
on which such common stock is listed or traded, and will comply in all respects
with its reporting, filing and other obligations under the bylaws or rules of
said exchange or association.
(b) The Corporation will furnish to such Purchaser for two years,
concurrently with the distribution or filing thereof, each annual and quarterly
report to its shareholders, its reports on Form 10K and 10Q, and each other
report, registration statement, definitive proxy statement or other document
filed with the SEC, and each press release or other public announcement issued
by the Corporation.
8.2 MAINTENANCE OF OFFICE. The Corporation will maintain an office or
agency in the United States at such address as may be designated in writing from
time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
8.3 MAINTENANCE AND COMPLIANCE. The Corporation will (i) maintain its
corporate existence, rights, powers and privileges in good standing, (ii) comply
in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
Section 13(b)(2) of the Exchange Act, and (iv) retain independent public
accountants of recognized national standing as auditors of the Corporation's
annual financial statements.
8.4 ASSIGNMENT OF RIGHTS. The rights of such Purchaser hereunder may be
assigned by such Purchaser in connection with the transfer or assignment of its
shares of Stock. Such rights may be further reassigned by each such transferee
to subsequent transferees. Any transferee asserting rights under this Agreement
shall be bound by its provisions.
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<PAGE> 16
8.5 EFFECT OF COVENANTS. The covenants in Sections 8.1 and 8.3 shall
not be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 9.
LEGEND ON STOCK
Until the registration contemplated by Section 7 above is declared
effective with respect to the stock, each certificate representing the Stock
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under any applicable state
securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of any
such legend, if the Corporation shall have received either an opinion of counsel
or a "no-action" letter of the SEC, in either case reasonable satisfactory in
substance to the Corporation and its counsel, to the effect that such legend is
no longer required.
SECTION 10.
ARBITRATION
10.1 ARBITRATION
10.1.1 SCOPE. Resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Disputes"), including disputes
arising in connection with claims by third persons, shall be exclusively
governed by and settled in accordance with the provisions of this Section 10;
provided, that the foregoing shall not preclude equitable or other judicial
relief to enforce the provisions hereof or to preserve the status quo pending
resolution of Disputes hereunder.
10.1.2 BINDING ARBITRATION. The parties hereby agree to submit all
Disputes to arbitration for final and binding resolution. Any party may initiate
such arbitration by delivery of a
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<PAGE> 17
demand therefor (the "Arbitration Demand") to the other parties. The arbitration
shall be conducted in the City of Wilmington, Delaware, by a panel of three
arbitrators, one chosen by each party and the third selected by agreement of the
parties not later than 10 days after delivery of the Arbitration Demand, or,
failing such agreement, appointed pursuant to the Commercial Arbitration Rules
of the America Arbitration Association, as amended from time to time (the "AAA
Rules"). If the arbitrators become unable to serve, his her or their
successor(s) shall be similarly selected or appointed.
10.1.3 PROCEDURE. The arbitration shall be conducted pursuant to
the Federal Arbitration Act and such procedures as the parties may agree or, in
the absence of or failing such agreement, pursuant to the AAA Rules.
Notwithstanding the foregoing, (a) each party shall have the right to audit the
books and records of the other parties that are reasonably related to the
Dispute; (b) each party shall provide to the other, reasonably in advance of any
hearing, copies of all documents that a party intends to present in such
hearing; (c) all hearings shall be conducted on an expedited schedule; and (d)
all proceedings shall be confidential, except that either party may at its
expense make a stenographic record thereof.
10.1.4 TIMING. The arbitrators shall complete all hearings not
later than 90 days after his or her selection or appointment, and shall make a
final award not later than 30 days thereafter. The arbitrators shall apportion
all costs and expenses of the arbitration, including the arbitrators' fees and
expenses, and fees and expenses of experts ("Arbitration Costs") between the
prevailing and non-prevailing party as the arbitrators shall deem fair and
reasonable. In circumstances where a Dispute has been asserted or defended
against on grounds that the arbitrator deems manifestly unreasonable, the
arbitrators may assess all Arbitration Costs against the non-prevailing party
and may include in the award the prevailing party's attorney's fees and expenses
in connection with any and all proceedings under this Section 10.
Notwithstanding the foregoing, in no event may the arbitrators award multiple or
punitive damages.
SECTION 11.
MISCELLANEOUS
11.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware. Except as set forth in
Section 10, any action or proceeding relating to this Agreement may be brought
in the courts of Delaware, or in the United States courts located in Delaware
and each of the parties irrevocably consents to the jurisdiction of such courts
in any such action or proceeding.
11.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including any
Exhibits and Schedules hereto) and the other documents delivered pursuant hereto
constitute the full and entire
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<PAGE> 18
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated except by a written instrument signed by the
Corporation and holders of a majority of the Stock.
11.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be mailed by internationally recognized courier
service and facsimile addressed (a) if to the Purchaser, as indicated below the
Purchaser's signature with a copy to the designated entity or at such other
address as the Purchaser shall have furnished to the Corporation in writing, or
(b) if to any other holder of any Stock at the address of such holder as shown
on the records of the Corporation, or (c) if to the Corporation, at its address
set forth below or at such other address as the Corporation shall have furnished
to the Purchaser and each such other holder in writing. All such notices or
communications shall be deemed given when delivered personally by courier, by
internationally recognized courier or by facsimile.
11.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement (including any holder of
Stock), upon any breach or default or another party under this Agreement, shall
impair any such right, power or remedy of such party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.6 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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<PAGE> 19
11.7 TITLES AND SUBTITLES. The titles of the Sections and subsections
of this Agreement are for convenience of reference only and are not be
considered in construing this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.9 FEES AND EXPENSES. The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Corporation shall pay to
the Purchasers up to $20,000 as and for all reasonable out-of-pocket expenses
incurred by such Purchasers in connection herewith, including the reasonable
fees and expenses of the Purchasers' counsel.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
U.S. PLASTIC LUMBER CORPORATION
By: /s/ Mark S. Alsentzer
--------------------------------
Name: Mark S. Alsentzer
Title: CEO and President
Address: 2300 Glades Road, Suite 440 West
Boca Raton, FL 33431
Fax # 561-394-5335
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<PAGE> 20
The Purchasers listed on Schedule A
By: /s/ Albert Zesiger
--------------------------------
Zesiger Capital Group LLC, as attorneys
in fact for all Purchasers listed
on Schedule A
By: /s/ Albert Zesiger
--------------------------------
Name:
Title:
Address: 320 Park Ave., 30th Floor
New York, NY 10022
Attn: Albert L. Zesiger
Fax #: 212-508-6399
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<PAGE> 21
Schedule B Purchaser
Apodaca Investment Group
By: /s/ Jerry C. Apodaca
-----------------------------------
Name: Jerry C. Apodaca
Title: CEO
Fax #: 415-675-7811
Address: 50 California St.
Suite 3315
San Francisco, CA 94104
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<PAGE> 22
Schedule B Purchaser
Apogee Fund, L.P.
By: /s/ Michael C. Yeager
-----------------------------------
Name: Michael C. Yeager
Title:
Fax #:
Address: 201 Main St.
Suite 1555
Ft. Worth, TX 76102
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<PAGE> 23
Schedule B Purchaser
Zeke L.P.
By: /s/ Edward N. Antoian
-----------------------------
Name: Edward N. Antoian
Title: General Partner
Fax #: 610-296-1430
Address:
1235 Westlakes Dr.
Suite 330
Berwyn, PA 19312
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<PAGE> 24
Schedule B Purchaser
Bulldog Capital Management
By: /s/ Ronald Pollack
-----------------------------
Name: Ronald Pollack
Title: Chairman
Fax #: 727-442-6093
Address:
Bulldog Capital Management
33 North Garden Ave.
Suite 750
Clearwater, FL 33755
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<PAGE> 25
Schedule B Purchaser
Macuard Cook & Cie S.A.
By: /s/
-----------------------------
Name:
Title:
Fax #: 011-41-22-716-3676
Address:
7, rue des Alpes
Case postale 1380
CH-12121 Geneve 1
<PAGE> 26
Schedule B Purchaser
Stuart G. Gould
By: /s/ Stuart G. Gould
-----------------------------
Name: Stuart G. Gould
Title:
Fax #: 805-563-0176
Address:
3916 State St.
Suite 200
Santa Barbara, CA 93105
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<PAGE> 27
Schedule B Purchaser
Fidelity National Title Insurance
By: /s/ Stuart G. Gould
-----------------------------
Name: Stuart G. Gould
Title: Vice President
Fax #: 805-563-0176
Address:
3916 State St.
Suite 200
Santa Barbara, CA 93105
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<PAGE> 28
Schedule B Purchaser
G.A. Wetterstein
By: /s/ Gregory A. Wetterstein
-------------------------------
Name: Gregory A. Wetterstein
Title: General Partner
Fax #: 415-461-0691
Address:
17 E. Sir Francis Drake Blvd.
Suite 100
Larkspur, CA 94939
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Schedule B Purchaser
Hollis Capital Partners
By: /s/ Paul J. Siegel
--------------------------------
Name: Paul J. Siegel
Title:
Fax #: 415-288-2323
Address: One Sansome St.
San Francisco, CA 9411
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<PAGE> 30
Schedule B Purchaser
Apex Limited Partners, L.P.
By: /s/ Devin Wate
--------------------------------
Name: Devin Wate
Title: Managing Partner
Fax #: 425-391-7045
Address:
26339 SE 33 St.
Issaquah, WA 98029
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<PAGE> 31
Schedule B Purchaser
EDJ Limited
By: /s/ Jeffrey H. Porter
-----------------------------
Name: Jeffrey H. Porter
Title: Investment Advisor
Fax #: 415-332-8223
Address:
100 Shoreline, Suite 2118
Mill Valley, CA 94965
-30-
<PAGE> 32
Schedule B Purchaser
Verita SG Investment Trust
By: /s/ V. Ziegesar
------------------------------
Name: V. Ziegesar
Title: CEO
Fax #: 011-49-69-97574-330
Address:
Bettinastr. 62
60325 Frankfurt
Germany
-31-
<PAGE> 33
Schedule B Purchaser
Wentworth Hauser & Violich, Inc.
FBO Stichting Pensioenfonds ABP
By: /s/ Phil Fox
------------------------------
Name: Phil Fox
Title: Managing Director
Fax #:415-788-7281
Address:
333 Sacramento St.
San Francisco, CA 94111
-32-
<PAGE> 34
Schedule B Purchaser
Clarion Capital Corporation
By: /s/ Thomas Wieham
------------------------------
Name: Thomas Wieham
Title: Treasurer
Fax #: 216-694-3545
Address:
20 Redground Rd.
Old Westbury, NY 11568
-33-
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
OF
U.S. PLASTIC LUMBER CORP.
U.S. PLASTIC LUMBER LTD. SUBSIDIARY:
------------------------------------
The Eaglebrook Group, Inc., a Delaware corporation
CLEAN EARTH, INC. SUBSIDIARIES:
-------------------------------
Advanced Remediation of Delaware, Inc., a Delaware corporation
Allied Waste Services, Inc., a Delaware corporation
Barbella Environmental Technologies, Inc., a New Jersey corporation
Carteret Biocycle Corporation, a Delaware corporation
Clean Earth of New Castle, Inc., a Delaware corporation
Clean Rock Industries, Inc., a Maryland corporation
Clean Rock Properties, Ltd., a Maryland corporation
Consolidated Technologies, Inc., a Pennsylvania corporation
Integrated Technical Services, Inc. a Delaware corporation
S & W Waste, Inc., a New Jersey corporation
Soil Remediation of Philadelphia, Inc., a Delaware corporation
U.S. PLASTIC LUMBER FINANCE CORPORATION SUBSIDIARY:
---------------------------------------------------
U.S. Plastic Lumber IP Corporation, a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,807,588
<SECURITIES> 0
<RECEIVABLES> 33,055,290
<ALLOWANCES> 1,139,870
<INVENTORY> 7,339,543
<CURRENT-ASSETS> 44,699,363
<PP&E> 91,884,537
<DEPRECIATION> 11,460,585
<TOTAL-ASSETS> 166,311,432
<CURRENT-LIABILITIES> 32,510,356
<BONDS> 0
0
0
<COMMON> 3,208
<OTHER-SE> 83,007,190
<TOTAL-LIABILITY-AND-EQUITY> 166,311,432
<SALES> 0
<TOTAL-REVENUES> 138,544,512
<CGS> 0
<TOTAL-COSTS> 102,201,431
<OTHER-EXPENSES> 26,104,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,464,880
<INCOME-PRETAX> 4,879,816
<INCOME-TAX> 1,731,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,148,816
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.09
</TABLE>
