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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18,1999
ENVIRO-CLEAN OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Nevada 0-26433 88-0350797
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
211 Park Avenue, Hicksville, NY 11801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
516-931-4455
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
(a) Cleaning Ideas, Inc.
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On August 3, 1999, Enviro-Clean of America, Inc. (the "Company") entered into
a definitive Agreement and Plan of Merger (the "Merger Agreement") with Cleaning
Ideas, Inc. and its wholly subsidiary Sanivac,Inc., both of which were Texas
corporations (collectively, "Cleaning Ideas"), and Cleaning Ideas Corp., a
Nevada corporation and a wholly owned subsidiary of the Company formed
specifically for the purposes of effecting the instant transaction with Cleaning
Ideas ("CIC") (the Company and CIC are, unless specifically provided to the
contrary, collectively referred to as the "Company"), and Charles Davis, Carolyn
Davis and Randall K. Davis, as the only shareholders of Cleaning Ideas (the
"Shareholders"). The Merger was consummated on August 19, 1999 with the
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transfer of the consideration referred to immediately below.
Pursuant to the Merger Agreement, Cleaning Ideas and Sanivac were merged with
and into CIC, so that upon consummation of the merger (the "Merger"), CIC is the
surviving corporation to the Merger, CIC has succeeded to the business of
Cleaning Ideas and remains a wholly owned subsidiary of the Company. In
consideration of their agreement to the Merger, the Shareholders have received
the following consideration from the Company: (i) assumption by the Company of
$400,000 in aggregate debt owed from Cleaning Ideas to various creditors
unrelated to the shareholders, which debt was paid by the Company at the Closing
of the Merger (the "Closing"), (ii) $500,000 in cash, paid to the Shareholders
at the Closing, (iii) 320,000 shares of the Company's Series D Cumulative
Convertible Preferred Stock, a class of securities created by the Company
specifically in connection with the Merger (the "Series D Shares") and (iv) a
secured promissory note payable to Charles Davis in the principal amount of
$900,000, payable in eight equal quarterly principal payments of $112,500,
bearing interest at a rate of 8.75% per annum and maturing two years from its
date of issuance (the "Davis Note").
The Series D Shares (i) were issued in denominations of $5.00 stated amount
per share, (ii) pay annual dividends at the rate of 8.75%, (iii) are convertible
into shares of the common stock, par value $.001 per share of the Company (the
"Common Stock") at a conversion price of $5.00 per share and (iv) are redeemable
on any quarterly dividend payment date at the option of the Company at a
redemption price equal to the Stated Amount per share being redeemed, plus all
accumulated but unpaid dividends in respect of such redeemed Series D Share.
Repayment of the Davis Note is secured by a security interest in all accounts
receivable, inventory, accounts or proceeds resulting from dispositions of
accounts receivable and inventory of CIC (the "Non-Stock Collateral"), and all
the capital stock of CIC (the "Stock Collateral"). Pursuant to a Pledge and
Security Agreement dated as of August 1, 1999, in the event of a default in any
payment on the Davis Note, and the expiration of any cure periods under the
Davis Note, Charles Davis and Randall Davis may (i) execute upon the Non-Stock
Collateral and/or (ii) elect to repurchase CIC by cancelling the Davis Note
(thereby forgiving the balance of the unpaid principal and interest of the Davis
Note) and delivering to the Company the balance of Series D Shares and shares of
the Company's Common Stock received upon conversion of Series D Shares still
held by Charles Davis and Randall Davis. If Charles Davis and Randall Davis
elect the second option, the effect would be that all amounts paid by the
Company to the Shareholders, including the $400,000 paid in respect of assumed
debt, the $500,000 paid in cash, any amounts of principal and interest paid in
respect of the Note and any Series D Shares or shares of Common Stock received
upon conversion of Series D Shares that have been sold by the Shareholders would
be forfeited and CIC would revert to Charles Davis and Randall Davis.
The Company also entered into a Registration Rights Agreement with Charles
Davis and Randall K. Davis, under which the Company agreed to file a
registration statement with the Securities and Exchange Commission the
("Commission"), registering the shares of Common Stock into which the Series D
Shares are convertible (the "Underlying Shares") under the Securities Act of
1933, as amended (the "Securities Act") under certain circumstances. Under the
Registration Rights Agreement, the Company is obligated, for so long as Charles
Davis or Randall Davis own any Series D Shares or any Underlying Shares, to
include the Underlying Shares in any registration statement
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filed by the Company in respect of shares owned by or issuable to any other
holders of the Company's securities. In addition, if the Company has not
included the Underlying Shares in a registration statement filed with the
Commission on the date that is one year from the Closing Date, Charles Davis and
Randall K. Davis have the right to demand that the Company file a registration
statement registering the Underlying Shares. This demand registration right may
only be exercised once. The Company will be obligated to file such a
registration statement unless the Company, receives an opinion of counsel to the
effect that Charles Davis and Randall Davis may, at that time, sell their
Underlying Shares under Rule 144 promulgated by the Commission under the
Securities Act.
Pursuant to the Merger Agreement, CIC entered into employment agreements with
Randall Davis, as President, and Charles Davis, as Chief Operating Officer, each
for a period of five years beginning as of August 1, 1999 and ending August 1,
2004. Under his employment agreement, Randall Davis is to be paid a base salary
of $50,000 (in addition to his compensation as Vice President of the Company),
with potential bonuses at the discretion of the board of directors of CIC. His
contract provides that if Mr. Davis's employment is terminated by CIC for cause
(as defined in the agreement), he is not entitled to any severance compensation.
In the event of termination without cause, Mr. Davis would be entitled to
severance compensation in an amount ranging from six weeks' pay to twelve
months' pay, depending on his length of service prior to the termination.
Charles Davis's agreement is identical to Randall Davis's agreement, except that
Charles Davis's annual compensation is $15,000.
(b) Superior Chemical & Supply, Inc.
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On August 13th, 1999 the Company entered into a definitive Stock Purchase
Agreement (the "Purchase Agreement") with Superior Chemical & Supply, Inc., a
Kentucky corporation ("Superior"), SCS Acquisition Corp., a Nevada corporation
and a wholly owned subsidiary of the Company formed specifically for the
purposes of effecting the instant transaction with Superior ("SCS") (the Company
and SCS are, unless specifically provided to the contrary, collectively referred
to as the "Company"), and Stephen C. Haynes, as the sole shareholder of Superior
(the "Shareholder"). The closing of the Superior acquisition was consummated on
August 19th, 1999 with the transfer of the consideration referred to
immediately below.
Pursuant to the Purchase Agreement, the Shareholder conveyed all the issued
and outstanding capital stock of Superior to SCS which has succeeded to the
business of Superior and remains a wholly owned subsidiary of the Company. In
consideration of their agreement to the acquisition transaction, the Shareholder
received at Closing: (i) $400,000 in cash and (ii) a secured promissory note
payable to the Shareholder in the principal amount of $1,200,000, payable in
twelve equal quarterly principal payments of $100,000, bearing interest at a
rate of 8% per annum and maturing on August 13, 2002 (the "Haynes Note"). In
addition, the Company has issued 50,000 shares of its Common Stock into escrow
for the benefit of the Shareholder. If SCS meets certain performance goals,
measured by its pre-tax earnings, the Company is obligated to deliver to Mr.
Haynes a maximum of 10,000 shares of Common Stock per year over a five-year
period ending on the fifth anniversary of the Closing Date.
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Repayment of the Haynes Note is secured by a security interest in all accounts
receivable, inventory, accounts or proceeds resulting from dispositions of
accounts receivable and inventory of SCS (the "Collateral"). Pursuant to a
Pledge and Security Agreement dated as of August 1, 1999, in the event of a
default in any payment on the Haynes Note, and the expiration of any cure
periods under the Haynes Note, Mr. Haynes may execute upon the Collateral.
Pursuant to the Merger Agreement, SCS entered into an employment agreement
with Stephen Haynes as President of Superior for a period of five years
beginning as of August 13, 1999 and ending August 13, 2004. Under his
employment agreement, Mr. Haynes is to be paid an annual salary of $40,000. His
contract provides that if Mr. Haynes's employment is terminated by Superior for
cause (as defined in the agreement), he is not entitled to any severance
compensation. In the event of termination without cause, Mr. Haynes would be
entitled to severance compensation in an amount ranging from six weeks' pay to
twelve months' pay, depending on his length of service prior to the termination.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
At the present time, the Company is not in possession of audited financial
information of Cleaning Ideas or Superior. The Merger Agreement for Cleaning
Ideas and the Purchase Agreement for Superior each provide that the respective
companies must provide audited financial information to the Company no later
than thirty days from the respective Closing Dates. The Company will file an
amendment to this Current Report on Form 8-K within sixty days from the date
hereof including the financial statement information required by this Item.
(b) Exhibits
Exhibit Description
Number
2(i) Agreement and Plan of Merger among Enviro-Clean of America, Inc.,
Cleaning Ideas, Inc., Cleaning Ideas Corp., Charles Davis, Carolyn
Davis and Randall Davis dated as of August 1, 1999
2(ii) Pledge and Security Agreement
2(iii) Stock Purchase Agreement among Enviro-Clean of America, Inc., SCS
Acquisition Corp., Superior Chemical & Supply, Inc. and Stephen Haynes
dated as of August 1, 1999
2(iv) Security Agreement
2(v) Employment Agreement with Charles Davis
2(vi) Employment Agreement with Randall Davis
2(vii) Employment Agreement with Stephen Haynes
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4 (i) Certificate of Designation for the Company's Series D Preferred Shares
4 (ii) Registration Rights Agreement among the Company, Charles Davis and
Randall Davis
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVIRO-CLEAN OF AMERICA, INC.
(Registrant)
By: /s/ Richard Kandel
President and CEO
Date: September 1, 1999
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Exhibit 2(i)
Agreement and Plan of Merger
among
Enviro-Clean of America, Inc.,
Cleaning Ideas Corp.,
Cleaning Ideas, Inc. and Subsidiaries
and the Shareholders of Cleaning Ideas, Inc.
dated as of
August 1, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of August 1, 1999
among Enviro-Clean of America, Inc., a Nevada corporation ("Acquiror"), Cleaning
Ideas Corp., a Nevada corporation which is a wholly owned subsidiary of Acquiror
("Acquiror's Subsidiary"), Cleaning Ideas, Inc., a Texas corporation ("Cleaning
Ideas") and Sanivac, Inc. ("Sanivac"), a Texas corporation d/b/a Davis
Manufacturing and a wholly owned subsidiary of Cleaning Ideas (Cleaning Ideas
and Sanivac are sometimes collectively referred to herein as the "Company"), and
the Shareholders of the Company set forth on the signature page hereto (the
"Shareholders").
In consideration of the mutual agreements contained herein, intending to be
legally bound hereby, the parties hereto agree as follows:
WHEREAS, Acquiror, Cleaning Ideas and the Shareholders deem it advisable
that, subject to the terms and conditions set forth in this Agreement, Cleaning
Ideas be merged into Acquiror's Subsidiary (the "Merger") pursuant to the plan
of merger set forth herein and the applicable provisions of the laws of the
States of Nevada and Texas;
WHEREAS, the Boards of Directors of Acquiror and Cleaning Ideas have
determined that it is in the best interests of their respective companies and
their respective stockholders to consummate the business combination transaction
provided for herein in which Cleaning Ideas will, subject to the terms and
conditions set forth herein, merge with and into Acquiror's subsidiary;
WHEREAS, the Merger intended to constitute a plan of reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, and intending to be legally bound, the parties
hereto do hereby agree as follows:
ARTICLE 1
THE MERGER
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1.01 The Merger. Subject to and in accordance with the provisions of this
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Agreement, the General Corporation Law of Nevada (the "Nevada GCL") and the
Business Corporation Act of the state of Texas (the "Texas BCA"), at the
Effective Time (as defined in Section 1.04) Cleaning Ideas shall be merged into
Acquiror's Subsidiary, which shall be the surviving corporation organized under
the Nevada GCL (the "Surviving Corporation"). After the Effective Time, the
Surviving Corporation shall continue its corporate existence as a Nevada
corporation. At the Effective Time,
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the separate corporate existence of Cleaning Ideas and Sanivac shall cease.
1.02 Effect of the Merger. (a) The Articles of Incorporation of
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Acquiror's Subsidiary in effect at the Effective Time of the Merger shall be the
Articles of Incorporation of the Surviving Corporation until such time as they
are altered, amended or repealed in accordance with the provisions thereof and
of applicable law.
(b) The By-Laws of Acquiror's Subsidiary in effect at the Effective Time
of the Merger shall be the By-Laws of the Surviving Corporation until such time
as they are altered, amended or repealed in accordance with the provisions
thereof and of applicable law.
(c) The directors of the Surviving Corporation immediately after the
Effective Time shall be the directors of Acquiror's Subsidiary immediately prior
to the Effective Time, plus Randall K. Davis and each of whom shall serve as
directors of the Surviving Corporation until such time as their terms expire and
their successors are duly elected and qualified.
(d) The officers of the Surviving Corporation immediately after the
Effective Time shall be Richard Kandel, Chairman and the officers of Cleaning
Ideas immediately prior to the Effective Time, each of whom shall serve at the
pleasure of the directors of the Surviving Corporation.
1.03 Further Assurances. If at any time after the Effective Time the
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Surviving Corporation shall determine that any further deeds, assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of Cleaning Ideas acquired or to be
acquired by reason of, or as a result of, the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, Cleaning Ideas and its proper officers and
directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such deeds, assignments
and assurances in law and to do all acts necessary or desirable to vest, perfect
or confirm title to and possession of such property or rights in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of Cleaning Ideas or otherwise to take any and all such action.
1.04 Effective Time. The Merger shall become effective (the "Effective
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Time") upon the later to occur of (i) the filing of Articles of Merger with the
Secretary of State of the State of Nevada in accordance with Section 92A.200 of
the Nevada GCL; and (ii) the filing of Articles of Merger by Cleaning Ideas in
accordance with Article 5.04 of the Texas BCA. The Articles of Merger shall be
delivered to the Secretary of State of the State of Nevada and the Secretary of
State of the State of Texas for filing simultaneously with the Closing referred
to in Section 1.07 of this Agreement.
1.05 Conversion of Securities. At Effective Time each share of Acquiror's
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Subsidiary Common Stock, par value $.01 per share (the "Acquiror's Subsidiary
Common"), issued and outstanding immediately prior to the Effective Time, shall,
by virtue of the Merger and without any
2
<PAGE>
action on the part of the holder thereof, remain unchanged.
(a) Each share of Common Stock, $.01 par value per share, and each share
of Preferred Stock, also $.01 par value per share, of Cleaning Ideas (the
"Company Stock") issued and outstanding immediately prior to the Effective Time,
shall cease to exist and be cancelled.
1.06. Consideration. Subject to the terms and conditions of this
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Agreement, in reliance on the representations, warranties and agreements of the
Shareholders and the Company contained herein, and in consideration of the
assignment, transfer and delivery of the Company Stock for cancellation in
connection with the Merger, Acquiror or Acquiror's Subsidiary will deliver to
the Shareholders at Closing:
(a) The sum of Five Hundred Thousand Dollars ($500,000) in cash, company
check or verified wire transfer, $391,656.40 of which shall be paid to the
holders of Cleaning Ideas Common Stock, and $108,343.60 of which (representing
the redemption value of the Cleaning Ideas Preferred Stock) shall be paid to the
holders of Cleaning Ideas Preferred Stock;
(b) Three Hundred and Twenty Thousand (320,000) shares of Acquiror's
Series D Preferred Stock, par value $.001 per share, having such terms as are
set forth in the Certificate of Designation attached as Exhibit A to this
Agreement (the "Preferred Stock"). The Preferred Stock shall be subject to the
Registration Rights Agreement in the form attached hereto as Exhibit B.
(c) A secured promissory note in the amount of Nine Hundred Thousand
Dollars ($900,000) maturing two years from the Closing Date with interest at
the prime rate of Chase Manhattan Bank as published on the Business Day
immediately preceding the Closing Date (the "Secured Note"). Under the Secured
Note, Acquiror or Acquiror's Subsidiary will make quarterly principal payments
of $112,500 to the Shareholders and will pay interest on the Secured Note,
quarterly in arrears. The form of Secured Note is attached hereto as Exhibit C.
Acquiror and the Shareholders are entering into a Pledge and Security
Agreement of even date herewith (the "Pledge Agreement") regarding the
collateral for the secured Note. Pursuant to the Pledge Agreement, in the event
that Acquiror or Acquiror's Subsidiary fails to make any scheduled payment of
interest or principal on the Secured Note (after the expiration of any
applicable cure periods), the Shareholders shall, in their sole discretion, have
the right to purchase all of the outstanding capital stock or all of the assets
of Acquiror's Subsidiary for (i) an amount equal to the value of the principal
balance of the Secured Note, plus (ii) delivery for cancellation of all shares
of Preferred Stock and all shares of Common Stock that have been received by the
Shareholders upon conversion of the Preferred Stock.
(d) Acquiror shall assume indebtedness of the Company aggregating Four
Hundred Thousand Dollars ($400,000), as set forth in Schedule 1.02 (d) of this
Agreement, and shall, at the Closing, satisfy each of the obligations set forth
on such Schedule 1.02(d) through the indicated wire transfers.
3
<PAGE>
(e) Resale of Acquiror's Common Stock. If Acquiror shall file with the
Securities and Exchange Commission an applicable shelf registration statement
that will permit any selling shareholders to resell any securities of Acquiror,
Acquiror shall include in such registration statement, the shares of Common
Stock reserved for issuance under the Preferred Stock (the "Underlying Shares")
commencing upon the termination of the Lock Up Agreement of even date herewith
between Acquiror and the Shareholders and continuing until the later of (i) such
time as the Shareholders have sold all such shares of Acquiror's Common Stock or
(ii) three years from the date of this Agreement.
(f) At the Closing the Acquiror's Subsidiary shall deliver to the
Shareholders the consideration set forth in Section 1.02 above. Simultaneously
with the delivery of the consideration set forth in Section 1.02 by the
Acquiror's Subsidiary, the Shareholders shall deliver to the Acquiror Subsidiary
the certificates representing the Company Stock, together with stock powers duly
endorsed for transfer so that such shares of Company Stock can be cancelled in
connection with the Merger.
1.07. Escrow of Company Shares; Creation of Security Interest; Pledge
---------------------------------------------------------------
and Security Agreement.
- ----------------------
(a) Acquiror and Acquiror's Subsidiary hereby grant to the Shareholders a
first priority security interest in the common stock of the Acquiror's
Subsidiary (the "Acquiror Subsidiary Stock"), and pledge such Acquiror
Subsidiary Stock to and for the benefit of the Shareholders, to secure the
obligations of Acquiror and Acquiror's Subsidiary pursuant to Section 1.06(c) of
this Agreement (the "Secured Obligations"). Acquiror, Acquiror's Subsidiary,
the Company and the Shareholders covenant and agree to enter into a pledge and
security agreement to provide for the rights of all parties relative to the
security interest created hereby, the treatment of the Acquiror Subsidiary
Stock and providing for the release of the Acquiror Subsidiary Stock to
Acquiror or Acquiror's Subsidiary upon satisfaction of the Secured Obligations
(the "Pledge and Security Agreement"). The Company and the Shareholders agree
that execution and delivery of the Security and Pledge Agreement shall be a
condition precedent to the Merger, the release of the funds in 1.06(a) and the
issuance and delivery of the Preferred Stock.
1.08. Closing. The Closing of the transactions contemplated by this
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Agreement will take place at the offices of Akin, Gump, Strauss, Hauer & Feld,
LLP, counsel to the Company and Shareholders, at 300 Convent, Suite 1500, San
Antonio, Texas 78205, at 10:00 a.m. on August 6, 1999 except that any party
hereto may, by giving two days' written notice to all other parties hereto,
defer the Closing to a date not later than August 31, 1999 in order that such
party may satisfy any of the conditions required to be satisfied at or prior to
the Closing. Upon consent of all parties, the Closing may be conducted through
exchange of all relevant documents by mail or other courier.
(a) At the Closing, the Shareholders and the Company will deliver to
Acquiror or Acquiror's Subsidiary all other previously undelivered documents
required to be delivered by the Shareholders or the Company or any of its
officers or directors at or prior to the closing in connection with the
transactions contemplated by this Agreement.
4
<PAGE>
(b) At the Closing, there will be delivered to the Shareholders and the
Company by Acquiror or Acquiror's Subsidiary, all previously undelivered
documents required to be delivered by Acquiror or Acquiror's Subsidiary to the
Shareholders or the Company at or prior to the Closing.
1.09. Further Assurances. After the Closing, the Shareholders and the
------------------
Company shall from time to time, at the request of Acquiror or Acquiror's
Subsidiary and without further cost or expense to Acquiror, execute and deliver
such other instruments of conveyance and transfer and take such other actions as
Acquiror or Acquiror's Subsidiary may reasonably request, in order to more
effectively consummate the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
---------------
2.01. Confidentiality. Each party hereto will hold and will cause its
---------------
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all documents and information concerning
the other party furnished it by such other party or its representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
the party to which it was furnished, (ii) in the public domain through no fault
of such party, or (iii) later lawfully acquired from other sources by the party
to which it was furnished), and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such information shall not be used to the
detriment of, or in relation to any investment in, the other party and all such
documents (including copies thereof) shall be returned to the other party
immediately upon the written request of such other party. Each party shall be
deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
2.02. Definitions. For all purposes of this Agreement, except as otherwise
-----------
expressly provided or unless the context otherwise requires:
"Acquiror" means Enviro-Clean of American, Inc., a corporation formed under
the laws of Nevada.
"Acquiror's Subsidiary" means Cleaning Ideas Corp., a corporation formed
under the laws of Nevada.
"Balance Sheet" means the unaudited consolidated balance sheet of the
Company as of July 31, 1999, referred to in Section 3.06 of this Agreement.
5
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or date that
banks are required or authorized to close in the states of New York or Texas.
"Closing" means the closing referred to in Section 1.08 of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Cleaning Ideas, Inc., a corporation formed under the laws
of Texas and its wholly owned subsidiary Sanivac, Inc. d/b/a Davis
Manufacturing, a corporation formed under the laws of Texas.
"Disclosure Schedule" means the document delivered by the Shareholders and
the Company to the Acquiror simultaneously with the execution hereof containing
the information required to be included therein pursuant to this Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Shareholder" means the Shareholders of the Company whose names are set
forth on the signature page hereto, who, in the aggregate, own beneficially and
of record all issued and outstanding capital stock of the Company.
Certain terms used in this Agreement are defined in the section used. The
plural of any defined term shall have a meaning correlative to such defined
term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND SHAREHOLDERS
-------------------------------
Except as otherwise set forth in the Disclosure Schedule, the Company and
the Shareholders hereby represent, covenant and warrant to Acquiror as follows:
3.01. Corporate Organization; Etc. Both Cleaning Ideas and Sanivac are
----------------------------
corporations duly organized, validly existing and in good standing under the
laws of the State of Texas and each has
6
<PAGE>
full corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns and is duly qualified
or licensed to do business in the jurisdiction of Texas, which is the only
jurisdiction in which qualification or licensing is required The copies of the
Certificate of Incorporation and By-Laws of Cleaning Ideas and Sanivac
heretofore delivered to Acquiror are complete and correct copies of such
instruments as are currently in effect.
3.02. Capitalization of the Company. As of the date of this Agreement, the
-----------------------------
authorized capital stock of Cleaning Ideas consists of One Million (1,000,000)
shares of common stock, $0.01 par value per share, of Cleaning Ideas of which
One Hundred and Two Thousand (102,000) shares are issued and outstanding and no
shares are held in the treasury of Cleaning Ideas and 1,000,000 shares of
Preferred Stock, par value $0.01, of which 270,859 shares are issued and
outstanding and 146,410 shares are held as treasury stock. Sanivac is authorized
to issue One Million (1,000,000) shares of common stock ($0.01) par value, of
which 100,000 shares are issued and outstanding and no shares are held in the
treasury of Sanivac. All issued and outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable and are owned
beneficially and of record by the Shareholders, free and clear of any lien,
charge, encumbrance, option or purchase right, whatsoever.
As of the date of this Agreement, there are no (i) securities convertible
into or exchangeable for the Company capital stock; (ii) options, warrants or
other rights to purchase or subscribe to capital stock of the Company or
securities convertible into or exchangeable for capital stock of the Company; or
(iii) contracts, commitments, agreements, understandings or arrangements of any
kind oral or written relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.
3.03. No Affiliates. Other than the ownership of Sanivac by Cleaning
-------------
Ideas, the Company does not own, directly or indirectly, any capital stock or
other equity securities of any corporation, partnership trust, joint venture or
other entity nor have any direct or indirect equity or ownership interest in any
business.
3.04. Authorization, Etc. The Shareholders have full legal competence and
------------------
the Company has full corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby. The Board of Directors
and Shareholders of the Company have taken all action required by law, the
Company's Certificate of Incorporation, the Company By-Laws or otherwise to be
taken by them to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of the Shareholders and the Company enforceable in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditor's rights, (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought, and (iii) enforceability of certain
sections of this Agreement may be subject to limitations of public policy under
Federal and State securities laws.
7
<PAGE>
3.05. No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated hereby will violate any
provision of the Certificate of Incorporation or By-Laws of the Company or
violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation pursuant to, or
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of the Company under, any agreement or
commitment to which the Company or any Shareholder is a party or by which the
Company or any Shareholder is bound, or to which the property of the Company is
subject, or violates any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
3.06. Financial Statements; No Undisclosed Liabilities. Attached hereto as
------------------------------------------------
Schedule 3.06 are unaudited balance sheets and statements of income for the
Company as of and for the fiscal years ended September 30, 1997 and 1998 and as
of and for the ten months ended July 31, 1999. Said financial statements have
been prepared in accordance with the Company's ordinary accounting practices
applied on a consistent basis throughout the periods covered thereby and present
fairly the financial condition of the Company as of such dates and the results
of operations of the Company for such periods.
The Company has no liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which were not fully reflected or reserved
against in the financial statements, except for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since the date thereof which do not, in the aggregate, exceed $50,000, and the
reserves for liabilities and contingencies reflected in the financial statements
are adequate, appropriate and reasonable.
3.07. Accounts Receivable. All accounts receivable of the Company, whether
-------------------
reflected in the Balance Sheet or otherwise, represent sales actually made in
the ordinary course of business and have been recorded in accordance with the
Company's accounting principles and practices, consistently applied as to all
periods.
3.08. Inventory. All inventory of the Company, whether reflected in the
---------
Balance Sheet or otherwise, consists of a quality and quality usable and salable
in the ordinary houe of business, except for items of obsolete materials and
materials of below-standard quality, all of which have been written down in the
Balance Sheet to realizable market value or for which adequate reserves have
been provided therein. The quantities of all inventory of the Company are
reasonable and warranted in the current circumstances of its business.
3.09. Interim Operations. Since the date of the Balance Sheet, the
------------------
business of the Company has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Balance Sheet, there have
not been any material adverse change in the financial condition, assets or
results of operations of the Company. Since such date such assets have not been
affected in any way as a result of flood, fire, explosion or other casualty
(whether or not covered by
8
<PAGE>
insurance).
3.10. Title to Properties; Encumbrances. The Company owns all the
---------------------------------
properties and assets which it purports to own (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the Balance Sheet, and all the properties and assets
purchased by the Company since the date of the Balance Sheet. All properties
and assets reflected in the Balance Sheet are free and clear of all title
defects or objections, liens, claims, charges, security interests or other
encumbrances of any material nature , including, without limitation leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest retention arrangements, and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations or limitations of any material nature
except, with respect to all such properties and assets, (a) liens shown on the
Balance Sheet as securing specified liabilities or obligations and liens
incurred in connection with the purchase of property and/or assets, if such
purchase was effected after the date of the Balance Sheet, with respect to which
no default exists; (b) minor imperfections of title, if any, none of which are
substantial in amount, materially detract from the value or impair the use of
the property subject thereto, or impair the operations of the Company ; and (c)
liens for current taxes not yet due and payable. The rights, properties and
other assets presently owned, leased or licensed by the Company and described
elsewhere in this Agreement include all rights, properties and other assets
necessary to permit the Company to conduct its business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
3.11. Legal Compliance. To the Company's and Shareholders' knowledge, the
----------------
Company has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), except where the failure to comply would not have a material adverse
effect upon the financial condition of the Company taken as a whole.
3.12. Plant and Equipment. The Company has not received notification that
-------------------
it is in violation of any applicable building, zoning, anti-pollution, health or
other law, ordinance or regulation in respect of its plants or structures or
their operations and no such violation to the Company's and Shareholders'
knowledge exists.
3.13. Leases. Section 3.13 of the Disclosure Schedule contains an accurate
------
and complete description of the terms of all leases pursuant to which the
Company leases real or personal property. All such leases are valid, binding and
enforceable in accordance with their terms, and are in full force and effect;
there are no existing defaults by the Company; no event of default has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default thereunder; and all
lessors under such leases have consented (where such consent is necessary) to
the consummation of the transactions contemplated by this Agreement without
requiring modification in the rights or obligations of the lessee under such
leases. Executed counterpart copies of all consents referred to in the preceding
sentence will be delivered to Acquiror prior to or at the Closing. The Company
and Shareholders have not received any written or oral notice to the effect that
any leases will not be renewed or would only be renewed at a substantially
9
<PAGE>
higher rent than otherwise provided in such lease.
3.14. Bank Accounts. Section 3.14 of the Disclosure Schedule sets forth
-------------
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature. At the Closing, the Company will
deliver to Acquiror copies of all records, including all signature or
authorization cards, pertaining to such bank accounts.
3.15. Taxes. The Company has duly filed all tax reports and returns
-----
required to be filed by it and has duly paid all taxes and other charges due or
claimed to be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales or payrolls of any of them); the reserves for taxes
reflected in the Balance Sheet are adequate; and there are no tax liens upon any
property or assets of the Company except liens for current taxes not yet due.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal income tax return for any period. Copies of
all income tax returns for the Company in respect of all years not barred by the
statute of limitations have heretofore been delivered by the Company to Acquiror
and all such returns are listed in Section 3.15(b) of the Disclosure Schedule.
The Company has not, with regard to any assets or property held, acquired or to
be acquired by any of them, filed a consent to the application of Section
341(f)(2) of the Code.
3.16. Contracts and Commitments. The Company and Shareholders represent
-------------------------
that:
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of the Company continue for
a period of more than twelve (12) months or are in excess of the normal,
ordinary and usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than twelve
(12) months or will result in any loss to the Company upon completion or
performance thereof, after allowance for direct distribution expenses nor
are there any outstanding contracts, bids or sales or service proposals
quoting prices which will not result in a normal profit;
(d) The Company has no outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by it on notice of not
longer than 30 days and without liability, penalty or premium;
(e) The Company has no employment agreement, or any other agreement
that contains any severance, or termination liabilities or obligations;
10
<PAGE>
(f) The Company has no collective bargaining or union contracts or
agreements;
(g) To the knowledge of the Company and Shareholders, the Company is
not in default, nor is there any basis for any valid claim of default,
under any contract made or obligation owed by it;
(h) The Company has no employees other than the Shareholders to whom
it is paying compensation at the annual rate of more than $75,000 for
services rendered;
(i) The Company is not restricted by agreement from carrying on its
business anywhere in the world;
(j) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or
otherwise), as guarantor, surety, co-signer, endorser, comaker, indemnitor
or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity.
3.17. Agreements in Full Force and Effect. All contracts, agreements,
-----------------------------------
plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof have been heretofore
made available to Acquiror.
3.18. Insurance. Section 3.18 of the Disclosure Schedule contains an
---------
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the
Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. To the knowledge of the Company and
Shareholders, such policies are sufficient for compliance with all requirements
of law and of all agreements to which the Company is a party; are valid,
outstanding and enforceable policies; will remain in full force and effect
through the respective dates set forth in Section 3.18(a) of the Disclosure
Schedule without the payment of additional premiums; and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. The Company has not been refused any insurance with respect
to its assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last twelve months.
3.19. Labor Difficulties. (a) To the Company's and Shareholder's
------------------
knowledge, the Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice which would
have a material adverse effect on the Company; (b) there is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any analogous state body; (c) there is no labor strike,
dispute, slowdown or stoppage actually pending or threatened against or
affecting the Company; (d) no representation question exists respecting the
employees of the Company; (e) no grievance nor any arbitration proceeding
11
<PAGE>
arising out of or under collective bargaining agreements is pending and no claim
therefor exists; (f) no collective bargaining agreement which is binding on the
Company restricts it from relocating or closing any of their operations; and (g)
the Company has not experienced any work stoppage or other labor difficulty in
the past twenty-four months.
3.20. Fringe Benefit Plans. The Company has no bonus, deferred
---------------------
compensation, pension, profit-sharing, retirement, stock purchase, stock option
or any other fringe benefit plan, arrangement or practice, whether formal or
informal other than as set forth in Section 3.20 of the Disclosure Schedule. The
Company has no commitments, whether formal or informal and whether legally
binding or not, to create any such plan or arrangement.
3.21. Litigation. There is no action, suit, inquiry, proceeding or
----------
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the Company's and
Shareholder's knowledge, threatened against or involving the Company , or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by the Company or the Shareholders pursuant to this Agreement or in
connection with the transactions contemplated hereby. The Company is not
subject to any judgment, order or decree entered in any lawsuit or proceeding
which would have a material adverse effect on its business practices or on its
ability to acquire any property or conduct its business in any area.
3.22. No Condemnation or Expropriation. Neither the whole nor any portion
--------------------------------
of the leaseholds or any other assets of the Company is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor has any such condemnation, expropriation or taking been proposed.
3.23. Consents and Approvals of Governmental Authorities. To the Company's
--------------------------------------------------
and Shareholder's knowledge, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
3.24. Consents. No consent of any person is necessary to the consummation
--------
of the transactions contemplated hereby, including, without limitation, consents
from parties to loans, contracts, leases or other agreements and consents from
governmental agencies, whether federal, state or local.
3.25. Compliance with Law. To the Company's and Shareholder's knowledge,
-------------------
the operations of the Company have been conducted in compliance with all
applicable laws, regulations and other requirements of all national governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company, including, without
limitation, all such laws, regulations and requirements relating to antitrust,
consumer protection, currency exchange, equal opportunity, health, occupational
safety, pension, securities and trading-with-the-enemy matters, the violation of
which would have a material adverse effect. The
12
<PAGE>
Company has not received any notification of any asserted present or past
failure by the Company to comply with such laws, rules or regulations.
3.26. Environmental Protection. To the Company's and Shareholder's
------------------------
knowledge, the Company has obtained all permits, licenses and other
authorizations which are required under federal, state and local laws relating
to pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes.
To the Company's and Shareholder's knowledge, the Company is in material
compliance with all terms and conditions of the required permits, licenses and
authorizations, and is also in material compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. The Company and Shareholders are not aware
of, nor has the Company or any Shareholder received notice of, any past, present
or future events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste.
3.27. Compliance with ERISA. To the Company's and Shareholder's knowledge,
---------------------
at the Closing the Company will have no liabilities under ERISA.
3.28. Brokers and Finders. Neither the Shareholders, the Company nor any
-------------------
of its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
3.29. Absence of Questionable Payments. To the Company's and Shareholder's
--------------------------------
knowledge, neither the Company nor any director, officer, agent, employee or
other person acting on behalf of the Company, has used any corporate or other
funds for unlawful contributions, payments, gifts, or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others or established or maintained any unlawful or unrecorded funds in
violation of Section 30A of the Securities Exchange Act. To the Company's and
Shareholder's knowledge, the Company nor any current director, officer, agent,
employee or other person acting on behalf of the Company has accepted or
received any unlawful contributions, payments, gifts, or expenditures.
3.30. Personnel. Section 3.30 of the Disclosure Schedule sets forth a
---------
true and complete list of:
13
<PAGE>
(a) the names and current salaries of all directors and elected and
appointed officers of each of the Company, the number of shares of the Company
Stock owned beneficially or of record, or both, by each such person and the
family relationships, if any, among such persons;
(b) the wage rates for non-salaried and nonexecutive salaried employees
of the Company by classification, and all labor union contracts if any; and
(c) all group insurance programs in effect for employees of the Company.
The Company is not in default with respect to any of its obligations referred to
in the preceding sentence.
3.31. Insider Interests. No officer or director of the Company has any
-----------------
material interest in any property, real or personal, tangible or intangible,
including without limitation, inventions, patents, trademarks or trade names,
used in or pertaining to the business of the Company or any Company Subsidiary.
3.32. Products Liability. To the Company's and Shareholder's knowledge,
------------------
there is no action, suit, inquiry, proceeding or investigation by or before any
court or governmental or other regulatory or administrative agency or commission
pending or threatened against or involving the Company relating to any product
alleged to have been manufactured or sold by the Company and alleged to have
been defective, or improperly designed or manufactured, nor is there any valid
basis for any such action, proceeding or investigation.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
------------------------------------------
AGREEMENTS OF THE SHAREHOLDERS
------------------------------
Each of the Shareholders hereby represents and warrants to, and covenants
and agrees with, the Acquiror, as of the date of the Closing, that:
4.01. Investment. (a) Such Shareholder has received such information
----------
relating to the business and affairs of the Acquiror which such Shareholder has
requested, and all additional information which such Shareholder has considered
necessary to verify the accuracy of the information so received. Such
Shareholder has had the opportunity to ask questions of and receive answers from
the Acquiror concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, such Shareholder
is familiar with the operations, business plans and financial condition of the
Acquiror.
(b) Such Shareholder understands that the Acquiror proposes to issue and
deliver to such Shareholder, shares of Preferred Stock (and, upon conversion of
any shares of Preferred Stock, Underlying Shares of Common Stock) pursuant to
this Agreement without registration under the
14
<PAGE>
Securities Act or the laws of any state in reliance upon various exemptions from
registration contained in such laws and regulations; that for purposes of
determining the availability of the applicable exemptions from registration the
Acquiror will rely upon the representations, warranties, covenants and
agreements contained herein. Such Shareholder is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
(c) Such Shareholder understands that, under existing rules of the
Securities and Exchange Commission, such Shareholder may be unable to sell his
shares of Preferred Stock and/or Underlying Shares except to the extent that
such shares of Preferred Stock or Underlying Shares may be sold (A) pursuant to
an effective registration statement covering such shares pursuant to the
Securities Act or (B) in a bona fide private placement to a purchaser who shall
be subject to the same restrictions on any resale or (C) subject to the
restrictions contained in Rule 144 under the Securities Act ("Rule 144"). Such
Shareholder understands that the Acquiror is only under a limited obligation to
effect a registration of the Shareholder's shares of Preferred Stock under the
Securities Act in the event Acquiror effects such a registration statement in
respect of other securities of Acquiror.
(d) Such Shareholder is familiar with the provisions of Rule 144 and the
limitations upon the availability and applicability of such Rule.
(e) Such Shareholder is a sophisticated investor familiar with the type
of risks inherent in the acquisition of restricted securities such as the shares
of Preferred Stock and/or Underlying Shares and his financial position is such
that he can afford to retain his shares of Preferred Stock and/or Underlying
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(f) Such Shareholder is acquiring his shares of Preferred Stock and/or
Underlying Shares for his account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
ACQUIROR AND ACQUIROR'S SUBSIDIARY
----------------------------------
Acquiror and Acquiror's Subsidiary, jointly and severally, represent and
warrant to the Company as follows:
5.01. Corporate Organization; Etc. Acquiror and Acquiror's Subsidiary
---------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the State of Nevada. All the issued and outstanding shares of capital
stock of Acquiror's Subsidiary have been duly authorized by all necessary
corporation action and are validly issued, fully paid and nonassessable and are
15
<PAGE>
owned by Acquiror. When issued and delivered to the Shareholders in conformance
with the terms and conditions of this Agreement and the Certificate of
Designation, the Preferred Stock shall be validly issued, fully paid and non-
assessable.
5.02. Authorization; Etc. Acquiror and Acquiror's Subsidiary have full
-------------------
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Boards of Directors of Acquiror and
Acquiror's Subsidiary have taken all action required by law, their respective
Certificates of Incorporation and By-Laws or otherwise to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of Acquiror and
Acquiror's Subsidiary enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.03. No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the respective Certificate of Incorporation or By-Laws
of Acquiror or Acquiror's Subsidiary, or violate, or be in conflict with, or
constitute a default under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, any agreement or commitment to which Acquiror or
Acquiror's Subsidiary is a party or by which Acquiror or Acquiror's Subsidiary
is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
ARTICLE VI
COVENANTS OF THE SHAREHOLDERS AND THE COMPANY
---------------------------------------------
The Shareholders and the Company hereby covenant and agree with Acquiror:
6.01. Full Access. The Shareholders shall cause the Company to, and
-----------
the Company shall, afford to Acquiror, its counsel, accountants and other
representatives full access to the plants, offices, warehouses, properties,
books and records of the Company in order that Acquiror may have full
opportunity to make such investigations as it shall desire to make of the
affairs of the Company; and the Company will cause its officers and accountants
to furnish such additional financial and operating data and other information as
Acquiror shall from time to time request; provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the businesses of the Company.
6.02. Consents of Company Lenders, Etc. The Shareholders shall cause
--------------------------------
the Company to, and the Company shall, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents necessary, as
reasonably requested by counsel to the Acquiror for the consummation of the
transactions contemplated hereby and will provide to Acquiror copies of each
16
<PAGE>
such consent promptly after it is obtained.
6.03. Supplements to Disclosure Schedule. From time to time prior to
----------------------------------
the Closing, the Company will promptly supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedule. No supplement or amendment of the
Disclosure Schedule made pursuant to this section shall be deemed to cure any
breach of any representation of or warranty made in this Agreement unless
Acquiror specifically agrees thereto in writing.
6.04. Other Transactions. Neither the Company nor its Board of
------------------
Directors shall enter into any discussions concerning, or approve or recommend
to the holders of any shares of its capital stock, any merger, consolidation,
disposition of all or substantially all of its business, properties or assets
(other than pursuant to this Agreement), any tender offer, acquisition or other
business combination, or proposal therefor, or furnish or cause to be furnished
any information concerning the business, properties or assets of the Company to
any party in connection with any tender offer or other transaction involving the
acquisition of the Company or all or any substantial part of its assets by any
person other than Acquiror or Acquiror's Subsidiary.
6.05. Covenant to Satisfy Conditions. The Shareholders and the Company
------------------------------
will use their best efforts to ensure that the conditions set forth in Articles
VII and VIII hereof are satisfied, insofar as such matters are within the
control of any of them.
6.06. Certificates. At the Closing the Company will furnish Acquiror
------------
with such certificates of its officers and others to evidence compliance with
the covenants set forth in this Article VI as may be reasonably requested by
Acquiror.
6.07. Resignation of Directors. Immediately prior to the Closing, each
------------------------
member of the Board of Directors of the Company so requested by Acquiror shall
have delivered to Acquiror a written resignation from such Board of Directors
effective as of the Closing Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE
------------------------------------
SHAREHOLDERS AND THE COMPANY
----------------------------
Each and every obligation of the Shareholders and the Company under this
Agreement to be performed on or before the Closing shall be subject to the
reasonable satisfaction, on or before the Closing, of each of the following
conditions, unless waived in writing by the Shareholders and the Company:
7.01. Representations and Warranties True. The representations and
-----------------------------------
warranties of Acquiror
17
<PAGE>
and Acquiror's Subsidiary contained herein shall be in all material respects
true and accurate as of the date when made and at and as of the Closing as
though such representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
7.02. Performance. Acquiror and Acquiror's Subsidiary shall have
------------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing.
7.03. No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
7.04 Consents Obtained. All consents from third parties and
-----------------
government agencies require to consummate the transactions contemplated hereby
shall have been ordained.
7.05 No Injunction. On the Closing Date there shall be no effective
-------------
pending or threatened injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them not consummated as so
provided or imposing any conditions on the consummation of the transaction
contemplated hereby which the Acquiror deems unacceptable in its sole
discretion.
7.06 Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Acquiror shall not have suffered any adverse change (whether
or not such change is referred to or described in any supplement to the
Disclosure Schedule) in its business, prospects, financial condition, working
capital, assets, liabilities (absolute, accrued, contingent or otherwise),
reserves or operations.
7.07 Opinion of the Acquiror's Counsel. The Company shall have
---------------------------------
received an opinion of Harrington, Ocko & Monk, LLP, counsel to Acquiror, dated
as of the Closing Date, in form and substance satisfactory to the Company.
7.08. Certificates. Acquiror and Acquiror's Subsidiary shall have
------------
furnished the Company with such certificates of their officers and others to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by the Company.
7.09 Personal Guarantees. All personal guarantees issued by the
-------------------
Shareholders in favor of creditors of the Company shall have been released to
the reasonable satisfaction of the shareholders.
18
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUIROR
-------------------------------------
AND ACQUIROR'S SUBSIDIARY
-------------------------
Each and every obligation of Acquiror and Acquiror's Subsidiary under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Acquiror:
8.01. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Article III hereof, the Disclosure Schedule and in all
certificates and other documents delivered and to be delivered by the
Shareholders and the Company to Acquiror or Acquiror's Subsidiary or their
representatives pursuant hereto or in connection with the transactions
contemplated hereby shall be true, complete and accurate as of the date when
made and at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement.
8.02. Performance. The Shareholders and the Company shall have
-----------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing, to the satisfaction of Acquiror's Counsel.
8.03. Investigations; Etc. No investigation of the Company, nor the
-------------------
Disclosure Schedule or any supplement thereto nor any other document delivered
to Acquiror as contemplated by this Agreement, shall have revealed any facts or
circumstances which, in the sole and exclusive judgment of Acquiror, reflect in
a material adverse way on the financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, business, operations or
prospects of the Company.
8.04. Consents Obtained. All consents from third parties and
-----------------
government agencies required to consummate the transactions contemplated hereby
shall have been obtained
8.05. No Government Proceeding or Litigation. No suit, action,
--------------------------------------
investigation, inquiry or other proceeding-by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened against the Company or any Shareholder which questions the validity
or legality of any of the transactions contemplated by this Agreement.
8.06. No Injunction. On the Closing Date there shall be no effective
-------------
pending or threatened injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transaction
contemplated hereby which the Acquiror deems unacceptable in its sole
discretion.
8.07. Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Company shall not have suffered any adverse change (whether or
not such change is referred to or
19
<PAGE>
described in any supplement to the Disclosure Schedule) in its business,
prospects, financial condition, working capital, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves or operations.
8.08. Payment of Notes Payable. On the Closing Date, there shall not
------------------------
be any balances owed on any notes payable to which the Company is obligated and
Company shall provide Acquiror with proof of satisfaction of payment of the
outstanding liabilities referred to herein.
8.09. Employment Contracts. At or prior to the Closing Date,
--------------------
Acquiror's Subsidiary, Randall Davis and Charles Davis shall have entered into
contracts satisfactory to Acquiror providing for their employment by Acquiror
and/or the Company commencing upon the Closing.
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS
---------------------------------
PENDING THE CLOSING
-------------------
Pending the Closing, and except as otherwise expressly consented to or
approved by Acquiror in writing:
9.01. Regular Course of Business. The Company and Shareholders
--------------------------
covenant and agree that they will carry on the Company's business diligently and
substantially in the same manner as heretofore conducted, and the Company shall
not institute any new methods of manufacture, purchase, sale, lease, management,
accounting or operation or engage in any transaction or activity, enter into any
agreement or make any commitment, except in the ordinary course of business and
consistent with past practice.
9.02. Amendments. No change or amendment shall be made in the
----------
Certificate of Incorporation or By-Laws of the Company.
9.03. Capital Changes; Dividends or Redemptions. Neither the
-----------------------------------------
Shareholders nor the Company will issue or sell any shares of the Company's
capital stock or other securities, acquire directly or indirectly, by redemption
or otherwise, any such capital stock, reclassify or split-up any such capital
stock, declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or grant or enter
into any options, warrants, calls or commitments of any kind with respect
thereto.
9.04. Subsidiaries. The Company will not organize any subsidiary,
------------
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business.
20
<PAGE>
9.05. Organization. The Company shall use its best efforts to preserve
------------
its corporate existence and business organization intact, to keep available to
Acquiror its officers and key employees, and to preserve for Acquiror its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
9.06. Certain Changes. The Company and the Shareholders agree that the
---------------
Company will not:
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), except obligations and liabilities
incurred in the ordinary course of business and consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or specifically set forth in Section 8.08 or incurred in the
ordinary course of business and consistent with past practice since the date of
the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90
days from the date such obligation was issued or incurred;
(d) Permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or
encumbrance;
(e) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable except for immaterial write-downs
and write-offs in the ordinary course of business and consistent with past
practice;
(f) Cancel any debts or waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(g) Dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name or copyright, or dispose of or disclose to any
person any trade secret, formula, process or know-how not theretofore a matter
of public knowledge;
(h) Grant any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee;
(i) Make any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant or equipment or make aggregate capital
expenditures and commitments in excess of $10,000 (on a consolidated basis) for
additions to property, plant or equipment;
21
<PAGE>
(j) Pay, loan or advance any amount to, or sell transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or Associate of any of its officers
or directors, except for directors' fees and compensation to officers at rates
not exceeding the rates of compensation paid during the fiscal year ended;
(k) Change any of the banking or safe deposit arrangements described
in Section 3.14 of the Disclosure Schedule;
(1) Grant or extend any power of attorney or act as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity; or
(m) The Company and its Shareholders shall not fail to cooperate
fully with Acquiror, do all things reasonably necessary to assist Acquiror and
use its reasonable best efforts at its own expense to obtain all consents and
approvals necessary for the transfer of the stock, including the furnishing of
all financial and other information reasonably required by the party whose
consent or approval is being sought.
(n) Agree, whether in writing or otherwise, to do any of the
foregoing.
9.07. Contracts. No contract or commitment will be entered into, and
---------
no purchase of raw material or supplies and no sale of assets will be made, by
or on behalf of the Company except (i) normal contracts or commitments for the
purchase of, and normal purchases of, raw materials or supplies, made in the
ordinary course of business and consistent with past practice, (ii) normal
contracts or commitments for the sale of, and normal sales of, inventory in the
ordinary course of business and consistent with past practice, and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
and consistent with past practice not in excess of $50,000 in the aggregate.
9.08. Insurance; Property. The Company shall adequately insure all
-------------------
property, real, personal and mixed, owned or leased by the Company against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired in a careful and reasonably efficient manner.
9.09. No Default. The Company shall not do any act or omit to do any
----------
act, or permit any act or omission to act, which will cause a breach of any
material contract or commitment of the Company or which would cause the breach
of any warranty made hereunder.
9.10. Compliance With Laws. The Company shall duly comply with all laws
--------------------
applicable to it and its properties, operations, business and employees.
ARTICLE X
22
<PAGE>
TAX MATTERS
-----------
10.01 Tax Definitions. The following terms, as used in this Article X,
---------------
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations) or (ii) the payment of Tax by the Company
or Shareholders, whichever are responsible for payment of such Tax under
applicable law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that such responsible party determines that no action should
be taken to recoup such payment and the other party agrees.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
on or before the close of business on the Closing Date.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts (including gross receipts tax in respect of any franchise
operation), royalty, sales, use, ad valorem, value added, transfer, franchise,
profits, license, withholding on amounts paid to or by the Company, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other governmental fee,
assessment or charge of any kind whatsoever, together with any interest,
penalty, addition to tax or additional amount imposed by any governmental
authority (a "Taxing Authority") responsible for the imposition of any such tax
(domestic or foreign).
10.02 Covenants.
---------
(a) Without the prior written consent of Acquiror and Acquiror's
Subsidiary, and as it relates to the Pre-Closing Tax Period, Shareholders shall
not cause the Company to make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
amended Return, enter into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment or
take or omit to take any other action, if any such action or omission would have
the effect of increasing the Tax liability of the Company or Acquiror or
Acquiror's Subsidiary.
Without the prior written consent of Shareholders, and as it relates to the
Pre-Closing Tax Period, Acquiror and Acquiror's Subsidiary shall not cause the
Company to make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax accounting, file any amended Return,
enter into any closing agreement, settle any Tax claim or assessment,
23
<PAGE>
surrender any right to claim a Tax refund, consent to any extension or waiver of
the limitations period applicable to any Tax claim or assessment or take or omit
to take any other action, if any such action or omission would have the effect
of increasing the Tax liability of the Shareholders.
(b) All Returns not required to be filed on or before the date hereof
(including any applicable extensions) will be filed when due in accordance with
all applicable laws. The parties agree that any final Return relating to the
Pre-Closing Tax Period shall be timely filed by the Shareholders.
10.03 Cooperation on Tax Matters.
---------------------------
(a) Acquiror, Acquiror's Subsidiary and Shareholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the preparation and filing of any Tax return, statement, report
or form (including any report required pursuant to Section 6043 of the Code and
all Treasury Regulations promulgated thereunder), any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding.
Acquiror and Acquiror's Subsidiary and Shareholders shall cause the Company to:
(i) to retain all books and records with respect to Tax matters pertinent to the
Company relating to any Pre-Closing Tax Period, and to abide by all record
retention requirements of any Taxing Authority or any record retention
agreements entered into with any Taxing Authority, and (ii) to give Shareholders
reasonable written notice prior to destroying or discarding any such books and
records and, if Shareholders so requests, Acquiror and Acquiror's Subsidiary
shall allow Shareholders to take possession of such books and records.
(b) Acquiror and Acquiror's Subsidiary and Shareholders further
agree, upon request, to use all reasonable efforts to obtain any certificate or
other document from any governmental authority or any other person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
10.04 Tax Representations.
-------------------
(a) Acquiror represents and warrants to the Shareholders as follows
.
(i) Prior to the Merger, Acquiror owns all of the capital stock
of Acquiror's Subsidiary. Acquiror has no current plan or intention to cause
Acquiror's Subsidiary to issue additional shares of its stock that would result
in Acquiror owning less than all of the capital stock of Acquiror's Subsidiary
after the Merger.
(ii) Acquiror has no plan or intention, following the Merger,
directly or indirectly, to reacquire any of the Acquiror Preferred Stock (or
Common Stock acquired upon conversion thereof) issued in the Merger. An
acquisition of Acquiror Preferred Stock (or Common Stock acquired upon
conversion thereof) by a person acting as an intermediary for Acquiror, or a
person related to Acquiror (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) will be treated as made by Acquiror or the related person,
respectively. Any reference to Acquiror includes a
24
<PAGE>
reference to any successor or predecessor or such corporation to the extent
provided in Treasury Regulation Section 1.368-1(e)(5).
(iii) Acquiror and Acquiror's Subsidiary intend to continue at
least one significant historic business line of Company, or use at least a
significant portion of the Company's historic business assets in a business, in
each case within the meaning of Treasury Regulation Section 1.368-1(d), except
that Acquiror's Subsidiary may transfer the Company's historic business assets
(i) to a corporation that is a member of Acquiror's "qualified group," within
the meaning of Treasury Regulation Section 1.368-1(d)(4)(ii), or (ii) to a
partnership if (A) one or more members of Acquiror's "qualified group" have
active and substantial management functions as a partner with respect to the
Company's historic business or (B) members of Acquiror's "qualified group" in
the aggregate own an interest in the partnership representing a significant
interest in the Shareholders' historic business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d)(4)(iii).
(iv) Unless specifically set forth herein to the contrary,
Acquiror and Acquiror's Subsidiary will each pay their respective expenses, if
any, incurred in connection with this Merger.
(v) Neither Acquiror nor Acquiror's Subsidiary is an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(vi) Neither Acquiror nor Acquiror's Subsidiary will take any
position on any federal, state or local income or franchise tax return, or take
any other tax reporting position, that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Section 368 of the Code, unless
otherwise required by a Final Determination or by applicable state or local
income or franchise tax law.
(vii) Acquiror has no plan or intention to liquidate Acquiror's
Subsidiary; to merge Acquiror's Subsidiary with or into another corporation; to
sell or otherwise dispose of the capital stock of Acquiror's Subsidiary except
for transfers of stock described in Treasury Regulation Section 1.368-2(k)(2);
or to cause Acquiror's Subsidiary to sell or otherwise dispose of any of the
assets acquired from the Company, except for dispositions in the ordinary course
of business or transfers described in Treasury Regulation Section 1.368-2(k)(2).
(b) The Shareholders represent and warrant to Acquiror and Acquiror's
Subsidiary:
The Acquiror's Subsidiary will acquire at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of the
fair market value of the gross assets held by the Company immediately prior to
the Merger. For the purposes of this representation, amounts paid by the
Company to dissenters, amounts paid by the Company to Shareholders who receive
cash or other property, the Company's assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular normal
dividends) made by the Company immediately preceding the transfer, will be
included as assets of the Company held immediately prior to the Merger.
25
<PAGE>
ARTICLE XI
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION
-------------------------------
11.01. Investigations; Survival of Warranties. Each and every such
--------------------------------------
representation and warranty of the Company and/or Shareholders shall expire with
and be terminated and extinguished by the Closing or the termination of this
Agreement in any manner set forth herein, and thereafter, neither the
Shareholders or the Company nor any officer, director or principal thereof shall
be subject to any liability whatsoever with respect to any such representations
and warranties. This Section 11.01 shall have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
Closing.
11.02. Dispute Resolution. The parties shall attempt amicably to
-------------------
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to final binding arbitration, which shall be conducted by a
single arbitrator (the "Arbitrator") in San Antonio, Texas, pursuant to the
commercial rules of the American Arbitration Association (the "Rules").
In the event that the parties cannot agree as to the Arbitrator to be
named, each party to the Controversy shall appoint one arbitrator and those two
arbitrators shall select the Arbitrator.
11.03. Procedure. If any party shall desire relief of any nature
---------
whatsoever from any other party as a result of any Controversy, such party will
initiate such arbitration proceedings within a reasonable time, but in no event
more than one (1) year after the facts underlying said Controversy first arise
or become known to the party seeking relief (whichever is later). The failure
of such party to institute such proceedings within said period shall be deemed a
full waiver of any claim for such relief. Arbitrator may award the prevailing
party its costs for the arbitration proceeding, including its reasonable
attorneys' fees and costs. The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable or judicial proceedings between them, and that no appeal or
judicial review of the award or decision of the Arbitrator shall be taken, but
that such award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is sought.
ARTICLE XII
TERMINATION AND ABANDONMENT
---------------------------
12.01. Methods of Termination. The transactions contemplated herein may
----------------------
be terminated and/or abandoned at any time but not later than the Closing:
26
<PAGE>
(a) By mutual consent of the respective Boards of Directors of
Acquiror and the Company; or
(b) By the Board of Directors of Acquiror on or after August 31,
1999, or such later date as may be established pursuant to Section 1.08 hereof,
if any of the conditions provided for in Article VIII of this Agreement shall
not have been met or waived in writing by Acquiror prior to such date.
12.02. Procedure Upon Termination. In the event of termination and
--------------------------
abandonment by the Board of Directors of Acquiror pursuant to Section 12.01
hereof, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by Acquiror or the Company. If the
transactions contemplated by this Agreement are terminated and/or abandoned as
provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be treated
in accordance with Section 2.01 hereof; and
(c) No party hereto shall have any liability or further obligation to
any other party to this Agreement except as stated in subparagraphs (a) and (b)
of this Section 12.02, (provided, however, that if such termination and/or
abandonment is a result of the failure of any condition set forth in Article
VIII hereof, then Acquiror shall be entitled to recover from the Company all
out-of-pocket costs which Acquiror has incurred (including reasonable attorney's
fees and expenses).
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
13.01. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented by written agreement of the
Shareholders and the respective Boards of Directors of the Company and Acquiror
or by their respective officers authorized by such Boards of Directors at any
time prior to the Closing with respect to any of the terms contained herein.
13.02. Waiver of Compliance. Any failure of the Shareholders or the
--------------------
Company, on the one hand, or Acquiror, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the President of Acquiror or the Company, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
27
<PAGE>
13.03. Expenses; Transfer Taxes, Etc. Except as otherwise provided in
-----------------------------
Section 12.02 hereof, whether or not the transaction contemplated by this
Agreement shall be consummated, the Shareholders and the Company agree that all
fees and expenses incurred by them in connection with this Agreement shall be
borne by them and Acquiror agrees that all fees and expenses incurred by it in
connection with this Agreement shall be borne by it, including, without
limitation as to the Company or Acquiror, all fees of counsel, actuaries and
accountants.
13.04. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to the Shareholders or the Company, to:
Mr. Randall Davis
c/o Cleaning Ideas, Inc.
1023 Morales Street
San Antonio, Texas 78207
Phone: (210) 227-9161
Fax: (210) 227-4949
and
Mr. Charles Davis
1 Renwick Court
San Antonio, Texas 78218
Phone: (210) 826-1459
Fax: (210) 822-9991
(with a copy to:)
Alan Schoenbaum, Esq.
Akin, Gump, Strauss, Hauer & Feld, LLP.,
1500 Nations Bank Plaza
300 Convent Street
San Antonio, TX 78205
Phone: (210) 270-0800
Fax: (210) 224-2035
or to such other person or address as the Company shall furnish to Acquiror in
writing.
(b) If to Acquiror, to:
28
<PAGE>
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:)
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Attention: Martin W. Enright, Esq.
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Company in
writing.
13.05. Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that Acquiror may assign its rights, but
not its obligations, under this Agreement to any subsidiary of Acquiror.
13.06. Publicity. Neither the Company nor Acquiror shall make or issue,
---------
or cause to be made or issued, any announcement or written statement concerning
this Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior consent of the other party. This provision
shall not apply, however, to any announcement or written statement required to
be made by law or the regulations of any federal or state governmental agency or
any stock exchange, except that the party required to make such announcement
shall, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
13.07. Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas without regard to its conflicts of law doctrine.
13.08. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.09. Headings. The headings of the Sections and Articles of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or
29
<PAGE>
interpretation of this Agreement.
13.10. Entire Agreement. This Agreement, including the Exhibits hereto,
----------------
the Disclosure Schedule and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
13.11. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
13.12. Severability. Should any provision of this Agreement be held
------------
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By:________________________________________
Richard Kandel
President
CLEANING IDEAS CORP.
By:________________________________________
Richard Kandel
Chairman
CLEANING IDEAS, INC.
By:________________________________________ __________________________________
President Secretary
SANIVAC, INC.
By:________________________________________ __________________________________
President Secretary
THE SHAREHOLDERS
___________________________________________ __________________________________
Randall Davis, Charles Davis,
as Shareholder as Shareholder
___________________________________________
Carolyn Davis,
<PAGE>
as Shareholder
Exhibit 2(ii)
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of August 1, 1999, is made by
Enviro-Clean of America, Inc., a Nevada Corporation (the "Acquiror"), in favor
of Charles Davis (the "Shareholder").
WITNESSETH:
WHEREAS, Acquiror has issued and delivered to the Shareholder a promissory
note in the principal amount of Nine Hundred Thousand Dollars ($900,000)
maturing on August 1, 2001 (the "Note"), evidencing certain payment obligations
of Acquiror to the Shareholder under an Agreement and Plan of Merger dated as
of August 1, 1999 among Acquiror, Cleaning Ideas Corp., a Nevada corporation and
a wholly owned subsidiary of Acquiror, Cleaning Ideas, Inc., Randall K. Davis
and the Shareholder (the "Merger Agreement ");
WHEREAS, pursuant to the Merger Agreement, Cleaning Ideas, Inc. is being
merged into Cleaning Ideas Corp. (the "Surviving Company"):
NOW, THEREFORE, in consideration of the promises contained herein and to
induce the Shareholder to enter into the Merger Agreement , Acquiror hereby
agrees with the Shareholder as follows:
ARTICLE 1.
DEFINED TERMS
1.1 Definitions.
(a) Unless otherwise defined herein, terms defined in the Merger
Agreement and used herein shall have the meanings given to them in the Merger
Agreement :
(b) The following terms shall have the following meanings:
"Agreement" this Security Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Code" the Uniform Commercial Code as from time to time in effect in
the State of Texas.
"Default" shall mean the failure of Acquiror to pay any installment of
principal or
<PAGE>
interest on the Note for a period of thirty (30) days after receipt by Acquiror
of written notice from the Shareholder specifying the amount unpaid.
"Obligations" the collective reference to the unpaid principal of and
interest on the Note.
"Receivable" any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument or
Chattel Paper and whether or not it has been earned by performance (including,
without limitation, any Account).
"Stock" means the shares of the common stock, $.001 par value, of the
Surviving Company being pledged hereunder to secure the obligations of Acquiror
under the Note, constituting all the issued and outstanding capital stock of the
Surviving Company, and any hereafter acquired shares of capital stock of the
Surviving Company (the "Stock"), any certificates evidencing the Stock and all
right, title and interest of Acquiror in the Stock.
The terms "Accounts", "Chattel Paper", "Documents", "Instruments",
"Inventory" and "Proceeds" shall have the meanings ascribed to such terms in the
Code.
1.2 Other Definitional Provisions.
(a) The words "hereof", "herein", "hereto" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement, and
Section, subsection and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II.
GRANT OF SECURITY INTEREST
As collateral security for the prompt and complete payment and performance
when due of the Obligations, Acquiror and the Surviving Company hereby grant to
the Shareholder a security interest in all of the following assets, wherever
located, now owned or at any time hereafter acquired by the Surviving Company in
which the Surviving Company now has or at any time in the future may acquire any
right, title or interest (collectively, the "Collateral"):
(a) all Accounts resulting from any Receivables;
(b) all Chattel Paper resulting from any Receivables;
(c) all Inventory;
33
<PAGE>
(d) all Receivables;
(e) all books and records pertaining to the Collateral;
(f) the Stock; and
(g) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing.
ARTICLE III.
DELIVERY AND MAINTENANCE OF THE COLLATERAL
3.1 Delivery of Stock Certificates, Instruments and Chattel Paper. Upon
execution and delivery of this Agreement, Acquiror shall deposit the stock
certificates evidencing the Stock, together with duly executed stock powers,
with the Shareholder to be held in accordance with the terms hereof. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be held as Collateral pursuant to this Agreement.
3.2 Maintenance of Perfected Security Interest, Further Documentation.
(a) The Acquiror shall maintain the security interest created by this
Agreement as a perfected security interest and shall defend such security
interest against the claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of the
Shareholder, and at the sole expense of the Acquiror, the Acquiror will promptly
and duly execute and deliver such further instruments and documents and take
such further action as the Shareholder may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the security interests created hereby.
3.3 Changes in Locations. Acquiror will not permit any of the Inventory
to be kept at a location other than the premises of the Surviving Company. The
Shareholder shall notify Acquiror of the exact street address where the Stock
shall be kept and shall not relocate the Stock to any other address unless
providing Acquiror with prior written notice of such new location.
3.4 Voting Rights; Dividends, Etc.
(a) So long as no Default shall have occurred and be continuing:
(i) Acquiror shall be entitled to exercise any and all voting and
other
34
<PAGE>
consensual rights pertaining to the Collateral or any part thereof for any
purpose; provided, however, that the Acquiror will not exercise or refrain from
-------- -------
exercising any such right if such action would have a material adverse effect on
the value of the Collateral or any part thereof;
(ii) The Shareholder will execute and deliver (or cause to be
executed and delivered) to the Acquiror all such proxies and other instruments
as the Acquiror may reasonably request for the purpose of enabling the Acquiror
to exercise the voting and other rights that it is entitled to exercise pursuant
to paragraph (i) above.
(b) Upon the occurrence and during the continuance of a Default:
(i) All rights of the Acquiror to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise be
entitled to exercise pursuant to Section 3.4(a) shall, upon notice to the
Acquiror by the Shareholder, cease and all such rights shall thereupon become
vested in the Shareholder, which shall thereupon have the sole right to exercise
or refrain from exercising such voting and other consensual rights.
(ii) All dividends, interest and other distributions that are
received by the Shareholder in respect of any Collateral shall be received in
trust for the benefit of the Acquiror, shall be segregated from other funds of
the Shareholder and shall be forthwith paid over to the Shareholder as
Collateral in the same form as so received (with any necessary indorsement).
3.5 Transfers and Other Liens; Additional Equity Interests.
(a) The Acquiror agrees that it will not (i) sell, assign or otherwise
dispose of, or grant any option with respect to, any of the Collateral, other
than sales, assignments and other dispositions of Collateral, in the ordinary
course of business of the Surviving Company or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral except for the pledge,
assignment and security interest created under this Agreement and liens
permitted pursuant to Article VI hereof.
(b) The Acquiror agrees that it will (i) cause the Surviving Company
not to issue any stock or other securities or equity interests, except to the
Acquiror in exchange for capital contributions to the Surviving Company, and
(ii) pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities.
3.6 Shareholders Appointed Attorney-in-Fact. The Acquiror hereby
irrevocably appoints the Shareholder its attorney-in-fact, with full authority
in the place and stead of the Acquiror and in the name of the Acquiror or
otherwise, from time to time after the occurrence of and Event of Default, in
the Shareholder's discretion, to take any action and to execute any instrument
that the Shareholder may deem necessary or advisable to accomplish the purposes
of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral,
35
<PAGE>
(b) to receive, indorse and collect any drafts or other instruments or
documents in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceedings
that the Shareholder may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce compliance with the terms and
conditions of any of the Organizational Documents or the rights of the
Administrative Agent with respect to any of the Collateral.
3.7 The Shareholder's Duties. The powers conferred on the Shareholder
hereunder are solely to protect the Shareholder's interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Shareholder shall have no duty as to any
Collateral.
ARTICLE IV.
REMEDIES
4.1 Notice to Obligors. Upon the request of The Shareholders at any time
after the occurrence and during the continuance of a Default or an Event of
Default (after any applicable cure periods), under the Note, the Acquiror shall
notify obligors on the Receivables that the Receivables have been assigned to
The Shareholders and that payments in respect thereof shall be made directly to
The Shareholders.
4.2 Proceeds to be Turned Over to The Shareholders. If a Default under
the Note shall occur and be continuing (after any applicable cure periods), all
Proceeds received by the Acquiror consisting of cash, checks and other cash
equivalent items shall be held by the Acquiror in trust for the Shareholder,
segregated from all other funds of the Acquiror, and shall forthwith upon
receipt by the Acquiror, be turned over to the Shareholder in the exact form
received by the Acquiror (duly endorsed by the Acquiror, to the Shareholder, if
required) and held by the Shareholder in a Collateral Account maintained under
the sole dominion and control of the Shareholder. All Proceeds while held by
the Shareholder in a Collateral Account (or by the Acquiror in trust for the
Shareholder) shall continue to be held as collateral security or the Obligations
and shall not constitute payment thereof until applied as provided in Section
4.3.
4.3 Application of Proceeds. At such intervals as may be agreed upon by
the Acquiror, or, if an Event of Default shall occurred and be continuing (after
any applicable cure periods), at any time at the election of the Shareholder,
the Shareholder may apply all or any part of any Proceeds held in any Collateral
Account in payment of the Obligations in such order as the Shareholder may
elect, and any part of such funds which the Shareholder elects not so to apply
and deems not required as collateral security for the Obligations shall be paid
over from time to time by the Shareholder to the Acquiror or to whomsoever may
be lawfully entitled to receive the same. Any balance of such Proceeds
remaining after the Obligations shall have been paid in full shall have expired
or otherwise been terminated shall be paid over to the Acquiror or whomsoever
may be lawfully entitled to receive the same.
36
<PAGE>
4.4 Code Remedies. If a Default shall occur and be continuing under the
Note (after any applicable cure periods), the Shareholder may exercise, in
addition to all other rights and remedies granted to him in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Shareholder without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Acquiror or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Shareholder or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Shareholder shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Acquiror, which right or equity is hereby waived or released. The Acquiror
further agrees, at the request of the Shareholder, to assemble the Collateral
and make it available to the Shareholder at places which the Shareholder shall
reasonably select, whether at the Acquiror's premises or elsewhere. The
Shareholder shall apply the net proceed of any action taken by him pursuant to
this subsection, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Shareholder hereunder, including, without limitation, reasonable attorney's fees
and disbursements, to the payment in whole or in part of the Obligations, in
such order as the Shareholder may elect, and only after such application and
after the payment by the Shareholder of any other amount required by any
provision of law, including, without limitation, Section 9-504 (l)(c) of the
Code, need the Shareholder account for the surplus, if any, to the Acquiror. To
the extent permitted by applicable law, the Acquiror waives all claims, damages
and demands it may acquire against the Shareholder arising out to the exercise
by them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least ten (10) days before such sale or other
disposition.
4.5. Option to Repurchase the Surviving Company. In addition to, and not
in derogation of, any rights of the Shareholder under this Agreement, if a
Default shall occur and be continuing under the Note (after any applicable cure
periods), the Shareholder shall have the option to exercise upon the Stock so
that following such exercise in accordance with the provisions of this Section
4.5, the Shareholder shall be the beneficial and record owner of the Stock. If
the Shareholder elects the remedy provided for by this Section 4.5, he shall
notify Acquiror in writing of Shareholder's intention to exercise the rights
provided for in this Section 4.5 and specifying the proposed closing date
regarding such exercise (an "Exercise Notice") no less than ten (10) Business
Days prior to the date of the proposed exercise of such rights. Upon receipt of
the Exercise Notice, Acquiror shall have ten (10) Business Days in which to cure
the Default that triggered Shareholder's rights hereunder.
If Acquiror fails to cure such Default after such Exercise Notice, the
Shareholder shall
37
<PAGE>
exercise upon, and repurchase, the Stock. In exchange for the Stock, the
Shareholder shall (i) cancel the Note and return it to Acquiror along with an
acknowledgement that the Note has been cancelled and that no further payments of
principal or interest thereunder shall thereafter be due and owing from Acquiror
to Shareholder, (ii) deliver to Acquiror all shares then held by Shareholder and
Randall K. Davis of Series D Cumulative Convertible Preferred Stock of Acquiror
(the "Preferred Stock") issued to the Shareholder and Randall K. Davis in
connection with the Merger Agreement, together with any shares of Acquiror's
Common Stock received by or for the order of the Shareholder and Randall K.
Davis pursuant to any conversions of the Preferred Stock, together with stock
powers dully endorsed with medallion signature guarantees. If the Shareholder
shall fail to deliver any of the consideration to be conveyed to Acquiror under
this Section 4.5 or otherwise fail to complete the repurchase of the Stock
pursuant to this Section 4.5 within ten (10) Business Days from the proposed
closing date set forth in the Exercise Notice, the purported exercise of the
rights provided for hereunder shall thereupon immediately become null, void and
of no force and effect whatsoever, regardless of whether or not there shall then
be a Default under the Note. The Shareholder shall thereafter have only such
other rights regarding the Collateral other than the Stock as shall be provided
in this Pledge and Security Agreement or otherwise under the Code.
4.6 Release; Termination.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral in the ordinary course of business, the Shareholder will, at the
Acquiror's expense, execute and deliver to the Acquiror's such documents as the
Acquiror's shall reasonably request to evidence the release of such item of
Collateral from the assignment and security interest granted hereby; provided,
--------
however, that at the time of such request and such release no Default shall have
- -------
occurred and be continuing.
(b) Upon the payment in full in cash of the Acquiror's Obligations,
the pledge, assignment and security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Acquiror and this Agreement
shall terminate. Upon any such termination, the Shareholder will, at the
Acquiror's expense, execute and deliver to the Acquiror such documents as the
Acquiror shall reasonably request to evidence such termination.
ARTICLE V.
EXECUTION OF FINANCING STATEMENTS
5.1 Execution of Financing Statements. Pursuant to Section 9-402 of
the Code, the Acquiror authorizes the Shareholder to file financing statements
with respect to the Collateral without the signature of the Acquiror in such
form and in such filing offices as the Shareholder reasonably determines
appropriate to perfect the security interests of the Shareholder under this
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
38
<PAGE>
ARTICLE VI
NEGATIVE COVENANTS
During the term of this Agreement, and for so long as there shall be any
outstanding Obligations, the Surviving Company shall not, and the Acquiror shall
cause the Surviving Company to not, without the prior consent of the
Shareholder, which consent shall not be unreasonably withheld;
(a) make, create, incur, assume or suffer to exist, or suffer or permit to
exist any lien upon or with respect to any part of its assets, whether now owned
or hereafter acquired, other than security interests given in connection with
purchases or leases of equipment for use in the business of the Surviving
Company or purchase money security interests in goods purchased for resale;
(b) sell, assign, lease, convey, transfer or otherwise dispose of (whether
in one or a series of transactions) any assets (including accounts and notes
receivable, with or without recourse) or enter into any agreement to do any of
the foregoing, other than in the ordinary course of the business of the
Surviving Company;
(c) merge, consolidate with or into, or convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
or issue additional amounts of its equity or debt securities to or in favor of
any person, other than to Acquiror in exchange for additional capital
contributions to the Surviving Company;
(d)(i) purchase or acquire, or make any commitment therefor, any capital
stock, equity interest, or any obligations or other securities of, or any
interest in, any person, including the establishment or creation of a
subsidiary, or (ii) make or commit to make any acquisitions, or any other
acquisition of all or substantially all of the assets of another person, or of
any business or division of any person, including without limitation, by way of
merger, consolidation or other combination or (iii) make or commit to make any
advance, loan, extension of credit (other than the provision of financing terms
in the ordinary course of business) or capital contribution to or any other
investment in any person;
(e) incur, assume, suffer to exist, or otherwise become or remain directly
or indirectly liable with respect to any indebtedness for borrowed money, except
trade accounts payable incurred in the ordinary course of business;
(f) pay any management, consulting or similar fees of any person except for
payment of reasonable compensation and reimbursement of expenses of officers,
directors, consultants and employees for actual services rendered in the
ordinary course of business.
(g)(i) declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock,
39
<PAGE>
partnership interests, membership interests or other equity securities or (ii)
purchase, redeem or otherwise acquire for value any shares of its capital stock
or other equity securities or any warrants, rights or options to acquire such
shares or equity securities now or hereafter outstanding; provided, however,
that at any time so long as there is no Default under the Note, or default in
the payment of any dividends on the Acquiror's Series D Cumulative Convertible
Preferred Stock, the Surviving Company may pay dividends to Acquiror in respect
of its ownership of the Stock, out of the net profits of the Surviving Company;
(h) engage in any material line of business substantially different from
those lines of business carried on by it as of the date hereof.
ARTICLE VII.
NOTICES
7.1 Notices. All notices, requests and demands to or upon The
Shareholders or the Acquiror hereunder shall be affected in the manner provided
for in Section 12.04 of the Merger Agreement.
ARTICLE VIII.
MISCELLANEOUS
8.1. Amendment and Modification. This Agreement may only be amended,
modified or supplemented by written agreement of the Shareholder and the
Acquiror.
8.2. Waiver of Compliance. Any failure of the Shareholder or the
Acquiror to comply with any obligation, covenant, agreement or condition herein
may be expressly waived in writing by the Acquiror or the Shareholder,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
8.3. Expenses; Transfer Taxes, Etc. Except as otherwise provided herein
the Shareholder and the Acquiror agree that each party shall bear all fees and
expenses incurred by him or it in connection with this Agreement.
8.4. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
40
<PAGE>
(a) If to The Shareholder, to:
Charles Davis
1 Renwick Court
San Antonio, Texas 78218
Phone: (210) 826-1459
Fax: (210) 822-9991
(with a copy to:)
Alan Schoenbaum, Esq.
Akin, Gump, Strauss, Hauer & Feld, LLP.
1500 Nations Bank Plaza
300 Convent Street
San Antonio, Texas 78205
Phone: (210) 270-0800
Fax: (210) 224-2035
or to such other person or address as the Surviving Company shall furnish to
Acquiror in writing.
(b) If to Acquiror, to:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:)
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Attention: Martin W. Enright, Esq.
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Surviving
Company in writing.
8.5. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation
41
<PAGE>
of law; provided, however, that Acquiror may assign both its rights and
-------- -------
obligations hereunder to any successor to its business.
8.6. Publicity. Neither the Shareholder nor Acquiror shall make or
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
party. This provision shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any federal or state
governmental agency or any stock exchange, except that the party required to
make such announcement shall, whenever practicable, consult with the other party
concerning the timing and content of such announcement before such announcement
is made.
8.7. Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas without regard to its conflicts of law doctrine.
8.8. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.9. Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
8.10. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
8.11. Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
8.12. Severability. Should any provision of this Agreement be held by a
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law.
42
<PAGE>
The parties expressly agree that this Agreement as modified by the court or the
arbitration panel shall be binding upon and enforceable against each of them. In
any event, should one or more of the provisions of this Agreement be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By:________________________________
Richard Kandel
President
________________________________
Charles Davis
43
<PAGE>
EXHIBIT 2(iii)
Stock Purchase Agreement
among
Enviro-Clean of America, Inc.,
SCS Acquisition Corporation
and
Superior Chemical and Supply, Inc.
dated as of
August 1, 1999
<PAGE>
<TABLE>
<S> <C>
ARTICLE I
PURCHASE AND SALE OF STOCK ............................................. 1
1.01. Purchase and Sale of Stock ................................ 1
1.02. Consideration ............................................. 1
1.03 Escrowed Consideration .................................... 2
1.04 Contingent Consideration .................................. 2
(a) Earn-Out Bonus ....................................... 2
(b) e-Commerce Profits Distribution ...................... 3
(c) Adjustment for Over-Payments.......................... 3
1.05. Closing ................................................... 3
1.06. Further Assurances ........................................ 4
ARTICLE II
RELATED MATTERS ................................................... 4
2.01. Confidentiality ........................................... 4
2.02. Definitions ............................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SHAREHOLDERS .................................... 5
3.01. Corporate Organization; Etc. .............................. 6
3.02. Capitalization of the Company.............................. 6
3.04. Authorization, Etc. ....................................... 6
3.05 No Violation .............................................. 6
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
3.06. Statement of Accounts; No Undisclosed Liabilities ......... 7
3.07. Accounts Receivable ........................................ 7
3.08. Inventory .................................................. 7
3.09. Interim Operations ......................................... 7
3.10. Title to Properties; Encumbrances .......................... 7
3.11. Legal Compliance ........................................... 8
3.12. Plant and Equipment ........................................ 8
3.13. Leases ..................................................... 8
3.14. Bank Accounts .............................................. 9
3.15. Taxes ...................................................... 9
3.16. Contracts and Commitments .................................. 9
3.17. Customers and Suppliers .................................... 10
3.18. Orders, Commitments and Returns ............................ 10
3.19. Agreements in Full Force and Effect ........................ 11
3.20. Insurance .................................................. 11
3.21. Labor Difficulties ......................................... 11
3.22. Fringe Benefit Plans ....................................... 11
3.23. Litigation ................................................. 11
3.24. No Condemnation or Expropriation ........................... 12
3.25. Consents and Approvals of Governmental Authorities ......... 12
3.26. Consents ................................................... 12
3.27. Compliance with Law ........................................ 12
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
3.28. Environmental Protection ................................... 12
3.29. Compliance with ERISA ...................................... 13
3.30. Good Title Conveyed, Etc. .................................. 13
3.31. Brokers and Finders ........................................ 13
3.32. Absence of Questionable Payments ........................... 13
3.33. Personnel .................................................. 13
3.34. Insider Interests .......................................... 13
3.35. Products Liability ......................................... 13
3.36. Disclosure ................................................. 14
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS ...................................... 14
4.01. Investment ................................................. 14
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND ACQUIROR'S SUBSIDIARY .................................. 15
5.01. Corporate Organization; Etc. ............................... 15
5.02. Authorization; Etc. ........................................ 15
5.03. No Violation ............................................... 15
ARTICLE VI
COVENANTS OF THE SHAREHOLDERS AND THE COMPANY ....................... 16
6.01. Full Access ................................................ 16
</TABLE>
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<TABLE>
<S> <C>
6.02. Consents of Company Lenders, Etc. ...................... 16
6.03. Supplements to Disclosure Schedule ..................... 16
6.04. Additional Financial Statements ........................ 16
6.05. Other Transactions ..................................... 16
6.06. Covenant to Satisfy Conditions ......................... 17
6.07. Certificates ........................................... 17
6.08 Resignation of Directors ............................... 17
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE
SHAREHOLDERS AND THE COMPANY .................................... 17
7.01. Representations and Warranties True .................... 17
7.02. Performance ............................................ 17
7.03. No Governmental Proceeding or Litigation ............... 17
7.04. Certificates ........................................... 17
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUIROR
AND ACQUIROR'S SUBSIDIARY ....................................... 18
8.01. Representations and Warranties True .................... 18
8.02. Performance ............................................ 18
8.03. Investigations; Etc. ................................... 18
8.04. Consents Obtained ...................................... 18
8.05. No Government Proceeding or Litigation ................. 18
</TABLE>
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<TABLE>
<S> <C>
8.06. No Injunction .......................................... 18
8.07. Material Change ........................................ 18
8.08. Opinion of the Company's Counsel ....................... 19
8.09. Consents Obtained ...................................... 20
8.10. Employment Contract .................................... 20
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS
PENDING THE CLOSING ............................................. 20
9.01. Regular Course of Business ............................. 21
9.02. Amendments ............................................. 21
9.03. Capital Changes; Dividends or Redemptions .............. 21
9.04. Subsidiaries ........................................... 21
9.05. Organization ........................................... 21
9.06. Certain Changes ........................................ 21
9.07. Contracts .............................................. 22
9.08. Insurance; Property .................................... 23
9.09. No Default ............................................. 23
9.10. Compliance With Laws ................................... 23
9.11. Tax Returns ............................................ 23
ARTICLE X
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION ................................. 23
</TABLE>
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<TABLE>
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10.01. Investigations; Survival of Warranties ................. 23
10.02. Indemnification; Rights of Set-off ..................... 23
10.03 Injunctive Relief ...................................... 24
10.04. Dispute Resolution ..................................... 24
(a) Arbitration ........................................ 24
10.05 Procedure .............................................. 25
ARTICLE XI
TERMINATION AND ABANDONMENT ..................................... 25
11.01. Methods of Termination ................................. 25
11.02. Procedure Upon Termination ............................. 25
ARTICLE XII
MISCELLANEOUS PROVISIONS ........................................ 26
12.01. Amendment and Modification ............................. 26
12.02. Waiver of Compliance ................................... 26
12.03. Expenses; Transfer Taxes, Etc. ......................... 26
12.04. Notices ................................................ 26
12.05. Assignment ............................................. 27
12.06. Publicity .............................................. 27
12.07. Governing Law .......................................... 28
12.08. Counterparts ........................................... 28
12.09. Headings ............................................... 28
</TABLE>
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<TABLE>
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12.10. Entire Agreement ....................................... 28
12.11. Third Parties .......................................... 28
12.12. Severability ........................................... 28
</TABLE>
7
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of August 1, 1999 among Enviro-Clean of
America, Inc., a Nevada corporation ("Acquiror"), SCS Acquisition Corp., a
Nevada corporation which is a wholly owned subsidiary of Acquiror ("Acquiror
Subsidiary"), Superior Chemical and Supply, Inc., (the "Company"), a Kentucky
corporation, and the Shareholders of the Company set forth on the signature page
hereto (the "Shareholders").
This Agreement sets forth the terms and conditions upon which the
Shareholders will sell to Acquiror and convey to Acquiror's Subsidiary or other
entities designated by Acquiror, and Acquiror will purchase from the
Shareholders, all the shares of no par common stock of the Company, representing
all of the issued and outstanding capital stock of the Company (the "Company
Stock"). As used in this Agreement, capitalized terms not otherwise defined
have the meanings ascribed to them in Article II.
In consideration of the mutual agreements contained herein, intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
--------------------------
1.01. Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, at the Closing, the Shareholders shall sell, transfer,
convey, assign and deliver to Acquiror and Acquiror shall purchase, acquire and
accept from the Shareholders, the Company Stock free and clear of all liens,
charges or encumbrances of whatsoever nature.
1.02. Consideration. Subject to the terms and conditions of this
-------------
Agreement, in reliance on the representations, warranties and agreements of the
Shareholders and the Company contained herein, and in consideration of the sale,
assignment, transfer and delivery of the Company Stock, Acquiror or Acquiror's
Subsidiary will deliver at Closing:
(a) The sum of Four Hundred Thousand Dollars ($400,000) in cash,
company check or verified wire transfer; and
(b) A promissory note in the principal amount of One Million Two
Hundred Thousand Dollars ($1,200,000) maturing three years from the Closing Date
and bearing interest at an annual rate equal to the prime rate of Chase
Manhattan Bank, N.A. as published on the Business Day immediately preceding the
Closing Date (the "Note"). The principal of the Note shall be payable in twelve
equal quarterly payments (each a "Payment Date"). Accrued interest on the Note
shall also be paid on each Payment Date. Payment of principal and interest on
the Note shall be secured by the accounts receivable and inventory of the
Company. The
8
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security interest in such collateral shall be subordinated to any bank or other
senior lender to the Company, Acquiror or Acquiror's subsidiary. If Acquiror or
Acquiror's Subsidiary shall default in payment of any installment on the Note,
and such default shall remain unremedied for a period of thirty (30) days or
more, any non-competition clause in the employment agreement of Stephen Haynes
with the Company shall become null, void, and of no further force and effect.
1.03 Escrowed Consideration. Simultaneously with the execution and
----------------------
delivery of this Agreement, the parties have entered into an Escrow Agreement in
the form attached as Exhibit B (the "Escrow Agreement") with Stursberg & Veith,
as Escrow Agent. Pursuant to the Escrow Agreement, Acquiror is depositing into
escrow Fifty Thousand (50,000) shares of Acquiror's Common Stock ("Escrowed
Shares"). Subject to the terms of the Escrow Agreement, Ten Thousand (10,000) of
the Escrowed Shares shall be delivered to the Shareholders within ninety days of
the end of Acquiror's fiscal years ended December 31, 2000, December 31, 2001,
December 31, 2002 and December 31, 2003; provided, however, the Company's
-------- -------
Target Amount (as hereinafter defined) is met for each year. In the case of the
fiscal periods from the Closing Date to December 31, 1999 and January 1, 2004
through the fifth anniversary of the Closing Date, the number of shares to be
issued and the Target Amount shall be adjusted by multiplying 10,000 shares, or
the Target Amount, as the case may be, by a fraction the numerator of which is
the number of calendar days elapsed from but not including the Closing Date to
and including December 31, 1999 or from January 1, 2004 through the fifth
anniversary of the Closing Date, as the case may be, and the denominator of
which is 365. If the Target Amount is not met in any year, number of shares to
be delivered from escrow shall be equal to the product of (x) 10,000 multiplied
----------
by (y) a fraction, the numerator of which shall be the Company's pre-tax income
- --
for such year and the denominator of which shall be the Target Amount for such
year. In the event that Company does not meet the Target Amount in any year,
and the Company exceeds the Target Amount in the next year, the Company may
apply an amount equal to the extent by which the Company's pre-tax earnings
exceed the Target Amount for such year, to the prior year's Target Amount and
cause a proportionate amount of the Escrowed Shares that were withheld with
respect to the prior year to be released to the Shareholders. In no event shall
the aggregate number of Acquiror's Shares issued in respect of any two-year
period exceed 20,000.
1.04 Contingent Consideration. In addition to the consideration to be
------------------------
paid by Acquiror to the Shareholders at the closing and the escrowed
consideration, Acquiror shall pay the following contingent consideration to the
Shareholders upon satisfaction of the relevant conditions as follows:
(a) Earn-Out Bonus. Within ninety (90) days from the close of each of
--------------
Acquiror's fiscal years ended December 31, 1999, December 31, 2000, December 31,
2001 and December 31, 2002, Acquiror shall make a cash payment to the
Shareholders equal to twenty-five percent (25%) of: (i) in the case of the
fiscal period from the Closing Date to December 31, 1999 the excess of the
Company's pre-tax earnings over the product of (x) $300,000 multiplied by (y) a
fraction the numerator of which is the number of calendar days elapsed from (but
not including) the Closing Date to (and including) December 31, 1999 and the
denominator of which is 365, (ii) in the case of the full year ended December
31, 2000, the excess of the Company's pre-tax earnings for such full year over
$315,000, (iii) in the case of the full year ended December 31, 2001, the excess
of the Company's pre-tax earnings for such full fiscal year over $330,750, (iv)
9
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in the case of the full year ended December 31, 2002, the excess of the
Company's pre-tax earnings for such full fiscal year over $347,288, (v) in the
case of the full year ended December 31, 2003, the excess of the Company's pre-
tax earnings for such full fiscal year over $364,652; and (vi) for the fiscal
period from January 1, 2004 through the fifth anniversary of the Closing Date,
the excess of the Company's pre-tax earnings over the sum of $382,884.60
annually pro rated for the number of days actually elapsed. Anything in this
Section 1.04 to the contrary notwithstanding, no such payments in respect of
contingent payments under this Section 1.04 shall accrue for any period
subsequent to the termination of the Company's Employment Agreement with Stephen
Haynes.
(b) e-Commerce Profits Distribution. On or prior to March 31, 2000,
-------------------------------
2001, 2002, 2003, 2004 and 2005, Acquiror shall make a cash payment to the
Shareholders equal to twenty-five percent (25%) of the net, after tax profits
for the fiscal years ended December 31, 1999, December 31, 2000, December 31,
2001, December 31, 2002 and December 31, 2003, respectively, and the period from
January 1, 2004 to the fifth anniversary of the Closing Date from any of
Acquiror's sales of janitorial and sanitary supplies which are also sold by the
Company, from all sales of such products by Acquiror through its own Internet
"e-commerce" program, to customers located within a sixty (60) mile radius of
any of the Company's three facility locations in Kentucky.
(c) Adjustment for Over-Payments. In the event that the total amount of
----------------------------
payments made to on for the benefit of the Shareholders pursuant to any
provisions of this Article exceeds the aggregate amount of payments to which the
Shareholders were entitled to receive pursuant to such provisions, Acquiror
shall promptly notify the Shareholders in writing of the excess payment and
shall at its option set off any shortfall against any subsequent payment or
require the Shareholders to refund to Acquiror the amount of any such excess
payments within thirty (30) days from the receipt of such notice.
1.05. Closing. The Closing of the transactions contemplated by this
-------
Agreement will take place by delivery of all documents, shares, checks and other
items required for Closing to the offices of Harrington, Ocko, and Monk, LLP,
counsel to Acquiror ("HOM"), at 81 Main Street, White Plains, New York. All
such items will be held in excrow by HOM until such time as all items necessary
for Closing have been received and approval to complete the Closing has been
received and approval to complete the Closing has been received by HOM from
Acquiror, the Company and Haynes.
(a) At the Closing, the Shareholders will deliver to Acquiror or
Acquiror's Subsidiary the Company Stock, together with a stock power or stock
powers duly endorsed for transfer, and Company will deliver to Acquiror or
Acquiror's Subsidiary all other previously undelivered documents required to be
delivered by the Company or any of its officers or directors at or prior to the
closing in connection with the transactions contemplated by this Agreement.
(b) At the Closing, there will be delivered to the Company and the
Shareholders respectively (i) by Acquiror or Acquiror's Subsidiary, the
consideration referred to in Section 1.02 hereof to be delivered at the closing,
and (ii) by Acquiror or Acquiror's Subsidiary, all previously undelivered
documents required to be delivered by Acquiror or Acquiror's Subsidiary
10
<PAGE>
to the Company at or prior to the Closing.
1.06. Further Assurances. After the Closing, the Shareholders and the
------------------
Company shall from time to time, at the request of Acquiror or Acquiror's
Subsidiary and without further cost or expense to Acquiror, execute and deliver
such other instruments of conveyance and transfer and take such other actions as
Acquiror or Acquiror's Subsidiary may reasonably request, in order to more
effectively consummate the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
---------------
2.01. Confidentiality. Each party hereto will hold and will cause its
---------------
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all documents and information concerning
the other party furnished it by such other party or its representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
the party to which it was furnished, (ii) in the public domain through no fault
of such party, or (iii) later lawfully acquired from other sources by the party
to which it was furnished), and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such information shall not be used to the
detriment of, or in relation to any investment in, the other party and all such
documents (including copies thereof) shall be returned to the other party
immediately upon the written request of such other party. Each party shall be
deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
2.02. Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
"Acquiror" means Enviro-Clean of American, Inc., a corporation formed
under the laws of Nevada.
"Acquiror's Subsidiary" means SCS Acquisition Corp., a corporation formed
under the laws of Nevada.
The terms "Affiliate" and "Associate" have the meanings prescribed by Rule
12b-2 of the regulations promulgated pursuant to the Securities Exchange Act.
"Balance Sheet" means the unaudited consolidated balance sheet of the
Company referred
11
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to in Section 3.06(ii) of this Agreement.
"Closing" means the closing referred to in Section 1.01 of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1954, as amended.
"Company" means Superior Chemical and Supplies, Inc., a corporation formed
under the laws of Kentucky.
"Company Affiliate" means each Affiliate of the Company.
"Disclosure Schedule" means the document delivered by the Shareholders and
the Company to the Acquiror simultaneously with the execution hereof containing
the information required to be included therein pursuant to this Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Shareholder" means the Shareholders of the Company whose names are set
forth on the signature page hereto, who, in the aggregate, own beneficially and
of record all issued and outstanding capital stock of the Company.
"Target Amount" means pre-tax earnings of the Company amounting to $250,000
per annum, pro rated for any period of less than one full year and increased by
5% for each year under this Agreement.
Certain terms used in this Agreement are defined in the section used. The
plural of any defined term shall have a meaning correlative to such defined
term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND SHAREHOLDERS
-------------------------------
The Company and the Shareholders hereby represent, covenant and warrant to
Acquiror as follows:
12
<PAGE>
3.01. Corporate Organization; Etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Kentucky and has full corporate power and authority to carry on its business as
it is now being conducted and to own the properties and assets it now owns and
is duly qualified or licensed to do business in the jurisdiction of Kentucky,
which is the only jurisdiction in which qualification or licensing is required
The copies of the Certificate of Incorporation and By-Laws of the Company
heretofore delivered to Acquiror are complete and correct copies of such
instruments as presently in effect.
3.02. Capitalization of the Company. As of the date of this Agreement,
-----------------------------
the authorized capital stock of the Company consists of one hundred (100) shares
of common stock, no par value, of which 100 shares are issued and outstanding
and no shares are held in the treasury of the Company. All issued and
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable. As of the date of this Agreement, there are no (i)
securities convertible into or exchangeable for the Company capital stock; (ii)
options, warrants or other rights to purchase or subscribe to capital stock of
the Company or securities convertible into or exchangeable for capital stock of
the Company; or (iii) contracts, commitments, agreements, understandings or
arrangements of any kind oral or written relating to the issuance of any capital
stock of the Company, any such convertible or exchangeable securities or any
such options, warrants or rights.
3.03. No Affiliates. The Company does not own, directly or indirectly,
-------------
any capital stock or other equity securities of any corporation, partnership
trust, joint venture or other entity nor have any direct or indirect equity or
ownership interest in any business.
3.04. Authorization, Etc. The Shareholders have full legal competence
------------------
and the Company has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors and Shareholders of the Company have taken all action required by law,
the Company's Certificate of Incorporation, the Company By-Laws or otherwise to
be taken by them to authorize the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement is a
valid and binding agreement of the Shareholders and the Company enforceable in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditor's rights, (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought, and (iii) enforceability of certain
sections of this Agreement may be subject to limitations of public policy under
Federal and State securities laws.
3.05 No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or By-Laws of the
Company or violate, or be in conflict with, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation pursuant to, or
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of the Company under, any agreement or
commitment to which the Company or any Shareholder is a
13
<PAGE>
party or by which the Company or any Shareholder is bound, or to which the
property of the Company is subject, or violates any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority.
3.06. Statement of Accounts; No Undisclosed Liabilities. As of July 31,
--------------------------------------------------
1999, the balances of the following accounts of the Company were as follows:
Cash in Bank $ 7,779.12
Accounts Receivable 180,350.67
Inventory 192,820.76
Accounts Payable 75,909.45
Such accounts present fairly the financial condition of the Company as of such
dates and the results of operations of the Company for such periods. The
statement of account as of July 31, 1999 is herein referred to as the "Balance
Sheet".
The Company has no liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which were not fully reflected or reserved
against in the financial statements, except for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since the date thereof which do not, in the aggregate, exceed $25,000, and the
reserves for liabilities and contingencies reflected in the financial statements
are adequate, appropriate and reasonable.
3.07. Accounts Receivable. All accounts receivable of the Company,
-------------------
whether reflected in the Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Balance Sheet (which reserves are adequate and were
calculated consistent with past practice). Subject to such reserve, each of the
accounts receivable either has been collected in full or will be collected in
full, without any set-off, within 120 days after the day on which it became due
and payable.
3.08. Inventory. All inventory of the Company, whether reflected in
---------
the Balance Sheet or otherwise, consists of a quality and quantity usable and
salable in the ordinary course of business, except for items of obsolete
materials and materials of below-standard quality, all of which have been
written down in the Balance Sheet to realizable market value or for which
adequate reserves have been provided therein. The quantities of all inventory of
the Company are reasonable and warranted in the present circumstances of its
business.
3.09. Interim Operations. Since the date of the Balance Sheet, the
------------------
business of the Company has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Balance Sheet, to the best
knowledge of the Company and the Shareholders there have not been any adverse
changes in the financial condition, assets or results of operations of the
Company. Since such date such assets have not been affected in any way as a
result of flood, fire, explosion or other casualty (whether or not covered by
insurance). The Company is not aware of any circumstances which may cause it to
suffer any adverse change in its business, operations or prospects.
14
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3.10. Title to Properties; Encumbrances. The Company has good, valid and
---------------------------------
marketable title to all the properties and assets which it purports to own
(real, personal and mixed, tangible and intangible), including, without
limitation, all the properties and assets reflected in the Balance Sheet, and
all the properties and assets purchased by the Company since the date of the
Balance Sheet. All properties and assets reflected in the Balance Sheet have a
fair market or realizable value at least equal to the value thereof as reflected
therein, and all such properties and assets are free and clear of all title
defects or objections, liens, claims, charges, security interests or other
encumbrances of any nature whatsoever including, without limitation leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest retention arrangements, and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations or limitations of any nature whatsoever
except, with respect to all such properties and assets, (a) liens shown on the
Balance Sheet as securing specified liabilities or obligations and liens
incurred in connection with the purchase of property and/or assets, if such
purchase was effected after the date of the Balance Sheet, with respect to which
no default exists; (b) minor imperfections of title, if any, none of which are
substantial in amount, materially detract from the value or impair the use of
the property subject thereto, or impair the operations of the Company and which
have arisen only in the ordinary course of business and consistent with past
practice since the date of the Balance Sheet; and (c) liens for current taxes
not yet due. The rights, properties and other assets presently owned, leased or
licensed by the Company and described elsewhere in this Agreement include all
rights, properties and other assets necessary to permit the Company to conduct
its business in all material respects in the same manner as its business has
been conducted prior to the date hereof.
3.11. Legal Compliance. The Company has complied with all applicable
-----------------
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), except where the failure to
comply would not have a material adverse effect upon the financial condition of
the Company taken as a whole.
3.12. Plant and Equipment. The plants, structures and equipment of the
-------------------
Company are structurally sound with no defects and are in good operating
condition and repair and are adequate for the uses to which they are being put;
and none of such plants, structures or equipment are in need of maintenance or
repairs except for ordinary, routine maintenance and repairs which are not
material in nature or cost. The Company has not received notification that it
is in violation of any applicable building, zoning, anti-pollution, health or
other law, ordinance or regulation in respect of its plants or structures or
their operations and no such violation exists.
3.13. Leases. Section 3.13 of the Disclosure Schedule contains an
------
accurate and complete description of the terms of all leases pursuant to which
the Company or leases real or personal property. All such leases are valid,
binding and enforceable in accordance with their terms, and are in full force
and effect; there are no existing defaults by the Company; no event of default
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder; and all lessors under such leases have consented (where such consent
is necessary) to the consummation of the transactions contemplated by this
Agreement without requiring modification in the rights or obligations of the
lessee under such leases. Executed counterpart copies of all consents referred
to in the preceding
15
<PAGE>
sentence will be delivered to Acquiror prior to or at the Closing. The Company
and Shareholder have not received any written or oral notice to the effect that
any leases will be renewed at a substantially higher rent than otherwise
provided in such lease.
3.14. Bank Accounts. Section 3.14 of the Disclosure Schedule sets forth
-------------
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature. At the Closing, the Company will
deliver to Acquiror copies of all records, including all signature or
authorization cards, pertaining to such bank accounts.
3.15. Taxes. The Company has duly filed all tax reports and returns
-----
required to be filed by it and have duly paid all taxes and other charges due or
claimed to be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales or payrolls of any of them); the reserves for taxes
reflected in the Balance Sheet are adequate; and there are no tax liens upon any
property or assets of the Company except liens for current taxes not yet due.
The federal income tax returns of the Company have been examined by the Internal
Revenue Service for all periods to and including those set forth in Section
3.15(a) of the Disclosure Schedule; and, except to the extent shown therein, all
deficiencies asserted as a result of such examinations have been paid or finally
settled and no issue has been raised by the Internal Revenue Service in any such
examination which, by application of the same or similar principles, reasonably
could be expected to result in a proposed deficiency for any other period not so
examined. Further, no state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability with respect to the
periods which have not been audited by the Internal Revenue Service. There are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal income tax return for any period. Copies
of all income tax returns for the Company in respect of all years not barred by
the statute of limitations have heretofore been delivered by the Company to
Acquiror and all such returns are listed in Section 3.15(b) of the Disclosure
Schedule. The Company has not, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f)(2) of the Code.
3.16. Contracts and Commitments. The Company and Shareholders covenant
-------------------------
that:
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of the Company continue for
a period of more than twelve (12) months or are in excess of the normal,
ordinary and usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than twelve (12)
months or will result in any loss to the Company upon completion or performance
thereof, after allowance for direct distribution expenses nor are there any
outstanding contracts, bids or sales or service proposals quoting prices which
will not result in a normal profit;
16
<PAGE>
(d) The Company has no outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by it on notice of not longer
than 30 days and without liability, penalty or premium;
(e) The Company has no employment agreement, or any other agreement
that contains any severance, or termination liabilities or obligations;
(f) The Company has no collective bargaining or union contracts or
agreements;
(g) The Company is not in default, nor is there any basis for any
valid claim of default, under any contract made or obligation owed by it;
(h) The Company has no employee other than Stephen Haynes to whom it
is paying compensation at the annual rate of more than $50,000 for services
rendered;
(i) The Company is not restricted by agreement from carrying on its
business anywhere in the world;
(j) The Company is not under any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or their customers;
(k) Except as set forth in Section 3.16 (k) of the Disclosure
Schedule, the Company has no debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation of others;
(1) The Company has no outstanding loans to any person or entity;
and
(m) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
3.17. Customers and Suppliers. Sections 3.17(a) and (b), respectively,
-----------------------
of the Disclosure Schedule set forth: (a) a list of (i) the ten largest
customers of the Company in terms of sales during the fiscal year ended December
31, 1998 and (ii) the ten largest customers of the Company in terms of sales
during the seven months ending July 31, 1999, showing the approximate total
sales by the Company to each such customer during the fiscal year ended December
31, 1998 and the seven months ending July 31, 1999, respectively; (b) a list of
(i) the ten largest suppliers of the Company in terms of purchases during the
fiscal year ended December 31, 1998, and (ii) the ten largest suppliers of the
Company in terms of purchases during the seven months ending July 31, 1999,
showing the approximate total purchases by the Company from each such supplier
during the fiscal year ended December 31, 1998 and the seven months ending July
31, 1999, respectively. There has not been any material adverse change in the
business relationship of the Company with any customer or supplier named in
Sections
17
<PAGE>
3.17(a) and 3.17(b) of the Disclosure Schedule. The Company has not had any
customer who accounted for more than 5% of Company's sales during the period
from January 1, 1999 to July 31, 1999 or any supplier from whom it purchased
more than 5% of the goods or services which it purchased during the period
January 1, 1999 to July 31, 1999.
3.18. Orders, Commitments and Returns. As of the date of this Agreement,
-------------------------------
the aggregate of all accepted and unfulfilled orders for the sale of merchandise
entered into by the Company does not exceed $20,000, and the aggregate of all
contracts or commitments for the purchase of supplies by them does not exceed
$20,000 all of which orders, contracts and commitments were made in the ordinary
course of business. As of the date of this Agreement, there are no claims
against the Company to return in excess of an aggregate of $500 of merchandise
by reason of alleged overshipments, defective merchandise or otherwise, or of
merchandise in the hands of customers under an understanding that such
merchandise would be returnable.
3.19. Agreements in Full Force and Effect. All contracts, agreements,
-----------------------------------
plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof have been heretofore
made available to Acquiror.
3.20. Insurance. Section 3.20 of the Disclosure Schedule contains an
---------
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the
Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to which the Company is a
party; are valid, outstanding and enforceable policies; provide adequate
insurance coverage for the assets and operations of the Company; will remain in
full force and effect through the respective dates set forth in Section 3.20(a)
of the Disclosure Schedule without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Section 3.20(b) of the Disclosure
Schedule identifies all risks which the Company, its Board of Directors or
officers have designated as being self insured. The Company has not been
refused any insurance with respect to its assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last years.
3.21. Labor Difficulties. (a) The Company is in compliance with all
------------------
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (b) there is no unfair labor practice complaint against the
Company pending before the National Labor Relations Board; (c) there is no labor
strike, dispute, slowdown or stoppage actually pending or threatened against or
affecting the Company; (d) no representation question exists respecting the
employees of the Company; (e) no grievance nor any arbitration proceeding
arising out of or under collective bargaining agreements is pending and no claim
therefor exists; (f) no collective bargaining agreement which is binding on the
Company restricts it from relocating or closing any of their operations; and (g)
the Company has not experienced any work stoppage or other labor difficulty
18
<PAGE>
in the past twenty-four months.
3.22. Fringe Benefit Plans. The Company has no bonus, deferred
--------------------
compensation, pension, profit-sharing, retirement, stock purchase, stock option
or any other fringe benefit plan, arrangement or practice, whether formal or
informal. The Company has no commitments, whether formal or informal and
whether legally binding or not, to create any such plan or arrangement.
3.23. Litigation. Except as set forth in Section 3.23 of the
----------
Disclosure Schedule, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or threatened against or involving
the Company or the Shareholders, or which questions or challenges the validity
of this Agreement or any action taken or to be taken by the Company or the
Shareholders pursuant to this Agreement or in connection with the transactions
contemplated hereby; nor is there any valid basis for any such action,
proceeding or investigation. The Company is not in default under or in
violation of, nor is there any valid basis for any claim of default under or
violation of, any contract, commitment or restriction to which it is a party or
by which it is bound. The Company is not subject to any judgment, order or
decree entered in any lawsuit or proceeding which may have an adverse effect on
its business practices or on its ability to acquire any property or conduct its
business in any area.
3.24. No Condemnation or Expropriation. Neither the whole nor any portion
--------------------------------
of the leaseholds or any other assets of the Company is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor has any such condemnation, expropriation or taking been proposed.
3.25. Consents and Approvals of Governmental Authorities. No consent,
--------------------------------------------------
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.26. Consents. No consent of any person is necessary to the
--------
consummation of the transactions contemplated hereby, including, without
limitation, consents from parties to loans, contracts, leases or other
agreements and consents from governmental agencies, whether federal, state or
local.
3.27. Compliance with Law. The operations of the Company have been
-------------------
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all states,
municipalities and other political subdivisions and agencies thereof, having
jurisdiction over the Company, including, without limitation, all such laws,
regulations and requirements relating to antitrust, consumer protection,
currency exchange, equal opportunity, health, occupational safety, pension,
securities and trading-with-the-enemy matters. The Company has not received
any notification of any asserted present or past failure by the Company to
comply with such laws, rules or regulations.
19
<PAGE>
3.28. Environmental Protection. The Company has obtained all permits,
------------------------
licenses and other authorizations which are required under federal, state and
local laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. The Company is in full compliance with all terms and
conditions of the required permits, licenses and authorizations, and is also in
full compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder.
The Company and Shareholders are not aware of, nor has the Company or any
Shareholder received notice of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste.
3.29. Compliance with ERISA. The Company has never had a benefit plan
---------------------
that is governed by ERISA.
3.30. Good Title Conveyed, Etc. The Shareholders have complete and
------------------------
unrestricted power and the unqualified right to sell, assign, transfer and
deliver to Acquiror, and upon consummation of the transactions contemplated by
this Agreement, Acquiror's Subsidiary will acquire, good, valid and marketable
title to, the Company Stock to be transferred to Acquiror's Subsidiary
hereunder, free and clear of all mortgages, pledges, liens, security interests,
conditional sales agreements, encumbrances or charges of any kind.
3.31. Brokers and Finders. Neither the Shareholders, the Company nor
-------------------
any of its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
3.32. Absence of Questionable Payments. Neither the Company nor any
--------------------------------
director, officer, agent, employee or other person acting on behalf of the
Company, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Securities Exchange Act. The Company nor any current director, officer, agent,
employee or other person acting on behalf of the Company has accepted or
received any unlawful contributions, payments, gifts, or expenditures.
3.33. Personnel. Section 3.33 of the Disclosure Schedule sets forth a
---------
true and complete list of:
20
<PAGE>
(a) the names and current salaries of all directors and elected and
appointed officers of each of the Company, the number of shares of the Company
Stock owned beneficially or of record, or both, by each such person and the
family relationships, if any, among such persons;
(b) the wage rates for non-salaried and nonexecutive salaried
employees of the Company by classification, and all labor union contracts if
any; and
(c) all group insurance programs in effect for employees of the
Company. The Company is not in default with respect to any of its obligations
referred to in the preceding sentence.
3.34. Insider Interests. Except as set forth in Schedule 3.34, no officer
-----------------
or director of the Company has any material interest in any property, real or
personal, tangible or intangible, including without limitation, inventions,
patents, trademarks or trade names, used in or pertaining to the business of the
Company or any Company Subsidiary.
3.35. Products Liability. There is no action, suit, inquiry, proceeding or
------------------
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or threatened against or involving
the Company relating to any product alleged to have been manufactured or sold by
the Company and alleged to have been defective, or improperly designed or
manufactured, nor is there any valid basis for any such action, proceeding or
investigation.
3.36. Disclosure. No representations or warranties by the Shareholders or
----------
the Company in this Agreement and no statement contained in any document
(including, without limitation, financial statements and the Disclosure
Schedule), certificate, or other writing furnished or to be furnished by the
Company or any Shareholder to Acquiror or any of its representatives pursuant to
the provisions hereof or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of material fact or omits
or will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
------------------------------------------
AGREEMENTS OF THE SHAREHOLDERS
------------------------------
Each of the Shareholders hereby represents and warrants to, and covenants
and agrees with, the Acquiror, as of the date of the Closing, that:
21
<PAGE>
4.01. Investment. (a) Such Shareholder has received such information
----------
relating to the business and affairs of the Acquiror which such Shareholder has
requested, and all additional information which such Shareholder has considered
necessary to verify the accuracy of the information so received. Such
Shareholder has had the opportunity to ask questions of and receive answers from
the Acquiror concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, such Shareholder
is familiar with the operations, business plans and financial condition of the
Acquiror.
(b) Such Shareholder understands that the Acquiror proposes to issue
and deliver to such Shareholder, under certain circumstances, shares of
Acquiror's Common Stock pursuant to this Agreement without registration under
the Securities Act or the laws of any state in reliance upon various exemptions
from registration contained in such laws and regulations; that for purposes of
determining the availability of the applicable exemptions from registration the
Acquiror will rely upon the representations, warranties, covenants and
agreements contained herein. Such Shareholder is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
(c) Such Shareholder understands that, under existing rules of the
Securities and Exchange Commission, such Shareholder may be unable to sell his
shares of Acquiror's Common Stock except to the extent that such shares of
Acquiror's Common Stock may be sold (A) pursuant to an effective registration
statement covering such shares pursuant to the Securities Act or (B) in a bona
fide private placement to a purchaser who shall be subject to the same
restrictions on any resale or (C) subject to the restrictions contained in Rule
144 under the Securities Act ("Rule 144"). Such Shareholder understands that
the Acquiror is under no obligation to effect a registration of the
Shareholder's shares of Acquiror's Common Stock under the Securities Act.
(d) Such Shareholder is familiar with the provisions of Rule 144 and
the limitations upon the availability and applicability of such Rule.
(e) Such Shareholder is a sophisticated investor familiar with the
type of risks inherent in the acquisition of restricted securities such as the
shares of Acquiror's Common Stock and his financial position is such that he can
afford to retain his shares of Acquiror's Common Stock for an indefinite period
of time without realizing any direct or indirect cash return on his investment.
(f) Such Shareholder is acquiring his shares of Acquiror's Common
Stock for his account and not with a view to, or for sale in connection with,
the distribution thereof within the meaning of the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
22
<PAGE>
ACQUIROR AND ACQUIROR'S SUBSIDIARY
----------------------------------
Acquiror and Acquiror's Subsidiary, jointly and severally, represent and
warrant to the Company as follows:
5.01. Corporate Organization; Etc. Acquiror and Acquiror's Subsidiary
---------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the State of Nevada. All the issued and outstanding shares of capital
stock of Acquiror's Subsidiary have been duly authorized by all necessary
corporation action and are validly issued, fully paid and nonassessable and are
owned by Acquiror.
5.02. Authorization; Etc. Acquiror and Acquiror's Subsidiary have full
------------------
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Boards of Directors of Acquiror and
Acquiror's Subsidiary have taken all action required by law, their respective
Certificates of Incorporation and By-Laws or otherwise to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of Acquiror and
Acquiror's Subsidiary enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.03. No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated hereby will violate any
provisions of the respective Certificate of Incorporation or By-Laws of Acquiror
or Acquiror's Subsidiary, or violate, or be in conflict with, or constitute a
default under, or cause the acceleration of the maturity of any debt or
obligation pursuant to, any agreement or commitment to which Acquiror or
Acquiror's Subsidiary is a party or by which Acquiror or Acquiror's Subsidiary
is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
ARTICLE VI
COVENANTS OF THE SHAREHOLDERS AND THE COMPANY
---------------------------------------------
The Shareholders and the Company hereby covenant and agree with Acquiror:
6.01. Full Access. The Shareholders shall cause the Company to, and
-----------
the Company shall, afford to Acquiror, its counsel, accountants and other
representatives full access to the
23
<PAGE>
plants, offices, warehouses, properties, books and records of the Company in
order that Acquiror may have full opportunity to make such investigations as it
shall desire to make of the affairs of the Company; and the Company will cause
its officers and accountants to furnish such additional financial and operating
data and other information as Acquiror shall from time to time request;
provided, however, that any such investigation shall be conducted in such a
- -------- -------
manner as not to interfere unreasonably with the operation of the businesses of
the Company.
6.02. Consents of Company Lenders, Etc. The Shareholders shall cause
--------------------------------
the Company to, and the Company shall, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents necessary, as
reasonably requested by counsel to the Acquiror for the consummation of the
transactions contemplated hereby and will provide to Acquiror copies of each
such consent promptly after it is obtained.
6.03. Supplements to Disclosure Schedule. From time to time prior to
----------------------------------
the Closing, the Company will promptly supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedule. No supplement or amendment of the
Disclosure Schedule made pursuant to this section shall be deemed to cure any
breach of any representation of or warranty made in this Agreement unless
Acquiror specifically agrees thereto in writing.
6.04. Additional Financial Statements. The Company shall furnish Acquiror
-------------------------------
with financial statements similar to those referred to in Section 3.07(ii) as of
July 31, 1999, and for the six month periods ended on such date, all certified
by the chief financial officer and President of the Company, as soon as they
become available, but in no event later than forty-five (45) days following the
Closing Date.
6.05. Other Transactions. Neither the Company nor its Board of Directors
------------------
shall enter into any discussions concerning, or approve or recommend to the
holders of any shares of its capital stock, any merger, consolidation,
disposition of all or substantially all of its business, properties or assets
(other than pursuant to this Agreement), any tender offer, acquisition or other
business combination, or proposal therefor, or furnish or cause to be furnished
any information concerning the business, properties or assets of the Company to
any party in connection with any tender offer or other transaction involving the
acquisition of the Company or all or any substantial part of its assets by any
person other than Acquiror or Acquiror's Subsidiary.
6.06. Covenant to Satisfy Conditions. The Shareholders and the Company
------------------------------
will use their best efforts to ensure that the conditions set forth in Article
VIII hereof are satisfied, insofar as such matters are within the control of any
of them.
6.07. Certificates. At the Closing the Company will furnish Acquiror
------------
with such certificates of its officers and others to evidence compliance with
the covenants set forth in this Article VI as may be reasonably requested by
Acquiror.
6.08 Resignation of Directors. Immediately prior to the Closing, each
------------------------
member of the Board of Directors of the Company so requested by Acquiror shall
have delivered to Acquiror a
24
<PAGE>
written resignation from such Board of Directors effective as of the Closing
Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE
------------------------------------
SHAREHOLDERS AND THE COMPANY
----------------------------
Each and every obligation of the Shareholders and the Company under this
Agreement to be performed on or before the Closing shall be subject to the
reasonable satisfaction, on or before the Closing, of each of the following
conditions, unless waived in writing by the Shareholders and the Company:
7.01. Representations and Warranties True. The representations and
-----------------------------------
warranties of Acquiror and Acquiror's Subsidiary contained herein shall be in
all material respects true and accurate as of the date when made and at and as
of the Closing as though such representations and warranties were made at and as
of such date, except for changes expressly permitted or contemplated by the
terms of this Agreement.
7.02. Performance. Acquiror and Acquiror's Subsidiary shall have
-----------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing.
7.03. No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
7.04. Certificates. Acquiror and Acquiror's Subsidiary shall have
------------
furnished the Company with such certificates of their officers and others to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by the Company.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUIROR
-------------------------------------
AND ACQUIROR'S SUBSIDIARY
-------------------------
25
<PAGE>
Each and every obligation of Acquiror and Acquiror's Subsidiary under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Acquiror:
8.01. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Article III hereof, the Disclosure Schedule and in all
certificates and other documents delivered and to be delivered by the
Shareholders and the Company to Acquiror or Acquiror's Subsidiary or their
representatives pursuant hereto or in connection with the transactions
contemplated hereby shall be true, complete and accurate as of the date when
made and at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement.
8.02. Performance. The Shareholders and the Company shall have performed
-----------
and complied with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing,
to the satisfaction of Acquiror's Counsel.
8.03. Investigations; Etc. No investigation of the Company, nor the
-------------------
Disclosure Schedule or any supplement thereto nor any other document delivered
to Acquiror as contemplated by this Agreement, shall have revealed any facts or
circumstances which, in the sole and exclusive judgment of Acquiror, reflect in
a material adverse way on the financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, business, operations or
prospects of the Company.
8.04. Consents Obtained. All consents from third parties and government
-----------------
agencies required to consummate the transactions contemplated hereby shall have
been obtained.
8.05. No Government Proceeding or Litigation. No suit, action,
--------------------------------------
investigation, inquiry or other proceeding-by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened against the Company or any Shareholder which questions the validity
or legality of any of the transactions contemplated by this Agreement.
8.06. No Injunction. On the Closing Date there shall be no effective
-------------
pending or threatened injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transaction
contemplated hereby which the Acquiror deems unacceptable in its sole
discretion.
8.07. Material Change. From the date of the Balance Sheet to the Closing
---------------
Date, the Company shall not have suffered any adverse change (whether or not
such change is referred to or described in any supplement to the Disclosure
Schedule) in its business, prospects, financial condition, working capital,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
26
<PAGE>
8.08. Opinion of the Company's Counsel. The Company shall have delivered
--------------------------------
to Acquiror an opinion of Pierce, Simpson & Shadoan, counsel to the Company,
dated as of the Closing Date, in form and substance satisfactory to Acquiror, to
the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation;
(b) The Company is duly qualified as a foreign corporation and in
good standing in each jurisdiction in which the properties owned or leased by it
or the nature of the business conducted by it makes such qualification
necessary;
(c) The Company has the corporate power and authority to carry on
its business as it is now being conducted and to own the properties and assets
it now owns, and the Company has the full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby;
(d) The Shareholders have the authority to enter into the Agreement
and to consummate the transactions contemplated hereby;
(e) The only authorized capital stock of the Company consists of
One Hundred (100) shares of no par Common Stock, One Hundred (100) shares of
which are issued and outstanding, that such issued shares have been duly and
validly authorized and issued and are fully paid and nonassessable;
(f) Based upon an examination of the records of the Company, there
are no outstanding options, warrants, calls, commitments or other rights or
agreements to which the Company or any Shareholder is bound relating to the
issuance, sale or redemption of common stock of the Company to purchase or
acquire any capital stock of the Company;
(g) All corporate action by the Company required in order to
authorize the transactions contemplated hereby has been duly and validly taken;
and this Agreement has been duly executed and delivered by the Company and is
the valid and binding obligation of the Company enforceable in accordance with
its terms except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors, rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought;
(h) The Shareholders have complete and unrestricted power to sell,
convey, assign, transfer and deliver to Acquiror the Company Stock; and the
instruments of sale, conveyance, assignment and transfer executed and delivered
to Acquiror or Acquiror's Subsidiary hereunder are duly executed, are valid and
binding obligations of the Shareholders, and effectively vest in Acquiror's
Subsidiary good, clear, marketable title in and to such Company Stock as
contemplated by this Agreement, free and clear of any lien, charge or
encumbrance of any kind whatsoever;
27
<PAGE>
(i) Neither the execution and delivery of this Agreement by the
Shareholders and the Company nor the consummation of the transactions
contemplated hereby will violate the Certificate of Incorporation or By-Laws of
the Company will violate, conflict with, or constitute a default under, or cause
the acceleration of maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of the Company under, any contract, commitment,
agreement, trust, understanding, arrangement or restriction of any kind to which
the Company is a party or by which the Company or any Shareholder is bound or
violates any statute or law, or any judgment, decree, order, regulation or rule
of any court or governmental authority;
(j) The Company is not engaged in or threatened with any legal
action or other proceeding or has incurred or been charged with or is under
investigation with respect to any violation of any federal, state or local law
or administrative regulation which if adversely determined might adversely
affect or impair the business or condition, financial or otherwise, of the
Company.
(k) No consent of any governmental body of any other person is
required for the consummation by the Company of the transactions contemplated
hereby, except consents the need for which is disclosed in this Agreement or the
Disclosure Schedule, all of which have been duly and validly obtained;
(1) To the best knowledge of such counsel, the Company is in
compliance with all applicable laws and regulations;
(m) No facts have come to the attention of such counsel which would
lead them to believe that any representation or warranty of the Company
contained herein or in the Disclosure Schedule or any supplement thereto is
incorrect, false or misleading in any manner;
(n) As to such other matters incident to the matters herein
contemplated as Acquiror and its counsel may reasonably request, including the
form of all documents and the validity of all proceedings.
8.09. Consents Obtained. All consents referred to in this Agreement or
-----------------
the Disclosure Schedule shall have been obtained.
8.10. Employment Contract. At or prior to the Closing, Acquiror's
-------------------
Subsidiary and Stephen Haynes shall have entered into a contract satisfactory to
Acquiror providing for his employment by Acquiror commencing upon the Closing.
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS
---------------------------------
PENDING THE CLOSING
-------------------
28
<PAGE>
Pending the Closing, and except as otherwise expressly consented to or
approved by Acquiror in writing:
9.01. Regular Course of Business. The Company and Shareholders covenant
--------------------------
and agree that they will carry on the Company's business diligently and
substantially in the same manner as heretofore conducted, and the Company shall
not institute any new methods of manufacture, purchase, sale, lease, management,
accounting or operation or engage in any transaction or activity, enter into any
agreement or make any commitment, except in the ordinary course of business and
consistent with past practice.
9.02. Amendments. No change or amendment shall be made in the Certificate
----------
of Incorporation or By-Laws of the Company.
9.03. Capital Changes; Dividends or Redemptions. Neither the
-----------------------------------------
Shareholders nor the Company will issue or sell any shares of the Company's
capital stock or other securities, acquire directly or indirectly, by redemption
or otherwise, any such capital stock, reclassify or split-up any such capital
stock, declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or grant or enter
into any options, warrants, calls or commitments of any kind with respect
thereto.
9.04. Subsidiaries. The Company will not organize any subsidiary,
------------
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business.
9.05. Organization. The Company shall use its best efforts to preserve
------------
its corporate existence and business organization intact, to keep available to
Acquiror its officers and key employees, and to preserve for Acquiror its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
9.06. Certain Changes. The Company and the Shareholders agree that the
---------------
Company will not:
(a) Borrow or agree to borrow any funds or incur, or assume or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business and consistent with past
practice;
(b) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90
days from the date such obligation was issued or incurred;
29
<PAGE>
(d) Permit or allow any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien
or encumbrance;
(e) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable except for immaterial write-downs
and write-offs in the ordinary course of business and consistent with past
practice;
(f) Cancel any debts or waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(g) Dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name or copyright, or dispose of or disclose to any
person any trade secret, formula, process or know-how not theretofore a matter
of public knowledge;
(h) Grant any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee;
(i) Make any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant or equipment or make aggregate capital
expenditures and commitments in excess of $10,000 (on a consolidated basis) for
additions to property, plant or equipment;
(j) Pay, loan or advance any amount to, or sell transfer or lease
any properties or assets to, or enter into any agreement or arrangement with,
any of its officers or directors or any affiliate or Associate of any of its
officers or directors, except for directors' fees and compensation to officers
at rates not exceeding the rates of compensation paid during the fiscal year
ended
(k) Change any of the banking or safe deposit arrangements
described in Section 3.14 of the Disclosure Schedule;
(1) Grant or extend any power of attorney or act as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity; or
(m) The Company and its Shareholders shall not fail to cooperate
fully with Acquiror, do all things reasonably necessary to assist Acquiror and
use its reasonable best efforts at its own expense to obtain all consents and
approvals necessary for the transfer of the stock, including the furnishing of
all financial and other information reasonably required by the party whose
consent or approval is being sought.
(n) Agree, whether in writing or otherwise, to do any of the
foregoing.
30
<PAGE>
9.07. Contracts. No contract or commitment will be entered into, and
---------
no purchase of raw material or supplies and no sale of assets will be made, by
or on behalf of the Company except (i) normal contracts or commitments for the
purchase of, and normal purchases of, raw materials or supplies, made in the
ordinary course of business and consistent with past practice, (ii) normal
contracts or commitments for the sale of, and normal sales of, inventory in the
ordinary course of business and consistent with past practice, and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
and consistent with past practice not in excess of $10,000 in the aggregate.
9.08. Insurance; Property. The Company shall adequately insure all
-------------------
property, real, personal and mixed, owned or leased by the Company against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired in a careful and reasonably efficient manner.
9.09. No Default. The Company shall not do any act or omit to do any
----------
act, or permit any act or omission to act, which will cause a breach of any
material contract or commitment of the Company or which would cause the breach
of any warranty made hereunder.
9.10. Compliance With Laws. The Company shall duly comply with all laws
--------------------
applicable to it and its properties, operations, business and employees.
9.11. Tax Returns. The Company and Shareholders shall prepare and file
-----------
all federal, state, local and foreign tax returns and amendments thereto
required to be filed by them. The Company and Shareholders will ensure that
Acquiror shall have a reasonable opportunity to review each such return and
amendment prior to the filing thereof.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION
-------------------------------
10.01. Investigations; Survival of Warranties. The respective
--------------------------------------
representations and warranties of the Company, Shareholders, Acquiror's
Subsidiary and Acquiror contained herein or in any certificates or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto. Each and every
such representation and warranty shall survive for a period of two (2) years
after the date such representation and warranty is deemed made, except (i) for
covenants and agreements to be performed subsequent to the Closing and (ii) that
nothing in the foregoing shall be deemed to diminish any Indemnifying Party's
(as hereinafter defined) indemnification obligations to an Indemnified Party
respecting (a) any matter for which written notice to the Indemnifying Party has
been given prior to the end of the applicable indemnification period, and (b)
claims for
31
<PAGE>
indemnification for tax matters and common law fraud, which shall survive for
the duration of the applicable statutes of limitations.
10.02. Indemnification; Rights of Set-off. The Company and the
----------------------------------
Shareholders jointly and severally agree to save harmless, defend and indemnify
Acquiror, Acquiror's Subsidiary and their respective officers, directors,
agents, attorneys, accountants, or other representatives of such parties
(jointly or severally "Indemnified Parties") against, and hold them harmless
from any and all liabilities, of every kind, nature and description, fixed or
contingent (including, without limitation, reasonable counsel fees, expert
witness fees, and expenses in connection with any action, claim or proceeding
relating to such liabilities) arising out of a breach of any of the
representations and warranties or covenants contained herein and/or any
transaction or event commencing or occurring on or prior to the Closing Date,
which is not fully disclosed or provided for in this Agreement, the Disclosure
Statement or the due diligence items provided in connection with this
transaction.
In the event that Acquiror or Acquiror's Subsidiary believes that there has
been a breach of any representation or warranty or covenant of the Shareholders
or the Company under this Agreement or that the Company or the Shareholders have
otherwise breached any obligation of any of them under this Agreement, Acquiror
and Acquiror's Subsidiary shall have the right, upon written notice to the
Shareholders, to withhold from any payment otherwise to be made to or for the
benefit of the Shareholders under this Agreement, an amount equal to the amount
by which Acquiror or Acquiror's Subsidiary believes it has been damaged by such
breach. The rights of the Indemnified Parties under this Section 10.02 are
without prejudice to any other rights or remedies that it may have by reason of
this Agreement or as otherwise provided by law. In addition to, and not in
derogation of, any rights to indemnification hereunder or otherwise available to
Acquiror or Acquiror's Subsidiary, the Shareholders specifically agree to
indemnify the Company, Acquiror and Acquiror's Subsidiary from any liability or
expense including legal fees and disbursements of counsel to any party so
indemnified, in connection with the action entitled BGM Equipment v. William
Beville individually and d/b/a Superior Chemical & Supply Company, Warrren
Circuit Court, Civil Action No. 95-CI-01290, or any appeal in connection
therewith.
If any dispute or disagreement arises between Acquiror and Acquiror's
Subsidiary, on the one hand, and the Shareholders, on the other hand, with
respect to any right of set off claimed by Acquiror or Acquiror's Subsidiary,
under this, and Acquiror and Acquiror's Subsidiary, on the one hand, and the
Shareholders and or the Company, on the other hand, are unable to resolve such
dispute the Arbitration provisions of Section 10.04, below, shall control.
10.03 Injunctive Relief. Notwithstanding the provisions of Section
-----------------
10.04 hereof, in the event of a breach or threatened breach by any of the
Shareholders of the provisions of this Agreement, the Acquiror or Acquiror's
Subsidiary shall be entitled in order to maintain the status quo ante pending
the outcome of any arbitration pursuant to Section 10.04 hereof to seek an
injunction or similar equitable relief restraining any of the Shareholders or
the Company, as the case may be, from committing or continuing any such breach
or threatened breach or granting specific performance of any act required to be
performed by any of the Shareholders or the Company, as the case may be, under
any such provision, without the necessity of showing that
32
<PAGE>
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. The parties hereto hereby consent to the
jurisdiction of the federal courts located in The City of New York and the New
York state courts located in New York City for any proceedings under this
Section 10.03. The parties hereto agree that the availability of arbitration in
Section 10.04 hereof shall not be used by any party as grounds for the dismissal
of any injunctive actions instituted by the Acquiror pursuant to this Section
10.03.
10.04. Dispute Resolution
------------------
(a) Arbitration. The parties shall attempt amicably to resolve
-----------
disagreements by negotiating with each other. In the event that the matter is
not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to final binding arbitration, which shall be conducted by a
single arbitrator (the "Arbitrator") in New York, New York, pursuant to the
rules of the American Arbitration Association (the "Rules").
In the event that the parties cannot agree as to the Arbitrator to be
named, each party to the Controversy shall appoint one arbitrator and those two
arbitrators shall select the Arbitrator.
10.05 Procedure. If any party shall desire relief of any nature
---------
whatsoever from any other party as a result of any Controversy, such party will
initiate such arbitration proceedings within a reasonable time, but in no event
more than one (1) year after the facts underlying said Controversy first arise
or become known to the party seeking relief (whichever is later). The failure of
such party to institute such proceedings within said period shall be deemed a
full waiver of any claim for such relief. Arbitrator may award the prevailing
party its costs for the arbitration proceeding, including its reasonable
attorneys' fees and costs. The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable or judicial proceedings between them, and that no appeal or
judicial review of the award or decision of the Arbitrator shall be taken, but
that such award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is sought.
ARTICLE XI
TERMINATION AND ABANDONMENT
---------------------------
11.01. Methods of Termination. The transactions contemplated herein may
----------------------
be terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual consent of the respective Boards of Directors of
Acquiror and the Company; or
33
<PAGE>
(b) By the Board of Directors of Acquiror on or after July 30,
1999, or such later date as may be established pursuant to Section 1.03 hereof,
if any of the conditions provided for in Article VIII of this Agreement shall
not have been met or waived in writing by Acquiror prior to such date.
11.02. Procedure Upon Termination. In the event of termination and
--------------------------
abandonment by the Board of Directors of Acquiror pursuant to Section 11.01
hereof, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by Acquiror or the Company. If the
transactions contemplated by this Agreement are terminated and/or abandoned as
provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be treated
in accordance with Section 2.01 hereof; and
(c) No party hereto shall have any liability or further obligation
to any other party to this Agreement except as stated in subparagraphs (a) and
(b) of this Section 11.02, (provided, however, that if such termination and/or
abandonment is a result of the failure of any condition set forth in Article
VIII hereof, then Acquiror shall be entitled to recover from the Company all
out-of-pocket costs which Acquiror has incurred (including reasonable attorney's
fees and expenses).
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.01. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented by written agreement of the
Shareholders and the respective Boards of Directors of the Company and Acquiror
or by their respective officers authorized by such Boards of Directors at any
time prior to the Closing with respect to any of the terms contained herein.
12.02. Waiver of Compliance. Any failure of the Shareholders or the
--------------------
Company, on the one hand, or Acquiror, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the President of Acquiror or the Company, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with
34
<PAGE>
respect to, any subsequent or other failure.
12.03. Expenses; Transfer Taxes, Etc. Except as otherwise provided in
-----------------------------
Sections 2.02 and 11.02 hereof, whether or not the transaction contemplated by
this Agreement shall be consummated, the Shareholders and the Company agree that
all fees and expenses incurred by them in connection with this Agreement shall
be borne by them and Acquiror agrees that all fees and expenses incurred by it
in connection with this Agreement shall be borne by it, including, without
limitation as to the Company or Acquiror, all fees of counsel, actuaries and
accountants.
12.04. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to the Shareholders or the Company, to:
Stephen Haynes
c/o Superior Chemical and Supply, Inc.
1038 West Main Street
Bowling Green, KY 42101
Phone: (502) 782-3988
Fax: (502) 781-9492
(with a copy to:)
Darrell R. Pierce, Esq.
Pierce, Simpson & Shadoan
P.O. Box 1650
908 State Street
Bowling Green, KY 42102-1650
Phone: (502) 782-2500
Fax: (502) 782-2526
or to such other person or address as the Company shall furnish to Acquiror in
writing.
(b) If to Acquiror, to:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:)
35
<PAGE>
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Attention: Martin W. Enright, Esq.
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Company in
writing.
12.05. Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that Acquiror may assign its rights, but
not its obligations, under this Agreement to any subsidiary of Acquiror.
12.06. Publicity. Neither the Company nor Acquiror shall make or issue,
---------
or cause to be made or issued, any announcement or written statement concerning
this Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior consent of the other party. This provision
shall not apply, however, to any announcement or written statement required to
be made by law or the regulations of any federal or state governmental agency or
any stock exchange, except that the party required to make such announcement
shall, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
12.07. Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to its conflicts of law doctrine.
12.08. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.09. Headings. The headings of the Sections and Articles of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
12.10. Entire Agreement. This Agreement, including the Exhibits hereto,
----------------
the Disclosure Schedule and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
12.11. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or
36
<PAGE>
corporation other than the parties hereto and their successors or assigns, any
rights or remedies under or by reason of this Agreement.
12.12. Severability. Should any provision of this Agreement be held by a
------------
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By: _________________________
Richard Kandel
President
SCS ACQUISITION CORP.
By: _________________________
Richard Kandel
President
SUPERIOR CHEMICAL AND SUPPLY, INC.
By: _________________________ _______________________
Stephen C. Haynes Secretary
President
THE SHAREHOLDERS
- ---------------------------
Stephen C. Haynes,
as Shareholder
38
<PAGE>
Exhibit 2(iv)
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of August 1, 1999, is made by Enviro-Clean of
America, Inc., a Nevada Corporation (the "Acquiror"), in favor of Stephen
Haynes, an individual residing at 1261 Shannon Way, Bowling Green, KY, 42101
("Haynes").
WITNESSETH:
WHEREAS, Acquiror has issued and delivered to Haynes a promissory note in
the principal amount of One Million Two Hundred Thousand Dollars ($1,200,000)
maturing on August 1, 2002 (the "Note"), evidencing certain payment obligations
of Acquiror to Haynes under a Stock Purchase Agreement dated as of August 1,
1999 among Acquiror, SCS Acquisition Corp., a Nevada Corporation and a wholly
owned subsidiary of Acquiror ("Acquiror's Subsidiary"), Superior Chemical and
Supply, Inc. ("Superior") and Haynes (the "Purchase Agreement"):
NOW, THEREFORE, in consideration of the promises contained herein and to
induce Haynes to enter into the Purchase Agreement, Acquiror hereby agrees with
Haynes as follows:
ARTICLE 1.
DEFINED TERMS
1.1 Definitions.
(a) Unless otherwise defined herein, terms defined in the Purchase
Agreement and used herein shall have the meanings given to them in the
Purchase Agreement:
(b) The following terms shall have the following meanings:
"Agreement" this Security Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Code" the Uniform Commercial Code as from time to time in effect in
the State of Kentucky.
"Obligations" the collective reference to the unpaid principal of and
interest on the Note.
"Receivable" any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
The terms "Accounts", "Chattel Paper", "Documents", "Instruments",
"Inventory" and
<PAGE>
"Proceeds" shall have the meanings ascribed to such terms in the Code.
1.2 Other Definitional Provisions.
(a) The words "hereof", "herein", "hereto" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section, subsection and Schedule references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II.
GRANT OF SECURITY INTEREST
As collateral security for the prompt and complete payment and performance
when due of the Obligations, Acquiror hereby grants to Haynes a security
interest in all of the following assets, wherever located, now owned or at any
time hereafter acquired by Superior in which Superior now has or at any time in
the future may acquire any right, title or interest (collectively, the
"Collateral"):
(a) all Accounts resulting from any Receivables;
(b) all Chattel Paper resulting from any Receivables;
(c) all Inventory;
(d) all Receivables;
(e) all books and records pertaining to the Collateral;
(f) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing.
ARTICLE III.
COVENANTS
The Acquiror covenants and agrees with Haynes that, from and after the
date of this Agreement until the Obligations shall have been paid in full:
3.1 Delivery of Instruments and Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be held as
Collateral pursuant to this Agreement.
40
<PAGE>
3.2 Maintenance of Perfected Security Interest, Further Documentation.
(a) The Acquiror shall maintain the security interest created by this
Agreement as a perfected security interest and shall defend such security
interest against the claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of
Haynes, and at the sole expense of the Acquiror, the Acquiror will promptly and
duly execute and deliver such further instruments and documents and take such
further action as Haynes may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby.
3.3 Changes in Locations, Name, etc. The Borrower will not permit any of
the Inventory to be kept at a location other than the premises of Superior.
ARTICLE IV.
REMEDIES
4.1 Notice to Obligors. Upon the request of Haynes at any time after the
occurrence and during the continuance of a Default or an Event of Default (after
any applicable cure periods), under the Note, the Acquiror shall notify obligors
on the Receivables that the Receivables have been assigned to Haynes and that
payments in respect thereof shall be made directly to Haynes.
4.2 Proceeds to be Turned Over to Haynes. If a Default or an Event of
Default under the Note shall occur and be continuing (after any applicable cure
periods), all Proceeds received by the Acquiror consisting of cash, checks and
other cash equivalent items shall be held by the Acquiror in trust for Haynes,
segregated from all other funds of the Acquiror, and shall forthwith upon
receipt by the Acquiror, be turned over to Haynes in the exact form received by
the Acquiror (duly endorsed by the Acquiror, to Haynes, if required) and held by
Haynes in a Collateral Account maintained under the sole dominion and control of
Haynes. All Proceeds while held by Haynes in a Collateral Account (or by the
Acquiror in trust for Haynes) shall continue to be held as collateral security
or the Obligations and shall not constitute payment thereof until applied as
provided in Section 4.3.
4.3 Application of Proceeds. At such intervals as may be agreed upon by
the Acquiror, or, if an Event of Default shall occurred and be continuing (after
any applicable cure periods), at any time at the election of Haynes, Haynes may
apply all or any part of any Proceeds held in any Collateral Account in payment
of the Obligations in such order at Haynes may elect, and any part of such funds
which Haynes elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by Haynes to
the Acquiror or to whomsoever may be lawfully entitled to receive the same. Any
balance of such Proceeds remaining after the
41
<PAGE>
Obligations shall have been paid in full shall have expired or otherwise been
terminated shall be paid over to the Acquiror or whomsoever may be lawfully
entitled to receive the same.
4.4 Code Remedies. If an Event of Default shall occur and be continuing
under the Note (after any applicable cure periods), Haynes may exercise, in
addition to all other rights and remedies granted to him in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, Haynes without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Acquiror or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of Haynes or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Haynes shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Acquiror, which right or equity is hereby waived or
released. The Acquiror further agrees, at the request of Haynes, to assemble the
Collateral and make it available to Haynes at places which Haynes shall
reasonably select, whether at the Acquiror's premises or elsewhere. Haynes shall
apply the net proceed of any action taken by him pursuant to this subsection,
after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of Haynes
hereunder, including, without limitation, reasonable attorney's fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as Haynes may elect, and only after such application and after the payment
by Haynes of any other amount required by any provision of law, including,
without limitation, Section 9-504 (l)(c) of the Code, need Haynes account for
the surplus, if any, to the Acquiror. To the extent permitted by applicable law,
the Acquiror waives all claims, damages and demands it may acquire against
Haynes arising out to the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least ten
(10) days before such sale or other disposition.
ARTICLE V.
EXECUTION OF FINANCING STATEMENTS
5.1 Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Acquiror authorizes Haynes to file financing statements with respect
to the Collateral without the signature of the Acquiror in such form and in such
filing offices as Haynes reasonably determines appropriate to perfect the
security interests of Haynes under this Agreement. A carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
42
<PAGE>
ARTICLE VI.
NOTICES
6.1 Notices. All notices, requests and demands to or upon Haynes or the
Acquiror hereunder shall be affected in the manner provided for in Section 12.04
of the Purchase Agreement.
ARTICLE VII.
MISCELLANEOUS
7.1. Amendment and Modification. This Agreement may only be amended,
modified or supplemented by written agreement of Haynes and the Acquiror.
7.2. Waiver of Compliance. Any failure of Haynes or the Acquiror to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the Acquiror or Haynes, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
7.3. Expenses; Transfer Taxes, Etc. Except as otherwise provided herein
Haynes and the Acquiror agree that each party shall bear all fees and expenses
incurred by him or it in connection with this Agreement.
7.4. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to Haynes, to:
Stephen Haynes
1261 Shannon Way
Bowling Green, KY 42101
Phone: (502) ___-____
Fax: (502) ___-____
(with a copy to:)
43
<PAGE>
Darrell R. Pierce, Esq.
Pierce, Simpson & Shadoan
P.O. Box 1650
908 State Street
Bowling Green, KY 42102-1650
Phone: (502) 782-2500
Fax: (502) 782-2526
or to such other person or address as the Company shall furnish to Acquiror in
writing.
(b) If to Acquiror, to:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:)
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Attention: Martin W. Enright, Esq.
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Company in
writing.
7.5. Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except by
operation of law; provided, however, that Acquiror may assign both its rights
-------- -------
and obligations hereunder to any successor to its business.
7.6. Publicity. Neither Haynes nor Acquiror shall make or issue, or cause
to be made or issued, any announcement or written statement concerning this
Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior consent of the other party. This provision
shall not apply, however, to any announcement or written statement required to
be made by law or the regulations of any federal or state governmental agency or
any stock exchange, except that the party required to make such announcement
shall, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
44
<PAGE>
7.7. Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to its conflicts of law doctrine.
7.8. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.9. Headings. The headings of the Sections and Articles of this Agreement
are inserted for convenience only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement.
7.10. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein, and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
7.11. Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
7.12. Severability. Should any provision of this Agreement be held by a
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
45
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By:________________________________
Richard Kandel
President
________________________________
Stephen Haynes
46
<PAGE>
Exhibit 2(v)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of August 1, 1999, between Cleaning Ideas
Corp., a Nevada corporation, with its principal office located c/o Enviro-Clean
of America, Inc. 211 Park Avenue, Hicksville, New York 11801 (the "Company") and
Charles Davis, an individual residing at 1 Renwick Court, San Antonio, Texas
78218 ("Davis").
WHEREAS, the Company wishes to employ Davis as Chief Operating Officer of
the Company and the Company desires to ensure the continued availability to the
Company of Davis's services in such capacity, and Davis wishes to accept such
employment and is willing to render such services, all upon and subject to the
terms and conditions contained in this Agreement.
Accordingly, the parties agree as follows:
1. Employment
----------
The Company hereby employs Davis as the Company's Chief Operating Officer
on the terms and conditions contained herein and Davis agrees to such terms and
conditions of employment. Davis shall devote such amount of time to the affairs
of the Company as shall be mutually agreed between Davis and the Company.
2. Term of Employment
------------------
Unless earlier terminated in accordance herewith, the term of Davis's
employment hereunder shall be for a period of five years commencing on August 1,
1999, and ending on August 1, 2004. The term of employment may be renewed beyond
August 1, 2004 upon the mutual agreement of the Company and Davis for such
additional period and on such additional terms as the parties may agree at a
future date.
3. Duties
------
(a) Davis shall serve the Company as Chief Operating Officer and shall
perform the duties and responsibilities set by the Board of Directors for this
position from time to time, and Davis shall at all times comply with the
employment policies established by the Board of Directors of the Company. During
his employment by the Company, Davis shall, except as set forth in Section 1(b),
above, devote his full time and efforts to the Company.
The duties of the Chief Operating Officer as set by the Company upon
its approval of this Employment Agreement, shall include all day-to-day
management of the operations of the Company and such other duties as shall be
assigned from time to time by the Board of Directors of the Company.
47
<PAGE>
4. Compensation and Benefits
-------------------------
As full compensation to Davis for the performance of his services and his
acceptance of the responsibilities described herein, the Company agrees to pay
Davis the following compensation and other benefits:
(a) Base Salary. A total annual base salary of Fifteen Thousand
Dollars ($15,000), payable in accordance with the Company's usual payroll
policies and procedures.
(b) Annual Bonus. In addition to his base salary, Davis shall be
eligible for an annual bonus for each year during the terms of this Agreement,
which bonus shall be determined by the Board of Directors of the Company, in its
discretion.
(c) Other Benefits. Davis will also be eligible to receive continued
family health insurance coverage at the identical levels and under the policies
being taken over by the Company from Cleaning Ideas, Inc. in connection with its
merger into the Company, and an automobile lease allowance as set forth in
Schedule A hereto, together with such other benefits as are made available
generally to the Company's executive management.
(d) Travel and Entertainment Expenses. The Company shall reimburse
Davis for his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, provided that such expenses are
incurred in accordance with Company policies, are reasonable in type and amount
and that Davis properly accounts for such expenses to the Company in accordance
with the Company's practices.
5. Confidentiality: Intellectual Property; Non-Compete.
---------------------------------------------------
Davis, in order to induce the Company to enter into this Agreement, hereby
agrees as follows:
(a) Davis will keep confidential and not use, divulge or otherwise reveal
during the term of his employment or after termination thereof, any trade
secrets or other confidential information relating to the business or financial
affairs of the Company.
(b) The Company shall require that all of its employees sign an
intellectual property agreement, requiring that employees preserve and protect
as property of the Company the confidential, proprietary, technical and business
information of the Company. Davis agrees to execute such an agreement and to
comply with its terms.
(c) All papers, books and records, financial documents, computer files and
customer lists relating to the business and affairs of the Company and all
copies thereof, shall be the sole and exclusive property of the Company. Davis
agrees prior to termination of his employment by the Company to turn over to the
Company all such documents which may be in Davis's possession or under his
control.
48
<PAGE>
(d) During the term of this Agreement and for a period beginning on the
date that Davis's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Davis's
employment is terminated, Davis shall not, without the prior written consent of
the Company or any successor to the Company, compete, directly or indirectly,
with the Company or any successor to the Company in any Competing Business,
unless Davis is terminated by the Company without cause (as defined in Section
-------
7(b) herein) in which case Davis will not be subject to any noncompetition
obligations and the terms of this paragraph shall not apply. For purposes of
this agreement, a Competing Business is any business located in North America
which engages in the marketing, distribution and/or sale of janitorial, sanitary
and cleaning supplies, whether or not manufactured by such company.
(e) During the term of this Agreement and for a period beginning on the
date that Davis's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Davis's
employment is terminated, Davis shall not, without the prior written consent of
the Company or any successor to the Company, directly or indirectly, for himself
or another person, induce or attempt to induce any client or customer of the
Company or any successor to terminate his or her relationship with any of those
entities, unless Davis is terminated by the Company without cause (as defined in
-------
Section 7(b) herein) in which case Davis will not be subject to any
noncompetition obligations and the terms of this paragraph shall not apply.
(f) Davis agrees that any breach or threatened breach of the provisions of
this Section 6 will cause irreparable damage to the Company and that money
damages will not necessarily provide an adequate remedy to the Company. Thus,
the parties agree that the Company, in addition to their remedies at law, shall
have the right and remedy to have the provisions of this Section 6 specifically
enforced by any court having jurisdiction.
(g) The provisions of Subsections 5(d) and 5(e) hereof shall terminate and
be of no further force and effect if there is an Event of Default under the
Secured Notes from Enviro-Clean to Charles Davis and Randall Davis dated the
date hereof and Charles Davis and Randall Davis exercise their option to
purchase the Company as provided therein.
6. Termination of Employment
-------------------------
(a) Davis's Voluntary Termination
-----------------------------
In the event that Davis voluntarily terminates his employment with the
Company during the term of this Agreement, Davis shall have no right to any
further salary, bonus, stock options, employee benefits or any other
compensation from the Company; provided, however, that nothing in this Section
-------- -------
6(a) shall be construed to limit Davis's rights to any compensation of any kind
earned prior to the date of such termination.
(b) Termination For Cause
---------------------
49
<PAGE>
The Company may terminate Davis's employment pursuant to the terms of this
Agreement at any time for cause by giving written notice to Davis, in accordance
with Section 9(g), below, and such termination shall be effective in accordance
with such Section 9(g). Upon any such termination for cause, Davis shall have no
right to any further compensation, stock options employee benefits or any other
compensation from the Company.
For purpose of this Section 6(b), "cause" shall mean that (i) Davis is
convicted with respect to the commission of a crime involving moral turpitude;
(ii) Davis has been guilty of gross or willful misconduct in connection with his
duties hereunder or (iii) Davis has failed to follow the lawful, material
instructions of the Company's Board of Directors.
(c) Termination Without Cause
-------------------------
Throughout the term of his employment with the Company, Davis shall remain
an employee at will, and his employment may be terminated for any reason by the
Company at any time. If Davis is terminated by the Company without cause he
shall be entitled to certain minimum severance pay ("Minimum Severance"), with
any additional severance pay above the Minimum Severance to be solely within the
discretion of senior management and/or the Board of Directors. In the event of
Davis's voluntary termination under Section 6(a) above, or his termination for
cause under Section 6(b) above, Davis shall be entitled to no Minimum Severance.
Davis shall receive the following Minimum Severance, under the terms set forth
above:
(i) Termination without cause after commencement of his employment: six
weeks salary and benefits;
(ii) Termination without cause after twelve (12) months of employment: two
months salary and benefits;
(iii) For every six (6) month period beyond the initial twelve (12) months
he shall be employed by the Company, Davis shall be entitled to an
additional two (2) weeks of salary and benefits as Minimum Severance
in the event of termination without cause; up to a maximum Minimum
Severance of twelve months salary and benefits.
(d) Death or Disability
-------------------
This Agreement and the obligations of the Company hereunder will terminate
upon the death of Davis.
In the event of Davis's permanent disability, the Company may terminate
this Agreement. For purposes of this Section 6(c), permanent disability shall
mean that for a period of 90 days in any 365-day period Davis is incapable of
substantially fulfilling his duties as set forth in Section 3 above because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease.
50
<PAGE>
7. Representations and Warranties
------------------------------
Davis hereby represents and warrants to the Company that his entering into
this Agreement, and the obligations and duties undertaken by him hereunder, will
not conflict with constitute a breach of, or otherwise violate the terms of, any
other agreement to which he is a party.
Davis hereby agrees to indemnify the Company for any losses, costs or other
expenses or damages incurred by the Company in the event that Davis has breached
this representation.
8. Assignment
----------
This Agreement and any rights (including compensation) hereunder shall not
be assigned or transferred by Davis to any other person. The Company, however,
shall have the right to assign its rights hereunder to any affiliate of the
Company.
9. Miscellaneous
-------------
(a) All payments provided for in this Agreement shall be paid by check
from the Company's general funds. Any withholding and/or any other payroll taxes
with respect to any payments provided for in this Agreement shall be deducted by
the Company as appropriate and as may be required by law.
(b) If any provision of this Agreement shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this Agreement.
(c) This Agreement constitutes the entire understanding between the
parties and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or cancelled, and
any of the terms, covenants or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver of
any right or benefits provided hereunder, by the party waiving compliance.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and the parties hereto consent
to the jurisdiction of the Courts located in the State of New York to resolve
any disputes which may arise under this Agreement.
(f) No delay or omission or failure to exercise any right or remedy
provided for herein shall be deemed a waiver thereof or acquiescence in the
event giving rise to such right or remedy, and every such right and remedy may
be exercised from time to time and so often as may be deemed expedient by the
party exercising such right or remedy.
51
<PAGE>
(g) All notices given pursuant to the provisions of this Agreement shall
be in writing and shall be sent by certified mail, postage prepaid, or
recognized overnight courier service, or delivered by hand or by fax, shall be
effective upon the earlier of (i) two (2) days from the date deposited with the
mail or overnight courier service or (ii) actual receipt, and shall be sent to
the parties at the following addresses:
If to the Company: Cleaning Ideas Corp.
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
with a copy to:
Martin W. Enright, Esq.
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
If to Davis: Charles Davis
1 Renwick Court
San Antonio, Texas 78218
(h) The parties to this agreement expressly agree that any and all
disputes, which may arise out of or as a result of this agreement, shall be
submitted to binding Arbitration in accordance with the Rules set forth by The
American Arbitration Association. The parties further agree to be bound by the
result of the arbitration.
(i) The Company shall indemnify Davis and hold him harmless to the fullest
extent permitted by the By-Laws of the Company and Nevada law, for any acts or
decisions made by him in good faith while performing services for the Company as
an employee and/or agent of the Company, and in addition thereto, shall use its
best efforts to obtain insurance coverage for him under any insurance policy now
in force or hereinafter obtained during the term of this Agreement covering the
officers and directors of the Company against lawsuits as Davis and/or agent of
the Company against lawsuits as Davis and/or agent of Company, to the extent it
is deemed advisable by the Company's Board of Directors to obtain such insurance
for the Company's officers and directors and such insurance can be obtained at a
cost deemed reasonable by the Board. The Company will pay all expenses,
including attorneys' fees, actually and necessarily incurred by the Company or
Davis in connection with the defense of any such act, suit or preceding and in
connection with any appeal thereon, including costs of court settlement.
52
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates set
forth below, with effect as of the date first above written.
CLEANING IDEAS CORP.
By: _________________________ _________________________
Richard Kandel Charles Davis
Chairman
53
<PAGE>
Exhibit 2(vi)
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made as of August 1, 1999, between Cleaning Ideas
Corp., a Nevada corporation, with its principal office located c/o Enviro-Clean
of America, Inc. 211 Park Avenue, Hicksville, New York 11801 (the "Company") and
Randall Davis, an individual residing at 2 Corby Lane, San Antonio, Texas 78218
("Davis").
WHEREAS, the Company wishes to employ Davis as President of the Company and
the Company desires to ensure the continued availability to the Company of
Davis's services in such capacity, and Davis wishes to accept such employment
and is willing to render such services, all upon and subject to the terms and
conditions contained in this Agreement.
Accordingly, the parties agree as follows:
1. Employment
----------
(a) The Company hereby employs Davis to work on a full-time basis as the
Company's President on the terms and conditions contained herein and Davis
agrees to such terms and conditions of employment.
(b) Notwithstanding paragraph 1(a), above, the Company acknowledges and
understands that Davis is currently working, and will continue to work, for
Enviro-Clean of America, Inc., the parent company of the Company ("Enviro-
Clean").
2. Term of Employment
------------------
Unless earlier terminated in accordance herewith, the term of Davis's
employment hereunder shall be for a period of five years commencing on August 1,
1999, and ending on August 1, 2004. The term of employment may be renewed beyond
August 1, 2004 upon the mutual agreement of the Company and Davis for such
additional period and on such additional terms as the parties may agree at a
future date.
3. Duties
------
(a) Davis shall serve the Company as President and shall perform the
duties and responsibilities set by the Board of Directors for this position from
time to time, and Davis shall at all times comply with the employment policies
established by the Board of Directors of the Company. During his employment by
the Company, Davis shall, except as set forth in Section 1(b), above, devote his
full time and efforts to the Company.
The duties of the President as set by the Company upon its approval of
this Employment Agreement, shall include all day-to-day management of the
operations of the
<PAGE>
Company and such other duties as shall be assigned from time to time by the
Board of Directors of the Company.
4. Compensation and Benefits
-------------------------
As full compensation to Davis for the performance of his services and his
acceptance of the responsibilities described herein, the Company agrees to pay
Davis the following compensation and other benefits:
(a) Base Salary. A total annual base salary of Fifty Thousand Dollars
($50,000), payable in accordance with the Company's usual payroll policies and
procedures.
(b) Annual Bonus. In addition to his base salary, Davis shall be
eligible for an annual bonus for each year during the terms of this Agreement,
which bonus shall be determined by the Board of Directors of the Company, in its
discretion.
(c) Other Benefits. Davis will also be eligible to receive continued
family health insurance coverage at the identical levels and under the policies
being taken over by the Company from Cleaning Ideas, Inc. in connection with its
merger into the Company, and an automobile lease allowance as set forth in
Schedule A hereto, together with such other benefits as are made available
generally to the Company' s executive management.
(d) Travel and Entertainment Expenses. The Company shall reimburse
Davis for his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, provided that such expenses are
incurred in accordance with Company policies, are reasonable in type and amount
and that Davis properly accounts for such expenses to the Company in accordance
with the Company's practices.
5. Confidentiality: Intellectual Property; Non-Compete.
---------------------------------------------------
Davis, in order to induce the Company to enter into this Agreement, hereby
agrees as follows:
(a) Davis will keep confidential and not use, divulge or otherwise reveal
during the term of his employment or after termination thereof, any trade
secrets or other confidential information relating to the business or financial
affairs of the Company.
(b) The Company shall require that all of its employees sign an
intellectual property agreement, requiring that employees preserve and protect
as property of the Company the confidential, proprietary, technical and business
information of the Company. Davis agrees to execute such an agreement and to
comply with its terms.
(c) All papers, books and records, financial documents, computer files and
customer lists relating to the business and affairs of the Company and all
copies thereof, shall be the sole and exclusive property of the Company. Davis
agrees prior to termination of his employment by
55
<PAGE>
the Company to turn over to the Company all such documents which may be in
Davis's possession or under his control.
(d) During the term of this Agreement and for a period beginning on the
date that Davis's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Davis's
employment is terminated, Davis shall not, without the prior written consent of
the Company or any successor to the Company, compete, directly or indirectly,
with the Company or any successor to the Company in any Competing Business,
unless Davis is terminated by the Company without cause (as defined in Section
-------
7(b) herein) in which case Davis will not be subject to any noncompetition
obligations and the terms of this paragraph shall not apply. For purposes of
this agreement, a Competing Business is any business located in North America
which engages in the marketing, distribution and/or sale of janitorial, sanitary
and cleaning supplies, whether or not manufactured by such company.
(e) During the term of this Agreement and for a period beginning on the
date that Davis's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Davis's
employment is terminated, Davis shall not, without the prior written consent of
the Company or any successor to the Company, directly or indirectly, for himself
or another person, induce or attempt to induce any client or customer of the
Company or any successor to terminate his or her relationship with any of those
entities, unless Davis is terminated by the Company without cause (as defined in
-------
Section 7(b) herein) in which case Davis will not be subject to any
noncompetition obligations and the terms of this paragraph shall not apply.
(f) Davis agrees that any breach or threatened breach of the provisions of
this Section 6 will cause irreparable damage to the Company and that money
damages will not necessarily provide an adequate remedy to the Company. Thus,
the parties agree that the Company, in addition to their remedies at law, shall
have the right and remedy to have the provisions of this Section 6 specifically
enforced by any court having jurisdiction.
(g) The provisions of Subsections 5(d) and 5(e) hereof shall terminate and
be of no further force and effect if there is an Event of Default under the
Secured Notes from Enviro-Clean to Charles Davis and Randall Davis dated the
date hereof and Charles Davis and Randall Davis exercise their option to
purchase the Company as provided therein.
6. Termination of Employment
-------------------------
(a) Davis's Voluntary Termination
-----------------------------
In the event that Davis voluntarily terminates his employment with the
Company during the term of this Agreement, Davis shall have no right to any
further salary, bonus, stock options, employee benefits or any other
compensation from the Company; provided, however, that nothing in this Section
-------- -------
6(a) shall be construed to limit Davis's rights to any compensation of any kind
earned prior to the date of such termination.
56
<PAGE>
(b) Termination For Cause
---------------------
The Company may terminate Davis's employment pursuant to the terms of this
Agreement at any time for cause by giving written notice to Davis, in accordance
with Section 9(g), below, and such termination shall be effective in accordance
with such Section 9(g). Upon any such termination for cause, Davis shall have no
right to any further compensation, stock options employee benefits or any other
compensation from the Company.
For purpose of this Section 6(b), "cause" shall mean that (i) Davis is
convicted with respect to the commission of a crime involving moral turpitude;
(ii) Davis has been guilty of gross or willful misconduct in connection with his
duties hereunder or (iii) Davis has failed to follow the lawful, material
instructions of the Company's Board of Directors.
(c) Termination Without Cause
-------------------------
Throughout the term of his employment with the Company, Davis shall remain
an employee at will, and his employment may be terminated for any reason by the
Company at any time. If Davis is terminated by the Company without cause he
shall be entitled to certain minimum severance pay ("Minimum Severance"), with
any additional severance pay above the Minimum Severance to be solely within the
discretion of senior management and/or the Board of Directors. In the event of
Davis's voluntary termination under Section 6(a) above, or his termination for
cause under Section 6(b) above, Davis shall be entitled to no Minimum Severance.
Davis shall receive the following Minimum Severance, under the terms set forth
above:
(i) Termination without cause after commencement of his employment: six
weeks salary and benefits;
(ii) Termination without cause after twelve (12) months of employment: two
months salary and benefits;
(iii) For every six (6) month period beyond the initial twelve (12) months
he shall be employed by the Company, Davis shall be entitled to an
additional two (2) weeks of salary and benefits as Minimum Severance
in the event of termination without cause; up to a maximum Minimum
Severance of twelve months salary and benefits.
(d) Death or Disability
-------------------
This Agreement and the obligations of the Company hereunder will terminate
upon the death of Davis.
In the event of Davis's permanent disability, the Company may terminate
this Agreement. For purposes of this Section 6(c), permanent disability shall
mean that for a period of 90 days in any 365-day period Davis is incapable of
substantially fulfilling his duties as set forth
57
<PAGE>
in Section 3 above because of physical, mental or emotional incapacity resulting
from injury, sickness or disease.
7. Representations and Warranties
------------------------------
Davis hereby represents and warrants to the Company that his entering into
this Agreement, and the obligations and duties undertaken by him hereunder, will
not conflict with constitute a breach of, or otherwise violate the terms of, any
other agreement to which he is a party.
Davis hereby agrees to indemnify the Company for any losses, costs or other
expenses or damages incurred by the Company in the event that Davis has breached
this representation.
8. Assignment
----------
This Agreement and any rights (including compensation) hereunder shall not
be assigned or transferred by Davis to any other person. The Company, however,
shall have the right to assign its rights hereunder to any affiliate of the
Company.
9. Miscellaneous
-------------
(a) All payments provided for in this Agreement shall be paid by check
from the Company's general funds. Any withholding and/or any other payroll taxes
with respect to any payments provided for in this Agreement shall be deducted by
the Company as appropriate and as may be required by law.
(b) If any provision of this Agreement shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this Agreement.
(c) This Agreement constitutes the entire understanding between the
parties and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or cancelled, and
any of the terms, covenants or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver of
any right or benefits provided hereunder, by the party waiving compliance.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and the parties hereto consent
to the jurisdiction of the Courts located in the State of New York to resolve
any disputes which may arise under this Agreement.
(f) No delay or omission or failure to exercise any right or remedy
provided for herein shall be deemed a waiver thereof or acquiescence in the
event giving rise to such right or
58
<PAGE>
remedy, and every such right and remedy may be exercised from time to time and
so often as may be deemed expedient by the party exercising such right or
remedy.
(g) All notices given pursuant to the provisions of this Agreement shall
be in writing and shall be sent by certified mail, postage prepaid, or
recognized overnight courier service, or delivered by hand or by fax, shall be
effective upon the earlier of (i) two (2) days from the date deposited with the
mail or overnight courier service or (ii) actual receipt, and shall be sent to
the parties at the following addresses:
If to the Company: Cleaning Ideas Corp.
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
with a copy to:
Martin W. Enright, Esq.
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
If to Davis: Randall K. Davis
2 Corby Lane
San Antonio, Texas 78218
(h) The parties to this agreement expressly agree that any and all
disputes, which may arise out of or as a result of this agreement, shall be
submitted to binding Arbitration in accordance with the Rules set forth by The
American Arbitration Association. The parties further agree to be bound by the
result of the arbitration.
(i) The Company shall indemnify Davis and hold him harmless to the fullest
extent permitted by the By-Laws of the Company and Nevada law, for any acts or
decisions made by him in good faith while performing services for the Company as
an employee and/or agent of the Company, and in addition thereto, shall use its
best efforts to obtain insurance coverage for him under any insurance policy now
in force or hereinafter obtained during the term of this Agreement covering the
officers and directors of the Company against lawsuits as Davis and/or agent of
the Company against lawsuits as Davis and/or agent of Company, to the extent it
is deemed advisable by the Company's Board of Directors to obtain such insurance
for the Company's officers and directors and such insurance can be obtained at a
cost deemed reasonable by the Board. The Company will pay all expenses,
including attorneys' fees, actually and
59
<PAGE>
necessarily incurred by the Company or Davis in connection with the defense of
any such act, suit or preceding and in connection with any appeal thereon,
including costs of court settlement.
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates set
forth below, with effect as of the date first above written.
CLEANING IDEAS CORP.
By: _________________________ _________________________
Richard Kandel Randall Davis
Chairman
60
<PAGE>
Exhibit 2(vii)
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made as of August 13, 1999, between Superior Chemical
& Supply, Inc., a Kentucky corporation, with its principal office located at
1038 West Main Street, Bowling Green, Kentucky 42101 (the "Company") and Stephen
Haynes, an individual residing at 1261 Shannon Way, Bowling Green, Kentucky
42101 ("Haynes").
WHEREAS, the Company wishes to employ Haynes as President of the Company
and the Company desires to ensure the continued availability to the Company of
Haynes's services in such capacity, and Haynes wishes to accept such employment
and is willing to render such services, all upon and subject to the terms and
conditions contained in this Agreement.
Accordingly, the parties agree as follows:
1. Employment
----------
The Company hereby employs Haynes to work on a full-time basis as the
Company's President on the terms and conditions contained herein and Haynes
agrees to such terms and conditions of employment. Mr. Haynes' place of
employment shall be at the Company headquarters in the State of Kentucky and Mr.
Haynes shall not be required to travel on business outside the State of
Kentucky.
2. Term of Employment
------------------
Unless earlier terminated in accordance herewith, the term of Haynes's
employment hereunder shall be for a period of five (5) years commencing on
August 13, 1999, and ending on August 13, 2003. The term of employment may be
renewed beyond August 13, 2003 upon the mutual agreement of the Company and
Haynes for two (2) additional periods of one (1) year each.
3. Duties
------
Haynes shall serve the Company as President and Chief Executive Officer and
shall be responsible for all executive and operations management of the Company
and shall perform the duties and responsibilities set by the Board of Directors
for this position from time to time, and Haynes shall at all times comply with
the employment policies established by the Board of Directors of the Company.
During his employment by the Company, Haynes shall devote his full time and
efforts to the Company.
4. Compensation and Benefits
-------------------------
<PAGE>
As full compensation to Haynes for the performance of his services and his
acceptance of the responsibilities described herein, the Company agrees to pay
Haynes the following compensation and other benefits:
(a) Base Salary. A total annual base salary of Forty Thousand Dollars
($40,000), payable in accordance with the Company's usual payroll policies and
procedures.
(b) Other Benefits. Haynes will also be eligible to receive such
other benefits as are made available generally to the Company's executive
management.
(c) Travel and Entertainment Expenses. The Company shall reimburse
Haynes for his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, provided that such expenses are
incurred in accordance with Company policies, are reasonable in type and amount
and that Haynes properly accounts for such expenses to the Company in accordance
with the Company's practices.
(d) Vacation. Mr. Haynes shall be entitled to up to six (6) weeks
paid vacation annually during the term of this Agreement.
5. Confidentiality: Intellectual Property; Non-Compete.
---------------------------------------------------
Haynes, in order to induce the Company to enter into this Agreement, hereby
agrees as follows:
(a) Haynes will keep confidential and not use, divulge or otherwise reveal
during the term of his employment or after termination thereof, any trade
secrets or other confidential information relating to the business or financial
affairs of the Company.
(b) The Company shall require that all of its employees sign an
intellectual property agreement, requiring that employees preserve and protect
as property of the Company the confidential, proprietary, technical and business
information of the Company. Haynes agrees to execute such an agreement and to
comply with its terms.
(c) All papers, books and records, financial documents, computer files and
customer lists relating to the business and affairs of the Company and all
copies thereof, shall be the sole and exclusive property of the Company. Haynes
agrees prior to termination of his employment by the Company to turn over to the
Company all such documents which may be in Haynes's possession or under his
control.
(d) During the term of this Agreement and for a period beginning on the
date that Haynes's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Haynes's
employment is terminated, Haynes shall not, without the prior written consent of
the Company or any successor to the Company, compete, directly or indirectly,
with the Company or any successor to the Company in any
62
<PAGE>
Competing Business, unless Haynes is terminated by the Company without cause (as
-------
defined in Section 7(b) herein) in which case Haynes will not be subject to any
noncompetition obligations and the terms of this paragraph shall not apply. For
purposes of this agreement, a Competing Business is any business located in
North America which engages in the marketing, distribution and/or sale of
janitorial, sanitary and cleaning supplies, whether or not manufactured by such
company.
(e) During the term of this Agreement and for a period beginning on the
date that Haynes's employment is terminated, regardless of the reason for the
termination, and ending Twenty-Four (24) months after the date on which Haynes's
employment is terminated, Haynes shall not, without the prior written consent of
the Company or any successor to the Company, directly or indirectly, for himself
or another person, induce or attempt to induce any client or customer of the
Company or any successor to terminate his or her relationship with any of those
entities, unless Haynes is terminated by the Company without cause (as defined
-------
in Section 7(b) herein) in which case Haynes will not be subject to any
noncompetition obligations and the terms of this paragraph shall not apply.
(f) Haynes agrees that any breach or threatened breach of the provisions
of this Section 6 will cause irreparable damage to the Company and that money
damages will not necessarily provide an adequate remedy to the Company. Thus,
the parties agree that the Company, in addition to their remedies at law, shall
have the right and remedy to have the provisions of this Section 6 specifically
enforced by any court having jurisdiction.
6. Termination of Employment
-------------------------
(a) Haynes's Voluntary Termination
------------------------------
In the event that Haynes voluntarily terminates his employment with the
Company during the term of this Agreement, Haynes shall have no right to any
further salary, bonus, stock options, employee benefits or any other
compensation from the Company; provided, however, that nothing in this Section
-------- -------
7(a) shall be construed to limit Haynes's rights to any compensation of any kind
earned prior to the date of such termination.
(b) Termination by the Company
--------------------------
The Company may terminate Haynes's employment pursuant to the terms of this
Agreement at any time with or without cause by giving written notice to Haynes,
in accordance with Section 10(g), below, and such termination shall be effective
in accordance with such Section 9(g). Upon any such termination for cause,
Haynes shall have no right to any further compensation or employee benefits from
the Company.
For purpose of this Section 7(b), "cause" shall mean that (i) Haynes is
convicted with respect to the commission of a crime involving moral turpitude;
(ii) Haynes has been guilty of gross or willful misconduct in connection with
his duties hereunder or (iii) Haynes has failed to
63
<PAGE>
follow the lawful, material instructions of the Company's Board of Directors.
Throughout the term of his employment with the Company, Haynes shall remain
an employee at will, and his employment may be terminated for any reason by the
Company at any time. If Haynes is terminated by the Company without cause he
shall be entitled to certain minimum severance pay ("Minimum Severance"), with
any additional severance pay above the Minimum Severance to be solely within the
discretion of the Board of Directors. In the event of Haynes's voluntary
termination under Section 7(a) above, or his termination for cause as described
above, Haynes shall be entitled to no Minimum Severance. In the event of a
termination without cause, Haynes shall receive the following Minimum Severance,
under the terms set forth above:
(i) Termination without cause after commencement of his employment: six
weeks salary and benefits;
(ii) Termination without cause after twelve (12) months of employment: two
months salary and benefits;
(iii) For every six (6) month period beyond the initial twelve (12) months
he shall be employed by the Company, Haynes shall be entitled to an
additional two (2) weeks of salary and benefits as Minimum Severance;
up to a maximum Minimum Severance of twelve months salary and
benefits;
(iv) All shares of Common Stock of Enviro-Clean of America, Inc. reserved
for issuance to Haynes under the Stock Purchase Agreement dated as of
August 1, 1999 shall immediately vest and be delivered to Haynes.
(c) Death or Disability
-------------------
This Agreement and the obligations of the Company hereunder will terminate
upon the death of Haynes.
In the event of Haynes's permanent disability, the Company may terminate
this Agreement. For purposes of this Section 7(d), permanent disability shall
mean that for a period of 90 days in any 365-day period Haynes is incapable of
substantially fulfilling his duties as set forth in Section 3 above because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease.
7. Representations and Warranties
------------------------------
Haynes hereby represents and warrants to the Company that his entering into
this Agreement, and the obligations and duties undertaken by him hereunder, will
not conflict with constitute a breach of, or otherwise violate the terms of, any
other agreement to which he is a party.
64
<PAGE>
Haynes hereby agrees to indemnify the Company for any losses, costs or
other expenses or damages incurred by the Company in the event that Haynes has
breached this representation.
8. Assignment
----------
This Agreement and any rights (including compensation) hereunder shall not
be assigned or transferred by Haynes to any other person. The Company, however,
shall have the right to assign its rights hereunder to any affiliate of the
Company.
9. Miscellaneous
-------------
(a) All payments provided for in this Agreement shall be paid by check
from the Company's general funds. Any withholding and/or any other payroll taxes
with respect to any payments provided for in this Agreement shall be deducted by
the Company as appropriate and as may be required by law.
(b) If any provision of this Agreement shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this Agreement.
(c) This Agreement constitutes the entire understanding between the
parties and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or cancelled, and
any of the terms, covenants or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver of
any right or benefits provided hereunder, by the party waiving compliance.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and the parties hereto consent
to the jurisdiction of the Courts located in the State of New York to resolve
any disputes which may arise under this Agreement.
(f) No delay or omission or failure to exercise any right or remedy
provided for herein shall be deemed a waiver thereof or acquiescence in the
event giving rise to such right or remedy, and every such right and remedy may
be exercised from time to time and so often as may be deemed expedient by the
party exercising such right or remedy.
(g) All notices given pursuant to the provisions of this Agreement shall
be in writing and shall be sent by certified mail, postage prepaid, or
recognized overnight courier service, or delivered by hand or by fax, shall be
effective upon the earlier of (i) two (2) days from the date deposited with the
mail or overnight courier service or (ii) actual receipt, and shall be sent to
the parties at the following addresses:
65
<PAGE>
If to the Company: Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
with a copy to:
Martin W. Enright, Esq.
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
If to Haynes: Stephen Haynes
1261 Shannon Way
Bowling Green, Kentucky 42101
(h) The parties to this agreement expressly agree that any and all
disputes, which may arise out of or as a result of this agreement, shall be
submitted to binding Arbitration in accordance with the Rules set forth by The
American Arbitration Association. The parties further agree to be bound by the
result of the arbitration.
(i) The Company shall indemnify Haynes and hold him harmless to the
fullest extent permitted by the By-Laws of the Company and Nevada law, for any
acts or decisions made by him in good faith while performing services for the
Company as an employee and/or agent of the Company, and in addition thereto,
shall use its best efforts to obtain insurance coverage for him under any
insurance policy now in force or hereinafter obtained during the term of this
Agreement covering the officers and directors of the Company against lawsuits as
Haynes and/or agent of the Company against lawsuits as Haynes and/or agent of
Company, to the extent it is deemed advisable by the Company's Board of
Directors to obtain such insurance for the Company's officers and directors and
such insurance can be obtained at a cost deemed reasonable by the Board. The
Company will pay all expenses, including attorneys' fees, actually and
necessarily incurred by the Company or Haynes in connection with the defense of
any such act, suit or preceding and in connection with any appeal thereon,
including costs of court settlement.
66
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates set
forth below, with effect as of the date first above written.
SUPERIOR CHEMICAL & SUPPLY, INC.
By: _________________________ _________________________
Richard Kandel Stephen Haynes
Chairman of the Board of Directors
67
<PAGE>
Exhibit 4(i)
CERTIFICATE OF DESIGNATION OF
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK OF
ENVIRO-CLEAN OF AMERICA, INC.
The undersigned, Richard Kandel and Randall K. Davis, hereby certify that:
They are the duly elected and acting President and Secretary, respectively,
of Enviro-Clean of America, Inc., a Nevada corporation (the "Company").
The Certificate of Incorporation of the Company authorizes 5,000,000 shares
of preferred stock, par value $.001 per share, of which the following have been
authorized and are issued and outstanding of:
70,000 shares of Series E preferred stock
500,000 shares of Series A preferred stock
The following is a true and correct copy of resolutions duly adopted by the
Board of Directors of the Company (the "Board of Directors") by unanimous
written consent dated as of July 30, 1999 which constituted all requisite action
on the part of the Company for adoption of such resolutions.
RESOLUTIONS
RESOLVED, that (i) the Corporation establish a series of its authorized but
undesignated preferred stock to be known as the Corporation's Series D
Cumulative Convertible Preferred Stock (the "Series D Stock") and (ii) that the
form of Certificate of Designation for the Series D Stock appended to this
Unanimous Written Consent as an Exhibit be, and it hereby is, approved and
adopted as the certificate of designation for the Series D Stock; and be it
further
RESOLVED, that the officers of the Corporation be, and they hereby are,
authorized and directed to cause such Certificate of Designation for the Series
D Stock to be filed with the Secretary of State of the State of Nevada and
otherwise take any and all actions deemed by them to be necessary or advisable
to provide for the appropriate amendment of the Corporation's Articles of
Incorporation or otherwise ensure that the Series D Stock is a valid, binding,
duly authorized and issued security of the Corporation; and be it further
RESOLVED, that the officers of the Corporation be, and they hereby are,
authorized and directed to take any and all actions and to execute and deliver
any and all documents and certificates deemed by them, in their discretion,
necessary or advisable to bring about the purposes of the above resolutions.
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares constituting
such series and fixes the rights, preferences, privileges and restrictions
relating to such series as follows:
Section 1 Designation, Amount and Par Value. The series of
------------------------------------------------
preferred stock shall be designated as the Series D Cumulative Convertible
Preferred Stock (the "Preferred Stock" or "Series D Stock"), and the number of
shares so designated shall be Three Hundred and Twenty Thousand (320,000). The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of Five Dollars ($5.00) per share (the
"Stated Value"). The Preferred Stock is being issued pursuant to the Agreement
and Plan of Merger among Enviro-Clean of America, Inc., ("the Company"),
Cleaning Ideas Corp., (a wholly owned subsidiary of the Company), Cleaning Ideas
Inc., Sanivac, Inc., Charles Davis and Randall Davis (the "Merger Agreement").
Section 2. Dividends.
------------------------
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to Eight and Three Quarters per cent (8.75%) per annum,
in cash payable quarterly in arrears on the last day of each March, June,
September and December during the term of the Preferred Stock (each such date, a
"Dividend Payment Date"). Any arrears in payment of dividends with respect to
any share of Preferred Stock shall be payable on the Conversion Date (as defined
in Section 5(b)) applicable to such share or earlier if so determined by the
Company. Dividends on shares of the Preferred Stock shall accrue daily
commencing on the Issue Date of such shares, shall be calculated based on the
actual number of days in such quarterly period based on a 365-day year and shall
be deemed to accrue on such date whether or not earned or declared and whether
or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The party that holds the Preferred Stock
on an applicable record date for any dividend payment will be entitled to
receive such dividend payment and any other accrued and unpaid dividends which
accrued prior to such Dividend Payment Date, without regard to any sale or
disposition of such Preferred Stock subsequent to the applicable record date but
prior to the applicable Dividend Payment Date. A transfer of the right to
receive payments hereunder shall be transferable only through an appropriate
entry in the register (the "Register") to be maintained by the Company, in which
shall be entered the names and addresses of the registered holder of shares of
Preferred Stock and all transfers of such shares. References to the Holder or
"Holders" shall mean the Person listed in the Register as the registered holder
of such shares. The ownership of such shares shall be proved by the Register,
absent manifest error. Except as otherwise provided herein, if at any time the
Company pays less than the total amount of dividends then accrued on account of
the Preferred Stock, such payment shall be distributed ratably among the holders
of Preferred Stock based upon the number of shares held by each Holder. All
amounts due hereunder at any time shall be paid in immediately available funds.
69
<PAGE>
b. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
Section 3. Voting Rights. The holders of the Preferred Stock shall
----------------------------
have no voting rights in such capacity, other than those that may be provided by
law. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority in
interest of the shares of the Preferred Stock then outstanding, (i) alter or
change adversely the powers, preferences or rights given to the Preferred Stock
or (ii) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation senior to, prior to, or pari passu
with, the Preferred Stock; provided, however, that the Company may make one or
-------- -------
more offerings of preferred stock to raise investment capital and that any
preferred stock so issued may rank senior to the Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
--------------------------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of Preferred Stock an amount equal to Five Dollars ($5.00) per share of
Preferred Stock, plus an amount equal to accrued but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay such amounts in full, then the entire assets of the Company
to be distributed shall be distributed among the holders of Preferred Stock
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 33 1/3% of the voting power of the Company is disposed of, or
a consolidation or merger of the Company with or into any other company or
companies or a reclassification of the Common Stock shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such Liquidation, not less than 60 days
prior to the payment date stated therein, to each record holder of Preferred
Stock.
Section 5. Conversion.
-----------------------
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in whole or in
part at any time and from time to time after the Issue Date of such share of
Preferred Stock. The holder of the Preferred Stock shall effect conversions by
surrendering the certificate or certificates representing the
70
<PAGE>
shares of Preferred Stock to be converted to the Company, together with the form
of conversion notice attached hereto as Exhibit A (the "Holder Conversion
---------
Notice"). Each Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date the holder of Preferred Stock
delivers such Notice by facsimile (the "Holder Conversion Date"). If no Holder
Conversion Date is specified in a Holder Conversion Notice, the Holder
Conversion Date shall be the date that the Holder Conversion Notice is deemed
delivered pursuant to Section 5(k). Each Holder Conversion Notice, once given,
shall be irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates tendered by such
holder with the Holder Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
holder (in the manner and within the time set forth in Section 5(c)) a
certificate for such number of shares of Preferred Stock as have not been
converted.
b. On the tenth anniversary of the Issue Date (the "Company
Conversion Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically convertible into
shares of Common Stock at the then applicable Conversion Price; provided,
--------
however, that no shares of Preferred Stock shall be converted unless the
- -------
Company shall have duly reserved for issuance to the holder a sufficient number
of shares of Common Stock to issue upon such conversion. In connection with such
conversion, the Company shall deliver to the holders of such shares of Preferred
Stock a written notice in the form attached hereto as Exhibit B (the "Company
---------
Conversion Notice"). The Company Conversion Notice shall specify the number of
shares of Preferred Stock that will be subject to automatic conversion on the
Company Conversion Date. The Company shall deliver or cause to be delivered the
Company Conversion Notice at least ten (10) Business Days before the Company Con
version Date. The holders of the Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or the
Transfer Agent not later than ten (10) Business Days after the Company
Conversion Date. Failure of the Company to deliver the Company Conversion Notice
shall not effect the validity or enforceability of the automatic conversion on
the Company Conversion Date and no dividends shall accrue from that date forward
and the Preferred Stock shall from that date forward enjoy no dividend,
liquidation or other preference over the Common Stock. Each of a Holder
Conversion Notice and a Company Conversion Notice is sometimes referred to
herein as a "Conversion Notice," and each of a "Holder ConversionDate"and a
"Company Conversion Date" is sometimes referred to herein as a "Conversion
Date."
c. Not later than ten (10) Trading Days after any Conversion Date,
the Company will, or will cause the Transfer Agent to, deliver to the holder of
Preferred Stock (i) a certificate or certificates representing the number of
shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock, including certificates representing the number of shares of
Common Stock as equals the accrued but unpaid dividends thereon divided by the
Conversion Price and (ii) one or more certificates representing the number of
shares of Preferred Stock not converted. If, at the time of any conversion of
Preferred Stock, there shall be an effective
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Registration Statement applicable to the shares of Common Stock available for
such conversion, any certificates representing shares of Common Stock to be
delivered upon such conversion hereunder shall be free of restrictive legends
and trading restrictions on the stock transfer books of the Company. The Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates representing the shares of Preferred Stock to be converted are
either delivered for conversion to the Transfer Agent for the Common Stock, or
until the holder notifies the Company that such certificates representing the
shares of Preferred Stock have been lost, stolen or destroyed and (if requested
by the Company or the Transfer Agent) provides a bond and other supporting
documentation reasonably satisfactory to the Company and the Transfer Agent (or
other adequate security reasonably acceptable to the Company and the Transfer
Agent) to indemnify the Company from any loss incurred by it in connection
therewith, provided that, if the Company or the Transfer Agent receives the
original certificates representing the shares of Preferred Stock being converted
on or prior to the time specified for the delivery of such shares of Common
Stock, the date of the Holder Conversion Notice shall be deemed to be the date
of delivery of such original certificates representing the shares of Preferred
Stock.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of
shares, or (c) combine outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(i) shall become
effective immediately upon the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
ii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by
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a fraction of which the denominator shall be the Conversion Price
per share of Common Stock, and of which the numerator shall be
such Conversion Price per share of the Common Stock on such
record date less the then fair market value at such record date
of the portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Preferred Stock of the
portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
iii. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
iv. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i) or (ii), the Company shall promptly mail to the holders
of Preferred Stock a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
v. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be en titled upon such event to receive
such amount of securities, cash or property as would be payable
to the holders
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of the shares of the Common Stock of the Company into which such
shares of Preferred Stock could have been converted immediately
prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation,
merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the holder of Preferred Stock the
right to receive the securities, cash or property set forth in
this Section 5(d)(v) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
vi. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a subdivision
of the outstanding shares of Common Stock) or shall
authorize a repurchase or redemption or otherwise enter
into any other transaction (including a stock split,
recapitalization or other transaction) which would cause a
decrease in the number of its shares of Common Stock issued
and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock into which
shares of Preferred Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(4) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days
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prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, repurchase, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, repurchase, redemption,
rights or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
e If the Company, so long as any shares of Preferred Stock remain
outstanding, shall issue any shares of Common Stock, or other securities
convertible into or exchangeable for Common Stock, after the Issue Date, other
than shares of Common Stock issued or issuable:
i. upon conversion of shares of this Series D Convertible
Preferred Stock;
ii. upon conversion or exercise of any securities, options,
warrants or similar rights outstanding on the date hereof;
iii. to officers, directors, or employees of, or consultants
to, this Corporation pursuant to a stock grant, option
plan, stock purchase plan, or other employee stock
incentive program or agreement (collectively, the "Plans")
approved by the Board (up to a maximum of 10% of the out
standing shares of Common Stock, proportionately adjusted
for any stock splits or reverse stock splits after the
Issue Date and not including as outstanding any shares
issued pursuant to the Plans which are repurchased by this
Corporation or options warrants or rights which expire
without being exercised), which stock issuances are
approved by the Board;
iv. for which the Conversion Price is adjusted under any
provision of this Section 5; and
v. pursuant to the conversion of convertible securities or
the exercise of options or rights (1) which have
previously been incorporated into computations hereunder
on the date such convertible securities, options or rights
were issued or (2) which were issued or granted on or
prior to the Issuance Date
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without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance of such shares of Common Stock
(the "Additional Stock"), then such Conversion Price in effect immediately prior
to the issue of such Additional Stock shall immediately be adjusted to a price
(computed to the nearest cent) equal to the quotient obtained by dividing:
(a) an amount equal to the sum of (1) the sum of (x) the number
of shares of Common Stock outstanding on the Issue Date multiplied by the
Conversion Price in effect immediately prior to the issuance of such Additional
Stock, plus (y) the number of shares of Common Stock into which all outstanding
Series D Convertible Preferred Stock may be converted on the date the
computation is made multiplied by the applicable Conversion Price in effect
immediately prior to the issuance of such Additional Stock and (2) the aggregate
consideration received or to be received by this corporation for all Additional
Stock issued since the Issue Date; by
(b) an amount equal to the sum of (1) the sum of (x) the number
of shares of Common Stock outstanding on the Issue Date, plus (y) the number of
shares of Common Stock into which all outstanding Series D Convertible Preferred
Stock may be converted on the date the computation is made and (2) the number of
shares of Additional Stock issued since the Issue Date (increased or decreased
to the extent that the number of such shares of Common Stock and Additional
Stock, respectively, shall have been increased or decreased by each subdivision
or combination thereof); provided, however, that such adjustment shall be made
-----------------
only if the afore said quotient shall be at least $0.01 less than the Conversion
Price in effect immediately prior to the issue of such Additional Stock.
(iii) For the purposes of any adjustment of the Conversion Price, the
following pro visions shall be applicable:
(a) In the case of the issuance of shares for cash, the
consideration shall be the amount of such cash, provided that in no case under
this subparagraph (iii) shall any deduction be made for any reasonable or
customary commissions or any expenses incurred by this Corporation for any
underwriting of the issue or otherwise in connection therewith;
(b) In the case of the issuance of shares for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as reasonably determined by the Board of
Directors of the Company;
(c) In the case of shares issued as a stock dividend, no
consideration shall be deemed to have been received therefor and such shares
shall be deemed to have been issued at the close of business on the record date
for the determination of shareholders entitled to receive the same; and
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(d) In the event that (A) the Company shall at any time issue
any new securities convertible into Additional Stock, or issue or grant any
options or rights to subscribe for Additional Stock, and (B) the inclusion of
the Shares of Additional Stock issuable on the conversion of any such securities
or upon the exercise of any such options or right in the formulae described in
subparagraph (ii) above would result in an adjustment in the Conversion Price
under such subparagraph (ii) above, such Additional Shares shall be deemed (so
long as such conversion or subscription privilege is outstanding), for the
purpose of the computations made pursuant to subparagraph (ii) above, to have
been issued at the time of the issuance or grant of such convertible securities,
options, or rights. If no such adjustment in the Conversion Price would result,
the shares of Additional Stock issuable on the conversion of any such securities
or upon the exercise of any such options or rights shall be deemed to be issued
at the close of business on the date of such conversion of such convertible
securities or such exercise of such options or rights. For the purpose of any
computation under this paragraph (d), the Company shall be deemed to have
received a consideration for such Additional Stock equal to the consideration
received by this Corporation for the convertible securities, options or rights
so issued or granted, plus the mini mum consideration, if any, to be received by
this Corporation upon their conversion or the exercise of any such options or
rights, as the case may be. Upon the expiration of any such options or rights,
the termination of any such rights to convert, or the expiration of any options
or rights related to such convertible securities, the Conversion Prices shall
forthwith be readjusted to such Conversion Prices as would have been obtained
had the adjustment made upon the issuance of such options, rights, securities,
or options or rights related to such securities been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such options or rights, upon the conversion of such securities, or
upon the exercise of the options or rights related to such securities.
f. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall, at
least 30 calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing the action
contemplated and the material adverse effects of such action on the rights of
such holders and an Appraiser selected by the holders of majority in interest of
the Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of shares of Preferred Stock; provided, however that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case the adjustment shall be
equal to the average of the adjustments recommended by each such Appraiser. The
Board of Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such
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action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an in
crease of the Conversion Price to more than the Conversion Price then in effect.
g. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon conversion
of Preferred Stock, as herein provided, out of its authorized and unissued
Common Stock free from preemptive rights or any other actual or contingent
purchase rights of persons other than the holders of Preferred Stock, the number
of shares of Common Stock as would be issuable upon conversion of all of the
shares of the Preferred Stock that are authorized for issuance hereunder as if
all such shares were issued on, and such conversion had occurred on, the Issue
Date and (ii) covenants that it will at all times reserve and keep available out
of its authorized and unissued Common Stock solely for the purpose of issuance
upon conversion of Preferred Stock as herein provided, free from preemptive
rights or any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock as shall be
issuable (taking into account the adjustments of Section 5(d) hereof) upon the
conversion of the aggregate of all outstanding shares of Preferred Stock that
are authorized for issuance hereunder. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
h. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Conversion Price. If the Company elects not to, or is unable
to, make such a cash payment, the holder of Preferred Stock shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
i. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Common Stock paid as dividends,
shall be made without charge to the holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the holder
of such shares of Preferred Stock so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
j. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
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k. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the attention of the Chief
Executive Officer of the Company at the facsimile telephone number or address of
the principal place of business of the Company and if applicable to the Transfer
Agent. Any and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or sent by
certified or registered mail, postage prepaid, addressed to the holder at the
facsimile telephone number or address of the holder appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if delivered via facsimile at the facsimile telephone
number specified in the Merger Agreement prior to 4:30 p.m. (Eastern Time) on a
Trading Day, (ii) the Trading Day after the date of transmission, if delivered
via facsimile at the facsimile tele phone number specified in the Subscription
Agreement later than 4:30 p.m. (Eastern Time) on any date and earlier than 11:59
p.m. (Eastern Time) on such date, (iii) the Trading Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
Section 6. Redemption.
-----------------------
(a) The Company shall, at all times following the Issue Date of the
Preferred Stock up to and including the Company Conversion Date, have the right,
subject to each Holder's right to convert all or any portion of its shares of
Preferred Stock in accordance with Section 5 hereof on or prior to the
Redemption Date, to redeem any or all of the shares of Preferred Stock on any
Quarterly Dividend Payment Date (for purposes of this Section 6 such date shall
be the "Redemption Date"), provided written demand as set forth below is given.
---------------
The redemption price for each share of Preferred Stock to be redeemed shall be
paid by the Company in cash in an amount equal to Five Dollars ($5.00) per share
of Preferred Stock (the "Redemption Price"), plus any accrued but unpaid
----------------
dividends on such share.
(b) At least ten (10) days prior to the Redemption Date, the Company shall
provide each holder of Preferred Stock with a written demand ("Redemption
----------
Notice") (addressed to the holder at its address as it appears on the stock
- ------
transfer books of the Company) to redeem shares of Preferred Stock as provided
above, which notice shall specify the estimated Redemption Price and the number
of shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
(c) On or prior to the Redemption Date, each holder of Preferred Stock
shall surrender his or its certificate or certificates representing the shares
to be redeemed, in the manner and at the place designated in the Redemption
Notice and if the Holder elects to convert
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any or all of the Shares of Preferred Stock, a Holder Conversion Notice in
conformance with Section 5 hereof. If less than all shares represented by such
certificate or certificates are redeemed or converted, the Company shall issue a
new certificate for the balance of shares not redeemed or converted. From and
after the Redemption Date, unless there shall be a default in payment of the
Redemption Price, all rights of each holder with respect to shares of Preferred
Stock redeemed on the Redemption Date shall cease (except the right to receive
the Redemption Price and interest at the rate of 10% in the event payment is not
made within 20 days after the Redemption Date), and such shares shall not be
deemed to be outstanding for any purpose whatsoever.
Section 7. Definitions. For the purposes hereof, the following terms
------------------------
shall have the following meanings:
"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company here after designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but un paid dividends thereon through and
including the applicable Conversion Date.
"Conversion Price" means Five Dollars ($5.00) per share of Common Stock,
subject to adjustment according to the provisions of this Certificate of
Designation.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, including the Company's Series A and Series E
Convertible Redeemable Preferred Stock.
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder to Convert shares of Series D Preferred
Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series D Cumulative Convertible Preferred Stock indicated below into shares of
Common Stock, par value $.001 per share (the "Common Stock"), of Enviro-Clean of
America, Inc. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series D Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
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EXHIBIT B
NOTICE OF AUTOMATIC CONVERSION
The undersigned in the name and on behalf of Enviro-Clean of America, Inc. (the
"Company") hereby notifies the addressee hereof that [ ] shares of the
Series D Cumulative Convertible Preferred Stock held by the Holder will be
converted into shares of Common Stock, par value $.001 per share (the "Common
Stock"), of the Company according to the terms of the Preferred Stock, as of the
date written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series D Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
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RESOLVED FURTHER, that the President and Secretary of the Company be, and
they hereby are, authorized and directed to prepare, execute, verify and file
with the Secretary of State of the State of Nevada, a Certificate of Designation
in accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, Enviro-Clean of America, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Richard Kandel,
its President and attested by Randall K. Davis, its Secretary, this 2nd day of
August, 1999.
ENVIRO-CLEAN OF AMERICA, INC.
By:_________________________
Name: Richard Kandel
Title: President
ATTEST:
By:________________________
Name: Randall K. Davis
Title: Secretary
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Exhibit 4(ii)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of August 1, 1999 among Enviro-
Clean of America, Inc., a Nevada corporation (the "Company"), Charles Davis and
Randall K. Davis (collectively, the Shareholders):
WHEREAS, Company, the Shareholders, Cleaning Ideas Corp., a Nevada
corporation which is a wholly owned subsidiary of the Company ("Company
Subsidiary"), Cleaning Ideas, Inc., a Texas corporation ("Cleaning Ideas") and
Sanivac, Inc. ("Sanivac"), a Texas corporation d/b/a Davis Manufacturing and a
wholly owned subsidiary of Cleaning Ideas (Cleaning Ideas and Sanivac are
sometimes collectively referred to herein as the "______________") have entered
into an Agreement and Plan of Merger dated of even date herewith (the "Merger
Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, it is a condition
of the obligations of the Shareholders and the Company that they enter into a
registration rights agreement providing for certain rights to the Shareholders
relative to the registration of certain shares of the Company's common stock,
par value $.001 per share (the "Common Stock") reserved for issuance under
shares of the Company's Series D Cumulative Convertible Preferred Stock (the
"Preferred Stock"):
NOW, THEREFORE, the parties hereto in consideration of the mutual promises
contained herein and intending to be legally bound do hereby agree as follows:
1. Piggy-back Registration.
(a) So long as the Shareholders are the holders of any shares of Preferred
Stock or Common Stock received upon the conversation of the Preferred Stock
(such shares of common stock being referred to herein as the "Registrable
Securities"), if the Company shall register any of its securities for sale
pursuant to any appropriate registration statement under the Securities Act of
1933, as amended (the "Securities Act"), the Company shall be required to offer
to such Share holders the opportunity to register any or all the Registrable
Securities, without cost to the Share holders thereof. In connection with these
piggy-back registration rights, the Company shall give all of the Shareholders
notice by certified mail at least thirty (30) business days prior to the filing
of such Registration Statement under the Act. The Shareholders shall then have
twenty-five (25) days to elect to include all or a portion of its Registrable
Securities for sale in the Registration Statement.
(b) The registration requirement shall not apply to a Registration
Statement filed by the Company pursuant to Form S-8 or S-4 or any successor form
or forms with the sole and express
<PAGE>
purpose of registering shares in connection with acquisition transactions or for
employees or for stock incentive plans, or any other inappropriate form.
(c) If the registration statement as to which the Company gives notice to
the Shareholders under Paragraph 1(a), above, is to be a registered public
offering involving an underwriting, the Company will so advise the Shareholders.
In such event, these registration rights shall be conditioned upon such
Shareholder's participation in such underwriting and the inclusion of such
Shareholder's Registrable Securities in the underwriting to the extent provided
herein. All Shareholders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter selected by the Company. If any Shareholder disapproves of the
terms of any such underwriting, he may elect to withdraw there from by written
notice to the Company and the underwriter, provided such notice is delivered on
or prior to the date upon which such Shareholder is obligated to notify the
Company of his intention to participate, or to decline to participate in such
registration statement. Nothing in this Paragraph 1(c) is intended to affect any
right of such Shareholder to participate in subsequent offerings hereunder.
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2. Demand Registration.
If, and to the extent that, any Shareholder has not exercised his
"piggyback" registration rights pursuant to Paragraph 1, above, the Company
agrees that, on one (1) occasion from any date that is one year from the
Closing Date under the Merger Agreement, it shall promptly upon the written
request of the Shareholder, at the Company's sole cost and expense, file such
registration statement pursuant to the Securities Act to register such
Shareholder's Registrable Securities for continuous resale under Rule 415
promulgated by the Commission under the Securities Act. The Company shall use
its best efforts to ensure that such registration statement becomes and remains
effective (including the taking of such steps as are reasonably necessary to
obtain the removal of any stop order) on a timely basis. The Company shall also
execute an undertaking to file post-effective amendments, appropriate
qualification filings under applicable state securities (blue sky) laws and
appropriate compliance with applicable regulations issued under the Securities
Act.
Notwithstanding the provisions of the immediately preceding paragraph, the
Company shall not be under any obligation to register any Registrable Securities
on demand if the Company receives an opinion of counsel to the Company to the
effect that the Shareholders may resell the Registrable Securities under the
provisions of Rule 144 promulgated by the Securities and Exchange Commission
(the "Commission")under the Securities Acts ( a "Rule 144 Opinion"). The
Company agrees to promptly notify the Shareholders in writing in the event that
any such Rule 144 Opinion.
3. Covenants of the Company.
In the case of each registration effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Shareholder advised in
writing as to the initiation, progress, and declaration of effectiveness of
each registration and as to the completion thereof. At its expense, the Company
will:
(a) Keep such registration effective until the earliest to occur of (i)
the date that is two (2) years from its effective date, (ii) the date upon which
the Shareholder or Shareholders have completed the distribution described in the
registration statement relating thereto or (iii) the date the Company receives a
Rule 144 Opinion. In the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis,
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective amendment
which (1) includes any prospectus required by Section 10(a)(3) of the Securities
Act, or (2) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (1) and (2)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act') in the
registration statement;
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(b) Furnish such number of prospectuses and other documents incident
thereto as a Shareholder from time to time may reasonably request;
(c) Furnish the Shareholders with copies of all correspondence with the
Commission; and
(d) In connection with any underwritten offering, the Company and the
Shareholders will enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Registrable Securities, provided such agreement
contains customary underwriting provisions.
4. Blue Sky Registration.
(a) In the event that the Company registers the Registrable Securities,
the Company will register or qualify the Registrable Securities covered by any
registration statement under the Securities Act and under such securities or
blue sky laws in such jurisdictions within the United States as the Shareholders
may reasonably request; provided, however, that the Company reserves the right,
in its sole discretion, not to register or qualify such shares of Common Stock
in any jurisdiction in which such shares of Common Stock do not satisfy the
requirements of such jurisdiction, or in which such registration would submit
the Company to consent to service of process in any state in which it would not
otherwise be subject to such service of process. The Company covenants that
notwithstanding the above, that it shall use its best efforts, at a mini mum, to
register or qualify the Registrable Securities in the State of Texas.
(b) The Company shall (i) advise the Shareholders promptly after obtaining
knowledge thereof, and, if requested by the Shareholders, confirm such advice in
writing, of the issuance by the Commission or any state securities commission of
any stop order suspending the qualification or exemption from qualification of
the Registrable Securities for offer or sale in any jurisdiction, or the
initiation of any proceeding for such purpose the Commission or by any state
securities commission or other regulatory authority, (ii) use its best efforts
to prevent the issuance of any stop order or order suspending the qualification
or exemption from qualification of the Registrable Securities under any state
securities or Blue Sky laws, and (iii) if at any time the Commission or any
state securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under any such laws, use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
5. Deregistration.
In the event the Shareholders have not sold all of the Registrable
Securities included in the registration statement prior to the second
anniversary of the effective date of such registration statement, the
Shareholders hereby agree that the Company may deregister by post-effective
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amendment any Registrable Securities covered by the registration statement but
not sold on or prior to such date.
6. Post-Effective Amendments.
The Company agrees that it will notify the Shareholders of the filing and
effective date of each such post-effective amendment.
7. Selection of Underwriters.
If a Demand Registration pursuant to Paragraph 2 hereof involves an
underwritten offering, either the Shareholders or the Company shall have the
right to select the investment banker or investment bankers and manager or
managers that will serve as the underwriter with respect to the underwritten
offering; provided, however that the party not selecting such underwriter shall
--------
have the right to approve the underwriter and such approval shall not be
unreasonably withheld or delayed without a material reason stated in writing.
In the event of an underwritten offering that triggers the "Piggyback"
registration rights under Paragraph 1 hereof, the Company shall have the sole
and exclusive discretion to appoint the underwriter or underwriters.
8. Indemnification
(a) By the Company.
The Company will indemnify each Shareholder with respect to whom
registration has been effected hereunder against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering statement, notification or the like incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Shareholder, each of its officers, directors and
partners, and each person controlling such Shareholder, each such underwriter
and each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such
Shareholder or underwriter and stated to be specifically for use therein.
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(b) By the Shareholders.
Each Shareholder will, if Registrable Securities or other securities held
by him are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Shareholder and each of their
officers, directors, and partners, and each person controlling such Shareholder,
for a period of one (1) year from the effective date of such registration
statement, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Shareholders, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Shareholder and stated to be specifically for
use therein; provided, however, that the obligations of such Shareholders
-------- -------
hereunder shall be limited to an amount equal to the proceeds to each such
Shareholder of securities sold pursuant to a registration statement required by
this Registration Rights Agreement.
(c) Notice of Indemnity and Defense.
Each party entitled to indemnification under this Paragraph 9 (the
"Indemnified Party") shall give notice to the party requiring to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Registration Rights Agreement.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an
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Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
9. Miscellaneous Provisions.
(a) Amendment and Modification. Subject to applicable law, this Agreement
may only be amended, modified and supplemented by written agreement of the
Shareholders and the Company.
(b) Waiver of Compliance. Any failure of the Shareholders or the Company
to comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing by the Shareholders or the Company, but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
If to the Shareholders, to:
Mr. Randall Davis
c/o Cleaning Ideas, Inc.
1023 Morales Street
San Antonio, Texas 78207
Phone: (210) 227-9161
Fax: (210) 227-4949
and
Mr. Charles Davis
1 Renwick Court
San Antonio, Texas 78218
Phone:
Fax:
(with a copy to:)
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent, Suite 1500
San Antonio, Texas 78205
Attn: Alan Schoenbaum
Phone: (210) 281-7000
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Fax: (210) 224-2035
or to such other person or address as the Shareholders shall furnish to the
Company in writing.
If to the Company, to:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Attention: Richard Kandel, President
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:)
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Attention: Martin W. Enright, Esq.
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as the Company shall furnish to the
Shareholders in writing.
(d) Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except by
operation of law and except that the Company may assign its rights and its
obligations under this Agreement to any successor to the business of the
Company.
(e) Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York with out regard to its conflicts of law doctrine.
(f) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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(g) Headings. The headings used in this Agreement are inserted for
convenience only and shall not constitute a part hereof or affect in any way the
meaning or interpretation of this Agreement.
(h) Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by
reason of this Agreement.
(i) Severability. Should any provision of this Agreement be held by a
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By:_____________________________
Richard Kandel
President
THE SHAREHOLDERS:
_________________________________
Charles Davis
_________________________________
Randall K. Davis
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