SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ENVIRO-RECOVERY, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Texas 33-0507697
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(State of Incorporation) (Issuer's I.R.S. Employer I.D. Number)
Enviro-Recovery, Inc.
1610 Cornell Road
Green Bay, Wisconsin 54313
(Address of principal executive offices and zip code)
(920) 662-1052
(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value per share
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ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Enviro-Recovery is in the business of recovering submerged timber
located in lakes and rivers and processing this timber for a variety of
commercial uses. Much of the timber we recover is old growth and rare species
making our timber unique in the market. We currently recover submerged timber in
North America, but our business plan includes expansion into South America where
there are important resources of submerged timber. We have entered into an
agreement to acquire a company located in the State of Para, Brazil which
has the exclusive license in that state to remove sunken timber from the Amazon
River system. Our current sales are primarily in North America but have the
potential of being world wide because of the scarcity and special qualities of
the products.
Enviro-Recovery is an environmentally friendly company. Recovering and
processing submerged timber is a sound alternative to logging live forests.
Exploiting the submerged timber reduces the current pressures on existing
forests throughout the world. Moreover, much of the useable submerged timber is
old or first growth and rare species which are commonly subject to importation
restrictions in or limitations or bans on logging in standing forests in many
jurisdictions. Using the recovered timber reduces demands on existing forests
and can be imported into jurisdictions were there are restrictions in place on
newly felled timber.
Products
We recover and process a wide variety of highly sought-after log
species. These include oak (red and white), hard maple (regular, bird's eye and
curly), yellow birch (much of which has red hearts), eastern hemlock, pine (red
and white), cypress, American chestnut, beech, basswood and some other varieties
that have been commercially unavailable for many years such as elm, cherry and
walnut. The timber is mostly from the primeval forests of North America and can
be over 500 years old, having the slow growth characteristics of high density
and fine grain and textures similar to the wood found in antiques that were
created in the 1700 and 1800's. The timber is commercially usable today because
they have been preserved by the low oxygen content of the water.
Lumber cut from old growth forests has many superior qualities
generally not found in modern lumber. Many of the modern forests are genetically
degraded because they have grown from stunted and malformed trees that the
loggers left behind decades ago. Modern forests have grown quickly thereby
producing intrinsically lower quality lumber. Old growth lumber is generally
knot-free. Also the lumber produced from old growth timber is especially
beautiful. The wood has very tight, clear graining because there are many more
growth rings per inch as a consequence of the slow growth of the primeval
forests. This wood generally has better physical properties because of the
higher growth ring density. It is more rot resistant than modern growth lumber
because the old growth trees consist mostly of heartwood. Heartwood contains
aromatic oils and resins that repel insects and fungi and resist rot.
The lumber produced by us is sold under the trademark Timeless
Timber(R). This lumber is milled for specialty users of fine woods. We mill cut
the lumber to meet customer specifications for their use. Timeless Timber is
used in projects were the unique characteristics of old growth lumber defines or
enhances the architectural design or product. Some of these uses include fine
cabinetry, flooring, paneling, doors and architectural details. A significant
use of Timeless Timber is in the making of fine furniture and home decorating
accessories such as picture frames. Our lumber is important in the craft market
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where Timeless Timber is used in items such as pens, kitchen utensils, paintings
on wood, jewelry, carvings and humidors. We also produce veneer from several
rare species of woods.
Marketing
General
We sell our lumber predominately through direct contact with our
customers. We use brochures and direct mailings to generate leads. In addition,
we have received free promotion in the form of news articles in major newspapers
including; The New York Times, USA Today, The International Herald Tribune and
Newsday. Television media coverage includes The Learning Channel, ABC World News
Sunday, The Discovery Channel and Good Morning America, among others.
We employ two persons to work exclusively in sales: one commission
sales person and one sales representation firm.
Significant Customers
Leick Furniture has been a significant customer during the years ending
December 31, 1997 and 1998 and represented over 10% of our net sales in each
year. Laser Specialists was a significant customer for the year ending December
31, 1998 and represented over 10% or our net sales for that year. For the nine
months ending September 30, 1999, Leick Furniture and Fetco International, Inc.
each represented greater than 10% of our net sales.
Supplies
Critical to our success is a constant source of first growth timber.
The failure to obtain the first growth logs of the different wood species we
need for our unique product lines will limit our ability to supply the kind of
lumber on which our business reputation is based and our business plan is
founded and result in reduced sales and revenues. We believe there is an
adequate supply of this timber available for recovery throughout the northern
part of North America and in certain other areas of the world. Our current
sources of supply are in the Great Lakes region, including Wisconsin, Michigan
and Ontario, and in New York, Maine, Arkansas, Quebec and New Brunswick.
The majority of the lumber we purchase is from independent contractors.
We contract with most of these suppliers on a purchase order basis. Typically,
an independent recovery firm will contact us when they have lumber of the type
we are interested in purchasing. We will indicate our desire to purchase the
lumber and arrange for payment upon delivery.
We conduct efforts to locate sources of lumber. We employ aerial
surveillance and sidescan sonar mapping of likely bodies of water. We use this
information in our recovery efforts and to assist independent suppliers.
We maintain an inventory of logs and milled lumber that can be further
processed into products upon demand. The inventory of logs is built up during
the summer and fall months because that is the period during which recovery
efforts can be accomplished. We currently have inventory of unprocessed logs
sufficient for five months of milling and an inventory of milled lumber
sufficient to meet customer demand for three months. As our capital resources
and business improve, we plan to increase these inventory levels as necessary.
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Despite our efforts to maintain and manage our inventory, it is possible that
from time to time there will not be an adequate amount of logs available to
operate at maximum economic efficiency or there will not be the species and
amount of lumber desired by our customers. We have a seasonal need for capital
during the summer and autumn months that is reflected in our financial
statements. Any of these factors may result in the loss of business and impact
our financial results and future development.
In 1997 Willis & Willis E.C.C.O., a log supplier, and Steel City
Carriers, Inc., a transportation company, each accounted for more than 10% of
the accounts paid by our company. In 1998 no suppliers accounted for more than
10% of accounts paid. For the nine months ended September 30, 1999, Pend Oreille
Pine and Wisconsin Central, Ltd. each represented accounts paid by us in excess
of 10%.
Company Licenses for Recovery of Timber
Once we locate underwater logs through aerial and sidescan sonar
surveys, we apply for contracts for extracting the logs from the governing state
agency in the United States and from the Ministry of Natural Resources in
Canada. The application process can include approval from several government
agencies at the local, state or provincial, and federal levels. Environmental
impact and historical issues are examined in the approval process. The
contracts, in general, provide a period, lasting from 1 to 5 years for
extracting the logs. We use subcontractors to extract the logs from the
permitted areas where the extraction is completed usually in the same season
that the contracts are approved. We have obtained contracts in the past in the
Province of Ontario, and the States of Wisconsin and New York. In the Province
of Ontario and the State of Wisconsin, the contracts were awarded for specific
areas where sidescan records show the underwater timber. In the State of New
York, we hold a license to extract underwater timber form Lake Ontario and the
St. Lawrence Seaway. Under that license, we can apply for permits from the New
York Department of Environmental Conservation to extract logs from defined
areas. Other persons would be subject to the same licensing protocols described
above.
In South America, we have entered into an agreement to acquire the
assets of Eco-Wood, Ltd. The assets include the only licensing rights issued in
Brazil by IBAMA (Instituto Brasileiro Do Meio Ambiente E Dos Recursos Naturais
Renovaveis) and other governing agencies for extracting underwater logs from the
Amazon River system in the State of Para.
Expansion of Business in South America
We are pursuing an expansionary program in South America. We have
located several areas where we believe there are significant reserves of
submerged logs or timber that make recovery and processing efforts worth the
time and investment. We entered into an agreement on November 20, 1999 to
acquire Eco-Wood LTD, which currently is the only entity to have the right to
recover logs from the Amazon River in the State of Para, Brazil. The lumber
recovery rights are held by an affiliated company, Fund Amazon, which has
exclusively contracted with Eco-Wood for the extraction of logs and performance
under the license. This acquisition is subject to final due diligence. The asset
acquisition is for a total of 3 million shares of common stock and the option to
purchase 2.4 million shares of common stock contingent upon future performance
of Eco-Wood stockholders in acquiring new timber reserves. In addition, Eco-Wood
will receive a two percent commission on all related sales. Our plan is to
process the lumber locally and market it internationally. Eco-Wood is currently
operational and is processing the recovered logs at a leased mill in Breves,
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Brazil and selling lumber for export and in local markets. We believe there is
an incalculable amount of timber because of the vastness of the Amazon River
covered by the IBAMA license.
On July 27, 1998, we entered into a joint venture purchase agreement
with three affiliated Brazilian operations - Know How Madeiras Ltda., Lamituc
Comercial Ltda., and R. Corte Real Barros - along with the individual owners of
the operations, Rogerio Corte Real Barros and Gilberto de Paula Corte Real. The
three operations are sawmills and related facilities located on Lake Tucurui,
Brazil. The three operations have contract rights for the recovery submerged
timber in the Lake Tucurui hydroelectric reservoir. Upon execution of this
agreement and the payment of $100,000, we received a band saw and the first
right of refusal of all wood subsequently recovered from Lake Tucurui by the
three affiliated Brazilian operations. As of December 31, 1998, we had funded an
additional $74,300 for the purchase of the Brazil operations. The terms of the
acquisition and acquisition schedule were amended on March 3, 1999. The amended
acquisition agreement terminated because the contracts were not released by the
Brazilian government to the three Brazilian operations. Under the termination
clause, the Brazilian operations shall refund the $74,300 to us. We continue to
maintain that we are entitled to the right of first refusal for timber extracted
by the Brazilian operations.
Facilities
Our production facilities are located in Ashland, Wisconsin. We own a
125,000 square foot, covered manufacturing facility situated on approximately 30
acres of land. This plant was acquired from the City of Ashland in 1997 through
an economic development agreement and subsequently improved and expanded to meet
the needs of our specialized production requirements. The facilities include a
band mill, steam kilns, a dimensioning plant and storage areas. Currently, the
facilities have an overall production capacity of approximately 1.56 to 3.1
million board feet per year, depending on the mix of hardwoods and softwoods. We
do not intend to further expand the facilities until the availability of capital
allows and demand justifies the increased capacity. If required, we believe that
the facilities currently have the space for future expansion in Ashland. As
demand warrants, we will look at capacity expansion in Ashland as well as other
locations. The location would be dependent on supply sources, regulation
compliance costs and access to markets.
Our executive offices are located in Green Bay, Wisconsin. We rent 400
square feet of space month to month for a net monthly rental of $475. We believe
this space is adequate for our current needs.
Proprietary Rights
We have registered with the United States Patent and Trademark Office
the trademark Timeless Timber(R).
We have developed proprietary techniques for processing
water-saturated, old growth logs. There can be no assurance that others will not
develop corresponding techniques or better techniques that will limit the
advantage that we believe we currently enjoy in the processing of this type of
lumber.
We enter into confidentiality agreements with our employees and
consultants and rely on laws relating to trade secrets and proprietary
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information for the protection of our various proprietary rights. We do not
license the use of any of our technical information or other proprietary rights
at this time, but if we do, we will rely on relevant statutory protections and
contractual arrangements to protect our rights. There can be no assurance that
these laws or agreements will provide a complete protection of our rights in the
event of infringement by others. We will pursue in the courts the defense of our
rights were we believe they have been violated. There can be no assurance that
we will have the resources to fully prosecute any claims we bring or that any
claim of ours will be decided in favor of the company.
Government Regulation
Federal, state and local government agencies regulate the log recovery
process. The regulations vary between country, state or provincial and local
authorities. In general, the application process requires that an environmental
impact study be approved by the governing state or provincial agency responsible
for the environment of the waterway. The permit is usually reviewed by several
government organizations including agencies responsible for fish and wildlife,
state or provincial timber resources, the environment, water quality, historical
artifacts, cultural concerns, and maintaining navigable waterways. Any of the
agencies can stop the approval of the permit and our ability to extract
underwater logs. When required by regulations, stumpage fees are paid for
recovered timber to the state or provincial agency responsible for timber
rights. The independent suppliers of underwater timber are affected by the same
regulations as us. The length and complexity of the permitting process has
significantly limited the development of the underwater log resources in North
America.
We have a license for importing underwater logs from the Province of
Ontario. The independent suppliers in the Provinces of New Brunswick, Nova
Scotia and Quebec handle export-licensing issues.
Competition
We compete in the broad category of timber products which includes
major companies such as Georgia Pacific and Boise Cascade. We, however, do not
feel that these companies are direct competitors, as they do not actively
harvest logs from the water. The underwater recovery segment of the market is a
new market niche. Based on the information we have, Enviro- Recovery is the
industry leader and we are not aware of any competitors which recover, saw, dry
and dimension a wide variety of underwater timber species in wholesale
quantities. We currently specialize in processing old growth hardwoods and
softwoods, mostly from the Great Lakes region. We are aware of at least two
companies that recover and process underwater wood in the southeastern United
States; however these companies process mostly cypress and southern pine.
We compete on the basis of our ability to obtain and process submerged
timber that has unique characteristics not generally available. Although our
products are more expensive, we believe the unique characteristics of the lumber
support higher pricing than that of commodity lumber. The higher price for
Timeless Timber results from the environmental, historical, and aesthetic value
that recovered old growth timber provides.
The reclaimed wood industry competes with Timeless Timber in the added
value market for historic, environmental lumber. In that industry, companies
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extract timber from old wooden buildings that are being destroyed. Reclaimed
wood differs from Timeless Timber in two ways. Not all the reclaimed timber is
old growth wood. The reclaimed wood frequently has a distressed appearance
including nail holes and cracks resulting from its previous use. Conversely,
Timeless Timber is always made from old growth recovered wood that is in a
similar condition to that on the date the log was cut. The reclaimed wood is
commonly sold as flooring.
Lumber that meets Forest Stewardship Counsel certification standards is
a product that competes with Timeless Timber in the environmentally safe wood
market. Certified wood sells for about 10% more in price than uncertified
commodity wood. Wood sold with a FSC certification is cut from managed forests.
Timeless Timber differentiates itself from the FSC certified wood by emphasizing
that Timeless Timber is not harvested from live forests; rather it is a lost
resource that is recovered from rivers and lakes. Buying Timeless Timber
products saves trees.
Employees
We currently have 28 employees. The employees include three executive
officers, 23 persons in milling operations and two in sales
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
When used in this Form 10 and in future filings by Enviro-Recovery with
the Securities and Exchange Commission, the words or phrases "will likely
result," management expects," or "we expect," "will continue," "is anticipated,"
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. These
statements are subject to risks and uncertainties, some of which are described
below. Actual results may differ materially from historical earnings and those
presently anticipated or projected. We have no obligation to publicly release
the result of any revisions that may be made to any forward-looking statements
to reflect anticipated events or circumstances occurring after the date of such
statements.
Selected Financial Data
Because Enviro-Recovery continues to develop its products and sales
efforts and is still in the earlier stages of its development, selected
financial data would not be meaningful. Reference is made to the financial
statements of Enviro-Recovery included elsewhere in the document. Our fiscal
year is the calendar year. In this report are Enviro-Recovery consolidated
audited financial statements for the twelve-month periods ending December 31st
1997 and 1998 and un-audited financial statements for the nine-month periods
ending September 30th 1998 and 1999.
Qualified Report of Accountants
The independent auditors' report of Schenck & Associates SC contains an
unqualified opinion on the balance sheet as of December 31, 1998 and qualified
opinions on the other financial statements. They state that because they were
not engaged as auditors until after the end of the fiscal year 1998, they were
not present to observe the physical inventories at December 31, 1997. Also, they
have been unable to satisfy themselves concerning the inventory quantities on
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hand at that date by other auditing procedures. Therefore, they state that the
scope of their work was not sufficient to enable them to express, and they do
not express, an opinion on the statements of income, retained earnings and cash
flows for the year ended December 31, 1998. They further state that since the
inventory balances as of December 31, 1997 and 1996, materially affect the
determination of the financial position, results of operations and cash flows,
the scope of their work was not sufficient to enable them to express and they do
not express, an opinion on the financial statements as of and for the year ended
December 31, 1997.
Comparison of Fiscal Year 1998 to Fiscal Year 1997
Results of Operations
Sales in fiscal year 1998 increased 172% to $460,424, compared with
sales of $185,006 in fiscal year 1997. The increase in sales resulted from
shipments to a new customer who manufactures hardwood furniture, and from
improved retail sales from our mill store. For 1998 Leick Furniture and Laser
Specialists were the only two accounts, which individually, were greater than
ten percent of revenues.
The gross loss on fiscal year 1998 sales was $214,828 compared to a
gross loss of $7,921 in fiscal year 1997. The increased loss was a result of an
increased cost of revenues from $192,927 in 1997 to $675,252 in 1998. In 1998
there was an additional $111,000 of depreciation recorded in cost or revenues
as compared to 1997. As a development stage company, we have incurred costs
associated with the increase of our production capacity. Due to low production
relative to the total production capacity, a significant portion of these
expenses flowed through cost of revenues as unabsorbed overhead expenses. In
addition, a number of one-time costs were incurred in the development and
refinement of our proprietary drying process.
The operating expenses for fiscal year 1998 were $1.4 million compared
to $1.2 million of operating expenses for 1997. The 16% increase in operating
expenses was a result of a significantly greater increase in log supply
identification costs from aerial surveys and sonar scanning. This increase was
offset by a decrease in costs associated with the acquisition of permits and
contracts for log extraction incurred in 1997.
The loss from operations in fiscal year 1998 increased 33%, to $1.6
million from the 1997 loss of $1.2 million. As mentioned above the increase loss
was a result of unabsorbed costs associated with excess production capacity
relative to low sales volume, and increased costs associates with sonar scanning
and aerial survey.
The net loss in fiscal year 1998 increased 94%, to $2.4 million from a
net loss of $1.2 million in fiscal year 1997. In addition to the loss from
operations, the net loss reflects an increase in other expenses to $816,833 in
1998 from $26,968 in 1997. The increase in other expenses is a result of
increased interest expenses associated with debt incurred to finance inventory
increases, and debt associated with equipment purchases including kilns, high
speed saw and materials handling equipment, and a loss on disposal of equipment,
the closing of a retail operation in Bayfield, Wisconsin, and the loss on
disposition of a residence in Ashland, Wisconsin.
Liquidity and Capital Resources
The current assets on December 31, 1998 increased 123% to $2,011,721,
compared with the assets of $901,192 on December 31, 1997. The increase in
current assets reflected an increase in end of the year cash, inventories and
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prepaid expenses. The end of the year cash increased to $201,547 for 1998 from
$187,859 for 1997. The inventory for December 31, 1998 increased to $1,678,673
from $652,931 on December 31, 1997. We built inventory during 1998 in order to
reach minimum quantities of lumber for wholesale of 12 species and 3 grades of
wood. The prepaid expenses at the end of fiscal year 1998 increased to $121,194
from $48,805 at the end fiscal year 1997. The increase in prepaid expenses
reflects advances made to wood suppliers and prepaid interest.
Net property and equipment increased 57% to $2.9 million on December
31, 1998, from $1.8 million on December 31, 1997. The increase in fixed assets
was a result of purchases of drying kilns, a high speed saw, and materials
handling equipment, offset by an increase in related depreciation expense and
the abandonment of replaced equipment.
The total assets increased 84%, to $5.1 million on December 31, 1998,
from $2.7 million on December 31, 1997. The increase in total assets was a
result of increases in the current assets and the net property and equipment
described above and the addition to other assets reflects an investment in a
Brazilian based company, the purpose of which is to extract underwater logs from
the Tucurui hydroelectric reservoir. This was an initial investment to determine
the feasibility of operations and is secured by equipment and future sales
credits.
Current liabilities increased 100%, to $2.8 million on December 31,
1998, from $1.4 million on December 31, 1997. The increase in current
liabilities is a result of an increase in short term notes to fund the increase
in inventories, and an increase in trade payables and accrued interest related
to the increase in long and short term debt. The current ratio improved from
0.63% in 1997 to 0.71% in 1998 reflecting the conversion of short term notes to
equity.
Long term debt, less current maturities, increased 205%, to $2.5
million on December 31, 1998, from $0.8 million on December 31, 1997. The
increase in long term debt, less current maturities, is a result of funding for
kilns, scanning equipment, dimension equipment, and materials handling
equipment.
In 1998, capital stock and additional paid in capital increased $1.7
million. This increase was the combination of long and short-term debt of $.4
million and private placements of common stock. Private placements made up the
balance of $1.25 million , with the largest being $.5 million, the next largest
being $159,000 and the remainder in amounts of less than $100,000.
Net cash increased in 1998 by $13,000 and increased by $171,000 in
1997. In addition, inventories increased $1,026,000 and $595,000, respectively.
The other major use of cash was the purchase of property and equipment of
$1,667,000 in 1998 and $1,250,000 in 1997. These uses of cash were offset by
issuance of long-term debt of $1.67 million in 1998 and $1,25 million in 1997.
Other sources of cash were respectively in 1998 and 1997, the issuance of common
stock of $1.2 million and $1.5 million and proceeds from notes payable of $1.5
million and $.74 million.
In summary, total liabilities increased 137%, to $5.3 million on
December 31, 1998, from $2.2 million on December 31, 1997. Stockholders equity
decreased to a deficit of $246,408 on December 31, 1998 from a surplus of
$499,688.
The above analysis does not include the tax benefits of a loss carry
forward of approximately $4,000,000.
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Comparison of Nine Months Ended September 30 1999 to September 30, 1998
Operating Results
In 1999 net revenues increased over 1998 by $485,000 or 186.5%. This
increase was predominately due to the addition of a new account, Fetco
International, Inc. which manufactures and sell picture frames. In addition,
revenues increased for woodcrafting and retail products. Two accounts, Fetco
International, Inc. and Leick Furniture each represented more than ten percent
of our 1999 nine-month revenues.
Cost of revenues increased $661,000 or 172.8%. This increase reflected
the higher sales volume. We had a negative gross profit for each nine month
period reflecting the continuing developmental nature of the company and the
unabsorbed overhead due to low production levels relative to total capacity.
The gross profit improved from 1998 to 1999 reflecting the increased volume
absorbing the fixed manufacturing overhead.
Operating expenses for the first nine months of 1999 were $1.0 million
as compared to $1.1 million in 1998. The increase in expenses was due to
increased side-scanning and other supply exploration costs incurred during 1999
as we sought to increase our sources of supply of recoverable timber. The total
operating loss for the first nine months reflected these increased costs.
Other expenses decreased in 1999 reflecting the decrease in settlement
expenses of $141,000. Interest expense in 1999 was $456,000 compared to $482,000
in 1998. The decrease of $26,000 resulted from added debt to finance for new
manufacturing equipment offset by the reduction of interest expense on debt that
was converted to common stock.
We continue to elect not to recognize the tax loss carry forward as a
deferred asset. As of September 30, 1999 we have an aggregate $5.4 million tax
loss carry forward.
Liquidity and Capital Resources
In 1999 our operating activities used $2.4 million compared to $1.8
million in 1998. This reflects a net increase in inventory of $450,000 during
the first nine months of 1999 compared to a decrease of $45,000 in inventory
during the same period in 1998. Also in the first nine months of 1999 our
accounts payable decreased $211,000 while in 1998 they increased $93,000.
In 1999 we invested $800,000 in kilns, a new saw and materials handling
equipment. In 1998 we used $1.2 million in investment activities for building
upgrades and manufacturing equipment and $200,000 in one of our Brazilian
ventures.
During the first nine months of 1999, we financed a portion of our cash
needs with the issuance of $500,000 of notes and the sale of common stock for
$4,000,000 in private placements. This capital was used in part to finance mill
equipment additions and the balance was used to fund our operations. In 1999 we
retired an aggregate of $100,000 in long-term debt. Approximately $900,000 in
current notes payable was converted into common stock.
Because our business continues to be in the developmental stage and our
expenses exceed our limited revenue from operations, we will continue to require
substantial amounts of additional debt and equity capital to continue to
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operate. We have no assured sources of capital at this time. To the extent we
are unable to obtain needed capital, we may have to limit our operations or
curtail our business. If we sell debt securities or borrow funds, the interest
charges may have an adverse impact on working capital and operations. If we sell
additional equity capital, current investors will experience dilution, possibly
at significant levels. If we are unable to obtain adequate capital, our
independent auditors may qualify their report as to our ability to continue as a
going concern.
Other Events
We entered into an agreement on November 20, 1999 to acquire Eco-Wood
LTD, which currently is the only entity to have the right to recover logs from
the Amazon River system in the State of Para, Brazil. The recovery rights are
held by an affiliated company, Fund Amazon, which has exclusively contracted
with Eco-Wood for the extraction of logs and performance under the license. This
acquisition is subject to final due diligence. The asset acquisition is for a
total of 3 million shares of common stock and the option to purchase 2.4 million
shares of common stock contingent upon future performance of Eco-Wood
stockholders in acquiring new reserves. In addition, Eco-Wood will receive a 2
percent commission on all related sales. Eco-Wood is currently operational and
is processing the recovered logs at a leased mill in Breves, Brazil and selling
lumber for both the export and local market.
Year 2000 Preparedness
Overview
We have evaluated the potential impact of the situation commonly
referred to as the "Year 2000 Issue". Y2K concerns the inability of information
systems, primarily computer software programs, to properly recognize and process
date sensitive information relating to the year 2000 and beyond. Many of the
world's computer systems currently record years in a two-digit format. These
computer systems will be unable to property interpret dates beyond the year
1999, which could lead to business disruptions in the U.S. and internationally.
The potential costs and uncertainties associated with Y2K will depend on a
number of factors, including software, hardware and the nature of the industry
in which a company operates.
Accounting
Our management believes that the computer programs it uses are Y2K
compliant because it relies on recently acquired, readily available commercial
computer programs.
Other Entity Compliance
The failure of other entities with which we do business, such as the
utilities, banks and other providers, to be Y2K compliant may cause our systems
issues or affect our business, none of which are yet apparent to our management.
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Contingency Planning
Our management does not have a contingency plan for its computer
systems that may be found not to be Y2K compliant. Management does not have a
contingency plan in the event a critical service; supplier or customer will not
be Y2K compliant.
Cost of Year 2000 Compliance
We have not spent any amount on Y2K compliance. For the future, we do
not expect to spend any material amount on Y2K compliance.
ITEM 3. DESCRIPTION OF PROPERTY
See Section I, Item 1, Facilities, for a description of our property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of shares of the common stock by (1) each person known to
be the owner of more than 5% of the outstanding shares of common stock, (2) each
director and (3) all executive officers and directors as a group. The
information is as of December 31, 1999, and it is based on information obtained
from each of the below named persons. On December 31, 1999 there were 71,095,611
shares of common stock outstanding. The following table does not include any
securities held by or subject to options issued to Mr. Greg Grambow because his
employment with the company as president and chief executive offer has been
suspended as a leave of absence with pay. Mr. Grambow is a director, however,
his resignation is expected. The actual number of shares and options that Mr.
Grambow will hold after his employment severance is finalized is being
negotiated.
Number of Shares Percent of
of Common Stock Ownership of
Beneficially** Common Stock
Name of Beneficial Owner Owned Outstanding
Steven Schock 6,246,500(1) 8.2%
David Neitzke 2,100,000(2) 2.9%
William Heide 942,000(3) 1.3%
Jeffrey Noeldner 4,400,000(4) 6.0%
Jeff Wierichs 1,000,000(5) 1.4%
Thomas Evinrude 10,972,217(6) 14.4%
Directors and officers
as a group (5 persons) 14,688,500(7) 18.2%
* Less than 1%.
** Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
issuable upon the exercise of options or warrants currently
exercisable, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage ownership of the person
holding such options or warrants but are not deemed outstanding for
computing the percentage ownership of any other person.
-12-
<PAGE>
(1) Includes options to purchase 5,000,000 shares of common stock currently
exercisable.
(2) Includes options to purchase 2,100,000 shares of common stock currently
exercisable. Excludes options to purchase 400,000 shares of common stock
not currently exercisable.
(3) Includes options to purchase 50,000 shares of common stock.
(4) Includes options to purchase 2,000,000 shares of common stock currently
exercisable. Excludes options to purchase 1,000,000 shares of common stock
not currently exercisable.
(5) Includes options to purchase 500,000 shares of common stock which we are
currently obligated to issue.
(6) Includes 5,250,000 shares in the Thomas Armitage Evinrude Irrevocable Trust
of 1998, Henry J. Loos Trustee, which trust is for the benefit of Mr.
Evinrude. Includes 752,000 shares of common stock owned directly by Mr.
Evinrude. Includes 4,970,217 shares of the common stock which may be issued
upon conversion of an aggregate of $1,491,065 of debt and interest at the
rate of $.30 per share of common stock.
(7) See notes 1 through 5 above.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and officers as set forth in the table below.
Director
Name Age Since Position
Jeffrey Wierichs 42 1999 Acting Chief
Executive Officer
and Director
Steven Schock 43 1998 Director
David Neitzke 45 1998 Director
William Heide 68 1997 Director
Jeffrey Noeldner 33 1998 Director
Greg Grambow 52 1999 Director
Mr. Jeffrey Wierichs has been a director of the Company since 1999 and
has been acting chief executive officer since January 2000. Mr. Jeffrey Wierichs
has owned and operated Packerland Chiropractic since 1991, and Kaleis
Chiropractic since 1995. He is a founding partner of Progressive Development, a
company formed in 1992 that invests in commercial real state. Dr. Wierichs
received a B.S.. in marketing in 1991 from the University of Wisconsin and
Master's degrees in Management and Public Administration from Webster University
in 1994. In 1979 he was commissioned as an officer in the United States Army
though a ROTC program. He currently holds the rank of Lt. Colonel in the Finance
Corps of the US Army Reserve. In 1990 he graduated from National College of
Chiropractic as a chiropractor physician.
-13-
<PAGE>
Dr. Steven Schock was the president and chief executive officer from
May 1998 to September 1999 when he resigned as president and chief executive
officer. Dr. Schock has been a director since May 1998. Prior to becoming
president and CEO of the company, Dr. Schock was an Associate Professor in the
Department of Ocean Engineering at Florida Atlantic University where he
conducted research in remote sensing of the seabed and the development of
acoustic imaging sonar. Since resigning as CEO, Dr. Schock resumed his research
at Florida Atlantic University in a position as Research Scientist.. In 1989 Dr.
Schock started a high technology company, Precision Signal, Inc., in which he
retains a 50% interest. Dr. Schock is a graduate of the US Naval Academy and
served as an officer and engineer on a nuclear submarine. Dr. Schock holds a
Doctorate from the University of Rhode Island in Ocean Engineering.
Mr. David Neitzke has been the vice president and treasurer and a
director of the company since 1998 and the chief operations officer of Superior
Water Logged Lumber Company since 1989. Mr. Neitzke has been actively engaged in
the hardwood lumber business since 1984. From 1984 to 1986 Mr. Neitzke worked
for Red Hawk Lumber, Inc., a custom lumber mill. He formed River Valley Forrest,
Inc. and River Valley Logging, Inc. in 1986, companies that specialized in
sawing veneer and high grade logs, which he operated from founding until 1990.
From 1990 to 1991, Mr. Neitzke worked for the City of Mondovi, Wisconsin to
establish a large scale sawmill and dimension mill as part of the overall
economic development plan for the city.
Mr. William Heide has been a director of the Company since 1997. Mr.
Heide spent 48 very successful years in the jewelry industry, including 28 years
with Weisfield Jewelers, a northwest jewelry chain. In 1955, Mr. Heide became
District Manager of Weisfield stores throughout Washington, Oregon, Alaska and
California. In 1960, Mr. Heide was appointed Merchandise Manager in charge of
all store buys. In 1957, Mr. Heide was appointed Executive Vice President. Mr.
Heide was a Member of the Weisfield Jewelers Board of Directors from 1957 to
1964. In 1975, Mr. Heide accepted a position as Vice- President of Marcus &
Company, a division of Kay Jewelers. Mr. Heide was promoted to Executive Vice
President of Marcus & Company in 1981 and to President in 1985, position he kept
until 1990 when Sterling Jewelers acquired Kay Jewelers. Mr. Heide served as a
Member of the Board of Directors for Kay and Marcus from 1985 to 1990. Mr. Heide
retired on July 30, 1994.
Mr. Jeffrey Noeldner has been a director since 1998. Mr. Noeldner is
also the president and member of the board of the following companies: Hullos,
Inc., a company in the marina and restaurant business, Deli Concepts, Inc., a
franchise developer company in Wisconsin, Minnesota and Michigan, and Buns.
Inc., OBA and operating company for Schlowtzky's. Mr. Noeldner has owned Hullos,
Inc. since 1998 and Deli Concepts, Inc. and Buns, Inc. since 1994. Prior to
these positions Mr. Noeldner was the president of Advantage Finance Company for
two years. Mr. Noeldner obtained his degree of Business Administration from
University of Wisconsin.
Mr. Greg Grambow was the President and Chief Operating Officer of the
Company from September 1999 to January 2000. Mr. Grambow is a director. Mr.
Grambow's employment and directorship are the subject of termination
negotiations. Mr. Grambow was the President of Barrington Company, a business
and financial consulting firm, from 1994 until September 1999. Before his
employment with Barrington, he was the President of Smileage Dental Services,
Inc., a staff model independent practitioners association and dental health
maintenance organization.
14
<PAGE>
Board Meetings and Committees
During the fiscal year ended December 31, 1998, the board of directors
met on nine occasions and took written action on nine occasions. All the members
of the board of directors attended the meetings. The written actions were by
unanimous consent. The board of directors has established no committees.
Directors serve for a term of one year after election or until their earlier
resignation or their successor is elected or appointed and qualified.
ITEM 6. EXECUTIVE COMPENSATION
Executive Compensation
The tables below summarize the compensation of each executive officer
of Enviro- Recovery at the end of 1998 fiscal year for all his services to us
and our subsidiaries:
<TABLE>
SUMMARY COMPENSATION TABLE
- - -------------------------------------------------------------------------------------------------------------------
Long Term
Name and Principal Position Fiscal Year Annual Compensation Compensation
Options Granted
- - ------------------------------------------- ---------------- ------------------------- --------------------------
<S> <C> <C> <C>
Steven Schock * 1998 $48,000 5,000,000
Chairman of the Board,
President and Director
David Neitzke, Vice President 1998 $68,000 2,000,000
and Director
=========================================== ================ ========================= ==========================
</TABLE>
* Mr. Schock resigned as the president and chief executive officer on
September 3, 1999 but remains a director. From September, 1999 to early
January, 2000 Mr. Greg Grainbow assumed the offices of president and
chief executive officer. From January, 2000, Mr. Jeffrey Wierichs has
served as the acting chief executive officer.
7478.2
-14-
<PAGE>
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- - -----------------------------------------------------------------------------------------------------------------------
% of Total
Options/SARs
Number of Securities Granted to Exercise or
Underlying Employees in Fiscal Base Price
Name Options/SARs Granted Year ($/share) Expiration Date
- - ------------------------------ ------------------------ ------------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Steven Schock 5,000,000 52% $.10 May 2, 2008
- - ------------------------------ ------------------------ ------------------------ ---------------- ------------------
David Neitzke 2,500,000 26% $.10 June 4, 2005
============================== ======================== ======================== ================ ==================
</TABLE>
15
<PAGE>
<TABLE>
AGGREGATE FISCAL YEAR-END OPTION/SAR VALUES
- - ---------------------------------------------------------------------------------------------------------------------
Number of Unexercised Options/SARs at Fiscal Value of Unexercised In-the-Money
Year End (#) Options/SARs at Fiscal Year End
-------------------------------------------------- -----------------------------------------
Name Exercisable Unexerciseable Exercisable Unexerciseable
- - ------------------------ ------------------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Steven Schock 5,000,000 0 $1,150,000 $0
- - ------------------------ ------------------------- ----------------------- -------------------- --------------------
David Neitzke 2,000,000 500,000 $460,000 $115,000
======================== ========================= ======================= ==================== ====================
</TABLE>
The value of the unexercised in-the-money options/SARs in the above table
is based on the share price of $0.33, the bid price at the market closing on
December 31, 1998.
Remuneration of the Board of Directors
A director who is an employee does not receive any compensation as a
director. There is no plan in place for compensation of persons who are
directors who are not employees of the Company.
Key-man Life Insurance
We do not own life insurance covering the death of any officer, director or
other key employee.
1998 Performance Equity Plan
In 1998, we adopted the 1998 Performance Equity Plan covering 12,000,000
shares of common stock. The stockholders of Enviro-Recovery approved the plan on
March 20, 1999. Under the plan, we may issue awards to our directors, officers
employees and consultants. The awards include stock options, restricted stock,
deferred stock, stock appreciation rights, reload options and other stock based
awards. The plan will terminate when there are no more shares of common stock
available for issuance or on June 5, 2008. The plan is administered by the board
of directors or a committee of the board of directors. These bodies have the
authority to determine the terms of any specific award, in compliance with the
general terms of the plan. Currently, there are 3,620,000 shares of common stock
reserved for outstanding awards under the plan.
Other Stock Options, Warrants and Convertible Securities
In addition to the outstanding awards under the 1998 Performance Equity
Plan, Enviro- Recovery has issued rights to acquire up to 30,062,767 shares of
common stock. The rights have been issued as stock options and warrants and
convertible debt. The terms of these rights vary as to exercise price and the
term during which they may be exercised.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
-16-
<PAGE>
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock consists of 250,000,000 shares of capital
stock of which 248,000,000 are designated as shares are common stock, $0.0001
par value and 2,000,000 are designated as shares of preferred stock, $0.001 par
value. As of December 31, 1999 there were 71,095,611 shares of common stock
issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders. In addition, the holders are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of legally available funds. In the event of
our dissolution, liquidation or winding-up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of all our
liabilities and subject to the prior distribution rights of any preferred stock
that may be outstanding at that time. The holders of common stock do not have
cumulative voting rights or preemptive or other rights to acquire or subscribe
for additional, unissued or treasury shares, which means that the holders of
more than 50% of such outstanding shares, voting at an election of directors can
elect all the directors on the board of directors if they so choose and, in such
event, the holders of the remaining shares will not be able to elect any of the
directors. All outstanding shares of common stock are, and when issued, the
shares of common stock offered hereby, are fully paid and non-assessable.
Preferred Stock
The board of directors has the ability to issue preferred stock and
establish the rights of any preferred stock being issued at the time of issuance
without any shareholder approval. The preferred stock may be issued in one or
more classes or series and may have various rights established, such as rights
to dividends, liquidation preferences, and voting. These rights may be
subordinate or superior to the rights of the holders of the common stock and
other classes of securities outstanding.
Stock Transfer Agent
The stock transfer agent for the common stock is Madison Stock Transfer,
Inc., P.O. Box 290-145, Brooklyn, New York.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER STOCKHOLDER MATTERS
Market Information
Our common stock was traded on the OTC Bulletin Board until November 18,
1999 and is currently traded on the "pink sheets" under the symbol EVRE. Our
common stock is only traded on a limited or sporadic basis and this should not
-17-
<PAGE>
be deemed to constitute an established public trading market. There is no
assurance that the common stock will be actively traded in the future.
Therefore, there can be no assurance that there will be liquidity in the common
stock.
Below is a table indicating the range of high and low bid information for
the common stock for each full quarterly period within the two most recent
fiscal years and for the first three quarters of 1999. This information has been
obtained from the National Quotation Bureau, LLC.
<TABLE>
Quarterly Period High Low
- - ----------------- ---- ----
<S> <C> <C>
Fiscal Year 1997
Jan. 1 - Mar. 31 N/A N/A
Apr. 1 - Jun. 30 $9.00 $3.25
Jul. 1 - Sep. 30 $5.375 $1.125
Oct. 1 - Dec. 31 $2.34375 $0.4375
Fiscal Year 1998
Jan. 1 - Mar. 31 $1.3125 $0.3125
Apr. 1 - Jun. 30 $1.00 $0.50
Jul. 1 - Sep. 30 $0.60 $0.20
Oct. 1 - Dec. 31 $0.70 $0.16
Fiscal Year 1999
Jan. 1 - Mar. 31 $0.70 $0.29
Apr. 1 - Jun. 30 $0.35 $0.15625
Jul. 1 - Sep. 30 $0.25 $0.17
Oct. 1 - Dec. 31 $0.24 $ .09
</TABLE>
Holders
As of December 31, 1999, there were 602 holders of record of the common
stock.
Dividend Policy
We have never declared or paid cash dividends on the common stock. We
anticipate that all future earnings will be retained for working capital and
business expansion. The payment of any future dividends will be at the sole
discretion of the board of directors and will depend upon, among other things,
future earnings, capital requirements, our financial condition and general
business conditions. Therefore, there can be no assurance that any dividends on
the common stock will be paid in the future.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings in which we are involved.
-18-
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Schenck & Associates SC, certified public accountants, was engaged by us
on July 29, 1999 as our independent accountants. We are unaware of any
disagreements or other issues, which are required to be disclosed by the rules
and regulations applicable to this Form 10.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Issuances in connection with 1997 merger
On June 2, 1997, Enviro-Recovery effected a merger with a Resource
Recovery, Inc. In the merger, Enviro-Recovery issued an aggregate of 15,435,369
shares of common stock pursuant to Rule 504 of Regulation D, under the
Securities Act.
On December 16, 1997, Enviro-Recovery issued an additional 39,930 shares of
common stock to reconcile variances in the shareholders list dated June 2 1997
in connection with the merger of Resource Recovery, Inc. and Enviro-Recovery and
an amended shareholders list. The shares of common stock were issued pursuant to
Rule 504 of Regulation D, under the Securities Act.
On February 29, 1999, March 10,1999 and May 28, 1999, Enviro-Recovery
issued an additional 121,000 shares of common stock to settle additional
reconciliations of the June 2, 1997 shareholders list of Resource Recovery, Inc.
and further amended shareholder lists. The shares of common stock were issued
pursuant to Rule 504 of Regulation D, under the Securities Act.
Settlement of outstanding consulting and service obligations and year-end bonus
On December 16, 1997 and January 27, 1998, Enviro-Recovery issued an
aggregate of 1,243,500 shares of common stock to settle amounts owed to various
former employees and consultants for services rendered and as bonus shares to
the then employees. The shares were issued pursuant to Section 4(2) of the
Securities Act. Each of the investors represented that they were buying for
investment purposes and received certificates with legends against their
transfer unless in compliance with the securities laws of the United States and
relevant state jurisdictions.
Private placements of common stock
Enviro-Recovery sold the below listed amounts of common stock at the
specified aggregate dollar amounts in private offerings to investors pursuant to
Section 4(2) of the Securities Act.
(A) On June 4, 1998, Enviro-Recovery sold an aggregate of 9,605,000
shares of common stock to ten persons for an aggregate consideration of $960,000
pursuant to conversion of outstanding loans and the sale of stock.
(B) On July 21, 1998, Enviro-Recovery issued an aggregate of 30,000
shares of common stock in settlement of a claim of payment for services
previously rendered by legal counsel.
(C) On June 30, 1998, Enviro-Recovery issued 666,667 shares of common
stock for the conversion of an outstanding loan from an individual in the amount
of $100,000.
-19-
<PAGE>
(D) On dates in October and November 1998, Enviro-Recovery issued an
aggregate of 1,587,000 shares of common stock to an individual for an aggregate
consideration of $158,000.
(E) On dates in November and December 1998 and January 1999,
Enviro-Recovery issued an aggregate of 10,835,000 shares of common stock to
sixteen persons for an aggregate consideration of $1,083,000.
(F) On February 23, 1999, Enviro-Recovery issued 5,000 shares of common
stock in exchange for consulting services.
(G) On March 1, 1999 and March 26, 1999, Enviro-Recovery issued an
aggregate of 5,000,000 shares of common stock to six persons for an aggregate
consideration of $500,000
(H) On March 29, 1999, Enviro-Recovery issued an aggregate of 5,000,000
shares of common stock to eleven persons for an aggregate consideration of
$500,000.
(I) On May 10, 1999, May 12, 1999 and May 28, 1999, Enviro-Recovery
issued an aggregate of 4,442,050 shares of common stock to four persons, each of
which was a stockholder and one of which was a director of the company, upon
conversion of outstanding loans aggregating $444,205.
(J) On May 28, 1999, Enviro-Recovery issued an aggregate of 265,395
shares of common stock to two persons in settlement for the claim of outstanding
amounts due for consulting services rendered in 1997.
(K) On October 6, 1999 and October 8, 1999, Enviro-Recovery issued an
aggregate of 7,100,000 shares of common stock to nine persons, each of which is
a shareholder of the company, for an aggregate consideration of $725,000.
Sales of common stock pursuant to Rule 504
The following is a list of sales of common stock of Enviro-Recovery to
persons on the specified dates of the listed amounts pursuant to Rule 504, under
Regulation D of the Securities Act.
Aggregate
Date Per Share Amount Number of Shares Consideration
10/14/98 $ .16 12,500 $2,000
10/16/98 $ .17 58,824 $10,000
10/03/98 $ .22 9,091 $2,000
09/28/98 $.210 25,000 $5,250
09/30/98 $.213 15,000 $3,188
10/19/98 $.160 30,000 $4,800
10/16/98 $.145 15,000 2,168
10/09/98 $.144 13,841 $2,000
10/09/98 $.144 13,841 $2,000
-21-
<PAGE>
Aggregate
Date Per Share Amount Number of Shares Consideration
11/09/98 $.189 52,824 $10,000
11/11/98 $.170 17,647 $3,000
10/23/98 $.150 33,333 $5,000
11/23/98 $.187 53,476 $10,000
11/03/98 $.170 14,706 $2,500
11/04/98 $.170 39,000 $6,630
11/03/98 $.136 3,676 $500
11/03/98 $.170 7,647 $3,000
10/27/98 $.170 58,824 $10,000
01/08/99 $ .10 150,000 $15,000
01/08/99 $ .10 50,000 $5,000
12/22/98 $ .18 61,920 $10,000
01/19/99 $ .35 78,500 $27,475
12/08/98 $ .20 15,000 $3,000
12/31/98 $ .33 122,699 $40,000
12/22/98 $ .16 80,495 $13,000
12/28/98 $ .17 29,412 $5,000
01/22/99 $ .35 14,285 $5,000
01/21/99 $ .30 40,000 $12,000
01/06/99 $ .28 20,000 $5,610
12/22/98 $ .18 1,920 $10,000
12/24/98 $ .16 18,576 $3,000
01/14/99 $ .35 22,857 $8,000
01/15/99 $ .35 28,571 $10,000
01/21/99 $ .23 1,304,348 $300,000
12/29/98 $ .10 150,000 $15,000
12/18/98 $ .10 100,000 $10,000
01/31/99 $ .17 88,235 $15,000
01/21/99 $ .30 124,720 $37,416
04/06/99 $ .28 272,532 $76,308
04/06/99 $ .28 290,468 $81,000
07/17/99 $ .16 813,325 $130,132
07/17/99 $ .16 500,000 $80,000
-21-
<PAGE>
Use of Proceeds
All the proceeds of the above offerings, unless otherwise indicated,
were used for general working capital purposes.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Texas Business Corporation Act permits Texas corporations such as ours
to include in the articles of incorporation a provision eliminating or limiting
directors' exposure to liability for monetary damages for breaches of their duty
of care as directors, if the director acted in good faith and with ordinary
care. The act does not eliminate the directors' liability for monetary damages
for acts or omissions not in good faith or involving the intentional violations
of law, the improper purchase or redemption of stock, payment of improper
dividends or any transaction from which the director received an improper
personal benefit.
The act also permits Texas corporations to include in the articles of
incorporation a provision to indemnify any and all persons it has the power to
indemnify . The act provides that a Texas corporation may indemnify a person who
was, is or is threatened to be made a named party in a proceeding because the
person is or was acting on behalf of the corporation. The indemnification by the
corporation may be made if it is determined that the person conducted himself in
good faith, reasonably believed that the conduct was in the corporation's best
interests if the indemnitee is a director, or was at least not opposed to the
corporations' best interests if the person was someone other than a director.
Directors may not be indemnified if the person improperly benefitted personally
or the person is found liable to the corporation. The indemnification may be in
respect of judgments, penalties, fines, settlements and reasonable expenses
actually incurred.
We have implemented the above described provisions in our articles of
incorporation. In addition, our by-laws provide for similar provisions. We do
not have separate agreements of indemnification or advancement of expenses. We
have obtained directors and officers insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC, indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against liabilities, other than the payment by us of expenses
incurred by a director, officer or controlling person in successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being offered or sold, we
will, unless in the opinion of its counsel that the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the federal securities laws, and will be governed by the final
adjudication of such case.
-22-
<PAGE>
PART F/S
Our financial statements are included in this report beginning on page
F-1, immediately following in this section.
-23-
<PAGE>
ENVIRO-RECOVERY, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
Together With Independent Auditors' Report
-24-
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 2
FINANCIAL STATEMENTS - DECEMBER 31, 1998 AND DECEMBER 31, 1997
Consolidated Balance Sheet F-3 to F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 to F-8
Conolidated Statement of Expenses F-9
Consolidated Statement of Revenues F-10
Notes to Consolidated Financial Statements F-11 to F-21
FINANCIAL STATEMENTS - SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
Consolidated Balance Sheet F-22 to F-23
Consolidated Statements of Operations F-24
Consolidated Statements of Cash Flows F-25
Consolidated Statements of Stockholders' Equity F-26
Notes to Consolidated Financial Statements F-27 to F-32
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Enviro-Recovery, Inc. and Subsidiaries
Ashland, Wisconsin
We were engaged to audit the accompanying consolidated balance sheets of
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management.
Except as explained in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free 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
audit provides a reasonable basis for our opinion.
Because we were not engaged as auditors until after the end of the year, we were
not present to observe the physical inventories at December 31, 1997 and
December 31, 1996 (stated at $ 652,931 and $57,836, respectively), and we were
unable to satisfy ourselves concerning inventory quantities on hand at those
dates by other auditing procedures. Accordingly, the scope of our work was not
sufficient to enable us to express, and we do not express an opinion on the
statements of income, retained earnings and cash flows for the year ended
December 31, 1998.
Since the inventory balances as of December 31, 1997 and 1996, materially affect
the determination of financial position, results of operations, and cash flows,
the scope of our work was not sufficient to enable us to express, and we do not
express an opinion on the financial statements as of and for the year ended
December 31, 1997.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Enviro-Recovery, Inc. and
Subsidiaries as of December 31, 1998, in conformity with generally accepted
accounting principles.
Green Bay, Wisconsin
November 1, 1999
F-2
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
------ ---- ----
Current assets
Cash $ 201,547 $ 187,859
Receivables:
Trade 6,886 6,154
Other 3,421 5,413
Inventories 1,678,673 652,931
Prepaid expenses 121,194 48,805
---------- ----------
Total current assets 2,011,721 901,162
---------- ----------
Property and equipment
Land and improvements 25,336 20,504
Buildings and improvements 927,079 976,839
Equipment 2,097,181 604,788
Vehicles 141,627 127,993
Office equipment 40,266 32,145
Construction in progress -- 231,116
---------- ----------
3,231,489 1,993,385
Less accumulated depreciation 374,280 179,034
---------- ----------
Net property and equipment 2,857,209 1,814,351
---------- ----------
Other assets
Other investment, at cost 174,300 --
Intangible assets, net of amortization 29,517 32,320
---------- ----------
Total other assets 203,817 32,320
========== ==========
F-3
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) 1998 1997
Current liabilities
Notes payable $ 1,756,611 $ 726,609
Current maturities of long-term debt 156,900 152,300
Accounts payable 593,213 327,437
Customer deposits 153,810 163,810
Accrued liabilities:
Salaries and wages 30,032 22,272
Interest 109,304 12,662
Property taxes 24,393 19,212
Payroll taxes -- 2,202
Sales tax 3,611 2,030
Other -- 1,035
---------- ----------
Total current liabilities 2,827,874 1,429,569
Long-term debt, less current maturities 2,491,281 818,576
---------- ----------
Total liabilities 5,319,155 2,248,145
---------- ----------
Stockholders' equity (deficit)
Common stock, $.0001 par value:
Authorized, 50,000,000 shares
Issued and outstanding, 34,344,636 shares
and 20,454,944 shares, respectively 3,435 2,046
Additional paid-in capital 3,774,442 2,057,057
Accumulated deficit (4,034,327) (1,558,111)
---------- ----------
(256,450) 500,992
Minority interest in net equity position of
consolidated subsidiary 10,042 (1,304)
---------- ----------
Total stockholders' equity (deficit) (246,408) 499,688
---------- ----------
$ 5,072,747 $ 2,747,833
========= ============
F-4
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
1998 1997
Revenues
Lumber $ 456,281 $ 167,563
Advertising 4,143 17,443
------------ ------------
Total revenues 460,424 185,006
Cost of revenues 675,252 192,927
------------ ------------
Gross profit (214,828) (7,921)
Operating expenses 1,433,209 1,232,460
------------ ------------
Loss from operations (1,648,037) (1,240,381)
------------ ------------
Other income (expense)
Rental income 400 7,500
Interest income 2,498 4,730
Miscellaneous income 14,187 30,198
Loss on disposal of
property and equipment (213,718) --
Interest expense (620,200) (69,396)
------------ ------------
Other expense, net (816,833) (26,968)
------------ ------------
Loss before income taxes (2,464,870) (1,267,349)
Income tax credit -- --
Net loss $ (2,464,870) $ (1,267,349)
============ ============
Loss per share $ (0.09) $ (0.10)
============ ============
Weighted average number of
shares 27,399,790 12,413,763
============ ============
Diluted loss per share $ (0.07) $ (0.10)
Weighted average number of
shares and dilutive
potential shares 33,389,790 12,413,763
============ ============
See notes to consolidated financial statements
F-5
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1998 and 1997
<TABLE>
Common Stock
----------------------- Total
Additional Stockholders'
Shares Stock Paid-in Accumulated Minority Equity
issued Amount Capital Deficit Interest (Deficit)
--------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 5,000,000 $ 125 $ 24,949 $ (293,066) $ -- $ (267,992)
Reverse split -
1 share for 4 shares (3,750,000) -- -- -- -- --
Stock issued 2,550,000 255 127,245 -- 1,000 128,500
Shares issued to acquire
Resource Recovery, Inc. 15,435,369 1,544 399,393 -- -- 400,937
Stock issued 1,219,575 122 1,505,470 -- -- 1,505,592
Net loss -- -- -- (1,265,045) (2,304) (1,267,349)
---------- ----------- ----------- ----------- ------------ -------------
Balance, December 31, 1997 20,454,944 2,046 2,057,057 (1,558,111) (1,304) 499,688
Stock issued 13,889,692 1,389 1,717,385 -- -- 1,718,774
Net loss -- -- -- (2,476,216) 11,346 (2,464,870)
---------- ----------- ----------- ----------- ------------ -------------
Balance, Decembr 31, 1998 34,344,636 $ 3,435 $ 3,774,442 $(4,034,327) $ 10,042 $ (246,408)
========== =========== =========== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
1998 1997
<S> <C> <C>
Operating activities
Net loss $ (2,464,870) $ (1,267,349)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 256,008 145,277
Amortization 3,358 7,564
Loss on disposal of property and equipment 213,718 -
Issuance of common stock for services 31,540 94,350
Decrease (increase) in:
Receivables 1,260 (3,777)
Inventories (1,025,742) (595,095)
Prepaid expenses (72,389) (48,805)
Increase (decrease) in:
Accounts payable 265,776 153,352
Customer deposits (10,000) 124,748
Accrued liabilities 107,927 43,642
--------- ---------
Net cash used for operating activities (2,693,414) (1,346,093)
--------- ---------
Investing activities
Purchase of property and equipment (1,667,014) (1,250,415)
Proceeds from sale of property and equipment 154,430 -
Loans made (174,300) -
Increase in intangible assets (555) (444)
--------- ---------
Net cash used for investing activities (1,687,439) (1,250,859)
--------- ---------
Financing activities
Proceeds from additional long-term debt 1,960,621 545,102
Retirement of long-term debt (283,316) (56,312)
Net proceeds from notes payable 1,486,565 738,969
Issuance of common stock 1,230,671 1,539,742
--------- ---------
Net cash provided by financing activities 4,394,541 2,767,501
--------- ---------
Cash
Net increase 13,688 170,549
Beginning of year 187,859 17,310
--------- ---------
End of year $ 201,547 $ 187,859
========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1998 and 1997
1998 1997
Supplemental cash flow information
Cash paid for:
Interest $ 523,558 $ 88,433
Supplemental disclosure of noncash investing and financing activities
During 1997, the Company acquired the assets of True North TV 25 station for the
assumption of the liabilities. The purchase price and related assumption of
liabilities was as follows:
Assets acquired:
Account receivable $ 4,100
Equipment 31,366
Goodwill 24,875
Organizational costs 7,545
----------
$ 67,886
Liabilities assumed:
Accounts payable $ 6,487
Long-term debt 61,399
---------
$ 67,886
During 1998, loans from stockholders in the amount of $ 456,563 were converted
into common stock.
During 1998 and 1997, the Company issued common stock in exchange for services.
Shares issued during 1998 and 1997 were 315,395 and 943,500, respectively. The
value of the shares issued were $31,540 and $94,350, respectively.
See notes to consolidated financial statement.
F-8
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Operating Expenses
Years ended December 31, 1998 and 1997
1998 1997
---- ----
Advertising $ 11,786 $ 12,803
Amortization 3,358 98
Bank charges 4,533 4,303
Commissions 1,103 3,667
Contributions 70 378
Depreciation 72,418 37,139
Director fees 20,000 --
Dues and subscriptions 2,697 650
Equipment rental 3,995 7,611
Insurance-general 106,208 57,699
Insurance-health 59,667 34,520
Leases 3,372 15,401
Licenses and fees 730 5,917
Lobbying expenses 20,430 --
Lodging 64,488 139,587
Meals and entertainment 13,118 16,927
Outside services 40,949 78,613
Payroll taxes 43,698 27,005
Postage 7,141 8,645
Professional services 183,207 226,863
Property taxes 25,950 31,114
Public relations 7,667 23,133
Rent 17,693 6,198
Repairs and maintenance 12,491 7,952
Research and development 188,856 8,189
Supplies 48,264 116,264
Telephone expense 67,025 56,495
Training 305 85
Utilities 4,362 1,565
Vehicle expense 20,183 16,612
Wages 377,445 287,027
---------- ----------
$1,433,209 $1,232,460
========== ==========
See notes to consolidated financial statement.
F-9
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Cost of Revenues
Years ended December 31, 1998 and 1997
1998 1997
Inventories, beginning of year $ 652,931 $ 57,836
Purchases 835,200 358,496
Direct labor 351,753 144,102
Payroll taxes 29,428 16,309
Other costs:
- - ------------
Depreciation 183,590 108,138
Freight 83,553 2,576
Permits and fees 18,665 28,868
Repairs and maintenance 20,813 4,084
Subcontractors 7,194 1,212
Supplies 69,612 62,177
Utilities 76,399 23,775
Vehicle expense 5,607 17,736
Vessel expense 19,180 20,549
---------- ---------
2,353,925 845,858
Inventories, end of year 1,678,673 652,931
---------- ---------
$ 675,252 $ 192,927
========== ===========
See notes to consolidated financial statement.
F-10
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Nature of business and significant accounting policies
- - ------
A. Organization and Nature of business
-----------------------------------
On June 2, 1997, Enviro-Recovery, Inc. (Company) acquired Resource
Recovery, Inc. and it's subsidiaries, Superior Water Logged Lumber Company,
Inc. and Viking Marine, Inc. in a business combination accounted for as a
pooling of interests. Resource Recovery, Inc. became a wholly-owned
subsidiary of the company through the exchange of 15,435,369 shares of the
company's common stock for all of the outstanding stock of Resource
Recovery, Inc. The accompanying financial statements for 1997 are based on
the assumption that the companies were combined for the full year.
The Company is engaged in the production of lumber and wood products from
old growth forest timber recovered from the bottom of the lakes and rivers
of North America. Lumber sales are made to customers located mainly in the
upper Midwestern region of the United States. The Company also operates
True North TV 25 in Ashland, Wisconsin with sales to advertisers located in
or with operations in that same area.
B. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and all subsidiaries in which more than 50% control is maintained. Those
subsidiaries include:
Ownership
Interest
Resource Recovery, Inc. 100%
Superior Water Logged Lumber Company, Inc. 100%
Resource Recovery of Wisconsin, Inc. 100%
Viking Marine, Inc. 75%
All significant intercompany balances and transactions have been
eliminated.
C. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
B. Receivables
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required to state
accounts receivable at net realizable value. If amounts become
uncollectible, they will be charged to operations when that determination
is made.
F-11
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 1 - Nature of business and significant accounting policies, continued
- - ------
C. Inventories
Inventories are stated at the lower of cost or market. The cost of
inventory is determined on the first-in, first-out (FIFO) method.
D. Property and equipment and depreciation
---------------------------------------
Property and equipment are stated at cost. Expenditures for additions and
improvements are capitalized while replacements, maintenance and repairs
which do not improve or extend the lives of the respective assets are
expense currently as incurred. Properties sold, or otherwise disposed of,
are removed from the property accounts, with gains or losses on disposal
credited or charged to operations.
Depreciation for financial reporting and income tax purposes is provided
over the estimated useful lives of the respective assets using the
straight-line and accelerated methods.
E. Amortization
Intangible assets and deferred charges of the Company are amortized using a
straight-line method as follows:
Goodwill 15 years
Organizational costs 5 years
Trademark 15 years
F. Income taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of inventories and
property and equipment for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of
those differences, which will wither be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes are also
recognized for operating losses that are available to offset future taxable
income.
F-12
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 2 - Acquisition of television station
On November 1, 1997, Resource Recovery of Wisconsin, Inc. acquired the assets of
the True North TV 25 station for the assumption of liabilities in the amount of
$ 67,886. The acquisition was accounted for as a purchase. The results of
operations of the True North TV 25 station have been included in the
accompanying statement of operations from the date of acquisition forward.
The purchase price was allocated as follows:
Accounts receivable $ 4,100
Equipment 31,366
Goodwill 24,875
Organizational costs 7,545
-------
$ 67,886
========
Note 3 - Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash.
Note 4 - Inventories
Inventories at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- ----
Raw materials $ 399,573 $ 75,402
Supplies 5,000 5,000
Retail inventory 24,262 3,216
Work in process and finished goods 1,249,838 569,313
---------- ---------
$1,678,673 $ 652,931
========== =========
F-13
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 5 - Investment in Brazil operations
On July 27, 1998 the Company entered into a joint venture purchase/agreement
with three affiliated Brazilian operations - Know How Madeiras, Lamituc Ltd.,
and R.. Corte Real Barros - along with the individual owners of the operations
Rogerio Corte Real Barros and Gilberto de Paula Corte Real. The three operations
are sawmills and related facilities located on Lake Tucurui, Brazil. The
operations have contract rights for the recovery of submerged lumber in the Lake
Tucurui hydroelectric reservoir. Upon execution of this agreement and the
payment of $100,000, the Company received a band saw and the first right of
refusal of all wood subsequently recovered from Lake Tucurui by the three
affiliated Brazilian operations. As of December 31, 1998, the Company had funded
an additional $74,300 for the purchase of the three affiliated Brazilian
operations. The terms of the acquisition and acquisition schedule were amended
on March 3, 1999. The amended acquisition agreement was terminated due to the
affiliated Brazilian operation's not obtaining the complete allotment of rights
to extract timber from Lake Tucurui, Brazil. Under the termination clause, the
Brazilian operations shall refund the $74,300 to the Company. The Company
continues to maintain the first right of refusal for timber extracted by the
Brazilian operations.
Note 6 - Intangible assets
Intangible assets at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- -----
Goodwill $ 24,873 $ 24,873
Organizational costs 7,989 7,989
Trademark 555 -
-------- ---------
33,417 32,862
Less accumulated amortization 3,900 542
-------- ---------
Intangible assets, net $ 29,517 $ 32,320
======= =======
F-14
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 7 - Notes payable
Notes payable at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- ----
Northern State Bank
10.25% note, retired in 1998 $ - $ 50,000
10.25% note, retired in 1998 - 50,000
Stockholders 5.63% notes, unsecured:
Kevin Deutsch, retired in 1998 - 50,373
New note 53,464 -
Kent and Carmel Lowry, retired
in 1998 - 50,285
Jack Lowry, retired in 1998 - 50,285
William and Reeva Heide, retired
in 1998 - 105,404
Michael Wagner, retired in 1998 - 50,138
Wade Micoley, retired in 1998 - 25,030
Jeff Noeldner, retired in 1998 - 25,030
New note 164,082 -
Steven Schock, retired in 1998 - 100,017
Rick Luytjes 207,734 -
Scott Mitchen 89,262 -
Thomas Evinrude 25,411 -
Subsequent to December 31, 1998, these notes were converted into common
stock.
F-15
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 7 - Notes payable, continued
1998 1997
---- ----
Kenneth C. Wiley
9.50% note, retired in 1998 - 100,000
David P. Grau
10.00% note, retired in 1998 - 50,000
M & I Bank
9.50% note, retired in 1998 - 20,047
Jack Lowry
9.75%* note, due April, 1999,
secured by real estate 300,000 -
First Capital Services, Inc.
32% note, due April, 1999 250,000 -
24% note, due September, 1999 650,000 -
Subsequent to December 31, 1998, $300,000 was converted into common stock.
Edge Tech
13.72% note, payable in monthly
installments of $2,490 to June,
1999, secured by equipment 16,658 -
--------- ---------
$ 1,756,611 $ 726,609
========== =========
* Interest rate fluctuates at 2% over prime.
Note 8 - Long-term debt
Long-term debt at December 31, 1998 and
1997 consisted of the following:
1998 1997
---- ----
Northern States Power Company
10.25% note, payable in monthly
installments of $1,069
including interest to October, 2001,
secured by real estate $ 34,548 $ 40,504
10.00% note, payable in monthly
installments of $2,295
including interest to June, 2003,
secured by real estate 105,199 -
F-16
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
1998 1997
---- ----
M & I Bank
9.75%* note, payable in monthly
installments of $6,700
including interest to January, 2000,
secured by a general
business security agreement 255,883 267,694
10.50%* note, retired in 1998 - 32,677
10.25% note, retired in 1998 - 71,779
10.25%** note, payable in monthly
installments of $682
including interest to June, 2006,
secured by a general business
security agreement 43,734 46,398
William and Reeva Heide
8.50% note, payable as follows:
Interest only during the first year,
principal payment of $10,000 and
interest in each of the second, third
and fourth years with the remaining
balance and interest payable in the
fifth year (June, 2001), unsecured 100,000 150,000
Jerry and Jane Immel
8.00% note, payable in quarterly
installments of $1,200 the first year,
$1,800 the second year and $2,400 the
third year, with a balloon payment of
$7,993 including interest to
August 1, 1999, unsecured 17,952 22,980
Norwest Bank
------------
10.25% note, retired in 1998 - 16,700
10.50% note, payable in monthly
installments of $304 including
interest to July, 2001, secured
by a vehicle 8,221 11,104
10.25% note, payable in monthly
installments of $451 including
interest to November, 2001,
secured by a vehicle 13,589 17,440
Department of Development
-------------------------
4.00% note, amounts advanced under
the terms of $350,000 note,
interest only payments to August, 1999,
then payable in monthly installments
of $5,400, including interest to July,
2004 at which time the remaining balance
is due, secured by accounts receivable,
inventory, intangibles and waterway
rights. 337,297 217,297
F-17
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
1998 1997
---- ----
Northwest WI Business Development Co.
7.50% note, amounts advanced under
the terms of $100,000 note, due
February 15, 2007, interest only
payments until September 15, 1997.
Monthly principal and interest
payments of $1,624 starting September
15, 1997, secured by a general
business agreement and personal
guarantees of Scott Mitchen and
Robert Holland 98,423 13,923
Ashland Area Development Corporation
4.00% note, interest only payments
until March, 1999, then payable in
monthly installments of $276
including interest to June, 2004,
secured by specific equipment 14,391 15,000
HP Envirovision
8.00% note, retired in 1998 - 47,380
GMAC
8.9% note, payable in monthly
installments of $802 to May,
2002, secured by a vehicle 29,596 -
The Associates
9.75% note, payable in monthly
installments of $800 to June, 2000 11,962 -
Caterpillar Financial Services Corporation
8.67% note, payable in monthly
installments of $1,281 to April,
2002, secured by equipment 44,496 -
Steven Schock
8.00% note, due September, 2000,
unsecured 137,300 -
Thomas Evinrude
9.00% note, due August, 2000,
secured by a first priority
security interest in specific
property and a general security
interest 1,395,590 -
--------- -------
Total Long-term debt 2,648,181 970,876
Current maturities 156,900 152,300
--------- -------
Long-term debt, less current maturities $ 2,491,281 $ 818,576
=========== =========
* Interest rate fluctuates at 2% over prime.
** Interest rate fluctuates at 2.50% over prime.
F-18
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
Maturities of long-term debt at December 31, 1998 are as follows:
Year ending
December,
1999 $ 156,900
2000 1,881,800
2001 229,000
2002 113,800
2003 121,700
Thereafter 144,981
----------
$ 2,648,181
===========
Note 9 - Income taxes
The net deferred tax asset related to the net operating loss carryforwards has
been offset in its entirety by a valuation allowance. No tax benefit has been
reported for the year ended December 31, 1998 and 1997 .
The net deferred tax asset and valuation allowance at December 31, 1998 and 1997
are as follows:
1998 1997
---- ----
Deferred tax asset $838,000 $431,000
Valuation allowance (838,000) (431,000)
-------- --------
Net deferred tax asset $ - $ -
======== ========
Net operating loss carryforwards available to offset future federal and state
taxable income approximate $4,000,000 and expire in years 2007 - 2013.
Note 10 - Advertising costs
Advertising and marketing costs are expenses as incurred. Advertising and
marketing costs amounted to $11,786 and $12,803 for the years ended December 31,
1998 and 1997, respectively.
F-19
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 11 - Stock option plans - common stock
- - -------
The Company has two broad-based stock option plans established on June 5, 1998
under which non-qualified and qualified stock options may be granted to certain
employees and non-employee stockholders. Each option allows for purchase of one
common share of the company.
Qualified Plan - Employees
This plan calls for immediate vesting of options on June 5, 1998 with either a
four or five year vesting schedule for additional options to be granted. The
exercise price of the vested options at December 31, 1998 is $10 per share for
options vested at that time. The exercise price for subsequent options will be
the closing market price on the day before the option vest (June 4) of each
succeeding year. These options will expire on termination of employment or on
June 4, 2005.
Non-qualified Plans - Non-employee shareholders
This plan calls for immediate vesting of options on September 23, 1998 with a
one-year schedule to September 22, 1999 for additional options. The exercise
price for current and subsequent options is the same as the qualified option
plan. The options under this plan expire May 2, 2003.
A summary of the status of the Company's two stock option plans is presented
below for current and subsequent options granted:
Options Exercise
Outstanding Price Per Share
Qualified plan
Balance at January 1, 1998 - $ -
Options granted - June 5, 1998 4,640,000 $ .10
========= ============
Subsequent options
June 5, 1999 1,095,000
2000 1,095,000
2001 1,095,000
2002 1,095,000
2003 650,000
---------
5,030,000
=========
Non-qualified plan
Balance at January 1, 1998 - -
Options granted - September 23,
1998 1,350,000 $ .10
========= =============
Subsequent options
September 23, 1999 2,000,000
=========
F-20
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 12 - Risk Concentrations
The Company's business entails a number of risks. A significant portion of the
Company's revenue is concentrated with one customer. This one customer accounts
for $162,000 and $42,100 and 36% and 23% of total revenue in 1998 and 1997,
respectively.
The Company is also dependent upon a small number of suppliers. Of these
suppliers, one accounted for approximately 31% of cost of revenues in 1997 only.
There were no suppliers in excess of 10% of cost of revenues in 1998.
F-21
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
ASSETS
1999 1998
---- ----
Current assets
Cash $ 102,044 $ 359,810
Accounts receivable 70,567 116,343
Inventories 2,133,371 607,839
Prepaid expenses 140,323 70,777
---------- ---------
Total current assets 2,446,305 1,154,769
---------- ---------
Property and equipment
Land and improvements 25,366 25,366
Buildings and improvements 935,452 907,035
Equipment 2,872,816 2,284,752
Vehicles 141,627 163,328
Office equipment 44,829 38,210
---------- ---------
4,020,090 3,418,691
Less accumulated depreciation 477,219 310,910
---------- ---------
Net property and equipment 3,542,871 3,107,781
---------- ---------
Other assets
Note receivable 44,000
Other investment, at cost 174,300 22,166
Intangible assets, net of
amortization 26,992 174,300
---------- ---------
Total other assets 245,292 196,466
---------- ---------
$6,234,468 $4,459,016
========== ==========
F-22
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
---- ----
Current liabilities
Notes payable $ 2,268,000 $ 1,485,610
Current maturities of
long-term debt 135,500 155,000
Accounts payable 381,537 420,438
Accrued liabilities 411,595 127,994
----------- -----------
Total current liabilities 3,196,632 2,189,042
Long-term debt, less current
maturities 1,113,710 1,590,851
----------- -----------
Total liabilities 4,310,342 3,779,893
----------- -----------
Stockholders' equity
Common stock 7,132 3,032
Additional paid-in capital 7,795,919 4,137,236
Treasury stock, at cost (10,000)
Accumulated deficit (4,034,327) (1,558,111)
Current loss (1,844,640) (1,901,730)
----------- -----------
1,914,084 680,427
Minority interest in net equity
position of consolidated
subsidiary 10,042 (1,304)
----------- -----------
Total stockholders' equity 1,924,126 679,123
----------- -----------
$ 6,234,468 $ 4,459,016
=========== ===========
F-23
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
1999 1998
---- ----
Revenues $ 745,379 $ 260,201
Cost of revenues 1,043,531 382,495
----------- -----------
Gross profit (loss) (298,152) (122,294)
Operating expenses 1,030,370 1,093,529
----------- -----------
Loss from operations (1,328,522) (1,215,823)
----------- -----------
Other income (expense)
Interest income 5,282 2,437
Settlement expense (65,400) (206,309)
Interest expense (456,000) (482,035)
----------- -----------
Other expense, net (516,118) (685,907)
----------- -----------
Loss before income taxes (1,844,640) (1,901,730)
Income tax credit -- --
----------- -----------
Net loss $(1,844,640) $(1,901,730)
=========== ===========
F-24
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
1999 1998
---- ----
Operating activities
Net loss $(1,844,640) $(1,901,730)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 102,939 131,876
Amortization 2,525 10,154
Decrease (increase) in:
Receivables (60,260) (104,776)
Inventories (454,698) 45,092
Prepaid expenses (19,129) (21,972)
Increase (decrease) in:
Accounts payable (211,676) 93,001
Accrued liabilities 90,445 (95,229)
--------- ---------
Net cash used for operating activities (2,392,495) (1,843,584)
--------- ---------
Investing activities
Purchase of property and equipment (788,601) (1,425,306)
Loans made (44,000) (174,300)
--------- ---------
Net cash used for investing activities (832,601) (1,599,606)
--------- ---------
Financing activities
Net proceeds (retirement) of
notes payable 511,389 759,001
Net proceeds (retirement) of
long-term debt (1,398,971) 774,975
Issuance of common stock 4,025,174 2,081,165
Treasury stock purchase (10,000)
--------- ---------
Net cash provided by financing activities 3,127,592 3,615,141
--------- ---------
Cash
Net decrease (97,504) 171,951
Beginning of period 201,547 187,859
--------- --------
End of period $ 104,043 $ 359,810
========= =========
F-25
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
(Formerly NSJ Mortgage Capital Corporation)
Consolidated Statement of Stockholders' Equity
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
<TABLE>
Common Stock
----------------------
Additional Total
Shares Stock Paid-in Accumulated Minority Stockholders'
issued Amount Capital Deficit Interest Equity
-------- -------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 5,000,000 $ 125 $ 24,949 $ (293,066) $ -- $ (267,992)
Reverse split -
1 share for 4 shares (3,750,000) -- -- -- -- --
Stock issued 2,550,000 255 127,245 -- 1,000 128,500
Stock issued to acquire
Resource Recovery, Inc. 15,435,369 1,544 399,393 -- -- 400,937
Stock issued 1,219,575 122 1,505,470 -- -- 1,505,592
Net loss -- -- -- (1,842,336) (2,304) (1,844,640)
----------- ---------- ----------- ----------- ----------- -----------
Balance,
December 31, 1997 20,454,944 $ 2,046 $ 2,057,057 $(2,135,402) $ (1,304) $ (77,603)
=========== =========== =========== ========== =========== ===========
</TABLE>
F-26
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 1 - Nature of business and significant accounting policies
- - ------
A. Nature of business
------------------
The Company is engaged in the production of lumber and wood products from
old growth forest timber recovered from the bottom of the lakes and rivers
of North America. Lumber sales are made to customers located mainly in the
upper Midwestern region of the United States. The Company also operates
True North TV 25 in Ashland, Wisconsin with sales to advertisers located in
or with operations in that same area.
B. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all subsidiaries in which more than 50% control is
maintained. Those subsidiaries include:
Ownership
Interest
---------
Resource Recovery, Inc. 100%
Superior Water Logged Lumber Company, Inc. 100%
Resource Recovery of Wisconsin, Inc. 100%
Viking Marine, Inc. 75%
All significant intercompany balances and transactions have been
eliminated.
C. Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
D. Receivables
-----------
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required to state
accounts receivable at net realizable value. If amounts become
uncollectible, they will be charged to operations when that
determination is made.
E. Inventories
-----------
Inventories are stated at the lower of cost or market. The cost of
inventory is determined on the first-in, first-out (FIFO) method.
F. Property and equipment and depreciation
---------------------------------------
Property and equipment are stated at cost. Expenditures for additions
and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the lives of the respective
assets are expense currently as incurred. Properties sold, or
otherwise disposed of, are removed from the property accounts, with
gains or losses on disposal credited or charged to operations.
F-27
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 1 - Nature of business and significant accounting policies, continued
- - ------
Depreciation for financial reporting and income tax purposes is
provided over the estimated useful lives of the respective assets using
the straight-line and accelerated methods. Depreciation expense for the
period ended September 30, 1999 amounted to $102,939.
G. Amortization
------------
Intangible assets and deferred charges of the Company are amortized
using a straight-line method as follows:
Goodwill 15 years
Organizational costs 5 years
Trademark 15 years
H. Income taxes
------------
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
inventories and property and equipment for financial and income tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will wither be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that
are available to offset future taxable income.
Note 2 - Cash
- - -----
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash.
Note 3 - Inventories
- - ------
Inventories at September 30, 1999 consisted of the following:
Raw materials $ 356,051
Supplies 46,174
Retail inventory 30,967
Work in process and finished goods 1,700,149
----------------
$ 2,133,341
================
F-28
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 4 - Investment in Brazil operations
- - ------
On July 27, 1998 the Company entered into a joint venture purchase/agreement
with three affiliated Brazilian operations - Know How Madeiras, Lamituc Ltd.,
and R.. Corte Real Barros - along with the individual owners of the operations
Rogerio Corte Real Barros and Gilberto de Paula Corte Real. The three operations
are sawmills and related facilities located on Lake Tucurui, Brazil. The
operations have contract rights for the recovery of submerged lumber in the Lake
Tucurui hydroelectric reservoir. Upon execution of this agreement and the
payment of $100,000, the Company received a band saw and the first right of
refusal of all wood subsequently recovered from Lake Tucurui by the three
affiliated Brazilian operations. As of September 30, 1999, the Company had
funded an additional $74,300 for the purchase of the three affiliated Brazilian
operations. The terms of the acquisition and acquisition schedule were amended
on March 3, 1999. The amended acquisition agreement was terminated due to the
affiliated Brazilian operation's not obtaining the complete allotment of rights
to extract timber from Lake Tucurui, Brazil. Under the termination clause, the
Brazilian operations shall refund the $74,300 to the Company. The Company
continues to maintain the first right of refusal for timber extracted by the
Brazilian operations.
Note 5 - Intangible assets
- - ------
Intangible assets at September 30, 1999 consisted of the following:
Goodwill $ 24,873
Organizational costs 7,989
Trademark 555
----------------
33,417
Less accumulated amortization 6,425
----------------
Intangible assets, net $ 26,992
================
Amortization expense for the period ended September 30, 1999 amounted to $2,525.
Note 6 - Notes payable
- - ------
Notes payable at September 30, 1999 consisted of the following:
Thomas Evinrude
9% note, due August, 2000, secured
by a first priority security interest
in specific property and a general
security interest $ 1,395,590
Jack Lowry
10 1/4%* note, due April, 2000,
secured by real estate 300,000
F-29
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 6 - Notes payable, continued
- - ------
First Capital Services, Inc.
32% note, due April, 2000 250,000
24% note, due September, 2000 300,000
Other 22,464
----------------
$ 2,268,054
================
* Interest rate fluctuates at 2% over prime.
Note 7 - Long-term debt
Long-term debt at September 30, 1999 consisted of the following:
Northern States Power Company
10 1/4% note, payable in monthly
installments of $1,069 including
interest to October, 2001, secured
by real estate $ 33,774
10% note, payable in monthly installments
of $2,295 including interest to June,
2003, secured by real estate 103,781
M & I Bank
10 1/4%* note, payable in monthly installments
of $6,700 including interest to January,
2000, secured by a general business security
agreement 246,790
10 3/4%** note, payable in monthly installments
of $682 including interest to June, 2006,
secured by a general business security agreement 42,888
William and Reeva Heide
8 1/2% note, payable as follows: Interest only
during the first year, principal payment of
$10,000 and interest in each of the second, third
and fourth years with the remaining balance and
interest payable in the fifth year (June, 2001),
unsecured 100,000
Jerry and Jane Immel
8% note, payable in quarterly installments of $1,200
the first year, $1,800 the second year and $2,400
the third year, with a balloon payment of $7,993
including interest to August 1, 1999, unsecured 17,952
Norwest Bank
10 1/2% note, payable in monthly installments of
$304 including interest to July, 2001,
secured by a vehicle 2,888
F-30
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 7 - Long-term debt, continued
Department of Development
4% note, amounts advanced under the terms of
$350,000 note, interest only payments to
August, 1999, then payable in monthly
installments of $5,400, including interest
to July, 2004 at which time the remaining
balance is due, secured by accounts
receivable, inventory, intangibles
and waterway rights. 333,021
Northwest WI Business Development Co.
7 1/2% note, amounts advanced under
the terms of $100,000 note, due February 15,
2007, interest only payments until September
15, 1997. Monthly principal and interest
payments of $1,624 starting September 15, 1997,
secured by a general business agreement
and personal guarantees of Scott Mitchen
and Robert Holland 98,423
Ashland Area Development Corporation
4% note, interest only payments until March,
1999, then payable in monthly installments of
$276 including interest to June, 2004,
secured by specific equipment 14,162
GMAC
8.9% note, payable in monthly installments of
$802 to May, 2002, secured by a vehicle 23,991
The Associates
9 3/4% note, payable in monthly installments
of $800 to June, 2000 5,424
Caterpillar Financial Services Corporation
8.67% note, payable in monthly installments of
$1,281 to April, 2002, secured by equipment 35,612
Steven Schock
8% note, due September, 2000, unsecured 137,300
-----------
Total long-term debt 1,196,006
Current maturities 135,500
-----------
Long-term debt, less current maturities $ 1,060,506
===========
* Interest rate fluctuates at 2% over prime.
** Interest rate fluctuates at 2 1/2% over prime.
F-31
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 7 - Long-term debt, continued
- - ------
Maturities of long-term debt at September 30, 1999 are as follows:
Year ending
September 30,
2000 $ 135,500
2001 464,000
2002 218,600
2003 108,600
2004 116,100
Thereafter 153,206
----------------
$ 1,196,006
================
Note 8 - Income taxes
- - ------
The net deferred tax asset related to the net operating loss carryforwards has
been offset in its entirety by a valuation allowance. No tax benefit has been
reported for the period ended September 30, 1999.
The net deferred tax asset and valuation allowance at September 30, 1999 is as
follows:
Deferred tax asset $ 1,890,000
Valuation allowance (1,890,000)
------------------
Net deferred tax asset $ -
==================
F-32
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
(a) Exhibits
3.1* Restated and Amended Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1* Form of Common Stock Certificate of Registrant
10.1* 1998 Performance Equity Plan
10.2* Form of Stock Option Agreement between Registrant and Steven Schock
10.3* Form of Stock Option Agreement between Registrant and David Neitzke
10.4* Form of Agreement between Registrant and Fund Amazon, and Eco-Wood,
Ltd.
10.5* Loan Agreement dated August 5, 1998 between Superior Water - Logged
Lumber Co., Inc. and Thomas Evinrude.
21.1* Subsidiaries of Registrant
27.1* Financial Data Schedule
* Filed herewith.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 28th day of January, 2000.
ENVIRO-RECOVERY, INC.
/s/ Jeff Wierichs
--------------------------
Jeff Wierichs,
Acting Chief Executive Officer
-26-
RESTATED ARTICLES OF INCORPORATION
of
ENVIRO-RECOVERY, INC.
ARTICLE ONE
Enviro-Recovery, Inc., pursuant to the provisions of Article 4.07 of
the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copies the original Articles of Incorporation and
all amendments thereto made on June 1, 1995 and April 14, 1997, that are in
effect as of the date of this Restated Articles of Incorporation and as further
amended by these Restated Articles of Incorporation. These Restated Articles of
Incorporation contain no other change in any provision.
ARTICLE TWO
The Articles of Incorporation of the corporation are amended by the
Restated Articles of Incorporation as follows:
The capitalization of the corporation is hereby amended to increase the
number of authorized shares of capital stock and to provide for a class of
preferred stock as follows:
SECTION FOUR: The total number of shares of capital stock of all
classes which the corporation is authorized to issue is 250,000,000, of which
248,000,000 shares are Common Stock, par value $.0001 and 2,000,000 are
Preferred Stock, par value $.001 per shares.
The relative rights of the Common Stock and the Preferred Stock are as
follows:
A. Common Stock: Except as may be otherwise required by law or by
this Restated Articles of Incorporation, each holder of the Common Stock shall
have one vote in respect of each share of such stock held by him on all matters
to be voted upon by the shareholders.
B. Preferred Stock: The Preferred Stock may be issued from time to time
in one or more series. The Board of Directors of the corporation is hereby
expressly authorized to provide, by resolution or resolutions duly adopted by it
prior to issuance, for the creation of each such series and to fix the
designations and the powers, preferences, rights, qualifications, limitations
and restrictions relating to the shares of each such series. The authority of
the Board of the Directors with respect to each series of Preferred Stock shall
include, but not be limited to, determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par
value;
<PAGE>
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms
of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption
by the corporation, and if so, the times, prices and other conditions
of such redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets of the corporation.
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, to the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms and provisions
relating to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of capital stock of the corporation of any
other class or any other series of Preferred Stock or any other
securities and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the corporation of, the
common stock or shares of stock of any other class or any other series
of Preferred Stock.
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any additional
capital stock, including additional shares of such series or of any
other series of preferred stock or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions, thereof.
The powers, preferences and relative, participating optional and other
special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in
all respects with all other shares of such series, except that shares
2
<PAGE>
of any one series issued at different times may differ as to the dates
from which dividends thereof shall be cumulative.
The following provision is amended to indicate its application to all
the capital stock of the corporation, unless specifically provided by the Board
of Directors upon issuance of a class or series of Preferred Stock, from the
previous provision which applied only to the Common Stock as follows:
SECTION FIVE: No shares of the capital stock of the corporation, unless
specifically provided by the Board of Directors upon issuance of a class or
series of Preferred Stock, shall carry and no shareholder of the corporation
shall possess or enjoy any preemptive rights to acquire additional, unissued or
treasury shares of capital stock of the corporation.
The following provision is amended to indicate its application to all
the capital stock of the corporation from the previous provision which applied
only to the Common Stock as follows:
SECTION SIX: No shares of the capital stock of the corporation shall
carry and no shareholders of the corporation shall possess or enjoy any
cumulative voting rights in the election of directors of the corporation.
The following provision is added to the Restated Articles of
Incorporation to conform to the Texas Business Corporation Act.
SECTION SEVEN: The corporation will not commence business until it has
received for the issuance of its shares of capital stock consideration of the
value of at least one thousand dollars.
The following provisions are added to the Restated Articles of
Incorporation to provide for indemnification of the officers and directors as
provided under the Texas Business Corporation Act and to eliminate the
requirement of a two-thirds vote on such matters as specified in the Texas
Business Corporation Act.
SECTION EIGHT: The following provisions are for the purpose of
defining, limiting and regulating the powers of the corporation and the
directors and of the shareholders, provided, however, that said provisions shall
not be deemed exclusive of any rights or liabilities otherwise granted or
imposed by the laws of the State of Texas:
(a) The liability of the directors of the corporation is
eliminated to the fullest extent permitted by the provisions of the Texas
Business Corporation Act and by the provisions of the Texas Miscellaneous
Corporation Laws Act, as the same may be amended and supplemented.
(b) The corporation shall, to the fullest extent permitted by
the provisions of Article 2.02-1 of the Texas Business Corporation Act, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have the power to indemnify under said Article from and against any and
all of the expenses, liabilities, or other matters referred to or covered by
said Article.
(c) With respect to any matter for which the affirmative vote
of the holders of at least a two-thirds portion of the shares entitled to vote
is otherwise required by the Texas Business Corporation Act, the act of the
3
<PAGE>
shareholders on that matter shall be the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter, rather than the
affirmative vote otherwise required by the Texas Business Corporation Act. With
respect to any matter for which the affirmative vote of the holders of at least
two-thirds portion of the shares of any class is otherwise required by the Texas
Business Corporation Act, the act of the holders of shares of that class on that
matter shall be the affirmative vote of the holders of a majority of the shares
of that class, rather than the affirmative vote of the holders of shares of that
class otherwise required by the Texas Business Corporation Act.
The provisions relating to the registered office and agent are amended
to provide for a new registered office and agent as follows:
SECTION NINE: The post-office address of the registered office of the
corporation in the State of Texas is c/o Corporation Service Company d/b/a
CSC-Lawyers Incorporating Service Company, 800 Brazos, Austin, Texas 78701, and
the name of the initial registered agent of the corporation at such address is
Corporation Service Company d/b/a CSC-Lawyers Incorporating Service Company.
The following provision is to update the names of the current
directors:
SECTION TEN: The minimum number of directors constituting the Board of
Directors of the corporation is one, and the name of and the address of each
person who is to serve as a director until the next annual meeting of the
shareholders or until the successor is elected and qualified are:
Name Address
Steven Schock c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
David Neitzke c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
William Heide c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Jeffrey Noeldner c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Mark Christopher c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Jeff Wierichs c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
The following provision is added to the Restated Articles of
Incorporation to comply with the Texas Business Corporation Act:
SECTION ELEVEN: From time to time any of the provision of these
Restated Articles of Incorporation may be amended, altered, or repealed, and
other provisions authorized by the laws of the State of Texas at the time in
force may be added or inserted in the manner and at the time prescribed by said
4
<PAGE>
laws, and all contracts and rights at any time conferred upon the shareholders
of the corporation by these Restated Articles of Incorporation are granted
subject to the provisions of this Article.
ARTICLE THREE
Each amendment made by the Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such Restated Articles of Incorporation and each amendment made by the
Restated Articles of Incorporation were duly adopted by the shareholders of the
corporation on the 20th day of March, 1999.
ARTICLE FOUR
In connection with the Annual Meeting of Shareholders held March 20,
1999, the number of shares outstanding on the record date was 47,251,174 and the
number of shares entitled to vote on amendments to the Restated Articles of
Incorporation was 35,599,801. For the changes set forth above under Section Four
of Article Two of these Restated Articles of Incorporation the number of shares
voted for the amendment was 35,351,385; and for the changes set forth above
under Sections Five, Six, Seven, Eight, Nine, Ten and Eleven of Article Two of
these Restated Articles of Incorporation the number of shares voted for the
amendments was 35,223,771. Each of the amendments to the Restated Articles of
Incorporation was approved by greater than two- thirds of the shares outstanding
on the record date of the Annual Meeting.
ARTICLE FIVE
The Articles of Incorporation and all amendments and supplements
thereto are hereby superseded by the following Restated Articles of
Incorporation which accurately copy the entire text thereof as set forth above:
SECTION ONE: The name of the corporation is ENVIRO-RECOVERY, INC.
SECTION TWO: The period of duration of the corporation is perpetual.
SECTION THREE: The purpose for which the corporation is organized is
the transaction of any and all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act.
SECTION FOUR: The total number of shares of capital stock of all
classes which the corporation is authorized to issue is 250,000,000, of which
248,000,000 shares are Common Stock, par value $.0001 and 2,000,000 are
Preferred Stock, par value $.001 per shares.
The relative rights of the Common Stock and the Preferred Stock are as
follows:
A. Common Stock: Except as may be otherwise required by law or
by this Restated Articles of Incorporation, each holder of the Common Stock
shall have one vote in respect of each share of such stock held by him on all
matters to be voted upon by the shareholders.
B. Preferred Stock: The Preferred Stock may be issued from time to time
in one or more series. The Board of Directors of the corporation is hereby
expressly authorized to provide, by resolution or resolutions duly adopted by it
11969.1
5
<PAGE>
prior to issuance, for the creation of each such series and to fix the
designations and the powers, preferences, rights, qualifications, limitations
and restrictions relating to the shares of each such series. The authority of
the Board of the Directors with respect to each series of Preferred Stock shall
include, but not be limited to, determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par
value;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms
of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption
by the corporation, and if so, the times, prices and other conditions
of such redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets of the corporation.
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, to the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms and provisions
relating to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of capital stock of the corporation of any
other class or any other series of Preferred Stock or any other
securities and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the corporation of, the
common stock or shares of stock of any other class or any other series
of Preferred Stock.
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any additional
capital stock, including additional shares of such series or of any
other series of preferred stock or of any other class; and
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(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions, thereof.
The powers, preferences and relative, participating optional and other
special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in
all respects with all other shares of such series, except that shares
of any one series issued at different times may differ as to the dates
from which dividends thereof shall be cumulative.
SECTION FIVE: No shares of the capital stock of the corporation shall
carry and no shareholder of the corporation shall possess or enjoy any
preemptive rights to acquire additional, unissued or treasury shares of capital
stock of the corporation.
SECTION SIX: No shares of the capital stock of the corporation shall
carry and no shareholders of the corporation shall possess or enjoy any
cumulative voting rights in the election of directors of the corporation.
SECTION SEVEN: The corporation will not commence business until it has
received for the issuance of its shares of capital stock consideration of the
value of at least one thousand dollars.
SECTION EIGHT: The following provisions are for the purpose of
defining, limiting and regulating the powers of the corporation and the
directors and of the shareholders, provided, however, that said provisions shall
not be deemed exclusive of any rights or liabilities otherwise granted or
imposed by the laws of the State of Texas:
(a) The liability of the directors of the corporation is eliminated to
the fullest extent permitted by the provisions of the Texas Business Corporation
Act and by the provisions of the Texas Miscellaneous Corporation Laws Act, as
the same may be amended and supplemented.
(b) The corporation shall, to the fullest extent permitted by the
provisions of Article 2.02- 1 of the Texas Business Corporation Act, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have the power to indemnify under said Article from and against any and all of
the expenses, liabilities, or other matters referred to or covered by said
Article.
(c) With respect to any matter for which the affirmative vote of the
holders of at least a two-thirds portion of the shares entitled to vote is
otherwise required by the Texas Business Corporation Act, the act of the
shareholders on that matter shall be the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter, rather than the
affirmative vote otherwise required by the Texas Business Corporation Act. With
respect to any matter for which the affirmative vote of the holders of at least
two-thirds portion of the shares of any class is otherwise required by the Texas
Business Corporation Act, the act of the holders of shares of that class on that
matter shall be the affirmative vote of the holders of a majority of the shares
of that class, rather than the affirmative vote of the holders of shares of that
class otherwise required by the Texas Business Corporation Act.
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SECTION NINE: The post-office address of the registered office of the
corporation in the State of Texas is c/o Corporation Service Company d/b/a
CSC-Lawyers Incorporating Service Company, 800 Brazos, Austin, Texas 78701, and
the name of the initial registered agent of the corporation at such address is
Corporation Service Company d/b/a CSC-Lawyers Incorporating Service Company.
SECTION TEN: The minimum number of directors constituting the Board of
Directors of the corporation is one, and the name of and the address of each
person who is to serve as a director until the next annual meeting of the
shareholders or until the successor is elected and qualified are:
Name Address
Steven Schock c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
David Neitzke c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
William Heide c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Jeffrey Noeldner c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Mark Christopher c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
Jeff Wierichs c/o 2200 East Lake Shore Drive
Ashland, Wisconsin
SECTION ELEVEN: From time to time any of the provision of these
Restated Articles of Incorporation may be amended, altered, or repealed, and
other provisions authorized by the laws of the State of Texas at the time in
force may be added or inserted in the manner and at the time prescribed by said
laws, and all contracts and rights at any time conferred upon the shareholders
of the corporation by these Restated Articles of Incorporation are granted
subject to the provisions of this Article.
March 24, 1999 ENVIRO-RECOVERY, INC
By: /s/ Steven Schock
-----------------------
Steven Schock, President
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BY-LAWS
OF
ENVIRO-RECOVERY, INC.
ARTICLE I
Stockholders
Section 1.1 Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place either
within or without the State of Texas as may be designated by the Board of
Directors from time to time. Any other proper business may be transacted at the
annual meeting.
Section 1.2 Special Meetings. Special meetings of stockholders
may be called at any time by the President, the Board of Directors, or the
holders of at least 30 percent of all the shares entitled to vote at the
proposed special meeting, to be held at such date, time and place either within
or without the State of Texas as may be stated in the notice of the meeting.
Section 1.3 Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting. In the case of a special meeting, the notice shall also state the
purpose or purposes for which the meeting is called and no other business shall
be transacted at such special meeting. Unless otherwise provided by law, the
written notice of any meeting shall be given not less than ten nor more than
sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. A failure to give or any defect or irregularity in giving the
notice for an annual meeting shall not affect or invalidate the proceedings of
such annual meeting.
Section 1.4 Adjournments. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof as determined by a vote of the holders of a majority of the
shares represented in person or by proxy at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If for the adjournment
a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 1.5 Quorum. At each meeting of stockholders, except
where otherwise provided by law or the Articles of Incorporation or these
By-laws, the holders of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum. For purposes of the foregoing, two or more
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classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided by Section 1.4 of these
By-laws until a quorum shall attend. Shares of its own capital stock belonging
on the record date for the meeting to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 1.6 Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board or in the absence of the Chairman of
the Board, by the President, or in the absence of the President by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation, by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, or
in the absence of the secretary by an Assistant Secretary, or in their absence
the Chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7 Voting; Proxies. Unless otherwise provided in the
Articles of Incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by such
stockholder which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from this date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation. Voting at
meetings of stockholders need not be by written ballot and need not be conducted
by inspectors unless the chairman of such meeting shall so determine. At all
meetings of stockholders for the election of directors, a plurality of the votes
cast shall be sufficient to elect. With respect to other matters, unless
otherwise provided by law or by the Articles of Incorporation or these By-laws,
the affirmative vote of the holders of a majority of the shares of all classes
of stock present in person or represented by proxy at the meeting and entitled
to vote on the subject matter shall be the act of the stockholders. Where a
separate vote by class is required, the affirmative vote of the holders of a
majority of the shares of each class present in person or represented by proxy
at the meeting shall be the act of such class, except as otherwise provided by
law or by the Articles of Incorporation or these By-laws.
Section 1.8 Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
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notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is fixed:
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the date on which the Board adopts the
resolution relating thereto. A determination of stockholders or record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 1.9 List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the meeting, during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE II
Board of Directors
Section 2.1 Powers; Number; Qualifications. The business and
affairs of the Corporation shall be managed by or under the directors of the
Board of Directors, except as may be otherwise provided by law or in the
Articles of Incorporation. The Board shall consist of one or more members, the
number thereof to be determined from time to time by the Board.
Section 2.2 Election; Term of Office; Resignation; Removal;
Vacancies. Each director shall hold office until the annual meeting of
stockholders next succeeding his or her election and until his or her successor
is elected and qualified or until his or her earlier resignation or removal. Any
director may resign at any time upon written notice to the Board of Directors,
the Chairman of the Board or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein, and unless otherwise specified
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therein no acceptance of such resignation shall be necessary to make it
effective. A director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors. Whenever the holders of any class or series of
stock are entitled to elect one or more directors by the provisions of the
Articles of Incorporation, the provisions of the preceding sentence shall apply,
in respect to the removal without cause of the director or directors so elected,
to the vote of the holders of the outstanding shares of that class or series and
not to the vote of the outstanding shares as a whole. Unless otherwise provided
in the Articles of Incorporation or these By-laws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class or
from any other cause may be filled by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the Articles of Incorporation,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by the sole remaining director so elected.
Section 2.3 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Texas and at
such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of Texas
whenever called by the Chairman of the Board, President, Chief Executive
Officer, by the Executive Committee of the Board, by a majority of the Board of
Directors, or by any three directors. At least two days prior written notice
thereof shall be given by the person or persons calling the meeting.
Section 2.5 Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the Articles of Incorporation or these
By-laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or of
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
By-law shall constitute presence in person at such meeting.
Section 2.6 Quorum; Vote Required for Action. At all meetings
of the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors unless the Articles of Incorporation or these By- laws
shall require a vote of a greater number. In case at any meeting of the Board of
Directors a quorum shall not be present, the members of the Board of Directors
present may adjourn the meeting from time to time until a quorum shall attend.
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Section 2.7 Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, or in his or her absence by
a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8 Annual Meeting. The Board of Directors shall meet
at such time and place as shall be determined by the Chairman of the Board, on
the day of the annual meeting of stockholders, or as soon as practicable
thereafter, to elect the officers of the Corporation for the ensuing year. The
Board of Directors shall also elect the members of the several committees
provided for by these By-laws. Such meeting shall be the Annual Meeting and
shall be a regular meeting of the Board of Directors for the transaction of
business.
Section 2.9 Compensation. Each member of the Board of
Directors who is not a salaried officer of the Corporation or of any subsidiary
of the Corporation, may be paid such fees, retainers and other compensation, if
any, as shall be fixed by the Board of Directors, in addition to transportation
and other expenses actually incurred by the directors in attending special or
regular meetings of the Board of Directors or of any committee of which the
director is a member.
Section 2.10 Action by Directors Without a Meeting. Unless
otherwise restricted by the Articles of Incorporation or these By-laws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
ARTICLE III
Committees of the Board of Directors
Section 3.1 Establishment of Committees. The following
committees are hereby established as committees of the Board of Directors:
(a) Executive Committee
(b) Audit Committee
(c) Nominating Committee
The Board of Directors shall elect members of such committees only from this own
members. The Board of Directors shall determine the number of members of each
committee and may increase or decrease that number from time to time; provided
that the number of members of each committee shall not be less than the number
hereinafter provided in this Article III. The Board of Directors may remove
members form any committee and fill vacancies in membership. Each committee
shall have such authority as shall be delegated to it by the Board of Directors
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from time to time and the authority to determine its own rules of procedure, the
time and place of its meetings and the kind, time, and contents of notice of
meetings to be given to its members. No committee shall have the power or
authority in reference to amending the Articles of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
removing or indemnifying directors or amending the By-laws of the Corporation;
and, unless the resolution, By- laws, or Articles of Incorporation expressly so
provide, no committee shall have the power or authority to declare a dividend or
to authorize the issuance of stock.
Section 3.2 The Executive Committee. The Executive Committee
shall consist of at least three members, a majority of whom shall be persons who
are not officers or employees of the Corporation. The Executive Committee shall
meet on call, when required, to act during the intervals between meetings of the
Board of Directors with a quorum of not less than three members. Subject to the
limitations set forth in Section 3.1, the Executive Committee shall have and may
exercise all of the authority of the Board of Directors in the management of the
business of the Corporation, except for: (a) those powers which are to be
exercised only with the approval of other committees, as provided in the By-laws
or by the Board of Directors; and (b) the filling of vacancies in the Board of
Directors or in any committee.
The Chairman of the Board shall be the Chairman of the
Executive Committee and the Board of Directors may designate a Vice-Chairman.
The Executive Committee may itself elect a Secretary to keep minutes of its
meetings and, from time to time, if it so desires, may name a member to act as
Secretary and keep the minutes of a particular meeting. The Executive Committee
may fill vacancies among the officers of the Corporation, but any officer
appointed by the Executive Committee may be removed by the Board of Directors.
All actions taken by the Executive Committee shall be reported to the Board of
Directors at the meeting of the Board of Directors following such actions.
Section 3.3 The Audit Committee. The Audit Committee shall
consist of at least two members. The membership of the Audit Committee shall
include either one person, if the Audit Committee is two persons, or a majority
of persons, if the Audit Committee is more than two persons, who are not
officers or relatives of principal executive officers, employees, and
consultants compensated on a continuing basis by the Corporation.
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The Audit Committee shall periodically review with the General
Auditor and with the independent accountants the scope of the auditing
procedures and the policies relating to internal accounting procedures and
controls of the Corporation and its subsidiaries and shall make recommendations
to management in relation thereto. The Audit Committee shall review the public
financial statements of the Corporation with the Comptroller and may call upon
the Comptroller for such other reports and discussions as the Audit committee
may consider desirable. The Audit Committee shall review each annual report on
the consolidated financial statements submitted by the independent accountants
and may call upon them for such other reports and discussions as the Audit
Committee may consider desirable. The Audit Committee shall report its findings,
recommendations and conclusions to the Board of Directors at least once each
year.
The Audit Committee shall consult with management and
recommend to the Board of Directors the independent accountants to be nominated
for appointment by the shareholders each year, and upon appointment, the
independent accountants shall have direct access to the Committee.
Section 3.4 Nominating Committee. The Nominating Committee
shall consist of at least two members. The Nominating Committee shall review and
make recommendations to the Board of Directors with respect to candidates or
directors of the Corporation, review appointments of directors to committees of
the Board of Directors and review and recommend the scope of activities to be
undertaken by the committees of the Board of Directors.
Section 3.5 Other Committees. The Board of Directors may also
appoint other committees from time to time composed wholly of members of the
Board of Directors and may confer such powers upon each of such committees as
the Board of Directors may desire.
ARTICLE IV
Officers
Section 4.1 Election of Officers. The Board of Directors shall
elect at the Annual Meeting a President, one or more Vice Presidents, a
Secretary, and a Treasurer. The Board of Directors may elect a Chairman of the
Board (who shall be a member of the Board of Directors). The Board of Directors
may also elect or appoint a Comptroller, Assistant Secretaries, Assistant
Treasurers, Assistant Comptrollers, and such other officers or agents as the
Board of Directors shall determine necessary or desirable.
Section 4.2 Term of Officer; Resignation; Removal; Vacancies.
Except as otherwise provided in the resolution of the Board of Directors
electing any officer, each officer shall hold office until the Annual Meeting of
the Board of Directors after the annual meeting of stockholders next succeeding
his or her election, and until his or her successor is elected and qualified
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or until his or her earlier resignation or removal. Any officer may resign at
any time upon written notice to the Board of Directors or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. The Board of Directors may
remove any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer, if any, with the Corporation, but
the election of an officer shall not of itself create contractual rights. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board of Directors at any regular or special meeting.
Section 4.3 The Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of Directors.
Section 4.4 The President. The President shall have authority
to execute all contracts and agreements authorized by the Board of Directors and
shall perform such other duties and have other responsibilities and authorities
as shall be prescribed from time to time by the Board of Directors, including
but, not limited to the following:
(a) have general supervision of the entire business of the
Corporation, subject to the control of the Board of
Directors;
(b) have general supervision over the officers of the
Corporation and shall prescribe the duties to be
performed by them in addition to those prescribed by
these By-laws or by the Board of Directors;
(c) see that all orders and resolutions of the Board of
Directors are carried into effect;
(d) from time to time report to the Board of Directors all
matters which the interests of the Corporation may
require to be brought to their notice; and
(e) have the general powers and duties of supervision and
management usually vested in the President of a
corporation.
Section 4.5 The Vice Presidents. The Vice Presidents shall
have authority to execute contracts and agreements authorized by the board of
Directors and shall perform such other duties and have other responsibilities
and authorities as shall be prescribed from time to time by the Board of
Directors. Any Vice President may be designated by the Board of Directors or by
the Chairman of the Board and Chief Executive Officer as an Executive Vice
President, a Senior Vice President or an Administrative Vice President.
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Section 4.6 The Secretary. The Secretary shall give notice of
all meetings of the stockholders and the Board of Directors and shall record all
votes and proceedings of the stockholders and the Board of Directors in a minute
book kept for that purpose. The Secretary shall have custody of the seal of the
Corporation and shall affix it to any instrument requiring the same. The
Secretary shall perform such other duties and have such other responsibilities
and authorities as shall be prescribed form time to time by the Board of
Directors.
Section 4.7 The Assistant Secretaries. The Assistant
Secretaries shall be vested, under the supervision of the Secretary, with all of
the powers of the Secretary and shall, in the absence of the Secretary, perform
all duties of the Secretary required to be performed.
Section 4.8 The Treasurer. The Treasurer shall:
(a) select, subject to change by the Board of Directors,
financially sound depositories in which shall be
deposited all monies and other valuable effects of the
Corporation;
(b) be responsible for the investment and reinvestment of
funds of the Corporation in accordance with general
investment policies determined from time to time by the
Corporation;
(c) see that the Corporation is adequately insured against
liability and that its properties are adequately
insured against loss or destruction and administer such
programs for insurance and self-insurance as may from
time to time be approved by the Corporation;
(d) disburse the funds of the Corporation in the regular
conduct of the Corporation's business or as may be
ordered by the Board of Directors;
(e) ensure that the Corporation is adequately funded at all
times, arranging at the direction of the Board of
Directors, for issuance of debt, equity and other forms
of securities which may be necessary or appropriate;
(f) keep full and accurate books of account;
(g) furnish to the Corporation a fidelity bond in a sum and
containing provisions as the Board of Directors may
require, if at all;
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(h) keep the accounts of stock registered and transferred
in a form and manner and under such regulations as the
Board of Directors may prescribe; and
(i) perform other duties and shall have other
responsibilities and authorities as prescribed form
time to time by the Board of Directors.
Section 4.9 The Assistant Treasurers. The Assistant Treasurers
shall be vested, under the supervision of the Treasurer, with all of the powers
of the Treasurer and shall, in the absence of the Treasurer, perform all duties
of the Treasurer required to be performed. When required by the Board of
Directors, each Assistant Treasurer shall furnish to the Corporation a bond in
an amount and with such conditions as may be satisfactory to the Board of
Directors.
Section 4.10 The Comptroller. The Comptroller shall:
(a) keep full and accurate books of account of all assets,
liabilities, and business transactions of the
Corporation and supervise preparation of the budgets
and adherence to them by the departments of the
Corporation;
(b) establish and maintain such other controls as may be
necessary or desirable to assure adequate protection of
the assets of the Corporation;
(c) have administrative supervision over credit matters in
consultation with the various officers and department
heads concerned with sales on credit terms; and
(d) perform such other duties and have such other
responsibilities and authorities as shall be prescribed
from time to time by the Board of Directors.
Section 4.11 The Assistant Comptrollers. The Assistant
Comptrollers shall be vested, under the supervision of the Comptroller, with all
of the powers of the Comptroller and shall, in the absence of the Comptroller,
perform all duties of the Comptroller required to be performed.
Section 4.12 Other Officers. The other officers, if any, of
the Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these By-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his or her duties.
10
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ARTICLE V
Stock
Section 5.1 Certificates. Every holder of stock of the
Corporation shall be entitled to have such shares of stock represented by share
certificates, which shall be numbered and entered in the records of the
Corporation as they are issued. Such share certificates shall state that the
Corporation is organized under the laws of the State of Texas, the name of the
registered owner represented thereby the number and class of shares, and the
designation of the series, if any, which the certificate represents and the par
value of each share represented, or a statement that the shares are without par
value. Every share certificate shall be signed by the Chairman of the Board, the
President or a Vice President and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed with the corporate seal,
which may be a facsimile, engraved or printed, but where such certificate is
signed by a transfer agent or a registrar, the signature of any such officer
upon such certificate may be a facsimile, engraved or printed. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 5.2 Owners of Shares. The Corporation shall be
entitled to treat the holder of record of any share or shares of the Corporation
as the holder and owner in fact for all purposes. The Corporation shall not be
bound to recognize any equitable or other claim to or right, title or interest
in such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by law.
Section 5.4 Registrar. The Board of Directors or Executive
Committee of the Board may appoint a registrar or registrars to record the
transfer of the Corporation's shares, and so long as the appointment of such
registrar or registrars shall be in effect, no certificate for shares issued
pursuant to Section 5.1 hereof shall be binding upon the Corporation or have any
validity unless countersigned by such registrar or one of such registrars.
Section 5.5 Transfer Agents. Transfers of shares shall be made
only upon the books of the Corporation by the holder in person or by power of
attorney duly executed and filed with the Treasurer, and on surrender of the
11
<PAGE>
certificate or certificates for such shares; but the Board of Directors or
Executive Committee of the Board may appoint one or more suitable banks or trust
companies or agents to effect transfers of shares under such regulations as the
Board of Directors may form time to time prescribe.
Section 5.6 Dividends. Except as otherwise provided by law,
dividends may be declared by the Board of Directors from time to time in cash or
property and shall be payable at such times as the Board of Directors may
determine.
ARTICLE VI
Indemnification
Section 6.1 Indemnification of Directors, Officers and
Employees. The Corporation shall indemnify to the full extent authorized by law
any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director, officer or employee of the Corporation or serves or served at the
request of the Corporation any other enterprise as a director, officer or
employee. For purposes of this By-law, the term "other enterprise" shall
include, but not be limited to, any corporation, limited liability company,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include, but not be limited to, service as a
director, officer or employee of the Corporation which imposes duties on, or
involves services by, such director, officer or employee with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed to
be indemnifyable expenses; and action by a person with respect to an employee
benefit plan which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation.
Section 6.2 Advance Payments. Expenses incurred by an officer
or director in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VI. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Section 6.3 Non-Exclusivity. The indemnification provided by
this Article VI shall not be deemed exclusive of any rights to which those
seeking indemnification may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
12
<PAGE>
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 6.4 Reliance on Provisions. Each person who shall act
as a director, officer, employee or agent of the Corporation shall be deemed to
be doing so in reliance upon the rights of indemnification provided by this
Article VI.
ARTICLE VII
Miscellaneous
Section 7.1 Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 7.2 Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 7.3 Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the Articles of Incorporation or these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Articles of Incorporation or
these By-laws.
Section 7.4 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 7.5 Amendment of By-Laws. These By-laws may be amended
or repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
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Section 7.6 Contributions. The Corporation shall have the
power to make contributions and donations for the public welfare or for
religious, charitable, scientific or educational purposes.
Section 7.7 Governing Law. Reference to "law" in these By-laws
shall mean the laws of the State of Texas.
14
NUMBER SHARES
INCORPORATED IN THE STATE OF TEXAS
ENVIRO-RECOVERY, INC.
250,000,000 AUTHORIZED SHARES OF CAPITAL STOCK
248,000,000 SHARES OF COMMON STOCK
2,000,000 SHARES OF PREFERRED STOCK
COMMON STOCK, PAR VALUE $.0001 PER SHARE
CUSIP 29403m 10 3
THIS CERTIFIES THAT:
IS RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.0001 PAR
VALUE EACH OF ENVIRO-RECOVERY, INC. transferable on the books of the Corporation
in person or by attorney upon surrender of this certificate duly endorsed or
assigned. This certificate and the shares represented hereby are subject to the
laws of the State of Texas, and to the Articles of Incorporation and By-laws of
the Corporation, as now or hereafter amended. This certificate is not valid
until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
SECRETARY SEAL PRESIDENT
COUNTERSIGNED:
MADISON STOCK TRANSFER, INC.
P.O. BOX 290-145
BROOKLYN, NEW YORK 11229
TRANSFER AGENT
Approved by Board of Directors on June 5, 1998
Approved by Stockholders on March 20, 1999
ENVIRO-RECOVERY, INC.
1998 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the Enviro-Recovery, Inc. (the "Company")
1998 Performance Equity Plan (the "Plan") is to enable the Company to offer to
its key employees, officers, directors and consultants whose past, present
and/or potential contributions to the Company and its Subsidiaries have been,
are or will be important to the success of the Company, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board
or any other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par
value $.0001 per share.
(f) "Company" means Enviro-Recovery, Inc., a corporation
organized under the laws of the State of Texas.
(g) "Deferred Stock" means Stock to be received, under an
award made pursuant to Section 9, below, at the end of a specified deferral
period.
(h) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 13.1,
below.
(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last trading day preceding the date of grant of an award
hereunder, as reported by the exchange or Nasdaq, as the case may be; (ii) if
the Common Stock is not listed on a national securities exchange or quoted on
the Nasdaq National Market or Nasdaq SmallCap Market, but is traded in the
over-the-counter market, the closing bid price for the Common Stock on the last
trading day preceding the date of grant of an award hereunder for which such
quotations are reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
<PAGE>
(k) "Holder" means a person who has received an award under
the Plan.
(l) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that
is not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 10,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means theEnviro-Recovery, Inc. 1998 Performance
Equity Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award
made pursuant to Section 8, below, that is subject to restrictions under said
Section 8.
(s) "SAR Value" means the excess of the Fair Market Value (on
the exercise date) of the number of shares for which the Stock Appreciation
Right is exercised over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option and purchase the
relevant shares.
(t) "Stock" means the Common Stock of the Company, par value
$.0001 per share.
(u) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under
Section 6.3, below, as a result of the payment of the exercise price of a Stock
Option and/or the withholding tax related thereto in the form of Stock owned by
the Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible, shall be "non-employee" as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
<PAGE>
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price or other consideration, such as other
securities of the Company or other property, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such
other factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which
Stock and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 12, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 12, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 12,000,000
shares. Shares of Stock under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Stock that
have been granted pursuant to a Stock Option cease to be subject to a Stock
Option, or if any shares of Stock that are subject to any Stock Appreciation
Right, Restricted Stock, Deferred Stock award, Reload Stock Option or Other
Stock-Based Award granted hereunder are forfeited or any such award otherwise
terminates without a payment being made to the Holder in the form of Stock, such
<PAGE>
shares shall again be available for distribution in connection with future
grants and awards under the Plan. Only net shares issued upon a stock-for-stock
exercise (including stock used for withholding taxes) shall be counted against
the number of shares available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
change in the number of outstanding shares of Common Stock of the Company
occurring as the result of a stock split, reverse stock split or stock dividend
on the Common Stock, after the grant of an Award, the Company shall
proportionately adjust the number of shares of Stock subject to the Award and
the price to be paid on exercise of an Award as well as the aggregate number of
shares reserved for issuance under the Plan. Any right to acquire a fractional
share of Stock resulting from any adjustments will be rounded to the nearest
whole share of Stock. If the Company shall be the surviving corporation in any
merger, combination or consolidation, any outstanding Award shall pertain and
apply to the shares of Stock to which the Holder is entitled, without adjustment
for issuance by the Company of any securities in the merger, combination or
consolidation. In the event of a change in the par value of the Common Stock of
the Company which is subject to any outstanding Award, such Award will be deemed
to pertain to the shares of Stock resulting from any such change. To the extent
that the foregoing adjustments relate to the Common Stock of the Company, the
adjustments will be made by the Committee whose determination will be final,
binding and conclusive.
Section 4. Eligibility.
Awards may be made or granted to key employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
Section 5. Required Six-Month Holding Period.
A period of not less than six months must elapse from the date of grant
of an award under the Plan, (i) before any disposition by a Holder of a
derivative security (as defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended) issued under this Plan or (ii) before any
disposition by a Holder of any Stock purchased or granted pursuant to an award
under this Plan.
Section 6. Stock Options.
6.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options and which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
An Incentive Stock Option may be granted only within the ten-year period
commencing from the Effective Date and may only be exercised within ten years of
the date of grant (or five years in the case of an Incentive Stock Option
granted to an optionee ("10% Stockholder") who, at the time of grant, owns Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
6.2 Terms and Conditions. Stock Options granted under the Plan
shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may not be less than 100% of the Fair Market Value of the
Stock as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Stockholder shall not be less than 110%
of the Fair Market Value of the Stock.
(b) Option Term. Subject to the limitations in Section 6.1,
above, the term of each Stock Option shall be fixed by the Committee.
<PAGE>
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 11, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased. Such notice shall be accompanied
by payment in full of the purchase price, which shall be in cash or, unless
otherwise provided in the Agreement, in shares of Stock (including Restricted
Stock and other contingent awards under this Plan) or, partly in cash and partly
in such Stock, or such other means which the Committee determines are consistent
with the Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Nonqualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 9 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none of
the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
(e) Transferability. Except as may be set forth in the
Agreement, no Stock Option shall be transferable by the Holder other than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall be fully
vested and may thereafter be exercised by the Holder for a period of one year
(or such other greater or lesser period as the Committee may specify at the time
of grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(h) Other Termination. Subject to the provisions of Section
14.3, below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the Company
or a Subsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
which has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options become exercisable by a Holder during any calendar year (under all
such plans of the Company and its Parent and Subsidiary) shall not exceed
$100,000.
<PAGE>
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option
shall be confirmed by, and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
6.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
Section 7. Stock Appreciation Rights.
7.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under the
Plan as a means of allowing such participants to exercise their Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
7.2 Terms and Conditions. Stock Appreciation Rights shall be
subject to the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall
terminate and shall no longer be exercisable upon the termination or exercise of
the related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the exercise price of the Option.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Stock available
under for awards under the Plan. The number of shares available for awards under
the Plan will, however, be reduced by the number of shares of Stock acquirable
upon exercise of the Stock Option to which such Stock Appreciation Right
relates.
Section 8. Restricted Stock.
8.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture (the "Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2 Terms and Conditions. Each Restricted Stock award shall be
subject to the following terms and conditions:
<PAGE>
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock shall become vested in accordance with the
terms of the Agreement, subject to Section 11, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested,
subject to Section 11, below. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
Section 9. Deferred Stock.
9.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
9.2 Terms and Conditions. Each Deferred Stock award shall be subject
to the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 9.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a stockholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Stock. The shares of Stock issuable upon
expiration of the Deferral Period shall not be deemed outstanding by the Company
until the expiration of such Deferral Period and the issuance and delivery of
such Stock to the Holder.
<PAGE>
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 11, below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
(the "Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 10. Other Stock-Based Awards.
10.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
10.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3 Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee and
to Section 11, below.
Section 11. Accelerated Vesting and Exercisability.
If (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the
"beneficial owner" (as referred in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities in one or
more transactions, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the board of
directors cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the periods, then, the vesting periods of any and all Options and other
awards granted and outstanding under the Plan shall be accelerated and all such
Options and awards will immediately and entirely vest, and the respective
holders thereof will have the immediate right to purchase and/or receive any and
all Stock subject to such Options and awards on the terms set forth in this Plan
and the respective agreements respecting such Options and awards.
Section 12. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
Section 13. Term of Plan.
13.1 Effective Date. The Plan shall be effective as of June 5, 1998
("Effective Date"), subject to the approval of the Plan by the Company's
stockholders within one year after the Effective Date. Any awards granted under
<PAGE>
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's stockholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
13.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
Section 14. General Provisions.
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 10 days after the Agreement has been delivered to the Holder for
his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 Employees.
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen months after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning on
that date which is six months prior to the date of such Holder's termination of
employment with the Company.
(b) Termination for Cause. The Committee may, in the event a
Holder's employment with the Company or a Subsidiary is terminated for cause,
annul any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six months
prior to the date of such Holder's termination of employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder who
is an employee at any time.
14.4 Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof.
14.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
<PAGE>
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Texas (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended, and (ii) the rules and regulations of any securities
exchange on which the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
14.12 Non-Registered Stock. The shares of Stock to be distributed under
this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
STOCK OPTION AGREEMENT
AGREEMENT made as of the 5th day of May, 1998, by and between
ENVIRO-RECOVERY, INC., a Texas corporation ("Company"), and Steve Schock
("Employee").
WHEREAS, the Company and Employee have entered into an
employment Agreement of even date herewith pursuant to which employee will be
employed by the Company ("Employment Agreement");
WHEREAS, on May 5, 1998 ("Grant Date"), the Board of Directors
of the Company ("Board") authorized the grant to the Employee of an option
("Option") to purchase an aggregate of 5,000,000 shares of the authorized but
unissued Common Stock of the Company ("Common Stock"), conditioned upon the
Employee's acceptance thereof upon the terms and conditions set forth in this
Agreement; and
WHEREAS, the Employee desires to acquire the Option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants the
Employee the Option to purchase all or any part of an aggregate of 5,000,000
shares of Common Stock ("Option Shares") on the terms and conditions set forth
herein.
2. Non-Incentive Stock Option. The Option represented
hereby is not intended to be an Option which qualifies as an "Incentive Stock
Option" under Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE>
3. Exercise Price. The exercise price of the Option is
$.10 per share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option is exercisable
commencing May 5, 1998 and ending on May 5, 2003, at the close of business
("Exercise Period").
5. Effect of Termination of Employment. The termination
of the employment of Employee will have no effect on the exercisability of this
option.
6. Withholding Tax. Not later than the date as of which an
amount first becomes includible in the gross income of the Employee for Federal
income tax purposes with respect to the Option, the Employee shall notify the
Company of the amount and, to the extent required, pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any Federal,
state and local taxes of any kind required by law to be withheld or paid with
respect to such amount. The obligations of the Company under the Plan and
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company.
7. Adjustments. In the event of any recapitalization, dividend
(other than cash dividend), stock split, reverse stock split, or other change in
capital structure of the Company affecting the number of issued shares of Common
Stock, the Company shall proportionally adjust the number and kind of Option
Shares and the exercise price of the Option in order to prevent the dilution or
enlargement of the Employee's proportionate interest in the Company and
Employee's rights hereunder immediately prior to the recapitalization, dividend,
stock split, reverse stock split or other change in the capital structure,
provided that the number of Option Shares shall always be a whole number.
2
<PAGE>
8. Method of Exercise.
8.1. Notice to the Company. The Option shall be
exercised in whole or in part by written notice in substantially the form
attached hereto as Exhibit A directed to the Company at its principal place of
business accompanied by full payment as hereinafter provided of the exercise
price for the number of Option Shares specified in the notice.
8.2. Delivery of Option Shares. The Company
shall deliver a certificate for the Option Shares to the Employee as soon as
practicable after payment therefor.
8.3. Payment of Purchase Price.
8.3.1. Payment. The Employee shall make
payments by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company; the Company shall not be required to
deliver certificates for Option Shares until the Company has confirmed the
receipt of good and available funds in payment of the purchase price thereof.
8.3.2. Payment of Withholding Tax. Any
required withholding tax may be paid in cash in accordance with Sections 8.3.1.
9. Nonassignability. The Option shall not be assignable or
transferable except by will or by the laws of descent and distribution in the
event of the death of the Employee. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
3
<PAGE>
10. Company Representations. The Company hereby
represents and warrants to the Employee that:
(a) the Company, by appropriate and all required
action, is duly authorized to enter into this Agreement and consummate
all of the transactions contemplated hereunder; and
(b) the Option Shares, when issued and delivered by
the Company to the Employee in accordance with the terms and conditions
hereof, will be duly and validly issued and fully paid and
non-assessable.
11. Employee Representations. The Employee hereby
represents and warrants to the Company that:
(a) he is acquiring the Option and shall acquire
the Option Shares for his own account and not with a view towards the
distribution thereof;
(b) he understands that he must bear the economic
risk of the investment in the Option Shares, which cannot be sold by
his unless they are registered under the Securities Act of 1933 ("1933
Act") or an exemption therefrom is available thereunder and that the
Company is under no obligation to register the Option Shares for sale
under the 1933 Act;
(c) in his position with the Company, he has had both
the opportunity to ask questions and receive answers from the officers
and directors of the Company and all persons acting on its behalf
concerning the terms and conditions of the offer made hereunder and to
obtain any additional information to the extent the Company possesses
or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of the information
obtained pursuant to clause (ii) above;
4
<PAGE>
(d) he is aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the
Option Shares in the absence of registration under the 1933 Act or an
exemption therefrom as provided herein; and
(e) The certificates evidencing the Option Shares may
bear the following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated
as of May 5, 1998, a copy of which is on file with
the Company, and may not be trans ferred, pledged or
disposed of except in accordance with the terms and
conditions thereof."
12. Restriction on Transfer of Stock Option Agreement and
Option Shares. Anything in this Agreement to the contrary notwithstanding and in
addition to the provisions of Section 11 of this Agreement, the Employee hereby
agrees that he or she shall not sell, transfer by any means or otherwise dispose
of the Option Shares acquired by him or her without registration under the 1933
Act, or in the event that they are not so registered, unless (i) an exemption
from the 1933 Act registration requirements is available thereunder, and (ii)
the Employee has furnished the Company with notice of such proposed transfer and
the Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt.
13. Miscellaneous.
13.1. Notices. All notices, requests, deliveries,
payments, demands and other communications which are required or permitted to be
given under this Agreement shall be in writing and shall be either delivered
5
<PAGE>
personally or sent by registered or certified mail, or by private courier,
return receipt requested, postage prepaid to the parties at their respective
addresses set forth herein, or to such other address as either shall have
specified by notice in writing to the other. Notice shall be deemed duly given
hereunder when delivered or mailed as provided herein.
13.2. Stockholder Rights. The Employee shall not
have any of the rights of a stockholder with respect to the Option Shares until
such shares have been issued after the due exercise of the Option. Nothing
contained in this Agreement shall be deemed to confer upon Employee any right to
continued employment with the Company or any subsidiary thereof, nor shall it
interfere in any way with the right of the Company to terminate Employee in
accordance with the provisions regarding such termination set forth in
Employee's written agreement with the Company, or if there exists no such
agreement, to terminate Employee at will.
13.3. Waiver. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach.
13.4. Entire Agreement. This Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof. This Agreement may not be amended except by writing executed by
the party to be charged.
13.5. Binding Effect; Successors. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and, to the
extent not prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
13.6. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Wisconsin
(without regard to choice of law provisions).
6
<PAGE>
13.7. Headings. The headings contained herein are
for the sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
ENVIRO-RECOVERY, INC. Address:
2200 EAST LAKESHORE DRIVE
ASHLAND, WISCONSIN 54806
/s/ Scott Mitchen
By:_____________________
Scott Mitchen
EMPLOYEE: Address:
713 ST. ALBANS DRIVE
BOCA RATON, FLORIDA 33486
/s/ Steven Schock
_______________________
Steven Schock
7
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
__________________________
DATE
Enviro-Recovery, Inc.
2200 East Lakeshore Drive
Ashland, Wisconsin 54806
Attention: Secretary or Treasurer
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of May
5, 1998 ("Agreement") with Enviro-Recovery, Inc. ("Company"), I hereby
irrevocably elect to exercise the right to purchase _________ shares of the
Company's common stock ("Common Stock"), which are being purchased for
investment and not for resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
a [personal check] [certified check] [bank check]
|__| payable to the order of "Enviro Recovery, Inc." in the sum
of $_________; and/or
confirmation of wire transfer in the amount of
|_| $_____________.
I hereby represent, warrant to, and agree with, the Company
that:
(i) I have acquired the Option and shall
acquire the Option Shares for my own account and not with a view
towards the distribution thereof;
(ii) I understand that I must bear the economic risk
of the investment in the Option Shares, which cannot be sold by me
unless they are registered under the Securities Act of 1933 ("1933
Act") or an exemption therefrom is available thereunder and that the
Company is under no obligation to register the Option Shares for sale
under the 1933 Act;
(iii) in my position with the Company, I have had
both the opportunity to ask questions and receive answers from the
officers and directors of the Company and all persons act ing on its
behalf concerning the terms and conditions of the offer made hereunder
and to obtain any additional information to the extent the Company
2
<PAGE>
possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;
(iv) I am aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the
Option Shares in the absence of registration under the 1933 Act or an
exemption therefrom as provided herein; and
(v) the certificates evidencing the Option Shares may
bear the following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated
as of May 5, 1998, a copy of which is on file with
the Company, and may not be transferred, pledged or
disposed of except in accordance with the terms and
conditions thereof."
Kindly forward to me my certificate at your earliest
convenience.
Very truly yours,
_____________________________ _________________________________
(Signature) (Address)
_____________________________ _________________________________
(Print Name) (Address)
_________________________________
(Social Security Number)
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the 8th day of March, 1999, by and
between ENVIRO-RECOVERY, INC., a Texas corporation ("Company"), and David
Neitzke ("Employee").
WHEREAS, on 5 June, 1998 ("Grant Date"), pursuant to the terms
and conditions of the Company's 1998 Performance Equity Plan ("Plan"), the Stock
Option Committee("Committee") of the Board of Directors of the Company ("Board")
and/or Board authorized the grant to the Employee of an option ("Option") to
purchase an aggregate of 2,500,000 shares of the authorized but unissued Common
Stock of the Company, $.0001 par value ("Common Stock"),conditioned upon the
Employee's acceptance thereof upon the terms and conditions set forth in this
Agreement and subject to the terms of the Plan; and
WHEREAS, the Employee desires to acquire the Option on
the terms and conditions set forth in this Agreement;
IT IS AGREED:
Grant of Stock Option. The Company hereby grants the
Employee the Option to purchase all or any part of an aggregate of 2,500,000
shares of Common Stock ("Option Shares") on the terms and conditions set forth
herein and subject to the provisions of the Plan.
1. Incentive Stock Option. The Option represented hereby is intended to be an
Option which qualifies as an "Incentive Stock Option" under Section 422 of the
Internal Revenue Code of 1986, as amended. The grant of an Incentive Stock
Option hereunder is subject to approval of the Plan by the stockholders of the
Company, and if the approval is not obtained prior to 5 June 1999, the Incentive
Stock Option will be deemed a non-incentive option.
2. Exercise Price. For options that vest immediately, the exercise price of the
Option is $0.10 per share, the effective market value of the stock on the grant
date, June 5, 1998. For options that vest in the future, the exercise price is
equal to the closing price of the stock on the last trading day before the
options vest.
<PAGE>
3. Exercisability. This Option is exercisable, subject to the terms and
conditions of the Plan, as follows: (i) the right to purchase 2,000,000 of the
Option Shares shall be exercisable immediately, (ii) the right to purchase an
additional 100,000 of the Option Shares shall be exercisable on and after June
5, 1999, (iii) the right to purchase an additional 100,000 of the Option Shares
shall be exercisable on and after June 5, 2000, (iv) the right to purchase the
remaining 100,000 of the Options Shares shall be exercisable on and after June
5, 2001, (v) the right to purchase the remaining 100,000 of the Options Shares
shall be exercisable on or after June 5, 2002, (vi) the right to purchase the
remaining 100,000 of the Options Shares shall be exercisable on or after June 5,
2003. After a portion of the Option becomes exercisable, it shall remain
exercisable, except as otherwise provided herein, until the close of business on
June 4, 2005. ("Exercise Period").
4. Effect of Termination of Employment.
4.1. Termination Due to Death. If Employee's employment by the Company
terminates by reason of death, the portion of the Option, if any, was
exercisable as of the date of death may thereafter be exercised by the legal
representative of the estate or by the legatee of the Employee under the will of
the Employee, for a period of one year from the date of such death or until the
expiration of the Exercise Period, whichever period is shorter. The portion of
the Option, if any, that was not exercisable as of the date of death shall
immediately terminate upon death.
4.2. Termination Due to Disability. If Employee's employment by the Company
terminates by reason of Disability (as such term is defined in the Plan), the
portion of the Option, if any, that was exercisable as of the date of
termination of employment may thereafter be exercised by the Employee for a
period of one year from the date of the termination of employment or until the
expiration of the Exercise Period, whichever period is shorter. The portion of
the Option, if any, that was not exercisable as of the date of the termination
of employment shall immediately terminate upon the termination of employment.
<PAGE>
4.3 Other Termination.
4.4. If Employee's employment is terminated by the Company or the Employee for
any reason other than (i) death or (ii) Disability, the Option, whether or not
then exercisable shall immediately expire on the date of termination.
4.5. The Committee or Board, in the event the Employee's employment is
terminated for cause, may require the Employee to return to the Company the
economic value of any Option Shares purchased hereunder by the Employee within
the six month period prior to the date of termination. In such event, the
Employee hereby agrees to remit to the Company, in cash, an amount equal to the
difference between the Fair Market Value (as such term is defined in the Plan)
of the Option Shares on the date of termination (or the sales price of such
Shares if the Option Shares were sold during such six month period) and the
Exercise Price of such Shares.
4.6. Competing With the Company. In the event that, within 18 months after the
date of termination of Employee's employment with the Company, Employee accepts
employment with any competitor of, or otherwise competes with, the Company, the
Committee or Board, in its sole discretion, may require Employee to return to
the Company the economic value of any Option Shares purchased hereunder by the
Employee within the six month period prior to the date of termination or after
the date of termination. In such event, Employee agrees to remit the economic
value to the Company in accordance with Section 5.3(b).
4.7 Withholding Tax. Not later than the date as of which an amount first
becomes includible in the gross income of the Employee for Federal income tax
purposes with respect to the Option, the Employee shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. The obligations of the Company under the Plan
and pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company.
<PAGE>
5. Adjustments. In the event of any change in the number of outstanding
shares of Common Stock of the Company occurring as the result of a stock split,
reverse stock split or stock dividend on the Common Stock, after the grant of
this Option, the Company shall proportionately adjust the number of shares of
Stock subject to this Option and the price to be paid on exercise of this
Option. Any right to acquire a fractional share of Stock resulting from any
adjustments will be rounded to the nearest whole share of Common Stock. In the
event of a change in the par value of the Common Stock of the Company which is
subject to this Option, this Option will be deemed to pertain to the shares of
Common Stock resulting from any such change. To the extent that the foregoing
adjustments relate to the Common Stock of the Company, the adjustments will be
made by the Committee or Board whose determination will be final, binding and
conclusive.
6. Method of Exercise.
7. Notice to the Company. The Option shall be exercised in whole or in
part by written notice in substantially the form attached hereto as Exhibit A
directed to the Company at its principal place of business accompanied by full
payment as hereinafter provided of the exercise price for the number of Option
Shares specified in the notice.
8. Delivery of Option Shares. The Company shall deliver a certificate for
the Option Shares to the Employee as soon as practicable after payment therefor.
9. Payment of Purchase Price.
9.1. Payment. The Employee shall make cash payments by wire transfer,
certified or bank check or personal check, in each case payable to the order of
the Company; the Company shall not be required to deliver certificates for
Option Shares until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof.
9.2. Payment of Withholding Tax. Any required withholding tax shall
be paid in cash.
.
<PAGE>
10. Nonassignability. The Option shall not be assignable or transferable
except by will or by the laws of descent and distribution in the event of the
death of the Employee. No transfer of the Option by the Employee by will or by
the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and a
copy of the will and such other evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option. 3. 4. Required Holding
Period. This Option and any Common Stock acquired upon its exercise may not be
sold, assigned or otherwise transferred prior to the six month anniversary of
the Grant Date. 5. 6. Company Representations. The Company hereby represents and
warrants to the Employee that: 7.
(a) the Company, by appropriate and all required action, is duly authorized
to enter into this Agreement and consummate all of the transactions
contemplated hereunder; and
(b) the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly
and validly issued and fully paid and non-assessable.
11.1. Employee Representations. The Employee hereby represents and warrants
to the Company that:
2.
(a) he or she is acquiring the Option and shall acquire the Option Shares
for his or her own account and not with a view towards the distribution
thereof;
(b) he or she has received a copy of all reports and documents required to
be filed by the Company with the Commission pursuant to the Exchange Act
within the last 24 months and all reports issued by the Company to its
stockholders and a copy of the Plan in effect as of the date of this
Agreement;
<PAGE>
(c) he or she understands that he or she must bear the economic risk of the
investment in the Option Shares, which cannot be sold by his or her unless
they are registered under the Securities Act of 1933 ("1933 Act") or an
exemption therefrom is available thereunder and that the Company is under
no obligation to register the Option Shares for sale under the 1933 Act;
(d) in his or her position with the Company, he or she has had both the
opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning
the terms and conditions of the offer made hereunder and to obtain any
additional information to the extent the Company possesses or may possess
such information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant to
clause (b)above;
(e) he or she is aware that the Company shall place stop transfer orders
with its transfer agent against the transfer of the Option Shares in the
absence of registration under the 1933 Act or an exemption therefrom as
provided herein;
(f) the certificates evidencing the Option Shares shall bear the following
legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered under
the Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated as of
_____________, 199_, a copy of which is on file with the
Company, and may not be transferred, pledged or disposed of
except in accordance with the terms and conditions thereof."
(g) he or she will notify the Company of the date of sale and dollar amount
received on a sale of any of the Option Shares.
<PAGE>
11. Restriction on Transfer of Stock Option Agreement and Option Shares.
Anything in this Agreement to the contrary notwithstanding and in addition to
the provisions of Section 9 of this Agreement, the Employee hereby agrees that
he or she shall not sell, transfer by any means or otherwise dispose of the
Option Shares acquired by him or her without registration under the 1933 Act, or
in the event that they are not so registered, unless (i) an exemption from the
1933 Act registration requirements is available thereunder, and (ii) the
Employee has furnished the Company with notice of such proposed transfer and the
Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt.
12. Miscellaneous.
12.1. Release. In consideration of the grant of this Option and the right to
purchase the Option Shares under this Option, I surrender all rights to any
previous grant of an option to purchase shares of Common Stock or promise of the
issuance of shares of Common Stock of the Company or promise of other
compensation and release the Company, its officers, directors, employees and
agents, and their respective successors and assigns from any and all actions,
causes of action, suits, debts, dues, sums of money, accounts, reckonings,
bills, covenants, contracts, controversies, agreements, promises, damages,
judgments, executions, claims and demands whatsoever, in law, admiralty or
equity which I, my heirs, executors and administrators ever had, now have or may
have by reason of any previous grant of an option to purchase shares of Common
Stock or promise of the issuance of shares of Common Stock of the Company or
promise of other compensation.
12.2. Notices. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be either delivered personally or sent by
registered or certified mail, or by private courier, return receipt requested,
postage prepaid to the parties at their respective addresses set forth herein,
or to such other address as either shall have specified by notice in writing to
the other. Notice shall be deemed duly given hereunder when delivered or mailed
as provided herein.
12.3. Plan Paramount; Conflicts with Plan. This Agreement and the Option
shall, in all respects, be subject to the terms and conditions of the Plan,
whether or not stated herein. In the event of a conflict between the provisions
of the Plan and the provisions of this Agreement, the provisions of the Plan
shall in all respects be controlling.
<PAGE>
12.4. Stockholder Rights. The Employee shall not have any of the rights of a
stockholder with respect to the Option Shares until such shares have been issued
after the due exercise of the Option. Nothing contained in this Agreement shall
be deemed to confer upon Employee any right to continued employment with the
Company or any subsidiary thereof, nor shall it interfere in any way with the
right of the Company to terminate Employee in accordance with the provisions
regarding such termination set forth in Employee's written agreement with the
Company, or if there exists no such agreement, to terminate Employee at will.
12.5. Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
12.6. Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof. This Agreement may not be
amended except by writing executed by the party to be charged.
12.7. Binding Effect; Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and, to the extent not prohibited herein,
their respective heirs, successors, assigns and representatives. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto and as provided above, their respective heirs, successors,
assigns and representatives any rights, remedies, obligations or liabilities.
12.8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without regard
to choice of law provisions).
12.9. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
ENVIRO-RECOVERY, INC. Address:
2200 East Lake Shore Dr
By: /s/ Steven G. Schock Ashland, WI 54806
--------------------------------
Steven G. Schock
EMPLOYEE: Address:
/s/ David Neitzke
____________________________________ Route 1 Box 264B
Signature
____________________________________ Washburn, WI 54891
David Neitzke
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
________________________
DATE
Enviro-Recovery, Inc.
___________________________
___________________________
___________________________
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of
______________, 199_("Agreement") with Enviro-Recovery, Inc. ("Company"), I
hereby irrevocably elect to exercise the right to purchase _________ shares of
the Company's common stock, par value $.0001 per share ("Common Stock"), which
are being purchased for investment and not for resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
|_| a [personal check] [certified check] [bank check] payable
to the order of "Enviro-Recovery, Inc." in the sum of
$_________; and/or
|_| confirmation of wire transfer in the amount of $________.
I hereby represent, warrant to, and agree with, the Company
that:
(i) I have acquired the Option and shall acquire the Option Shares for my own
account and not with a view towards the distribution thereof;
(ii) I have received a copy of all reports and documents required to be filed by
the Company with the Commission pursuant to the Exchange Act within the last 24
months and all reports issued by the Company to its stockholders;
(iii) I understand that I must bear the economic risk of the investment in the
Option Shares, which cannot be sold by me unless they are registered under the
Securities Act of 1933 ("1933Act") or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the Option
Shares for sale under the 1933 Act;
(iv) in my position with the Company, I have had both the opportunity to ask
questions and receive answers from the officers and directors of the Company and
all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;
(v) I am aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the 1933 Act or an exemption therefrom as provided herein;
(vi) my rights with respect to the Option Shares shall, in all respects, be
subject to the terms and conditions of this Company's 1996 Performance Equity
Plan and the Stock Option Agreement; and
(vii) the certificates evidencing the Option Shares shall bear the following
legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered under
the Securities Act of1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated as
of________________, 199__, a copy of which is on file with
the Company, and may not be transferred, pledged or disposed
of except in accordance with the terms and conditions
thereof."
(ix) I will notify the Company whenever I sell any of the Option Shares and
report to the Company the sale price of the Option Shares.
(x) Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
- - --------------------------------- ----------------------------------
(Signature) (Address)
- - --------------------------------- ----------------------------------
(Print Name) (Address)
-----------------------------------
(Social Security Number)
AGREEMENT
This agreement is made this 20th day of November, 1999, by and between
Enviro-Recovery, Inc. ("Enviro"), having corporate offices at 2200 East Lake
Shore Drive, Ashland, WI 54806, USA, and the companies, FundAmazon, with its
corporate offices at Conj.Eoclides Figoeido, Rua "J" no 15- Belem, Para, Brazil,
tax registration # 83.340.992/001-23 and Eco-Wood, Ltd. ("Eco- Wood") with its
corporate offices at Rua Tancredo Neves 500-Breves Para, Brazil, tax
registration # 02.432.567/001-62.
FundAmazon and Eco-Wood represent the following:
1. FundAmazon, a non-profit Brazilian company, has the sole license
granted by the State of Para and IBAMA ("Para licenses") in existence for
recovering wood in the State of Para from the Amazon River and all bodies of
fresh water connected to or part of the Amazon River ("Amazon River System"). No
companies or organizations other than FundAmazon have been granted a license or
awarded a contract to extract wood from the Amazon River System by any Brazilian
government agency except for Lake Tucurui.
2. FundAmazon has granted rights to recover wood from the Amazon River
System in the state of Para to Eco-Wood, Ltd., a commercial Brazilian company by
contract ("sublicense") and has not granted recovery rights to any other party.
Therefore, Eco-Wood is the only company that can legal recover wood from the
Amazon River in the state of Para.
3. FundAmazon and Eco-Wood have the authority to grant sublicenses to
recover wood from the Amazon River in the State of Para and the licenses are
assignable to third parties.
4. The licenses held by FundAmazon effectively preclude any company
from obtaining a license to extract wood from the Amazon River System and
further that these licenses give FundAmazon the first rights to salvage wood
from the Amazon River.
5. Eco-Wood is currently recovering wood from the activated areas of
the Para licenses. The area of the Amazon River System covered by the activated
area of the licenses include all rivers in the State of Para.
6. The mill operated by Eco-Wood can receive an international
certification equivalent to FSC or Smartwood certification after correcting
minor discrepancies.
7. Based on the density of logs in the Amazon River estimated from
salvage operations, Eco-Wood and FundAmazon project that the areas in the Amazon
River covered by the activated part of their licenses contain from 10 to 60
million cubic meters of logs.
WHEREAS, Enviro has developed a business in processing and selling salvaged
underwater wood.
<PAGE>
AND WHEREAS, Enviro has developed techniques to locate submersed logs and tree
with the help of sidescan sonar.
NOW, the parties hereby agree as follows:
1. The parties shall prepare and execute an acquisition agreement
containing the following terms:
(a) Upon execution of the acquisition agreement, a Brazilian
subsidiary of Enviro ("the Subsidiary") will acquire the
assets of Eco-Wood (including FundAmazon/Eco-Wood contracts,
licenses, license rights, and other intangible assets) and
Eco-Wood will grant the sole sublicense to Enviro-Recovery,
Inc. for recovering wood from the Amazon River, Inc.
(b) Enviro will transfer 3,000,000 shares of common stock
to Eco-Wood using the following schedule
(i) 1,000,000 shares upon execution of
acquisition agreement;
(ii) 1,000,000 shares one year from the date of
the acquisition agreement;
(iii) 1,000,000 shares two years from the date of
the acquisition agreement;
(iv) the stock will be restricted for not less than
one year depending on U.S. securities laws and its issuance
contingent upon Enviro being the only company that can salvage
wood from the Amazon River System in the state of Para from
the date of this agreement until the stock is issued.
(c) As long as Enviro is the only company that can legally
recover wood from the Amazon River System with the exception
of Lake Tucurui, Enviro shall pay Eco-Wood a royalty of 2% of
net payments received for wood retrieved under this license
and sold by the Subsidiary. Royalties shall be paid quarterly
and shall be subject to adjustment based on receipt of payment
and deductions, bad debt, etc.
(d) Options to Eco-Wood for 1,200,000 shares to be granted at
$.20 when a sole license is granted to Enviro for recovery of
logs from the Amazon River System, state of Para and that
FundAmazon provides Enviro with license documentation to
support that Enviro is the only company that can recover wood
from the Amazon River System in the State of Para. FundAmazon
will meet the documentation requirement upon Enviro confirming
that the federal and state licenses or appropriate
legislation, regulations, etc. represent that any competitor
that wants to recover wood from the Amazon River must obtain
the permission of FundAmazon or show that FundAmazon can stop
the competitor by starting a salvage option in the part of the
<PAGE>
river that the competitor applied for recovery rights
("documentation requirements"). The documentation,
validity and support must be acceptable, in terms of content
and length of time, in the judgment of Enviro ("agreeable
license terms") for the Options to be granted. The Options
shall not be granted if the documentation requirements or
agreeable license terms are not met within 18 months of this
agreement. After the options are granted, options for
purchasing 200,000 shares shall vest every 12 months after the
options are granted. The options shall be exercisable for 2
years after the options vest. If another company legally
recovers wood from the Amazon River in the State of Para all
unexercised options expire.
(e) Options to Eco-Wood for 1,200,000 shares to be granted at
$.20 when a sole license is granted to Enviro for removal of
logs from the Amazon River System, state of Amazonia and that
FundAmazon provides Enviro with license documentation to
support that Enviro is the only company that can recover wood
from the Amazon River System in the State of Para. FundAmazon
will meet the documentation requirement upon Enviro confirming
that the federal and state licenses or appropriate
legislation, regulations, etc. represent that any competitor
that wants to recover wood from the Amazon River must obtain
the permission of FundAmazon or shows that FundAmazon can stop
the competitor by starting a salvage operation in the part of
the river that the competitor applied for recovery rights
("documentation requirements"). The documentation, validity
and support must be acceptable, in terms of content of length
of time, in the judgment of Enviro ("agreeable license terms")
for the Options to be granted. The Options shall not be
granted if the documentation requirements or agreeable license
terms are not met within 18 months of this agreement. After
the options are granted, options for purchasing 200,000 shares
shall vest every 12 months after the options are granted. The
options shall be exercisable for 2 years after the options
vest. If another company legally recovers wood from the Amazon
River in the State of Amazonia all unexercised options expire.
(f) Eco-Wood has the right to retain its name and legal
identity.
(g) Eco-Wood shall have the right of first refusal to
reacquire license rights at fair market value if Enviro or,
its assignee, ceased at it's volition for reasons other than
economic, legal or political to recover logs under this
license for a continuous period of six months. This first
right of refusal extends until two years from the date that
the acquisition agreement is executed.
(h) Enviro cannot reassign the license to a non-affiliated 3rd
party during the period when shares in item (b) above are not
issued without the written consent of Eco-Wood which shall not
be withheld unreasonably.
(i) Enviro agrees to meet all requirements as specified in the
licenses for recovering wood from the Amazon River.
<PAGE>
(j) FundAmazon and Eco-Wood agree to keep all required
licenses for wood recovery current and active and to ensure
that the licenses are renewed so there is no period during
which all licenses are not active.
(k) Enviro or its subsidiary have the rights to act as a power
of attorney for FundAmazon or Eco-Wood if FundAmazon or
Eco-Wood are not take the necessary steps to maintain or renew
the licenses to recover wood from the Amazon River System.
2. Both parties shall proceed expeditiously to prepare and to
execute the acquisition agreement.
3. Enviro may terminate or abandon this agreement, at any time,
if
(a) Eco-Wood or FundAmazon is in material default or
breach of the terms hereof or is in default in the due and
timely performance of any of its covenants and agreements
contained herein (including, but not limited to,
(i) the recovery license cannot be transferred
or sublicensed to Enviro,
(ii) the recovery license is not or will not be
exclusive to Enviro other than because Enviro did not act as
required or permitted,
(iii) the recovery license is terminable by any party
or government authority for any reason other than failure to
retrieve logs by Enviro for greater than six months,
(iv) the recovery license is terminated other
than because of a breach or failure to act by Enviro,
(v) the assets of Eco-Wood are not previously
represented,
(vi) Enviro or its subsidiary are prohibited from
conducting business in Brazil,
(vii) Enviro is unable to account for its assets
acquired from Eco-Wood on a consolidated basis as required by
United States law or GAAP through no fault of its own), and
the default cannot be cured within a reasonable time, or
(b) the representations and warranties of Eco-Wood or
FundAmazon given to Enviro are not true and correct at any
time before the entry into an asset purchase agreement.
4. Enviro and Eco-Wood/FundAmazon may terminate this agreement if
an asset purchase agreement is not entered into by July 1, 2000.
<PAGE>
In Witness whereof, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives on the date first written above.
- - ---------------------------- ----------------------------
John Vallosa Gregory J. Grambow
President Chief Executive Officer
FundAmazon Enviro-Recovery, Inc.
- - ---------------------------- ----------------------------
Don Davis Josue Matos
Director and Officer Director and Officer
Eco-Wood Ltd. Eco-Wood Ltd.
TERM NOTE
$1,395,589.73 Milwaukee, Wisconsin
August 5, 1998
FOR VALUE RECEIVED, SUPERIOR WATER-LOGGED LUMBER CO., INC., a Wisconsin
corporation ("Borrower") which is a subsidiary of ENVIRO-RECOVERY, INC., a Texas
corporation, promises to pay to the order of THOMAS A. EVINRUDE ("Lender") the
principal sum of ONE MILLION THREE HUNDRED NINETY-FIVE THOUSAND FIVE HUNDRED
EIGHTY-NINE AND 73/100 DOLLARS ($1,395,589.73). The unpaid principal balance of
this Note shall bear interest at an annual rate of 9%. Interest on the unpaid
principal amount shall be due and payable on the last business day of each
month, commencing on August 31, 1998. The unpaid principal balance and any
accrued but unpaid interest on this Note shall be due in full on August 5, 2000.
Any amount of the principal of, or interest on, the Note not paid
within five (5) days of the date when due (whether at stated maturity, by
acceleration, or otherwise) shall bear interest at an annual rate of 15% from
the due date until such overdue amounts have been paid in full.
All interest and other amounts payable under this Note shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
Lender shall have the right at any time prior to maturity, at his
option, to convert, subject to the terms and provisions of this paragraph, any
portion or all of the outstanding principal amount and accrued but unpaid
interest on this Note into fully paid and non-assessable shares of Common Stock
of Enviro-Recovery, Inc. at the conversion rate of $0.30 per share of such
Common Stock; provided, however, that if Enviro-Recovery, Inc. shall (i) pay a
dividend in shares of its capital stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iv) issue by reclassification of its shares of Common
Stock any other shares, (v) issue rights or warrants to all holders of Common
Stock, (vi) distribute to holders of its Common Stock evidences of its
indebtedness or assets, or (vii) take any similar action, then the conversion
rate in effect immediately prior to such event shall be adjusted so that Lender,
should it exercise its conversion right, shall be entitled to receive the number
of shares of Enviro-Recovery which Lender would have been entitled to receive
after the happening of such event had Lender exercised its conversion right
immediately prior to the happening of such event.
Payments of principal, interest and other amounts due hereunder are to
be made in immediately available funds to Lender, 1853 M-28 East, Marquette,
Michigan 49855, or at such other place as the holder of this Note shall
designate in writing to Borrower.
<PAGE>
This Note may be prepaid, in whole or in part, by Borrower at any time
upon not less than thirty (30) days' prior written notice to Lender, without
penalty or premium, with any prepaid amounts being applied first to any accrued
interest and then to the outstanding principal balance.
Presentment, demand, notice of dishonor and protest are hereby waived.
Borrower hereby agrees (to the extent permitted by law) to pay all fees and
expenses incurred by Lender or any subsequent holder, including the reasonable
fees of counsel, in connection with the protection and enforcement of the rights
of Lender or any subsequent holder under this Note, including without limitation
the collection of any amounts due under this Note and the protection and
enforcement of such rights in any bankruptcy, reorganization or insolvency
proceeding involving Borrower and any and all proceedings after the entry of
judgment hereon.
This Note constitutes the Term Note issued pursuant to the Initial Loan
Agreement executed August 5, 1998 between Lender and Enviro-Recovery, Inc., to
which Initial Loan Agreement reference is hereby made for a statement of the
terms and conditions under which the Term Loan evidenced hereby may be made and
a description of the terms and conditions upon which this Note may be prepaid in
whole or in part. In case an Event of Default, as defined in the Initial Loan
Agreement, shall occur, the entire unpaid principal and accrued interest hereon
may be automatically due and payable or may be declared due and payable as
provided in the Initial Loan Agreement.
SUPERIOR WATER-LOGGED LUMBER CO., INC.
/s/ David Neitzke
By: __________________________
David Neitzke, President
ENVIRO-RECOVERY, INC., the corporate parent of Superior Water-Logged
Lumber Co., Inc., hereby irrevocably and unconditionally guarantees the
obligations of Superior Water-Logged Lumber Co., Inc. under this Note.
ENVIRO-RECOVERY, INC.
/s/ Steven Schock
By: ______________________
Steven Schock, President
2
EXHIBIT 21.1
SUBSIDIARIES OF ENVIRO-RECOVERY, INC.
Name Jurisdiction
---- --------------
Resource Recovery, Inc. Florida
Superior Water Logged Lumber Company, Inc. Wisconsin
Resource Recovery of Wisconsin, Inc. Wisconsin
Viking Marine, Inc. Minnesota
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 102,044
<SECURITIES> 0
<RECEIVABLES> 70,567
<ALLOWANCES> 0
<INVENTORY> 2,133,371
<CURRENT-ASSETS> 2,446,305
<PP&E> 4,020,090
<DEPRECIATION> 477,219
<TOTAL-ASSETS> 6,234,468
<CURRENT-LIABILITIES> 3,196,632
<BONDS> 0
0
0
<COMMON> 7,132
<OTHER-SE> 1,916,994
<TOTAL-LIABILITY-AND-EQUITY> 6,234,468
<SALES> 745,379
<TOTAL-REVENUES> 750,661
<CGS> 1,043,531
<TOTAL-COSTS> 1,030,370
<OTHER-EXPENSES> 65,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456,000
<INCOME-PRETAX> (1,844,640)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,844,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,844,640)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.01)
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