AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1996
REGISTRATION NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MERCURY WASTE SOLUTIONS, INC.
(Name of Small Business Issuer in its Charter)
MINNESOTA 2819 41-1827776
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification Number)
1700 WEST HIGHWAY 36, SUITE 801
ST. PAUL, MINNESOTA 55113
(612) 635-0080
(507) 345-0522
(Address and Telephone Number of Principal Executive Offices)
BRADLEY J. BUSCHER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MERCURY WASTE SOLUTIONS, INC.
1700 WEST HIGHWAY 36, SUITE 801
ST. PAUL, MINNESOTA 55113
(612) 635-0080
(507) 345-0522
(Name, Address, and Telephone Number of Agent For Service)
COPIES TO:
RUSSELL F. LEDERMAN, ESQ. ROBERT K. RANUM, ESQ.
SHAWN R. MCINTEE, ESQ. FREDRIKSON & BYRON, P.A.
MASLON EDELMAN BORMAN & BRAND, 1100 INTERNATIONAL CENTRE
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP 900 SECOND AVENUE SOUTH
3300 NORWEST CENTER MINNEAPOLIS, MINNESOTA 55402-3397
MINNEAPOLIS, MINNESOTA 55402-4140 (612) 347-7000
(612) 672-8200 FAX (612) 347-7077
FAX (612) 672-8397
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================ ======================== ======================== ========================== =============
PROPOSED
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
------------------- ---------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
Common Stock 1,150,000 Shares(2) $5.00 $5,750,000 $1,742.42
Underwriter's Warrants 100,000 Warrants $0.001 $100 $0.03
Common Stock(3) 100,000 Shares $6.00 $600,000 $181.82
TOTAL REGISTRATION FEE $1,924.27
============================ ======================== ======================== ========================== =============
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 150,000 shares subject to an option granted to the Underwriter
to cover over-allotments, if any.
(3) Issuable upon exercise of the Underwriter's Warrants.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 6, 1996
1,000,000 SHARES
MERCURY WASTE SOLUTIONS, INC.
[LOGO]
COMMON STOCK
Mercury Waste Solutions, Inc. (the "Company") is offering (the
"Offering") 1,000,000 shares (the "Shares") of Common Stock at an initial public
offering price of $5.00 per share. Prior to this Offering, there has been no
market for the shares, and no assurance can be given that any such market will
exist or develop upon completion of this Offering or, if developed, will be
maintained. See "Underwriting" for information relating to the factors
considered in determining the Price to Public. The Company has applied for
listing its Common Stock on the Nasdaq SmallCap Market under the symbol MWSI.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" COMMENCING ON PAGE ___ AND "DILUTION" ON PAGE ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=============== =================== ==================== =====================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
-------- ------------ -----------
Per Share $5.00 $.45 $4.55
Total (3) $5,000,000 $450,000 $4,550,000
=============== =================== ==================== =====================
(1) The Company has agreed to pay to Equity Securities Trading Co., Inc.,
(the "Underwriter") a nonaccountable expense allowance equal to 2% of
the gross proceeds of the offering and has agreed to sell to the
Underwriter five year warrants to purchase up to 100,000 shares of
Common Stock at 120% of the Price to Public. The Company has also
agreed to indemnify the Underwriter against certain liabilities. See
"Underwriting."
(2) Before deducting expenses of the offering estimated at $200,000, which
does not include the 2% nonaccountable expense allowance described in
Note 1 above.
(3) The Company has granted the Underwriter a 45-day option to purchase up
to 150,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the Total
Price to Public, Underwriting Discount and Proceeds to Company will be
$5,750,000, $517,500 and $5,232,500, respectively. See "Underwriting."
The Shares are being offered by the Underwriter when, as and if
delivered to and accepted by the Underwriter, and are subject to the right of
the Underwriter to withdraw, cancel or modify such offer and to its right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the Shares will be made on or about ________, 1997 in
Minneapolis, Minnesota.
EQUITY SECURITIES TRADING CO., INC.
----------------------
The date of this Prospectus _______, 1996
[PICTURES TO COME FROM THE COMPANY]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE
HEADING "RISK FACTORS", WHICH INVESTORS SHOULD CAREFULLY CONSIDER.
THE COMPANY
Mercury Waste Solutions, Inc. (the "Company") provides services and
products to mercury waste generators to reduce the risk of liability associated
with mercury waste disposal. The Company currently operates a mercury waste
retorting facility in Union Grove, Wisconsin and a facility to recycle and store
fluorescent and other mercury-containing lamps in Roseville, Minnesota. In
addition, the Company markets and sells or leases lamp recycling equipment.
Retorting is a form of distillation pursuant to which mercury is removed from
contaminated products via vaporization and condensation.
In January, 1996, the Company acquired substantially all of the assets
of U.S. Environmental, Incorporated ("USE"), a Minnesota-based mercury recycling
company founded in 1993 by Mark G. Edlund, the Company's President and Chief
Operating Officer. USE co-developed the Model 2000 lamp recycler (the "Model
2000"), opened a mercury lamp recycling facility in Roseville, Minnesota (the
"Roseville Recycling Facility") to showcase the Model 2000 and co-developed
mercury retorting equipment installed at a facility in Union Grove, Wisconsin
(the "Union Grove Retorting Facility"). Since the acquisition of USE, the
Company improved the Model 2000 (the "Model 2000B") and began development of
equipment that processes mercury-containing lamps for more efficient storage and
transportation (the "Lamp Processor"). The Company has also developed a new
continuous-flow oven and a stationary oven utilized at the Union Grove Retorting
Facility. On September 12, 1996, the Company acquired the interests of the
co-developer of the equipment located at the Union Grove Retorting Facility.
The Company's mission is to provide mercury waste recycling solutions
to mercury waste generators of all sizes including, but not limited to, public
utilities, manufacturers that utilize mercury in their business (e.g.,
measurement, control and electrical equipment industries), building managers and
hazardous waste managers. The Company believes that the mercury recycling
industry has growth potential because of: 1) stringent federal and state
regulations governing mercury-containing products; 2) acknowledgment from
businesses of the potential liability posed by mercury waste disposal; and 3)
the growing recognition among the public of the health risks of mercury. In a
1994 article, the EPA identified the total potential demand for off-site
retorting at 130,000 tons per year. In the same article which was published
prior to the development of the Union Grove Retorting Facility, the EPA
estimated the retort industry capacity at 3,000 tons per year. The Company's
current retorting capacity is approximately 2,500 tons per year. The Company
believes that 30,000-40,000 tons of mercury waste generated per year are ideally
suited to its proprietary processing technology.
The Company presently offers the following services and products:
MERCURY WASTE RETORTING. The Company expects that a significant amount
of its revenue will consist of fees paid for retorting mercury waste to
environmentally acceptable levels. The Union Grove Retorting Facility utilizes a
continuous flow oven technology that processes more mercury waste in a shorter
period of time than other conventional methods presently utilized. The Company
intends to apply to the U.S. Patent and Trademark Office for protection of
certain aspects of its technology related to its retorting equipment. The
processed waste from the Union Grove Retorting Facility satisfies current
federal and state environmental standards for mercury waste and requires no
further treatment as a hazardous waste. The Company has also developed a high
capacity stationary oven for retorting larger, non-granular items such as
thermostats and batteries. The Company expects that the Union Grove Retorting
Facility will derive its business from: (1) large scale generators of mercury
waste, particularly in the measurement, control and electrical equipment
industries; (2) lamp recycling facilities, such as the Roseville Recycling
Facility; (3) lessees of the Lamp Processors; and 4) other manufacturing
facilities that utilize mercury in their business. At the present time, the
Company believes that the supply of mercury-containing waste capable of being
retorted exceeds the capacity of mercury retorters. In order to more efficiently
process mercury waste, the Company intends to utilize a portion of the net
proceeds of this Offering to expand the Union Grove Retorting Facility by 10,000
square feet to provide this capacity to store mercury waste for a period of up
to one year. For the nine months ended September 30, 1996, the Union Grove
Retorting Facility generated approximately $346,000 in revenues.
The Company's goal is to maximize the utilization of its Union Grove
Retorting Facility by acquiring and consolidating mercury waste generated
throughout the United States. The Company believes that mercury waste could be
stored at various locations across the country and transported to the Union
Grove Retorting Facility on a controlled basis. As part of such strategy, the
Company intends to utilize a portion of the proceeds of this Offering to acquire
or develop a consolidation and temporary hazardous waste storage facility (a
"WSF") in the Southwestern United States. Because governmental regulations limit
the amount of mercury waste that can be present at a retorting facility at any
given time, many generators of mercury waste are forced to store such waste in a
temporary hazardous waste storage facility prior to shipment to a retorting
facility or permanent hazardous waste disposal site. The Company believes that
the establishment of a WSF in the Southwestern United States would complement
the Company's business by consolidating the mercury waste located in the
Southwestern United States. This will allow the Company to control the shipments
of mercury waste to the Company's Union Grove Retorting Facility and achieve
maximum utilization of the facility's retorting capacity. The Company estimates
that the cost of acquiring or developing a 4,000 to 6,000 square foot WSF in the
Southwestern United States and establishing operations at such facility will be
approximately $300,000. After completion of the first WSF, the Company also
intends to develop a similar WSF in the Southeastern United States.
EQUIPMENT SALES AND LEASING. The Company intends to offer two
proprietary types of equipment for lease or sale: its Model 2000B lamp recycler
and its Lamp Processor. The Model 2000B can process approximately five million
lamps annually by separating the lamps into three principal components: glass,
aluminum endcaps and mercury-laced calcium phosphate powder. After separation,
the powder's level of mercury still exceeds federal and state guidelines for
mercury and must either be further retorted to remove the mercury or sent to a
hazardous waste landfill with potentially harmful environmental consequences.
For the nine months ended September 30, 1996, there were no sales of the Model
2000B lamp recycler because the Company did not complete the purchase of the
co-developer's rights to the Model 2000 until September 12, 1996.
The Company is developing the Lamp Processor for marketing to
businesses and utilities that dispose of a large volume of fluorescent and other
mercury-containing lamps and desire to reduce lamp storage and transportation
costs. The Lamp Processor will reduce the lamps to a volume more convenient for
transporting and retorting. The Company anticipates that the Lamp Processor will
process lamps at a customer's business site and deposit the lamps into a sealed
holding container which will be periodically removed (and replaced with an empty
container) and transported to a mercury retorting facility such as the Union
Grove Retorting Facility. The Company intends to lease the Lamp Processor to its
customers. The Company believes that leasing, while requiring a greater initial
capital commitment by the Company, will better provide the Company with
recurring monthly revenue. A portion of the proceeds of this Offering will be
utilized to finance the final development and production of the Lamp Processor
for subsequent lease to customers.
LAMP RECYCLING. The Company operates the Roseville Recycling Facility
in Roseville, Minnesota, a suburb of St. Paul, which utilizes a Model 2000B to
recycle mercury-containing fluorescent lamps. The Roseville Recycling Facility
also collects other items including high intensity discharge ("HID") and neon
lamps, batteries, mercury-containing switches and thermostats for shipment to
and retorting by the Company's Union Grove Retorting Facility. The approximately
6,500 square foot Roseville Recycling Facility has processed approximately five
million lamps since it opened in April 1993. Fluorescent lamps are transported
to the Roseville Recycling Facility by Company-owned trucks that pick up
fluorescent lamps directly from customers or are delivered directly by the
customers. For the nine months ended September 30, 1996, the Roseville Recycling
Facility generated approximately $489,000 in revenues.
The Company was incorporated in January, 1996 as a Minnesota
corporation. Its principal executive offices are located at 1700 West Highway
36, Suite 801, St. Paul, Minnesota 55113 and the telephone number is (612)
635-0080.
THE OFFERING
Common Stock Offered. . . . 1,000,000 Shares
Common Stock Outstanding
After this Offering . . . 3,369,097 Shares (1)(2)
Proposed Nasdaq Symbol. . . MWSI
Use of Proceeds . . . . . . A maximum of $1,500,000 to repay an operating
note to Norwest Bank Minnesota, N.A.; $875,000
to complete the purchase of the land and
building associated with the Union Grove
Retorting Facility and develop an on-site
hazardous waste storage facility; $600,000 for
the manufacture of the Lamp Processor; $600,000
for the lease or development of WSF temporary
hazardous waste storage facilities in
Southwestern and Southeastern parts of the
United States and the balance for working
capital purposes.
- ------------------------------
(1) Includes 120,000 shares to be issued upon exercise of warrants
simultaneous with the effectiveness of this Offering.
(2) Does not include (i) 100,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrant at 120% of the Price to Public;
(ii) 185,500 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan of which 110,000 shares of Common
Stock were subject to options granted as of November 30, 1996; and
(iii) 200,771 shares of Common Stock issuable upon exercise of Warrants
issued to certain individuals (including certain officers and directors
of the Company) prior to this Offering.
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
1995 SEPTEMBER 30,
(PREDECESSOR) 1996
- -------------------------------------------------------------------------------
Statement of Operations Data: (1)
<S> <C> <C>
Revenues, net $ 1,548,782 $ 835,832
Cost of revenues 783,355 382,914
----------- -----------
Gross profit 765,427 452,918
Operating expenses 700,026 1,263,802
Interest expense 11,486 134,400
----------- -----------
Net income (loss ) $ 53,915 $ (945,284)
=========== ===========
Pro Forma Data (2)(3):
Net loss per share $ (0.41)
===========
Weighted average number of common and
common equivalent shares outstanding 2,302,966
===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------
PRO PRO FORMA
Balance Sheet Data: ACTUAL FORMA(4) AS ADJUSTED(5)
-------------------------------------------------
<S> <C> <C> <C>
Working capital (deficit) $ (117,116) $ 237,901 $ 912,901
Total assets 2,238,940 2,593,957 5,343,957
Long-term liabilities 1,949,867 1,814,867 314,867
Total liabilities 2,270,101 2,135,101 635,101
Accumulated deficit (945,284) (945,284) --
Shareholder's equity (deficit) (31,161) 458,856 4,708,856
</TABLE>
- -------------------------------------------------------
(1) On January 4, 1996, the Company acquired substantially all the assets of
USE. The results of operations for the year ended December 31, 1995 are
those of USE. The results of USE from January 1, 1996 to January 3, 1996 are
included with the Company's 1996 results as they are not material.
(2) Since its incorporation on January 2, 1996, the Company has been an S
Corporation for federal and state income tax purposes and, accordingly, has
not been subject to federal or state income taxes. The pro forma statement
of operations data presented has been computed as if the Company were
subject to corporate federal and state income taxes. Net income (loss) does
not include a pro forma adjustment for income taxes due to the Company's net
loss. The Company's election to be taxed as an S Corporation will terminate
automatically upon the consummation of this offering. See Note 1 of Notes to
Financial Statements, "S Corporation Status" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) On a supplemental basis, as adjusted to give effect to the numbers of shares
offered hereby necessary to retire as of the beginning of the period or at
the date of issuance of the Company's interest bearing debt, the Company's
net loss, loss per share, and weighted average number of common and common
equivalent shares outstanding would have been $(829,972), $(0.32) and
2,602,966, respectively.
(4) Adjusted for the effect of (i) the sale of 129,097 shares of Common Stock at
$2.75 in the November, 1996 private placement and the application of the net
proceeds thereof, and (ii) the exercise of a warrant for 120,000 shares of
Common Stock at $1.125 per share with exercise price paid by cancellation of
a related debt of $135,000 owed by the Company to the warrant holder.
(5) Adjusted for the effect of (i) the sale of 1,000,000 shares offered hereby
and the application of the net proceeds thereof and (ii) the
reclassification of accumulated deficit to additional paid-in capital as a
result of the automatic termination of the Company's S Corporation income
tax status upon consummation of the offering.
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. INVESTORS COULD LOSE THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, ALONG
WITH THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING THE
COMPANY, ITS BUSINESS AND PROSPECTS BEFORE PURCHASING THE SHARES.
LACK OF PROFITABILITY; LACK OF OPERATING HISTORY
The Company was organized in January, 1996 to acquire substantially all
of the assets of USE. USE earned a substantial portion of its income from sales
of the Model 2000, a source from which the Company has earned no income or
revenues in 1996. USE also profitably operated the Roseville Recycling Facility
from 1993-1995, but the Company has substantially changed the management and
operations at this facility. USE had no operating history at the Union Grove
Retorting Facility which is the major source of projected revenue for the
Company. During the period from January 2, 1996 (date of inception) through
September 30, 1996, the Company had a net loss of approximately $945,000. The
Company had a working capital deficit of approximately $117,000 and a
shareholder's deficit of approximately $31,000 at September 30, 1996. The report
of the independent auditors includes an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a going concern.
Accordingly, the Company's operations are subject to all of the risks inherent
in the establishment of a new business enterprise, including the lack of
profitability and the lack of operating history. The likelihood of success of
the Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
establishment of any company. Future revenues and profits, if any, will depend
upon various factors, including the market acceptance of the Company's services
and products, environmental regulation and enforcement and general economic
conditions. There is no assurance that the Company can operate profitably or
that it will successfully implement its expansion plans. Furthermore, to the
extent that the Company's expansion strategy is successful, the Company must
manage the transition to multiple site operations, higher volume operations, the
control of overhead expenses and the addition of necessary personnel.
NEW AND EVOLVING INDUSTRY
The mercury waste treatment and mercury lamp recycling industry in the
United States is relatively new and evolving. The demand for its services and
products is highly dependent upon governmental regulations, the federal and
state enforcement of regulations and the perception by mercury waste generators
of the need for the Company's services and products. In addition, the Company's
Lamp Processor is currently under development. There can be no assurance that
the Lamp Processor will be developed and if developed, there can be no assurance
that the market will accept the product on terms acceptable to the Company.
LACK OF EQUIPMENT OPERATING HISTORY
Nineteen Model 2000 Lamp Recyclers have been sold since such product
was developed in 1992 and no Model 2000Bs have been sold in 1996. The Company
did not actively market the Model 2000B until it acquired all of the rights to
the original Model 2000, the predecessor to the Model 2000B, in September, 1996.
The Company is continuing to improve the Model 2000B to provide more efficient
and complete mercury removal. No assurance can be given that such modified
equipment can compete with equipment designed by competitors. Additionally, the
Company's retorting technology is new in design and unproven in long-term
processing. Furthermore, the Company's Lamp Processor is in its final design and
prototype stage and none have been sold or leased to date.
LIMITED FINANCIAL RESOURCES; ADEQUACY OF PROCEEDS AND NEED FOR ADDITIONAL
FINANCING
The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial equity capital to
finance the development of WSF's and Lamp Processors. The proceeds of this
Offering will provide the Company with the financing required to develop and
open two WSFs, manufacture approximately 120 Lamp Processors, expand the Union
Grove Retorting Facility and supply working capital. There can be no assurance,
however, that the costs of opening the WSFs and manufacturing approximately 120
Lamp Processors will not exceed current estimates. If the proceeds of this
Offering are not sufficient to develop such facilities or equipment, the Company
may be required to seek additional funds through an additional offering of the
Company's equity securities. If additional funds are required, there can be no
assurance that any additional funds will be available on terms acceptable to the
Company or its shareholders. New investors may seek and obtain substantially
better terms than were granted to the Company's present investors and the
issuance of such securities may result in dilution to the existing shareholders.
Furthermore, as the Company prepares to expand, it will expend a relatively
higher amount on administrative expenses than would a mature Company with such
operations.
DEVELOPMENT OF FUTURE WSF FACILITIES; EXPANSION PLAN RISKS
Part of the Company's business strategy includes developing WSFs to
consolidate and store hazardous mercury waste and control the timing of
shipments of mercury waste to the Company's Union Grove Retorting Facility. The
Company estimates an investment of $300,000 to develop or acquire the proposed
WSF in the Southwestern United States. The Company presently intends to develop
an additional WSF in the Southeastern United States in late 1997 or early 1998
and estimates that such WSF will also require a $300,000 investment. A portion
of the Company's projected revenue is based on successful development of WSFs to
provide a source of regular supply of mercury waste to the Union Grove Retorting
Facility. Successful expansion of the Company's operations will be largely
dependent upon a variety of factors, some of which are currently unknown or
beyond the Company's control, including the ability of the Company's management
to identify suitable WSF sites and to negotiate purchases and financing of such
WSF sites; timely regulatory approval of the sites; the hiring of skilled
management and other critical, experienced personnel; the ability of the
Company's management to apply its policies and procedures to geographically
dispersed facilities; the general ability to successfully manage growth; and the
general state of the economy. Although the Company is in the process of
exploring the opening of new WSF facilities, the Company has entered into no
agreements. There can be no assurance that the Company will be able to open WSF
facilities.
TECHNOLOGICAL CHANGE
The Company could be adversely affected by the development of new
technologies for processing mercury waste. The Company has a significant
investment in its existing mercury waste processing technologies. Changes could
result in reconfiguring or replacing existing equipment and redesign of
equipment the Company is selling/leasing. Research and development costs and
replacement costs could be substantial. Patents obtained by competitors
developing new technologies could hamper the Company's ability to adjust to
technological changes.
LACK OF INTELLECTUAL PROPERTY PROTECTION
The Company has no patents on its Model 2000B lamp recycler, the Lamp
Processor or on its retorting technology. There is significant risk that third
parties will independently develop similar technology. Although the Company
intends to apply to the United States Patent and Trademark Office for protection
of certain aspects of its technology relating to the Model 2000B, the Lamp
Processor and its retorting equipment, no assurance can be given that patent
protection will be obtained. There is also no assurance that any of the
Company's intellectual property rights will be enforceable, even if patented or
registered, against any prior users of similar intellectual property or that the
Company will be successful in defending itself against a third party claiming
that the Company's technologies violate an existing patent. Any such claim,
with or without merit, could also be time consuming and costly to defend.
GOVERNMENT REGULATION
The Company is subject to extensive and evolving environmental laws and
regulations which have become increasingly stringent in recent years as a result
of greater public interest in protecting the environment. These laws and
regulations affect the Company's business in many ways and will continue to
impose substantial costs on the Company.
The Company believes that the Environmental Protection Agency ("EPA")
has received requests from trade organizations to change its rules to allow
mercury-containing lamps (determined hazardous by existing federal regulations)
to be disposed of in municipal solid waste landfills and incinerators. This
action would effectively eliminate lamps from the federal hazardous waste
regulations. If these rules are changed, the lamp processing and mercury
recycling industries which have been specifically developed to mitigate mercury
problems would suffer a severe setback. The Company, its employees and vendors
would be adversely affected by such a change in EPA rules.
In order to develop and operate WSF facilities, it is necessary for the
Company to obtain and maintain in effect one or more licenses or permits as well
as zoning, environmental and/or other land use approvals. These licenses or
permits and approvals are often difficult and time consuming to obtain and are
frequently subject to opposition by various elected officials, environmental
advocates and citizen groups. Facility operating permits may be subject to
modification or revocation. Permits must be renewed periodically. There can be
no assurances that the Company will be successful in obtaining and maintaining
the permits and approvals required for the successful operation and growth of
its business. The failure by the Company to obtain or maintain in effect a
permit or approval significant to its business would have a material adverse
effect on the Company's operations and financial condition. Due to the
complexity of regulation of the industry and to public pressure, implementation
of existing laws, regulations or initiatives by different levels of government
may be inconsistent and difficult to foresee. The Company makes a continuing
effort to anticipate regulatory, political and legal developments that might
affect its operations, but it is not always able to do so.
POTENTIAL ENVIRONMENTAL LIABILITY
The Company, as a transporter, recycler and potential operator of
temporary storage facilities of hazardous waste is subject to liability for any
contamination for which it is deemed responsible pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("Superfund" or "CERCLA"). The statute provides for the remediation of
contaminated facilities and imposes costs on the responsible parties. The
expense of conducting a cleanup and the damages can be very significant. If the
Company were to be found to be a responsible party for a CERCLA cleanup, the
enforcing authority could hold the Company completely responsible for all
investigative and remedial costs even if others may also be liable. Any
substantial liability for environmental damage incurred by the Company could
have a material adverse effect on the Company's financial condition and results
of operations.
LIMITED MANAGEMENT EXPERIENCE/NEED FOR ADDITIONAL MANAGEMENT
The success of the Company will depend upon the Company's ability to
attract and retain a highly qualified management and sales team. Mark G. Edlund,
the Company's President and Chief Operating Officer, James Cornwell, General
Manager of the Union Grove Retorting Facility, Steven A. Rush, Facility Manager
at the Union Grove Retorting Facility, and Thomas Kimmel, General Manager of the
Roseville Recycling Facility, have an aggregate of 26 years of experience in the
recycling and/or hazardous waste business. However, these individuals have
limited prior experience in operating a mercury recycling facility with the
capacity of the Union Grove Retorting Facility. The Company will need to hire
other corporate level, management and sales employees to help implement and
operate its expansion plans. The failure to obtain, or delays in obtaining, key
employees could have a material adverse effect on the Company.
DEPENDENCE ON THIRD PARTY MANUFACTURER
The Company co-owns the design rights to its Model 2000 lamp recycler
with Resource Technology, Inc., an Iowa-based manufacturing company ("RTI"). RTI
currently has the exclusive rights to manufacture the Model 2000 and the Company
is accordingly dependent upon RTI to produce the Model 2000. No assurance can be
given that if RTI were unable to manufacture the Model 2000, another
manufacturer could be located to perform the manufacturing function or, if
located, that such firm could successfully manufacture the Model 2000 in a
timely, cost-effective manner. The Company plans to purchase and modify the
Model 2000 to produce the Model 2000B.
COMPETITION
The mercury recycling industry is extremely competitive with respect to
price, service, and location. New or existing competitors that add capacity can
affect the price charged for remediation services and the volume of services
performed. Mercury retort competitors have been in the market for many years and
some have established excellent reputations. The Company may not be able to
establish relationships with customers of these competitors. Over the past five
years there has been considerable consolidation in the waste management
industry. However, the mercury recycling industry still consists mostly of
small, independent companies. A large, well-financed or capitalized company
might be able to quickly build a significant market share by buying existing
companies or processes, by reducing prices or by utilizing other marketing
methods.
CONTROL OF THE COMPANY; DEPENDENCE ON KEY PERSONNEL
Bradley J. Buscher, the Company's Chairman, Chief Executive Officer and
Chief Financial Officer, will control approximately 36% of the Company's Common
Stock following this Offering. Therefore, Mr. Buscher will have the ability to
direct the Company's operations and financial affairs and to substantially
influence the election of members of the Board of Directors of the Company. The
Company is also presently highly dependent upon the personal efforts and
abilities of Mr. Buscher and Mark G. Edlund, the Company's President and Chief
Operating Officer. The loss of the services of either Mr. Buscher or Mr. Edlund
could have a substantial adverse effect on the Company's ability to achieve its
objectives. The Company currently has no key man insurance on Mr. Buscher and a
$2 million key man insurance policy on Mr. Edlund.
RELATED PARTY TRANSACTIONS
The Company and Messrs. Buscher and Edlund are subject to certain
transactions that may present a conflict of interest. See "Certain
Transactions."
SUBSTANTIAL DILUTION
Purchasers of the securities offered hereby will experience immediate
substantial dilution of $3.95 per share in the net tangible book value per share
of Common Stock.
ABSENCE OF DIVIDENDS
At the present time, the Company intends to use any earnings which may
be generated to finance further growth of the Company's business. Accordingly,
investors should not purchase the Shares with a view towards receipt of cash
dividends from any Shares.
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the
Company's securities. Although the Company has applied for listing of the Common
Stock on the Nasdaq SmallCap Market, there can be no assurance that an active
public market will develop or be sustained. The offering price of the Shares has
been arbitrarily determined by negotiation between the Company and the
Underwriter and bears no relationship to the Company's current operating
results, book value, net worth or financial statement criteria of value. The
factors considered in determining the offering price included an evaluation by
management of the history of and prospects for the industry in which the Company
competes and the prospects for earnings of the Company. Such factors are largely
subjective, and the Company makes no representation as to any objectively
determinable value of the securities offered hereby.
In addition, if the Company fails to maintain its qualification for its
Common Stock to trade on the Nasdaq SmallCap Market, the Shares will be subject
to certain rules of the Securities and Exchange Commission relating to "penny
stocks." Such rules require broker-dealers to make a suitability determination
for purchasers and to receive the purchaser's prior written consent for a
purchase transaction, thus restricting the ability of purchasers and
broker-dealers to sell the stock in the open market.
UNDESIGNATED STOCK
The Company's authorized capital consists of 50,000,000 shares of
capital stock. The Board of Directors, without any action by the Company's
stockholders, is authorized to designate and issue shares in such classes or
series (including classes or series of preferred stock) as it deems appropriate
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. The Company currently has
2,369,097 (includes 120,000 shares to be issued upon exercise of warrants
simultaneous with the effectiveness of this Offering) shares of Common Stock
outstanding, has reserved 185,500 shares of Common Stock for issuance under its
1996 Stock Option Plan, has issued warrants to purchase 200,771 shares of Common
Stock and has authorized the issuance of an additional 1,150,000 shares of
Common Stock in contemplation of this Offering. The rights of holders of
preferred stock and other classes of common stock that may be issued may be
superior to the rights granted to the holders of the Shares. The ability of the
Board of Directors to designate and issue such undesignated shares could impede
or deter an unsolicited tender offer or takeover proposal regarding the Company.
Further, the issuance of additional shares having preferential rights could
adversely affect the voting power and other rights of holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts of Common
Stock in the public market subsequent to this offering may adversely affect the
prevailing market price of Common Stock and may impair the Company's ability to
raise additional capital by the sale of its equity securities. The Company and
its directors, executive officers and 5% shareholders have agreed that they will
not sell nor grant any option for the sale of, or otherwise dispose of any
shares of Common Stock for 365 days after the Effective Date without the prior
written consent of the Underwriter. In connection with this Offering, certain
officers and directors of the Company have agreed to escrow a portion of their
shares for three years or until (i) the Company meets certain earnings
requirements established by the State of Minnesota, or (ii) the State of
Minnesota determines that the escrow agreement is no longer necessary. A total
of ____________ shares of Common Stock (including options and warrants to
purchase _________ shares of Common Stock) will be subject to escrow.
MINNESOTA ANTI-TAKEOVER LAW
The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of the Company, which may hinder or delay a change in control of the Company.
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering,
after deducting estimated costs and expenses of the Offering, are estimated to
be approximately $4,250,000 ($4,932,500 if the Underwriter's over-allotment
option is exercised in full). The Company intends to utilize the net proceeds as
follows:
Repayment of Norwest Bank Minnesota, N.A.
Operating Note $ 1,500,000
Purchase and Expansion of
Union Grove Retorting Facility $ 875,000
Manufacturing of Lamp Processors $ 600,000
Development of two WSF Storage Facilities $ 600,000
Working Capital $ 675,000
REPAYMENT OF NOTES. The Company intends to utilize a maximum of $1.5
million of the net proceeds of the Offering to repay a secured revolving
promissory note issued to Norwest Bank Minnesota, N.A. The note is due January,
1998 and bears interest at a rate of 2% over prime. See "Certain Transactions"
PURCHASE AND EXPANSION OF UNION GROVE RETORTING FACILITY. The
Company intends to utilize approximately $275,000 to acquire the land and
building associated with the Union Grove Retorting Facility, approximately
$300,000 to expand the Union Grove Retorting Facility to include a 10,000 square
foot hazardous waste storage facility, and approximately $300,000 for a closure
fund for such facility. A closure fund is required by certain states in
connection with the handling of hazardous waste to pay for the costs of closing
down an operation in the event that the operating company is not financially
solvent at such time of closure.
MANUFACTURING OF LAMP PROCESSORS. The Company intends to utilize
approximately $600,000 to manufacture Lamp Processors for leasing in 1997.
DEVELOPMENT OF WSF STORAGE FACILITIES. The Company intends to utilize
$300,000 of the net proceeds to lease or develop a consolidation and temporary
hazardous waste storage facility in the Southwestern United States.
Subsequently, the Company intends to utilize an additional $300,000 of the net
proceeds to lease or develop a similar WSF in the Southeastern United States.
WORKING CAPITAL. The remaining net proceeds will be used for general
working capital purposes.
The foregoing represents the Company's best estimate of its allocation
of the net proceeds of this Offering, based upon the current state of its
business operations, its current plans and current economic and industry
conditions. These estimates are subject to change based on unanticipated levels
and types of competition, adverse market trends and new business opportunities.
Any material revisions in the allocation of proceeds will be made at the
discretion of the Board of Directors. The Company believes the net proceeds from
this Offering, together with cash generated from operations, will be sufficient
to meet the Company's capital needs for at least 18 months. Pending the use of
the proceeds of this Offering, the Company intends to invest the proceeds in
short-term, high quality, interest-bearing instruments. If the Underwriter
exercises the over-allotment option in full, the Company will realize additional
net proceeds of $682,500. Such additional net proceeds will be added to the
Company's working capital.
DILUTION
Purchasers of the Shares offered hereby will experience an immediate
substantial dilution in net tangible book value of the Shares. As of September
30, 1996, the Company's net tangible book value (deficit) was ($1,214,454) or
($.57) per share of Common Stock. "Net tangible book value" (deficit) per share
of Common Stock represents the amount of total tangible assets of the Company
less the amount of all liabilities (excluding contingent liabilities), divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale of 129,097 shares in November 1996 and the receipt of the net proceeds
therefrom and the issuance of 120,000 shares upon exercise of a warrant which
exercise will take place upon the effectiveness of this Offering (the "Pro Forma
Adjustments"), the pro forma net tangible book value was ($724,437) or ($.31)
per share. Without giving effect to any other changes in net tangible book value
after September 30, 1996 and assuming the sale of 1,000,000 shares of Common
Stock offered hereby and the receipt of the net proceeds of this Offering, the
net tangible book value as of September 30, 1996 would have been $3,525,563 or
approximately $1.05 per share. This represents an immediate increase to existing
shareholders in net tangible book value of approximately $1.36 per share and an
immediate dilution to new shareholders of $3.95 per share. "Dilution" represents
the difference between the amount per share paid by purchasers in this Offering
and pro forma net tangible book value per share of the Common Stock after this
Offering.
<TABLE>
<CAPTION>
The following table illustrates the per share dilution:
<S> <C> <C>
Assumed initial public offering price per Share $5.00
Net tangible book value (deficit) at September 30, 1996 ($.57)
Increase in net tangible book value attributable to pro
forma adjustments $.26)
-----
Pro forma net tangible book value (deficit) at September 30, 1996 ($.31)
Increase in net tangible book value attributable to new investors 1.36
Pro forma net tangible book value after offering $1.05
-----
Dilution in net tangible book value to new investors $3.95
=====
</TABLE>
The following tables summarize the differences between the existing
shareholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total cash consideration paid by
each group, and the average cash consideration per share of Common Stock paid by
each group.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 2,369,097 70.3% $1,406,267 22% $0.59
New Investors 1,000,000 29.7% 5,000,000 78% 5.00
Total 3,369,097 100.0% $6,406,267 100% 1.90
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, and the Board of Directors presently intends to retain all earnings, if
any, for use in the Company's business for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors.
S CORPORATION STATUS
Since inception, the Company has elected to be treated for federal
income tax purposes as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and has been treated as an S corporation for
state income tax purposes under comparable tax laws. As a result, the Company's
losses through the date of termination of the Company's S corporation status
(the "Termination Date") and the effective date of the offering of Common Stock
hereby will for federal and state income tax purposes be included in the
personal tax returns of the Company's shareholders. On the Termination Date, the
Company will become responsible for payment of state and federal income tax on
earnings, if any, subsequent to the Termination Date. On such date, the
Company's cumulative losses will be reclassified from accumulated deficit to
additional paid-in capital.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, as further adjusted to give effect to the sale of the Shares
offered hereby and the anticipated application by the Company of the proceeds
therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------
PRO
FORMA AS ADJUSTED
ACTUAL (1) (2)
------------------------------------------------
Long-term debt:
<S> <C> <C> <C>
Long-term debt $ 1,804,567 $ 1,804,567 $ 304,567
Subordinated debt 135,000 - -
----------- ----------- -----------
Total long-term debt 1,939,567 1,804,567 304,567
----------- ----------- -----------
Shareholder's equity (deficit):
Common stock, $0.01 par value; 50,000,000 shares
authorized; 2,120,000 shares issued and
outstanding actual; 2,369,097 shares issued and
outstanding proforma; 3,369,097 shares issued and
outstanding as adjusted 21,200 23,691 33,691
Additional paid-in capital 892,923 1,380,449 4,675,165
Accumulated deficit (945,284) (945,284) -
----------- ----------- -----------
Total shareholders' equity (deficit) (31,161) 458,856 4,708,856
----------- ----------- -----------
Total capitalization $ 1,908,406 $ 2,263,423 $ 5,013,423
=========== =========== ===========
</TABLE>
- ------------------------------
(1) Adjusted for the effect of (i) the sale of 129,097 shares at $2.75 in the
November, 1996 private placement and the application of the net proceeds
thereof, and (ii) the exercise of a warrant for 120,000 shares of common
stock at $1.125 per share with exercise price paid by cancellation of a
related debt of $135,000 owed by the Company to the warrant holder.
(2) Adjusted for the effect of (i) the sale of 1,000,000 shares offered hereby
and the application of the net proceeds thereof and (ii) the
reclassification of the accumulated deficit to additional paid-in capital as
a result of the automatic termination of the Company's S Corporation income
tax status upon consummation of the offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the
Company's financial statements and related notes thereto included elsewhere in
this Prospectus.
OVERVIEW
The Company provides mercury waste recycling solutions to mercury waste
generators of all sizes. The Company operates a mercury waste retorting facility
in Union Grove, Wisconsin (the "Union Grove Retorting Facility") and a facility
to recycle fluorescent and other mercury-containing lamps in Roseville,
Minnesota (the "Roseville Recycling Facility"). In addition, the Company markets
and sells lamp recycling equipment.
On January 4, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of U.S. Environmental, Incorporated
("USE"). The USE assets acquired consisted primarily of (i) the operations of
the Roseville Recycling Facility, and (ii) rights in certain equipment including
the Model 2000 and the retorting equipment used at the Union Grove Retorting
Facility, both of which USE co-developed with Resource Technology, Inc. ("RTI"),
an unrelated party. USE and RTI equally owned the design rights of the Model
2000. RTI owns the exclusive manufacturing rights and USE owned (and sold to the
Company) the exclusive sales and distribution rights of the Model 2000. In
addition, USE and RTI equally owned the rights in the retorting equipment used
in the Union Grove Retorting Facility. In September, 1996, the Company acquired
RTI's rights in such retorting equipment used at the Union Grove Retorting
Facility and affirmed the respective parties' rights in the Model 2000.
In 1995, USE's activities consisted primarily of the continued
co-development with RTI of the Model 2000 and the Union Grove Retorting
Facility, the full year operation of the Roseville Recycling Facility and
marketing and sale of the Model 2000. In 1995, USE's revenues consisted
primarily of recycling revenue from the Roseville Recycling Facility and revenue
from Model 2000 sales.
In 1996, the Company's revenues consisted of recycling revenues
generated from its Roseville and Union Grove facilities. The Company's
activities also included: (i) the continued improvement of the Model 2000, (ii)
continued development of the mercury retorting equipment at the Union Grove
Retorting Facility, (iii) development of new lamp processing equipment, (iv)
commencement of marketing strategies and (v) activities related to the
organizational development of the Company including various capital raising
activities.
RESULTS OF OPERATIONS
This discussion compares the results of operations of the Company from
January 2, 1996, date of inception, to September 30, 1996 with USE's operations
for the twelve months ended December 31, 1995. USE's operations from January 1,
1996 to January 3, 1996 are included with the Company's 1996 operations as they
are not material.
Total revenues were $835,832 for the nine months ended September 30,
1996 compared to $1,548,782 for the year ended December 31, 1995. Mercury
retorting revenues were $346,492 for the nine months ended September 30, 1996
compared to $40,177 for the twelve months ended December 31, 1995. This
significant increase is due to the Union Grove Retorting Facility becoming fully
operational in September, 1996. Since that time, the Company has been actively
pursuing large potential customers, including national waste management
companies and Fortune 500 companies. With the Union Grove Retorting Facility now
fully operational and the expansion of marketing efforts, the Company believes
mercury retorting revenues will increase in the balance of 1996 and in 1997.
Lamp Recycling revenues were $489,340 for the nine months ended
September 30, 1996 compared to $748,605 for the twelve months ended December 31,
1995. This difference is primarily due to the comparison of the full year in
1995 to the 9-month period in 1996. The Roseville Recycling Facility's revenue
has been generated largely from small to mid-sized local customers. In 1996, the
Company began the development of a sales force on a national level. The Company
believes this will result in increased revenue for the balance of 1996 and for
1997.
The Company had no revenue from equipment sales in the nine months
ended September 30, 1996 compared to $760,000 in 1995. USE sold 5 Model 2000s in
1995. The Company had no sales of equipment in 1996 and did not market the
equipment because it was negotiating with RTI, the manufacturer of the Model
2000, to resolve RTI's rights in the Model 2000 and the Union Grove Retorting
equipment. This process was completed in September, 1996. The Company
anticipates equipment sales will resume in 1997. The Company is also developing
a proprietary lamp processor that it plans to lease to large users of
fluorescent and other mercury-containing lamps such as office towers and retail
chain stores. This equipment marketing activity is expected to begin generating
revenues in the first quarter of 1997.
Cost of recycling revenues consists primarily of direct labor costs to
process the waste and direct facility overhead costs. Cost of recycling revenue
as a percent of revenue was 46% of recycling revenue in 1996 compared to 47% in
1995. On a direct cost basis, USE and the Company had similar cost structures.
The Company anticipates that costs of revenues as a percent of revenue will
decrease in the future as anticipated increased revenues will utilize both
facilities' additional capacities.
Cost of equipment sales as a percent of equipment sales was 0% in 1996
(due to the lack of revenue in 1996) compared to 54% in 1995. Based on the
pricing set in its agreement with RTI, the Company anticipates the cost of
equipment sales as a percent of sales will decrease from the 54% level in the
future. As part of the transaction with USE, the Company will make payments to
USE for each Model 2000 (or Model 2000B) sold by the Company (as defined in the
agreement), with total payments not to exceed $460,000. There were no payments
for 1996. Any contingent consideration paid under this agreement will be
capitalized to goodwill and amortized over its remaining useful life.
Research and Development expense was $340,660 for the nine months ended
September 30, 1996 compared to $124,807 for the year ended December 31, 1995.
USE's development activities consisted of the development of the mercury
retorting equipment for the Union Grove Retorting Facility. The Company's
development activities consisted of further development of the mercury retorting
equipment for the Union Grove Retorting Facility and development of new lamp
processing equipment. Research and development expense for the nine months ended
September 30, 1996 includes $200,000 allocated to purchased research and
development that had no alternative future use for the Company. The Company
expects to continue to incur costs in the development of its lamp processing
equipment.
Selling, general and administrative expense was $923,142 for the nine
months ended September 30, 1996 compared to $575,219 for the year ended December
31, 1995. The significant increase is primarily due to costs incurred by the
Company following acquisition of the Union Grove Retorting Facility from USE to
make the Union Grove Retorting Facility fully operational as well as
amortization of goodwill relating to the USE acquisition. In addition, the
Company incurred nonrecurring expenses of approximately $150,000 consisting of
start-up costs and legal and consulting expenses relating to the acquisitions of
certain assets of USE and RTI.
Interest expense was $134,400 for the nine months ended September 30,
1996 compared to $11,486 for the year ended December 31, 1995. The significant
increase is due to the debt incurred to finance the acquisitions of certain
assets of USE and RTI and to fund Company operations.
The Company and USE elected S corporation status, and as a result, the
Company's losses were allocated at the shareholder level rather than the
corporate level. The pro forma provision for income taxes is calculated as if
the Company and USE had been subject to corporate income taxes. Pro forma
provision for income taxes was $0 for the nine months ended September 30, 1996
compared to $13,500 for the year ended December 31, 1995. There was no income
tax expense (benefit) recorded in 1996 because, on a pro forma basis, the
deferred tax assets generated in 1996 were fully reserved by a valuation
allowance due to their uncertainty of realization.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has incurred losses from operations and is
dependent on additional capital to fund continuing operations. The Company had a
cash balance of $12,589 and a working capital deficit of $117,116 at September
30, 1996. The report of the independent auditors includes an explanatory
paragraph expressing substantial doubt about the Company's ability to continue
as a going concern. To address its short term working capital needs, in
November, 1996, the Company completed a private placement of its common stock by
selling 129,097 shares at $2.75 per share, for total proceeds of approximately
$355,000. The Company had net cash used in operating activities of $564,807 for
the nine months ended September 30, 1996, caused primarily by the net loss of
$945,284 and increase in accounts receivable of $125,447 offset by depreciation,
amortization and the non-cash purchased research and development expenses
totaling $361,021.
Cash flows used in investing activities were $1,886,727 for the nine
months ended September 30, 1996, consisting primarily of the purchase of USE and
RTI assets of $1,190,000 and related acquisition costs of $254,125 and the
purchase of furniture, fixtures and equipment of $394,412. The furniture,
fixture and equipment purchases consisted primarily of recycling equipment and
leaseholds for its recycling facilities.
Cash provided by financing activities consisted of proceeds from common
stock issuances of approximately $414,000, representing the initial
capitalization of approximately $281,000 and a private placement in September,
1996 of $270,000, consisting of $135,000 of Common Stock and $135,000 of
subordinated debt, and proceeds from related party debt issuances of
approximately $1,915,000.
The Company has a $300,000 revolving credit promissory note with
Bradley J. Buscher, its majority shareholder, of which $30,000 was outstanding
at September 30, 1996. The note is secured by all assets of the Company and
bears interest at prime plus 2%. The Company had a $1,660,000 revolving note
payable to Mr. Buscher that was replaced with a $1,660,000 revolving line of
credit ("Revolver") with Norwest Bank Minnesota, N.A. The Revolver bears
interest at 2% over prime, is secured by all the assets of the Company, is due
in January, 1998 and is personally guaranteed by Mr. Buscher. The Revolver will
be repaid out of the net proceeds of this Offering up to $1,500,000 and the
Revolver will then be terminated.
The Company has debt related to the acquisition of USE ("USE Note") of
$259,567 at September 30, 1996. The USE Note bears interest at 10% and is
payable in monthly interest only installments with the principal due January 1,
2001. As set forth in the note, the Company is obligated to prepay certain
amounts of principal under the note from the Company's "excess cash flow" (as
defined in the note). As part of a private placement completed in September,
1996, the Company received proceeds of $135,000 of subordinated debt that bears
interest at 2% over the prime rate. The Company expects that the holder of this
debt will cancel the indebtedness concurrently with the effectiveness of this
Offering as payment of the exercise price of a warrant to purchase 120,000
shares of Common Stock.
The Company's capital requirements will be significant for the balance
of 1996 and 1997 to fund operations until they become profitable and to fund
planned capital expenditures related to purchase and expansion of the Union
Grove Retorting Facility, the manufacture of lamp processing equipment for lease
and to lease and develop consolidation and temporary hazardous waste storage
facilities. The Company anticipates that the net proceeds from the November
private placement and the sale of shares offered hereby will be sufficient to
fund its operations and planned expansion for at least 18 months following the
Offering. If the Company's business grows more rapidly than anticipated or if
anticipated revenue increases do not materialize, the Company may require
additional capital more quickly. There can be no assurance that financing from
this offering or any additional financing will be available at all or that, if
available, such financing would be obtainable on terms favorable to the Company.
BUSINESS
GENERAL
The Company provides services and products to mercury waste generators
to reduce the risk of liability associated with mercury waste disposal. The
Company currently operates a mercury waste retorting facility in Union Grove,
Wisconsin and a facility for recycling and storing fluorescent and other
mercury-containing lamps in Roseville, Minnesota. In addition, the Company
markets and sells lamp recycling equipment. Retorting is a form of distillation
pursuant to which mercury is removed from contaminated products via vaporization
and condensation.
On January 4, 1996, the Company acquired substantially all of the
assets of U.S. Environmental, Incorporated, a Minnesota-based mercury recycling
company ("USE") founded in 1993 by Mark G. Edlund, the Company's President and
Chief Operating Officer. USE co-developed the Model 2000 lamp recycler (the
"Model 2000"), opened a mercury lamp recycling facility in Roseville, Minnesota
(the "Roseville Recycling Facility") to showcase the Model 2000 and co-developed
the mercury retorting equipment installed at a facility in Union Grove,
Wisconsin, (the "Union Grove Retorting Facility"). Since the acquisition of USE,
the Company improved the Model 2000 (hereinafter referred to as the "Model
2000B") and began development of equipment that processes mercury-containing
lamps for more efficient storage and transportation that the Company intends to
lease (the "Lamp Processor"). The Company has also developed a new
continuous-flow oven and a stationary oven utilized at the Union Grove Retorting
Facility and on September 12, 1996 acquired the interests of the co-developer of
the equipment located at the Union Grove Retorting Facility.
The Company's mission is to provide mercury waste recycling solutions
to mercury waste generators of all sizes including, but not limited to, public
utilities, manufacturers that utilize mercury in their business (e.g.,
measurement, control and electrical equipment industries), building managers and
hazardous waste managers. The Company believes that the mercury recycling
industry has growth potential because of 1) stringent federal and state
regulations governing mercury-containing products; 2) acknowledgment from
businesses of the potential liability posed by mercury waste disposal; and 3)
the growing recognition among the public of the health risks of mercury. In a
1994 article, the EPA identified the total potential demand for off-site
retorting at 130,000 tons per year. In the same article which was published
prior to the development of the Union Grove Retorting Facility, the EPA
estimated the retort industry capacity at 3,000 tons per year. The Company's
current retorting capacity is approximately 2,500 tons per year. The Company
believes that 30,000-40,000 tons of mercury waste generated per year are ideally
suited to its proprietary processing technology.
INDUSTRY
MERCURY AND ITS HAZARDS. Mercury has long been recognized as a valuable
metal because of its ability to expand and contract evenly through various
temperature ranges and its ability to be combined with other metals. The Company
believes that mercury is presently utilized principally in three applications in
the United States:
* ELECTRICAL AND ELECTRONIC APPLICATIONS, such as mercury
batteries and fluorescent lamps, currently account for
approximately 30% of the current usage of mercury.
* MEASUREMENT AND CONTROL INSTRUMENTS, SUCH AS THERMOMETERS AND
BAROMETERS AND DENTAL APPLICATIONS, account for approximately
40% of the current usage of mercury.
* The CHLORALKALI INDUSTRY utilizes mercury as the cathode in
cells which produce chlorine and caustic soda through the
electrolysis of brine. This industry accounts for
approximately 30% of the current usage of mercury.
In 1994, there were approximately 600 million mercury-containing lamps
sold in the United States. Total mercury consumed in lamps in 1993 was
approximately 42 tons. Today, approximately 12 percent of fluorescent lights
being discarded each year are recycled. The remaining mercury-containing lamps
are being disposed of in landfills with other non-hazardous waste or are
incinerated. Once mercury is in the environment, it cannot be removed by
combustion or biological process. Mercury may either seep into the soil and then
possibly into the water supply or vaporize into the atmosphere and fall back to
earth in the form of rain. If mercury enters a lake or river through rain or the
water supply, a portion of the mercury is converted into methyl mercury by
bacteria and other chemical processes. Methyl mercury then accumulates and
concentrates as it moves up the food chain. Once in older and larger fish,
mercury measurements can be 200,000 times higher than measurements in the same
body of water. When humans and animals consume mercury contaminated fish, the
methyl mercury is transferred to their tissues.
In humans, mercury poisoning affects the brain, spinal cord, kidneys
and liver. Mercury affects the ability to see, taste and move and leaves a
tingling sensation in the fingers and toes. Long term exposure to mercury can
result in personality changes, stupor or a coma. Exposure of pregnant women to
mercury can affect development of the fetal brain and nervous system resulting
in children with lower intelligence, impaired hearing and poor coordination.
The United States government has taken steps to alleviate the risks
from mercury poisoning including:
* Prohibitions on the sale of fish with certain levels of mercury.
* Passage of the Clean Water Act requiring paper companies, smelters,
sludge incinerators and chloralkali plants to limit the release of
mercury into the water.
* Bans on uses of mercury connected with food production.
The EPA enacted hazardous waste disposal regulations that require
businesses of certain size to test fluorescent and HID lamps for mercury content
prior to disposal. The regulations require that if the mercury content of lamps
exceeds a certain level, then the lamps must be treated as hazardous waste. Some
states, such as Florida, California, Wisconsin and Minnesota have enacted
regulations more rigorous than the EPA's. Recent research by the federal and
state regulatory agencies have established that almost without exception,
fluorescent and HID lamps exceed the EPA toxicity threshold. Nevertheless, these
regulations have not been stringently enforced by some state and local agencies
charged with enforcement of such regulations.
The Company believes that federal and state governments have been
slower to react to the risks posed by fluorescent lamps and other
mercury-containing lamps because any individual lamp contains a relatively small
amount of mercury relative to other mercury wastes and governmental agencies
have recognized the difficulty of gathering widely dispersed fragile products
such as fluorescent lamps. Although most fluorescent lamps are currently
designated as hazardous waste by the EPA, the Company believes that the EPA has
been requested to designate used fluorescent lamps as solid and not hazardous
waste.
HISTORICAL BACKGROUND
In 1992, Mark G. Edlund, President and Chief Operating Officer of the
Company, recognized a business opportunity resulting from mercury waste
management legislation and regulations. Mr. Edlund initially focused on the
recovery and recycling of fluorescent lights and co-developed a concept for a
machine that would separate and remove mercury contaminated calcium phosphate
powder from the other components of a fluorescent lamp. Working with designers,
engineers and manufacturers, Mr. Edlund and RTI co-developed the Model 2000
mercury lamp recycling machine and sold 19 Model 2000s from 1992 through 1995.
While selling the Model 2000 machines, Mr. Edlund realized that USE needed a
showcase lamp recycling facility to demonstrate the machine's capability.
Accordingly, he opened the USA Lights mercury recycling facility in Roseville,
Minnesota in April, 1993.
Mercury-laced calcium phosphate powder, a residual of the Model 2000
lamp recycling process, requires retorting to reduce the level of mercury to EPA
acceptable levels. Mr. Edlund believed that existing mercury retorting
facilities were expensive and, because of their slow processing methods,
significantly backlogged. Utilizing the continuous flow method of retorting
mercury, USE co-developed mercury retorting technology that the Company believes
is significantly more efficient and faster than previously existing technology.
In January, 1996, the Company was formed by Bradley J. Buscher and Mark
G. Edlund to acquire substantially all of the assets of USE. The Company paid
USE $1.24 million comprised of $790,000 in cash and a $448,000 secured
promissory note as consideration for the purchase of USE's assets. USE is
wholly-owned by Mr. Edlund.
The Company acquired USE's assets in January of 1996 but did not
complete its agreement with RTI regarding RTI's rights in the Model 2000 and the
equipment located at the Union Grove Retorting Facility until September, 1996.
The process took longer than a usual acquisition due to co-ownership of two of
USE's assets: the Model 2000 and the original retorting equipment installed at
the Union Grove Retorting Facility.
The Model 2000 was co-developed with RTI beginning in 1992. Prior to
the Company's acquisition of certain rights in the Model 2000, USE and RTI
equally owned the design rights while RTI owned the exclusive manufacturing
rights and USE owned the exclusive sales and distribution rights. USE's rights
in the Model 2000 were transferred to the Company pursuant to a Distribution
Rights Bill of Sale Agreement dated January 4, 1996 between the Company and USE
which agreement was amended and restated on November 30, 1996 (the "Distribution
Rights Agreement"). Under the Distribution Rights Agreement, the Company may
become obligated to reconvey to USE the distribution rights relating to the
Model 2000 if: (i) the Company stops distributing the Model 2000 prior to the
time that USE has received total distribution payments of $460,000 due under the
agreement (the "Total Distribution Payment"); or (ii) during any one year
period, beginning with the year following September 12, 1996, before USE has
earned the entire Total Distribution Payment, the Company either fails to
purchase at least three Model 2000's for retail sale or the Company fails to
issue distribution notes to USE evidencing distribution payments in the
aggregate of at least $138,000. The Company acknowledged in the Distribution
Rights Agreement that USE has granted exclusive territory rights with respect to
the Model 2000 and/or rights of first refusal to purchase Model 2000s in a given
area to certain parties.
To further document the Company's ownership rights to the Model 2000,
the Company entered into an Amended and Restated Model 2000 Agreement dated
September 12, 1996 with RTI. This agreement amends the original Model 2000
Agreement between USE and RTI, dated June 27, 1994. The Agreement acknowledges
that all of USE's rights were assigned to the Company in the Distribution Rights
Agreement. The agreement contains a covenant not to compete and non-solicitation
language which limits the Company's ability to manufacture or distribute a
fluorescent lamp recycling machine anywhere in North America, other than the
Model 2000 machine, for a period of 36 months. This restriction does not apply
to retort units, conveyors and lamp and bulb crushers not designed to function
with or be added to the Model 2000. The Agreement does not prohibit the research
and development of fluorescent lamp recycling machines. The restrictive
covenants set forth above do not prohibit the Company or RTI from manufacturing,
distributing and/or selling fluorescent lamp recycling devices which: (i) employ
processes and means of operation which do not include any of the components of
the Model 2000; or (ii) employ processes and utilize any of the components of
the Model 2000 which meet certain other requirements set forth in the agreement.
The agreement also contains certain other restrictions and non-solicitation
language. The agreement expires on September 30, 1999, or sooner under certain
circumstances such as the bankruptcy of a party.
Since the acquisition of USE, the Company has refined and improved the
Model 2000, creating a new model which is called the Model 2000B. The Company is
the exclusive owner of all improvements embodied in the Model 2000B. The Amended
and Restated Model 2000 Agreement will not prevent the Company from distributing
the Model 2000B so long as the Model 2000B is manufactured from the Model 2000.
USE and RTI also co-developed the original continuous-flow mercury
retorting equipment installed at the Union Grove Retorting Facility. In a Bill
of Sale Agreement, dated September 12, 1996, between RTI, the Company and
certain other parties, the Company purchased RTI's interest in the mercury
distillation system at Union Grove, Wisconsin and the Union Grove Retorting
Facility. Pursuant to the agreement, the Company granted RTI and its
subcontractors or other agents, a non-exclusive paid-up worldwide, royalty-free
license to use the processes, inventions, trademarks, trade secrets and any
other necessary or desirable intellectual property with respect to the original
mercury distillation system at Union Grove, Wisconsin, sufficient to enable RTI
to make and sell mercury distillation equipment or systems. The license is not
assignable except to successors of RTI's business and does not apply to the new
continuous flow technology or the stationary oven developed by the Company.
SERVICES AND PRODUCTS
The Company presently offers the following services and products:
MERCURY RETORTING. The Company expects that a significant amount of its
revenue will consist of fees paid for retorting mercury waste to environmentally
safe levels. Retorting is the process by which mercury is separated from the
contaminated waste through the process of distilling. The Company has developed
a proprietary continuous flow process which, in conjunction with its stationary
retorting system, has the capability of processing over 10,000 drums of mercury
debris per year and recovering approximately 99.9995% of available mercury from
the processed waste. The processed waste contains less than one part per million
of mercury which satisfies current federal and state environmental standards for
mercury waste and requires no further treatment as hazardous waste.
The Company's mercury retorting facility in Union Grove, Wisconsin
utilizes a "continuous flow" concept developed by the Company which allows the
facility to process more mercury waste in a shorter period of time than other
conventional methods presently utilized. Other companies retort mercury
primarily by placing 55 gallon drums filled with mercury-contaminated waste,
each weighing up to 700 pounds, in a retorting oven for approximately 24 hours.
Furthermore, typical retorting ovens can only hold one or two drums and need
increased capacity to process more drums. The Company believes that this
technology causes other retorting companies to be relatively expensive and
backlogged. With a relatively heavy and dense powder such as calcium phosphate,
the Company believes that retorting is more effective if the mercury-laced
powder is spread out evenly during processing.
The Company's continuous flow concept automatically feeds the powder
(or other granular material such as soil and items such as batteries and
switches up to 3 inches in diameter) through the oven. The oven is heated to a
temperature sufficient to release the mercury from its device and vaporize it.
Negative air flow pulls the vapors through a series of condensers where mercury
is returned to liquid form. The air flow proceeds through two carbon filters and
a wet scrubber to remove any other potential impurities resulting from the
heating process. While the typical drum oven utilized by the Company's
competitors may require approximately 24 hours to process mercury-laced calcium
phosphate powder because of the significant amount of time required to
sufficiently heat and cool large, dense drums of mercury-laced waste, the
Company's continuous flow oven requires less than one hour to process the same
amount of mercury-laced waste.
In addition to its new continuous flow retorting technology, the
Company has developed a high capacity stationary oven that can retort more than
12 drums simultaneously. While the Company's continuous flow oven works well
with granular compounds such as powder and items less than 3 inches in diameter,
the stationary oven is able to process certain larger mercury-containing items
such as switches, batteries, thermostats, filters and dental amalgam.
Prior to the development of the Union Grove Retorting Facility, the EPA
estimated in 1994 that the amount of mercury waste retorted annually was
approximately 3,000 tons. The Company expects that the Union Grove Retorting
Facility has the capacity to process over 2,500 tons of mercury waste annually.
The Company expects that the Union Grove Retorting Facility will derive its
business from: (1) large scale generators of mercury waste, particularly in the
measurement, control and electrical equipment industries; (2) lamp recycling
facilities, such as the Roseville Recycling Facility and other non-Company owned
facilities across the country; (3) users of Lamp Processors; and (4) other large
scale generators of mercury waste. For the nine months ended as of September 30,
1996, the Union Grove Retorting Facility has generated approximately $347,000 in
revenues.
The Union Grove Retorting Facility is unable to store
mercury-containing waste due to governmental regulations which cause logistical
problems for the Company regarding the scheduling and delivery of mercury waste
to the Union Grove Retorting Facility. Under governmental regulations, the
Company currently cannot store unprocessed mercury waste at its Union Grove
Retorting Facility for more than 24 hours. To address this limitation, the
Company intends to utilize a portion of the net proceeds of the Offering to
expand the Union Grove Retorting Facility by 10,000 square feet, which expansion
will include a "Part B" storage facility that has the capacity to store up to
approximately 180 drums of mercury waste up to 12 months. The Company will be
required to obtain a license from the State of Wisconsin to operate a Part B
storage facility. No assurance can be given that such license will be obtained,
or that it will be obtained in a timely manner.
WASTE STORAGE FACILITIES. As part of the Company's strategy to maximize
the utilization of its Union Grove Retorting Facility by acquiring,
consolidating and storing mercury waste throughout the United States, the
Company intends to utilize a portion of the proceeds of the Offering to first
acquire a consolidation and temporary hazardous waste storage facility ("WSF")
in the Southwestern United States and later to acquire a similar WSF in the
Southeastern United States. Because governmental regulations limit the amount of
mercury waste that can be present at a retorting facility at any given time,
many generators of mercury waste are required to store such waste in a temporary
hazardous waste storage facility prior to shipment to a retorting facility or
permanent hazardous waste disposal site. The Company believes that the
acquisition or development of WSFs would complement the Company's business by
allowing the Company to consolidate the mercury waste and schedule shipments of
mercury waste to the Company's Union Grove Retorting Facility to maximize the
utilization of the facility. The Company estimates that the cost to acquire or
develop each 4,000 to 6,000 square foot WSF will be approximately $300,000.
MODEL 2000B. The Model 2000B retails for approximately $210,000,
depending upon the modifications required by a particular purchaser. The Model
2000B has the capacity to recycle approximately 5 million fluorescent lamps
annually. Fluorescent lamps are manually placed onto a conveyer belt which feeds
the lamps into an enclosed machine. The Model 2000B operates under negative air
flow to limit the escape of mercury vapors. The Model 2000B breaks the lamps and
separates the debris into three principal components: the broken glass, the
aluminum endcaps and the mercury-laced calcium phosphate powder. The powder's
level of mercury exceeds federal and state guidelines for mercury and must
either be retorted to remove the mercury or sent to a hazardous waste landfill
with potentially harmful environmental consequences. Purchasers of the Model
2000B will be required to send the mercury-laced powder to the Union Grove
Retorting Facility for at least three years following the purchase. For an
additional fee, the Company also offers to purchasers of the Model 2000B the
right of first refusal on new sales of the Model 2000B into the purchaser's
market.
The Company and Resource Technology, Inc, an Iowa corporation ("RTI"),
jointly own the design rights to the Model 2000, the predecessor to the Model
2000B, pursuant to a September 12, 1996 agreement. The Company has exclusive
world-wide distribution and sales rights to the Model 2000. RTI, which has
exclusive manufacturing rights to the Model 2000, manufactures the Model 2000.
RTI's main facility is located in Van Meter, Iowa. Nineteen Model 2000 machines
have been sold by USE, the Company's predecessor, since its development in 1992.
In 1995, Model 2000s accounted for approximately 49% of USE's revenues. For the
nine months ended September 1996, the Company did not sell any Model 2000Bs
because the Company was in the process of finalizing its agreement with RTI over
ownership rights to the Model 2000. The Company has since increased its
marketing efforts of the Model 2000B.
LAMP PROCESSOR. The Company believes that with states enforcing federal
regulations or adopting even more stringent regulations, many major lamp waste
generators such as utilities and large retail and manufacturing companies will
be receptive to using in-house equipment to reduce handling, shipping and
processing costs and to better manage safety issues. The Company intends to
market its new equipment lines for recycling and processing such as the Lamp
Processor to such waste generators.
Many large generators of fluorescent lamps encounter problems storing
and handling fluorescent lamps given the volume of the used lamps, the risks of
breakage and the potential for release of toxic mercury vapors. These large
generators of fluorescent lamps may not have the volume of lamps to justify
owning a Model 2000B because of its expense and high recycling capacity. To
address the needs of these generators, the Company is developing the Lamp
Processor which will be marketed for lease to businesses and utilities that
dispose of a large volume of fluorescent lamps and desire to reduce storage and
transportation costs. The Lamp Processor will reduce fluorescent lamps to a
volume which is convenient for transportation and retorting. The processed
fluorescent lamps would be deposited by the Lamp Processor into a drum for
transporting to a mercury retorting facility such as the Union Grove Retorting
Facility. The Company will require users of the Lamp Processor to use the
Company's retorting services. The Company believes that leasing the Lamp
Processor to its customers will, while requiring a greater capital commitment by
the Company, better provide the Company with recurring monthly revenue. A
portion of the proceeds of this Offering will be utilized to finance the
production of the Lamp Processors.
RECYCLING FACILITIES. The Company owns and operates the Roseville
Recycling Facility located in Roseville, Minnesota, a St. Paul suburb, which
utilizes a Model 2000B to recycle fluorescent lamps. The approximately 6,500
square foot Roseville Recycling Facility was developed in 1993 to serve as a
showcase for the Model 2000. Fluorescent lamps are primarily transported to the
Roseville Recycling Facility by Company-owned trucks that pick-up fluorescent
lamps directly from the Company's customers in Minnesota, western Wisconsin,
northern Iowa and the eastern sections of the Dakotas. Fluorescent lamps are
then processed by the Model 2000B and the mercury-laced powder is transported to
the Company's Union Grove Retorting Facility for retorting. Before the glass or
aluminum endcaps remaining after processing can leave the facility they must be
independently tested for mercury content and pass state regulatory standards.
The aluminum end caps are sent to a smelter for recycling. The glass is sent to
an aggregate company for use in asphalt. The Company sends the mercury-laced
calcium phosphate powder to the Union Grove Retorting Facility for retorting.
Any mercury that is vaporized during the Model 2000B's lamp processing is
captured in hepa and carbon filters. These filters are also sent to the Union
Grove Retorting Facility for retorting.
Since beginning operations in April, 1993 through September, 1996, the
Roseville Recycling Facility has recycled approximately 5 million lamps which
is, however, substantially less than capacity. The Roseville Recycling Facility
has the capacity to process approximately 5 million lamps annually. The Company
does not presently intend to open additional recycling facilities but will
continue to operate the Roseville Recycling Facility.
COMPETITION AND MARKET
The Company operates in three distinct market segments: retorting
facilities, recycling equipment and recycling facilities. The Company believes
that within these three markets the competition is highly fragmented with no
competitor having a national presence. Therefore, the Company believes that the
mercury recycling industry represents a potentially large source of revenues
given recent federal and state regulations governing mercury-containing
products, acknowledgment from businesses of the potential liability posed by
mercury waste disposal, and the growing recognition of the health risks of
mercury. A principal motivation for larger corporations to utilize the Company's
services and products is the reduction of potential future hazardous waste
liability.
However, the mercury recycling industry is relatively new and evolving.
The demand for mercury recycling services and products is highly dependent upon
governmental regulations, the federal and state enforcement of regulations and
the perception by mercury waste generators of the need for the Company's
services and products. Currently, demand for mercury recycling products and
services is still being defined and is highly fragmented.
MERCURY RETORTING. The Union Grove Retorting Facility competes with
several well established mercury retorters. Currently, the nation's leading
mercury retorter is Bethlehem Apparatus, a Pennsylvania-based company that has
been operating since 1955. A 1994 industry article reported that Bethlehem
Apparatus is in the process of developing a continuous style retorting system.
To the best of the Company's knowledge, Bethlehem Apparatus is not currently
operating a continuous style retorting system. Other established retorting
competitors include Mercury Refining Company, Inc., a New York-based company
that also has been operating since 1955 and Advanced Environmental Recycling
Corporation, located in Pennsylvania.
In a 1994 article, the EPA identified the total potential demand for
off-site retorting at 130,000 tons per year. In the same article which was
published prior to the development of the Union Grove Retorting Facility, the
EPA estimated the retort industry capacity at 3,000 tons per year. The Company's
current retorting capacity is approximately 2,500 tons per year. The Company
believes that 30,000-40,000 tons of mercury waste generated per year are ideally
suited to its proprietary processing technology.
Because the amount of mercury waste shipped each year has exceeded the
retorting capacity, retorting prices are extremely high relative to landfill and
incineration alternatives. The Company believes that its competitors are
relatively expensive when compared to the Company and are significantly
back-logged. The Company believes there is a significant market for mercury
retorters and that it offers mercury waste generators a competitive alternative
to landfill or incineration and a reduction in potential environmental
liability.
LAMP RECYCLING EQUIPMENT. In 1994, approximately 600 million
mercury-containing lamps were sold in the United States. Industry experts
estimate that approximately 12% of these lamps are recycled. Total mercury
consumed in lamps in 1993 was approximately 42 tons. The Company believes that
the Model 2000 is the most prominent machine currently recycling lamps in the
United States. The Company's major mercury recycling equipment competitor, MRT,
is based in Sweden and sells mercury recycling equipment which is significantly
more expensive than the Company's equipment.
LAMP RECYCLING FACILITY. Mercury lamp recycling facilities themselves
are very fragmented with several mercury lamp recyclers across the country, none
of which has yet established a national presence. These include Advanced
Environmental Recycling Corporation/Mercury Technologies International which has
facilities in California, Pennsylvania, New Jersey and Florida; Lighting
Resources, with operations in Arizona, California and Indiana, and Recyclights,
a Minneapolis-based firm with operations in Minnesota and Florida. Accordingly,
the Company believes there is a significant market for the Lamp Processor and
lamp recycling facilities.
STRATEGY
The Company's strategy for growth includes the following key elements:
* Market retorting services to high volume customers by offering price
discounting. Because of the increased processing speed allowed by the
continuous flow method, the Company can charge $500 to $1500 a drum,
depending upon the type of mercury waste and the complexity to retort
it, compared to up to $2,400 a drum frequently charged by retorters
utilizing single drum stationary ovens.
* WSF's - acquire or develop waste storage facilities to aid in the
logistics of scheduling and transporting mercury waste to the Union
Grove Retorting Facility. The Company believes that these WSFs will
help the Company to maximize the utilization of the Union Grove
Retorting Facility.
* Market retorting services by offering a means to reduce potential
hazardous waste liability. The Company can reduce the waste generator's
storage costs and potential liability associated with the storage and
handling of mercury waste.
* Continue research and development of mercury-processing technology for
use by the Company and for sale and lease.
Potential retorting customers to be solicited include public utilities,
electrical contractors, hazardous waste managers, mercury lamp recyclers similar
to the Roseville Recycling Facility, hazardous waste management facilities
(including both final disposal and transfer and storage facilities), electrical
manufacturers of lights, batteries and switches, amalgam manufacturers and
chemical manufacturers.
The Company will also attempt to initiate a mercury waste collection
program with hospitals, electrical contractors and dentists, in which the
Company would provide self-contained disposal mailers for on-site collection and
shipping to the Company's mercury recycling facilities.
MARKETING AND SALES
MARKETING. The Company must inform potential customers that the
Company's mercury recycling products and services are designed to significantly
eliminate potential financial liability associated with disposal of
mercury-bearing materials. The Company plans to compete in each of its three
primary markets with respect to price, service, product quality and the
timeliness of its mercury retorting capabilities.
ADVERTISING AND PROMOTION. The Company's direct sales activities are
supported by targeted direct mail activities to waste generators, waste brokers,
waste transporters, permitted waste storage facilities, lighting contractors,
lamp distribution organizations and various other related business entities. Due
to the identifiable nature of target customers, expensive mass media advertising
is not necessary. The Company also displays its products and services at various
regional and national trade shows on a regular basis. The Company believes that
trade shows are a very cost effective activity for the Company due to the fact
it is able to promote all three of its primary sales areas simultaneously.
SALES STRATEGIES. The Company promotes its services and products
through a direct sales force. The Company presently employs sales professionals
from the waste industry to sell its products and services. The Union Grove
Retorting Facility and the Roseville Recycling Facility each employ separate
specialized technical sales managers in the areas of mercury retorting services
and lamp recycling services. The Company has also established a sales office in
Phoenix, Arizona to market and sell the Company's products and services.
A Model 2000B purchaser potentially becomes a long-term mercury retort
services customer who will be sending the Company mercury-bearing lamp powder
recovered during lamp recycling. The Company realizes immediate revenue from the
sale of lamp recycling equipment and potential long term revenue from the
on-going retorting of that buyer's mercury waste from lamp recycling. The
Company anticipates that the long term revenue from retorting services for a
successful lamp recycler will exceed the immediate lamp equipment sale income.
In a similar manner, a customer who recycles lamps may become a
customer for mercury retorting of other wastes or a purchaser of lamp processing
equipment. Due to the on-going generation of waste material by Company
customers, the sales and marketing efforts benefit substantially from the
ability to utilize a building block approach.
RESEARCH AND DEVELOPMENT
Research and development expense was $340,660 for the nine months ended
September 30, 1996 and $124,807 for the year ended December 31, 1995. The 1996
expense includes $200,000 of purchased research and development expense related
to the acquisition of certain assets of USE. In order to stay technologically
competitive, the Company must continue development of leading edge mercury
processing technology. This includes:
* developing the next generation of lamp recycling equipment
* reengineering the continuous flow oven for improved efficiency in
mercury collection and mercury waste logistics
REGULATION
INTRODUCTION. The Company is currently subject to extensive and
evolving federal, state and local environmental laws and regulations that have
been enacted in response to technological advances and increased concern over
environmental issues. These regulations not only strictly regulate the conduct
of the Company's operations but are also related directly to the demand for many
of the services offered by the Company.
The regulations affecting the Company are administered by the EPA and
various other federal, state and local environmental, zoning, health and safety
agencies. The Company believes that its facilities are currently in compliance
with all applicable federal, state and local laws, permits, orders and
regulations. The Company believes there will continue to be increased
regulation, legislation and regulatory enforcement actions related to the
hazardous waste and recycling industry. As a result, the Company attempts to
anticipate future regulatory requirements and to plan accordingly to remain in
compliance with the regulatory framework.
In order to develop and operate a fluorescent lamp processing facility,
a mercury recycling facility or other hazardous waste related facilities, the
Company must typically go through several governmental review processes in order
to obtain one or more permits/licenses, zoning or other land use approvals.
Obtaining these permits/licenses and zoning or land use approvals is difficult,
time consuming and expensive and is often opposed by various local elected
officials and citizens' groups. Once obtained, operating permits generally must
be periodically renewed and are subject to fees, modification and revocation by
the issuing agency.
The Company's operating facilities are subject to a variety of
operational, monitoring, site maintenance, closure, and financial assurance
obligations which change from time to time and which could give rise to
increased capital expenditures and operating costs. In connection with the
Company's expansion of its existing facility or any future expansions, it is
often necessary to expend considerable time, effort and money in complying with
the governmental review and permitting process necessary to maintain or increase
operational capacity. Governmental authorities have broad power to enforce
compliance with these laws and regulations and to obtain injunctions or impose
civil or criminal penalties in the case of violations. In the ordinary course of
operating its fluorescent lamp processing and mercury recycling facility, the
Company has from time to time received notices from regulatory authorities that
is operations may not be in total compliance with certain applicable
environmental laws and regulations. Upon receipt of any notices, the Company has
cooperated with the authorities in an attempt to resolve the issues raised by
such notices and has corrected the problems to the satisfaction of the
authorities. Failure to correct problems to the satisfaction of the authorities
could lead to curtailed operations, fines and penalties or even closure of
Company facilities.
In order to transport hazardous wastes, it is necessary for the Company
to possess one or more permits/licenses from state or local authorities. These
permits must be periodically renewed and are subject to fees, modification and
revocation by the issuing agency. The Company, as a transporter of hazardous
waste, is subject to strict hazardous waste transportation guidelines under
federal and state Department of Transportation (DOT) regulations. The Company
currently is licensed to transport hazardous wastes in the states of Minnesota,
Wisconsin and North Dakota. The Company is governed by both the Hazardous
Materials and Federal Motor Carrier Safety Regulations contained in Title 49 of
the Code of Federal Regulations. An accident during the transportation of
hazardous waste or the failure to comply with any DOT regulation could expose
the Company to liability. An unsatisfactory transportation rating from the DOT
would severely limit the Company's ability to transport hazardous waste.
The principal federal, state and local statutes and regulations
applicable to the Company's various operations are reviewed in part as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT (RCRA) OF 1976, AS AMENDED.
RCRA regulates the generation, treatment, storage, handling, transportation and
disposal of hazardous waste. All current facilities are governed by RCRA
regulations. RCRA divides solid waste into two groups, hazardous and
nonhazardous. Wastes are generally classified as hazardous if they (i) either
(a) are specifically included on a list of hazardous wastes or (b) exhibit
certain hazardous characteristics and (ii) are not specifically designated as
nonhazardous. Wastes classified as hazardous under RCRA are subject to much
stricter regulation than wastes classified as nonhazardous.
The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure and financial responsibilities. These regulations
require the Company to demonstrate financial assurance for sudden and nonsudden
pollution occurrences and for future facility closure costs. The Company
believes that its hazardous waste transportation activities and its facilities
comply in all material respects with the applicable requirements of Subtitle C
of RCRA.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT (CERCLA) OF 1980, AS AMENDED. CERCLA established a regulatory and remedial
program intended to provide for the investigation and cleanup of facilities from
which there has been, or is threatened, a release of any hazardous substance
into the environment. CERCLA's primary mechanism for remedying such problems is
to impose strict joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of the
site at the time of the disposal of the hazardous substances, as well as the
generators of the hazardous substances and the transporters who arranged for
disposal or transportation of the hazardous substances. The costs of a CERCLA
investigation and cleanup can be very substantial. Liability under CERCLA does
not depend upon the existence or disposal of "hazardous waste" as defined by
RCRA, but can also be founded upon the existence of even very small amounts of
the more than 700 "hazardous substances" listed by the EPA, many of which can be
found in household waste. If the Company were to be found to be a responsible
party for a CERCLA cleanup, the enforcing authority could hold the Company, or
any other generator, transporter or owner or operator of the facility,
completely responsible for all investigative and remedial costs even if others
may also be liable. CERCLA also authorizes the imposition of a lien in favor of
the United States upon the real property subject to, or affected by, a remedial
action for all costs for which a party is liable. CERCLA provides a responsible
party with the right to bring legal action against other responsible parties for
their allocable share of investigative and remedial costs. The Company's ability
to get others to reimburse it for their allocable share of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties. CERCLA requires the EPA to establish a national priorities list of
sites at which hazardous substances have been or are threatened to be released
into the environment. Because the Company participates in the hazardous waste
industry, it bears an enhanced risk of being deemed a responsible party for
hazardous waste clean-up.
THE CLEAN AIR ACT OF 1976, AS AMENDED. The Clean Air Act provides for
regulation, through state implementation of federal requirements, of the
emission of air pollutants from any operating facility. The Clean Air Act
Amendments of 1990 broadened the scope of the law to control air pollution from
additional and often smaller industries. Federal and state air quality
regulations may apply to any facility emitting something into the air. The
amount of air pollution released generally determines whether compliance is
necessary with air quality regulations. Any of the Company's facilities that
have air emissions are in some way governed by federal and state air emission
regulations, compliance agreements or permits and licenses. Some of the
Company's facilities have air emissions that are governed by federal and state
air emission regulations, compliance agreements or permits and licenses. Failure
to comply with air emission standards at any of the Company's facilities could
have a severe impact on the Company ability to operate that facility. Failure to
correct the air emission problems could lead to curtailed operations, fines and
penalties or even closure of the Company facility. The inability to operate a
facility could have a material adverse effect on the Company's financial
condition and results of operation.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970. The Occupational Safety
and Health Act of 1970, as amended, authorizes the Occupational Safety and
Health Administration (OSHA) to promulgate occupational safety and health
standards. Several of these standards apply to many of the operations at all
Company facility locations. OSHA regulations set standards for employee
protection, including medical surveillance, the use of respirators, protective
clothing, hearing protection and personal protective equipment. OSHA specifies a
maximum permissible exposure level for hazardous materials, including mercury.
Company employees are required to receive hazardous waste training which
includes training to respond to an accidental spill or release of a hazardous
material during processing, recycling or transportation activities. Failure to
comply with OSHA standards could lead to fines or penalties. The inability to
immediately correct a serious problem could lead to curtailed operations or even
closure until the problem is corrected.
EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT OF 1986 (SARA TITLE
III). This free-standing law is designed to address concerns about the effect of
chemical releases on communities. Section 312 contains community right-to-know
provisions that grant local emergency response personnel and the general public
access to information on chemicals present in local facilities. Local
participation varies, however, any of the Company's facilities may be subject to
this law and may also be subject to penalties for noncompliance. Company
facilities may be subject to this law and may also be subject to penalties for
noncompliance.
TOXIC SUBSTANCES CONTROL ACT (TSCA) OF 1976. The act established a
system for identifying and evaluating environmental and health effects of
existing chemicals and any new substances entering the U.S. market. TSCA
provides for regulation of chemical substances and mixtures which present an
unreasonable risk of injury or health to the environment. As part of its
business, the Company may handle and/or transport substances (Polychlorinated
Biphenyls - PCBs) subject to TSCA regulations. The Company's Roseville Lamp
Recycling facility is currently subject to these regulations since it
transports, consolidates, stores and ships PCBs for recycling. Failure to comply
with any of the handling, storage, record keeping or transportation requirements
could lead to fines or penalties for the Company.
STATE AND LOCAL REGULATIONS. Each state in which the Company currently
operates, or may operate within in the future, has laws and regulations
governing the generation, storage, treatment, recycling, handling,
transportation and disposal of solid and hazardous waste. States also regulate
water and air pollution and, in most cases, the siting, design, operation,
maintenance and closure of hazardous waste management facilities for any of the
activities previously stated. These regulations are in addition to the federal
regulations and state regulations may be even more restrictive than the federal
regulations. Failure to comply with any of the regulations could subject the
Company to curtailed operations, fines and penalties or even closure of Company
facilities.
Within Minnesota, the primary responsibility for environmental programs
is shared by the Minnesota Pollution Control Agency (MPCA) and the Minnesota
Attorney General's Office. The MPCA is responsible for developing environmental
regulations, issuing permits, investigating violations of environmental
requirements and initiating administrative enforcement actions. The Company's
Roseville Lamp Recycling Facility is subject to all of Minnesota's hazardous
waste regulations and rules. The Company has entered into a Facility Compliance
Agreement with the MPCA because there is currently no legislation which grants
the MPCA the authority to license/permit this type of facility. The Facility
Compliance Agreement sets standards under which the facility must operate. The
Attorney General is responsible for investigating criminal violations of
environmental laws, representing the MPCA in administrative hearings and
initiating civil judicial enforcement actions.
In Wisconsin, the primary responsibility for environmental programs
rests with the Wisconsin Department of Natural Resources ("DNR"). The DNR is
responsible for developing environmental regulations, issuing permits,
investigating violations of environmental requirements and initiating
administrative actions. DNR environmental regulations are contained within the
Wisconsin Administrative Code. The Union Grove Retorting Facility is subject to
all of the DNR's environmental regulations.
In addition to state regulations, counties and municipalities may issue
operating licenses or permits to operate Company facilities. Failure to comply
with these requirements may also result in curtailed Company operations, fines
and penalties or even closure of Company facilities. The Company's Roseville
Lamp Recycling Facility is located in Ramsey County and some programs at the
facility are regulated by the county. The Special Hazardous Waste Program is
licensed and regulated by Ramsey County which has been granted authority by the
MPCA to regulate such program.
Many counties and municipalities also have ordinances, local laws and
environmental regulations affecting the Company's operations. These include
zoning and health measures that limit any type of hazardous waste management
facility to specified sites or activities. There has been an increasing trend at
the state and local level to mandate and encourage waste reduction at the source
and to provide waste recycling and limit or prohibit the disposal of certain
types of solid wastes in landfills.
Many states including Wisconsin and Minnesota, have programs that
require investigation and cleanup of sites containing hazardous materials in a
manner comparable to CERCLA. These statutes impose requirements for
investigation and cleanup of contaminated sites and liability for costs and
damages associated with such sites and some provide for the imposition of liens
on property owned by responsible parties.
INTELLECTUAL PROPERTY
The Company has no patents on its Model 2000B lamp recycler, the Lamp
Processor or on its retorting technology. There is significant risk that third
parties will independently develop similar technology. Although the Company
intends to apply to the United States Patent and Trademark Office for protection
of certain aspects of its technology relating to the Model 2000B, the Lamp
Processor and its retorting equipment, no assurance can be given that patent
protection will be obtained. There is also no assurance that any of the
Company's intellectual property rights will be enforceable, even if patented or
registered, against any prior users of similar intellectual property or that the
Company will be successful in defending itself against a third party claiming
that the Company's technologies violates an existing patent. Any such claim,
with or without merit, could also be time consuming and costly to defend.
EMPLOYEES
As of September 30, 1996 the Company employed 18 persons, 4 of whom
served in executive and administrative capacities, 6 served in facilities sales
and operations management, and 8 in hourly positions. No employee is covered by
a collective bargaining agreement, and the Company has never experienced an
organized work stoppage, strike or labor dispute. The Company considers
relations with its employees to be satisfactory.
FACILITIES AND EQUIPMENT
The Company's corporate headquarters are located in St. Paul,
Minnesota. The Company leases approximately 2,000 square feet of office space at
a rent of $2,338 per month pursuant to a lease expiring in March, 1998. The
6,500 square foot Roseville Recycling Facility, is leased at a current rent of
$2,028 per month pursuant to a lease expiring in March, 1998. The 8,000 square
foot Union Grove Recycling Facility is leased at a current rent of $2,800 per
month pursuant to a lease expiring in February, 2000. Substantially all of the
Company's assets secure indebtedness owed to Norwest Bank Minnesota, N.A.,
Capital Partners, Ltd and Bradley J. Buscher. See "Certain Transactions."
The Company is considering consolidating its St. Paul corporate
headquarters and its Roseville Recycling Facility in a single facility elsewhere
in the Minneapolis/St. Paul area. The potential consolidation is in the
investigative stage and there are no definite plans for such consolidation.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on its
business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
of the directors and executive officers of the Company.
Name Age Position(s) Held
---- --- ----------------
Bradley J. Buscher 41 Chairman of the Board, Chief
Executive Officer, Chief Financial
Officer and Director
Mark G. Edlund 43 President, Chief Operating Officer
and Director
Alan R. Geiwitz 45 Director
Joel H. Gottesman 47 Director
Robert L. Etter 51 Director
BRADLEY J. BUSCHER has been Chairman of the Board and Chief Executive
Officer of the Company since its inception. Mr. Buscher has also been
the Chairman and Chief Executive Officer of Bankers American Capital
Corp., a privately held merchant banking company, since 1993. From 1981
to 1994, Mr. Buscher was President and Chief Executive Officer of
American Bancshares, a multi-bank holding company, and from 1976 to
1981 he served as Vice President of American Bancshares. From 1986 to
1994, Mr. Buscher was also Chief Executive Officer of American Banks, a
subsidiary of American Bancshares. Mr. Buscher also served as Chief
Executive Officer of Eagle Insurance Agencies, Inc. from 1987 to 1994.
In February, 1994, American Bancshares, its subsidiary American Banks,
and Eagle Insurance Agencies, Inc. were purchased by First Bank
Systems. From 1993 to the present, Mr. Buscher has served as the
managing general partner of BRB Development, LLC. Mr. Buscher also
holds various other managing positions in private investment
partnerships. Mr. Buscher is a director, Vice President and Treasurer
of the Mankato State University Foundation, is chairman of the
Investment Committee of the Foundation, and is a member of the
Foundation's Executive Committee. He has served as a director of the
Foundation since 1990. Mr. Buscher is the immediate past chairman of
the Mankato State University College of Business Board of Advisors.
MARK G. EDLUND has been President and Chief Operating Officer and a
Director of the Company since its inception. From 1993 to January,
1996, Mr. Edlund served as President of U.S. Environmental,
Incorporated, which sold substantially all of its assets to the
Company. From 1987 to 1992, Mr. Edlund was President of Professional
Resources International, Inc., a manufacturer and retailer of
ophthalmic products. Prior to forming Professional Resources
International, Inc., Mr. Edlund was Chief Operating Officer for Midwest
Vision Center, a Minnesota based retailer of ophthalmic products and
services.
ALAN R. GEIWITZ has been a Director of the Company since September,
1996. Mr. Geiwitz has been President and Director of Orion Financial
Corp. since 1982. Orion Financial Corp. provides middle market
corporate financial assistance including merger and acquisition, debt
and equity placements and direct investments to a variety of public and
private companies. Prior to forming Orion Financial Corp., Mr. Geiwitz
was Vice President and Manager of a commercial lending division of
Norwest Bank Minnesota, N.A. which handled manufacturing, wholesale and
leasing companies. Mr. Geiwitz is also a member of the Board of
Directors of Midwest Financial Services, Inc., BMD Company, Inc., and
Southwest Capital Corporation.
JOEL H. GOTTESMAN, J.D. has been a Director of the Company since
January, 1996. Mr. Gottesman has been Senior Vice President, General
Counsel and Secretary of Green Tree Financial Corporation since
September, 1995. Prior thereto, from 1983 through September, 1995, Mr.
Gottesman was a shareholder of Briggs & Morgan, P.A., and served as the
firm's Treasurer and on its Board of Directors. Mr. Gottesman practiced
law in the areas of corporate finance, securities and mergers and
acquisitions. Mr. Gottesman also served as an early-round investor for
and served on the Board of Directors of Information Advantage, Inc., a
software company operating in the data warehousing market. Information
Advantage, Inc. has attracted $13,000,000 in venture capital financing
from five venture capital firms.
ROBERT L. ETTER, a certified public accountant, has been a Director of
the Company since May, 1996. Mr. Etter has been a shareholder and
Executive Board Member of Wolf, Etter and Co., Certified Public
Accountants since 1973. Mr. Etter heads the firm's financial
institutions department for tax, auditing and consulting. Prior to
1973, Mr. Etter was with the Internal Revenue Service.
KEY EMPLOYEES
James Cornwell, the General Manager of the Union Grove Retorting
Facility, has been with the Company since January, 1996. Mr. Cornwell has over 7
years of experience in all areas associated with hazardous materials including
experience in regulatory management, project management, and waste recycling and
disposal. From September, 1994 to January, 1996, Mr. Cornwell served as General
Manager of the Union Grove Retorting Facility for U.S. Environmental,
Incorporated. From July 1993 to August 1994, Mr. Cornwell served as the General
Manager of Superior Lamp Recycling. From November 1991 to July 1993, Mr.
Cornwell served as the Regional Sales Manager for Superior Services.
Steven A. Rush, the Facility Manager at the Union Grove Retorting
Facility, has been with the Company since January, 1996. From November, 1995 to
January, 1996, Mr. Rush was Facility Manager of the Union Grove Retorting
Facility for U.S. Environmental, Incorporated. From March, 1995, to November,
1995, Mr. Rush was an Environmental Consultant for Braun Intertec. From
November, 1991 to March, 1995, Mr. Rush served as Project Manager and Emergency
Response Manager for Superior Services.
Thomas Kimmel, the General Manager of the Roseville Recycling Facility,
has been with the Company since July, 1996. Mr. Kimmel has worked in the
hazardous waste recycling industry for the past 7 years. From November, 1995 to
July, 1996, Mr. Kimmel was Sales Manager for ABB Service, Inc., a seller and
servicer of transformers. From September, 1990 to November, 1995, Mr. Kimmel was
employed by Dynex Industries, Inc. in several capacities including Marketing
Development Manager responsible for setting up lamp and PCB recycling facilities
for the company.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Company for the period from January 2, 1996 (inception) through September 30,
1996 to the Company's Chairman and Chief Executive Officer:
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name of Individual Position Salary
- ------------------ -------- ------
<S> <C> <C>
Bradley J. Buscher Chairman of the Board, Chief 0(1)
Executive Officer and Chief
Financial Officer
</TABLE>
- ----------------------
(1) Pursuant to a Management Consulting Agreement with Bankers American
Capital Corporation ("BACC"), a Minnesota corporation wholly-owned by
Bradley J. Buscher, the Company pays $10,000 to Bankers Capital on a
monthly basis for certain consulting and administrative services
provided to the Company. See "Certain Transactions."
EMPLOYMENT AGREEMENT
In January of 1996, the Company entered into an employment agreement
with Mark Edlund pursuant to which Mr. Edlund serves the Company as President
and Chief Operating Officer. The Company or Mr. Edlund may each terminate the
agreement upon ninety days notice. Mr. Edlund currently receives an annual base
salary of $90,000. Pursuant to the agreement, Mr. Edlund may not disclose
confidential information about the Company and has agreed not to compete with
the Company for a five-year period after any termination of employment.
STOCK OPTION AND COMPENSATION PLAN
In September 1996, the Company adopted a Stock Option Plan (the
"Plan"), pursuant to which options and other awards to acquire an aggregate of
185,500 shares of the Company's Common Stock may be granted. Stock options,
stock appreciation rights, restricted stock, other stock and cash awards may be
granted under the Plan.
The Plan is administered by a stock option committee (the "Stock Option
Committee") consisting of Alan R. Geiwitz, Joel H. Gottesman and Robert L.
Etter, which has the discretion to determine the number and purchase price of
shares subject to stock options, which may not be below 85% of the fair market
value of the Common Stock on the date granted, the term of each option, and the
time or times during its term when the option becomes exercisable. As of the
date of this Prospectus, options aggregating 110,000 shares of Common Stock have
been granted to certain non-executive employees of the Company.
BOARD OF DIRECTORS
Each of the Company's directors has been elected to serve until the
next annual meeting of shareholders. The Company's executive officers are
appointed annually by the Company's directors. Each of the Company's directors
continues to serve until his or her successor has been designated and qualified.
Non-employee Directors currently receive $250 for each meeting attended.
CERTAIN TRANSACTIONS
In January 1996, the Company issued to Bradley J. Buscher, Chief
Executive Officer and Chairman of the Company, a secured revolving credit note
authorizing the Company to borrow up to $2,000,000 from Mr. Buscher for working
capital purposes. The largest aggregate amount of such indebtedness outstanding
under such note since January 2, 1996 was $1,885,000. A portion of this
revolving credit note was assigned to various parties and exchanged for stock
and was accordingly replaced with a similar revolving credit note in the amount
of $1,660,000, dated September 16, 1996. Such debt accrued interest at a
adjustable rate of 2% above the prime rate. Interest was payable each quarter
with the principal being due on January 1, 2001. The note was secured by all of
the Company's tangible and intangible assets. On December 4, 1996 the $1,660,000
revolving credit note held by Mr. Buscher was paid in full with proceeds from a
$1,660,000 revolving line of credit ("Revolver") with Norwest Bank Minnesota,
N.A. The Revolver bears interest at 2% over prime, is secured by all the assets
of the Company, is due in January, 1998 and is personally guaranteed by Bradley
J. Buscher, the Company's majority shareholder. The Revolver will be repaid out
of the net proceeds of this Offering up to $1,500,000 and the Revolver will be
terminated.
In September, 1996, Mr. Buscher assigned a total of $114,600 of the
original amount of the revolving credit note to the 1996 Irrevocable Trust of
Bradley J. Buscher ($50,000), Joel Gottesman ($51,000), Robert L. Etter ($6,800)
and to an employee of the Company ($6,800 ). Mr. Gottesman and Mr. Etter are
directors of the Company. All of these amounts were then exchanged for the
Company's Common Stock based upon a Common Stock price of $.50 per share. Mr.
Buscher converted $225,400 of the revolving credit note into 450,800 shares of
the Company's Common Stock.
Mr. Buscher agreed to loan the Company pursuant to a secured revolving
credit promissory note up to $300,000. The largest aggregate amount of
indebtedness outstanding under such note since January 2, 1996 was $300,000. As
of December 4, 1996, no amounts were outstanding under such note. The loan was
used to purchase RTI's interest in the Union Grove Retorting Facility. Such debt
accrues at a adjustable rate of 2% above the prime rate. Interest is payable
monthly and the principle amount of the note is payable on demand by Mr.
Buscher. The note is secured by all of the Company's tangible and intangible
assets.
The Company owed USE approximately $448,257 pursuant to a secured note
made in connection with the Company's purchase of substantially all of USE's
assets. This amount was reduced by approximately $28,690 in September, 1996 due
in part to uncollectible accounts receivable purchased by the Company from USE.
The note was subsequently assigned to Capital Partners, Ltd, a Florida
corporation wholly owned by Mark Edlund, which then assigned an interest equal
to $160,000 in the note to Mark Edlund. Mr. Edlund subsequently converted his
$160,000 note into 320,000 shares of the Company's Common Stock. As of September
30, 1996, $259,567 is still owed to Capital Partners, Ltd. The debt on the note
accrues interest at the rate of 10% per annum and interest is payable monthly.
The principal amount of such note is due on January 1, 2001. As set forth in the
note, the Company is obligated to prepay certain amounts of principal under the
note from the Company's "excess cash flow" (as defined in the note). All amounts
owed under the note may become immediately due at Capital Partner, Ltd.'s
discretion: 1) if the Company suspends business or becomes insolvent or
bankrupt, 2) if the Company terminates Mr. Edlund's employment with the Company,
3) if Mr. Edlund becomes disabled or incompetent or 4) upon the death of Mr.
Edlund. The note is secured by all of the Company's tangible and intangible
assets.
The Company may also become indebted to USE pursuant to an Amended and
Restated Distribution Rights Bill of Sale Agreement ("Distribution Rights
Agreement") for certain amounts in connection with the on-going sale of the
Model 2000B and other mercury recycling equipment. The maximum indebtedness due
USE under the agreement is $460,000 (the "Total Distribution Payment"). The
exact amount depends upon the number of Model 2000B units and other mercury
recycling equipment sold by the Company. Such amount due will be evidenced by a
note(s) between the Company and USE which note(s) will bear interest at 10% with
interest due monthly and the principal due January 4, 2001. As set forth in the
note, the Company is obligated to prepay certain amounts of principal under the
note from the Company's "excess cash flow" (as defined in the note). The note is
secured by all of the Company's tangible and intangible assets.
The Company and Bankers American Capital Corporation, a corporation
wholly-owned by Bradley J. Buscher ("BACC"), entered into a management
consulting agreement on January 4, 1996 (the "Management Consulting Agreement"),
pursuant to which BACC provides certain management, accounting and other
administrative services to the Company for $10,000 per month. The Management
Consulting Agreement terminates in January, 1999. In January of 1996, the
Company reimbursed BACC $53,000 for out-of-pocket costs incurred by BACC in
connection with the acquisition of USE.
The Company is a party to a Shareholder Agreement with Mark G. Edlund,
the President and Chief Operating Officer of the Company and a director of the
Company, and Mr. Buscher. Pursuant to the agreement, upon the death of Mr.
Edlund, the Company is obligated to purchase all of the Company's shares owned
by Mr. Edlund at fair market value. This Agreement will terminate upon the
effectiveness of this offering.
In September, 1996, the Company borrowed $135,000 of subordinated debt
from Orion Financial Corp. Money Purchase Plan which entity is for the sole
benefit of and controlled by Alan R. Geiwitz. The loan bears interest at 2%
over the prime rate and matures on September 25, 1998. In connection with such
loan, Orion Financial Corp. Money Purchase Plan received warrants to purchase
120,000 shares of the Company's Common Stock at $1.125 per share. The Company
expects that the loan will be canceled concurrently with the effectiveness of
this Offering as payment of the exercise price of the warrant for the purchase
of 120,000 shares of Common Stock.
After the Offering, Bradley J. Buscher, Mark G. Edlund, Alan R. Geiwitz
and Joel H. Gottesman, as holders of warrants to purchase 115,255, 54,237,
140,339 and 925 shares of Common Stock, respectively, will be entitled to
certain rights to cause the Company to register the sale of the shares issuable
upon exercise of such warrants under the Act. See "Description of Securities -
Sales Eligible for Future Sale."
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, as
adjusted to give effect to the issuance of the securities offered hereby, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, and (iv) all executive officers and directors
of the Company as a group. Unless otherwise indicated, each of the following
persons has sole voting and investment power with respect to the shares of
Common Stock set forth opposite their respective names. The address of directors
and executive officers is 1700 West Highway 36, Suite 801, St. Paul, Minnesota
55113.
<TABLE>
<CAPTION>
Percent
------------------------
Shares of Prior to After
Name Common Stock Offering Offering
- ---------------------------------------------- ------------------ ------------- ----------
<S> <C> <C> <C>
Bradley J. Buscher 1,257,890(1) 50.6 36.1
Mark G. Edlund 674,237(2) 27.8 19.7
Alan R. Geiwitz 260,339(3) 10.9 7.7
Joel H. Gottesman 213,835(4)(5) 9.0 6.3
Robert L. Etter 113,600(5) 4.8 3.4
All executive officers and
directors as a group (5 persons) 2,419,901(6) 94.5 68.0
</TABLE>
- ------------------------
(1) Includes 116,180 shares issuable upon exercise of warrants.
(2) Includes 54,237 shares issuable upon exercise of warrants.
(3) Includes 20,339 shares issuable upon exercise of warrants.
(4) Includes 925 shares issuable upon exercise of warrants.
(5) Includes 100,000 shares held as co-trustee of an irrevocable trust
for the benefit of Bradley J. Buscher's children.
(6) Includes 191,681 shares issuable upon exercise of warrants.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000
undesignated shares, $.01 par value per share. After the closing of this
Offering, there will be issued and outstanding 3,369,097 shares of Common Stock
(if the Underwriter's over-allotment option is not exercised).
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of existing shareholders should additional shares of
Common Stock be issued. Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of assets legally
available therefor, and to share ratably in the assets of the Company available
upon liquidation. The Company's Board of Directors does not intend to declare
dividends and presently intends to return all earnings, if any, for use in the
Company's business for the foreseeable future.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the articles of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present at the particular shareholders' meeting. The
Company's directors and officers as a group beneficially own approximately 95%
of the outstanding Common Stock of the Company. Upon completion of this
Offering, such persons will beneficially own approximately 68% of the
outstanding shares (65% if the Underwriter's over-allotment option is exercised
in full). See "Principal Shareholders." Accordingly, such persons will continue
to be able to substantially control the Company's affairs, including, without
limitation, the sale of equity or debt securities of the Company, the
appointment of officers, the determination of officers' compensation and the
determination whether to cause a registration statement to be filed. There are
18 holders of record of the Company's Common Stock as of the date of this
Prospectus.
The rights of holders of the shares of Common Stock may become subject
in the future to prior and superior rights and preferences in the event the
Board of Directors establishes one or more additional classes of Common Stock,
or one or more additional series of Preferred Stock. The Board of Directors has
no present plan to establish any such additional class or series.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 3,369,097 shares of
Common Stock issued and outstanding (3,519,097 if the Underwriter's
over-allotment option is exercised in full). The shares purchased in this
Offering will be freely tradeable without registration or other restriction
under the Securities Act of 1933, as amended (the "Act"), except for any shares
purchased by an "affiliate" of the Company (as defined in the Act).
All the currently outstanding shares were issued in reliance upon the
"private placement" exemptions provided by the Act and are deemed restricted
securities within the meaning of Rule 144 ("Restricted Shares"). Restricted
Shares may not be sold unless they are registered under the Act or are sold
pursuant to an applicable exemption from registration, including an exemption
under Rule 144. 2,369,097 Restricted Shares will become eligible for sale on
various dates in 1998 assuming all of the other requirements of Rule 144 have
been satisfied.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) including persons deemed to be affiliates,
whose restricted securities have been fully paid for and held for at least two
years from the later of the date of issuance by the Company or acquisition from
an affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three month period
may not exceed the greater of 1% of the then-outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule. The
Securities and Exchange Commission is currently reviewing a proposal to amend
Rule 144 to reduce the period of time restricted securities must be held.
In general, under Rule 701 as currently in effect, any employee,
consultant or advisor of the Company who purchases shares from the Company by
exercising a stock option outstanding on the date of the Offering is eligible to
resell such shares 90 days after the date of the Prospectus in reliance on Rule
144, but need not comply with certain restrictions contained in Rule 144,
including the holding period requirement. As soon as practicable after the
Offering, the Company intends to register 185,500 shares of Common Stock that
are reserved for issuance under the Stock Option Plan. See "Management." After
the effective date of such registration statement, shares issued upon exercise
of outstanding options would generally be eligible for immediate resale in the
public market, subject to vesting under the applicable option agreements.
Following this Offering, the Company cannot predict the effect, if any,
that sales of the Common Stock or the availability of such Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless, sales
by existing shareholders of substantial amounts of Common Stock could adversely
affect prevailing market prices for the Common Stock if and when a public market
exists. The Company and its directors, executive officers and 5% shareholders
have agreed that they will not sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock for 365 days after the Effective
Date without the prior written consent of the Underwriter.
Subject to certain limitations and customary cutbacks as reasonably
determined by any underwriter, if at any one time prior to the end of the
two-year period following complete exercise of any warrant or September 2001,
whichever occurs earlier, the Company proposes to register any of its Common
Stock under the Securities Act, the Company will provide each of the holders of
warrants to purchase an aggregate of 320,771 shares of Common Stock with the
opportunity, pursuant to piggyback registration rights, to participate in such
public offering.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. In general, Section 302A.671
provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a publicly-held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved in
a prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for
the Common Stock.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, dated the effective date of this offering, Equity
Securities Trading Co., Inc. (the "Underwriter") has agreed to purchase from the
Company and the Company has agreed to sell to the Underwriter an aggregate of
1,000,000 shares of Common Stock.
The Underwriting Agreement provides that the Underwriter will be
obligated to purchase, subject to the terms and conditions set forth therein,
all of the shares of Common Stock being sold pursuant to the Underwriting
Agreement (other than the shares covered by the over-allotment option) if any of
the shares being sold pursuant to the Underwriting Agreement are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the 1,000,000 Shares at a Price to Public of $5.00 per share
and to certain selected dealers at such price less usual and customary
commissions. After the initial public offering, the Price to Public and
commissions to dealers may be changed by the Underwriter. The Underwriter does
not intend to confirm sales to any account over which it has discretionary
authority.
In the Underwriting Agreement, the Company and the Underwriter have
agreed to indemnify each other against certain liabilities under the Securities
act of 1933, as amended (the "Act"), or to contribute to payments which the
Underwriter may be required to make in respect thereof.
The Company has granted to the Underwriter an option, exercisable by
the Underwriter within 45 days after the date of this Prospectus, to purchase up
to an additional 150,000 Shares at the Price to Public, less the Underwriting
Discount shown on the cover page of this Prospectus. This option may only be
exercised in whole or in part, but only for the purpose of covering any
over-allotments in the sale of the 1,000,000 Shares offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 2% of the aggregate Total Price to Public of the Shares offered
hereby, including any Shares purchased pursuant to the over-allotment option, if
exercised.
The Company has agreed to sell to the Underwriter, for nominal
consideration, a warrant to purchase 100,000 shares of Common Stock of the
Company at a price per share equal to 120% of the per Share Price to Public (the
Underwriter's Warrant"). The Underwriter's Warrant is exercisable commencing one
year from the date of this Prospectus and for a period of four years thereafter.
The Underwriter's Warrant contains anti-dilution provisions providing for
appropriate adjustments on the occurrence of certain events. The Underwriter's
Warrant also provides certain demand and participatory rights to the require
registration of the shares underlying the Underwriter's Warrant under the Act.
The Underwriter's Warrant will be restricted from sale, transfer, assignment or
hypothecation for a period of one year from the effective date of the offering,
except to officers or partners of the Underwriter. Any profits realized by the
Underwriter upon the sale of the Underwriter's Warrant or the securities
issuable upon exercise thereof may be deemed to constitute additional
underwriting compensation.
The Company's security holders have agreed not to sell or otherwise
dispose of any shares of Common Stock for a period of one year from the date of
this Prospectus without the prior written consent of the Underwriter or, in some
cases, the Company.
The Company has granted the Underwriter a right of first refusal to
act as underwriter or finder in connection with all future equity or long-term
debt financing of the Company for a period of three (3) years from the effective
date of this Offering; provided that such right of first refusal shall not apply
to long term debt financing obtained from any bank or insurance company.
Prior to this Offering, there has been no public market for the shares.
Consequently, the Price to the Public was determined through negotiation between
the Company and the Underwriter and bears no relation to the Company's current
earnings, book value, net worth or financial statement criteria of value. There
can be no assurance that the price at which the shares will sell in the public
market after this Offering will not be lower than the initial Price to Public.
The foregoing is a summary of the material provisions of the
Underwriting Agreement and the Underwriter's Warrant. Copies of such documents
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership, Minneapolis, Minnesota ("Maslon"). Partners in Maslon benefically
own 9,862 shares of Common Stock. Certain legal matters relating to the sale of
the shares of Common Stock will be passed upon for the Underwriter by Fredrikson
& Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements for the year ended December 31, 1995 of USE
and of the Company for the nine month period ending September 30, 1996 included
herein have been audited by McGladrey & Pullen, LLP, independent auditors, as
stated in their report with respect thereto, and is included herein in reliance
upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Securities Exchange
Act of 1934, as amended. The Company has filed with the Washington, D.C. Office
of the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form SB-2 under the Act with respect to the Common Stock offered
hereby. This Prospectus filed as a part of the Registration Statement does not
contain all of the information contained in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other documents are not necessarily complete, and in each instance,
reference is made to such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and exhibits may be inspected without
charge and copied at the Washington office of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549, and copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at the same
address.
The Company intends to furnish to its shareholders annual reports
containing audited financial statements.
MERCURY WASTE SOLUTIONS, INC.
FINANCIAL REPORT
SEPTEMBER 30, 1996
MERCURY WASTE SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report F-2
Balance Sheet as of September 30, 1996 F-3
Statements of Operations for the Year Ended December 31, 1995, and the
Nine Months Ended September 30, 1996 F-4
Statements of Shareholders' Deficit for the Nine Months Ended
September 30, 1996 F-5
Statements of Cash Flows for the Year Ended December 31, 1995, and the
Nine Months Ended September 30, 1996 F-6
Notes to Financial Statements F-7
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mercury Waste Solutions, Inc.
St. Paul, Minnesota
We have audited the accompanying balance sheet of Mercury Waste Solutions, Inc.
as of September 30, 1996, and the related statements of operations,
shareholders' deficit, and cash flows for the nine months ended September 30,
1996, and the statements of operations, shareholder's deficit and cash flows of
the Company's predecessor, U.S. Environmental, Inc. (USE) for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercury Waste Solutions, Inc.
as of September 30, 1996, and the results of its operations and its cash flows
for the nine months ended September 30, 1996, and USE's results of operations
and cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses from operations, requires
additional financing, and ultimately needs to successfully attain profitable
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters,
including a proposed initial public offering of the Company's common stock, are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
October 22, 1996, except for Note 10, as to
which the date is December 5, 1996
F-2
MERCURY WASTE SOLUTIONS, INC.
BALANCE SHEET
September 30, 1996
ASSETS (Notes 2, 3, and 4)
- ----------------------------------------------------------------------------
Current Assets
Cash $ 12,589
Accounts receivable, less allowance for doubtful
accounts of $10,000 166,540
Prepaid expenses 23,989
-----------
TOTAL CURRENT ASSETS 203,118
-----------
Property and Equipment
Leasehold improvements 92,005
Furniture, fixtures and equipment 135,500
Plant equipment 623,787
-----------
851,292
Less accumulated depreciation 65,078
-----------
786,214
-----------
Other Assets
Cash restricted for closure (Note 6) 66,315
Goodwill, net of accumulated amortization of $95,943 1,183,293
-----------
1,249,608
-----------
TOTAL ASSETS $ 2,238,940
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Related party demand note (Note 4) $ 30,000
Accounts payable 216,250
Accrued expenses 73,984
-----------
TOTAL CURRENT LIABILITIES 320,234
-----------
Long-Term Liabilities
Long-term debt to related parties (Note 4) 1,804,567
Closure fund (Note 6) 10,300
Subordinated debt (Note 7) 135,000
-----------
1,949,867
-----------
Commitments and Contingencies (Notes 6 and 7)
Shareholders' Deficit (Notes 7, 8 and 10)
Common stock, $0.01 par value; 10,000,000 shares authorized;
2,120,000 shares issued and outstanding 21,200
Additional paid-in capital 892,923
Accumulated deficit (945,284)
-----------
(31,161)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,238,940
===========
See Notes to Financial Statements.
F-3
<TABLE>
<CAPTION>
MERCURY WASTE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
Year Ended Nine Months
December 31, Ended
1995 September 30,
(Predecessor) 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues (Note 9):
Recycling revenue $ 788,782 $ 835,832
Recycling equipment sales 760,000 -
----------- -----------
TOTAL REVENUES 1,548,782 835,832
----------- -----------
Cost of revenues:
Recycling 371,849 382,914
Equipment 411,506 -
----------- -----------
TOTAL COST OF REVENUES 783,355 382,914
----------- -----------
GROSS PROFIT 765,427 452,918
----------- -----------
Operating expenses
Research and development (Note 3) 124,807 340,660
Selling, general and administrative 575,219 923,142
----------- -----------
700,026 1,263,802
----------- -----------
OPERATING INCOME (LOSS) 65,401 (810,884)
Interest expense 11,486 134,400
----------- -----------
NET INCOME (LOSS) $ 53,915 $ (945,284)
=========== ===========
Pro Forma Data (Note 5):
Net income (loss), as reported $ 53,915 $ (945,284)
Pro forma provision for income taxes (Note 5) 13,500 -
----------- -----------
PRO FORMA NET INCOME (LOSS) $ 40,415 $ (945,284)
=========== ===========
Loss per share $ (0.41)
===========
Weighted average number of common and common equivalent
shares outstanding 2,302,966
===========
See Notes to Financial Statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
MERCURY WASTE SOLUTIONS, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
PERIOD FROM JANUARY 2, 1996 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
Retained
Common Stock Additional Earnings Total
------------------------------ Paid-In (Accumulated Shareholders'
Shares Amount Capital Deficit) Equity (Deficit)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 2, 1996 (Date of Inception) - $ - $ - $ - $ -
Initial capitalization (Note 7) 1,000,000 10,000 271,250 - 281,250
Conversion of debt to equity (Note 7) 1,000,000 10,000 490,000 - 500,000
Issuance of common stock, net of stock
issuance costs of $2,127 (Note 7) 120,000 1,200 131,673 - 132,873
Net loss - - - (945,284) (945,284)
-----------------------------------------------------------------------------
Balance, September 30, 1996 2,120,000 $ 21,200 $ 892,923 $ (945,284) $ (31,161)
=============================================================================
See Notes to Financial Statements.
</TABLE>
F-5
<TABLE>
<CAPTION>
MERCURY WASTE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
Year Ended Nine Months
December 31, Ended
1995 September 30,
(Predecessor) 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 40,415 $ (945,284)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 65,814 65,078
Amortization - 95,943
Purchased research and development - 200,000
Provision for doubtful accounts 29,000 33,400
Changes in assets and liabilities, net of effects of purchase of USE:
Accounts receivable (11,562) (125,447)
Prepaid expenses (7,276) (23,989)
Accounts payable (6,190) 61,508
Accrued expenses 85,950 73,984
Customer deposits 40,000 -
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 236,151 (564,807)
----------- -----------
Cash Flows From Investing Activities
Purchase of furniture, fixtures, and equipment (244,350) (394,412)
Purchase of USE and RTI assets - (1,190,000)
Cash paid for acquisition costs - (254,125)
Increase in restricted cash (1,698) (48,190)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (246,048) (1,886,727)
----------- -----------
Cash Flows From Financing Activities
Net proceeds from issuance of common stock - 414,123
Proceeds from long-term debt 7,022 1,885,000
Net proceeds on related party demand note - 30,000
Proceeds from issuance of subordinated debt - 135,000
Increase in excess of outstanding checks over bank balance 104,125 -
Distribution to shareholder (158,640) -
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (47,493) 2,464,123
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57,390) 12,589
Cash and cash equivalents:
Beginning 57,390 -
----------- -----------
Ending $ - $ 12,589
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 11,486 $ 116,632
=========== ===========
Supplemental Schedule of Noncash Investing and Financial Activities
Equipment purchases included in accounts payable $ 110,928
Issuance of common stock in exchange for long-term debt (Note 3) 500,000
Closure fund liability capitalized in property and equipment 10,300
Acquisition of assets of USE (see Note 3) ===========
See Notes to Financial Statements.
</TABLE>
F-6
MERCURY WASTE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION: Mercury Waste Solutions, Inc. (the
Company) is in the business of providing mercury waste recycling solutions to
mercury waste generators of all sizes. As discussed in Note 3, the Company was
incorporated on January 2, 1996 for the purposes of acquiring substantially all
of the assets of U.S. Environmental, Inc. (USE or Predecessor) on January 4,
1996. The accompanying financial statements reflect the Company's operations
since inception and USE's operations for 1995. In addition, USE's operations
from January 1, 1996 to January 3, 1996 are included with the Company's 1996
operations as they are not material.
The Company offers the following services and products:
* LAMP RECYCLING: The Company owns and operates a recycling facility in
Roseville, Minnesota (Roseville Facility) that utilizes proprietary
equipment to recycle mercury-containing fluorescent lamps.
* MERCURY WASTE RETORTING: The Company operates a mercury waste retorting
facility in Union Grove, Wisconsin (Union Grove Facility) that utilizes
proprietary equipment (continuous flow and stationary ovens) to process
mercury containing waste and the residual powder from the fluorescent
lamps.
* EQUIPMENT SALES AND LEASING: The Company intends to offer certain of its
recycling equipment for sale or lease. There was no sales or leasing
activity in 1996. In 1995, USE generated revenues from sales of equipment
of $760,000.
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION: Recycling revenue is recognized in the period when the
waste is collected and processed. Revenue from equipment sales is recognized
upon shipment to the customer.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development are
charged to operations as incurred.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided using
the straight-line method based on the estimated useful lives of individual
assets over the following periods:
Years
- -------------------------------------------------------------
Furniture, fixtures, and equipment 3 - 7
Leasehold improvements Life of lease
Goodwill 10
F-7
In accordance with Statement of Financing Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company reviews its intangibles periodically to determine
potential impairment by comparing the carrying value of the intangibles with
estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
cash flows be less than the carrying value, the Company would recognize an
impairment loss. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the intangible asset. To
date, management has determined that no impairment of intangibles exists.
PRO FORMA LOSS PER COMMON AND COMMON EQUIVALENT SHARE: The net loss per common
and common equivalent share is based upon the weighted average number of common
and common equivalent shares outstanding during each period. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock issued and stock options and warrants granted with exercise prices below
the assumed initial public offering price during the 12-month period preceding
the date of the initial filing of the Registration Statement have been included
in the calculation as if they were outstanding for all periods presented.
Earnings per share information has only been provided for the Company.
INCOME TAXES: Net income (losses) of the Company and USE are reported in the
individual income tax returns of the shareholders under provisions of Subchapter
S of the Internal Revenue Code. As described in Note 10, the Company is filing a
registration statement for the sale of 1,000,000 shares of its common stock to
the public. Upon completion of this sale, the Company's income tax status will
change and the Company will be required to pay income taxes on its earnings
subsequent to the date it becomes publicly owned, including deferred taxes
existing at the time that the S corporation status terminates. At that time, the
Company will adopt Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES". Deferred income taxes resulting from temporary
differences arising prior to termination, will be recorded as a component of
current income tax expense in the period of adoption. Although this amount is
not currently known, if the Company's S Corporation status were terminated
effective September 30, 1996, the net deferred tax assets would be approximately
$93,000, subject to the need to record a valuation allowance.
The pro forma adjustment to reflect income taxes in the accompanying statement
of income is for information purposes only and has been calculated based on the
estimated effective tax rate in each year, assuming the Company had been subject
to corporate income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were
used to estimate the fair value of each class of financial instruments:
RESTRICTED CASH: The carrying amount approximates fair value.
LONG-TERM DEBT: The fair value of the long-term debt is estimated based on
interest rates for the same or similar debt offered to the Company having
the same or similar remaining maturities and collateral requirements. The
carrying value of the long-term debt approximates fair value.
F-8
NOTE 2. BASIS OF PRESENTATION
The financial statements have been prepared on a going-concern basis that
contemplates the recoverability of assets and the satisfaction of liabilities in
the ordinary course of business. The Company has incurred a loss of $945,284 for
the nine month period ended September 30, 1996, and has negative working capital
of $117,116.
Management believes that the Company's continued existence is dependent upon
raising adequate capital to fund the operations until profitability is achieved.
Subsequent to year end, the Company obtained $355,017 from a private placement
of its common stock and plans to raise additional capital from a public offering
of its common stock (see Note 10). The Company believes that the capital
received from the private placement and the capital anticipated to be received
from the initial public offering, along with anticipated revenue increases, will
provide adequate liquidity to fund operations until profitability and positive
cash flows are attained.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
NOTE 3. ACQUISITION
On January 4, 1996, the Company acquired substantially all of the assets of USE.
USE assets acquired consisted primarily of (i) the operations at the Roseville
Facility, and (ii) rights in certain equipment (the Model 2000) and the
equipment at the Union Grove Facility, both of which it had co-developed with
Resource Technology, Inc. (RTI), an unrelated party. USE and RTI equally owned
the design rights of the Model 2000. RTI owned the exclusive manufacturing
rights and USE owned the exclusive sales and distribution rights of the Model
2000. In addition, USE and RTI equally owned the rights in the equipment at the
Union Grove Facility. In September, 1996, the Company acquired RTI's rights in
the equipment at the Union Grove facility and affirmed the respective parties'
rights in the Model 2000.
The above acquisitions were accounted for as a purchase. The purchase price is
summarized as follows:
-------------------------------------------------------------
Cash paid to USE $ 790,000
Note payable to USE 419,567
Cash paid to RTI 400,000
Direct acquisition costs 254,125
-------------
TOTAL $ 1,863,692
=============
F-9
The purchase price was allocated as follows:
-------------------------------------------------------------------
Current assets and restricted cash $ 92,618
Property and equipment 335,652
Purchased research and development 200,000
Goodwill 1,279,236
Less liabilities assumed (43,814)
-------------
TOTAL $ 1,863,692
=============
The amounts allocated to (i) property and equipment were based 68% on the fair
value of the acquired assets and 32% based on the historical cost basis of the
seller, since such person is a shareholder in the new company (see Note 7), and
(ii) research and development were based on the Company's estimated replacement
cost of certain recycling equipment development activities acquired that were
expensed as they had no alternative future use.
As part of the transaction with USE, the Company will make payments to USE for
each Model 2000 sold by the Company (as defined in the agreement), with total
payments not to exceed $460,000. There were no payments for 1996. Any contingent
consideration paid under this agreement will be capitalized to goodwill and
amortized over its remaining useful life.
As a part of the transaction with RTI, the Company entered into an agreement
that affirmed the respective parties rights in the Model 2000 equipment. The
term of the agreement is for three years and provides for fixed pricing for the
purchase of the equipment by the Company from RTI. RTI is also granted the right
to receive 30% of all royalties, if any, received by the Company from the sale
of the equipment to its customers. The Company currently has no outstanding
royalty arrangements.
NOTE 4. RELATED-PARTY DEBT
The Company has a $300,000 demand note facility with its majority shareholder,
of which $30,000 is outstanding at September 30, 1996. The note is secured by
all assets of the Company and bears interest at the prime rate plus 2% (10.25%
at September 30, 1996).
F-10
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
<S> <C>
$1,660,000 revolving line of credit to majority shareholder - prime plus 2%
(10.25% at September 30, 1996), due in monthly installments of interest
only with the outstanding principal due January 1, 2001, secured by all
assets of the Company. Subsequent to year end, this line of credit was
replaced (see Note 10) $ 1,545,000
10% note payable to related party (formerly USE), due in monthly
installments of interest only with the principal due January 1, 2001,
secured by all assets of the Company (1) 259,567
------------
$ 1,804,567
============
</TABLE>
(1) Principal payments may be made on this note before maturity to the extent
that excess cash flow, as defined in the agreement, is achieved by the Company.
The note may also become due under certain events as defined in the agreement
including termination of employment in certain circumstances, death, or
disability of the related shareholder (see Note 7). The Company does not
anticipate any principal payments on this note within the next year, unless
there is a successful initial public offering of the Company's common stock (See
Note 10). Accordingly, this obligation has been recorded as a long-term
liability.
Interest expense to related parties totalled $134,400 for the nine month period
ended September 30, 1996.
NOTE 5. PRO FORMA INCOME TAXES
The components of pro forma deferred tax assets at September 30, 1996 are as
follows:
1996
------------------------------------------------------------------------
Intangible amortization $ 88,000
Accrued expenses 5,000
Less valuation allowance (93,000)
-----------
$ -
===========
The pro forma deferred tax assets include a valuation allowance of $93,000 to
reduce the total to an amount that management believes will ultimately be
realized. Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. There are
no deferred tax assets related to net operating losses as these losses accrue to
the individual shareholders due to the Company's S Corporation tax status.
F-11
The pro forma income tax benefit (expense) differed from the statutory federal
rate as follows:
<TABLE>
<CAPTION>
1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Statutory rate applied to income (loss) before tax $ 18,100 $ (331,000)
Income taxes at lower rates (4,600) -
Net operating losses not utilized - 331,000
----------------------------
$ 13,500 $ -
============================
</TABLE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: The Company leases its office, warehouse and certain equipment
under non-cancellable operating leases with unrelated third parties. Certain
facility leases require that the Company pay a portion of the real estate taxes,
maintenance, utilities, and insurance.
Approximate future minimum rental commitments, excluding common area costs,
under these non-cancelable operating leases are:
Years ending September 30,
--------------------------------------------------------------------------
1997 $ 117,000
1998 89,000
1999 48,000
2000 16,000
Rental expense, including common areas costs, was approximately $99,000 and
$112,000 for the year ending December 31, 1995 and the nine months ending
September 30, 1996, respectively.
CONSULTING AGREEMENT: The Company has a consulting agreement effective through
January 1999 with a related party 100% owned by the Company's majority
shareholder. The consulting fees are $10,000 per month. Consulting expense for
the nine months ended September 30, 1996 totaled $90,000. In addition, the
Company reimbursed the related party $53,000 related to the acquisition of USE,
which was expensed in 1996.
CLOSURE FUND: State environmental laws require that the Company provide
assurance funds that would be available to cover processing and closure costs
related to its recycling facilities. As of September 30, 1996, the Company had
deposited $66,315 in a restricted cash account. The Company also has capitalized
in property and equipment and recorded a related liability of $10,300
representing an estimate to close its current facilities, should closure ever
occur.
F-12
LITIGATION: A customer has threatened to bring an action against USE for breach
of contract related to a 1995 equipment sale. The total amount of the claim is
approximately $113,000. To date, the customer has taken no action. If such
action is taken, USE intends to vigorously defend such action, including filing
a third party claim against the manufacturer (RTI). Accordingly, USE management
believes there will not be a material adverse outcome as a result of this claim.
The Company is not a party to this claim. If the Company is sued in connection
with this claim, USE has agreed to indemnify the Company for any damages up to
$400,000.
NOTE 7. SHAREHOLDERS' EQUITY
INITIAL CAPITALIZATION: The Company was initially capitalized by issuing
1,000,000 shares of common stock for $281,250, to two shareholders. The majority
shareholder purchased 68% of this stock and the minority shareholder, who was
the 100% owner of USE, purchased the remaining 32%. In connection with this
investment the shareholders were issued five-year warrants to purchase 169,492
shares of common stock at $4.50 per share.
SHAREHOLDER AGREEMENT: The Company's minority shareholders are a party to an
agreement with the Company and/or the majority shareholder whereby the Company
and/or the majority shareholder have the following rights and obligations:
* The right of first refusal on all stock transfers by minority
shareholders.
* The right but not the obligation, to call any or all shares of the
minority shareholders after January 4, 2001.
* The right but not the obligation, to call any or all shares of the
minority shareholders on the occurrence of certain other events.
* The obligation (the Company's) to repurchase a minority shareholders
shares upon death.
The purchase price pursuant to the agreement is the fair value of the common
stock at the date of the transaction.
CONVERSION OF DEBT FOR COMMON STOCK: In September 1996, the majority shareholder
and certain other shareholders exchanged $340,000 of debt for 680,000 shares of
common stock. In September 1996, $160,000 of the note payable to USE incurred in
the acquisition was exchanged for 320,000 shares of the Company's common stock.
PRIVATE PLACEMENT: In September, 1996, the Company completed a $270,000 private
placement with an investor that consisted of 120,000 shares of common stock at
$1.125 per share and $135,000 of subordinated debt with a warrant to purchase
120,000 shares of common stock at $1.125. The warrant expires in January 1998
and is automatically exercised upon a public offering of common stock. The debt
bears interest at 2% over prime and is due September 1998. In connection with
this offering, the investor was issued five-year warrants to purchase 20,339
shares of common stock at $4.75 per share.
F-13
NOTE 8. STOCK OPTION PLAN
In September, 1996, the Company adopted the Mercury Waste Solutions, Inc. Stock
Option Plan ("Plan"). The Plan permits the granting of "incentive stock options"
meeting the requirements of Section 422 of the Internal Revenue Code of 1986 as
amended, and non-qualified options which do not meet the requirements of Section
422. A total of 185,500 shares of the Company's common stock have been reserved
for issuance pursuant to options granted or shares awarded under the Plan.
Grants under that plan are accounted for following APB Opinion No. 25 and
related Interpretations. There was no compensation cost charged to income for
the stock option grants for the period ended September 30, 1996. Had
compensation cost for all of the stock-based compensation plans been determined
based on the grant date fair value of awards (the method described in FASB
Statement No. 123), reported net income and earnings per common share would have
been reduced to the pro forma amounts shown below:
1996
---------------------------------------------------------------------------
Net loss:
As reported $ (945,284)
Pro forma (947,284)
Loss per share:
As reported $ (0.41)
Pro forma (0.41)
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996: dividend rate of 0%, price volatility of 38%,
risk-free interest rate of 6.28%, and expected lives of 3 years.
A summary of the status of the plan at September 30, 1996 and changes during the
nine months ended is as follows:
1996
--------------------------
Weighted-
Average
Exercise
Shares Price
- -------------------------------------------------------------------------------
Outstanding at beginning of period - $ -
Granted 80,000 0.50
Exercised -
Forfeited -
-------------------------
Outstanding at end of period 80,000 $ 0.50
=========================
Exercisable at end of year None
Weighted average fair value per option
of options granted during the year $ 0.17
Weighted average remaining contractual life 9 years
F-14
NOTE 9. MAJOR CUSTOMERS
Equipment sales to three customers accounted for approximately 21%, 10%, and 10%
of 1995 revenues, respectively. There were no major customers for the period
ended September 30, 1996.
NOTE 10. SUBSEQUENT EVENTS
PRIVATE PLACEMENT: On November 22, 1996, the Company completed a private
placement of common stock by selling 129,097 shares of common stock at $2.75,
for total proceeds of $355,017. In connection with this placement, the investors
were granted five-year warrants to purchase 10,940 shares of common stock at
$5.00.
PUBLIC OFFERING: On December 5, 1996, the Company signed a letter of intent
with an investment banker to undertake a public offering of 1,000,000 shares of
common stock at a price based on market conditions at the time of effectiveness.
The letter of intent includes an over-allotment option to sell an additional
150,000 shares and provides that the Company will issue the investment banker a
warrant for the purchase of 100,000 shares at 120% of the offering price.
Upon the closing of the public stock offering, the Company's S corporation
election will terminate. At that time, the accumulated deficit balance ($945,284
at September 30, 1996) representing losses on which income tax deductions have
been taken, will be reclassified to paid-in-capital.
AUTHORIZED SHARES: On December 5, 1996, the Company increased its authorized
shares from 10,000,000 to 50,000,000.
REFINANCING: On December 4, 1996, the Company replaced its $1,660,000
revolving line of credit with its majority shareholder with a $1,660,000
revolving line of credit with a bank. The new revolving line of credit is
secured by all assets of the Company, bears interest at 2% over prime, is due
January 1998, and is guaranteed by the majority shareholder.
F-15
[PHOTOGRAPHS]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY ......................................................... 3
RISK FACTORS ............................................................... 8
USE OF PROCEEDS ............................................................ 14
DILUTION ................................................................... 16
DIVIDEND POLICY ............................................................ 17
S CORPORATION STATUS ....................................................... 17
CAPITALIZATION ............................................................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................... 18
BUSINESS ................................................................... 22
MANAGEMENT ................................................................. 39
CERTAIN TRANSACTIONS ....................................................... 43
PRINCIPAL SHAREHOLDERS ..................................................... 45
DESCRIPTION OF SECURITIES .................................................. 46
UNDERWRITING ............................................................... 49
LEGAL MATTERS .............................................................. 51
EXPERTS .................................................................... 51
ADDITIONAL INFORMATION ..................................................... 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS .................................F-1
UNTIL ________, 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,000,000 SHARES
MERCURY WASTE SOLUTIONS, INC.
COMMON STOCK
PROSPECTUS
EQUITY SECURITIES TRADING CO., INC.
_________, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any person
made or threatened to be made a party to any proceeding by reason of the former
or present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation.
As permitted by Section 302A.251 of the Minnesota Statutes, the
Articles of Incorporation of the Company provide that a director shall have no
personal liability to the Company and its shareholders for breach of his
fiduciary duty as a director, to the fullest extent permitted by law.
The Underwriting Agreement contains provisions under which the small
business issuer on the one hand, and the Underwriter, on the other hand, have
agreed to indemnify each other (including officers and directors of the small
business issuer and the Underwriter and any person who may be deemed to control
the small business issuer or the Underwriter) against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution
of the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table:
SEC registration fee..................................... $ 1,924.27
NASD filing fee.......................................... 1,075.00
Nasdaq listing fee....................................... 10,000
Legal fees and expenses.................................. 100,000
Accounting fees and expenses............................. 40,000
Blue Sky fees and expenses............................... 10,000
Transfer agent fees and expenses......................... 5,000
Printing and engraving expenses.......................... 30,000
Miscellaneous............................................ 2,000.73
Total.................................................... $ 200,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the initial capitalization of the Company in
January, 1996, the Company sold an aggregate of 1,000,000 shares of Common Stock
to two "Accredited Investors" as defined in Regulation D of the Securities Act
of 1933, as amended (the "Securities Act") for a total aggregate consideration
of $281,250. In connection therewith, such Accredited Investors also received
warrants to purchase an aggregate 169,492 shares of the Company's Common Stock
for $4.50 per share. No underwriter was involved in such offering. The Company
believes that each and every such sale of such securities was exempt from
registration pursuant to Section 4(2) of the Securities Act and Rules 505 and/or
506 under Regulation D of the Securities Act.
On September 16, 1996, the Company issued an aggregate of 1,000,000
shares of Common Stock to six Accredited Investors for an aggregate principle
amount of $500,000 in relief of indebtedness. The Company believes that each and
every such sale of such securities was exempt from registration pursuant to
Section 4(2) of the Securities Act and Rules 505 and/or 506 under Regulation D
of the Securities Act.
On September 25, 1996, the Company issued 120,000 shares of Common
Stock to one Accredited Investor for a total consideration of $135,000. In
connection therewith, such Accredited Investor also received warrants to
purchase 10,170 shares of the Company's Common Stock for $4.75 per share and a
second Accredited Investor received warrants to purchase 10,169 shares of the
Company's Common Stock for $4.75 per share. The Company believes that such sale
of such securities was exempt from registration pursuant to Section 4(2) of the
Securities Act and Rules 505 and/or 506 under Regulation D of the Securities
Act.
On September 25, 1996, the Company issued 120,000 warrants to one
Accredited Investor to purchase shares of the Company's Common Stock for $1.125
per share in connection with a promissory note in the amount of $135,000 payable
to such Accredited Investor.
In November, 1996, the Company sold and aggregate of 129,097 shares of
Common Stock to twelve Accredited Investors for a total aggregate consideration
of $355,016.75. In connection therewith, such Accredited Investors also received
warrants to purchase an aggregate of 10,940 shares of the Company's Common Stock
for $5.00 per share. The Company believes that each and every such sale of such
securities was exempt from registration pursuant to Section 4(2) of the
Securities Act and Rules 505 and/or 506 under Regulation D of the Securities
Act.
ITEM 27. EXHIBITS.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant
3.1 Articles of Incorporation
3.2 By-laws
5 Opinion of Maslon Edelman Borman & Brand, a Professional Limited
Liability Partnership*
10.1 Asset Purchase Agreement by and between Mercury Waste Solutions,
Inc. and U.S. Environmental, Incorporated dated January 4, 1996
10.2 Commercial Lease dated February 25, 1993 for premises located at
2007 West County Road C-2, Roseville, Minnesota
10.3 Lease dated January 25, 1995 by and between Durand Properties and
U.S. Environmental, Incorporated for Premises located at 21209
Building No. 6, Durand Avenue, Union Grove, Wisconsin 53182
10.4 Revolving Credit Promissory Note made by the Company in favor of
Bradley J. Buscher dated October 24, 1996.
10.5 Revolving Credit Promissory Note in the amount of $1,660,000 dated
December 4, 1996 with the Company as Borrower in favor of Norwest
Bank Minnesota, N.A. *
10.6 Security Agreement by and between the Company and Bradley J.
Buscher dated January 4, 1996
10.7 Shareholder Agreement by and among Bradley J. Buscher, Mark Edlund
and the Company effective January 4, 1996
10.8 Employment Agreement by and between Mercury Waste Solutions, Inc.
and Mark Edlund dated as of January 4, 1996
10.9 Amended and Restated Distribution Rights Bill of Sale Agreement by
and between the Company and USE dated November 30, 1996*
10.10 Management Consulting Agreement by and between Bankers American
Capital Corporation dated as of January 4, 1996
10.11 Bill of Sale Agreement dated September 12, 1996 between
Resource Technology, Inc. Mercury Waste Solutions, Inc. and
certain other parties.
10.12 Amended and Restated Model 2000 Agreement dated September 12, 1996
between Resource Technology, Inc. and Mercury Waste Solutions,
Inc. *
10.13 Mercury Waste Solutions, Inc. Stock Option Plan dated September
17, 1996. *
11 Computation of Loss Per Common and Common Equivalent Share
23.1 Consent of Maslon Edelman Borman & Brand, a Professional Limited
Liability Partnership (included in Exhibit 5)*
23.2 Consent of McGladrey & Pullen, LLP
24 Powers of Attorney (included on Page II-5)
27 Financial Data Schedule.
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to (i) include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement; and (iii) include any
additional or changed material information on the plan of distribution.
(2) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the small business issuer under Rule
424(b)(1) or (4) or Rule 497(h) under the Securities Act as part of
this registration statement as of the time the Commission declared it
effective.
(3) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
The small business issuer hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, State of Minnesota, on December 4, 1996.
MERCURY WASTE SOLUTIONS, INC.
By /s/ Bradley J. Buscher
Bradley J. Buscher
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Bradley J. Buscher or Russell F. Lederman, each or either of them, such person's
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as such person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Bradley J. Buscher Chairman of the Board, December 4, 1996
- --------------------------- Chief Executive Officer and
Bradley J. Buscher Chief Financial Officer
/s/ Mark G. Edlund President, Secretary December 4, 1996
- --------------------------- and Treasurer
Mark G. Edlund
/s/ Alan R. Geiwitz Director December 4, 1996
- ---------------------------
Alan R. Geiwitz
/s/ Joel H. Gottesman Director December 4, 1996
- ---------------------------
Joel H. Gottesman
/s/ Robert L. Etter Director December 4, 1996
- ---------------------------
Robert L. Etter
1,000,000 SHARES COMMON STOCK
MERCURY WASTE SOLUTIONS, INC.
UNDERWRITING AGREEMENT
______________________, 1997
Equity Securities Trading Co., Inc.
400 North Lilac Drive
Golden Valley, MN 55422
Dear Ladies and Gentlemen:
Mercury Waste Solutions, Inc., a Minnesota corporation (the "Company"),
hereby confirms its agreement to issue and sell to Equity Securities Trading
Co., Inc. (the "Underwriter"), an aggregate of 1,000,000 shares of authorized
but unissued common stock, par value $0.01 per share, of the Company (the
"Common Stock"). Such 1,000,000 shares of Common Stock are collectively referred
to in this Agreement as the "Firm Shares." Additionally, the Company confirms
its agreement to sell up to 150,000 shares of Common Stock (the "Option Shares")
upon the request of the Underwriter solely for the purpose of covering
overallotments. Such additional shares are referred to in this Agreement as the
"Option Shares." The Firm Shares and the Option Shares are collectively referred
to herein as the "Shares." Further, the Company hereby confirms its agreement to
issue to the Underwriter warrants for the purchase of a total of 100,000 shares
as described in Section 5 hereof (the "Underwriter's Warrants"), assuming
purchase by the Underwriter of the Firm Shares. The shares issuable upon
exercise of the Underwriter's Warrants are referred to herein as the "Warrant
Shares."
The Company hereby confirms the arrangements with respect to the
purchase by the Underwriter of the Firm Shares plus the Option Shares purchased
if the overallotment option is exercised in whole or in part.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Underwriter as follows:
(a) A registration statement on Form SB-2 with respect to the
Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "1933 Act")
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") thereunder and has been
filed with the SEC under the 1933 Act. The Company has filed such
amendments to the registration statement and such amended preliminary
prospectuses as may have been required to be filed to the date hereof.
If the Company has elected not to rely upon Rule 430A, the Company has
prepared and will promptly file an amendment to the registration
statement and an amended prospectus (provided the Underwriter has
consented to such filing). If the Company has elected to rely upon Rule
430A, it will prepare and timely file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. Copies of such registration
statement and each pre-effective amendment thereto, and each related
preliminary prospectus have been delivered by the Company to the
Underwriter. Such registration statement, as amended or supplemented,
including all prospectuses included as a part thereof, financial
schedules, exhibits, the information (if any) deemed to be part thereof
pursuant to Rules 430A and 434 under the 1933 Act and any registration
statement filed pursuant to Rule 462 under the 1933 Act, is herein
referred to as the "Registration Statement." The term "Prospectus" as
used herein shall mean the final prospectus, as amended or
supplemented, included as a part of the Registration Statement on file
with the SEC when it becomes effective; provided, however, that if a
prospectus is filed by the Company pursuant to Rules 424(b) and 430A or
a term sheet is filed by the Company pursuant to Rule 434 under the
1933 Act, the term "Prospectus" as used herein shall mean the
prospectus so filed pursuant to Rules 424(b) and 430A and the term
sheet so filed pursuant to Rule 434. The term "Preliminary Prospectus"
as used herein means any prospectus, as amended or supplemented, used
prior to the Effective Date (as defined in Section 5(a) hereof) and
included as a part of the Registration Statement, including any
prospectus filed with the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has
issued any order preventing or suspending the use of any Preliminary
Prospectus, or issued a stop order with respect to the offering of the
Shares or requiring the recirculation of a Preliminary Prospectus and,
to the best knowledge of the Company, no proceeding for any such
purpose has been initiated or threatened. Each part of the Registration
Statement, when such part became or becomes effective, each Preliminary
Prospectus, on the date of filing with the SEC, and the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with
the SEC and on any Closing Date (as defined in Section 2 hereof), as
the case may be, conformed or will conform in all material respects
with the requirements of the 1933 Act and the Rules and Regulations and
the securities laws ("Blue Sky Laws") of the states where the Shares
are to be sold (the "States") and contained or will contain all
statements that are required to be stated therein in accordance with
the 1933 Act, the Rules and Regulations and the Blue Sky Laws of the
States. When the Registration Statement became or becomes effective and
when any post-effective amendments thereto shall become effective, the
Registration Statement did not and will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Neither any Preliminary Prospectus, on the date of filing thereof with
the SEC, nor the Prospectus or any amendment or supplement thereto, on
the date of filing thereof with the SEC and on the First and Second
Closing Dates, contained or will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that none of the
representations and warranties in this Subsection 1(b) shall apply to
statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter specifically
for use in the preparation of the Registration Statement, Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto.
There is no contract or other document of the Company of a character
required by the 1933 Act or the Rules and Regulations to be described
in the Registration Statement or Prospectus, or to be filed as an
exhibit to the Registration Statement, that has not been described or
filed as required. The descriptions of all such contracts and documents
or references thereto are correct and include the information required
under the 1933 Act and the Rules and Regulations.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota, with full corporate power and authority, to own, lease
and operate its properties and conduct its business as described in the
Registration Statement and Prospectus. The Company is duly qualified to
do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of its properties, or the
conduct of its business, requires such qualification and in which the
failure to be qualified or in good standing would have a material
adverse effect on the business of the Company. The Company has all
necessary and material authorizations, approvals and orders of and from
all governmental regulatory officials and bodies to own its properties
and to conduct its business as described in the Registration Statement
and Prospectus, and is conducting its business in substantial
compliance with all applicable material laws, rules and regulations of
the jurisdictions in which it is conducting business. The Company holds
all material licenses, certificates, permits, authorizations, approvals
and orders of and from all state, federal and other governmental
regulatory officials and bodies necessary to own its properties and to
conduct its business as described in the Registration Statement and
Prospectus, or has obtained waivers from any such applicable
requirements from the appropriate state, federal or other regulatory
authorities. All such licenses, permits, approvals, certificates,
consents, orders and other authorizations are in full force and effect,
and the Company has not received notice of any proceeding or action
relating to the revocation or modification of any such license, permit,
approval, certificate, consent, order or other authorization which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might materially and adversely affect the
conduct of the business or the condition, financial or otherwise, or
the earnings, affairs or business prospects of the Company.
(d) The Company has no subsidiaries and is not affiliated with
any other Company or business entity, except as disclosed in the
Prospectus.
(e) The Company is not in violation of its Articles of
Incorporation or Bylaws. The Company is not in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
joint venture or other agreement or instrument to which the Company is
a party or by which the Company or its properties are bound, and there
does not exist any state of facts which constitutes an event of default
on the part of the Company or which, with notice or lapse of time or
both, would constitute such an event of default. The Company is not, to
the best of its knowledge, in violation of any law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, which violation is
material to the business of the Company.
(f) The Company has full requisite power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and will be a valid and binding
agreement on the part of the Company, enforceable in accordance with
its terms, if and when this Agreement shall have become effective in
accordance with Section 8, except as enforceability may be limited by
the application of bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally and by judicial limitations
on the right of specific performance and except as the enforceability
of the indemnification or contribution provisions hereof may be
affected by applicable federal or state securities laws. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note,
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company is a party or by which the
property or assets of the Company is bound, (ii) the Company's Articles
of Incorporation or Bylaws or (iii) any statute or any order, rule or
regulation of any court, governmental agency or body having
jurisdiction over the Company. No consent, approval, authorization or
order of any court, governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as may be required under the 1933 Act, the
Rules and Regulations, the Blue Sky Laws, the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD") and the
rules and regulations of Nasdaq.
(g) Except as is otherwise expressly stated in the
Registration Statement or Prospectus, there are no actions, suits or
proceedings pending before any court or governmental agency, authority
or body to which the Company is a party or of which the business or
property of the Company is the subject which might result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Company, materially and adversely affect
its properties or assets or prevent consummation of the transactions
contemplated by this Agreement; and, to the best of the Company's
knowledge, no such actions, suits or proceedings are threatened except
as is otherwise expressly stated in the Registration Statement or
Prospectus. The Company is not aware of any facts which would form the
basis for the assertion of any material claim or liability which are
not disclosed in the Registration Statement or the Prospectus or
adequately reserved for in the financial statements which are a part
thereof, except for such claims or liabilities which are not currently
expected to have a material adverse effect on the condition (financial
or otherwise) or the earnings, affairs or business prospects of the
Company. All pending legal or governmental proceedings to which the
Company is a party or to which any of its property is subject which are
not described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material to the Company.
(h) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus. The outstanding Common
Stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. The Shares conform in substance to all statements
relating thereto contained in the Registration Statement and
Prospectus. The Shares to be sold by the Company hereunder have been
duly authorized and, when issued and delivered pursuant to this
Agreement, will be validly issued, fully paid and nonassessable and
will conform to the description thereof contained in the Prospectus. No
preemptive rights or similar rights of any security holders of the
Company exist with respect to the issuance and sale of the Shares by
the Company or exercise of the Underwriter's Warrants. Except as
disclosed in the Prospectus, the Company has no agreement with any
security holder which gives such security holder the right to require
the Company to register under the 1933 Act any securities of any nature
owned or held by such person either in connection with the transactions
contemplated by this Agreement or after a demand for registration by
such holder. Upon payment for and delivery of the Shares pursuant to
this Agreement, the Underwriter will acquire the Shares, free and clear
of all liens, encumbrances or claims. The certificates evidencing the
Shares will comply as to form with all applicable provisions of the
laws of the State of Minnesota. Except as set forth in any part of the
Registration Statement, the Company does not have outstanding any
options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, any Common Stock or other securities of
the Company, or any such warrants, convertible securities or
obligations.
(i) The Underwriter's Warrants and the Warrant Shares have
been duly authorized. The Underwriter's Warrants, when issued and
delivered to the Underwriter, will constitute valid and binding
obligations of the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of
creditors generally and by judicial limitations on the right of
specific performance. The Warrant Shares when issued in accordance with
the terms of this Agreement and pursuant to the Underwriter's Warrants,
will be validly issued, fully paid and nonassessable and subject to no
preemptive rights or similar rights on the part of any person or
entity. A sufficient number of shares of Common Stock of the Company
have been reserved for issuance by the Company upon exercise of the
Underwriter's Warrants.
(j) McGladrey & Ag, LLP, whose reports appear in the
Registration Statement and Prospectus, are independent accountants
within the meaning of the 1933 Act and the Rules and Regulations. The
financial statements of the Company, together with the related notes,
forming part of the Registration Statement and Prospectus (the
"Financial Statements"), fairly present the financial position and the
results of operations of the Company at the respective dates and for
the respective periods to which they apply. The Financial Statements
are accurate, complete and correct and have been prepared in accordance
with the 1933 Act, the Rules and Regulations and generally accepted
accounting principles ("GAAP"), consistently applied throughout the
periods involved, except as may be otherwise stated therein. The
summaries of the Financial Statements and the other financial,
statistical and related notes set forth in the Registration Statement
and the Prospectus are (i) accurate and correct and fairly present the
information purported to be shown thereby as of the dates and for the
periods indicated on a basis consistent with the audited financial
statements of the Company and (ii) in compliance in all material
respects with the requirements of the 1933 Act and the Rules and
Regulations.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and at any
Closing Date, except as is otherwise disclosed in the Registration
Statement or Prospectus, there has not been:
(i) any change in the capital stock or long-term debt
(including any capitalized lease obligation), or increase in
the short-term debt of the Company;
(ii) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of
the Company;
(iii) any adverse change, or any development
involving a material adverse change, in or affecting the
business, business prospects, properties, assets, patents or
patent applications (including those of the Company and those
relating to devices or technologies licensed to the Company),
management, financial position, stockholders' equity, results
of operations or general condition of the Company;
(iv) any material transaction entered into by the
Company;
(v) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material; or
(vi) any dividend or distribution of any kind
declared, paid or made on the Company's capital stock.
(l) Except as is otherwise disclosed in the Registration
Statement or Prospectus, the Company has good and marketable title to
all of the property, real and personal, described in the Registration
Statement or Prospectus as being owned by the Company, free and clear
of all liens, encumbrances, equities, charges or claims, except as do
not materially interfere with the uses made and to be made by the
Company of such property or as disclosed in the Financial Statements.
Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has valid and binding leases to the real and
personal property described in the Registration Statement or Prospectus
as being under lease to the Company, except as to those leases which
are not material to the Company or the lack of enforceability of which
would not materially interfere with the use made and to be made by the
Company of such leased property.
(m) The Company has filed all necessary federal and state
income and franchise tax returns and paid all taxes shown as due
thereon. The Company is not in default in the payment of any taxes and
has no knowledge of any tax deficiency which might be asserted against
it which would materially and adversely affect the Company's business
or properties.
(n) No labor disturbance by the employees of the Company
exists or, to the best of the Company's knowledge, is imminent which
could reasonably be expected to have a material adverse effect on the
conduct of the business, operations, financial condition or income of
the Company.
(o) Except as disclosed in the Prospectus:
(i) The Company owns or possesses the unrestricted
rights to use all patents, copyrights, trademarks, trade
secrets and proprietary rights or information necessary for
the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the
Company and for the conduct of its present or intended
business as described in the Prospectus. There are no pending
legal, governmental or administrative proceedings relating to
patents, copyrights, trademarks or proprietary rights or
information to which the Company is a party or to which any
property of the Company is subject and no such proceedings
are, to the best of the Company's knowledge, threatened or
contemplated against the Company by any governmental agency or
authority or others. The Company has not received any notice
of conflict with asserted rights of others. The Company is not
using any confidential information or trade secrets of any
third party without such party's consent.
(ii) The Company does not infringe upon the right or
claimed rights of any person under or with respect to any of
the intangible rights listed in the preceding subsection. The
Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset,
with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(p) The Company intends to apply the proceeds from the sale of
the Shares by it to the purposes and substantially in the manner set
forth in the Prospectus.
(q) The Company has no defined benefit pension plan or other
pension benefit plan, except for its 401(k) Plan which has no benefit
obligations and has not been funded, which is intended to comply with
the provisions of the Employee Retirement Income Security Act of 1974
as amended from time to time, except as disclosed in the Registration
Statement.
(r) To the best of the Company's knowledge, no person is
entitled, directly or indirectly, to compensation from the Company or
the Underwriter for services as a finder in connection with the
transactions contemplated by this Agreement.
(s) The conditions for use of a Registration Statement on Form
SB-2 for the distribution of the Shares have been satisfied with
respect to the Company.
(t) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its
directors, officers, stockholders, or others) which has constituted or
is designed to, or which might reasonably be expected to, cause or
result in stabilization or manipulation, as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, of the
price of any security of the Company to facilitate the sale or resale
of the Shares.
(u) The Company has not sold any securities in violation of
Section 5(a) of the 1933 Act.
(v) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts adequate for its business
and in line with the insurance maintained by similar companies and
businesses.
(w) The Company hereby represents that, as of the date hereof,
it has complied with all provisions of Section 517.075, Florida
Statutes and Rule 3E-900-001 of the Rules of the Florida Department of
Banking and Finance, Division of Securities, copies of which are
attached hereto.
(x) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations and (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP.
(y) All material transactions between the Company and its
stockholders who beneficially own more than 5% of any class of the
Company's voting securities have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the
Company and no less favorable to the Company than the terms that could
have been obtained from unrelated parties.
(z) The Company has obtained a written agreement, in the form
attached hereto as Schedule I, from each of the officers, directors,
and stockholders of the Company who hold at least 5% of the outstanding
Common Stock of the Company, that for one year following the Effective
Date, such person will not, without the Underwriter's prior written
consent, sell, transfer or otherwise dispose of, or agree to sell,
transfer, or otherwise dispose of, any of his or her shares of Common
Stock or any options, warrants or rights to purchase Common Stock,
beneficially held by such persons during such one-year period other
than by gift to donees who agree to be bound by the same restriction or
by will or the laws of descent.
(aa) The Common Stock of the Company has been approved by
Nasdaq for trading on its SmallCap Market(sm) following effectiveness
of the Registration Statement.
2. Purchase, Sale, Delivery and Payment.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell the Underwriter,
and the Underwriter agrees to purchase the Firm Shares from the
Company, at $_____________ per Firm Share (which price represents the
Price to Public, as set forth in the Prospectus, less underwriting
discounts and commissions of 9% of the Price to Public or $_____ per
Share). The Underwriter will purchase all of the Firm Shares if any are
purchased.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth,
the Company hereby grants an option to the Underwriter to purchase an
aggregate of the Option Shares at the same purchase price as the Firm
Shares for use solely in covering any overallotments made by the
Underwriter in the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time (but not more than once)
within 45 days after the Effective Date (as defined in Section 5(a)
hereof) upon notice (confirmed in writing) by the Underwriter to the
Company setting forth the aggregate number of Option Shares as to which
the Underwriter is exercising the option and the date on which
certificates for such Option Shares are to be delivered. The option
granted hereby may be canceled by the Underwriter as to the Option
Shares for which the option is unexercised at any time prior to the
expiration of the 45-day period upon notice to the Company.
(c) The Company will deliver the Firm Shares to the
Underwriter at the offices of Fredrikson & Byron, P.A., unless some
other place is agreed upon, at 10:00 A.M., Minneapolis time, against
payment of the purchase price at the same place, on the third full
business day after trading of the Shares has commenced (but not more
than ten full business days after the date the Registration Statement
is declared effective), or such earlier time as may be agreed upon
between the Underwriter and the Company. Such time and place is herein
referred to as the "First Closing Date."
(d) The Company will deliver the Option Shares being purchased
by the Underwriter to the Underwriter at the offices of Fredrikson &
Byron, P.A. set forth in Section 2(c) above, unless some other place is
agreed upon, at 9:00 a.m., Minneapolis time, against payment of the
purchase price at the same place, on the date determined by the
Underwriter and of which the Company has received notice as provided in
Section 2(b), which shall not be earlier than one nor later than three
full business days after the exercise of the option as set forth in
Section 2(b), or at such other time not later than ten full business
days thereafter as may be agreed upon by the Underwriter and the
Company, such time and date being herein referred to as the "Second
Closing Date." The First and Second Closing Dates are collectively
referred to herein as the "Closing Date."
(e) Certificates for the Shares to be delivered will be
registered in such names and issued in such denominations as the
Underwriter shall request of the Company at least two full business
days prior to the First Closing Date or the Second Closing Date, as the
case may be. The certificates will be made available to the Underwriter
in definitive form for the purpose of inspection and packaging at least
24 hours prior to each respective Closing Date.
(f) Payment for the Shares shall be made, against delivery to
the Underwriter or its designated agent, of certificates for the Shares
by wire transfer to a designated account of the Company.
(g) The Underwriter will make a public offering of the Shares
directly to the public (which may include selected dealers who are
members in good standing with the NASD or foreign dealers not eligible
for membership in the NASD but who have agreed to abide by the
interpretation of the NASD's Board of Governor's with respect to
free-riding and withholding) as soon as the Underwriter deem
practicable after the Registration Statement becomes effective at the
Price to Public set forth in Section 2(a) above, subject to the terms
and conditions of this Agreement and in accordance with the Prospectus.
Such concessions from the public offering price may be allowed selected
dealers of the NASD as the Underwriter determine, and the Underwriter
will furnish the Company with such information about the distribution
arrangements as may be necessary for inclusion in the Registration
Statement. It is understood that the public offering price and
concessions may vary after the initial public offering. The Underwriter
shall offer and sell the Shares only in jurisdictions in which the
offering of Shares has been duly registered or qualified, or is exempt
from registration or qualification, and shall take reasonable measures
to effect compliance with applicable state and local securities laws.
(h) On the First Closing Date, the Company shall issue and
deliver to the Underwriter the Underwriter's Warrants against payment
by the Underwriter of the purchase price therefor of $50.00.
3. Further Agreements of the Company. The Company hereby covenants and
agrees with the Underwriter as follows:
(a) If the Registration Statement has not become effective
prior to the date hereof, the Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto
to become effective as promptly as possible. The Company will notify
the Underwriter promptly, after the Company shall receive notice
thereof, of the time when the Registration Statement, or any subsequent
amendment thereto, has become effective or any supplement to the
Prospectus has been filed. Following the execution and delivery of this
Agreement, the Company will prepare, and timely file or transmit for
filing with the SEC in accordance with Rules 430A, 424(b) and 434, as
applicable, copies of the Prospectus, or, if necessary, a
post-effective amendment to the Registration Statement (including the
Prospectus), in which event, the Company will take all necessary action
to have such post-effective amendment declared effective as soon as
possible. The Company will notify the Underwriter promptly upon the
Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceedings for that purpose and will
use its best efforts to prevent the issuance of any stop order and, if
a stop order is issued, to obtain as soon as possible the withdrawal or
lifting thereof. The Company will promptly prepare and file at its own
expense with the SEC any amendments of, or supplements to, the
Registration Statement or the Prospectus which may be necessary in
connection with the distribution of the Shares by the Underwriter.
During the period when a Prospectus relating to the Shares is required
to be delivered under the 1933 Act, the Company will promptly file any
amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary to correct any untrue statement of a
material fact or any omission to state any material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will notify the Underwriter
promptly of the receipt of any comments from the SEC regarding the
Registration Statement or Prospectus or request by the SEC for any
amendment thereof or supplement thereto or for any additional
information. The Company will not file any amendment of, or supplement
to, the Registration Statement or Prospectus, whether prior to or after
the Effective Date, which shall not previously have been submitted to
the Underwriter and its counsel a reasonable time prior to the proposed
filing or to which the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best
efforts to register or qualify the Shares for sale under the securities
laws of such jurisdictions as the Underwriter may designate and the
Company will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration
or qualification. In each jurisdiction in which the Shares shall have
been registered or qualified as above provided, the Company will
continue such registrations or qualifications in effect for so long as
may be required for purposes of the distribution of the Shares;
provided, however, that in no event shall the Company be obligated to
qualify to do business as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action which would
subject it to the service of process in suits, other than those arising
out of the offering or sale of the Shares in any jurisdiction where it
is not now so subject. In each jurisdiction where any of the Shares
shall have been so qualified, the Company will file such statements and
reports as are or may be reasonably required by the laws of such
jurisdiction to continue such qualification in effect. The Company will
notify the Underwriter immediately of, and confirm in writing, the
suspension of qualification of the Shares or the threat of such action
in any jurisdiction. The Company will use its best efforts to qualify
or register its Common Stock for sale in nonissuer transactions under
(or obtain exemptions from the application of) the securities laws of
such states designated by the Underwriter (and thereby permit
market-making transactions and secondary trading in its Common Stock in
such states), and will comply with such securities laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.
(c) The Company will furnish to the Underwriter, as soon as
available, copies of the Registration Statement (one of which will be
signed and which shall include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the 1933 Act, all in such quantities as the
Underwriter may from time to time reasonably request prior to the
printing of each such document. The Company specifically authorizes the
Underwriter and all dealers to whom any of the Shares may be sold by
the Underwriter to use and distribute copies of such Preliminary
Prospectuses and Prospectuses in connection with the sale of the Shares
as and to the extent permitted by the federal and applicable state and
local securities laws.
(d) For as long as the Company has more than 100 beneficial
owners, but in no event more than five years after the Effective Date,
the Company will mail as soon as practicable to the holders of its
Common Stock substantially the following documents, which documents
shall be in compliance with this Section if they are in the form
prescribed by the 1934 Act:
(i) within forty-five days after the end of the first three
quarters of each fiscal year, copies of the quarterly
unaudited statement of profit and loss and quarterly unaudited
balance sheets of the Company and any material subsidiaries;
and
(ii) within ninety days after the close of each fiscal year,
appropriate financial statements as of the close of such
fiscal year for the Company and any material subsidiary which
shall be certified to by a nationally recognized firm of
independent certified public accountants in such form as to
disclose the Company's financial condition and the results of
its operations for such fiscal year.
(e) For as long as the Company has more than 100 beneficial
owners, but in no event more than five years after the Effective Date,
the Company will furnish to the Underwriter (i) concurrently with
furnishing such reports to its stockholders, the reports described in
Section 3(d) hereof; (ii) as soon as they are available, copies of all
other reports (financial or otherwise) mailed to security holders; and
(iii) as soon as they are available, copies of all reports and
financial statements furnished to, or filed with, the SEC, the NASD,
any securities exchange or any state securities commission by the
Company. During such period, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the
Company and any subsidiary or subsidiaries are consolidated and shall
be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(f) The Company will not, without the prior written consent of
the Underwriter, which consent shall not be unreasonably withheld, sell
or otherwise dispose of any capital stock or securities convertible or
exercisable into capital stock of the Company (other than pursuant to
existing stock option plans and currently outstanding options and
warrants) during the six-month period following the Effective Date.
Prior to the Closing Date, the Company will not repurchase or otherwise
acquire any of its capital stock or declare or pay any dividend or make
any distribution on any class of its capital stock.
(g) Subject to the proviso set forth below, the Company shall
be responsible for and pay all costs and expenses incident to the
performance of its obligations under this Agreement by the Company
including, without limiting the generality of the foregoing, (i) all
costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements
and exhibits), Preliminary Prospectuses and the Prospectus and any
amendments thereof or supplements to any of the foregoing; (ii) the
issuance and delivery of the Shares, including taxes, if any; (iii) the
cost of all certificates representing the Shares; (iv) the fees and
expenses of the Transfer Agent for the Shares; (v) the fees and
disbursements of counsel for the Company; (vi) all fees and other
charges of the independent public accountants of the Company; (vii) the
cost of furnishing and delivering to the Underwriter and dealers
participating in the offering copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectuses, the
Prospectus and any amendments of, or supplements to, any of the
foregoing; (viii) the NASD filing and quotation fees; (ix) the fees and
disbursements, including filing fees and all accountable fees and
expenses of counsel for the Underwriter, incurred in registering or
qualifying the Shares for sale under the laws of such jurisdictions
upon which the Underwriter and the Company may agree; and (x) a
nonaccountable expense allowance to the Underwriter equal to 2% of the
gross proceeds of the Offering. In the event this Agreement is
terminated pursuant to Section 8 below, the Company shall remain
obligated to pay the Underwriter its actual accountable out-of-pocket
expenses, including reasonable fees of the Underwriter's counsel, in an
amount not to exceed $30,000 without the prior written approval of the
Company. All reimbursements of such expenses shall be made by the
Company within 10 days after the Underwriter delivers to the Company a
written itemization of such expenses.
(h) The Company will not take, and will use its best efforts
to cause each of its officers and directors not to take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Shares.
(i) The Company will use its best efforts to maintain the
quotation of its Common Stock on the Nasdaq SmallCap Market(sm).
(j) For a period of at least three years after the Effective
Date, the Company will file with the SEC all reports and other
documents as may be required by the 1933 Act, the Rules and Regulations
and the 1934 Act.
(k) The Company will apply the proceeds from the sale of the
Shares substantially in the manner set forth in the Prospectus.
(l) Prior to or as of the First Closing Date, the Company
shall have performed each condition to closing required to be performed
by it pursuant to Section 5 hereof.
(m) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any prospectus or other
offering material in connection with the Offering.
(n) On First Closing Date, the Company shall grant to the
Underwriter the Underwriter's Warrants, in substantially the form
attached as Appendix B hereto.
(o) Grants to the Underwriter a right of first refusal to
participate as the sole or managing agent or underwriter, as the case
may be, for any private equity or debt offering or public equity or
debt offering by the Company (excluding employee benefit plans and
long-term debt financing obtained solely from any bank chartered under
the laws of the United States or under the laws of any state thereof
(or an affiliate of such bank), or obtained under any insurance company
licensed to do business within the United States (or an affiliate of
such insurance company), if any such long-term debt financing does not
require or involve the material issuance of any of the Company's Common
Stock or other equity security or any rights with regard thereto), or
as the Company's financial representative in any corporate transaction
such as a recapitalization, merger or acquisition, until the expiration
of the three-year period following the Effective Date. If the Company
receives a bona fide offer from any third party to serve as sole or
managing agent or underwriter in such a private or public offering
which the Company is willing to accept, the Company shall promptly give
written notice to the Underwriter, including all essential terms and
conditions of such offer. The Underwriter shall have thirty days (ten
days in the case of any proposed offering within six months of the date
hereof) after receipt of such written notice to elect to enter into an
agreement with the Company as sole or managing agent or underwriter, as
the case may be, on the same terms and conditions as set forth in the
Company's written notice. If the Underwriter declines to exercise its
right of first refusal or fails to notify the Company within the
thirty-day period (or ten-day period, as the case may be) of an
election to invoke its right of first refusal, the Company may enter
into an agreement with such third party from whom it has received a
bona fide offer and the Underwriter's right of first refusal hereunder
shall continue until expiration of the three-year period following the
Effective Date. If the Company fails to enter into such an agreement
with such third party or if the terms and conditions of such offer are
thereafter materially changed, the right of first refusal granted to
the Underwriter shall once again apply. Such rights of first refusal
granted hereby shall be assignable to a successor corporation of the
Underwriter or to an entity or person purchasing all or substantially
all of the assets of the Underwriter.
4. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Shares as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Shares as of the date hereof and the First Closing Date (as
if made on and as of the First Closing Date) and in the case of the Option
Shares, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date), to the performance by the Company of its
obligations hereunder, and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. Minneapolis time, on the first full business day
following the date of this Agreement, or such later date as shall be
consented to in writing by the Underwriter (the "Effective Date"). If
the Company has elected to rely upon Rule 430A, the information
concerning the price of the Shares and price-related information
previously omitted from the effective Registration Statement pursuant
to Rule 430A shall have been transmitted to the SEC for filing pursuant
to Rule 424(b) within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to
the Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and their legal counsel. The NASD, upon review of the terms
of the Offering, shall not have objected to the terms of the
Underwriter' participation in the Offering.
(b) The Underwriter shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to
be stated therein or is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this Section 5(b) shall not apply
to statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, which are
based upon and conform to written information furnished to the Company
by any of the Underwriter specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such amendment or
supplement.
(c) Subsequent to the date as of which information is given
the Registration Statement and Prospectus, there shall not have
occurred any change, or any development involving a prospective change,
which materially and adversely affects the business or properties of
the Company and which, in the reasonable opinion of the Underwriter,
materially and adversely affects the market for the Shares.
(d) The Underwriter shall have received the opinion of Maslon,
Edelman, Borman & Brand, counsel for the Company, dated as of such
respective Closing Date and satisfactory in form and substance to the
Underwriter and its counsel, to the effect that:
(i) The Company has been duly incorporated and is
validly existing in good standing under the laws of the State
of Minnesota with the requisite corporate power to own, lease
and operate its properties and conduct its business as
described in the Prospectus; and is duly qualified to do
business as a foreign corporation in good standing in all
jurisdictions where the ownership or leasing of its properties
or the conduct of its business requires such qualification and
in which the failure to be so qualified or in good standing
would have a material adverse effect on its business and the
activities of the Company are permitted under the 1933 Act,
the Rules and Regulations and other applicable laws.
(ii) The number of authorized and, to the best of
such counsel's knowledge, the number of issued and outstanding
shares of capital stock of the Company are as set forth in the
Prospectus and all such capital stock has been duly authorized
and is validly issued, fully paid and nonassessable. Upon
delivery of and payment for the Shares hereunder, the
Underwriter will acquire the Shares free and clear of all
liens, encumbrances or claims. To the best of such counsel's
knowledge, no preemptive rights, contractual or otherwise, of
securities holders of the Company exist with respect to the
issuance or sale of the Shares by the Company pursuant to this
Agreement or the issuance of the Warrant Shares upon exercise
of the Underwriter's Warrants. To the best of such counsel's
knowledge, no rights to require registration of shares of
Common Stock or other securities of the Company exist which
may be exercised in connection with the filing of the
Registration Statement. The Shares, Underwriter's Warrants and
Warrant Shares conform as to matters of law in all material
respects to the description of these securities made in the
Prospectus and such description accurately sets forth the
material legal provisions thereof required to be set forth in
the Prospectus.
(iii) The Shares have been duly authorized and, upon
delivery to the Underwriter against payment therefor, will be
validly issued, fully paid and nonassessable.
(iv) The certificates evidencing the Shares comply as
to form with the applicable provisions of the laws of the
State of Minnesota.
(v) The Underwriter's Warrants have been duly
authorized, executed and delivered by the Company and are the
valid and binding obligations of the Company, enforceable in
accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency,
moratorium, or other laws of general application affecting the
rights of creditors generally and by judicial limitations on
the right of specific performance and other equitable
remedies, and except as the enforceability of indemnification
or contribution provisions hereof may be limited by federal or
state securities laws. The Warrant Shares when issued in
accordance with the terms of this Agreement and pursuant to
the Underwriter's Warrants will be validly issued, fully paid
and nonassessable. A sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the
Underwriter's Warrants.
(vi) The Registration Statement has become and is
effective under the 1933 Act, the Prospectus has been filed as
required by Rule 424(b), if necessary and, to the best
knowledge of such counsel, no stop orders suspending the
effectiveness of the Registration Statement have been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act.
(vii) To the best of such counsel's knowledge, there
are no material legal or governmental proceedings of a
character required by the 1933 Act and the Rules and
Regulations to be described or referred to in the Registration
Statement or Prospectus that are not described or referred to
therein. All pending legal or governmental proceedings, if
any, to which the Company is a party or to which any of its
property is subject which are not described in the
Registration Statement and the Prospectus, including ordinary
routine litigation incidental to the business, are, considered
in the aggregate, not material to the Company.
(viii) No authorization, approval or consent of any
governmental authority or agency is necessary in connection
with the issuance and sale of the Shares as contemplated under
this Agreement, except such as may be required and obtained
under the 1933 Act or under state or other securities laws in
connection with the purchase and distribution of the Shares by
the Underwriter.
(ix) The Registration Statement, when it became
effective, the Prospectus and any amendments thereof or
supplements thereto, (other than the financial statements and
supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no
opinion) on the date of filing or the date thereof, complied
as to form in all material respects with the requirements of
the 1933 Act and the Rules and Regulations.
(x) This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as
enforceability may be limited by the application of
bankruptcy, insolvency, moratorium or similar laws affecting
the rights of creditors generally and judicial limitations on
the right of specific performance and except as the
enforceability of indemnification or contribution provisions
hereof may be limited by federal or state securities laws.
(xi) To the best of such counsel's knowledge, the
execution, delivery and performance of this Agreement and the
consummation of the transactions described herein will not
result in a violation of, or a default under, the terms or
provisions of (A) any material bond, debenture, note,
contract, lease, license, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument
to which the Company is a party or by which the Company or any
of its properties are bound, or (B) any material law, order,
rule, regulation, writ, injunction, or decree known to such
counsel of any government, governmental agency or court having
jurisdiction over the Company or any of its properties.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, provided
that copies of such officers' certificates are attached to the opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot guarantee
the accuracy, completeness or fairness of any of the statements contained in the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto in connection with such counsel's representation, investigation and due
inquiry of the Company in the preparation of the Registration Statement,
Prospectus and any amendment thereof or supplement thereto, nothing has come to
the attention of such counsel which causes them to believe that the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto (other
than the financial statements and supporting financial and statistical data
included or incorporated therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that such opinion of counsel does not require any statement
concerning statements in, or omissions from, the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto, which are based upon
and conform to written information furnished to the Company by any of the
Underwriter specifically for use in the preparation of the Registration
Statement, Prospectus, or any such amendment or supplement.
(e) The Underwriter shall have received the opinion of
Schwegman Lundberg & Woessner, P.A., intellectual property counsel for
the Company, dated as of such respective Closing Date and satisfactory
in form and substance to the Underwriter and its counsel, to the effect
that:
(i) To the best of such counsel's knowledge, except
as described in the Prospectus, there are no United States
patents of third parties which are infringed by the
manufacture, use or sale of the products or processes
currently made, used or sold by the Company.
(ii) To the best of such counsel's knowledge, and
except as stated below, there are no legal, governmental or
administrative proceedings pending or threatened against the
Company that relate to patents, trademarks or other
intellectual property, except for pending or proposed United
States and foreign patent applications.
(iii) To the best of such counsel's knowledge, after
due inquiry, the Company has not received any notice of
conflict with the asserted rights of others in respect of any
trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets, patents, patent
applications, know-how, or similar rights, nor of any
threatened actions with respect thereto, which, if determined
adversely to the Company, would individually or in the
aggregate have a material adverse effect on the general
affairs, financial position, net worth or results of
operations of the Company.
(iv) To the best of such counsel's knowledge, after
due inquiry, the Company owns, possesses or is licensed under
all such material trademarks, trademark applications,
trademark registrations, service marks, service mark
registrations, copyrights, patents, patent applications and
licenses as are described in the Prospectus and which are
necessary for the Company's present or planned future business
as described in the Prospectus.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, provided
that copies of such officers' certificates are attached to the opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot guarantee
the accuracy, completeness or fairness of any of the intellectual property
statements contained in the Registration Statement, Prospectus, or any amendment
thereof or supplement thereto in connection with such counsel's representation,
investigation and due inquiry of the Company in the preparation of the
intellectual property portions of the Registration Statement, Prospectus and any
amendment thereof or supplement thereto, nothing has come to the attention of
such counsel which causes them to believe that the intellectual property
portions of the Registration Statement, Prospectus, or any amendment thereof or
supplement thereto contain an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
(f) The Underwriter shall have received from Fredrikson &
Byron, P.A., its counsel, such opinion or opinions as the Underwriter
may reasonably require, dated as of each closing date and satisfactory
in form and substance to the Underwriter, with respect to the
sufficiency of corporate proceedings and other legal matters relating
to this Agreement and the transactions contemplated hereby, and the
Company shall have furnished to said counsel such documents as they may
have requested for the purpose of enabling them to pass upon such
matters. In connection with such opinion, as to matters of fact
relevant to conclusions of law, such counsel may rely, to the extent
that they deem proper, upon representations or certificates of public
officials and of responsible officers of the Company.
(g) The Underwriter and the Company shall have received
letters, dated the date hereof and as of each Closing Date, from
McGladrey & Pullen, LLP, independent public accountants, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial and statistical information
contained in the Registration Statement and the Prospectus, all in form
and substance satisfactory to the Underwriter.
(h) The Underwriter shall have received from the Company a
certificate, dated as of the First Closing Date, of the principal
executive officer and the principal financial or accounting officer of
the Company to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct as if made on and as of
each closing date. The Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at, or prior to, such date.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is pending or to the
best knowledge of such officers contemplated under the 1933
Act.
(iii) Neither the Registration Statement nor the
Prospectus nor any amendment thereof or supplement thereto
included any untrue statement of a material fact or omitted to
state any 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, and,
since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended
or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from,
the Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, which are based upon and
conform to written information furnished to the Company by any
of the Underwriter specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such
amendment or supplement.
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as contemplated or referred to in the
Prospectus, no event has occurred that should have been set
forth in an amendment or supplement to Registration Statement
or the Prospectus which has not been so set forth and the
Company has not incurred any direct or contingent liabilities
or obligations material to the Company, or entered into any
material transactions, except liabilities, obligations or
transactions in the ordinary course of business, and there has
not been any change in the capital stock or long-term debt of
the Company, (including any capitalized lease obligations),
any material increase in the short-term debt of the Company,
any material adverse change in the financial position, net
worth or results of operations of the Company or declaration
or payment of any dividend.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss
of, or damage to, its properties, whether or not insured.
(vi) Except as is otherwise expressly stated in the
Registration Statement and Prospectus, there are no material
actions, suits or proceedings pending before any court or
governmental agency, authority or body, or, to the best of
their knowledge, threatened, to which the Company is a party
or of which the business or property of the Company is the
subject.
(i) The Underwriter shall have received, dated as of the First
Closing Date, from the Secretary of the Company a certificate of
incumbency certifying the names, titles and signatures of the officers
authorized to execute the resolutions of the Board of Directors of the
Company authorizing and approving the execution, delivery and
performance of this Agreement, a copy of such resolutions to be
attached to such certificate, certifying that such resolutions and the
Articles of Incorporation of the Company and the Bylaws of the Company
have been validly adopted and have not been amended or modified.
(j) The Underwriter shall have received a written agreement,
in the form attached hereto as Schedule I, from each of the officers
and directors of the Company and each stockholder of the Company who
holds at least 5% of the outstanding Common Stock of the Company, that
for one year following the Effective Date, such person will not,
without the Underwriter's prior written consent, sell, transfer or
otherwise dispose of, or agree to sell, transfer or otherwise dispose
of, other than by gift to donees who agree to be bound by the same
restriction or by will or the laws of descent, any of his or her Common
Stock, or any options, warrants or rights to purchase Common Stock or
any shares of Common Stock received upon exercise of any options,
warrants or rights to purchase Common Stock, all of which are
beneficially held by such persons during the one-year period.
(k) The Company shall not have failed to have performed any of
its agreements herein contained and required to be performed by it at
or prior to the First Closing Date or the Second Closing Date, as the
case may be. The Underwriter may waive in writing the performance of
any one or more of the conditions specified in this Section 5 or extend
the time for their performance.
(l) The Shares shall have been registered or qualified for
sale or exempt from such registration or qualification under the
securities laws of such jurisdictions as designated by the Underwriter
such qualifications or exemptions shall continue in effect to and
including the First Closing Date or the Second Closing Date, as the
case may be.
(m) The Company shall have furnished to the Underwriter, dated
as of the date of each Closing Date, such further certificates and
documents as the Underwriter shall have reasonably required.
(n) All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are
reasonably satisfactory to the Underwriter and its legal counsel. All
statements contained in any certificate, letter, or other document
delivered pursuant hereto by, or on behalf of, the Company shall be
deemed to constitute representations and warranties of the Company.
(o) The Underwriter may waive in writing the performance of
any one or more of the conditions specified in this Section 5 or extend
the time for their performance.
(p) If any of the conditions specified in this Section 5 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations of the Underwriter
hereunder may be canceled at, or at any time prior to, each Closing
Date by the Underwriter. Any such cancellation shall be without
liability of the Underwriter to the Company and shall not relieve the
Company of its obligations under Section 3(g) hereof. Notice of such
cancellation shall be given to the Company at the address specified in
Section 10 hereof in writing, or by telegraph or telephone confirmed in
writing.
5. Underwriter's Warrants. On the First Closing Date, the Company shall
sell to the Underwriter for $100 the Underwriter's Warrants, which shall first
become exercisable one year after the Effective Date and shall remain
exercisable for a period of four years thereafter. The Underwriter's Warrants
shall be subject to certain transfer restrictions and shall be in substantially
the form attached as Appendix A hereto.
6. Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless
the Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the 1933 Act against any losses,
claims, damages or liabilities, joint or several, to which the
Underwriter or each such controlling person may become subject, under
the 1933 Act, the 1934 Act, the common law or otherwise, insofar as
such losses, claims, damages or liabilities (or judicial or
governmental actions or proceedings in respect thereof) arise out of,
or are based upon, (i) any untrue statement or alleged untrue statement
made by the Company in Section 1 hereof; (ii) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or
alleged omission to state in the Registration Statement or any
amendment thereof a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; (iii) any untrue statement
or alleged untrue statement of a material fact contained in any
Preliminary Prospectus if used prior to the Effective Date of the
Registration Statement or in the Prospectus (as amended or as
supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iv) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares
or the sale thereof from qualification under, the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
will reimburse the Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by the Underwriter or such
controlling person (subject to the limitation set forth in Section 7(d)
hereof) in connection with investigating or defending against any such
loss, claim, damage, liability or action. The Company, however, will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of, or is based upon, an untrue
statement, or alleged untrue statement, omission or alleged omission,
made in reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, the Underwriter
specifically for use in the preparation of the Registration Statement
or any such post effective amendment thereof, any such Preliminary
Prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or in any application or other statement executed
by the Company or the Underwriter filed in any jurisdiction in order to
qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction. Further,
the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of the Underwriter if the
person asserting any loss, claim, damage or liability purchased the
Shares from the Underwriter which are the subject thereof (or to the
benefit of any person who controls the Underwriter), if a copy of the
Prospectus was not sent or given to such person with, or prior to, the
written confirmation of the sale of such Shares to such person due to
the fault of the Underwriter. This indemnity agreement is in addition
to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of the Company's directors, each of the Company's
officers who has signed the Registration Statement and each person who
controls the Company within the meaning of Section 15 of the 1933 Act
against any losses, claims, damages or liabilities to which the Company
or any such director, officer, or controlling person may become
subject, under the 1933 Act, the 1934 Act, the common law, or
otherwise, insofar as such losses, claims, damages, or liabilities (or
judicial or governmental actions or proceedings in respect thereof)
arise out of, or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, or the omission or alleged omission
to state in the Registration Statement or any amendment thereof, a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus if used prior to the Effective Date of the Registration
Statement or in the Prospectus (as amended or as supplemented, if the
Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading; or (iii) any untrue
statement or alleged untrue statement of a material fact contained in
any application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction in order to qualify the
Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; in each case to the extent, but only the extent,
that such untrue statement, alleged untrue statement, omission or
alleged omission, was made in reliance upon and in conformity with
written information furnished to the Company by, or on behalf of, the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement
executed by the Company or by the Underwriter and filed in any
jurisdiction. The Underwriter will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or
defending against any such loss, claim, damage, liability or action.
Further, the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of the Company if the person
asserting any loss, claim, damage or liability purchased the Shares
from the Underwriter which are the subject thereof (or to the benefit
of any person who controls any Underwriter), if a copy of the
Prospectus was not sent or given to such person with, or prior to, the
written confirmation of the sale of such Shares to such person due to
no fault of the Underwriter. This indemnity agreement is in addition to
any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, notify in writing the
indemnifying party of the commencement thereof. The omission so to
notify the indemnifying party will not relieve it from any liability
under this Section 6 as to the particular item for which
indemnification is then being sought, unless such omission so to notify
prejudices the indemnifying party's ability to defend such action. In
case any such action is brought against any indemnified party and the
indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein
and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to 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 will not be liable to such indemnified party under
this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that if, in
the reasonable judgment of the indemnified party, it is advisable for
such parties and controlling persons to be represented by separate
counsel, any indemnified party shall have the right to employ separate
counsel to represent it and all other parties and their controlling
persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriter against the
Company or by the Company against the Underwriter hereunder, in which
event the fees and expenses of such separate counsel shall be borne by
the indemnifying party and paid as incurred. Any such indemnifying
party shall not be liable to any such indemnified party on account of
any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
7. Contribution.
(a) If the indemnification provided for in Section 6 is
unavailable for any reason or is insufficient to hold harmless an
indemnified party under Section 6(a) or (b) above in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company and the Underwriter from the offering of the Firm Shares
and the Option Shares, if any. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law
or if the indemnified party failed to give the notice required under
Section 6(c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Underwriter in
connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriter shall be deemed to
be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriter, in
each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriter
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
10(e) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7(a) were
determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to
above in this Section 7(a). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
Section 7(a) shall be deemed to include any legal or other expenses to
which such indemnified party would be entitled if Section 6(a) or (b)
were applied. Notwithstanding the provisions of this Section 7(a), the
Underwriter shall not be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten by
it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
(b) Promptly after receipt by any party to this Agreement of
notice of the commencement of any action, suit or proceeding, such
party will, if a claim for contribution in respect thereof is to be
made against another party (the "contributing party"), notify the
contributing party of the commencement thereof. The omission so to
notify the contributing party will not relieve it from any liability
that it may have to any other party so long as the failure to notify
does not materially prejudice the contributing party's rights. If any
such action, suit or proceeding is brought against any party, and such
party notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified.
(c) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under Section 6 or this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. A successor to the
Underwriter or to the Company, or any actor or officer of, or any
person controlling, the Underwriter or the Company shall be entitled to
the benefits of the agreements contained in Sections 6 and 7.
8. Effective Date of This Agreement and Termination.
(a) This Agreement shall become effective upon the release by
the Underwriter of the initial public offering of the Firm Shares for
sale to the public. The Underwriter shall notify the Company
immediately after any action has been taken which causes this Agreement
to become effective. Until this Agreement is effective, it may be
terminated by the Company or the Underwriter by giving notice as
hereinafter provided, except that the provisions of Sections 3(g), 6,
7, 8, 9 and 13 shall at all times be effective. For purposes of this
Agreement, the release of the initial public offering of the Firm
Shares for sale to the public shall be deemed to have been made when
the Underwriter releases, by telegram or otherwise, firm offers of the
Firm Shares to securities dealers or release for publication a
newspaper advertisement relating to the Firm Shares, whichever occurs
first.
(b) Until the First Closing Date, this Agreement may be
terminated by the Underwriter, at its option, by giving notice to the
Company, if (i) the Company shall have sustained a loss by fire, flood,
accident or other calamity which is material with respect to the
business of the Company; the Company shall have become a party to
material litigation, not disclosed in the Registration Statement or the
Prospectus; or the business or financial condition of the Company shall
have become the subject of any material litigation, not disclosed in
the Registration Statement or the Prospectus; or there shall have been,
since the respective dates as of which information is given in the
Registration Statement or the Prospectus, any material adverse change
in the general affairs, business, key personnel, capitalization,
financial position or net worth of the Company, whether or not arising
in the ordinary course of business, which loss or change, in the
reasonable judgment of the Underwriter, shall render it inadvisable to
proceed with the delivery of the Shares, whether or not such loss shall
have been insured; (ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq
SmallCap Market(sm) or the over-the-counter market shall have been
suspended or minimum prices shall have been established on such
exchange by the SEC or by such exchanges or markets; (iii) a general
banking moratorium shall have been declared by federal, New York or
Minnesota authorities; (iv) there shall have been such a material
adverse change in general economic, monetary, political or financial
conditions, or the effect of international conditions on the financial
markets in the United States shall be such that, in the judgment of the
Underwriter, makes it inadvisable to proceed with the delivery of the
Shares; (v) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of either of
any court or other governmental authority which, in the judgment of the
Underwriter, materially and adversely affects or will materially and
adversely affect the business or operations of the Company; (vi) there
shall be a material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the
United States and any foreign power, or a formal declaration of war by
the United States of America shall have occurred; or (vii) the Company
shall have failed to comply with any of the provisions of this
Agreement on its part to be performed on or prior to such date or if
any of the conditions, agreements, representations or warranties of the
Company shall not have been fulfilled within the respective times
provided for in this Agreement. Any such termination shall be without
liability of any party to any other party, except as provided in
Sections 6 and 7 hereof; provided, however, that the Company shall
remain obligated to pay costs and expenses to the extent provided in
Section 3(g) hereof.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 8, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
10 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Underwriter promptly by
telegram or telephone, confirmed by letter sent to the address
specified in Section 10 hereof.
9. Survival of Indemnities, Contribution Agreements, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Section 1 hereof and
the covenants of the Company set forth in Section 3 hereof shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriter, the Company, any of its officers and
directors, or any controlling person referred to in Sections 6 and 7, and shall
survive the delivery of and payment for the Shares. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person, or
any legal representative of such controlling person, as the case may be, shall
be entitled to the benefit of the respective indemnity and contribution
agreements.
10. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Underwriter
or any of the Underwriter, shall be mailed, delivered or telegraphed and
confirmed, to Equity Securities Trading Co., Inc., 400 Lilac Drive, Golden
Valley, MN 55422, Attention: Laurence S. Zipkin, Vice President with a copy to
Robert K. Ranum, Esq., Fredrikson & Byron, P.A., 1100 International Centre, 900
Second Avenue South, Minneapolis, Minnesota 55402; or, if sent to the Company,
shall be mailed, delivered or telegraphed and confirmed, to Mercury Waste
Solutions, Inc., 302 North Riverfront Drive, Mankato, MN 56001, Attention:
Bradley J. Buscher, with a copy to Russell Lederman, Esq., Maslon, Edelman,
Borman & Brand, 3300 Norwest Center, Minneapolis, MN 55402-4140.
11. Information Furnished by the Underwriter. The statements relating
to the stabilization activities of the Underwriter and the statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the written information furnished by, or on behalf of, the
Underwriter specifically for use with reference to the Underwriter referred to
in Sections 1(b) and 6 hereof.
12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriter and the Company, their respective successors and
assigns, and the officers, directors and controlling persons referred to in
Sections 6 and 7. Nothing expressed in this Agreement is intended or shall be
construed to give any person or corporation, other than the parties hereto,
their respective successors and assigns, and the controlling persons, officers
and directors referred to in Sections 6 and 7 any legal or equitable right,
remedy, or claim under, or in respect of, this Agreement or any provision herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, assigns and
such controlling persons, officers and directors, and for the benefit of no
other person or corporation. No purchaser of any Shares from the Underwriter
shall be construed a successor or assign merely by reason of such purchase.
13. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
If the foregoing is in accordance with the Underwriter's understanding
of this agreement, kindly sign and return to the Company the enclosed
counterpart of this Agreement, whereupon it will become a binding agreement
between the Company and the Underwriter in accordance with its terms.
Very truly yours,
MERCURY WASTE SOLUTIONS, INC.
By_______________________________________
Its______________________________________
ACCEPTANCE
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
undersigned
EQUITY SECURITIES TRADING CO., INC.
By_______________________________________
Its______________________________________
SCHEDULE I
PERSONS TO BE
SUBJECT TO LOCK-UP AGREEMENT
FORM OF LOCK-UP AGREEMENT
The undersigned, a director, executive officer, or beneficial owner of
the common stock, $0.01 par value (the "Common Stock"), of Mercury Waste
Solutions, Inc. (the "Company"), understands that the Company has filed with the
Securities and Exchange Commission a registration statement on Form SB-2 (the
"Registration Statement") for the registration of up to 1,000,000 shares of
Common Stock, plus an overallotment option of 150,000 shares of Common Stock.
The undersigned further understands that in connection with the public offering
of the Shares, the Company contemplates entering into an underwriting agreement
with Equity Securities Trading Co., Inc. (the "Underwriter").
In order to induce the Underwriter to proceed with the public offering,
the undersigned agrees, for the benefit of the Company and the Underwriter, that
should such public offering be effectuated the undersigned will not, without the
prior written consent of the Underwriter, during the one-year period commencing
on the effective date of the Registration Statement (the "Lockup Period") (i)
sell, transfer or otherwise dispose of, or agree to sell, transfer or otherwise
dispose of any shares of Common Stock of the Company beneficially held by the
undersigned during the Lockup Period, (ii) sell, transfer or otherwise dispose
of or agree to sell, transfer or otherwise dispose of any options, rights,
warrants or other securities exercisable or convertible into shares of Common
Stock of the Company beneficially held by the undersigned during the Lockup
Period, or (iii) sell or grant, or agree to sell or grant, options, rights,
warrants or other securities exercisable or convertible into to any such shares
of Common Stock. The foregoing does not prohibit gifts to donees who agree to be
bound by the restrictions set forth herein or transfers by will or the laws of
descent.
This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns.
Dated: _________________ ________________________________
WARRANT
TO PURCHASE 100,000 SHARES OF COMMON STOCK
OF
MERCURY WASTE SOLUTIONS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Equity
Securities Trading Co., Inc. (the "Underwriter"), or its registered assigns, is
entitled to subscribe for and purchase from Mercury Waste Solutions, Inc., a
Minnesota corporation (the "Company"), at any time after [EFFECTIVE DATE LESS
ONE DAY] , 1998, to and including [EFFECTIVE DATE] , 2002, One Hundred Thousand
(100,000) fully paid and nonassessable shares of the Common Stock of the Company
at the price of $________ per share [120% of Price to Public] (the "Warrant
Exercise Price"), subject to the antidilution provisions of this Warrant.
Reference is made to this Warrant in the Underwriting Agreement dated
____________________ 1997, by and between the Company and the Underwriter. The
shares which may be acquired upon exercise of this Warrant are referred to
herein as the "Warrant Shares." As used herein, the term "Holder" means the
Underwriter, any party who acquires all or a part of this Warrant as a
registered transferee of the Underwriter, or any record holder or holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. As used herein, the term "Common Stock" means and includes the
Company's presently authorized common stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the Holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred, other than by will or pursuant to the
operation of law, except to a person who is an officer and shareholder of the
Underwriter. Further, this Warrant may not be sold, transferred, assigned,
hypothecated or divided into two or more Warrants of smaller denominations, nor
may any Warrant shares issued pursuant to exercise of this Warrant be
transferred, except as provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections l and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section 5.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel to the Company and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company for the transfer or disposition
of the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Market Price of such fractional share
over the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market but is traded on the Nasdaq
SmallCap Market(sm) or other over-the-counter market, then the average
closing bid and asked prices reported for the ten (10) business days
immediately preceding the Determination Date, and
(iii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market, Nasdaq SmallCap Market(sm)
or other over-the-counter market, then the price established in good
faith by the Board of Directors.
9. Registration Rights.
(a) If at any time after [EFFECTIVE DATE LESS ONE DAY] , 1998 and prior
to the end of the two-year period following complete exercise of this Warrant or
[EFFECTIVE DATE] , 2004, whichever occurs earlier, the Company proposes to
register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its securities, it will give written
notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and any Warrant Shares of its intention to do so
and, on the written request of any such Holder given within twenty (20) days
after receipt of any such notice (which request shall specify the interest in
this Warrant or the Warrant Shares intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such Warrant
Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
(b) Further, on a one-time basis at any time after [EFFECTIVE DATE LESS
ONE DAY] , 1998, whichever occurs earlier, upon request by the Holder or Holders
of a majority in interest of this Warrant, of any Warrants issued pursuant to
Section 2 and/or Section 3(a) hereof, and of any Warrant Shares, the Company
will promptly take all necessary steps to register or qualify, on Form S-3 under
the 1933 Act and the securities laws of such states as the Holders may
reasonably request, such number of Warrant Shares issued and to be issued upon
conversion of the Warrants requested by such Holders in their request to the
Company. The Company shall keep effective and maintain any registration,
qualification, notification, or approval specified in this Paragraph (b) for
such period as may be reasonably necessary for such Holder or Holders of such
Warrant Shares to dispose thereof and from time to time shall amend or
supplement the prospectus used in connection therewith to the extent necessary
in order to comply with applicable law.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders pro rata.
(d) The Company hereby indemnifies each of the Holders of this Warrant
and of any Warrant Shares, and the officers and directors, if any, who control
such Holders, within the meaning of Section 15 of the 1933 Act, against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or alleged untrue statement, omission or alleged omission
contained in information furnished in writing to the Company by such Holder
expressly for use therein.
IN WITNESS WHEREOF, Mercury Waste Solutions, Inc. has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
_____________, 1997.
Mercury Waste Solutions, Inc.
By_______________________________
Its_______________________________
TO: MERCURY WASTE SOLUTIONS, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
- ----------------------------- Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
______________________________
(Print Name)
Please insert social security
or other identifying number
of registered Holder of
certificate (______________) 4ddress:
______________________________
______________________________
Date: ________________ ______________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the right to purchase the
securities of Mercury Waste Solutions, Inc. to which the within Warrant relates
and appoint , attorney, to transfer said right on the books of Mercury Waste
Solutions, Inc. with full power of substitution in the premises.
Dated:________________ _____________________________
(Signature)
Address:
______________________________
______________________________
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MERCURY WASTE SOLUTIONS, INC.
The undersigned incorporator, being a natural person 18 years of age or
older, in order to form a corporate entity under Minnesota Statutes, Chapter
302A, hereby adopts the following articles of incorporation:
ARTICLE 1
NAME: The name of this Corporation shall be Mercury Waste Solutions,
Inc.
ARTICLE 2
REGISTERED OFFICE: The address of the Corporation's registered office
in the State of Minnesota is 1700 West Highway 36, Suite 801, St. Paul,
Minnesota 55402.
ARTICLE 3
AUTHORIZED SHARES: The authorized capital stock of this Corporation
shall consist of 50,000,000 shares, which shall have a par value of $.01 per
share.
3.1 The Board of Directors may, from time to time, establish by
resolution, different classes or series of shares and may fix the rights and
preferences of said shares in any class or series.
3.2 The Board of Directors shall have the authority to issue shares of
a class or series, shares of which may then be outstanding, to holders of shares
of another class or series to effectuate share dividends, splits, or conversion
of its outstanding shares.
ARTICLE 4
CERTAIN SHAREHOLDER RIGHTS: Shareholders shall have no preemptive
rights to purchase, subscribe for or otherwise acquire any new or additional
securities of the Corporation, other than as set forth in a shareholder
agreement. No shareholder shall be entitled to any cumulative voting rights.
ARTICLE 5
WRITTEN ACTION BY BOARD: An action required or permitted to be taken by
the Board of Directors of this Corporation may be taken by written action signed
by the number of directors that would be required to take the same action at a
meeting of the Board at which all directors are present except as to those
matters which require shareholder approval, in which case the written action
must be signed by all members of the Board of Directors.
ARTICLE 6
NONLIABILITY OF DIRECTORS FOR CERTAIN ACTIONS: To the full extent
permitted by the Minnesota Business Corporation Act, Minnesota Statutes, Chapter
302A, as it exists on the date hereof or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE 7
INCORPORATOR: The name and address of the incorporator is:
Michelle C. Leighton, Esq.
Briggs and Morgan, P.A.
2400 IDS Center
Minneapolis, MN 55402
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of
January, 1996.
---------------------------------
Michelle C. Leighton
EXHIBIT 3.2
BYLAWS
OF
MERCURY WASTE SOLUTIONS, INC.
ARTICLE
1
OFFICES, CORPORATE SEAL
AND SHAREHOLDER CONTROL AGREEMENT
SECTION 1.1 Registered and Other Offices. The registered office of the
Corporation in Minnesota shall be as set forth in the Articles of Incorporation
or in the most recent amendment of the Articles of Incorporation or statement of
the Board of Directors filed with the Secretary of State of Minnesota changing
the registered office in the manner prescribed by law. The Corporation may have
such other offices, within or without the State of Minnesota, as the Board of
Directors shall, from time to time, determine.
SECTION 1.2 Corporate Seal. If so directed by the Board of Directors by
resolution, the Corporation may use a corporate seal. The failure to use such
seal, however, shall not affect the validity of any documents executed on behalf
of the Corporation. The seal need only include the word "seal", but it may also
include, at the discretion of the Board, such additional wording as is permitted
by law.
SECTION 1.3 Shareholder Control or Voting Agreement. In the event of
any conflict or inconsistency between these Bylaws, or any amendment thereto,
and any shareholder control or voting agreement, whenever adopted, such
shareholder control or voting agreement shall govern.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
SECTION 2.1 Time and Place of Meetings. Regular or special meetings of
the shareholders, if any, shall be held on the date and at the time and place
fixed by the Chairman of the Board, except that a regular or special meeting
called by, or at the demand of a shareholder or shareholders, pursuant to
Minnesota Statutes, Section 302A.431, Subd. 2, shall be held in the county where
the principal executive office is located.
SECTION 2.2 Regular Meetings. At any regular meeting of the
shareholders, there shall be an election of qualified successors for directors
who serve for an indefinite term or whose terms have expired or are due to
expire within six (6) months after the date of the meeting. Any business
appropriate for action by the shareholders may be transacted at a regular
meeting. No meeting shall be considered a regular meeting unless specifically
designated as such in the notice of meeting or unless all the shareholders are
present in person or by proxy and none of them objects to such designation.
Regular meetings may be held no more frequently than once per year.
SECTION 2.3 Demand by Shareholders. Regular or special meetings may be
demanded by a shareholder or shareholders, pursuant to the provisions of
Minnesota Statutes, Sections 302A.431, Subd. 2, and 302A.433, Subd. 2,
respectively. If a regular meeting of shareholders has not been held during the
immediately preceding fifteen (15) months, a shareholder or shareholders holding
three (3) percent or more of the voting power of all shares entitled to vote may
demand a regular meeting of shareholders by written notice of demand given to
the chief executive officer or the chief financial officer of the Corporation. A
shareholder or shareholders holding ten (10) percent or more of the voting power
of all shares entitled to vote may demand a special meeting of shareholders by
written notice of demand given to the chief executive officer or chief financial
officer of the Corporation and containing the purposes of the meeting. Within
thirty (30) days after receipt of the demand by one of those officers, the Board
shall cause a regular or special meeting of shareholders, as applicable, to be
called and held on notice no later than ninety (90) days after receipt of the
demand, all at the expense of the Corporation. If the Board fails to cause a
regular or special meeting, as applicable, to be called and held as required
herein, the shareholder or shareholders making the demand may call the meeting
by giving notice as required by Minnesota Statutes, Section 302A.435, all at the
expense of the Corporation. The business transacted at a special meeting is
limited to the purposes stated in the notice of the meeting. Any business
transacted at a special meeting that is not included in those stated purposes is
voidable by or on behalf of the Corporation, unless all of the shareholders have
waived notice of the meeting in accordance with Minnesota Statutes, Section
302A.435.
SECTION 2.4 Quorum; Adjourned Meetings. The holders of a majority of
the voting power of the shares entitled to vote at a meeting constitute a quorum
for the transaction of business; said holders may be present at the meeting
either in person or by proxy. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact business
until adjournment, even though withdrawal of shareholders originally present
leaves less than the proportion or number otherwise required for a quorum;
provided, however, that any action by the shareholders shall require the
affirmative vote of a majority of the voting power of the shareholders present
and entitled to vote, which must also constitute a majority of the required
quorum, unless a larger proportion or number of votes is required by the
Articles of Incorporation or by statute. In case a quorum shall not be present
in person or by proxy at a meeting, those present in person or by proxy may
adjourn to such day as they shall, by majority vote, agree upon, and a notice of
such adjournment shall be mailed to each shareholder entitled to vote at least
five (5) days before such adjourned meeting. If a quorum is present in person or
by proxy, a meeting may be adjourned from time to time without notice, other
than announcement at the meeting. At adjourned meetings at which a quorum is
present in person or by proxy, any business may be transacted at the meeting as
originally noticed.
SECTION 2.5 Voting. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Unless otherwise provided by the Articles of Incorporation or a
resolution of the Board of Directors filed with the Secretary of State, each
shareholder shall have one vote for each share held. Upon demand of any
shareholder, the vote upon any question before the meeting shall be by ballot.
SECTION 2.6 Notice of Meetings. Notice of all meetings of shareholders
shall be given to every holder of voting shares, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of adjournment. Notice of regular meetings of shareholders shall be
given at least fourteen (14), but not more than sixty (60) days before the date
of the meeting. Notice of special meetings of shareholders may be given upon not
less than five (5) nor more than sixty (60) days, except that written notice of
a meeting at which an agreement of merger is to be considered shall be given to
all shareholders, whether entitled to vote or not, at least fourteen (14) days
prior thereto. Every notice of any special meeting shall state the purpose or
purposes for which the meeting has been called, and the business transacted at
all special meetings shall be confined to the purpose stated in the call, unless
all of the shareholders are present in person or by proxy and none of them
objects to consideration of a particular item of business.
SECTION 2.7 Waiver of Notice. A shareholder may waive notice of any
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at or after the meeting and whether given in
writing, orally or by attendance.
SECTION 2.8 Authorization Without a Meeting. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting as authorized by law.
SECTION 2.9 Record Date. The Board of Directors may fix a time, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of
and to vote at such meeting, notwithstanding any transfer of shares on the books
of the Corporation after any record date so fixed. The Board of Directors may
close the books of the Corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fails to fix a
record date for the determination of the shareholders entitled to notice of and
to vote at any meeting of the shareholders, the record date shall be the
twentieth (20th) day preceding the date of such meeting.
ARTICLE 3
DIRECTORS
SECTION 3.1 General. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
SECTION 3.2 Number, Qualifications and Term of Office. The initial
Board of Directors shall consist of three (3) persons. The Board of Directors
may, however, increase or decrease the number of directors and fill the vacancy
or vacancies created thereby. If the number of directors has been increased by
the Board of Directors as provided herein, then at the next succeeding meeting
of shareholders at which directors are elected, the number of directors to be
elected shall be such increased number. Directors need not be shareholders. Each
of the directors shall hold office until the regular meeting of the shareholders
next held after his election, until his successor shall have been elected and
shall qualify, or until he shall resign or shall have been removed. No person
(other than a person nominated by or on behalf of the Board) shall be eligible
for election as a director at any annual or special meeting of shareholders
unless a written request that his or her name be placed in nomination is
received from a shareholder of record by the Secretary of the Corporation not
less than thirty (30) days prior to the date fixed for the meeting, together
with the written consent of such person to serve as a director.
SECTION 3.3 Board Meetings; Place and Notice. Meetings of the Board of
Directors may be held from time to time at any place within or without the State
of Minnesota that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the Corporation, except as may be otherwise
unanimously agreed to, either orally, in writing or by attendance. Special or
regular meetings of the Board of Directors may be called by the Chairman, the
President or the Secretary, upon not less than twenty-four (24) hours notice.
Any director may call a Board meeting by giving not less than five (5) business
days notice to all directors of the date and time of the meeting. The notice
need not state the purpose of the meeting. Notice may be given by mail,
telephone, telegram, telecopy or by personal service. If the meeting schedule is
adopted by the Board, or if the date and time of a Board meeting has been
announced at a previous meeting, no notice is required.
SECTION 3.4 Waiver of Notice. A director may waive notice of a meeting
of the Board. A waiver of notice by a director is effective, whether given
before, at or after the meeting and whether given in writing, orally or by
attendance.
SECTION 3.5 Quorum. A majority of the directors currently holding
office is a quorum for the transaction of business.
SECTION 3.6 Vacancies. Vacancies on the Board resulting from the death,
resignation or removal of a director, or by an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, even though less than a quorum. Each director elected under this
Section to fill a vacancy holds office until a qualified successor is elected by
the shareholders at the next regular or special meeting of the shareholders.
SECTION 3.7 Committees. The Board may by resolution establish
committees in the manner provided by law. Committee members need not be
directors.
SECTION 3.8 Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a Board meeting. If the
director is not present at the meeting, consent or opposition to a proposal does
not constitute presence for purposes of determining the existence of a quorum,
but consent or opposition shall be counted as a vote in favor of, or against,
the proposal and shall be entered in the minutes or other record of action of
the meeting if the proposal acted on at the meeting is substantially the same or
has substantially the same effect as the proposal to which the director has
consented or objected.
ARTICLE 4
OFFICERS
SECTION 4.1 Number. The officers of the Corporation shall consist of a
President, Chief Executive Officer, Treasurer, Vice President and Secretary. The
Board may elect or appoint any other officers it deems necessary for the
operation and management of the Corporation, each of whom shall have the powers,
rights, duties, responsibilities and terms of office as determined by the Board
from time to time. Any number of offices or functions of those offices may be
held or exercised by the same person. If specific persons have not been elected
as President or Secretary, the chief executive officer may execute instruments
or documents in those capacities. If a specific person has not been elected to
the office of Treasurer, the chief financial officer may sign documents or
instruments in that capacity.
SECTION 4.2 President. The President shall:
(a) Have general active management of the business of the
Corporation;
(b) Together with the Chief Executive Officer, see that all
orders and resolutions of the Board are carried into effect;
(c) Together with the Chief Executive Officer, sign and
deliver in the name of the Corporation any deeds, mortgages, bonds,
contracts or other instruments pertaining to the business of the
Corporation, except in cases in which the authority to sign and deliver
is required by law to be exercised by another person or is expressly
delegated by the Bylaws or by the Board to some other officer or agent
of the Corporation; and
(d) Perform such other duties as are prescribed by the Board
of Directors or by statute.
SECTION 4.3 Chief Executive Officer. The Chief Executive Officer shall:
(a) Preside at all meetings of the shareholders and Board of
Directors;
(b) Together with the President, see that all orders and
resolutions of the Board are carried into effect;
(c) Together with the President, sign and deliver in the name
of the Corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the Corporation, except in
cases in which the authority to sign and deliver is required by law to
be exercised by another person or is expressly delegated by the Bylaws
or by the Board to some other officer or agent of the Corporation; and
(d) Perform such other duties as are prescribed by the Board
of Directors or by statute.
SECTION 4.4 Treasurer. The Treasurer shall:
(a) Keep accurate financial records for the Corporation;
(b) Deposit all money, drafts and checks in the name of and to
the credit of the Corporation in the banks and depositories designated
by the Board;
(c) Endorse for deposit all notes, checks and drafts received
by the Corporation as ordered by the Board, making proper vouchers
therefor;
(d) Disburse corporate funds and issue checks and drafts in
the name of the Corporation, as ordered by the Board;
(e) Render to the President, Chief Executive Officer and the
Board, whenever requested, an account of all transactions by the
Treasurer and of the financial condition of the Corporation; and
(f) Perform such other duties as may be prescribed from time
to time by the Board of Directors, by the President, by the Chief
Executive Officer or by statute.
SECTION 4.5 Secretary. The Secretary shall be secretary of and shall
attend all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the Corporation. The
Secretary shall give proper notice of meetings of shareholders and directors.
The Secretary shall also perform such other duties as may, from time to time, be
prescribed by the Board of Directors or the President.
SECTION 4.6 Election and Term of Office. The Board of Directors shall
from time to time elect a President, Chief Executive Officer, Vice President,
Treasurer and Secretary and any other officers or agents the Board deems
necessary. Such officers shall hold office until they are removed or their
successors are elected and qualified.
SECTION 4.7 Delegation of Authority. An officer elected or appointed by
the Board may delegate some or all of the duties or powers of his office to
other persons, provided that such delegation is in writing.
SECTION 4.8 Compensation of Officers. An officer shall be entitled only
to such compensation as shall be established by written contract or agreement
duly approved by or on behalf of the Corporation, or established or approved by
resolution of the Board of Directors. Absent such written contract, agreement or
resolution of the Board of Directors, no officer shall have a cause of action
against the Corporation to recover any amount due or alleged to be due as
compensation for services in his or her capacity as an officer of the
Corporation.
ARTICLE 5
SHARES AND THEIR TRANSFER
SECTION 5.1 Certificates for Shares. Every shareholder of this
Corporation shall be entitled to a certificate, to be in such form as prescribed
by law and adopted by the Board of Directors, certifying the number of shares of
the Corporation owned by him. The certificates shall be numbered in the order in
which they are issued and shall be signed by the President and Secretary of the
Corporation; provided, however, that when the certificate is signed by a
transfer agent or registrar, the signatures of any of such officers upon the
certificate may be facsimiles, engraved or printed thereon, if authorized by the
Board of Directors. Such certificate shall also have typed or printed thereon
such legend as may be required by any shareholder control agreement. Every
certificate surrendered to the Corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled.
SECTION 5.2 Transfer of Shares. Transfer of shares on the books of the
Corporation may be authorized only by the shareholder named in the certificate,
the shareholder's legal representative or the shareholder's duly authorized
attorney in fact, and upon surrender of the certificate or the certificates for
such shares. The Corporation may treat, as the absolute owner of shares of the
Corporation, the person or persons in whose name or names the shares are
registered on the books of the Corporation.
SECTION 5.3 Lost Certificates. Any shareholder claiming that a
certificate for shares has been lost, destroyed or stolen shall make an
affidavit of that fact in such form as the Board of Directors shall require and
shall, if the Board of Directors so requires, give the Corporation a sufficient
indemnity bond, in form, in an amount and with one or more sureties satisfactory
to the Board of Directors, to indemnify the Corporation against any claims which
may be made against it on account of the reissue of such certificate. A new
certificate shall then be issued to said shareholder for the same number of
shares as the one alleged to have been destroyed, lost or stolen.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1 Indemnification. The Corporation shall indemnify, in
accordance with the terms and conditions of Minnesota Statutes, Section
302A.521, the following persons: (a) officers and former officers; (b) directors
and former directors; and (c) members and former members of committees appointed
or designated by the Board of Directors. The Corporation shall not be obligated
to indemnify any other person or entity, except to the extent such obligation
shall be specifically approved by resolution of the Board of Directors. This
Section 6.1 is for the sole and exclusive benefit of the persons designated
herein and no person, firm or entity shall have any rights under this Section by
way of assignment, subrogation or otherwise, and whether voluntarily,
involuntarily or by operation of law.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Gender References. All references in these Bylaws to a
party in the masculine shall include the feminine and neuter.
SECTION 7.2 Plurals. All references in the plural shall, where
appropriate, include the singular and all references in the singular shall,
where appropriate, be deemed to include the plural.
CERTIFICATION
I, Mark Stennes, do hereby certify that I am the duly elected,
qualified or acting Secretary of Mercury Waste Solutions, Inc., a corporation
organized under the laws of the State of Minnesota, and that the foregoing is a
true and correct copy of the Bylaws adopted by written consent of the Board of
Directors of said corporation effective January _____, 1996.
-----------------------------------
Mark Stennes, Secretary
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MERCURY WASTE SOLUTIONS, INC.
AND
U.S. ENVIRONMENTAL, INCORPORATED
DATED JANUARY 4, 1996
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is made and entered into this 4th day of
January, 1996, by and between MERCURY WASTE SOLUTIONS, INC., a Minnesota
corporation ("Buyer"), and U.S. ENVIRONMENTAL, INCORPORATED, a Minnesota
corporation ("Seller").
WITNESSETH:
WHEREAS, Seller is engaged in the business of recycling of high
intensity lamps, which is conducted in Roseville, Minnesota (the "Roseville
Business") as well as the business of recycling high intensity lamps and
distilling/retorting mercury, which is conducted in Union Grove, Wisconsin (the
"Union Grove Business") (hereinafter the Roseville Business and the Union Grove
Business shall be referred to collectively as the "Business"); and
WHEREAS, Buyer desires to acquire substantially all of the assets of
Seller relating to the Business, and Seller desires to sell and transfer such
assets to Buyer, all pursuant to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
following mutual covenants, warranties and undertakings of the parties, it is
agreed by the parties as follows:
SECTION 1. PURCHASE OF ASSETS; LIABILITIES ASSUMED.
1.1 ASSETS. Upon the terms and subject to the conditions set
forth herein, Buyer agrees to purchase from Seller and Seller agrees to sell to
Buyer at Closing (as hereinafter defined), all of Seller's assets, properties
and rights of every kind and description used or useful in connection with the
Business, whether tangible or intangible, real, personal or mixed, wherever
located and whether or not recorded on the books and records of Seller, as the
same shall exist on the Closing Date, except those identified in Section 1.2
hereof (the "Assets"), including, without limitation: (i) all inventory,
materials, supplies and work in process ("Inventory"); (ii) all accounts
receivable existing as of January 1, 1996, including without limitaton those
listed on Exihibit A-1 attached hereto and all past due accounts for the years
1994 and 1995 ("Accounts Receivable"); (iii) all machinery, tools and equipment,
including all motor vehicles, trucks and fork lifts ("Machinery and Equipment");
(iv) all furniture and fixtures, including trade fixtures and leasehold
improvements ("Furniture and Fixtures") and all other tangible personal property
relating to the Business; (v) all patents, trademarks, copyrights, service marks
and trade names, including without limitation, the name of "USA Lights" (the
"Intellectual Property"); (vi) all trade secrets, processes and know-how,
mailing lists, customer lists, vendor lists, telephone numbers, goodwill and
proprietary information relating to the Business as a going concern; (vii) all
rights of Seller under all contracts, agreements, understandings, purchase and
sales orders, licenses and permits to which Seller is a party or by which Seller
or its property is bound, and any offers, bids or commitments obligating Seller
to enter into any of the above (the "Contracts") which Buyer elects to assume;
(viii) all licenses, permits, licensing approvals and notifications,
governmental or otherwise (to the extent transferable), including all state and
federal environmental licenses and permits and all other intangible assets
relating to the Business; (ix) the sum of $18,000 plus any and all other sums on
deposit in the reserve fund maintained at Richfield Bank & Trust (the "Reserve
Fund"); (x) any and all distribution rights in lamp processing and mercury
retorting equipment; (xi) all computer systems and computer software relating to
the Business; and (xii) all of those assets set forth on Exhibit A-1 attached
hereto.
1.2 EXCLUDED ASSETS. The following property and assets are
hereby expressly excluded from the property and assets being bought and sold
pursuant to this Agreement: (i) all cash and cash equivalents on hand or on
deposit with any financial institution, including without limitation,
miscellaneous deposits and prepaid expenses as at January 1, 1996 (except the
Reserve Fund), (ii) any rights of Seller under fully executed pending purchase
agreements on which deposits have been made for the purchase of a piece of Model
2000 lamp processing equipment (the "Lamp Processing Equipment") prior to
January 1, 1996; (iii) any rights to royalties in favor of Seller arising from
purchase agreements for the sale of the Lamp Processing Equipment consummated
prior to January 1, 1996; (iv) Seller's corporate minute book and stock records;
(v) all Contracts not assumed by Buyer; (v) all notes receivable; (vi) all tax
refunds relating to periods or transactions occurring prior to the Closing Date;
(vii) Seller's rights under this Agreement; and (viii) all motor vehicles other
than the 1994 Ford Ranger, title to which will be transferred to Buyer.
1.3 ASSUMED LIABILITIES. Buyer agrees, upon consummation of
the Closing, to assume those obligations first arising after the Closing Date
under the Contracts specifically assumed by Buyer, which include those leases
and obligations identified on Exhibit A-2 attached hereto (but specifically
excluding obligations to cure any defaults under any of the Contracts arising on
or prior to the Closing Date or based upon events occurring or circumstances
existing on or prior to the Closing Date) (collectively, the "Assumed
Liabilities"). In addition, Buyer will assume and agree to pay fifty percent
(50%) of the actual costs for the items listed on Exhibit A-3 attached hereto
relating to recent construction and costs at Union Grove, with Seller paying the
other fifty percent (50%) of such costs in cash to Buyer, which payment shall be
made to Buyer on the Delivery Date referred to in Section 6 hereof.
1.4 EXCLUDED LIABILITIES. Except for the Assumed Liabilities,
no liabilities or obligations of Seller of any kind or nature, whether accrued,
absolute, fixed, liquidated, contingent, unliquidated, future or otherwise, are
being assumed by Buyer in connection with the purchase of the Assets (all
excluded liabilities or obligations being hereinafter referred to as the
"Excluded Liabilities"), and Seller shall retain all obligations and liabilities
not specifically assumed by Buyer pursuant to this Agreement.
1.5 BULK SALES COMPLIANCE. Without admitting that any such
laws apply, Buyer hereby waives compliance by Seller with the provisions of the
Bulk Sales Law of any state, and Seller warrants and agrees to pay and discharge
when due all claims which could be asserted against Buyer by reason of such
non-compliance to the extent that such liabilities are not Assumed Liabilities.
SECTION 2. PURCHASE PRICE; SECURITY DEPOSITS.
2.1 PURCHASE PRICE. Buyer and Seller agree that the purchase
price (the "Purchase Price") for the Assets to be sold and purchased hereunder
is:
a. One Million Two Hundred Thirty-Eight Thousand Two Hundred Fifty-Six
and 60/100 Dollars ($1,238,256.60).
2.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
paid by Buyer as follows:
a. $790,000 of the Purchase Price shall be paid in cash at Closing by
certified check, cashier's check or wire transfer of funds to a bank account
designated by Seller (the "Cash Proceeds"). Out of the Cash Proceeds,
$448,256.60 shall be applied to the purchase of the Union Grove Business. The
remainder of the Purchase Price shall be applied to purchase of the Roseville
Business.
b. $448,256.60 shall be payable pursuant to the terms of a promissory
note delivered to Seller at Closing made payable by Buyer to the order of Seller
in the form of Exhibit B hereto (the "Note"), which Note shall bear interest at
a fixed rate equal to ten percent per annum (10%). Accrued interest on the Note
shall be payable monthly. The principal balance and all unpaid accrued interest
shall be due and payable in full on the fifth anniversary of the Closing Date.
Buyer may prepay at any time, in Buyer's sole discretion, the Note, to the
extent available, out of excess cash flow in accordance with the terms of the
Note. The principal balance of the Note shall be reduced by the cost of
manufacturing and installation of the Lamp Processing Equipment located in the
Union Grove, WI facility listed on Seller's financial statements, if Seller
removes such Lamp Processing Equipment to fulfill an existing purchase order, as
more specifically provided in the Distribution Rights Bill of Sale Agreement
(defined below).
2.3 ALLOCATION OF THE PURCHASE PRICE. At Closing, Buyer and
Seller hereby agree to allocate the Purchase Price among the Assets as set forth
on Exhibit C attached hereto. Seller and Buyer hereby agree to use the
allocation set forth on Exhibit C in the preparation of their respective income
tax returns and in the preparation of the Internal Revenue Service Form 8594
which will accompany such tax returns.
SECTION 3. CLOSING; MATTERS RELATING TO CLOSING.
3.1 DATE OF CLOSING. The purchase shall be effective as of
midnight, January 1, 1996. The closing ("Closing") of the transactions
contemplated by this Agreement shall take place on January 4, 1996 (the "Closing
Date") at the offices of Briggs and Morgan, 2400 IDS Center, Minneapolis,
Minnesota.
3.2 INSTRUMENTS OF TRANSFER. At Closing, Seller shall deliver
to Buyer possession of the Assets and shall further deliver to Buyer a duly
executed bill of sale, in the form of Exhibit D-1 attached hereto (the "Bill of
Sale"), appropriate transfers of certificates of title for motor vehicles, an
assignment and assumption agreement regarding the Contracts to be assumed by
Buyer, if any, and the other intangible assets being purchased and sold pursuant
to this Agreement and such other assignments and instruments of conveyance,
containing standard warranties of title, transferring, assigning and conveying
good and marketable title to the Assets to Buyer free and clear of all liens,
restrictions and encumbrances. In addition, the distribution rights referred to
in Section 1.1(x) hereof will be transferred by Seller pursuant to and in
accordance with the terms of a Distribution Rights Bill of Sale Agreement in the
form of Exhibit D-2 attached hereto (the "Distribution Rights Bill of Sale
Agreement").
SECTION 4. REPRESENTATIONS OF SELLER. Seller represents and warrants to
Buyer that:
4.1 ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota
with full corporate power and authority to own or lease its properties, to carry
on its business and to execute, deliver and fully perform its obligations under
this Agreement and the transactions contemplated hereby.
4.2 VALID AGREEMENT. This Agreement and all agreements
contemplated hereunder are valid, binding and enforceable in accordance with
their terms, subject to limitations that may result from bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditor's rights and
limitations on the remedy of specific performance and other forms of equitable
relief.
4.3 AUTHORIZATION. This Agreement has been duly executed and
delivered by Seller and has been duly and effectively authorized by the board of
directors and approved by the requisite vote of the shareholders of Seller. No
further corporate authorization or other authoriza tion, consent or approval by
any governmental authority or by any other person is necessary with respect to
the execution, delivery and performance of this Agreement by Seller. The
execution of this Agreement and the consummation of the transactions
contemplated hereunder will not conflict with or result in the breach of any
terms or provisions of Seller's articles of incorporation, bylaws or any
indenture, mortgage, lease, contract or agreement to which Seller is a party or
by which it or any of the Assets are bound.
4.4 UNDISCLOSED LIABILITIES. Seller does not have knowledge of
any uninsured or undisclosed liability of any nature or kind (whether accrued,
absolute, contingent or otherwise) or any indebtedness for borrowed money to any
person that has not been disclosed to Buyer in writing.
4.5 TITLE TO ASSETS. Seller has good and marketable title to
all of the Assets to be transferred pursuant to this Agreement, free and clear
of all liabilities, claims, obligations, security interests, liens, state and
federal tax liens and other encumbrances, provided, however, that the mercury
retorting/distilling equipment located in Union Grove, WI which was manufactured
and developed by Seller with Resource Technology, Inc. ("RTI") may be subject to
rights and interests in favor of RTI.
4.6 POSSESSION OF ASSETS. Seller has possession of all of the
Assets, and no other person has any right of possession, use or control of the
Assets, other than Seller.
4.7 CONDITION OF TANGIBLE ASSETS All of the tangible Assets
being bought and sold pursuant to this Agreement are in good working order,
ordinary wear and tear excepted, and will be such as of the Closing Date.
4.8 INTELLECTUAL PROPERTY; COMPUTER SYSTEMS AND SOFTWARE.
Seller owns, is licensed or otherwise has the right to use all Intellectual
Property and computer systems and software necessary to permit it to carry on
the Business as presently conducted.
4.9 LITIGATION; NO VIOLATIONS OF LAW. Other than as disclosed
on Schedule 4.9, there is no action, suit, proceeding, arbitration or
investigation (whether or not purportedly on behalf of Seller) at law or in
equity or before or by any court or governmental agency or instrumentality
pending or, to the best of Seller's knowledge, threatened against or affecting
Seller, the Business or any of the Assets. Seller is in compliance with all
laws, rules, regulations, orders, permits, easements, covenants, conditions and
restrictions relating to the Business and the Assets, and Seller has not
received any notice of violation thereof and knows of no facts that would
constitute grounds for a violation thereof, other than as disclosed on Schedule
4.9. Seller is not a party to or subject to, bound by or in default under, any
agreement, judgment, writ, injunction, decree, order, rule or regulation of any
court or governmental agency or instrumentality which contains any provision
which would or could operate to prevent the performance of this Agreement or any
of the transactions contemplated by this Agreement or which would have an
adverse effect on the Business or any of the Assets.
4.10 CONTRACTS. A list and brief summary of all Contracts are
included on Schedule 4.10. Each of the Contracts listed is a valid and binding
obligation of Seller and, to the best knowledge of Seller, of the other parties
thereto in accordance with the terms thereof, and there have been no actions or
omissions by Seller or, to the best knowledge of Seller, by the other parties
thereto, which would result in a default as defined under the terms of any such
Contract. To the extent that the Contracts are evidenced by documents, complete
and accurate copies thereof are attached hereto with Schedule 4.10. To the best
knowledge of Seller, there are no facts or conditions that have occurred or that
are anticipated to occur which, through the passage of time or the giving of
notice, or both, would constitute a default by Seller or, to the best knowledge
of Seller, by the other party or parties thereunder, which would cause a default
under the terms of any such Contract. Consummation of the transactions
contemplated by this Agreement do not require the consent of parties to the
Contracts, except as set forth in Schedule 4.10 and will not (and will not give
any person a right to) terminate or modify any rights of, or accelerate or
increase any obligation of, Seller. Except as disclosed in Schedule 4.10, all of
Seller's rights, title and interest in the Contracts are assignable to Buyer.
4.11 FINANCIAL STATEMENTS. All financial statements, including
balance sheets and operating statements, information regarding sales and
expenses of the Business, invoices, receipts, accounts payable of the Roseville
Business, and other information provided to Buyer concerning the operation of
the Business and the Assets of Seller have been accurate, complete and not
misleading.
4.12 TAX MATTERS. Seller has duly made, and shall continue to
make through the Closing Date, all deposits required by federal, state and local
law to be made with respect to employees' withholding and employment taxes. All
taxes or assessments of any kind or nature due and payable by Seller with
respect to the Assets or the Business on or before the date hereof have been
paid, including all sales and use taxes, and Seller has duly filed all federal,
state and other tax returns, reports and declarations required to be filed by
Seller with respect to the Assets or the Business. No notice or assessment of
deficiency has been made.
4.13 INVENTORY. All Inventory, including without limitation,
work-in-process and any HID lamps, is, as of the date hereof, and shall be, as
of the Closing Date, contained in accordance with and in conformity with any and
all relevant federal, state and local laws and regulations, the Stipulation
Agreement between Seller and the MPCA, and the terms of the proposed Compliance
Agreement referred to in Section 10(i)(2) hereof, and authority required by the
WDNR, and is and will be, as of the Closing Date, handled and processed in a
manner consistent with Seller's past business practices and the demands of its
customers.
4.14 LICENSES AND PERMITS. Seller possesses all permits,
licenses, approvals and notifications, governmental or otherwise, the absence of
which would have an adverse effect on the Business, including without limitation
all environmental permits and licenses from federal, state and local authorities
including the Minnesota Pollution Control Agency ("MPCA") and the Wisconsin
Department of Natural Resources ("WDNR").
4.15 ENVIRONMENTAL COMPLIANCE. Except as disclosed in writing
to Buyer on Schedule 4.15, neither the Seller nor any third party has deposited,
added, emitted, discharged, stored, used, generated, treated or disposed of,
whether temporarily or permanently, any contamination, waste or hazardous
substance on, under or about any of the real property within the United States
owned, leased, occupied, used, managed, controlled or operated by Seller (the
"Real Property") during the period in which Seller has owned, leased, occupied,
used, managed, controlled or operated such Real Property. Except as disclosed on
Schedule 4.15, Seller has at all times occupied, managed, held and used the Real
Property and operated the Business in compliance and currently is in compliance,
in all material respects, with all laws, rules and regulations relating to
pollution or protection of the environment, whether local, state or federal, and
Seller is not in material violation and has not received any notice of any
alleged material violation of any such law, rule or regulation. Other than as
disclosed in writing to Buyer, Seller has not shipped any hazardous substances
for treatment, storage or disposal at any other site or facility, except in
accordance with applicable state and federal laws and regulations. There are no
above ground or underground tanks located under, in or about the Real Property.
4.16 INSURANCE. Seller has maintained and will continue to
maintain until the Closing Date adequate insurance with respect to the Business,
including insurance on the Assets, whether owned or leased, against loss or
damage by fire or other casualty, in amounts equal to or in excess of one
hundred percent (100%) of the replacement value thereof, as well as
environmental impairment liability insurance for the Business.
4.17 EMPLOYEES AND RELATED MATTERS. Seller is in compliance
with all federal, state and local laws and regulations respecting labor and
employment practices, terms and conditions of employment, occupational safety
and health, and wages and hours and is not engaged in any unfair labor
practices. There is not now, nor has there been within the preceding three (3)
years any employment contracts with employees of Seller not terminable at will.
Seller is not a party to any collective bargaining agreements with any labor
union or association. Seller has not experienced any work stoppage or other
labor difficulty. Neither Seller nor any affiliate of Seller maintains or has at
any time maintained a defined benefit pension plan. Neither Seller nor any
affiliate of Seller is required to contribute to a multiemployer pension plan.
All wages, compensation and benefits to employees of Seller that are due at the
Closing Date have been or will be paid by Seller, and are as set forth on
Schedule 4.17 hereof which lists all of the current employees of Seller for both
the Roseville Business and the Union Grove Business, with the corresponding
wages and other compensation. Seller is not a party to any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). Seller's employees are not entitled to receive
any other benefits, including, without limitation, any bonus, incentive,
deferred compensation, pension, profit sharing, vacation, sick pay, severance
pay or other plan, program, arrangement or agreement (whether written or oral)
or any medical, dental, life or disability insurance benefits (the "Employee
Plans").
4.18 RELATIONSHIPS. Seller's relationships with its agents,
brokers, dealers, distributors, representatives, customers and suppliers are
continuing and satisfactory, and, to the best of Seller's knowledge, neither the
performance of this Agreement nor the existence of any other matters or
conditions will have an adverse effect thereon, including without limitation the
Beeson Case or any other litigation initiated by Craig Beeson ("Beeson"). Seller
has terminated any and all agreements with Beeson and Seller represents and
warrants that Beeson does not have any rights, interests or claims in any of the
Assets or the Business, and Beeson does not currently represent the Seller in
any manner. All sales of merchandise and performances of services by Seller in
connection with the Business are in compliance with all of Seller's
representations, warranties and agreements, express or implied, with respect to
such sales and performances. Seller has no knowledge or information concerning
any material loss or potential loss of business to or from one or more of its
customers or suppliers.
4.19 ABSENCE OF SUBSEQUENT EVENTS AND CHANGES. Since January
1, 1995, Seller has operated the Business in the ordinary course and has not:
(i) incurred any adverse change in its conditions (financial or otherwise),
results of operations, properties, business or prospects, except changes in the
ordinary and normal course of business which, in the aggregate, have not been
materially adverse; (ii) incurred any damage, destruction or loss, whether
covered by insurance or not, adversely affecting the Assets or Business; (iii)
entered into any written or oral agreement, contract, commitment, lease or
release, other than in the ordinary and normal course of business and consistent
with past practices; (iv) sold, licensed, leased or otherwise disposed of any of
the Assets other than in the ordinary and normal course of business consistent
with past practices; (v) received any notice of uninsurability with respect to
any of the Assets; (vi) received any assessment with respect to the Business or
Assets; (vii) changed any accounting methods or elections; or (viii) entered
into an agreement to do any of the foregoing.
4.20 USE AND OPERATION OF PROPERTY. Seller does not know of
facts nor has Seller failed to disclose to Buyer any fact that would prevent
Buyer from using and operating the facility at which Seller conducts the
Business after Closing in the manner in which the facility has been used, leased
or operated prior to the date hereof. Seller has a valid leasehold interest in
all of the real property and personal property, tangible and intangible, leased
by it, free and clear of any liens, encumbrances or other third party rights.
Seller enjoys undisturbed quiet possession of the facility. No claim has been
asserted, nor is there any right of claim against Seller, materially adverse to
the rights of Seller in such facility, except in connection with the Beeson
Case. No material construction, alteration or other leasehold improvement work
with respect to any leasehold interest remains to be paid for or performed by
Seller.
4.21 PERFORMANCE OF EQUIPMENT. As of the Closing Date, the
Lamp Processing Equipment in Roseville, MN and the retorting/distilling
equipment in Union Grove, WI ("Retorting Equipment") (collectively, the
"Equipment") used in connection with the Business, operate in compliance with
and meet any and all federal, state or local environmental laws, regulations or
ordinances, as well as the terms of the Compliance Agreement described in
Section 10(i)(2) hereof, and the Legitimate Recovery and Reclamation Recycling
Exemption for Operation of a Mercury Waste Retort Furnace with the WDNR. The
data and test results attached hereto as Schedule 4.21, reflect all of the tests
conducted on the Equipment during 1995, and are true, complete and accurate in
all material respects.
4.22 REPRESENTATIONS OF SHAREHOLDER. Mark Edlund
("Shareholder"), as the sole shareholder of Seller, represents and warrants to
the Buyer that the foregoing representations and warranties of the Seller are
true and correct as of the Closing Date.
4.23 REPRESENTATIONS COMPLETE. No representations or
warranties of Seller and Shareholder in this Agreement, the Exhibits and
Schedules hereto, or any written statements, certificates, agreements or other
documents or instruments furnished or to be furnished to Buyer in connection
with the transactions contemplated hereby, contain or will contain any untrue
statements of a material fact, or omit or will omit to state a material fact
necessary to make the statements contained therein not misleading.
SECTION 5. REPRESENTATIONS OF BUYER. Buyer represents and warrants
that:
5.1 ORGANIZATION. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota
and has all requisite corpo rate power to execute, deliver and fully perform its
obligations under this Agreement and the transactions contemplated hereby.
5.2 AUTHORIZATION. This Agreement has been duly executed and
delivered by Buyer and has been duly and effectively authorized by the board of
directors of Buyer. No further corporate authorization or other authorization,
consent or approval by any governmental authority or by any other person is
necessary in respect of the execution, delivery and performance of this
Agreement by Buyer.
5.3 NO BAR TO TRANSACTION. This Agreement and all agreements
contemplated hereunder are valid, binding and enforceable in accordance with
their terms, subject to limitations that may result from bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditor's rights and
limitations on the remedy of specific performance and other forms of equitable
relief. There are no actions, suits, proceedings or investigations pending or,
to the best of Buyer's knowledge, threatened against or affecting Buyer, its
business or assets, and Buyer is not now a party to any pending legal action,
nor is Buyer a party to or subject to or bound by any agreement, judgment,
order, writ, injunction or decree of any court or governmental agency or
instrumentality, any of which contains any provision which would or could
operate to prevent the performance of this Agreement or any of the transactions
contemplated by this Agreement.
SECTION 6. ACCOUNTS RECEIVABLE. Seller and Shareholder represent and
guaranty to Buyer that all of the Seller's accounts receivable, including
without limitation, trade, non-trade and factored accounts receivable
(collectively referred to as the "Accounts Receivable") existing as of the
Closing have arisen from bona fide transactions by Seller, and are valid and
collectible at their face amounts. Accounts Receivable and any previously
collected accounts receivable are not subject to returns or allowances. Buyer
shall use commercially reasonable efforts to collect all Accounts Receivable
during the sixty (60) days after Closing; provided, however, Buyer shall not be
required to retain a collection agency or initiate legal proceedings for this
purpose. All payments received from trade creditors relating to their Accounts
Receivable shall be applied first to the applicable invoice to such account
debtor which is equal to the amount of such payment or which is specified by
such creditor, and, if none, to the oldest undisputed account. Within a
reasonable time following the sixty (60) day collection period following the
Closing, Buyer shall deliver to Seller a schedule of Accounts Receivable which
are uncollected, which shall list each Account Receivable of Seller existing at
Closing which has not been collected in full as of the date of such schedule and
which Buyer desires not to retain (the "Uncollected Accounts"). Seller and
Shareholder agree to repurchase, without recourse, by means of a setoff against
the Note, all of the Uncollected Accounts. On the date that the Buyer delivers
to Seller the schedule of uncollected Accounts Receivable (the "Delivery Date"),
the principal amount outstanding on the Note shall be reduced by the amount of
the Uncollected Accounts, plus the amount of interest that has accrued on the
portion of the principal amount of the Note equal to the Uncollected Accounts
from the Closing through the Delivery Date. Upon Seller's repurchase as provided
herein, Buyer shall unconditionally transfer all of its right, title and
interest in the Uncollected Accounts to Seller, without recourse.
SECTION 7. COVENANTS OF SELLER. Seller covenants that:
7.1 COVENANT NOT TO COMPETE.
(a) For a period of five (5) years from and after the Closing
Date, the Seller and Shareholder will not as an owner,
partner, shareholder, agent, representative, consultant,
director or in conjunction with others, engage in the lamp
recycling/processing or mercury distilling industry, either
directly or indirectly in any trade area serviced by Buyer
with respect to the Business, without the prior written
consent of Buyer; provided that an investment by Seller or
Shareholder of five percent (5%) or less of the outstanding
capital stock of any publicly traded entity, shall not be a
violation of this Section 7.1.
(b) The Seller and Shareholder will not alone or in
conjunction with others, for a period of five (5) years from
the Closing Date, solicit any customer of Buyer or any
affiliate thereof (the "Affiliates") if the purpose of any
such solicitation is to direct or recommend the doing of
business with any member of the lamp recycling/processing or
mercury distilling industry (including, but not limited to,
the types of businesses identified in Section 7.1, above).
Further, all information concerning customers of Buyer or the
Affiliates in the possession of the Seller or Shareholder
shall be kept as confidential and neither Seller or
Shareholder shall take, keep or retain any copies of the
names, addresses or any other information concerning such
customers nor will any such information be disclosed to any
person other than a person affiliated with the Seller or
pursuant to lawful legal process.
(c) For a period of five (5) years following the Closing Date,
neither Shareholder or Seller, nor an affiliate of either
shall, directly or indirectly, through an existing or to be
existing corporation, unincorporated business, affiliated
party, successor employer or otherwise (except in conjunction
with Seller), solicit or hire for employment any employee of
the Seller or any of its affiliates; provided, however, that
during such five (5) year period, a former employee of the
Seller or its affiliates may be solicited or hired by Seller,
Shareholder or an affiliate if such former employee has not
been an employee of the Buyer or its affiliates for more than
six (6) months immediately prior to the date of solicitation
or hire.
(d) Seller and Shareholder shall not, directly or indirectly,
through an existing or to be existing corporation,
unincorporated business, affiliated party or otherwise,
divulge, communicate, use to the detriment of Buyer or for the
benefit of any other person, or misuse in any way, any
confidential information or trade secrets of Seller or Buyer
concerning the Business.
(e) Notwithstanding the foregoing, Buyer agrees that if Buyer
reconveys to Seller the distribution rights to sell the Model
2000 Equipment, Seller and Shareholder shall not be subject to
the noncompete provisions of this Section 7.1 solely with
respect to sales of such Model 2000 Equipment. In addition,
the provisions of this Section 7.1 shall become null and void,
and Seller and Shareholder shall have no further obligation to
Buyer under this Section 7.1 upon the occurrence of any of the
following events:
(1) the failure of Buyer to pay when due (to the
extent not subject to offset) sums owing to Seller
under the terms of the Note, or under the terms of
the Distribution Rights Bill of Sale Agreement and
the Distribution Note(s) issued pursuant to the
Distribution Rights Agreement; or
(2) the Board of Directors of Buyer has determined
that it is in the best interests of the Buyer to
request an advance under the terms of that certain
Revolving Credit Promissory Note dated as of January
4, 1996 in the face principal amount of $2,000,000
made payable by Buyer to the order of Brad Buscher,
or his assigns ("Buscher"), as amended from time to
time (the "Revolving Note") to fund working capital
and expansion needs of Buyer prior to the
Determination (as defined in the Revolving Note), and
Buscher arbitrarily and unreasonably refuses to make
the requested advance to Buyer, and no Event of
Default (as defined in the Revolving Note) is
existing at the time of the requested advance.
(f) Seller and Shareholder acknowledge that the restrictions
contained in this Section 7.1 are reasonable and necessary to
protect the investment of Buyer and the Business purchased by
Buyer from the Seller, and that any violation of the
restrictions contained herein will cause substantial and
irreparable injury to the Buyer and, therefore, Seller and
Shareholder agree that Buyer shall be entitled, in addition to
any other remedies it may have available, to preliminary and
permanent injunctive relief to prevent a breach, contemplated
breach or continuation of a breach of Section 7.1 of this
Agreement. Section 7.1 of this Agreement shall be construed as
an independent covenant and the existence of any claim or
cause of action against Buyer or the Seller, whether
predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement hereof by Buyer of the
terms and provisions hereof.
SECTION 8. INDEMNIFICATION.
8.1 INDEMNIFICATION BY SELLER. Seller and Shareholder covenant
and agree to indemnify and hold harmless Buyer, at all times after the date of
this Agreement, against any and all damages, losses, costs or expenses,
including, without limitation, reasonable attorneys' fees and the costs and
expenses of investigation, to the extent not reimbursed by insurance
(collectively referred to as "Damages"), to the extent such Damages are or were
suffered or incurred and which relate to: (i) Seller's or Shareholder's breach
of its repre sentations or warranties contained herein or any document delivered
in connection herewith; (ii) Seller's or Shareholder's failure to perform any of
its covenants or agreements contained herein or any document delivered in
connection herewith; (iii) any claims against Buyer relating to the Business
which are Excluded Liabilities; (iv) any claims against Buyer relating to any
business conducted by the Seller or Shareholder, including without limitation
any claims asserted by Donald Seiler, Michael Seiler, RTI, or otherwise arising
from the Union Grove Business, whether or not in connection with the operation
of the business under the name "U.S. Technology, Inc." ("Seiler Claims"); (v)
any claims against Buyer based upon Seller's conduct of the Business on or prior
to the Closing Date, including any product liability or other claim relating to
any products sold by Seller on or prior to the Closing Date; (vi) any claims
against Buyer from Beeson, including without limitation, in connection with the
Beeson case described on Schedule 4.9 hereof; and (vii) any claim relating to
any environmental matters or a violation of any environmental law relating to
the Real Property or the Business, regardless of whether such claims were caused
by or were the responsibility of the Seller, including without limitation
arising from the transportation or storage of barrels of mercury or other
hazardous substances.
8.2 MAXIMUM INDEMNIFICATION BY SELLER. The Seller's and
Shareholder's obligation to indemnify the Buyer under this Agreement shall be
limited to (i) $200,000 (exclusive of interest thereon) for any and all Damages
arising out of or connected to the Roseville Business, and (ii) $200,000
(exclusive of interest thereon) for any and all Damages arising out of or
connected to the Union Grove Business; provided, however, that the foregoing
limits shall not apply to Damages arising out of the fraudulent or willful
conduct of Seller or Shareholder. Any claim for indemnification brought by Buyer
against Seller or Shareholder must be commenced within two (2) years of the
Closing Date; provided, however, that claims based upon fraud or willful
misconduct may be brought until the expiration of all applicable statutes of
limitation. Notwithstanding anything to the contrary, Seller shall only be
obligated to indemnify Buyer for attorneys fees and expenses incurred by Buyer
in connection with any Seiler Claims asserted against Buyer to the extent such
fees and expenses exceed $75,000, provided, however, that this shall not be
construed in any way to require Buyer to expend funds for defense of Seiler
Claims asserted against Seller.
8.3 DAMAGES - PAYMENT AND INTEREST BEARING. Any Damages with
respect to which either Buyer or Seller is entitled to indemnification pursuant
to this Agreement shall be paid within thirty (30) days after determination and
shall include and bear interest until paid in full at the rate of ten percent
(10%) per annum from the original date of the event or the breach of warranty,
representation or covenant which caused the Damages.
8.4 OFFSET AGAINST NOTE. Seller acknowledges and agrees that
Buyer may offset any Damages with respect to which Buyer is entitled to
indemnification, against amounts owing by Buyer to Seller under the Note and
those certain Distribution Note(s) issued pursuant to the Distribution Rights
Bill of Sale Agreement ("Distribution Note(s)"), and Seller hereby authorizes
Buyer to offset the Damages against the sums owing on the Note and/or the
Distribution Note(s), in such order and manner as Buyer determines in its sole
discretion.
8.5 INDEMNIFICATION BY BUYER. Buyer covenants and agrees to
indemnify and hold harmless Seller at all times after the date of the Agreement
against any and all Damages to the extent that such Damages are or were suffered
or incurred and which relate to: (i) Buyer's breach of its representations or
warranties contained herein; (ii) Buyer's failure to perform any of its
covenants or agreements contained herein; and (iii) any claims against Seller
based upon Buyer's conduct of the Business after the Closing Date, including any
product liability or other claim relating to any products sold by Buyer after
the Closing Date (to the extent such product liability does not arise from a
product developed by Seller or Shareholder).
8.6 SURVIVAL. All representations, warranties and covenants
contained in this Agreement or the Exhibits or Schedules hereto, or any
certificate or other instrument delivered by or on behalf of either party in
connection with this Agreement, shall be deemed to be representations,
warranties or covenants of the party making the same and shall survive the
Closing.
8.7 NOTIFICATION OF INDEMNIFICATION CLAIM. Buyer shall give
the Seller and Shareholder written notice of any claim for indemnification
pursuant to this Article 8 within 30 days after Buyer receives notice, or
becomes aware of, an event giving rise to such claim for indemnification. Buyer
shall also give the Seller and Shareholder copies of all information and
documents relating to any third party claim that are received by Buyer within 20
days after Buyer's receipt thereof. Buyer shall allow the Seller and Shareholder
the right to select counsel for any third party claim, which counsel shall be
reasonably satisfactory to Buyer, to defend any such action, proceeding, claim,
demand or assessment giving rise to claim for indemnification pursuant to this
Article 8, all at the sole cost and expense of the Seller and Shareholder;
provided, however, that Buyer shall be allowed, at its expense, to participate
in such defense; provided, further, that no settlement shall be entered into
without the approval of Buyer; provided, further, that in the event the Seller
offers to settle a claim on terms acceptable to the third party claimant, which
settlement Buyer does not consent to, Buyer shall be responsible for all losses
with respect to such claim which exceed the proposed settlement amount,
including all legal expenses and costs incurred after the date the Seller and
Shareholder initially gave notice to Buyer seeking its consent to the proposed
settlement. Should the Seller and Shareholder refuse to accept the tender, it
shall be Buyer's obligation to reasonably inform the Seller and Shareholder of
the status and progress of any ensuing litigation provided such information is
requested by the Seller and Shareholder. Buyer will make a good faith attempt to
mitigate the loss with respect to which such indemnification claim is made, if
such indemnification claim is based upon any claim, demand, suit or action by
any third party (a "Third Party Claim") the tender of which is denied by the
Seller and Shareholder. Buyer shall make a good faith effort to defend against
such Third Party Claim as if no indemnification was available hereunder. The
Seller and Shareholder shall cooperate with Buyer in the defense of any Third
Party Claim. Buyer shall provide the opportunity to participate in (but not
control) the defense of such Third Party Claim at Seller's and Shareholder's
expense in the event the Seller and Shareholder refuse to accept the tender and
Seller and Shareholder shall allow Buyer to participate in (but not control) the
defense of such Third Party Claim at its own expense in the event Seller and
Shareholder accept the tender.
SECTION 9. ADDITIONAL AGREEMENTS OF THE PARTIES.
9.1 ACCESS TO INFORMATION. Seller agrees to make available to
Buyer, its attorneys, accountants and professional advisors, all financial and
other data, all books and records and all appropriate employees, consultants and
advisors, and will provide such assistance as reasonably requested by Buyer to
permit Buyer to conduct its investigation of the Business. Seller also agrees to
provide Buyer with reasonable access to its material customers and suppliers
during Buyer's due diligence investigation. Buyer and its agents and
representatives shall treat all information obtained in such investigation as
confidential, and shall not disclose such information unless required by law, or
unless such information has otherwise become publicly available.
9.2 CONDUCT OF BUSINESS UNTIL CLOSING DATE. From and after the
date hereof until the Closing Date, Seller shall:
(a) operate the Business only in the usual, regular and
ordinary manner and, to the extent consistent with such operation, to (i)
preserve the present business organization intact; (ii) use its best efforts to
keep available the services of Seller's present significant employees; and (iii)
use its best efforts to preserve Seller's present business relationships with
customers, suppliers and others having business dealings with Seller;
(b) maintain all properties necessary for the conduct of the
Business in substantially the same condition as they now are (reasonable wear
and tear excepted);
(c) maintain its books, records and accounts in the usual,
regular and ordinary manner on a basis consistent with prior periods;
(d) duly comply with all laws and regulations known to be
applicable to it and to the conduct of the Business;
(e) not make capital expenditures in excess of $1,000 without
Buyer's approval upon due consultation;
(f) not order any new inventory without Buyer's approval upon
due consultation; and
(g) perform all of its material obligations without default.
9.3 RISK OF LOSS. The risk of damage to the Assets by fire or
any act of God shall remain with Seller until the delivery of the Bill of Sale,
or other applicable instruments of conveyance, if any.
9.4 BROKER'S FEES. Seller and Buyer warrant and represent to
each other that all negotiations relevant to this Agreement and the transactions
contemplated hereby have been carried on by Seller with Buyer and that there are
no brokerage or finders' fees or commissions payable to any parties as a result
of this Agreement.
9.5 FURTHER ASSURANCES. Subject to the terms and conditions
herein provided, the parties hereto shall take or cause to be taken any and all
actions and do or cause to be done any and all things necessary, proper or
advisable under applicable laws to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated hereby, including, but not
limited to, the obtaining of all consents, authorizations, orders and approvals
of any third person and the making of all filings and the giving of all notices.
9.6 EXPENSES. Each party shall be responsible and liable for
all expenses which it has incurred with regard to the transactions governed by
this Agreement, including all attorney's and accountant's fees.
9.7 TAXES AND EXPENSES. All expenses related to the operation
of the Business, including, without limitation, all employee compensation, all
federal and state payroll and other taxes, and all utility and other charges
incurred by Seller up to and including the Closing Date, shall be the
responsibility of and shall be paid in full by Seller when due, but no later
than thirty (30) days after Closing, except that any payroll or income taxes
shall be paid at the time required by law.
9.8 PAYMENT OF TRANSFER FEES AND TAXES. Seller shall pay any
transfer tax, sales and use tax or other fee or charge imposed by any
governmental agency for the purchase, assumption, assignment or transfer arising
from or in connection with the purchase of the Assets or the assumption of the
Assumed Liabilities.
SECTION 10. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All of the
agreements and obligations of Buyer under this Agreement are subject to the
fulfillment, on or prior to the Closing Date, of the following conditions
precedent:
(a) Buyer shall have entered into an assumption of the
Seller's lease agreement with St. Paul Properties, Inc. (the
"Landlord"), acceptable to Buyer in its sole discretion, for
the lease of the facility at 2001 West County Road C-2,
Roseville, Minnesota, or a sublease of Seller's rights under
the Seller's lease agreement, either of which shall be with
the written consent of the Landlord.
(b) Buyer shall have entered into an acceptable assumption or
sublease of the lease agreement for the Union Grove facility
with the written consent of Durand Properties (the "Wisconsin
Landlord").
(c) Buyer shall have entered into an acceptable assumption or
sublease of the lease agreement for the Roseville office at
1700 West Highway 36, with the written consent of the
landlord.
(d) The representations and warranties of Seller and
Shareholder contained in this Agreement shall be true and
correct at the time of Closing in all respects as though such
representations and warranties were made at and as of the
Closing.
(e) There shall not have occurred any material adverse change
in the condition, financial or otherwise, of Seller, the
Business or the Assets.
(f) Other than the Beeson case, no action, proceeding or
investigation shall be pending or threatened by any person,
entity or governmental body or agency to restrain or prohibit
the purchase and sale of the Assets hereunder or restrain or
prohibit Buyer from carrying on the Business as it is
currently being conducted on the date hereof.
(g) Buyer shall be satisfied in its sole discretion with its
due diligence review of the Business and the Assets.
(h) Seller shall have delivered to Buyer corporate resolutions
authorizing this transaction, and an opinion of Seller's
counsel in form and substance acceptable to Buyer and its
counsel.
(i) Seller shall have delivered to Buyer at or prior to
Closing the following:
(1) Evidence satisfactory to the Buyer that the MPCA
and WDNR authority permitting the Seller's operation of the
Roseville Business and the Union Grove Business respectively
is in full force and effect.
(2) A Compliance Agreement between the MPCA and Buyer
(which does not require execution by Shareholder) in final
form for execution at Closing, together with the Storage
Agreement required under the terms of the Compliance
Agreement, and evidence that Seller has completed the
processing and disposal of the mercury barrels pursuant to the
Compliance Agreement and is otherwise in compliance with the
terms of the Compliance Agreement.
(3) Such other documents as may be requested by Buyer
relating to the Business.
(j) Satisfaction of any outstanding environmental issues in a
manner acceptable to Buyer.
(k) At the Closing, those creditors of Seller listed on
Schedule 10(k) hereof, secured and unsecured, shall be paid in
full the amount owed to them, whether or not the full amount
owing is at the time of the Closing, and each such creditor
shall have executed a UCC-3 termination financing statement if
applicable.
(l) Buyer and Shareholder shall have entered into an
employment agreement in form and substance acceptable to
Buyer.
(m) There shall not have been a materially adverse development
relating to the Union Grove Business and Donald Seiler,
Michael Seiler and RTI, other than as expressly disclosed in
writing to Buyer.
(n) Confirmation of payment of any amounts due and payable by
Seller to Kathleen Pytleski.
(o) Seller shall have executed and delivered to Buyer the
Distribution Rights Bill of Sale Agreement.
(p) Seller shall cause all insurance policies covering the
Business to list Buyer as an additional insured for a period
of 45 days after Closing.
(q) Deliver to Buyer a certified check payable to Bankers
American Capital Corporation ("BACC") in the amount of $50,000
in return of the earnest money previously deposited with
Seller (the "Earnest Money"), and the sum of $1,800 in
reimbursement of costs and expenses advanced by BACC to
Seller.
SECTION 11. TERMINATION. This Agreement may be terminated at any time
on or prior to the Closing Date:
(a) By written notice of Buyer if there shall have been a
breach of any of Seller's or Shareholder's representations,
warranties, covenants or agreements contained in this
Agreement.
(b) By written notice of Buyer if Buyer is unable to enter
into an acceptable sublease agreement, or acceptable
assumption agreement with respect to either the Roseville or
Union Grove facilities.
(c) By written notice of Buyer if any of the conditions of
closing set forth in Section 10 are not met as of the Closing
Date.
(d) By written notice of Buyer or Seller if the Closing shall
not have occurred on or before February 1, 1996 for any reason
other than the breach of this Agreement by the party tendering
notice of termination.
(e) By written notice of Seller if there shall have been a
breach of any of Buyer's representations, warranties,
covenants or agreements contained in this Agreement.
Upon termination of this Agreement pursuant to subsections (a) through (e)
above, none of the parties shall have any further liability or obligation to the
other parties, and Seller shall return to Buyer the Earnest Money.
SECTION 12. MISCELLANEOUS PROVISIONS.
12.1 CHANGES; WAIVERS. Neither this Agreement nor any
provision hereof may be changed, amended, waived, discharged or terminated
orally, but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
12.2 NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail
or by facsimile:
If to Seller: U.S. ENVIRONMENTAL INCORPORATED
1700 West Highway 36
Roseville, Minnesota 55113
Facsimile No. (612) 635-0081
If to Buyer: MERCURY WASTE SOLUTIONS, INC.
302 N. Riverfront Drive
Mankato, Minnesota 56001
Facsimile No. (507) 345-1483
or at such other address as Seller or Buyer may specify by written notice to the
other and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given when delivered
personally, or, if sent by mail, when deposited in the United States mail,
certified mail, postage prepaid, return receipt requested, or if by facsimile,
on the date of transmission.
12.3 SEVERABILITY. If any term, provision, covenant or
agreement contained in this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and agreements of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. It is
hereby stipulated and declared to be the intention of the parties hereto that
they would have executed the remaining terms, provisions, covenants and
agreements without including any of such which may hereafter be declared
invalid, void or unenforceable.
12.4 PARTIES IN INTEREST. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties and their respective heirs, successors and permitted assigns.
12.5 COMPLETE AGREEMENT. This Agreement, Exhibits and
Schedules attached hereto, and the agreements referenced herein, contain the
entire agreement between the parties hereto with respect to the sale and
purchase of the Assets, the warranties and representations of the parties and
the other transactions contemplated hereby. These agreements supersede all prior
agreements between the parties with respect to such matters, whether written or
oral.
12.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute but one agreement.
12.7 BENEFIT. Nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties to this Agreement or
their permitted successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
12.8 ASSIGNMENT. Neither this Agreement, nor the rights and
obligations of the parties hereto, may be assigned by any of the parties hereto,
except that Seller may assign its right to receive payments hereunder to any
person or entity and Buyer may assign its rights and obligations hereunder to
any affiliate of Buyer.
12.9 REMEDIES. Except as otherwise specifically provided, no
remedy conferred in this Agreement is intended to be exclusive and each shall be
cumulative and shall be in addition to every other remedy, and the election of
any one or more remedies shall not constitute a waiver of any other remedy.
12.10 GOVERNING LAW/VENUE. This Agreement shall be governed by
the internal laws of the State of Minnesota. The parties hereto hereby consent
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection with any controversy related to this Agreement,
or any of the documents delivered in connection herewith, waive any argument
that venue in such forums is not convenient and agree that any litigation
instigated by either party shall be venued in either the District Court of
Hennepin County, Minnesota or the United States District Court for the District
of Minnesota, Fourth Division.
IN WITNESS WHEREOF, the parties hereto have executed the Asset Purchase
Agreement on the day and year first above written.
MERCURY WASTE SOLUTIONS, INC.
By ___________________________________
Brad Buscher, Chairman
"Buyer"
U.S. ENVIRONMENTAL, INCORPORATED
By ___________________________________
Mark Edlund, President
"Seller"
Acknowledgement of the Shareholder
The undersigned, the sole shareholder of U.S. Environmental, Inc., is
signing this Agreement for the sole purpose of acknowledging and agreeing to be
bound by the terms and provisions of Sections 4.22, 6, 7.1, 8.1 and 12.9 of this
Agreement, which provisions the undersigned agrees shall be binding upon him and
shall inure to the benefit of Buyer.
___________________________________
Mark Edlund
Exhibit
- -------
A-1 List of Accounts Receivable/List of Certain Assets
A-2 List of Contracts/Leases Assumed
A-3 Union Grove Costs/Estimates
B Promissory Note
C Allocation of Purchase Price
D-1 Bill of Sale
D-2 Distribution Rights Bill of Sale Agreement
Schedule
- --------
4.9 Litigation
4.10 Contracts
4.15 Environmental Compliance/Violations
4.17 Employees
4.21 Environmental Data and Test Results
10.1(k) Creditors
The Company will provide copies of omitted schedules and attachments upon
request.
COMMERCIAL LEASE
THIS INDENTURE of lease, dated this 25th day of February, 1993, by and
between St. Paul Properties, Inc., a Delaware Corporation hereinafter referred
to as "Lessor," and Professional Resources International, LTD., a Minnesota
corporation hereinafter referred to as "Lessee."
DEFINITIONS:
"Premises" - That certain real property located in the City of
Roseville, County of Ramsey and State of Minnesota and legally described on
Exhibit "A" attached hereto and made a part hereof, including all buildings and
site improvements located thereon.
"Building" - That certain building containing approximately 60,000
square feet located upon the Premises and commonly described as 2001 - 2019 West
County Road C-2.
"Demised Premises" - That certain portion of the Building located at
2007 West County Road C-2 and designated as Bays --- through ---, consisting of
approximately 6,490 square feet (1,763 square feet of office space and 4,727
square feet of warehouse space), as measured from the outside walls of the
Demised Premises to the center of the partition wall, as shown on the floor plan
attached hereto as Exhibit "B" and made a part hereof. The Demised Premises
include a non-exclusive easement for access to common areas, as hereinafter
defined, and all licenses and easements appurtenant to the Demised Premises.
"Common Areas" - The term "common area" means the entire areas to be
used for the non-exclusive use by Lessee and other lessees in the Building,
including, but not limited to, corridors, lavatories, driveways, truck doors,
parking lots and landscaped areas. Subject to reasonable rules and regulations
promulgated by Lessor, the common areas are hereby made available to Lessee and
its employees, agents, customers, and invitees for reasonable use in common with
other lessees, their employees, agents, customers and invitees.
WITNESSETH:
TERM:
1. For and in consideration of the rents, additional rents, terms,
provisions and covenants herein contained, Lessor hereby lets, leases and
demises to Lessee the Demised Premises for the term of 60 months commencing on
the 1st day of April, 1993 (sometimes called "the Commencement Date") and
expiring the 31st day of March, 1998 (sometimes called "Expiration Date"),
unless sooner terminated as hereinafter provided.
BASE RENT: See #1 of attached Exhibit "C" of this Lease.
ADDITIONAL RENT:
3. Lessee shall pay to Lessor throughout the term of this Lease the
following:
a. Lessee shall pay a sum equal to ten and 82/100 percent
(10.82%) of the Real Estate taxes. The term "Real Estate Taxes" shall mean all
real estate taxes, all assessments and any taxes in lieu thereof which may be
levied upon or assessed against the Premises of which the Demised Premises are a
part. Lessee, in addition to all other payments to Lessor by Lessee required
hereunder shall pay to Lessor, in each year during the term of this Lease and
any extension or renewal thereof, lessee's proportionate share of such real
estate taxes and assessments paid in the first instance by Lessor.
Any tax year commencing during any lease year shall be deemed to
correspond to such lease year. In the event the taxing authorities include in
such real estate taxes and assessments the value of any improvements made by
Lessee, or of machinery, equipment, fixtures, inventory or other personal
property or assets of Lessee, then Lessee shall pay all the taxes attributable
to such items in addition to its proportionate share of said aforementioned real
estate taxes and assessments. A photostatic copy of the tax statement submitted
by Lessor to Lessee shall be sufficient evidence of the amount of taxes and
assessments assessed or levied against the Premises of which the Demised
Premises are a part, as well as the items taxed.
b. A sum equal to ten and 82/100 percent (10.82%) of the
annual aggregate operating expenses incurred by Lessor in the operation,
maintenance and repair of the Premises. The term "Operating Expenses shall
include but not be limited to maintenance, repair, replacement and care of all
common area lighting, common area plumbing and roofs, parking and landscaped
areas, signs, snow removal, non-structural repair and maintenance of the
exterior of the Building, insurance premiums, management fee, wages and fringe
benefits of personnel employed for such work, costs of equipment purchased and
used for such purposes, and the cost or portion thereof properly allocable to
the Premises (amortized over such reasonable period as Lessor shall determine
together with the interest at the rate of 14% per annum on the unamortized
balance) of any capital improvements made to the Building by Lessor after the
Base year which result in a reduction of Operating Expenses or made to the
Building by Lessor that are required under any governmental law or regulation
that was not applicable to the Building at the time it was constructed.
c. The payment of the sums set forth in this Article 3 shall
be in addition to the Base Rent payable pursuant to Article 2 of this Lease. All
sums due hereunder shall be due and payable within thirty (30) days of delivery
of written certification by Lessor setting forth the computation of the amount
due from Lessee. In the event the lease term shall begin or expire at any time
during the calendar year, the Lessee shall be responsible for his prorata share
of Additional Rent under subdivisions a. and b. during the Lease and/or
occupancy time.
Prior to commencement of this Lease, and prior to the commencement of
each calendar year thereafter commencing during the term of this Lease or any
renewal or extension thereof, Lessor may estimate for each calendar year (i) the
total amount of Real Estate Taxes; (ii) the total amount of Operating Expenses:
(iii) Lessee's share of Real Estate Taxes for such calendar year; (iv) Lessee's
share of Operating Expenses for such calendar year; and (v) the computation of
the annual and monthly rental payable during such calendar year as a result of
increases or decreases In Lessee's share of Real Estate Taxes and Operating
Expenses. Said estimates will be in writing and will be delivered or mailed to
Lessee at the Premises.
The amount of Lessee's share of Real Estate Taxes, and Operating
Expenses for each calendar year, so estimated, shall be payable as Additional
Rent, in equal monthly installments, in advance, on the first day of each month
during such calendar year at the option of Lessor. In the event that such
estimate is delivered to Lessee before the first day of January of such calendar
year, said amount, so estimated, shall be payable as additional rent in equal
monthly installments, in advance, on the first day of each month during such
calendar year. In the event that such estimate is delivered to Lessee after the
first day of January of such calendar year, said amount, so estimated, shall be
payable as additional rent in equal monthly installments, in advance, on the
first day of each month over the balance of such calendar year, with the number
of installments being equal to the number of full calendar months remaining in
such calendar year.
Upon completion of each calendar year during the term of this Lease or
any renewal or extension thereof. Lessor shall cause its accountants to
determine the actual amount or the Real Estate Taxes, and Operating Expenses
payable in such calendar year and Lessee's share thereof and deliver a written
certification of the amounts thereof to Lessee. If Lessee has underpaid its
share of Real Estate Taxes, or Operating Expenses for such calendar year, Lessee
shall pay the balance of its share of same within ten (10) days after the
receipt of such statement. If Lessee has overpaid its share of Real Estate
Taxes, or Operating Expenses for such calendar year, Lessor shall, at Lessor's
option, either (i) refund such excess or (ii) credit such excess against the
most current monthly installment or installments due Lessor for its estimate of
Lessee's share of Real Estate Taxes, and Operating Expenses for the next
following calendar year. A prorata adjustment shall be made for a fractional
calendar year occurring during the term of this Lease or any renewal or
extension thereof based upon the number of days of the term of the Lease during
said calendar year as compared to three hundred sixty-five (365) days and all
additional sums payable by Lessee or credits due Lessee as a result of the
provisions of this Article 3 shell be adjusted accordingly.
COVENANT TO PAY RENT:
4. The covenants of Lessee to pay the Base Rent and the Additional Rent
are each independent of any other covenant, condition, provision or agreement
contained in this Lease. All rents are payable to:
St. Paul Properties, Inc., SDS-12-0613,
Minneapolis, MN 55486
UTILITIES:
5. Lessor shall provide mains and conduits to supply water, gas,
electricity and sanitary sewage to the Premises. Lessee shall pay, when due, all
charges for sewer usage or rental, garbage, disposal, refuse removal, water,
electricity, gas, fuel oil. L.P. gas, telephone and/or other utility services or
energy source furnished to the Demised Premises during the term of this Lease,
or any renewal or extension thereof. If Lessor elects to furnish any of the
foregoing utility services or other services furnished or caused to be furnished
to Lessee, then the rate charged by Lessor shall not exceed the rate Lessee
would be required to pay to a utility company or service company furnishing any
of the foregoing utilities or services. The charges thereof shall be deemed
Additional Rent in accordance with Article 3.
CARE AND REPAIR OF DEMISED PREMISES:
6. Lessee shall, at all times throughout the term of this Lease,
including renewals and extensions, and at its sole expense, keep and maintain
the Demised Premises in a clean, safe, sanitary and first class condition and in
compliance with all applicable laws, codes, ordinances, rules and regulations.
Lessee's obligations hereunder shall include but not be limited to the
maintenance, repair and replacement, if necessary, of heating, air conditioning
fixtures, equipment, and systems, all lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, all interior walls, partitions, doors
and windows, including the regular painting thereof, all exterior entrances,
windows, doors and docks and the replacement of all broken glass. When used in
this provision, the term "repairs" shall include replacements or renewals when
necessary, and all such repairs made by the Lessee shall be equal in quality and
class to the original work. The Lessee shall keep and maintain all portions of
the Demised Premises and the sidewalk and areas adjoining the same in a clean
and orderly condition, free of accumulation of dirt, rubbish, snow and ice.
If Lessee fails, refuses or neglects to maintain or repair the Demised
Premises as required in this Lease after notice shall have been given Lessee, in
accordance with Article 33 of this Lease, Lessor may make such repairs without
liability to Lessee for any loss or damage that may accrue to Lessee's
merchandise, fixtures or other property or to Lessee's business by reason
thereof, and upon completion thereof, Lessee shall pay to Lessor all costs plus
15% for overhead incurred by Lessor in making such repairs upon presentation to
Lessee of bill therefor.
Lessor shall repair, at its expense, the structural portions of the
Building, provided however where structural repairs are required to be made by
reason of the acts of Lessee, the costs thereof shall be borne by Lessee and
payable by Lessee to Lessor upon demand.
The Lessor shall be responsible for all outside maintenance of the
Demised Premises, including grounds and parking areas. All such maintenance
which is the responsibility of the Lessor shall be provided as reasonably
necessary to the comfortable use and occupancy of Demised Premises during
business hours, except Saturdays, Sundays and holidays, upon the condition that
the Lessor shall not be liable for damages for failure to do so due to causes
beyond its control.
SIGNS:
7. Any sign, lettering, picture, notice or advertisement installed on
or in any part of the Premises and visible from the exterior of the Building, or
visible from the exterior of the Demised Premises, shall be approved and
installed by Lessor at Lessee's sole cost and expense. Said signs are to be
maintained by Lessor at Lessee's expense. In the event of a violation of the
foregoing by Lessee, Lessor may remove any unauthorized signs without any
liability to Lessor and may charge the expense incurred by such removal to
Lessee.
ALTERATIONS, INSTALLATION, FIXTURES:
8. Except as hereinafter provided, Lessee shall not make any
alteration, additions or improvements in or to the Demised Premises or add,
disturb or in any way change any plumbing or wiring therein without the prior
written consent of the Lessor. In the event alterations are required by any
governmental agency by reason of the use and occupancy of the Demised Premises
by Lessee, Lessee shall make such alterations at its own cost and expense after
first obtaining Lessor's written approval of plans and specifications therefor
and furnishing such indemnification as Lessor may reasonably require against
liens, costs, damages and expenses aris ing out of such alterations. Lessee
shall pay Lessor additional Base Rent and Additional Rent based on the
additional number of rentable square feet in the Demised Premises after
construction of any alteration or addition. Alterations or additions by Lessee
must be built in compliance with all laws, ordinances and governmental
regulations affecting the Premises and Lessee shall warrant to Lessor that all
such alterations, additions, or improvements shall be in strict compliance with
all relevant laws, ordinances, governmental regulations, and insurance
requirements. Construction of such alterations or additions shall commence only
upon Lessee obtaining and exhibiting to Lessor the requisite approvals, licenses
and permits and indemnification against liens. All alterations, installations,
physical additions or improvements to the Demised Premises made by Lessee shall
at once become the property of Lessor and shall be surrendered to Lessor upon
the termination of this Lease; provided, however, this clause shall not apply to
movable equipment or furniture owned by Lessee which may be removed by Lessee at
the end of the term of this Lease without damaging the Demised Premises and if
Lessee is not then in default.
POSSESSION:
9. Except as hereinafter provided Lessor shall deliver possession of
the Demised Premises to Lessee in the condition required by this Lease on or
before the Commencement Date, but delivery of possession prior to or later than
such Commencement Date shall not affect the expiration date of this Lease. The
rentals herein reserved shall commence on the date when possession of the
Demised Premises is delivered by Lessor to Lessee. Any occupancy by Lessee prior
to the beginning of the term shall in all respects be the same as that of a
Lessee under this Lease, Lessor shall have no responsibility or liability for
loss or damage to fixtures, facilities or equipment installed or left on the
Demised Premises. If Demised Premises are not ready for occupancy by
Commencement Date and possession is later than Commencement Date, rent shall
begin on date of possession.
SECURITY AND DAMAGE DEPOSIT:
10. Lessee contemporaneously with the execution of this Lease, has
deposited with Lessor the sum of ______________________________________________
Dollars ($ -0- ), receipt of which is acknowledged hereby by Lessor, which
deposit is to be held by Lessor, without liability for interest, as a security
and damage deposit for the faithful performance by Lessee during the term hereof
or any extension hereof. Prior to the time when Lessee shall be entitled to the
return of this security deposit, Lessor may co-mingle such deposit with Lessor's
own funds and to use such security deposit for such purpose as Lessor may
determine. In the event of the failure of Lessee to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by Lessee
during the term hereof or any extension hereof, then Lessor, either with or
without terminating this Lease, may (but shall not be required to) apply such
portion of said deposit as may be necessary to compensate or repay Lessor for
all losses or damages sustained or to be sustained by Lessor due to such breach
on the part of Lessee, including, but not limited to overdue and unpaid rent,
any other sum payable by Lessee to Lessor pursuant to the provisions of this
Lease, damages or deficiencies in the reletting of Demised Premises, and
reasonable attorney's fees incurred by Lessor. Should the entire deposit or any
portion thereof, be appropriated and applied by Lessor, in accordance with the
provisions of this paragraph, Lessee upon written demand by Lessor, shall remit
forthwith to Lessor a sufficient amount of cash to restore said security deposit
to the original sum deposited, and Lessee's failure to do so within five (5)
days after receipt of such demand shall constitute a breach of this Lease. Said
security deposit shall be returned to Lessee, less any depletion thereof as the
result of the provisions of this paragraph, at the end of the term of this Lease
or any renewal thereof, or upon the earlier termination of this Lease. Lessee
shall have no right to anticipate return of said deposit by withholding any
amount required to be paid pursuant to the provision of this Lease or otherwise.
In the event Lessor shall sell the Premises, or shall otherwise convey
or dispose of its interest in this Lease, Lessor may assign said security
deposit or any balance thereof to Lessor's assignee, whereupon Lessor shall be
released from all liability for the return or repayment of such security deposit
and Lessee shall look solely to the said assignee for the return and repayment
of said security deposit. Said security deposit shall not be assigned or
encumbered by Lessee without the written consent of Lessor, and any assignment
or encumbrance without such consent shall not bind Lessor. In the event of any
rightful and permitted assignment of this Lease by Lessee, said security deposit
shall be deemed to be held by Lessor as a deposit made by the assignee, and
Lessor shall have no further liability with respect to the return of said
security deposit to the Lessee.
USE:
11. The Demised Premises shall be used and occupied by Lessee solely
for the purposes of recycling fluorescent light bulbs and Lessee agrees that
such use shall be in compliance with all applicable laws, ordinances and
governmental regulations affecting the Building and Premises. Lessee shall
immediately discontinue any use of the Demised Premises which is not in
compliance with an applicable laws, ordinances or governmental regulations. The
Demised Premises shall not be used in such manner that, in accordance with any
requirement of law or of any public authority, Lessor shall be obliged on
account of the purpose or manner of said use to make any addition or alteration
to or in the Building. The Demised Premises shall not be used in any manner
which will increase the rates required to be paid for public liability or for
fire and extended coverage insurance covering the Premises. Lessee shall occupy
the Demised Premises, conduct its business and control its agents, employees,
invitees and visitors in such a way as is lawful, and reputable and will not
permit or create any nuisance, noise, odor, or otherwise interfere with, annoy
or disturb any other tenant in the Building in its normal business operations or
Lessor in its management of the Building. Lessee's use of the Demised Premises
shall conform to all the Lessor's rules and regulations relating to the use of
the Premises. Outside storage on the Premises of any type of equipment, property
or materials owned or used on the Premises by Lessee or its customers and
suppliers shall not be permitted.
ACCESS TO DEMISED PREMISES:
12. Lessee agrees to permit Lessor and the authorized representatives
of Lessor to enter the Demised Premises at all times during usual business hours
for the purpose of inspecting the same and making any necessary repairs to the
Demised Premises and performing any work therein that may be necessary to comply
with any laws, ordinances, rules, regulations or requirements of any public
authority or of the Board of Fire Underwriters or any similar body or that
Lessor may deem necessary to prevent waste or deterioration in connection with
the Demised Premises. Nothing herein shall imply any duty upon the part of
Lessor to do any such work which, under any provision of this Lease, Lessee is
required to perform and the performance thereof by Lessor shall not constitute a
waiver of the Lessee's default in failing to perform the same. Lessor may,
during the progress of any work in the Demised Premises, keep and store upon the
Demised Premises all necessary materials, tools and equipment. Lessor shall not
in any event be liable for inconvenience, annoyance, disturbance, loss of
business, or ether damage of the Lessee by reason of making repairs or the
performance of any work in the Demised Premises, or on account of bringing
materials, supplies and equipment into or through the Demised Premises during
the course thereof and the obligations of the Lessee under this Lease shall not
thereby be affected in any manner whatsoever.
Lesser reserves the right to enter upon the Demised Premises (a) at any
time in the event of an emergency and (b) at reasonable hours to exhibit the
Demised Premises to prospective purchasers or others; and to exhibit the Demised
Premises to prospective tenants and to display "For Rent" or similar signs on
windows or doors in the Demised Premises during the last one hundred twenty
(120) days of the term of this Lease, all without hindrance or molestation by
Lessee.
EMINENT DOMAIN:
13. In the event of any eminent domain or condemnation proceeding or
private sale in lieu thereof in respect to the Premises during the term thereof,
the following provisions shall apply:
a. If the whole of the Premises shall be acquired or condemned
by eminent domain for any public or quasi-public use or purpose, then the term
of this Lease shall cease and terminate as of the date possession shall be taken
in such proceeding and all rentals shall be paid up to that date.
b. If any part constituting less than the whole of the
Premises shall be acquired or condemned as aforesaid, and in the event that such
partial taking or condemnation shall materially affect the Demised Premises so
as to render the Demised Premises unsuitable for the business of the Lessee. In
the opinion of Lessor, then the term of this Lease shall cease and terminate as
of the date possession shall be taken by the condemning authority and rent shall
be paid to the date of such termination.
In the event of a partial taking or condemnation of the Premises which
shall not materially affect the Demised Premises so as to render the Demised
Promises unsuitable for the business of the Lessee, in the opinion of the
Lessor, this Lease shall continue in full force and effect but with a
proportionate abatement of the Base Rent and Additional Rent based on the
portion, if any, of the Demised Premises taken. Lessor reserves the right, at
its option, to restore the Building and the Demised Premises to substantially
the same condition as they were prior to such condemnation. In such event,
Lessor shall give written notice to Lessee, within 30 days following the date
possession shall be taken by the condemning authority, of Lessor's intention to
restore. Upon Lessor's notice of election to restore, Lessor shall commence
restoration and shall restore the Building and the Demised Premises with
reasonable promptness, subject to delays beyond Lessor's control and delays in
the making of condemnation or sale proceeds adjustments by Lessor; and Lessee
shall have no right to terminate this Lease except as herein provided. Upon
completion of such restoration, the rent shall be adjusted based upon the
portion, if any, of the Demised Premises restored.
c. In the event of any condemnation or taking as aforesaid,
whether whole or partial, the Lessee shall not be entitled to any part of the
award paid for such condemnation and Lessor is to receive the full amount of
such award, the Lessee hereby expressly waiving any right to claim to any part
thereof.
d. Although all damages in the event of any condemnation shall
belong to the Lessor whether such damages are awarded as compensation for
diminution in value of the leasehold or to the fee of the Demised Premises,
Lessee shall have the right to claim and recover from the condemning authority,
but not from Lessor, such compensation as may be separately awarded or
recoverable by Lessee in Lessee's own right on account of any and all damage to
Lessee's business by reason of the condemnation and for or on account of any
cost or loss to which Lessee might be put in removing Lessee's merchandise,
furniture, fixtures, leasehold improvements and equipment. However, Lessee shall
have no claim against Lessor or make any claim with the condemning authority for
the loss of its leasehold estate, any unexpired term or loss of any possible
renewal or extension of said lease or loss of any possible value of said lease,
any unexpired term, renewal or extension of said Lease.
DAMAGE OR DESTRUCTION:
14. In the event of any damage or destruction to the Premises by fire
or other cause during the term hereof, the following provisions shall apply:
a. If the Building is damaged by fire or any other cause to
such extent that the cost of restoration, as estimated by Lessor, will equal or
exceed thirty percent (30%) of the replacement value of the Building (exclusive
of foundations) just prior to the occurrence of the damage, then Lessor may, not
later than the sixtieth (60th) day following the damage, give Lessee written
notice of Lessor's election to terminate this Lease.
b. If the cost of restoration as estimated by Lessor will
equal or exceed fifty percent (50%) of said replacement value of the Building
and if the Demised Premises are not suitable as a result of said damage for the
purposes for which they are Demised hereunder in the reasonable opinion of
Lessee, then Lessee may, not later than the sixtieth (60th) day following the
damage, give Lessor a written notice of election to terminate this Lease.
c. If the cost of restoration as estimated by Lessor shall
amount to less than thirty percent (30%) of said replacement value of the
Building, or if, despite the cost, Lessor does not elect to terminate this
Lease, Lessor shall restore the Building and the Demised Premises with
reasonable promptness, subject to delays beyond Lessor's control and delays in
the making of insurance adjustments by Lessor; and Lessee shall have no right to
terminate this Lease except as herein provided. Lessor shall not be responsible
for restoring or repairing leasehold improvements of the Lessee.
d. In the event of either of the elections to terminate, this
Lease shall be deemed to terminate on the date of the receipt of the notice of
election and all rentals shall be paid up to that date. Lessee shall have no
claim against Lessor for the value of any unexpired term of this Lease.
e. In any case where damage to the Building shall materially
affect the Demised Premises so as to render them unsuitable in whole or in part
for the purposes for which they are Demised hereunder, then, unless such
destruction was wholly or partially caused by the negligence or breach of the
terms of this Lease by Lessee, its employees, contractors or licensees, a
portion of the rent based upon the amount of the extent to which the Demised
Premises are rendered unsuitable shall be abated until repaired or restored. If
the destruction or damage was wholly or partially caused by negligence or breach
of the terms of this Lease by Lessee as aforesaid and if Lessor shall elect to
rebuild, the rent shall not abate and the Lessee shall remain liable for the
same.
CASUALTY INSURANCE:
15. a. Lessor shall at all times during the term of this
Lease, at its expense. maintain a policy or policies of insurance with premiums
paid in advance issued by an insurance company licensed to do business in the
State of Minnesota insuring the Building against loss or damage by fire,
explosion or other insurable hazards and contingencies for the full replacement
value, provided that Lessor shall not be obligated to insure any furniture,
equipment, machinery, goods or supplies not covered by this Lease which Lessee
may bring upon the Demised Premises or any additional improvements which Lessee
may construct or install on the Demised Premises. Lessee may self insure.
b. Lessee shall not carry any stock of goods or do anything in
or about the Demised Promises which will in any way impair or invalidate the
obligation of the insurer under any policy of insurance required by this Lease.
c. Lessor hereby waives and releases all claims, liabilities
and causes action against Lessee and its agents, servants and employees for loss
or damage to, or destruction of, the Premises or any portion thereof, including
the buildings and other improvements situated thereon, resulting from fire,
explosion or the other perils included in standard extended coverage insurance,
whether caused by the negligence of any of said persons or otherwise. Likewise,
Lessee hereby waives and releases all claims, liabilities and causes of action
against Lessor and its agents, servants and employees for loss or damage to, or
destruction of, any of the improvement, fixtures, equipment, supplies,
merchandise and ether property, whether that of Lessee or of others in, upon or
about the Premises resulting from fire, explosion or the other perils included
in standard extended coverage insurance, whether caused by the negligence of any
of said persons or otherwise. The waiver shall remain in force whether or not
the Lessee's insurer shall consent thereto.
d. In the event that the use of the Demised Premises by Lessee
increases the premium rate for insurance carried by Lessor on the improvements
of which the Demised Premises are a part, Lessee shall pay Lessor, upon demand,
the amount of such premium increase. If Lessee installs any electrical equipment
that overloads the power lines to the building or its wiring, Lessee shall, at
its own expenses, make whatever changes are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.
PUBLIC LIABILITY INSURANCE:
16. Lessee shall during the term hereof keep in full force and effect
at its expense a policy or policies of public liability insurance with respect
to the Demised Premises and the business of Lessee, on terms and with companies
approved in writing by Lessor, in which both Lessee and Lessor shall be covered
by being named as insured parties under reasonable limits of liability not less
than: $500,000 for injury/death to any one person; $1,000,000 for injury/death
to more than one person, and $500,000 with respect to damage to property. Such
policy or policies shall provide that ten (10) days written notice must be given
to Lessor prior to cancellation thereof. Lessee shall furnish evidence
satisfactory to Lessor at the time this Lease is executed that such coverage is
in full force and effect.
DEFAULT OF LESSEE:
17. a. In the event of any failure of Lessee to pay any rental
due hereunder within ten (10) days after the same shall be due, or any failure
to perform any other of the terms, conditions or covenants of this Lease to be
observed or performed by Lessee for more than thirty (30) days after written
notice of such failure shall have been given to Lessee, or if Lessee or an agent
of Lessee shall falsify any report required to be furnished to Lessor pursuant
to the terms of this Lease, or if Lessee or any guarantor of this Lease shall
become bankrupt or insolvent, or file any debtor proceedings or any person shall
take or have against Lessee or any guarantor of this Lease in any court pursuant
to any statute either of the United States or of any state a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Lessee's or any such guarantor's
property, or if Lessee or any such guarantor makes an assignment for the benefit
of creditors, or petitions for or enters into an arrangement with its creditors,
or if Lessee shall abandon the Demised Premises or suffer this Lease to be taken
under any writ of execution, then in any such event Lessee shall be in default
hereunder, and Lessor, in addition to other rights of remedies it may have,
shall have the immediate right of re-entry and may remove all persons and
property from the Demised Premises and such property may be removed and stored
in a public warehouse or elsewhere at the cost of, and for the account of
Lessee, without being guilty of trespass, or becoming liable for any loss or
damage which may be occasioned thereby.
b. Should Lessor elect to re-enter the Demised Premises, as
herein provided, or should it take possession of the Demised Premises pursuant
to legal proceedings or pursuant to any notice provided for by law, it may
either terminate this Lease or it may from time to time, without terminating
this Lease, make such alterations and repairs as may be necessary in order to
relet the Demised Premises, and relet the Demised Premises or any part thereof
for such term or terms (which may be for a term extending beyond the term of
this Lease) and at such rental or rentals and upon such other terms and
conditions as Lessor in its sole discretion may deem advisable. Upon each such
subletting all rentals received by the Lessor from such reletting shall be
applied first to the payment of any indebtedness other than rent due hereunder
from Lessee to Lessor; second, to the payment of any costs and expenses of such
reletting, including brokerage fees and attorney's fees and costs of such
alterations and repairs; third, to the payment of the rent due and unpaid
hereunder, and the residue, if any, shall be held by Lessor and applied in
payment of future rent as the same may become due and payable hereunder. If such
rentals received from such reletting during any month be less than that to be
paid during that month by Lessee hereunder, Lessee, upon demand, shall pay any
such deficiency to Lessor. No such re-entry or taking possession of the Demised
Promises by Lessor shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Lessor may at any time
after such re-entry and reletting elect to terminate this Lease for such
previous breach. Should Lessor at any time terminate this Lease for any such
breach, in addition to any other remedies it may have, it may recover from
Lessee all damages it may incur by reason of such breach, including the cost of
recovering the Demised Premises, attorney fees, and costs, the unamortized
portion of any leasehold improvements made by Lessor for Lessee and including
the worth at the time of such termination of the excess, if any, of the amount
of rent and charges equivalent to rent reserved in this Lease for the remainder
of the stated term over the then reasonable rental value of the Demised Premises
for the remainder of the stated term, all of which amounts shall be immediately
due and payable from Lessee to Lessor.
c. Lessor may, at its option, instead of exercising any other
rights or remedies available to it in this Lease or otherwise by law, statute or
equity, spend such money as is reasonably necessary to cure any default of
Lessee herein and the amount so spent, and costs incurred, including attorney's
fees in curing such default, shall be paid by Lessee, as additional rent, upon
demand.
d. In the event suit shall be brought for recovery of
possession of the Demised Premises, for the recovery of rent or any other amount
due under the provisions of this Lease, or because of the breach of any other
covenant herein contained on the part of Lessee to be kept or performed, and a
breach shall be established, Lessee shall pay to Lessor all expenses incurred
therefor, including attorney's fees and costs, together with interest on all
such expenses at the rate of fourteen percent (14%) per annum from the date of
such breach of the covenants of this Lease.
e. Lessee waives any demand for possession of the Demised
Promises, and any demand for payment of rent and any notice of intent to
re-enter the Demised Premises, or of intent to terminate this Lease, other than
the notices above provided in this Article, and any other notice or demand
prescribed by any applicable statutes or laws.
f. No remedy herein or elsewhere in this Lease or otherwise by
law, statute or equity, conferred upon or reserved to Lessor or Lessee shall be
exclusive of any other remedy, but shall be cumulative, and may be exercised
from time to time and as often as the occasion may arise.
COVENANTS TO HOLD HARMLESS:
18. Unless the liability for damage or loss is caused by the gross
negligence or willful misconduct of Lessor, its agents or employees, Lessee
shall hold harmless Lessor from any liability for damages to any person or
property in or upon the Demised Premises and the Premises, including the person
and property of Lessee and its employees and all persons in the Building at its
or their invitation or sufferance, and from all damages resulting from Lessee's
failure to perform the covenants of this Lease. All property kept, maintained or
stored on the Demised Premises shall be so kept, maintained or stored at the
sole risk of Lessee. Lessee agrees to pay all sums of money in respect of any
labor, service, materials, supplies or equipment furnished or alleged to have
been furnished to Lessee in or about the Premises, and not furnished on order of
Lessor, which may be secured by any mechanic's materialmen's or other lien to be
discharged at the time performance of any obligation secured thereby matures,
provided that Lessee may contest such lien, but if such lien is reduced to final
judgment and if such judgment or process thereon is not stayed, or if stayed and
said stay expires, then and in each such event, Lessee shall forthwith pay and
discharge said judgment. Lessor shall have the right to post and maintain on the
Demised Premises, notices of non-responsibility under the laws of the State of
Minnesota.
NON-LIABILITY:
19. Subject to the terms and conditions of Article 14 hereof, Lessor
shall not be liable for any damage to property of Lessee or of others located on
Premises, nor for the loss of or damage to any property of Lessee or of others
by theft or otherwise. Lessor shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow or leaks from any part of the Premises or from
the pipes, appliances, or plumbing works or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatsoever
nature. Lessor shall not be liable for any such damage caused by other Lessees
or persons in the Premises, occupants of adjacent property, of the buildings, or
the public or caused by operations in construction of any private, public or
quasi-public work. Lessor shall not be liable for any latent defect in the
Demised Premises. All property of Lessee kept or stored on the Demised Premises
shall be so kept or stored at the risk of Lessee only and Lessee shall hold
Lessor harmless from any claims arising out of damage to the same, including
subrogation claims by Lessee's insurance carrier.
SUBORDINATION:
20. This Lease shall be subordinated to any mortgages that may now
exist or that may hereafter be placed upon the Demised Premises and to any and
all advances made thereunder, and to the interest upon the indebtedness
evidenced by such mortgages, and to all renewals, replacements, and extensions
thereof. In the event of execution by Lessor after the date of this Lease of any
such mortgage, renewal, replacement or extension, Lessee agrees to execute a
subordination agreement with the holder thereof which agreement shall provide
that:
a. Such holder shall not disturb the possession and other
rights of Lessee under this Lease so long as Lessee is not in default hereunder,
b. In the event of acquisition of title to the Demised
Premises by such holder, such holder shall accept the Lessee as Lessee of the
Demised Premises under the terms and conditions of this Lease and shall perform
all the obligations of Lessor hereunder, and
c. The Lessee shall recognize such holder as Lessor hereunder.
Lessee shall, upon receipt of a request from Lessor therefor, execute
and deliver to Lessor or to any proposed holder of a mortgage or trust deed or
to any proposed purchaser of the Premises, a certificate in recordable form,
certifying that this Lease is in full force and effect, and that there are no
offsets against rent nor defenses to Lessee's performance under this Lease, or
setting forth any such offsets or defenses claimed by Lessee, as the case may
be.
ASSIGNMENT OR SUBLETTING:
21. Lessee agrees to use and occupy the Demised Premises throughout the
entire term hereof for the purpose or purposes herein specified and for no other
purposes, in the manner and to substantially the extent now intended, and not to
transfer or assign this Lease or sublet said Demised Premises, or any part
thereof, whether by voluntary act, operation of law, or otherwise, without
obtaining the prior consent of Lessor in each instance. Lessee shall seek such
consent of Lessor by a written request therefor, setting forth such information
as Lessor may deem necessary. Consent by Lessor to any assignment of this Lease
or to any subletting of the Demised Premises shall not be a waiver of Lessor's
right under this Article as to any subsequent assignment or subletting. Lessor's
rights to assign this Lease are and shall remain unqualified. No such assignment
or subleasing shall relieve the Lessee from any of Lessee's obligations in this
Lease contained, nor shall any assignment or sublease or other transfer of this
Lease be effective unless the assignee, sublessee or transferee shall at the
time of such assignment, sublease or transfer, assume in writing for the benefit
of Lessor, its successors or assigns, all of the terms, covenants and conditions
of this Lease thereafter to be performed by Lessee and shall agree in writing to
be bound thereby. Should Lessee sublease in accordance with the terms of this
Lease, fifty percent (50%) of any increase in rental received by Lessee over the
per square foot rental rate which is being paid by Lessee shall be forwarded to
and retained by Lessor, which increase shall be in addition to the Base Rent and
Additional Rent due Lessor under this Lease.
ATTORNMENT:
22. In the event of a sale or assignment of Lessor's interest, in the
Premises, or the Building in which the Demised Premises are located, or this
Lease, or if the Premises come into custody or possession of a mortgagee or any
other party whether because of a mortgage foreclosure, or otherwise, Lessee
shall attorn to such assignee or other party and recognize such party as Lessor
hereunder; provided, however, Lessee's peaceable possession will not be
disturbed so long as Lessee faithfully performs its obligations under this
Lease. Lessee shall execute, on de mand, any attornment agreement required by
any such party to be executed, containing such provisions as such party may
require. Lessor shall have no further obligations under this Lease after any
such assignment.
NOVATION IN THE EVENT OF SALE:
23. In the event of the sale of the Demised Premises, Lessor shall be
and hereby is relieved of all of the covenants and obligations created hereby
accruing from and after the date of sale, and such sale shall result
automatically in the purchaser assuming and agreeing to carry out all the
covenants and obligations of Lessor herein.
The Lessee agrees at any time and from time to time upon not less than
ten (10) days prior written request by the Lessor to execute, acknowledge and
deliver to the Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect as modified and stating the
modifications, and the dates to which the basic rent and other charges have been
paid in advance, if any, it being intended that any such statement delivered
pursuant to this paragraph may be relied upon by any prospective purchaser of
the fee or mortgagee or assignee of any mort gage upon the fee of the Demised
Premises.
SUCCESSORS AND ASSIGNS:
24. The terms, covenants and conditions hereof shall be binding upon
and Inure to the successors and assigns of the parties hereto.
REMOVAL OF FIXTURES:
25. Notwithstanding anything contained in Articles 8, 29 or elsewhere
in this Lease, if Lessor requests then Lessee will promptly remove at the sole
cost and expense of Lessee all fixtures, equipment and alterations made by
Lessee simultaneously with vacating the Demised Premises and Lessee will
promptly restore said Demised Premises to the condition that existed immediately
prior to said fixtures, equipment and alterations having been made all at the
sole cost and expense of Lessee.
QUIET ENJOYMENT:
26. Lessor warrants that it has full right to execute and to perform
this Lease and to grant the estate demised, and that Lessee, upon payment of the
rents and other amounts due and the performance of all the terms, conditions,
covenants and agreements on Lessee's part to be observed and performed under
this Lease, may peaceably and quietly enjoy the Demised Premises for the
business uses permitted hereunder, subject, nevertheless, to the terms and
conditions of this Lease.
RECORDING:
27. Lessee shall not record this Lease without the written consent of
Lessor. However, upon the request of either party hereto, the other party shall
join in the execution of the Memorandum lease for the purposes of recordation.
Said Memorandum lease shall describe the parties, the Demised Premises and the
term of the Lease and shall incorporate this Lease by reference. This Article 27
shall not be construed to limit Lessor's right to file this Lease.
OVERDUE PAYMENTS:
28. All monies due under this Lease from Lessee to Lessor shall be due
on demand, unless otherwise specified and if not paid when due, shall result in
the imposition of a service charge for such late payment in the amount of
fourteen (14%) of the amount due.
SURRENDER:
29. On the Expiration Date or upon the termination hereof upon a day
other than the Expiration Date, Lessee shall peaceably surrender the Demised
Promises broom-clean in good order, condition and repair, reasonable wear and
tear only excepted. On or before the Expiration Date or upon termination of this
Lease on a day other than the Expiration Date, Lessee shall, at its expense,
remove all trade fixtures, personal property and equipment and signs from the
Demised Premises and any property not removed shall be deemed to have been
abandoned. Any damage caused in the removal of such items shall be repaired by
Lessee and at its expense. All alterations, additions, improvements and fixtures
(other than trade fixtures) which shall have been made or installed by Lessor or
Lessee upon the Demised Promises and all floor covering so installed shall
remain upon and be surrendered with the Demised Premises as a part thereof,
without disturbance, molestation or injury, and without charge, at the
expiration or termination of this Lease. If the Demised Premises are not
surrendered on the Expiration Date or the date of Termination, Lessee shall
indemnify Lessor against loss or liability, claims, without limitation. made by
any succeeding Lessee founded on such delay. Lessee shall promptly surrender all
keys for the Demised Premises to Lessor at the place then fixed for payment of
rent and shall inform Lessor of combinations of any locks and safes on the
Demised Premises.
HOLDING OVER:
30. In the event of a holding over by Lessee after expiration or
termination of this Lease without the consent in writing of Lessor, Lessee shall
be deemed a lessee at sufferance and shall pay rent for such occupancy at the
rate of one and one-half times the last-current aggregate Base and Additional
Rent, prorated for the entire holdover period, plus all attorney's fees and
expenses incurred by Lessor in enforcing its rights hereunder, plus any other
damages occasioned by such holding over. Except as otherwise agreed, any holding
over with the written consent of Lessor shall constitute Lessee a month-to-month
lessee.
ABANDONMENT:
31. In the event Lessee shall remove its fixtures, equipment or
machinery or shall vacate the Demised Premises or any part thereof prior to the
Expiration Date of this Lease, or shall discontinue or suspend the operation of
its business conducted on the Demised Premises for a period of more than thirty
(30) consecutive days (except during any time when the Demised Premises may be
rendered untenantable by reason of fire or other casualty), then in any such
event Lessee shall be deemed to have abandoned the Demised Premises and Lessee
shall be in default under the terms of this Lease.
CONSENTS BY LESSOR:
32. Whenever provision is made under this Lease for Lessee securing the
consent or approval by Lessor, such consent or approval shall only be in
writing.
NOTICES:
33. Any notice required or permitted under this Lease shall be deemed
sufficiently given or secured if sent by registered or certified return receipt
mail to Lessee at First Interstate Bank P.O. Box 9022 Fargo, ND 58106 and to
Lessor 3775 North Dunlap, Arden Hills, MN 55112 and either party may by like
written notice at any time designate a different address to which notices shall
subsequently be sent or rent to be paid.
RULES AND REGULATIONS:
34. Lessee shall observe and comply with such further reasonable rules
and regulations as Lessor may prescribe, on written notice to Lessee for the
safety, care and cleanliness of the Building.
INTENT OF PARTIES:
35. Except as otherwise provided herein, the Lessee covenants and
agrees that if it shall any time fail to pay any cost or expense required to be
paid by it, or fail to take out, pay for, maintain or delivery any of the
insurance policies above required, or fails to make any other payment or perform
any other act on its part to be made or performed as in this Lease provided,
then the Lessor may, but shall not be obligated so to do, and without notice to
or demand upon the Lessee and without waiving or releasing the Lessee from any
obligations of the Lessee in this Lease contained, pay any such cost or expense,
effect any such insurance coverage and pay premiums therefor, and may make any
other payment or perform any other act on the part of the Lessee to be made and
performed as in this Lease provided, in such manner and to such extent as the
Lessor may deem desirable, and in exercising any such right, to also pay all
necessary and incidental costs and expenses, employ counsel and incur and pay
reasonable attorneys' fees. All sums so paid by Lessor and all necessary and
incidental costs and expenses in connection with the performance of any such act
by the Lessor, together with interest thereon at the rate of fourteen percent
(14%) per annum from the date of making such expenditure, by Lessor, shall be
deemed additional rent hereunder, and shall be payable to Lessor on demand.
Lessee covenants to pay any such sum or sums with interest as aforesaid and the
Lessor shall have the same rights and remedies in the event of the non-payment
thereof by Lessee as in the case of default by Lessee in the payment of the Base
Rent payable under this Lease.
GENERAL:
36. a. The Lease does not create the relationship at principal
and agent or of partnership or of joint venture or at any association between
Lessor and Lessee, the sole relationship between the parties hereto being that
of Lessor and Lessee.
b. No waiver at any default of Lessee hereunder shall be
implied from any omission by Lessor to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. One or more waivers by
Lessor shall not then be construed as a waiver at a subsequent breach of the
same covenant, term or condition. The consent to or approval by Lessor of any
act by Lessee requiring Lessor's consent or approval shall not waive or render
unnecessary Lessor's consent to or approval of any subsequent similar act by
Lessee. No action required or permitted to be taken by or on behalf of Lessor
under the terms or provisions of this Lease shall be deemed to constitute an
eviction or disturbance of Lessee's possession of the Demised Premises. All
preliminary negotiations are merged into and incorporated in this Lease. The
laws of the State of Minnesota shall govern the validity, performance and
enforcement of this Lease.
c. This Lease and the exhibits, if any, attached hereto and
forming a part hereof, constitute the entire agreement between Lessor and Lessee
affecting the Demised Premises and there are no other agreements, either oral or
written, between them other than are herein set forth. No subsequent alteration,
amendment, change or addition to this Lease shall be binding upon Lessor or
Lessee unless reduced to writing and executed in the same form and manner in
which this Lease is executed.
d. If any agreement, covenant or condition of this Lease or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such agreement, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each agreement, covenant or condition of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
e. The captions are inserted only as a matter of convenience
and for reference, and in no way define, limit or describe the scope of this
Lease nor the intent or any provision thereof.
f. Submission of this instrument to Lessee or proposed Lessee
or his agents or attorneys for examination, review, consideration or signature
does not constitute or imply an offer to lease, reservation of space, or option
to lease, and this instrument shall have no binding legal effect until execution
hereof by both Lessor/Owner and Lessee or its agents.
EXHIBITS:
37. Reference is made to Exhibits A through E , inclusive, which
Exhibits are attached hereto and made a part hereof.
EXHIBIT "A"
to Lease dated
February 25, 1993
between
St. Paul Properties, Inc.
and
Professional Resources International, LTD.
Legal Description
PARCEL II: The East 220 feet of all that part of the West 673 feet of the
Northwest quarter of the Northwest quarter of Section 9, Township 29, Range 23,
lying South of the Northern Pacific Railway Company's 100 foot right of way,
except the South 759 feet thereof, subject to the rights of the public in the
West 33 feet thereof taken for Cleveland Avenue:
That part of the above described quarter quarter section described as follows:
Except the South 759 feet thereof, the East 320 feet of the West 993 feet
thereof, subject to the railroad right of way intersecting said tract and
subject to the rights of the public in the North 33 feet of said tract taken for
County Road C:
That part of the above described quarter quarter section described as follows:
The East 540 feet of the West 993 feet of the North 20 feet of the South 759
feet thereof, according to the United States Government Survey thereof and
situate in Ramsey County, Minnesota.
EXHIBIT "B"
to Lease dated
February 25, 1993
between
St. Paul Properties, Inc.
and
Professional Resources International, LTD.
This Exhibit consists of a drawing of the Building Floor Plan and shows the
location of the remote controlled door to be installed.
EXHIBIT "C"
to Lease dated
February 25, 1993
between
St. Paul Properties, Inc.
and
Professional Resources International, LTD.
Supplemental Terms and Conditions
1. The following is substituted as Base Rent, Article 2 of the Lease:
2: Base Rent
Lessor reserves, and Lessee agrees to pay Lessor annual Base Rent,
payable in advance, in monthly installments of the following amounts:
April 1, 1993 through March 31, 1994, the monthly Base Rent will be One
Thousand Six Hundred Twenty-Two and 50/100 Dollars ($1,622.50),
calculated at an annual rate of $3.00 per square foot.
April 1, 1994 through March 31, 1995, the monthly Base Rent will be One
Thousand Seven Hundred Fifty-Seven and 71/100 Dollars ($1,757.71),
calculated at an annual rate of $3.25 per square foot.
April 1, 1995 through March 31, 1996, the monthly Base Rent will be One
Thousand Eight Hundred Ninety-Two and 92/100 Dollars ($1,892.92),
calculated at an annual rate of $3.50 per square foot.
April 1, 1996 through March 31, 1997, the monthly Base Rent will be Two
Thousand Twenty-Eight and 13/100 Dollars ($2,028.13), calculated at an
annual rate of $3.75 per square foot.
April 1, 1997 through March 31, 1998, the monthly Base Rent will be Two
Thousand One Hundred Sixty-Three and 13/100 Dollars ($2,163.13),
calculated at an annual rate of $4.00 per square foot.
In the event the Commencement Date falls on a date other than the first
of the month, the rental for that month shall be prorated and adjusted
accordingly.
2. The following is added as Article 40 of the Lease:
40: Rent Concession
Notwithstanding Article 2, in the event there has been no default, no
monthly Base Rent shall be payable for the months of April, May and
June of 1993.
3. The following is added as Article 41 of the Lease:
41: Lessor's Work
I. Lessor agrees to make the following initial improvements to
the Demised Premises:
a) Repair to good working condition, or replace, at sole
discretion of Lessor, the existing warehouse heating
units, and
b) Repair to good working condition, or replace, at sole
discretion of Lessor, the existing warehouse lights,
and
c) Install a 12' x 10' mechanically operated with remote
control drive in door as indicated on the attached
Exhibit "B", and
d) Seal the warehouse floor with a 30% clear solid
sealer, and
e) Install an electrical run of approximately sixty (60)
feet from existing electrical panel (assuming 240
volts at 30 amps), and
f) Install new carpeting in the office portion of the
Demised Premises, selected from Lessor's Building
Standard selections (Type 3 - 22 ounce level loop
acrylic or equivalent, installed in a direct glue
down application with a 4" vinyl base), and
g) Install one (1) McGuire dock shelter model #TC484-2
or equivalent.
II. Any additions or modifications to the Lessee Improvements as
described in Article 40 "Lessor's Work" which are requested by
Lessee and which result in an increase in the total cost of
the Lessee Improvements are to be paid by Lessee (plus 10% of
that cost for coordination by Lessor).
III. Provided the Lease is executed by both Lessor and Lessee,
Lessor requires thirty (30) days to substantially complete
the Demised Premises for occupancy.
4. The following is added as Article 42 of the Lease:
42: Relocation Clause
I. Lessor may from time to time upon not less than thirty (30)
days notice require Lessee to relocate to Substitute Demised
Premises provided:
(a) The square footage of the Substitute Demised Premises
is not less than ninety percent (90%) of the square
footage of the present Demised Premises, and
(b) At Lessor's option the square footage of the
Substitute Demised Premises may be greater than that
of the present Demised Premises, then for purposes of
computing Base Rent and Lessee's share of Real Estate
Taxes and Operating Expenses, the square footage
shall be deemed to increase no more than ten percent
(10%), and
(c) Lessor shall at its sole expense provide leasehold
improvements in the Substitute Demised Premises which
are reasonably comparable to those in the present
Demised Premises and will also pay the reasonable
expenses incurred in moving Lessee's furniture and
equipment to the Substitute Demised Premises.
Except as expressly provided herein, Lessor shall have no further
obligations with respect to such relocation.
II. Upon the date of relocation as specified in the Lessor's
notice:
(a) Lessee shall promptly vacate and surrender its
previous Demised Premises in the condition required
by this Lease, time being of the essence, and
(b) The new Substitute Demised Premises shall become the
Demised Premises for the purposes of this Lease.
III. If Lessee is not in agreement with the location of the
Substitute Demised Premises, Lessee agrees to cancel this
Lease by written notice within fifteen (15) days of relocation
notice from Lessor provided:
(a) Lessee will vacate the current Demised Premises
within sixty (60) days of relocation notice from
Lessor, and
(b) Lessee will pay a penalty equal to the unamortized
cost of the Tenant Improvements to the current
Demised Premises.
5. The following is added as Article 43 of the Lease:
43: Demolition Clause
Not withstanding anything in the Lease to the contrary, Lessor may
terminate the Lease at any time during the term of this Lease with not
less than six (6) months prior notice to Lessee if it is Lessor's
intention to demolish or substantially renovate all or a substantial
part of the Premises.
6. The following is added as Article 44 of the Lease:
44: Hazardous Materials
Without the prior written consent of Lessor in its absolute discretion,
Lessee shall not cause or permit to be brought upon or kept or used in,
on or about the Demised Premises by Lessee, its employees, agents,
contractors or invitees any toxic or hazardous materials, substance or
waste, or any other material which may adversely affect the
environment. Without limiting the indemnification obligations of Lessee
under Article 18, if the presence of any such material, substance or
waste caused or permitted by Lessee, its employees, agents, contractors
or invitees results in any contamination of the Demised Premises, then
Lessee shall promptly take all actions at its sole expense as are
necessary to return the Demised Premises to the condition existing
prior to the introduction of any such material, substance or waste to
the Demised Premises, provided that Lessor's approval of such actions
shall first be obtained.
7. The following is added as Article 45 of the Lease:
45: Americans with Disabilities Act
Lessor and Lessee agree that the Demised Premises is a "Commercial
Facility" as that term is defined in the Americans with Disabilities
Act (the "ADA"). Initial alterations done by Lessor in regard to
Article 39 of this Lease will comply with the ADA. Lessor shall be
responsible for other base building improvements outside the Demised
Premises and in common areas which Lessor deems necessary to cause the
same to comply with the ADA. Lessee shall make, at its sole expense,
any other alterations or improvements to the Demised Premises required
by the ADA or any contributable to Lessee's use of the space. Any such
improvements or alterations by Lessee shall comply with the provisions
of Article 8 of this Lease.
EXHIBIT "D"
to Lease dated
February 25, 1993
between
St. Paul Properties, Inc.
and
Professional Resources International, LTD.
Building Standard Materials
In order to simplify the design process and to maintain a consistency in the
quality of the tenant finishes, St. Paul Properties, Inc. assembled "building
standard materials" that are used in the construction of the office portion of
the Demised Premises. These items include:
Acoustical Ceiling System
A. Grid System - Suspended white metal interlocking grid - laser leveled
in a 2x4 grid pattern.
B. Ceiling Tile - 2x4 layin fissured surface acoustical tile.
Light Fixtures
Office fixtures will be 2'x4' - 4 lamp fluorescent light fixtures with acrylic
prismatic lens. Set into the ceiling system noted above.
Carpet
A. Type 3 - 22 ounce level loop acrylic or equivalent installed in a
direct glue down application.
B. Base - 4" vinyl base
Wall Finishes
Building standard flat latex enamel paint on standard walls as noted below.
Wall Construction
3-5/8" metal studs with 5/8" Gypson Board (both sides, taped and sanded to
accept paint).
Tenant Entrances
A. Entrance door and store front of aluminum with full glass insert and
12" side lights.
B. Vestibule Doors - 3'0" x 6'8" wood with glass inset.
Interior Doors
3'0" x 6'8" solid core oak doors - stained "Medium Oak"; with wood casings and
Ranch Style Oak Trim stained to match existing millwork.
Hardware
A. Entrance sets are a mortised lever style lock set with a brushed
aluminum finish.
B. Interior passage sets are either lever or knob style with polished or
antique brass finish.
EXHIBIT 10.3
LEASE
This Lease made this 25 day January, 1995 by and between Durand
Properties, hereinafter referred to as "Landlord," and U.S. Environmental, Inc.
1700 W Hwy 36, St. Paul MN 55113 hereinafter referred to as "Tenant."
WITNESSETH
1. LEASED PREMISES. Landlord hereby leases to Tenant, and the Tenant
hereby leases from Landlord, 8,000 interior square feet of the structure located
on the south side of State Trunk Highway 11, located in the Town of Dover,
Racine County, Wisconsin, having a property address of 21209 Building # 6 Durand
Avenue, Union Grove, Wisconsin, 53182.
2. EFFECTIVE DATE AND TERM. This lease is for a term of five (5) years,
commencing on March 1, 1995, and terminating at 11:59 p.m., on February 28, 200.
The Tenant then has the first (1st) option to renegotiate for one (1) additional
(5) year period or longer lease with the new terms based on fair market values
existing at that time for comparable square footage of manufacturing or similar
space, provided that tenant shall notify Landlord of its intent to exercise said
option at least six (6) months prior to the termination of said first term, or
said option shall be null or void. Both parties agree and understand that the
renegotiation of an extended term of this lease shall be in good faith, but in
the event that the parties cannot agree to the terms of the extended lease then
neither party shall be bound to the other, beyond the initial term of this
agreement.
3. RENT. (a) Fixed Rent. Tenant shall pay to Landlord fixed rent for
the Term of this Lease as follows:
LEASE YEARS MONTHLY PAYMENT
FEBRUARY 15 1995 TO
FEBRUARY 14 1996 $2,675.00
FEBRUARY 15 1996 TO
FEBRUARY 14 1997 $2,800.00
FEBRUARY 15 1997 TO
FEBRUARY 14 1998 $2,950.00
FEBRUARY 15 1998 TO
FEBRUARY 14 1999 $3,100.00
FEBRUARY 15 1999 TO
FEBRUARY 14 2000 $3,250.00
Due at the signing of the lease a check for the first and last months
payments will be paid.
The fixed monthly installments, shall be paid in advance, on or before
the first of each calendar month during the term. Any late payment will applied
at 1- 1/2%.
(b) Real Property Taxes. Landlord shall pay all real estate
taxes for the Leased Premises.
4. SPECIAL ASSIGNMENTS. Landlord shall be responsible for and pay all
special assessments levied against or attributable to the Leased Premises.
Special assessments shall include any assessment made by governmental or
municipal entity for improvement to the Leased Premises (e.g. sewer, water,
roads curb, gutters, sidewalks).
5. PERSONAL PROPERTY TAX. Tenant shall pay any and all personal
property taxes as may be levied upon Tenant's personal property and equipment,
and any fixtures installed by Tenant at the Leased Premise.
6. UTILITIES. The Leased Premises are not presently served by a
municipal sewer and/or water utility. The Leased Premises receives its water
from a well maintained by the Landlord. The sewage and waste water from the
Leased Premises are directed to a holding tank. Landlord shall, at its own cost,
maintain the well and the holding tank and Tenant shall have no responsibility
to pay any costs associated with the supply of fresh water to the Leased
Premises from the well.
It is understood by both Landlord and Tenant that at some time during
either the Initial Term of this Lease or any extension, the Leased Premises may
be connected to a municipal sewer and water utility. As provided in paragraph 4
of this Lease, Tenant shall not be responsible to pay for any special
assessments levied against or attributable to the Leased Premises for municipal
and sewer water systems. Tenant does agree, however, to pay when due, and to
save Landlord harmless therefrom, any and all charges caused by Tenant's use of
the municipal water and/or sewer system, provided that such service is
separately metered for the Leased Premises. Tenant further agrees to pay when
due, and save Landlord harmless therefrom, any and all charges as may be levied
against the Leased Premises for the use of electrical or gas service.
7. CHARACTER OF OCCUPANCY. Tenant agrees that the Leased Premises shall
be used for its business of Lamp Material Processing or any other similar lawful
business use relating to this area. Landlord shall not unreasonably withhold its
consent to permit Tenant to change its use. Tenant agrees that the premises
shall be used and occupied in a careful, safe and proper manner, and that no
waste will be committed or permitted upon, or any damage done to said premises.
Tenant agrees that it will not conduct nor permit any act, nor keep on said
premises any property which may be contrary to, or in violation of, any law or
ordinance of the United States, the State of Wisconsin, or the County of Racine,
or any municipality in which said premises are located.
8. ALTERATIONS AND IMPROVEMENTS. Tenant agrees that it will make no
alterations in, additions or improvements to the Leased Premises without first
of obtaining Landlord's written consent. Landlord agrees that it shall not
unreasonably withhold consent for same. All improvements or alterations made by
Tenant shall belong to Landlord upon the termination of this Lease, unless
Landlord and Tenant have agreed to the contrary and in writing at the time the
improvement or alteration was made. In the event Tenant is to remove the
alteration or improvement, it must do so at its own expense and restore the
Leased Premises to the same condition of the premises before making such
alterations and improvements, normal wear and tear accepted. Tenant agrees it
will save Landlord harmless from and against all expenses, liens, claims or
damages to either property or persons which arise by reason of making
alterations or improvements to the Leased Premises.
9. INSURANCE. Tenant shall at all times, during the term of the Lease,
insure and keep insured premises for liability to anyone for personal injury in
the sum of at least 500,000.00 per individual injury and 1,000,000.00 per
occurrence, and deliver proof of the existence of said insurance and that said
insurance is at all times enforced during the term to Landlord.
10. REPAIRS. Landlord agrees to maintain and repair the exterior of the
building, and all exterior areas adjacent thereto and owned by Landlord.
Landlord further agrees to maintain and repair the mechanical systems
of the Leased Premises including major plumbing, heating, glass replacement,
roof leaks, and structural repairs. Tenant is responsible for standard daily
maintenance procedures, i.e. leaking pipe fittings, filter
changes, etc, and all other maintenance necessitated by either the negligence or
intentional wrong doing of Tenant or Tenant's agents and employees.
Tenant agrees to return the premises to Landlord upon the termination
of this Lease, in the same condition of repair as at the commencement of this
Lease, normal wear and tear accepted.
11. SIGNS AND SITE ADVERTISING. Except as may otherwise be agreed by
Landlord, in writing, Tenant shall be permitted only one exterior sign
advertising Tenant's business. Such a sign shall be placed upon that exterior
portion of the Leased Premises designated by Landlord. The purpose of this
clause is to maintain a uniform exterior appearance to the premises.
12. ASSIGNMENTS AND SUBLETTING. The Tenant may not assign this Lease or
sublet the Leased Premises without the prior written consent of the Landlord,
which consent, however, shall not be unreasonably withheld. Upon any such
subletting or assignment, the Tenant shall remain liable for all rents and
obligations payable hereunder, and the performance of all of its obligations
hereunder.
13. TERMINATION BY INSOLVENCY. It is further agreed between the parties
hereto that if the Tenant shall be declared insolvent or adjudicated a bankrupt,
or if the Tenant shall make an assignment for the benefit of creditors or
otherwise, or if the Tenant's leasehold interest herein shall be sold under
execution or if a Trustee in bankruptcy or a receiver be appointed for the
Tenant, whether under the operation of the Federal or of the State Statutes,
then and in any of said cases the Landlord without prejudice to the rights of
the Landlord hereunder, at the option of the Landlord, immediately and without
notice to the Tenant or may assignee, transferee, receiver, trustee, or any
other person or persons, may terminate this Lease and immediately retake
possession of said premises, using such force as may be necessary without being
deemed guilty of any manner of trespass or forcible entry or detainer.
14. DEFAULT. In the event default by Tenant not remedied under the
provisions of this section, Landlord shall have the right to (1) declare the
Lease at an end and terminate it; (2) sue for the rent due and to become due
under the Lease; (3) sue for any damages sustained by the Landlord; (4) continue
the Lease in effect and relet the premises on such terms and conditions as the
Landlord may deem advisable with the Tenant remaining liable for the monthly
rent plus the reasonable cost of obtaining possession of the premises and any
repair or alterations necessary to prepare the premises for reletting; less the
rentals received from such reletting, if any (5) resort to any and all legal
remedies or combinations of remedies which the Landlord may desire to assert.
No action of either the Tenant or the Landlord shall be construed as an
election to terminate this Lease unless written notice of such intention be
given to the other party. In the event of default, the prevailing party shall be
entitled to reasonable attorney's fee and other costs and expenses incurred in
enforcing the obligations under this Lease.
15. LOSS OR DAMAGE TO TENANTS PROPERTY. All personal property of any
kind or description in the Leased Premises shall be held at Tenant's own risk,
and Landlord shall not be liable for any damage suffered by Tenant's business,
provided that such loss or damage was not caused by the negligence or
intentional wrongful act of Landlord, or Landlord's agents and employees.
16. PAYMENTS AFTER TERMINATION. No payment of money by Tenant to
Landlord after the termination of this Lease, in any manner, or after the giving
of any notice (other than a demand for the payment of money) by the Landlord to
Tenant, shall reinstate, continue or extend the term of this Lease. The initial
term of this Lease may be extended only by the provision of the notice required
in paragraph 2. The acceptance by Landlord of one month's rent for the first
month after the expiration or termination this Lease shall constitute a renewal
for a period of one month only and each subsequent acceptance of a month's rent
shall constitute a further renewal for one month only.
17. FIRE CLAUSE. If the demised premises shall be so damaged by fire,
lightning, tornado or similar catastrophe so as to render the premises
untenantable to the Tenant and the damage is so great that the premises cannot
be rebuilt within (120) days, then Landlord and Tenant, at either's option, may
terminate this Lease, and Tenant shall pay rent only up to the time the premises
became untenantable, and shall then surrender the premises to the Landlord. If
the premises can be made tenantable to this Tenant within (120) days, Landlord
shall proceed to do so, and Tenant's rent shall abate during the period the
premises are untenantable. If the damage is caused by the Tenant's negligence,
Tenant shall be responsible for making the premises tenantable and rent shall
not abate.
18. RIGHT OF ENTRY. The Landlord with prospective Tenant's shall have
the right to enter the Leased Premises during the ninety (90) day period next
prior to the expiration of the term hereof, and during said period shall have
the right to place on said premises signs advertising the premises for rent or
lease.
19. WAIVERS. No waiver of any conditions or covenant of this Lease by
either party hereto shall be deemed to imply or constitute a further waiver by
such party of any other condition or covenant of said Lease.
20. MUTUAL INDEMNIFICATION. Landlord and Tenant agree to Indemnify and
save, protect and keep harmless each other from every and all cost, loss,
damage, liability, expense, penalty, and fine whatsoever, which may arise from
or be claimed by any person or persons for any injuries to person or property,
or damage of whatever kind of character arising from the negligence or
intentional wrong doing of the other or the agents and employees of the other.
Landlord and Tenant shall each comply and conform with all laws,
statues, ordinances and regulations of the United States, the State of
Wisconsin, the County of Racine, and the municipality in which the Leased
Premises are situated, now and for all times hereafter that this Lease is in
effect; if any suits or proceedings are brought against Landlord or Tenant an
account of any alleged violation of any law, statute, ordinance or regulation by
the other, or on account of negligence or intentional wrong doing by the other
or the agent and employees of the other, Landlord and Tenant agree they will
defend the same and pay whatever judgements may be recovered on account thereof.
21. OUTSIDE STORAGE. Any outside storage by Tenant shall be approved in
advance by Landlord and must be maintained in an orderly fashion.
22. All Lawn care is included in this lease is available at a rate of
$40.00 per hour.
23. OPTION TO PURCHASE. The Tenant has the option to purchase the
property at the end of each year of the lease Terms are set by Tenant and
Landlord at that time. The following prices are base with inflation pro rated by
years of lease.
8000 square foot building on 1.4 acres of land, lot size of 153' wide x
400' deep, zoned M3.
PRICE: $265,000.00.
Above property with a lot size of 153' wide x 587' deep
PRICE: $275,000.00.
24. ENVIRONMENTAL: The leased property has had an Environmental Phase I
Audit completed, on August 23, 1994. Enclosed is a copy for your review. During
the term of the lease the tenant shall keep enforce Environmental Hazard
Insurance of 1,000,000.00. With a certificate on record with Landlord with 10
day notification of cancellation. At the end of the lease should the tenant not
exercise the option to purchase, the tenant shall have an environmental audit
conducted by a state of Wisconsin recognized firm. Returning to the Landlord the
property in the same environmental condition that it was in at the beginning of
the lease.
25. The building at this date is not complete. See Rider "A" for
details.
26. WHO BOUND; AUTHORITY TO EXECUTE. All terms, covenants and
conditions hereof shall be binding upon the respective parties, their successors
and assigns. Parties represent, if corporate, that their respective boards of
directors have approved the execution of this Lease and that the respective
officers who executed the same have the power and authority to do so.
RIDER "A"
The Landlord agrees to finish the following items:
Office Area
1. Drywall, drop ceiling, lights
2. 1 Private office, 1 conference room
3. Heat and Air conditioning
Shop Area
1. Install Shop Heaters
2. Washrooms and Shower
REVOLVING CREDIT PROMISSORY NOTE
$300,000 October 24, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, the undersigned, MERCURY WASTE SOLUTIONS, INC., a
Minnesota corporation ("Maker") promises to pay to the order of BRAD J. BUSCHER,
an individual or his assigns (the "Lender"), at his office c/o BANKERS AMERICAN
CAPITAL CORPORATION, 302 N. Riverfront Drive, Mankato, MN 56001, or any other
place subsequently designated in writing by the holder hereof, UPON DEMAND, the
principal sum of Three Hundred Thousand and No/100 Dollars ($300,000), or if
less, the aggregate unpaid principal outstanding hereon, together with interest
at a variable rate equal to the Prime Rate plus two percent (2%) per annum.
Interest shall be computed on the actual days elapsed in a year of 360 days. For
purposes of this Note, "Prime Rate" shall mean the rate of interest published
from time to time in the Money Rates Column of the money & Investing Section of
the Wall Street Journal as the "Prime Rate", as the same may change from time to
time.
Interest accruing on this Note shall be payable monthly, commencing
November 1, 1996, and on the first day of each month thereafter until demand for
repayment by Lender, at which time the entire principal balance outstanding plus
all unpaid accrued interest shall be due and payable in full.
Maker may borrow and repay and reborrow against this Note, up to the
maximum principal amount outstanding at any one time of $300,000 to fund Maker's
working capital needs.
Both principal and interest are payable in lawful money of the United
States of America to Lender at the office of Lender at the location described
above.
This Note is secured by the assets of the Maker pursuant to the terms
of that certain Security Agreement dated January 4, 1996 executed by Maker in
favor of Lender, as the same may be amended from time to time (the "Security
Agreement").
This Note may be prepaid in whole or in part at any time without
penalty or premium
Maker hereby waives demand, presentment for payment, notice of
nonpayment, protest and notice of protest hereon, agrees that when or at any
time after this Note becomes due, the holder hereof may, without notice, offset
or charge this Note against any Lender account or other account when maintained
by Maker with the holders hereof, and agrees to pay, upon the occurrence of an
Event of Default, all costs of collection, including, but not limited to,
reasonable attorneys' fees, whether or not suit is commenced.
This Note shall be governed by, interpreted and constructed in
accordance with the internal laws of the State of Minnesota. The undersigned
hereby consents to the personal jurisdiction of the state and federal courts
located n the State of Minnesota in connection with any controversy related to
this Note, waives any argument that venue in such forums is not convenient and
agrees that any litigation instigated by the undersigned against the Lender in
connection with this Note, or any document or instrument securing payment of
this Note shall be venued in either the District Court of Hennepin County,
Minnesota or the United States District Court for the District of Minnesota,
Fourth Division.
MERCURY WASTE SOLUTIONS, INC.
a Minnesota corporation
By_______________________________
Its____________________________
SECURITY AGREEMENT
Date: January 4, 1996
<TABLE>
<S> <C> <C> <C>
BORROWER MERCURY WASTE SOLUTIONS, INC. SECURED PARTY Brad J. Buscher
BUSINESS OR RESIDENCE 1700 West Highway 36 ADDRESS 302 N. Riverfront Drive
ADDRESS
CITY, STATE Roseville, MN 55113 CITY, STATE Mankato, MN 56001
& ZIP CODE Tax I.D.# ________________ & ZIP CODE
</TABLE>
1. SECURITY INTEREST AND COLLATERAL. To secure each and every debt,
liability or obligation of the Borrower to Secured Party, whether now existing
or hereafter incurred, including without limitation, that certain Revolving
Credit Promissory Note bearing even date herewith made payable by Borrower to
the order of Secured Party in the original principal amount of up to $2,000,000
("Revolving Note"). This security interest also secures all extensions, renewals
and replacements of the above described obligations. Such obligations are
hereinafter collectively referred to as the "Obligations".
Borrower hereby grants the Secured Party a security interest in the
following property (hereinafter the "Collateral"):
(a) INVENTORY:
[X] All inventory of Borrower, whether now owned or
hereafter acquired and wherever located;
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
[X] All equipment of Borrower, whether now owned or
hereafter acquired, including, but not limited to all
present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, farm machinery and
equipment, shop equipment, office and recordkeeping
equipment, parts and tools, and the goods described
in any equipment schedule or list herewith or
hereafter furnished to Secured Party by Borrower (but
no such schedule or list need be furnished in order
for the security interest granted herein to be valid
as to all of Borrower's equipment).
[ ] All farm products of Borrower, whether now owned or
hereafter acquired, including but not limited to (i)
all poultry and livestock and their young, products
thereof and produce thereof, (ii) all crops, whether
annual or perennial, and the products thereof, and
(iii) all feed, seed, fertilizer, medicines and other
supplies used or produced by Borrower in farming
operations. The real estate concerned with the above
described crops growing or to be grown is:___________
_____________________________________________________
and the name of the record owner is:
______________________
[ ] The following goods or types of goods:_______________
_____________________________________________________
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
[X] Each and every right of Borrower to the payment of
money, whether such right to payment now exists or
hereafter arises, whether such right to payment
arises out of a sale, lease or other disposition of
goods or other property by Borrower, out of a
rendering of services by Borrower, out of a loan by
Borrower, out of the overpayment of taxes or other
liabilities of Borrower, or otherwise arises under
any contract or agreement, whether such right to
payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced,
together with all other rights and interests
(including all liens and security interests) which
Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated
to make any such payment or against any of the
property of such account debtor or other obligor; all
including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and
obligations receivable and tax refunds.
[ ] _____________________________________________________
(d) GENERAL INTANGIBLES:
[X] All general intangibles of Borrower, whether now
owned or hereafter acquired, including, but not
limited to, applications for patents, patents,
copyrights, trademarks, trade secrets, good will,
tradenames, customers lists, permits and franchises,
and the right to use Borrower's name, and any other
intellectual property.
(e) OTHER:________________________________________________________
______________________________________________________________
together with all substitutions and replacements for and products of any of the
foregoing property not constituting consumer goods and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
Collateral, together with all accessions and, except in the case of consumer
goods, together with (i) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
such goods, and (ii) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Borrower represents,
warrants and agrees that:
(a) Borrower is [ ] an individual, [ ] a partnership, [X] a
corporation and, if Borrower is an individual, the Borrower's
residence is at the address of Borrower shown at the beginning
of this Agreement.
(b) The Collateral will be used primarily for [ ] personal, family
or household purposes; [ ] farming operations; [X] business
purposes.
(c) [ ] If any part or all of the tangible Collateral will become
so related to particular real estate as to become a fixture,
the real estate concerned is:_________________________________
(d) Borrower's chief executive office is located at ______________
___________________________________________ or, if left blank,
at the address of Borrower shown at the beginning of this
Agreement.
3. Additional Representations, Warranties and Agreements. Borrower represents,
warrants and agrees that:
(a) Borrower has (or will have at the time Borrower acquires rights in
collateral hereafter arising) absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except the Security
Interest, and will defend the Collateral against all claims or demands of all
persons other than Secured Party. Borrower will not sell or otherwise dispose of
the Collateral or any interest therein without the prior written consent of
Security Party, except that, until the occurrence of an Event of Default and the
revocation by Secured Party of Borrower's right to do so, Borrower may sell any
inventory constituting Collateral to buyers in the ordinary course of business
and use and consume any farm products constituting Collateral in Borrower's
farming operations. If Borrower is a corporation, this Agreement has been duly
and validly authorized by all necessary corporate action, and if Borrower is a
partnership, the partner(s) executing this Agreement has (have) authority to act
for the partnership.
(b) Borrower will not permit any tangible Collateral to be located in
any state (and, if county filing is required, in any county) in which a
financing statement covering such Collateral is required to be, but has not in
fact been, filed in order to perfect the Security Interest.
(c) Each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, set-off or counterclaim (other than those arising in the
ordinary course of business) of the account debtor or other obligor named
therein or in Borrower's records pertaining thereto as being obligated to pay
such obligation. Borrower will neither agree to any material modification or
amendment nor agree to any cancellation of any such obligation without Secured
Party's prior written consent, and will not subordinate any such right to
payment to claims of other creditors of such account debtor or other obligor.
(d) Borrower will (i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and will, form time
to time, replace any worn, broken or defective parts thereof; (ii) promptly pay
all taxes and other governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or continuance of the
Security Interest; (iii) keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest; (iv) at all
reasonable times, permit Secured Party or its representatives to examine or
inspect any Collateral, wherever located, and to examine, inspect and copy
Borrower's books and records pertaining to the Collateral and its business and
financial condition and to send and discuss with account debtors and other
obligors requests for verifications of amounts owed to Borrower; (v) keep
accurate and complete records pertaining to the Collateral and pertaining to
Borrower's business and financial condition and submit to Secured Party such
periodic reports concerning the Collateral and Borrower's business and financial
condition as Secured Party may from time to time reasonably request; (vi)
promptly notify Secured Party of any loss of or material damage to any
Collateral or of any adverse change, known to Borrower, in the prospect of
payment of any sums due on or under any instrument, chattel paper, or account
constituting Collateral; (vii) if Secured Party at any time so requests (whether
the request is made before or after the occurrence of an Event of Default),
promptly deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Borrower; (viii) at all
times keep all tangible Collateral insured against risk of fire (including
so-called extended coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as Secured Party may
reasonably request, with any loss payable to Secured Party to the extent of its
interest; (ix) from time to time execute such financing statements as Secured
Party may reasonably require in order to perfect the Security Interest and, if
any Collateral consists of a motor vehicle, executed such documents as may be
required to have the Security Interest properly noted on a certificate of title;
(x) pay when due or reimburse Secured Party on demand for all costs of
collection of any of the Obligations and all other out-of-pocket expenses
(including in each case all reasonable attorneys' fees) incurred by Secured
Party in connection with the creation, perfection, satisfaction, protection,
defense or enforcement of the Security Interest or the creation, continuance,
protection, defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or bankruptcy or
insolvency proceedings; (xi) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and other agreements
and writings which Secured Party may at any time reasonably request in order to
secure, protect, perfect or enforce the Security Interest and Secured Party's
rights under this Agreement; (xii) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance; and (xiii) not permit any tangible
Collateral to become part of or to be affixed to any real property without first
assuring to the reasonable satisfaction of Secured Party that the Security
Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. If Borrower at any time fails to perform or
observe any agreement contained in this Section 3(d), and if such failure shall
continue for a period of ten calendar days after Secured Party gives Borrower
written notice thereof (or, in the case of the agreements contained in clauses
(viii) and (ix) of this Section 3(d), immediately upon the occurrence of such
failure, without notice or lapse of time), Secured Party may (but need not)
perform or observe such agreement on behalf and in the name, place and stead of
Borrower (or, at Secured Party's option, in Secured Party's own name) and may
(but need not take any and all other actions which Secured Party may reasonably
deem necessary to cure or correct such failure (including, without limitation,
the payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations under contracts or agreements with
account debtors or other obligors, the procurement and maintenance of insurance,
the execution of financing statements, the endorsement of instruments and the
procurement of repairs, transportation or insurance); and, except to the extent
that the effect of such payment would be to render any loan of forbearance of
money usurious or otherwise illegal under any applicable law. Borrower shall
thereupon pay Secured Party on demand the amount of all moneys expended and all
costs and expenses (including reasonable attorneys' fees) incurred by Secured
Party in connection with or as a result of Secured Party's performing or
observing such agreements or taking such actions, together with interest thereon
from the date expended or incurred by Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance and
observance by Secured Party of such agreements of Borrower, Borrower hereby
irrevocably appoints (which appointment is coupled with an interest) Secured
Party, or its delegate, as the attorney-in-fact of Borrower with the right (but
not the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file, in the name and on behalf of Borrower, any and all instruments,
documents, financing statements, applications for insurance and other agreements
and writings required to be obtained, executed, delivered or endorsed by
Borrower under this Section 3 and Section 4.
4. LOCK BOX, COLLATERAL ACCOUNT. If Secured Party so requests at any time
(whether before of after the occurrence of an Event of Default), Borrower will
direct each of its account debtors to make payments under the relevant account
or chattel paper directly to a special lock box to be under the control of
Secured Party. Borrower hereby authorizes and directs Secured Party to deposit
into a special collateral account to be established and maintained with Secured
Party all checks, drafts and cash payments received in said lock box. All
deposits in said collateral account shall constitute proceeds of Collateral and
shall not constitute payment of any Obligation. At its option, Secured Party
may, at any time, apply finally collected funds on deposit in said collateral
account to the payment of the Obligations in such order of application as
Secured Party may determine or permit Borrower to withdraw all or any part of
the balance on deposit in said collateral account. If a collateral account is so
established, Borrower agrees that it will promptly deliver to Secured Party, for
deposit into said collateral account, all payments on accounts and chattel paper
received by it. All such payments shall be delivered to Secured Party in the
form received (except for Borrower's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by Borrower shall
be held in trust by Borrower for and as the property of Secured Party, and shall
not be commingled with any funds or property of Borrower.
5. ACCOUNT VERIFICATION AND COLLECTION RIGHTS OF SECURED PARTY. Secured Party
shall have the right to verify any accounts in the name of Borrower or in its
own name; and Borrower, whenever required, shall furnish Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by Secured Party for that purpose. Notwithstanding Secured Party's
rights under Section 4 with respect to any and all debt instruments, chattel
papers, accounts, and other rights to payment constituting Collateral (including
proceeds), Secured Party may at any time (both before and after the occurrence
of an Event of Default) notify any account debtor, or any other person obligated
to pay any amount due, that such chattel paper, account, or other right to
payment has been assigned or transferred to Secured Party for security and shall
be paid directly to Secured Party. If Secured Party so requests at any time,
Borrower will so notify such account debtors and other obligors in writing and
will indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to Secured Party. At any time after Secured Party
or Borrower gives such notice to an account debtor or other obligor, Secured
Party may (but need not), in its own name or in Borrower's name, demand, sue
for, collect or receive any money or property at any time payable or receivable
on account of, or securing, any such chattel paper, account, or other right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor.
6. ASSIGNMENT OF INSURANCE. Borrower hereby assigns to Secured Party, as
additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Borrower under or
with respect to, any and all policies of insurance covering the Collateral, and
Borrower hereby directs the issuer of any such policy to pay any such moneys
directly to Secured Party. Both before and after the occurrence of an Event of
Default, Secured Party may (but need not), in its own name or in Borrower's
name, execute and deliver proofs of claim, receive all such moneys, indorse
checks and other instruments representing payment of such moneys, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
7. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an
event of default under this Agreement (herein called "Event of Default"): (i)
Borrower shall fail to pay any or all of the Obligations when due or (if payment
on demand) on demand, shall fail to observe or perform any covenant or agreement
herein binding on it or shall be in default under any loan or credit agreement
between it and the Secured Party; (ii) any representation or warranty by
Borrower set forth in this Agreement or made to Secured Party in any financial
statements or reports submitted to Secured Party by or on behalf of Borrower
shall prove materially false or misleading; (iii) the occurrence of an Event of
Default under the terms of any of the Obligations.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of Default
under Section 7 and at any time thereafter, Secured Party may exercise any one
of more of the following rights and remedies: (i) declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or demand; (ii)
exercise and enforce any or all rights and remedies available upon default to a
secured party under the Uniform Commercial Code, including but not limited to
the right to take possession of any Collateral, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof, which
Borrower hereby expressly waives), and the right to sell, lease, or otherwise
dispose of any or all of the Collateral, and in connection therewith. Secured
Party may require Borrower to make the Collateral available to Secured party at
a place to be designated by Secured Party which is reasonably convenient to both
parties, and if notice to Borrower of any intended disposition of Collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 10) at least 10 calendar days prior to the date of intended
disposition or other action; (iii) exercise or enforce any or all other rights
or remedies available to Secured Party by law or agreement against the
Collateral, against Borrower or against any other person or property. Upon the
occurrence of an Event of Default describe din Section 7(iv)(B), all Obligations
shall be immediately due and payable without demand or notice thereof. Secured
Party is hereby granted a nonexclusive, worldwide and royalty-free license to
use or otherwise exploit all trademarks, trade secrets, franchises, copyrights
and patents of Borrower that Secured Party deems necessary or appropriate to the
disposition of any Collateral.
9. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes possession of
any tangible Collateral, or within seven days thereafter, Borrower gives written
notice to Secured Party of the existence of any goods, papers or other property
of Borrower, not affixed to or constituting a part of such Collateral, but which
are located or found upon or within such Collateral, described such property,
Secured Party shall not be responsible or liable to Borrower for any action
taken or omitted by or on behalf of Secured Party with respect to such property
without actual knowledge of the existence of any such property or without actual
knowledge that it was located or to be found upon or within such Collateral.
10. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts or
chattel paper. Borrower agrees that each provision whose box is checked is part
of this Agreement. This Agreement can be waived, modified, amended, terminated
or discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement of any of
Secured Party's rights or remedies. All rights and remedies of Secured Party
shall be cumulative and may be exercise singularly or concurrently, at Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. all notices to be given to Borrower shall be deemed sufficiently given if
delivered or mailed by registered or certified mail, postage prepaid, to
Borrower at its address set forth above or at the mots recent address shown on
Secured Party's records. Secured Party's duty of care with respect to Collateral
in its possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to preserve any rights
Borrower may have against prior parties, to realize on the Collateral at all or
in any particular manner or order, or to apply any cash proceeds of Collateral
in any particular order of application. this Agreement shall be binding and
inure to the benefit of Borrower and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Borrower and delivered to Secured Party, and Borrower waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement if
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or effectiveness
of this Agreement. A carbon, photographic or other reproduction of this
Agreement or of any financing statement signed by the Borrower shall have the
same force and effects as the original for all purposes of a financing
statement. this Agreement shall be governed by the internal laws of the state
where the main office of the Secured Party is located. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
If this Agreement is signed by more than one person as Borrower, the term
"Borrower" shall refer to each of them separately and to both or all of them
jointly; all such persons shall be bound both severally and jointly with the
other(s); and the Obligations shall include all debts, liabilities and
obligations owed to Secured Party by any Borrower solely or by both or several
or all Borrower's jointly and severally, and all property described in Section 1
shall be included as part of the Collateral, whether it is owned jointly by both
or all Borrowers or is owned in whole or in part by one (or more) of them.
BRAD J. BUSCHER MERCURY WASTE SOLUTIONS, INC.
Secured Party's Name Borrower's Name
By_______________________________________
Title: President
EXHIBIT 10.7
MERCURY WASTE SOLUTIONS, INC.
SHAREHOLDER AGREEMENT
This Agreement (the "Agreement"), effective as of January 4, 1996, is
entered into by and among BRAD J. BUSCHER ("Buscher"), having an address at c/o
Bankers American Capital Corporation, 302 North Riverfront Drive, Mankato,
Minnesota 56001, and MARK EDLUND ("Edlund"), having an address at P.O. Box
130817, Roseville, MN 55113 (each of the shareholders is sometimes individually
referred to as a "Shareholder" and the Shareholders are sometimes collectively
referred to as the "Shareholders"), and MERCURY WASTE SOLUTIONS, INC., a
Minnesota corporation (the "Corporation").
WHEREAS, the Shareholders constitute all of the shareholders of the
Corporation, and Buscher owns 68 shares of the common stock of the Corporation
and Edlund owns 32 shares of the common stock of the Corporation (the
Corporation's common stock, 1(cent) par value, is hereinafter referred to as the
"Shares");
WHEREAS, the Shareholders and the Corporation believe it to be in their
best interest to provide for restrictions on transfers of shares and for certain
call rights to provide for the purchase of Shares held by Edlund upon the
occurrence of certain events, and to provide for certain inclusion rights for
the benefit of Edlund in the event that Buscher sells his Shares to a third
party;
WHEREAS, the Board of Directors of the Corporation has unanimously
adopted a resolution approving this Agreement, determining that it is in the
best interests of the Corporation and authorizing appropriate corporate officers
to execute this Agreement and to do all acts and things necessary or advisable
to carry out its terms.
NOW, THEREFORE, in consideration of the mutual covenants and agreement
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Shareholders agree with each
other as follows:
1. RESTRICTION ON TRANSFERS/SUBCHAPTER S STATUS. Except as otherwise
provided in this Agreement, a Shareholder may not in any manner transfer, sell,
assign, hypothecate, mortgage, pledge or otherwise dispose of or encumber any of
his Shares. No Shareholder shall transfer any Shares or engage in any
transaction, voluntarily or involuntarily, that would cause the Corporation to
lose its status as an S Corporation under the Internal Revenue Code of 1986, as
amended. The Corporation shall not transfer on its books any Shares or issue any
certificates on account or in lieu thereof unless the terms and conditions of
this Agreement have been complied with. Any purported Transfer in violation of
this Agreement shall be invalid and shall vest no right, title, or interest in
the transferee vis-a-vis the Corporation, and the Corporation shall not be
required to recognize such transferee as a Shareholder.
2. LEGEND. All certificates evidencing Shares of the Corporation now
owned by the Shareholders or hereafter issued to them or to any subsequent
transferee of Shares once owned by them shall bear the following legend, but the
absence of this legend on any certificate shall not make this Agreement
unenforceable:
"Any sale, assignment, transfer, pledge or other disposition
of the shares evidenced by this Certificate, whether
voluntary or involuntary, is subject to the terms of a
Shareholder Agreement dated January 4, 1996, a copy of which
is on file in the executive offices of this Corporation."
3. RIGHTS OF INCLUSION. If Buscher desires to sell or otherwise dispose
of his Shares during his lifetime, he shall not be subject to the restrictions
of Section 1 hereof, provided, however, that he must give thirty (30) days
notice (the "Seller's Notice") to Edlund or any other Shareholder (collectively
referred to as the "Minority Shareholders") of his intention to so sell. The
Minority Shareholders are hereby granted the right and option to have their
respective Shares included, on a pro rata basis, in any sale or disposition of
Shares by Buscher upon the same terms and conditions as Buscher. Buscher
covenants and agrees to notify any and all proposed transferees and purchasers
of the option granted to the Minority Shareholders hereby at the time such offer
to purchase is being discussed and negotiated. Each of the Minority Shareholders
shall have period of ten (10) days after receipt of the Seller's Notice during
which to deliver written notice to Buscher of his election to exercise his
option hereunder. In the event a Minority Shareholder fails to so notify Buscher
within said ten day period, Buscher shall have no obligation to include in such
sale or disposition the Shares of such Minority Shareholder. This Section 3
shall not apply to: (i) the transfer of Shares by Buscher to Joel Gottesman, or
to members of Buscher's immediate family (defined for the purposes hereof as
Buscher's spouse, parents, children, natural or adopted, grandchildren, or
siblings) or a trust or trusts with said persons as beneficiary or beneficiaries
for estate planning purposes, or a charitable trust formed by a Shareholder with
a nonprofit or section 503 corporation as the beneficiary provided that any such
transferee shall become bound by the provisions of this Agreement with respect
to such transferred Shares, or (ii) any Transfer to an entity controlled by
Buscher.
4. PRE-EMPTIVE RIGHTS. During the term of this Agreement, the
Corporation grants the contractual pre-emptive rights to Buscher and Edlund as
provided in this Agreement. If the Corporation intends to issue additional
Shares, or shares of capital stock of another class, for cash consideration, the
Corporation agrees to offer to sell to Buscher and Edlund on a pro rata basis
(determined as hereinafter specified), additional Shares, or shares of such
additional class, on the same terms and conditions as the Corporation offers to
a third party. The pre-emptive rights granted hereunder shall not apply to
additional Shares or to any other class of stock issued in connection with any
merger, consolidation, reorganization, stock for stock exchange, substantial
investment by an unrelated private third party, registration of the
Corporation's shares as described in Section 10(e) hereof, or other similar
transaction. The Corporation may establish from time to time certain procedures
applicable to the Shareholders which relate to the exercise of the pre-emptive
rights provided hereunder. If the Corporation issues additional Shares to which
the Shareholders are entitled to subscribe hereunder, the pro rata determination
will be based on the percentage of outstanding Shares then held by each
Shareholder. If the Corporation issues one or more additional classes of capital
stock, the pro rata determination for the first such issuance shall be based on
the percentage of outstanding Shares then held by each Shareholder, and
thereafter additional issuances of shares of such new class will be determined
in proportion of the shares of such new class then held by the Shareholders. It
is anticipated that the Corporation may offer stock options and issue shares of
capital stock to certain key management employees not to exceed ten percent
(10%) of the total capitalization, and Buscher and Edlund agree that upon the
issuance of such shares or stock options the preemptive rights set forth in this
Section 4 shall not apply.
5. CORPORATION'S CALL RIGHTS. At any time after January 4, 2001,
Corporation shall have the right but not the obligation, to call any or all of
the Shares held by Edlund and require Edlund to sell to Corporation or Buscher
such Shares (the "Call Right"). The Corporation shall give Edlund ten days
written notice of its intent to exercise the Call Right. The Shares shall be
purchased at the Purchase Price and on the terms as set forth in Sections 8 and
9 hereof. If the Corporation is unable to perform its obligations under the Call
Rights, the Corporation may assign its rights and obligations with respect to
the Call Rights to Buscher who may exercise such rights and perform such
obligations of the Corporation with respect to the Call Rights.
6. CALL RIGHT UPON OCCURRENCE OF CERTAIN EVENTS.
6.1 TRIGGERING EVENTS. Upon the occurrence of any of the
Triggering Events (defined below), the Corporation shall have the
right, but not the obligation, to call any or all of the Shares held by
Edlund, and require Edlund, or the executor or administrator of
Edlund's estate, as the case may be, to sell to Corporation such Shares
(the "Termination Call Right"). The Corporation shall give Edlund ten
days written notice of its intent to exercise the Termination Call
Right. Failure to give such ten days notice shall be deemed an election
not to exercise the Termination Call Right. The Shares shall be
purchased at the Purchase Price and on the terms as set forth in
Sections 8 and 9 hereof. If the Corporation is unable to perform its
obligations under the Termination Call Rights, the Corporation may
assign its rights and obligations with respect to the Termination Call
Rights to Buscher who may exercise such rights and perform such
obligations of the Corporation with respect to the Termination Call
Rights. For purposes of this Agreement, Triggering Events shall mean
any of the following:
(a) Corporation terminates Edlund's employment with the
Corporation;
(b) Edlund resigns as an employee and/or officer of the
Corporation;
(c) the disability or incompetency of Edlund, as determined
pursuant to Section 5.1(a)(ii) of that certain Employment
Agreement dated as of January 4, 1996, between Corporation and
Edlund, as amended from time to time, or a similar provision
in any superseding employment agreement between the
Corporation and Edlund;
(d) the marital dissolution or legal separation of Edlund from
his spouse, whereby Edlund is required by judicial decree,
separate maintenance agreement, settlement agreement or
otherwise to Transfer or encumber all or part of Edlund's
Shares;
(e) Edlund's Shares, or any portion or interest therein, are
involuntarily sold, transferred, encumbered or otherwise
disposed of, or an involuntary sale, transfer, encumbrance or
disposal is threatened by any third person (including without
limitation Craig Beeson, Donald Seiler, Michael Seiler or
Resource Technology, Inc.), whether by (i) sale upon the
execution or in foreclosure of any pledge, hypothecation, lien
or charge (except a pledge, hypothecation, lien or charge
granted to a Shareholder or the Corporation); (ii) acquisition
of an interest therein by a trustee in bankruptcy or a
receiver; or (iii) any other means (collectively, "Involuntary
Disposition"); or
(f) breach by Edlund of his obligations pursuant to this
Shareholder Agreement.
6.2 DEATH OF EDLUND. Upon the death of Edlund, the Corporation
shall purchase all of the Shares held by Edlund and shall so direct the
executor or administrator of Edlund's estate. The Shares shall be
purchased at the Purchase Price and on the terms as set forth in
Sections 8 and 9 hereof. If the Corporation is unable to perform its
obligations under this Section 6.2, the Corporation shall assign its
rights and obligations to Buscher who may exercise such rights and
perform such obligations of the Corporation with respect hereto.
7. CLOSING. At any closing of the sale of Edlund's Shares ("Closing")
pursuant to this Agreement, Edlund or his legal representative shall represent
and warrant to each purchaser that the purchaser shall receive good and
marketable title to the Shares being purchased and that such Shares are free
from all liens, encumbrances or interests of third parties at the time of
closing.
8. DETERMINATION OF PURCHASE PRICE. Shares to be purchased by the
Corporation or Buscher pursuant to any of the provisions set forth in this
Agreement will be purchased at their fair market value (the "Purchase Price")
(subject to reduction under Section 13.3(a) hereof), such value to be determined
by an appraiser preselected by the parties involved. If the parties cannot
unanimously agree on an appraiser, Edlund or the personal representative of
Edlund's estate or his legal representative shall nominate an appraiser and the
Corporation or Buscher, whichever is purchasing the Shares, shall nominate an
appraiser. The appraisal shall be determined by the single, agreed-upon
appraiser or, if two appraisers, shall be the average of the appraisals of the
two appraisers. The appraisal is to be determined on a per share basis.
9. PAYMENT OF PURCHASE PRICE. The Corporation, or Buscher, as the case
may be, (a "Purchaser") shall pay to Edlund the Purchase Price in cash at the
time of the Closing, or at Purchaser's sole option, by delivering a promissory
note payable to Edlund in the principal amount of the Purchase Price (the
"Note"), which Note shall bear interest at a fixed rate equal to ten percent
(10%) per annum, and shall be payable as follows: (i) if the Closing occurs
before January 1, 1999 no payments shall be made on the Note until after January
1, 1999 in accordance with clause (ii) below, provided, however, that the Note
shall accrue interest from the date of the Closing, and (ii) from and after
January 1, 1999, if the Purchase Price is $500,000 or less, the Note shall be
fully amortized and payable over a three year term, and if the Purchase Price is
greater than $500,000, the Note shall be fully amortized and payable over a five
year term. The Shares purchased by the Corporation, or Buscher, as the case may
be, shall be pledged to Edlund or the personal representative of Edlund's
estate, to secure the Corporation's, or Buscher's, obligations under the Note.
10. TERM OF AGREEMENT. This Agreement, and all provisions herein
including without limitation the preemptive rights set forth in Section 4
hereof, shall terminate upon the happening of any of the following events:
(a) at such time as there is only one Shareholder of the
Corporation;
(b) entry of an order for relief with respect to the
Corporation under the Federal Bankruptcy Code, the execution by the
Corporation of any assignment for the benefit of creditors or the
appointment of a receiver of the Corporation.
(c) the dissolution or liquidation of the Corporation; or
(d) the written agreement of the Shareholders; or
(e) if the Corporation registers a class of equity securities
pursuant to Section 12, or becomes subject to Section 15(d), of the
Securities Exchange Act of 1934; or
(f) twenty years after the death of the last of the original
Shareholders (or permitted transferee under Section 3 hereof) named
herein.
11. INABILITY TO PURCHASE SHARES. If the Corporation is unable to
purchase the Shares pursuant to this Agreement because of a determination that
the Corporation will be unable to pay its debts in the ordinary course of
business as a consequence of the purchase of the Shares, Buscher shall have the
right, but not the obligation, to purchase the Shares on the same terms and
conditions as would otherwise apply to a purchase of such Shares by the
Corporation.
12. INSURANCE. The Corporation and/or Buscher may insure the life of
Edlund for an amount designated from time to time by the Board of Directors or
as determined by Buscher if purchasing such insurance, as applicable. The
Corporation and/or Buscher, as applicable, shall have the right to obtain,
change, modify, terminate, reduce or increase insurance coverage on the life of
Edlund whenever, in the opinion of the Board of Directors or Buscher, as
applicable, such action may be appropriate to carry out its or his obligations
under this Agreement. If the amount of insurance carried by the Corporation or
Buscher on the life of Edlund at the time of his death exceeds the total
Purchase Price for the Edlund's Shares to be purchased, the balance of such
insurance proceeds shall continue to be the property of the Corporation or
Buscher, as applicable.
13. SHAREHOLDER COVENANTS.
13.1 RESTRICTION ON SOLICITING BUSINESS AND EMPLOYEES OF
COMPANY. Edlund covenants and agrees that while he is a Shareholder and
for a period of five (5) years immediately thereafter, he will not (i)
except as it may be required in the course of his employment with the
Corporation, either directly or indirectly, call on, solicit or take
away, or attempt to call on, solicit or take away any existing or
prospective customer, vendor, client or account of the Corporation, or
cause such customer, client, vendor or account to divert, terminate or
limit or in any manner modify or fail to enter into any actual or
potential business relationship with the Corporation; or (ii) with
respect to any individual who is at such time, or who was at anytime
within the twelve (12) month period immediately prior to such time, in
the employ of the Corporation, either directly or indirectly employ or
attempt to employ, assist anyone else to employ or solicit, induce or
otherwise attempt to cause such individual to leave the employment of
the Corporation. The parties hereby intend and agree that this Section
13.1 shall be in addition to, and shall be read consistently with any
other non-compete provisions between the Corporation and Edlund. For
purposes of this Agreement, the term "prospective" client, customer,
vendor or account and "potential" business shall include any customer,
client, vendor, account or business being actively pursued by the
Corporation and/or Buscher by means of a written or oral proposal or
other ongoing discussions or negotiations which have a reasonable
opportunity for success. Notwithstanding the foregoing, Corporation
agrees that if Corporation reconveys to U.S. Environmental, Inc.
("USE") the distribution rights to sell the Model 2000 Equipment,
Edlund shall not be subject to the noncompete provisions of this
Section 13.1 solely with respect to sales of such Model 2000 Equipment.
In addition, the provisions of this Section 13.1 shall become null and
void, and Edlund shall have no further obligation to Corporation under
this Section 13.1 upon the occurrence of any of the following events:
(a) the failure of Corporation to pay when due (to the extent
not subject to offset) sums owing to USE under the terms of
that certain Promissory Note dated as of January 4, 1996 in
the principal amount of $448,256.60 made payable by
Corporation to the order of USE, as amended from time to time
(the "Asset Purchase Note"), or under the terms of that
certain Distribution Rights Bill of Sale Agreement dated as of
January 4, 1996 by and between USE and Corporation, as amended
from time to time (the "Distribution Rights Agreement") and
the Distribution Note(s) issued pursuant to the Distribution
Rights Agreement; or
(b) the Board of Directors of Corporation has determined it is
in the Corporation's best interest to request an advance under
the terms of that certain Revolving Credit Promissory Note
dated as of January 4, 1996 in the face principal amount of
$2,000,000 made payable by Corporation to the order of
Buscher, or his assigns, as amended from time to time (the
"Revolving Note") to fund working capital and expansion needs
of Corporation prior to the Determination (as defined in the
Revolving Note), and Buscher arbitrarily and unreasonably
refuses to make the requested advance to Corporation, and no
Event of Default (as defined in the Revolving Note) is
existing at the time of the requested advance.
13.2 PROPRIETARY AND CONFIDENTIAL INFORMATION. Edlund
acknowledges that during the course of his ownership of Shares and his
employment with the Corporation, he may receive or have access to and
become familiar with the proprietary and confidential information of
the Corporation constituting trade secrets, which consist of technical
information and expertise, client and principal lists and records and
compilations of information, records and specifications, which are
owned by the Corporation and which are regularly used in the business
of the Corporation. Edlund covenants that he will not disclose any of
the aforesaid proprietary information, directly or indirectly, or use
it in any way except as required in the course of his employment with
the Corporation. Edlund acknowledges, covenants and agrees that all
trade secrets, files, records, documents, drawings, specifications,
technical information and similar items related to the business of the
Corporation, whether prepared by Edlund or otherwise coming into his
possession, is and shall remain the exclusive property of the
Corporation. Edlund further agrees that upon termination of his
employment with the Corporation, Edlund shall leave with or return to
the Corporation, all of its property, including everything that
contains any confidential and proprietary information or trade secrets
of the Corporation. This covenant shall be an addition to, and shall be
read consistently with any other similar provision between Corporation
and Edlund.
13.3 REMEDIES FOR BREACH. In the event of a breach of any
covenant set forth in this Section 13 resulting in damages to the
Corporation or the other Shareholders, the non-breaching Shareholders
or the Corporation may recover from Edlund any and all damages that may
be sustained. In addition, the non-breaching Shareholders or the
Corporation may seek the following remedies to a breach:
(a) The Corporation and non-breaching Shareholders shall have
the right to redeem all of Edlund's Shares at the price determined
under this Agreement; provided, however, that such Purchase Price shall
be reduced by fifty percent (50%); or
(b) The Corporation and the non-breaching Shareholders shall
be entitled to an injunction to prevent Edlund from doing any act which
may be a further breach of this Section 13.
13.4 SURVIVAL OF COVENANTS. Each covenant and agreement herein
made by Edlund shall be construed as an agreement independent of any
other provision of this Agreement, and the existence of any claim or
cause of action of a Shareholder, against the Corporation or any other
Shareholder, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Corporation or any
other Shareholder of such covenant and agreement.
14. SPECIFIC PERFORMANCE. The parties declare that it is impossible to
measure in money the damages which will accrue by reason of failure to perform
any of the obligations under this Agreement. Therefore, if the Corporation or a
Shareholder shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives and agrees not to assert the defense that the plaintiff has an adequate
remedy at law.
15. OFFSET. If, at the time of a purchase of Shares, Edlund is indebted
to the Corporation, or to Buscher if Buscher purchases such Shares (the
Corporation or Buscher is hereinafter referred to as a "Purchasing Party"), the
Purchasing Party shall have the right to offset any such indebtedness against
the Purchase Price in the following manner: the indebtedness (including interest
thereon) due from Edlund shall be applied first to the down payment, if any, to
be paid by the Purchasing Party to Edlund, and next to each successive
installment of principal and interest due under the note, until the full amount
of the indebtedness (including interest thereon) owed to Purchasing Party has
been paid. Any remaining indebtedness owed by Edlund to the Purchasing Party
shall continue to be due and payable to the extent not offset against the
Purchase Price.
16. SECURITIES LAW COMPLIANCE. Any Transfer or other disposition of
Shares shall be made in full compliance with applicable federal and state
securities laws. Any offeree or transferee of Shares under this Agreement shall
provide documentation satisfactory to counsel to the Corporation that such
offeree or transferee is acquiring shares for his own account, for investment
purposes only and not with a view to their resale or distribution.
17. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the making, performance or interpretation of this Agreement,
shall be settled by an independent third party selected by the unanimous vote of
the Shareholders at each annual meeting of the Shareholders. In the event the
Shareholders have not previously selected or are unable to unanimously agree
upon the individual to act as an arbitrator hereunder, such claim or controversy
shall be settled by arbitration in Minnesota in accordance with the Rules of the
American Arbitration Association then existing, and judgment on the arbitration
award may be entered in any court having jurisdiction over the subject matter of
the controversy.
18. MISCELLANEOUS PROVISIONS.
18.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement is the entire
final Agreement among the parties pertaining to the subject matter of this
Agreement. This Agreement shall not be amended except by a writing signed by all
of the parties hereto.
18.2 WAIVER. No failure or delay by any party in requiring the
performance of any term or provision of this Agreement shall be deemed a waiver
thereof and no waiver by any party of any term or provision hereof shall be
deemed or construed as a further or continuing waiver of any such term or
provision or a waiver of any other term or provisions of this Agreement.
18.3 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
18.4 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Minnesota. The
undersigned hereby consent to the jurisdiction of the state and federal courts
located in the state of Minnesota in conjunction with any controversy related to
this Agreement and waive any argument that venue in such forums is not
convenient.
18.5 BINDING EFFECTS. This Agreement shall be binding upon and
be enforceable by the Shareholders and their respective heirs, representatives
and assigns.
18.6 NOTICES. All notices, designations, consents, offers,
acceptances or other communication provided for herein shall be given in writing
and delivered personally, by facsimile, by private express courier or by
registered or certified mail, postage prepaid, addressed to the Shareholder, or
the personal representative or legal guardian of a Shareholder, at the address
shown on the records of the Corporation, or in the case of the Corporation, to
the secretary at its principal office. Notice shall be deemed given for all
purposes when delivered personally, when sent by facsimile, when delivered to
the private express courier or when deposited in the United States mail.
18.7 GENDER. As used in this Agreement, the masculine gender
includes the feminine and personal references include, where applicable,
corporate references.
18.8 STOCK SPLITS, ETC. In case the Corporation divides its
outstanding capital stock into a greater number of shares, pays any stock
dividends on, or conversely combines its outstanding capital stock into a
smaller number of shares, the number of shares of capital stock subject to this
Agreement shall be proportionately increased or decreased, as the case may be,
and any dollar amount per share purchase price set forth herein or computed
pursuant hereto shall be adjusted appropriately.
18.9 DISCLAIMER. Nothing in this Agreement shall be
interpreted to constitute the Shareholders as a partnership, association, joint
venture or other organization or business entity, it being the express intention
of the Shareholders merely to provide between themselves arrangements regarding
the Shares.
18.10 SEVERABILITY. It is the intention of the Shareholders
that each and every one of the foregoing terms, provisions and paragraphs is
severable and in the event of invalidity or unenforceability of any such
provision, the remainder of this Agreement shall be enforceable in accordance
with its terms as if said unenforceable provision shall not be included herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
CORPORATION:
MERCURY WASTE SOLUTIONS, INC., SHAREHOLDERS:
a Minnesota corporation
___________________________________
Brad J. Buscher
By___________________________________
Its________________________________ ___________________________________
Mark Edlund
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 4, 1996, by and
between MERCURY WASTE SOLUTIONS, INC., a corporation duly organized and existing
under the laws of the State of Minnesota, with a place of business at 1700 West
Highway 36, Roseville, Minnesota, hereinafter referred to as "MWS," and MARK
EDLUND, with an address at P. O. Box 130817, Roseville, Minnesota 55113,
hereinafter referred to as "EXECUTIVE".
RECITALS
A. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of MWS's business and EXECUTIVE's
rights and obligations under this Agreement. Any interpretation or construction
of this Agreement shall be considered in light of these recitals.
B. MWS is a Minnesota corporation engaged in the business of (i)
recycling high intensity lamps which is conducted in Roseville, Minnesota, (ii)
recycling high intensity lamps and distilling/retorting mercury at a facility in
Union Grove, Wisconsin, and (iii) the sale and distribution of lamp processing
equipment (collectively, the "Business").
C. On or about January 4, 1996, MWS anticipates acquiring substantially
all of the assets of U.S. Environmental, Incorporated ("USE"). EXECUTIVE has
been the sole shareholder and chief executive officer of USE. EXECUTIVE
understands that this Agreement shall be effective against MWS and EXECUTIVE
only upon completion of such acquisition.
D. MWS desires to employ EXECUTIVE and EXECUTIVE desires to be employed
by MWS, on the terms, covenants, and conditions set forth in this Agreement.
E. In connection with the foregoing aspects of the Business, MWS
anticipates developing, from time to time, confidential business data and trade
secrets which it desires to protect from disclosure to competitors. "Trade
secret" means any information, formulae, patterns, computations, programs,
devices, methods, techniques, or processes relating to MWS' products and/or
services or its research, development, manufacture, design, marketing,
merchandising, selling and servicing.
F. The parties acknowledge that MWS' trade secrets and confidential
business data, have value to MWS only to the extent that they are not disclosed
to MWS' competitors.
G. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as MWS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
AGREEMENT
NOW, THEREFORE, for the reasons set forth above, and in consideration
of the mutual promises and agreements set forth in this Agreement, MWS and
EXECUTIVE agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 MWS hereby employs, engages, and hires EXECUTIVE as President and
Chief Operating Officer and EXECUTIVE hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuant to
the advice of MWS's Board of Directors.
1.2 EXECUTIVE shall perform such duties as may be assigned to him from
time to time by MWS's Board of Directors.
ARTICLE 2
EFFORTS OF EMPLOYEE
2.1 EXECUTIVE agrees to devote his full time and skills to the conduct
of MWS's business operations, performing the duties of the President and Chief
Operating Officer, and such other duties as may be requested by the Board of
Directors of MWS. EXECUTIVE will not, without the express written permission of
MWS, engage in any substantial private business activities outside or separate
from EXECUTIVE's employment with MWS in any field which would prevent or
interfere with the performance of his services for MWS as contemplated herein.
EXECUTIVE will comply with MWS's policies and personnel regulations as the same
may be adopted by MWS from time to time. EXECUTIVE shall perform his duties and
manage and operate the Business at all times in strict accordance with all
applicable federal and state laws and regulations, local ordinances, and any
compliance agreement or other agreement/authorization between MWS and the
Minnesota Pollution Control Agency, the Wisconsin Department of Natural
Resources, or any other applicable state agency for the conduct of the Business.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.1 Subject to the provisions for termination hereinafter set forth,
the term of this Agreement and the performance of EXECUTIVE's services shall
commence on the date that MWS acquires substantially all of the assets of USE
(the "Effective Date") and shall continue thereafter until terminated as
provided in Article 5 hereof.
3.2 This Agreement shall be binding upon EXECUTIVE and MWS as of the
Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.1 EXECUTIVE will be paid a base salary of Ninety Thousand and no/100
Dollars ($90,000.00) per year for each year of the term of this contract.
EXECUTIVE's compensation shall be payable in equal biweekly installments. MWS's
Board of Directors shall review EXECUTIVE's base salary compensation annually,
and may, within its sole discretion, raise EXECUTIVE's base salary based upon
EXECUTIVE's performance, MWS's performance or any other criteria it determines
is appropriate.
4.2 MWS shall, to the extent permitted by law and the terms of the
applicable plans, provide EXECUTIVE with full participation in MWS's employee
benefit plans under the same terms as provided to other executive employees of
MWS from time to time in the exclusive discretion of MWS's Board of Directors.
Such benefits may include, but are not limited to, a medical and dental plan,
disability plan, life insurance plan, and 401(k) plan and a profit sharing plan.
MWS is not obligated to provide or continue any of these benefits and may,
without any prior notice, discontinue any benefit already provided or as may be
provided in the future, within the exclusive discretion of MWS's Board of
Directors.
4.3 EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for MWS, and do not exceed a gross amount
as preapproved by MWS's Board of Directors. EXECUTIVE shall submit to MWS an
itemized account detailing the expenses on a form provided to Executive by MWS,
accompanied by receipts. MWS reserves the right to reject reimbursement of
expense submissions not in compliance with the terms set forth in this Section
or which are not in compliance with Internal Revenue Service statutes, rules,
regulations or other controlling or interpretive authority.
4.4 EXECUTIVE is entitled to 30 business days of vacation per year upon
the same terms and conditions as provided to the other employees of MWS.
Vacation time will be scheduled taking into account the EXECUTIVE's duties and
obligations at MWS. Sick leave, holiday pay and all other leaves of absence also
will be in accordance with MWS's stated personnel policies.
ARTICLE 5
TERMINATION
5.1 EXECUTIVE's employment with MWS shall terminate in accordance with
the following provisions:
5.1(a) MWS may terminate EXECUTIVE's employment as follows:
(i) Upon at least ninety (90) days' written notice to
EXECUTIVE, with or without cause.
(ii) Upon the disability of EXECUTIVE for a period of at
least ninety (90) business days, whether or not
consecutive, during any twelve (12) month period. For
the purposes of this Agreement, the term "disability"
means any physical or mental impairment of EXECUTIVE,
whether total or partial, which prevents EXECUTIVE,
in the reasonable judgment of MWS, from carrying out
or performing the major duties of his employment.
Upon the request of MWS, EXECUTIVE shall submit to
examinations by a physician or physicians, to assist
MWS in determining whether EXECUTIVE has been
disabled for purposes of this Agreement. The decision
as to EXECUTIVE's disability, if made in good faith
by MWS, shall be conclusive and binding upon
EXECUTIVE.
5.1(b) EXECUTIVE may terminate employment with MWS upon at least
ninety (90) days' prior written notice to MWS.
5.1(c) Any other provision of this Agreement notwithstanding, MWS may
terminate EXECUTIVE's employment without notice if the
termination is based on a violation of this Agreement, or on
fraud, embezzlement, securities law violation, material
violation or willful criminal violation of environmental laws
and regulations or an applicable agreement with a federal or
state environmental agency (including without limitation any
Compliance Agreement or other agreement/authorization with the
MPCA or WDNR), sexual harassment of fellow employees, or if
EXECUTIVE takes employment in addition to that of MWS, in
competition with MWS, or if EXECUTIVE is guilty of a
substantial, willful and material act or acts of
insubordination, misconduct, dishonesty, or disloyalty against
MWS, or gross misconduct involving moral turpitude.
5.2 Employment will be deemed terminated upon the death of the
EXECUTIVE.
ARTICLE 6
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
6.1 In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to MWS which constitutes trade secrets or confidential business data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
6.2 The foregoing list of trade secrets and confidential business data
is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning MWS's business of commercial value to MWS, which information shall be
included in the definitions under Section 6.1, above, even though not
specifically listed. MWS believes that such information constitutes trade secret
information because MWS derives economic value from the fact that such
information is not generally known or readily ascertainable by proper means by
MWS's competitors or potential competitors who may obtain economic value by its
disclosure or use. The provisions of this Article 6 apply to any form in which
the subject information, secrets or data may appear, whether written, oral or
any other form of recording or storage.
6.3 EXECUTIVE covenants and agrees that both during and after his
employment with MWS, the foregoing confidential business data and information
and trade secrets will not be communicated or disclosed by him (directly or
indirectly) to any person or entity, including but not limited to, the press,
other professionals, corporations, partnerships or the public. EXECUTIVE further
agrees to never use such information for EXECUTIVE's benefit or the benefit of
any other person, firm, corporation or entity, directly or indirectly. EXECUTIVE
agrees to take reasonable security measures to prevent accidental disclosure and
industrial espionage. EXECUTIVE further covenants and agrees that he will
faithfully abide by all rules and regulations established by MWS for insuring
the confidentiality of the foregoing information and data, including, but not
limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided by
MWS and limiting safe or vault lock combinations or keys to
authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by MWS from time to time.
The obligations of this Section 6.3 shall survive EXECUTIVE's employment with
MWS and continue until the information at issue is no longer confidential and
becomes generally publicly known, other than as a direct or indirect result of
the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to MWS by any other person or entity.
6.4 Upon termination of his employment with MWS, whether voluntary or
involuntary, EXECUTIVE will return to MWS any and all written or other recorded
form of the foregoing information and data, and will take with him, upon leaving
MWS' place of business, no documents, writings, recordings or reproduction in
any form which may have been entrusted to him during the course of his
employment or to which he had access or possession.
ARTICLE 7
INVENTIONS OR DISCOVERIES
7.1 EXECUTIVE acknowledges that inventions or other discoveries may be
developed, conceived or otherwise made by EXECUTIVE during employment with MWS.
EXECUTIVE agrees that all such inventions or other discoveries shall be the
exclusive property of MWS. With respect to all such inventions or other
discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
MWS's property and be retained on MWS's premises; and
(b) Promptly and fully disclose and describe all such inventions or
other discoveries to MWS; and
(c) Assign (and EXECUTIVE does hereby assign) to MWS all of
EXECUTIVE's rights to these inventions or other discoveries, and to
application for letters patent or copyrights in all countries and
to letters patent or copyrights granted upon these inventions or
other discoveries in all countries; and
(d) To do such other acts as may be necessary in the opinion of MWS
to preserve property rights to these inventions or other
discoveries against forfeiture, abandonment or loss and to obtain
and maintain letters patent or copyrights and to vest the entire
right and title thereto exclusively in MWS.
7.2 The obligations of this Article 7 shall continue beyond the
termination of EXECUTIVE's employment with MWS with respect to inventions or
other discoveries conceived or otherwise developed during EXECUTIVE's employment
and shall be binding upon assigns, executors, administrators and other legal
representatives.
7.3 MWS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 7 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of MWS was used and that were developed entirely on EXECUTIVE's own
time, and (a) that does not relate (1) directly to MWS's business or (2) to
MWS's actual or demonstrably anticipated business research or development, or
(b) that does not result from any work performed by EXECUTIVE for MWS.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1 In view of the substantial economic benefit EXECUTIVE is receiving
from MWS's acquisition of USE, along with the compensation and benefits set
forth herein, as well as EXECUTIVE's equity participation in MWS, EXECUTIVE
agrees that at no time during the term of this Agreement and EXECUTIVE's
employment with MWS and for a period of five (5) years following the termination
of EXECUTIVE's employment (whether voluntary or involuntary) (the "Noncompete
Period"), will EXECUTIVE, directly or indirectly, without the prior written
consent of the MWS Board of Directors, (a) solicit or do competitive business
with any person or entity that is or was a customer or vendor of MWS within the
twelve (12) months prior to the date of termination, or (b) engage within the
United States or Canada in any similar or related business in competition with
MWS or have any direct or indirect interest, whether as a proprietor, partner,
employee, shareholder, principal, agent, consultant, director, officer or in any
other capacity or manner whatsoever, in any enterprise that shall so engage.
EXECUTIVE recognizes and agrees that the geographic scope of this restriction is
reasonable because MWS's business will be conducted on a national and
international scale and is not limited to a particular geographic area within
the United States or Canada. Notwithstanding the foregoing, MWS agrees that if
MWS reconveys to USE the distribution rights to sell the Model 2000 Equipment,
EXECUTIVE shall not be subject to the noncompete provisions of this Section 8.1
solely with respect to sales of such Model 2000 Equipment.
8.2 EXECUTIVE shall not, during the Noncompete Period, directly or
indirectly, hire for employment or solicit, induce or otherwise attempt to cause
any individual who is an employee of MWS during the term of his or her
employment to leave the employ of MWS for any reason whatsoever; provided,
however, that this provision shall not apply to any such employee whose
employment or relationship with MWS has been terminated for at least six (6)
months prior to such hiring or other restricted activity. The term "employment"
for purposes of this paragraph means an arrangement for services as a full-time
or part-time employee, independent contractor, agent or otherwise.
8.3 The provisions of this Article 8 shall become null and void, and
EXECUTIVE shall have no further obligation to MWS under this Article 8 upon the
occurrence of any of the following events:
(a) the failure of MWS to pay when due (to the extent not subject
to offset) sums owing to USE under the terms of that certain
Promissory Note dated as of January 4, 1996 in the principal amount
of $448,256.60 made payable by MWS to the order of USE, as amended
from time to time (the "Asset Purchase Note"), or under the terms
of that certain Distribution Rights Bill of Sale Agreement dated as
of January 4, 1996 by and between USE and MWS, as amended from time
to time (the "Distribution Rights Agreement") and the Distribution
Note(s) issued pursuant to the Distribution Rights Agreement; or
(b) the Board of Directors of MWS has determined to request an
advance under the terms of that certain Revolving Credit Promissory
Note dated as of January 4, 1996 in the face principal amount of
$2,000,000 made payable by MWS to the order of Brad Buscher, or his
assigns ("Buscher"), as amended from time to time (the "Revolving
Note") to fund working capital and expansion needs of MWS, and
Buscher arbitrarily and unreasonably refuses to make the requested
advance to MWS, and no Event of Default (as defined in the
Revolving Note) is existing at the time of the requested advance.
ARTICLE 9
INJUNCTIVE RELIEF
9.1 The parties acknowledge that MWS will suffer irreparable harm if
EXECUTIVE breaches this Agreement, either during or after its term. Accordingly,
MWS shall be entitled, in addition to any other rights and remedy it may have,
at law or equity, to any injunction, without the posting of a bond or other
security, enjoining or restraining EXECUTIVE from any violation of this
Agreement, and EXECUTIVE hereby consents to MWS's right to the issuance of such
injunction. In any proceeding by MWS to enforce any provision of Article 6, 7 or
8, MWS shall, in addition to any injunctive relief to which it may be entitled,
be awarded damages to be determined by a court of competent jurisdiction as well
as all court costs, disbursements, expenses and attorneys' fees incurred by MWS.
9.2 In the event EXECUTIVE violates the terms of Article 8, the
Noncompete Period shall be extended for two (2) years from and after the later
of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment enforcing
the terms of the covenant.
9.3 In the event a court of competent jurisdiction determines that a
provision of Section 9.1 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by MWS, but is
only included to provide MWS with the maximum possible protection consistent
with the right of EXECUTIVE to earn a livelihood subsequent to the termination
of his employment.
ARTICLE 10
MISCELLANEOUS
10.1 Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
10.2 Successors. This Agreement is personal to EXECUTIVE and EXECUTIVE
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person or entity. This Agreement
may be assigned by MWS.
10.3 Waiver. The waiver by MWS of the breach or nonperformance of any
provision of this Agreement by EXECUTIVE will not operate or be construed as a
waiver of any future breach or nonperformance under any such provision of this
Agreement or any similar agreement with any other employee.
10.4 Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement is the entire
understanding and agreement between the parties.
IN WITNESS WHEREOF the following parties have executed the above
Employment Agreement as of the day and year first above written.
MERCURY WASTE SOLUTIONS, INC.
a Minnesota corporation
By ____________________________________
Its: Chairman of the Board
____________________________________
MARK EDLUND
EXHIBIT 10.10
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT, dated as of this __ day of
January, 1996 by and between MERCURY WASTE SOLUTIONS, INC. (the "Company") and
BANKERS AMERICAN CAPITAL CORPORATION (the "Consultant").
WHEREAS, the Company is in the business of recycling high intensity
lamps and distilling/retorting mercury, and is also engaged in the business of
selling and distributing lamp processing equipment; and
WHEREAS, Company has requested that Consultant provide Company with
management, operational, tax planning and other consulting and administrative
services;
WHEREAS, Company and Consultant desire to enter into this Agreement
with respect to the management and consulting services to be provided by
Consultant to Company, upon the terms herein specified.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises of the parties hereto and of other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties agree as
follows:
1. Appointment. The Company hereby appoints Consultant to render
services to the Company relating to the management of the businesses and
operations of the Company, as well as providing tax planning, and other
administrative services as requested by the Company from time to time during the
term of this Agreement, as herein contemplated.
2. Services to be Provided. Subject to such guidelines and limitations
as the Board of Directors of the Company may from time to time impose, during
the term of this Agreement, Consultant shall have the authority to administer,
manage, and consult with the officers of the Company with respect to the
businesses and properties of the Company, and Consultant, generally, shall
render such services as may be required in connection with the supervision and
administration of the businesses and properties of the Company. In addition,
Consultant shall provide such other tax planning, accounting, and administrative
services as Company requests from time to time.
3. Conflicts of Interest. The Company acknowledges that Consultant
shall devote as much time to the management of the Company and its businesses
and properties as Consultant may deem to be necessary under the circumstances.
The Company understands and agrees, however, that, Consultant may engage in
other businesses.
4. Exculpation. Consultant shall be exculpated from liability in
connection with the acceptance, performance or nonperformance of its duties
hereunder to the same extent that directors or officers of a corporation are
entitled to elimination of personal liability under Minnesota law other than for
gross negligence or willful misconduct. Consultant shall incur no liability with
respect to any action taken by it in reliance upon any notice, direction,
instruction, consent, statement or other paper or document provided to it by the
Company, or any of its authorized representatives. In all matters or questions
arising under this Agreement which Consultant, in its sole discretion and at its
own expense, may seek and rely on the advice of counsel, and such advice and
reliance is made and taken in good faith based on such advice, Consultant shall
not be liable to any party, including the Company, or its successors and
assigns, for its actions so taken, whether or not such actions may constitute
gross negligence or willful misconduct.
5. Indemnification of Consultant.
A. The Company agrees to indemnify and hold harmless Consultant from
and in respect of any and all claims, suits, actions, proceedings
(formal or informal), investigations, judgments, deficiencies,
damages, settlements, liabilities, and legal and other expenses
(including legal fees and expenses of counsel chosen by Consultant)
as and when incurred arising out of, in connection with or based
upon Consultant's performance of any of its duties under this
Agreement.
B. Consultant shall give the Company prompt notice of any claim
asserted or threatened against Consultant on the basis of which
Consultant intends to seek indemnification from the Company as
herein permitted; however, the obligations of the Company under this
Section 5 shall not be conditioned upon receipt of such notice.
C. Expenses incurred by Consultant in connection with any action,
suit, proceeding, or appeal thereof, described in Section 5(a)
above, shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding within 20 day
following receipt of a notice from Consultant specifying the amount
of such expenses actually incurred by Consultant in connection with
such action, suit, or proceeding.
D. The indemnification agreement provided for in this Section 5
shall survive the termination of this Agreement.
E. Notwithstanding any other provision of this Section 5 to the
contrary, the Company shall not be liable to indemnify Consultant in
connection with any claim against Consultant (i) if a court of
competent jurisdiction has rendered a final decision that
indemnification relating to the claim would be unlawful; (ii) if a
final decision by a court of competent jurisdiction shall adjudge
the conduct of Consultant to have been taken not in good faith or
not in a manner reasonably believed to be in or not opposed to the
best interests of the Company; and (iii) if the claim is based upon
Consultant deriving an unlawful benefit and a court of competent
jurisdiction adjudges that such benefit was unlawful in a final
decision.
6. Fees. For services to be performed under this Management Consulting
Agreement, the Company shall pay to Consultant a fee in the amount of $10,000,
determined without regard to the income of the Company, payable monthly in
advance on the first day of each month.
7. Status of Parties. In the performance of its services under this
Agreement, Consultant shall be and is an independent contractor; provided,
however, in the event that Consultant acts on behalf of the Company with respect
to third parties, Consultant shall be deemed to do so as an agent of the Company
on behalf of the Company. Based on the foregoing, Consultant shall not and will
not incur contractual or other liability solely because or as a result of its
status as a party hereto. The relationship between Consultant and the Company is
and shall solely be contractual.
8. Successors and Assigns. This Agreement shall be binding on the
parties hereto, their successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the consent of Board of
Directors of the Company.
9. Term. This Agreement and the performance of Consultant's services
pursuant hereto shall be for a term of three (3) years from the date hereof, and
shall terminate on January 4, 2000, unless extended by a writing executed by
both parties.
10. Governing Law. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the internal laws of the State of Minnesota, and
all actions or claims under this Agreement shall be properly venued only in the
County of Hennepin, State of Minnesota.
IN WITNESS WHEREOF, the parties have caused this Management Consulting
Agreement to be duly executed as of the date first written above.
COMPANY: MERCURY WASTE SOLUTIONS, INC.
By ____________________________________
Its
CONSULTANT: BANKERS AMERICAN CAPITAL
CORPORATION
By ____________________________________
Its
EXHIBIT 10.11
BILL OF SALE AGREEMENT
THIS BILL OF SALE AGREEMENT made and entered into this 12th day of
September, 1996 by and among Resource Technology, Inc., an Iowa corporation (the
"Seller"), and Donald Seiler and Michael Seiler (solely for purposes of Sections
4 and 5 hereof), and Mercury Waste Solutions, Inc., a Minnesota corporation
("Buyer").
RECITALS
A. The Seller and U.S. Environmental, Incorporated ("USE") have
constructed and installed a mercury distillation system (the "Equipment") at a
facility in Union Grove, Wisconsin ("Union Grove Facility").
B. USE, Mark Edlund and Seller had anticipated incorporating the
mercury distillation business under the name of U.S. Technology, Inc. ("UST"),
but have not done so as of the date hereof.
C. USE and Seller are also parties to an Agreement dated June 27, 1994
(the "Model 2000 Agreement") pursuant to which USE and Seller owned jointly the
design of the Model 2000 Fluorescent Lamp Processor ("Model 2000"), Seller owned
exclusive manufacturing rights to the Model 2000 ("Manufacturing Rights") and
USE owned exclusive rights to purchase, sell and distribute the Model 2000
("Distribution Rights").
D. USE transferred and assigned all of its rights and interests in the
Union Grove Facility, the Equipment and the Distribution Rights to Buyer.
E. The Buyer desires to purchase and Seller desires to sell all rights,
title and interest of Seller in UST, the Union Grove Facility, and the
Equipment, and in accordance therewith Buyer and Seller have executed a Letter
of Intent dated July 8, 1996 setting forth the terms and conditions of such sale
(the "Letter of Intent").
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and covenants
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Assets. Seller does hereby sell, assign, transfer and convey unto
Buyer, its successors and assigns, all of Seller's right, title and interest, if
any, in UST, the Union Grove Facility, the Equipment and any other assets
related to the Equipment and the operations and business at Union Grove, WI, and
all processes, inventions, trademarks, trade secrets and intellectual property,
leasehold rights, distribution rights, whether related to the Equipment or the
Union Grove Facility, as well as the name "U.S. Technology, Inc.", goodwill
related to any of the foregoing, and any and all bank deposits and accounts
receivable relating to UST and the Equipment as of the date hereof
(collectively, the "Assets").
TO HAVE AND TO HOLD all and singular the Assets unto Buyer, its
successors and assigns, forever.
2. Consideration. In consideration of Seller's transfer of its rights
and interests in the Assets pursuant hereto, the Buyer shall pay to Seller the
sum of $400,000 upon the closing of this Agreement in cash or other immediately
available funds (the "Consideration").
3. Model 2000 Agreement. The Seller and Buyer have concurrently
herewith amended and restated the Model 2000 Agreement pursuant to the terms of
an Amended and Restated Model 2000 Agreement bearing even date herewith (the
"Amended Model 2000 Agreement").
4. Mutual Release. In consideration of the foregoing, Seller and Donald
Seiler and Michael Seiler hereby release and discharge the Buyer and its
successors and assigns, and any affiliates, and any past or present officers,
directors, shareholders, employees, attorneys, and agents of Buyer, or any
affiliates (collectively, the "Buyer Released Parties") from any and all
actions, suits, claims, counterclaims, demands, causes of action, debts,
damages, judgments and liabilities, whether known or unknown, liquidated or
unliquidated, fixed, contingent, direct or indirect, which the Seller, Donald
Seiler or Michael Seiler, or any of them, could in the past, may now, or in the
future assert or allege against the Buyer Released Parties (or any of them)
arising out of or based on such Buyer Released Parties' (or any of their)
actions or inactions, occurring prior to the date of this Agreement, under or
with respect to UST, the Union Grove Facility, the business to be conducted by
UST, the Equipment, the Model 2000 Agreement and the Model 2000 (except with
respect to the Amended Model 2000 Agreement), or the relationship between
Seller, Donald Seiler, and Michael Seiler and USE, and/or Mark Edlund, with
respect to UST, including without limitation any fiduciary duties.
Notwithstanding anything to the contrary herein, this release shall not include
matters relating to Craig Beeson.
In consideration for the foregoing, Buyer hereby releases and
discharges the Seller, Donald Seiler, Michael Seiler, and their successors and
assigns, and any affiliates, and any past or present officers, directors,
shareholders, employees, attorneys, and agents of Seller, or any affiliates
(collectively, the "Seller Released Parties") from any and all actions, suits,
claims, counterclaims, demands, causes of action, debts, damages, judgments and
liabilities, whether known or unknown, liquidated or unliquidated, fixed,
contingent, direct or indirect, which the Buyer could in the past, may now, or
in the future assert or allege against the Seller Released Parties (or any of
them) arising out of or based on such Seller Released Parties' (or any of their)
actions or inactions, arising prior to the date of this Agreement, under or with
respect to UST, the Union Grove Facility, the Equipment, the Model 2000
Agreement and the Model 2000 (except with respect to the Amended Model 2000
Agreement), or the relationship between Buyer and Seller, and/or Donald Seiler
and Michael Seiler, including without limitation any fiduciary duties.
Notwithstanding anything to the contrary herein, this release shall not include
matters relating to Craig Beeson. Furthermore, the Seller Released Parties
voluntarily will agree to cooperate and comply with any subpoena to testify
issued on behalf of Buyer in connection with litigation involving Craig Beeson
("Beeson").
5. Representations and Warranties. Seller (and each of Don Seiler and
Mike Seiler as applicable herein) represents and warrants to Buyer that: (i)
Seller has not granted any liens or security interests which encumber or affect
the Assets (ii) that Seller, Donald Seiler or Michael Seiler (or any of them)
has not entered into, nor agreed to enter into or been actively pursuing, any
contracts or agreements with Beeson, regarding an employment, independent
contractor, agency or distributor relationship, nor concerning the formation
with Beeson of a partnership, joint venture or other business relationship
between Seller and Beeson; and Seller, Donald Seiler or Michael Seiler further
represent that none of them has knowingly assisted, aided or abetted Beeson in
any substantial and material way with respect to the claims asserted by Beeson
against USE, Mark Edlund and Buyer; (iii) this Agreement, and the terms hereof,
have been approved by all necessary corporate or partnership action of Seller,
(iv) Seller has been represented by legal counsel in connection with the
transactions contemplated herein and has relied upon such independent counsel
with respect to all legal and tax consequences of the transactions contemplated
herein, or they have chosen not to retain such legal counsel, (v) concurrently
herewith Donald Seiler and Michael Seiler have assigned all rights and interest
in the Assets to Seller pursuant to a Quit Claim Assignment, and Seller has not
previously assigned, encumbered or transferred in any way any of Seller's rights
in UST or the Assets, including without limitation any distribution rights with
respect to the Equipment, and none of Seller, Donald Seiler or Michael Seiler
has previously assigned, encumbered or transferred any of the claims released
pursuant to Section 4 hereof.
Buyer, on behalf of itself and its successors, agrees to indemnify and
hold harmless Seller and Seller's past or present agents, directors, officers,
employees, successors, shareholders, assigns, or affiliates against liability
actually incurred by Seller directly arising from personal injury, product
liability, environmental or regulatory claims asserted against Seller, which
claims are based solely upon the past, present or future use or operation of the
Equipment. Buyer shall defend any actions brought against the Seller for any
such claims, and shall bear all costs, and expenses related to the defense of
any such action, and Buyer shall pay any judgment awarded against Seller on any
such claims. Buyer shall undertake to retain reasonably competent counsel to
handle any such claims, at Buyer's expense. If Seller decides to also retain
counsel in connection with any such claims, it shall be at Seller's sole cost
and expense. Seller will agree to fully cooperate with Buyer and Buyer's counsel
in the defense or prosecution of any such claims.
6. License. The Buyer agrees that the Seller shall not be restricted
from the design, manufacture, or distribution of mercury distillation equipment,
and the Buyer hereby grants the Seller and its subcontractors or other agents a
non-exclusive paid-up worldwide, royalty-free license to use the processes,
inventions, trademarks, trade secrets and any other necessary or desirable
intellectual property with respect to the Equipment sufficient to enable Seller
to make and sell mercury distillation equipment or systems; provided, however,
that Seller shall not be permitted to use in any way, including in any sales
materials the name "Mercury Waste Solutions", "USA Lights", "US Lights" or any
similar name, and Seller shall not use or display any trademark, service mark,
tradename, logo or advertising of Buyer or designating Buyer. This non-exclusive
license shall not be assignable other than to a successor of Seller's business.
The Seller agrees to indemnify the Buyer for any costs, liabilities, damages, or
expenses, incurred by Buyer in connection with any claims arising out of the
Seller's rights as a licensee of the mercury distillation equipment, provided
that Buyer did not cause or initiate said claim. As a precondition to said
indemnification, Buyer shall provide Seller with timely notice of any claim and
shall cooperate fully with Seller in the investigation, disposition, and
resolution of any claim. In connection with such indemnification, Seller shall
defend any actions brought against the Buyer for any such claims, and shall bear
all costs, and expenses related to the defense of any such action, and Seller
shall pay any judgment awarded against Buyer on any such claims. Seller shall
undertake to retain reasonably competent counsel to handle any such claims, at
Seller's expense. If Buyer decides to also retain counsel in connection with any
such claims, it shall be at Buyer's sole cost and expense. Buyer will agree to
fully cooperate with Seller and Seller's counsel in the defense or prosecution
of any such claims.
7. Future Assurances. Each party, its successors, and assigns hereby
covenants and agrees to and with the other party, its successors and assigns, to
do, execute, acknowledge and deliver, or to cause to be done, executed,
acknowledged and delivered, to the other party, its successors and assigns, all
such further acts, assignments, transfers, and assurances that may be reasonably
requested, conveying, delivering, assuring and confirming, to the other party,
its successors or assigns, or for aiding and assisting in collecting or reducing
to possession, any or all of the Assets, or otherwise to assist in the
performance under this Agreement.
8. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be an original and all of which taken together
shall constitute but one and the same instrument.
9. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of Minnesota. All actions or proceedings
with respect to this Agreement shall be conducted in the Courts of the State of
Minnesota (State or Federal) and, by execution and delivery of this Agreement,
Seller irrevocably and unconditionally submits to the jurisdiction (both subject
matter and personal) of such courts, and irrevocably and unconditionally waives
(i) any objection Seller may have or hereafter have to the laying of venue in
such a court, and (ii) any claim that any action proceeding in such court has
been brought in an inconvenient forum. Service of process may be effected upon
Seller through such service outside of the State of Minnesota due to its waiver
of objection to such service.
10. Superseding Effect. This Agreement, from and after the date hereof,
supersedes and has merged into it all prior oral and written agreements on the
same subjects by or between the parties hereto, including without limitation the
Letter of Intent, with the effect that this Agreement shall control.
11. Buyer as Sole Owner. Upon execution of this Agreement, Buyer shall
be the sole owner of the Assets, and Seller shall have no further claim or
interest in the Assets, and Buyer may transfer its rights and interests in the
Assets, and assign its rights and obligations under this Agreement, at any time
without the consent of the Seller, including without limitation, to any
investor, partner or joint venturer of Buyer.
12. Amendment. This Agreement may only be modified or amended pursuant
to a written amendment executed by all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Bill of Sale Agreement
to be executed as of the date and year first above written.
SELLER: RESOURCE TECHNOLOGY, INC.
By: /s/ Donald Seiler
Its: President
DONALD SEILER (for purposes of Sections 4
and 5 only)
/s/ Michael Seiler
MICHAEL SEILER (for purposes of Sections 4
and 5 only)
BUYER: MERCURY WASTE SOLUTIONS, INC.
By: /s/ Bradley J. Buscher
Its: Chairman
EXHIBIT 11
MERCURY WASTE SOLUTIONS, INC.
COMPUTATION OF LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Nine Months
Ended
September 30,
1996
Computation of weighted average number of common shares
outstanding and common stock equivalent shares:
Common shares outstanding at the beginning of the
period -
Weighted average number of shares issued during the
period 1,057,565
Common equivalent shares attributed to stock options
and warrants granted (A) 182,996
Common stock issued (B) 1,062,435
-----------
Eighted average number of common and common
equivalent shares 2,302,966
===========
Net loss $ (945,284)
===========
Loss per common and equivalent shares $ (0.41)
===========
(A) All stock options and warrants are anti-dilutive, however, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No. 83
(SAB 83), stock options and warrants granted with the exercise price
below the assumed initial offering price during the twelve-month period
preceding the date of the initial filing of the Registration Statement
have been included in the calculation of common stock equivalent shares
as if they were outstanding for all periods presented, using the treasury
stock method.
(B) Pursuant to the Securities and Exchange Commission SAB 83, all stock
issued at a price below the assumed initial offering price issued during
the twelve-month period preceding the date of the initial filing of the
Registration Statement has been included in the calculation of common
stock as if it was outstanding for all periods presented.
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mercury Waste Solutions, Inc.
St. Paul, MN
We hereby consent to the use in this Registration Statement on Form
SB-2 of our report, dated October 22, 1996, except for Note 10, as to which the
date is December 5, 1996, relating to the financial statements of Mercury Waste
Solutions, Inc. and its predecessor, U.S. Environmental, Inc., and to the
reference to our Firm under the caption "Experts" in the Prospectus.
McGladrey & Pullen, LLP
Minneapolis, MN
December 6, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000844010
<NAME> U.S. ENVIRONMENTAL, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,548,782
<TOTAL-REVENUES> 1,548,782
<CGS> 783,355
<TOTAL-COSTS> 783,355
<OTHER-EXPENSES> 700,026
<LOSS-PROVISION> 29,000
<INTEREST-EXPENSE> 11,486
<INCOME-PRETAX> 53,915
<INCOME-TAX> 13,500
<INCOME-CONTINUING> 40,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,415
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000000000
<NAME> MERCURY WASTE SOLUTIONS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,589
<SECURITIES> 0
<RECEIVABLES> 176,540
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 203,118
<PP&E> 851,292
<DEPRECIATION> 65,078
<TOTAL-ASSETS> 2,238,940
<CURRENT-LIABILITIES> 320,234
<BONDS> 1,939,567
0
0
<COMMON> 21,200
<OTHER-SE> (52,361)
<TOTAL-LIABILITY-AND-EQUITY> 2,238,940
<SALES> 835,832
<TOTAL-REVENUES> 835,832
<CGS> 382,914
<TOTAL-COSTS> 382,914
<OTHER-EXPENSES> 1,263,802
<LOSS-PROVISION> 33,400
<INTEREST-EXPENSE> 134,400
<INCOME-PRETAX> (945,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (945,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (945,284)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
