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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUER UNDER SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
Enviro-Clean of America, Inc.
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(Name of Small Business Issuer)
Nevada 88-0386415
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(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
211 Park Ave, Hicksville, NY 11801
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(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (516) 931-4455
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of class)
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(Title of class)
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ENVIRO-CLEAN OF AMERICA, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT
Enviro-Clean of America, Inc. (the "Company") was incorporated in
Nevada on December 9, 1997 with the stated business plan of engaging in the
marketing and distribution of sanitary supplies and related paper products.
Management of the Company believed that, in addition to internal expansion,
substantial opportunities existed to expand the Company's business through
strategic acquisitions.
From its inception to January of 1999, the Company engaged in extensive
research on the cleaning supplies industry, identifying and categorizing
potential acquisition targets by size of revenues, geographic market and
products distributed. The Company used the results of this research to refine
its business plan, rate potential acquisition targets according to their
potential fit with the Company's plans and develop financial projections
regarding the capital needs of the Company. In mid-1998, the Company began
negotiating the acquisitions of Kandel & Son, Inc. ("Kandel & Son") and
NISSCO/Sunline, Inc ("NISSCO"). At the same time, the Company began negotiations
with several potential financing sources. In late 1998, deposits were placed
with the shareholders of Kandel & Son and NISSCO as the first step in completing
the acquisitions of these companies.
As of January 1, 1999, the Company completed the acquisition of Kandel
& Son, a 48-year old New York-based sanitary supply distribution company. Prior
to the acquisition, Richard Kandel, who is the Chairman of the Board, Chief
Executive Officer and Treasurer of the Company, was also the president and sole
shareholder of Kandel & Son. (See "Item 7 - Certain Relationships and Related
Transactions"). Kandel & Son distributes approximately 1,000 janitorial and
sanitary products to customers in the New York metropolitan area.
As of January 1, 1999, the Company acquired NISSCO, a Florida-based
marketing group which acts as sales agent for a buying group consisting of over
170 sanitary/janitorial supply companies and NISSCO's NIPPCO division, which is
a buying group for over 100 paper products distributors (NIPPCO and NISSCO are
collectively referred to as "NISSCO"). Thomas B. Haines, a former director of
the Company, was the sole shareholder of NISSCO immediately prior to the
acquisition. (See "Item 7 - Certain Relationships and Related Transactions").
NISSCO derives its revenues in the form of rebates from manufacturers
of products ordered by distributors who are members of the NISSCO buying
program. Manufacturers of cleaning products generally rebate 5% of the gross
amount of orders, to be divided between the buying agent (such as NISSCO) and
the distributor. Generally, NISSCO passes on an amount equal to 2% of the gross
orders to the distributors generating the order and retains 3% as
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NISSCO's commission. Members of the NISSCO group purchase approximately $45
million in products each year.
NISSCO and Kandel & Son are wholly owned subsidiaries of the Company.
The Company has not integrated the operations of NISSCO and KANDEL, nor does the
Company intend to do so in the foreseeable future, as they occupy different
niches in the marketplace. Prior to the acquisitions of Kandel & Son and NISSCO,
the Company was solely engaged in the strategic planning and development
activities described above. At that time, the Company sold no products or
services.
Following the acquisition of Kandel & Son and NISSCO, management of the
Company intended to continue to expand the revenue base represented by NISSCO
and Kandel & Son, and to further increase revenues rapidly through a series of
acquisitions identified by Company management.
To that end, effective August 1, 1999, the Company entered into
definitive agreements to acquire Cleaning Ideas, Inc. and its wholly owned
subsidiary, Sanivac, Inc., which does business under its own name, as well as
under the trade name "Davis Manufacturing Company" (collectively, "Cleaning
Ideas"). The Closing of the Cleaning Ideas acquisition was effected in August
1999. In connection with the acquisition, Cleaning Ideas was merged into a
wholly owned subsidiary of the Company specifically formed for this purpose. The
new subsidiary has succeeded to the business of Cleaning Ideas and has been
renamed "Cleaning Ideas Corp." ("CIC").
CIC is a San Antonio, Texas based manufacturer and distributor of
cleaning supplies, with a particular focus on chemical-based products which has
been in business for over 70 years and gives the Company a geographic presence
in the Southwestern United States. Under the Davis Manufacturing name, CIC
manufactures over 300 products for distribution. CIC operates 12 retail cleaning
supplies stores that sell products bearing the "Cleaning Ideas" private label
brand name. The retail stores focus on selling industrial quality products to
consumers and small businesses. Prior to its acquisition, Cleaning Ideas was
owned by Randall K. Davis, President and Director of the Company, Charles H.
Davis, who is the father of Randall K. Davis, and Carolyn Davis, who is the
mother of Randall K. Davis. (See "Item 7 - Certain Relationships and Related
Transactions.")
On August 17, 1999, the Company acquired Superior Chemical & Supply,
Inc. ("Superior"), a Bowling Green, Kentucky-based distributor of cleaning
supplies. Prior to its acquisition, Stephen Haynes, who remains as the president
of Superior, was the sole shareholder of Superior. (See "Item 7 - Certain
Relationships and Related Transactions"). Superior operates three locations
within the state of Kentucky and distributes over 1,000 product items to
approximately 300 customers statewide.
The terms and conditions of the Cleaning Ideas and Superior
acquisitions are set forth in the Company's Current Report on Form 8-K filed
with the Commission on September 3, 1999.
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Management intends to continue to identify attractive acquisition
targets through advertising in trade publications, by word-of-mouth within its
industry, by attendance at industry trade shows and through additional research.
Management believes that the costs of identifying acquisition targets will not
be material, especially in light of the substantial overlap between the
expenditures for these activities and those of general marketing expenses. For
example, trade publication advertising and trade show attendance are also core
marketing activities and, as such, would also be included in the Company's basic
marketing budget.
The Company intends to focus its acquired companies on retaining their
existing customer base and, where possible, to utilize the broader and deeper
resources of the Company to assist the acquired companies to expand their market
share. The Company's focus on customer retention is highlighted by the fact that
in most instances, the Company intends to retain the name of the acquired
company and to enter into employment contracts with the principals of the
acquired companies. The Company also intends to structure the purchase price of
its acquisition agreements to provide "earn-outs," or incentives in which the
purchase price can be increased based on the performance of the acquired
companies following their acquisition. The Company intends to assist its
acquired companies to expand their market share by using the additional
marketing capabilities and resources of the Company to attract new customers and
by acquiring additional companies within the same geographic market. Where
appropriate, the Company intends to utilize acquired companies as regional
"hubs" around which additional consolidation can be effected within a geographic
market.
With respect to the products and services to be offered by acquired
companies, the Company does not intend to alter substantially the product mix of
acquired companies. Generally speaking, distributors tend to carry substantially
similar product lines and to source their products from a relatively small
number of master distributors.
While it is impossible to predict the effect that any acquisition will
have on the ability of the acquired company to retain its existing customers,
the Company believes it is taking all reasonable efforts to ensure that its
acquired companies can continue to compete for the business of their existing
customer base.
As the Company believes that much of the competition in its industry
tends to focus on services, the Company intends to expand substantially the
range of services offered by its acquired companies. Central to this effort is
the Company's planned Internet-based ordering system that will link each
acquired company and selected customers directly with the Company's central
Internet-based ordering system. This system will allow the Company to place
orders with its master distributor electronically, eliminating paper, postage
and fax costs and allowing for instant ordering. The Company's initial system
went on-line in September of 1999 and is designed to expand modularly with the
addition of acquired companies. The Company also intends to distribute CD-ROM
based catalogs to its distributors and customers to enhance the ordering
capability of those who do not wish to order over the Internet. Management of
the Company believes that these efforts will lower its effective costs of sales
over traditional product and ordering systems that relied principally upon
printed catalogs and purchase orders or telephone orders.
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(b) BUSINESS OF ISSUER
The Company is a holding company, the principal assets of which are all
the issued and outstanding capital stock of Kandel & Son, NISSCO, Cleaning Ideas
and Superior. Through these subsidiaries, the Company engages in the purchasing,
marketing and distribution of janitorial and sanitary supplies and related paper
products nationwide. The Company intends to use its current businesses as a base
from which to acquire profitable companies in the janitorial/sanitary supplies
business across the United States and to put into place management controls and
systems to enable the combination of these companies to realize substantially
greater growth and profitability than they are able to achieve under current
ownership and management. The Company may also consider acquisition targets in
Canada. This Section describes the market for the Company's products, the
Company's current businesses, its proposed acquisition program and its projected
financial structure and results.
A. THE MARKET FOR THE COMPANY'S PRODUCTS
The market for sanitary/janitorial supplies and services in
the United States is substantial. According to the International Sanitary Supply
Association's most recent survey in 1997, the sanitary/janitorial distribution
industry had $16.7 billion in sales. This figure represented a 10.4% increase
over the corresponding figures for 1995. According to the survey, the sale of
paper and plastics for 1997 totaled $6.6 billion, followed by the sale of
chemical products (cleaners, degreasers, etc.) at $6.1 billion. Janitorial
supplies and accessories were the third largest segment of the market with sales
measured to be $1.9 billion.
The Company believes that the market for janitorial products
has grown due to the growth of the economy in general and an increasing concern
of building owners and managers for health and safety. The Company also believes
that the overall market is growing due to increasing customer demands for a
greater variety of products and services, including contract cleaning, training
and education.
According to the same survey, industrial and manufacturing
companies account for the largest customer group for janitorial goods with $3.6
billion in aggregate purchases, followed by commercial property owners,
educational institutions, and health care companies at nearly $2 billion each.
Additional market opportunity exists with respect to sales to restaurants/clubs,
retail establishments, residential properties, government, recreational
facilities, transportation companies, hotels/motels, and religious facilities.
B. INDUSTRY STRUCTURE AND TREND
The Company believes that the sanitary/janitorial supply
industry is undergoing a period of consolidation. The Company believes that due
to the large number of small companies in the industry, and the presence of only
a few large enterprises, there exists an opportunity to consolidate the market.
There are a few large companies engaged in the business of supplying and
distributing sanitary/janitorial supplies, but their consolidation efforts have
been targeted at
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relatively large companies with $50 million or more in annual revenues. Despite
this activity, the Company believes that there is currently no one dominant
player in the industry. See "Competition"
In this environment, management recognizes that there are a
significant number of small, profitable sanitary/janitorial supply companies
that may be desirable acquisition targets for consolidation. These small
companies may be receptive to acquisition offers because they are currently
facing difficult competition from the larger companies, as well as those
companies that are increasing in size through the on-going consolidation in the
industry. Though smaller in size, these companies can often successfully compete
in their region with the larger suppliers and service providers by offering
greater levels of service and niche products not offered by the larger
competitors. However, the Company believes that these smaller companies are
increasingly feeling the competitive pressure from companies who are able to
offer lower prices and take advantage of economies of scale. Additionally, many
of these small companies are family-owned businesses that lack the depth and
breadth of management and financing skills, marketing expertise, resources, and
access to productivity enhancing technology necessary to expand their companies
further.
Management believes that consolidation in the
janitorial/sanitary supply industry will continue at a rapid rate for the
foreseeable future due to industry characteristics including: (i) economies of
scale that drive profitability, (ii) need for compliance with government
regulations for safety and the environment, (iii) advantages of vertical
integration; and (iv) the increased application of technology to monitor
inventory, delivery schedules, ordering and related activities.
(1) ECONOMIES OF SCALE
By consolidating businesses, the Company may be able
to reduce its costs by eliminating costly repetitive services and increase
profit by obtaining cheaper per unit costs. For example, delivery costs of
janitorial supplies tend to make up a substantial percentage of cost of goods
sold. By consolidating small companies, the Company can reduce delivery costs by
shipping in bulk and negotiating lower delivery fees or investing in a delivery
system of its own. In addition, the Company estimates that only 3% of the total
cost of cleaning service relates to the costs of materials sold; the rest is
labor, sales, marketing and delivery expenses. Thus, from the economic viewpoint
of the Company's current or potential customers, the suppliers' efficient
delivery of value-added service is becoming increasingly important, especially
concerning training and education to reduce the customers' labor costs.
(2) COMPLIANCE WITH GOVERNMENT REGULATIONS
There are a number of government agencies that set
standards and regulations on the use and handling of chemical products and for
sanitary conditions. Included in these agencies are the Occupational Safety and
Health Administration (OSHA) which regulates chemicals related to occupational
safety, the Environmental Protection Agency (EPA) chartered to protect land,
air, and water, and the Consumer Product Safety Commission (CPSC) which
regulates the use and labeling of chemicals and products. These agencies issue
rulings that directly affect the practices and purchases of the
sanitary/janitorial supplier's customers. Maintenance and
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distribution of many of the industry's products are subject to extensive
regulation at the federal, state and local levels.
With the continuous change in the regulations being
imposed upon the janitorial and cleaning supplies industry, the individual
companies in the industry, in particular the small to mid-size companies, are
likely to experience an increase in costs in their compliance programs. The
Company believes that consolidation is being fueled in part by a consolidated
company's ability to finance such compliance programs and the reduction in
expense through allocation of the expense throughout the consolidated company.
In addition, a consolidated company may have the resources available to hire
environmental consultants in order to assist it in complying with the
environmental laws and regulations as they are continuously enacted.
(3) ADVANTAGES OF VERTICAL INTEGRATION
The Company believes that the consolidation of the
industry is also being fueled by the push toward integrated supply. Distributors
are looking to simplify the purchasing process and reduce the number of
suppliers with which they must interact. This has two key effects. First, it
provides opportunities for distributors to reach geographically dispersed
customers, thereby expanding its markets and market share. Second, it fuels the
acquisition trend as large wholesale distributors look to expand their product
lines. By acquiring a manufacturing company, a distributor may increase the
number of products it may offer because, in addition to the large number of
products manufacturer may produce, many manufacturers carry unique products they
have developed which are not carried by other manufacturers.
(4) APPLICATION OF TECHNOLOGY
The janitorial/sanitary supply industry, as is true
with most wholesale distributors, is just beginning to embrace the application
of technology to improve operations and service levels. The most notable
technology opportunities concern the Internet. Again, the Company believes that
the ability of a consolidated company to pool revenues to explore cutting edge
technologies available will spur such consolidation. The Company plans to
embrace the use of the Internet to better achieve its goals and to secure its
position as a competitive element in the janitorial/sanitary supply market.
The explosion of the Internet, as a low cost,
ubiquitous communications channel, has created significant opportunities for
those willing to embrace this new channel. It affords the opportunity to reach
manufacturers and customers more efficiently and streamline the acquisition
process. The Company estimates that most of sanitary supply manufacturers have
Internet access, yet less than half of the distributors are on-line. The
Internet allows customers to keep up-to-date on product offerings, order
products more efficiently, and obtain valuable information regarding product use
and safety. The Company intends to implement a company-wide, Internet based
network linking all its distributors with the Company. The Company also intends
to reach retail customers through an Internet-based electronic commerce program
that would allow consumers to order products through the Company's web site by
using credit cards and receive next-day delivery through a nationally recognized
overnight carrier service.
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In its initial efforts in this area, the Company
entered into a letter of intent with ResponseLogic, Inc., an Internet marketing
and electronic commerce company, to implement the Company's electronic
distributor network and "eCommerce" program. The letter of intent expired as of
April 30, 1999 and the parties have decided not to continue working together.
Total expenditures by the Company prior to the abandonment of this venture were
approximately $11,000, which was treated as an expense. The Company has no
ongoing interest of any kind in clickUP.com, Inc., the entity initially
established to operationalize the joint venture with ResponseLogic. To the best
knowledge of the Company, ResponseLogic, retains 100% ownership of clickUP.com,
Inc. The Company has no knowledge of the current operations, if any, of
clickUP.com, Inc.
The Company has entered into understandings with
Telcom.net, an Internet web site developer, and b2bstores.com, Inc., a
California-based designer and producer of Internet-based electronic commerce
programs and on-line "stores." The Company and certain members of management of
the Company have invested in b2bstores.com. (See "Item 7 - Certain Relationships
and Related Transactions").
Telcom.net implemented the Company's initial
informational website (http://www.evclean.com) in July of 1999 and
b2bstores.com, Inc. is implementing the Company's initial eCommerce website
(http://www.b2bgoods.com) in September of 1999. The Company intends to continue
to work with b2bstores.com, Inc. to complete the work necessary to implement
this program on a broader basis. The Company has entered into an agreement with
b2bstores.com, Inc. in which it will host five on-line stores at their website
and the Company will receive 2-5% of the top-line revenues on each product sold
at such stores. The costs of implementing the initial informational website and
eCommerce program were not material and management of the Company does not
believe that ongoing costs of integrating new distributors will be material.
C. THE COMPANY'S PRODUCTS, SALES AND MARKETING
Kandel distributes approximately 1,000 janitorial/sanitary
products to customers in the New York City metropolitan area, where it has been
in business for 48 years. NISSCO serves as the purchasing agent for a marketing
group consisting of over 270-member sanitary/janitorial/supply and related paper
products companies which account for over $45 million in annual purchases of
janitorial/sanitary supplies and related paper products. CIC is a San
Antonio-based regional manufacturer, distributor and retail vendor of cleaning
supplies to customers located within Southern Texas. Superior operates three
distribution centers within the State of Kentucky from which it distributes
cleaning products. The Company has not integrated the operations of these
subsidiaries, nor does the Company intend to do so in the foreseeable future, as
they occupy different geographic market niches.
Products distributed by the Company's subsidiaries are
generally shipped by truck or other common carriers to local distributors who
keep an inventory of the most popular products. Less commonly ordered products
can be shipped via UPS or other delivery service for next day delivery or by the
same common carriers for less time-sensitive deliveries. Products ordered by
customers directly over the Internet will be "drop-shipped" by the Company's
master distributor, which maintains regional distribution centers across the
United States.
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The combined businesses of the Company represent distribution
of over 1,200 products to over 1,000 customers directly in New York, Texas and
Kentucky and, through NISSCO, throughout all 50 states. The Company competes
principally on the basis of price and value-added services such as next-day
delivery, training, customer support and technological innovation in
distribution.
The Company purchases products, through master distributors,
from a wide variety of manufacturers. Master distributors the Company uses
include Bunzl/Papercraft, TEC Products, Inc., La Grass Bros., Inc. and Sweet
Paper Company. The Company believes that virtually all of its products are
available from multiple sources and the loss of one or even several sources
would not have a material adverse effect on the Company's business. Similarly,
the Company sells to over 1,000 customers, none of which accounts for more than
3% of the Company's sales on an annual basis. Accordingly, the Company is not
overly dependent on any one or few customers. NISSCO acts as purchasing agent
for a nationwide network of distributors. NISSCO derives its revenues from a 5%
rebate from manufacturers on all purchases made by group members. NISSCO shares
this rebate with its distributors, passing on 2% of the aggregate rebates to the
distributors.
D. COMPETITION
The market for janitorial/sanitary supplies has only a few
large, well-capitalized competitors and consists of a large number of small
companies servicing local and regional markets. The larger suppliers in the
industry include:
Unisource Worldwide
W.W. Grainger
Corporate Express
ResourceNet International
Waxie Sanitary Supply
Most of these corporations have multiple divisions, with one
of those being in the sanitary/janitorial supply industry. The Company is not
currently a significant competitor in the industry in terms of annual sales and
its market share is negligible. However, the Company believes that, through an
aggressive plan of acquisitions, it can become a significant industry competitor
within 18 months to two years. There can, of course, be no assurance that the
Company will be successful in identifying attractive acquisition targets,
negotiating advantageous acquisition terms or obtaining the financing necessary
to sustain growth through acquisitions. Failure of the Company to achieve any
one of these goals could force it to substantially curtail its acquisition
plans. If the Company were forced to do so, it would focus its activities on
attempting to foster internal sales growth and profitability, but such growth
would be much slower than under the Company's current plans and the Company's
plan to become a significant industry leader could be in jeopardy.
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The Company believes that, while the larger distributors are
the main competition in the industry, many of the independent
janitorial/sanitary supply distributors still maintain a healthy and profitable
local market share. Competition is, however, forcing prices down and leaving the
independently run companies more vulnerable. With the market being serviced by
what the management considers only a few large competitors, most of the overall
market, based on total sales, is divided among a large number of smaller
competitors.
The larger competitors have competitive advantages over the
Company in the economies of scale they realize through centralized purchasing,
the ability to carry extensive product lines to provide their customers with
"one stop shopping" for all their janitorial/sanitary supplies, their ability to
provide favorable payment terms to customers and their ability to realize
broad-based efficiencies through the strategic implementation of information
technology. Small companies tend to compete through provision of additional or
superior services such as superior, personalized customer service. The combined
experiences of the Company's management in the industry has brought it to the
conclusion that, while customers are always looking for better pricing, they are
sometimes motivated in their purchase decisions by customer service and
value-added services. Management of CIC and Superior have indicated that their
experience is similar. Management believes that this is one of the key reasons
why the smaller, independent distributors are still a major force within the
industry. The relationships that exist and the service levels that can be
offered by the smaller distributors keep customers loyal. Often, the small
distributors provide a specialization or niche product that the larger
distributors will not spend the time to provide. In being closer to their
customers, the small distributors can and must provide value-added services,
such as education and training, to maintain the needed profit margins.
E. ACQUISITION PROGRAM
The Company's objective is to build a strong presence in the
janitorial/sanitary supplies distribution industry at a middle market level.
Management intends to accomplish this by acquiring companies with a profitable
base of annualized revenue in the $2 million to $10 million range. Management
believes that there are in excess of 10,000 potential acquisition target
companies in the industry, which fit the Company's profile for suitable
acquisition targets. In the first stage of its acquisition program, the Company
intends to acquire approximately six to eight sanitary supply distributors with
estimated gross revenues of $2 million to $10 million. Management attempts to
screen acquisition targets whose net pre-tax profits are at least 10% of gross
revenues. Management believes that this series of acquisitions can be completed
within the next six months, although there can be no assurance that all these
acquisitions will be completed on time or at all, or that historical results of
any acquired companies will be repeated under Company ownership. The first two
of such acquisitions were the CIC and Superior transactions which were completed
in August of 1999. Management of the Company is currently in the process of
negotiating for two other acquisitions, which it anticipates concluding in
November of 1999. The Company has not signed definitive agreements for these
acquisitions and does not intend to do so until such time as it has obtained
financing. In addition, five other candidates have provided the Company with
preliminary financial, commercial and organizational information relative to the
Company's analysis of these companies in acquisition negotiations, though no
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contracts have been prepared. The Company continues to investigate other
potential target companies.
On June 1, 1999, in furtherance of the acquisition program,
the Company received aggregate proceeds of $3,000,000 from a private offering of
300 units at an offering price of $10,000 per unit. Each unit was comprised of a
12.75% Subordinated Promissory Note due April 1, 2002 in the principal amount of
$10,000 and 2,400 common stock purchase warrants. The warrants were each
exercisable for one share of the Company's Common Stock (as defined herein), at
an exercise price of $4.25 per share, at any time from six months from their
date of issuance to four years from that date. The Company used these proceeds
to acquire CIC and Superior and the balance will be used for working capital
purposes.
At this time, the company does not have financing available
to complete any acquisition, but is actively seeking up to $8 million of debt or
equity financing. There can be no assurance that the Company will obtain any
financing on terms satisfactory to it. The failure of the Company to obtain
financing will have a materially adverse effect on its ability to implement its
acquisition strategy.
F. CORPORATE STRUCTURE, STRATEGIC PLANNING AND INTEGRATION OF
ACQUISITIONS
The Company plans to maximize the revenue and profitability of
its acquired companies through the enhancement of core revenues, reductions in
the costs of goods sold, the emphasis of personalized customer service and the
implementation of industry technologies that allow centralized purchasing,
inventory management and supply.
For the short term following most acquisitions, the acquired
companies will be maintained as wholly owned subsidiaries of the Company. Each
acquired company will maintain a local manager and, at least initially, retain
its name. The Company will attempt to capitalize upon the acquired company's
existing market presence, to establish the Company as a recognized national
industry leader and to use this image of the Company to augment the acquired
company's image in the local or regional market. The Company intends, where
practical, to integrate operations of acquired companies and to implement a
"best practices" program through which advantageous business practices of an
acquired company will be implemented in other acquired companies. The Company
intends to pursue these activities in a manner designed to retain a high
percentage of existing accounts and does not burden local operations with
excessive overhead. The Company intends a strong focus on maintaining
value-added levels of customer service while attempting to realize improved
economies of scale.
The Company then intends to utilize selected acquired
companies as regional distribution "hubs" to which additional revenues can be
added through incremental acquisitions of smaller local companies, each
generating $750,000 to $1,250,000 in annual revenues. Each hub company will be
used to centralize purchasing and administrative services such as payroll,
insurance and accounting for its region.
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If the Company is successful in achieving aggregate annual
revenues of approximately $25 to $35 million, and regional hubs are in place,
the Company would begin the nationwide centralization of administrative
services, such as legal, accounting, systems integration and implementation,
insurance purchasing and auto and truck purchasing. The goal of this stage is to
maximize cost savings and profits. During this phase, the Company would attempt
to establish a national, private label brand of products to be sold through the
Company's distribution network. This consolidation would help build economies of
scale, enable the application of professional management techniques, and expand
its geographic reach. At the same time, where practicable, the Company intends
to retain local management to maintain customer relationships.
Management's current business plan is highly dependent upon
the successful completion of a series of acquisition transactions. Management
believes that these plans are reasonable based upon the fact that there are
several thousand companies in the United States that fit the Company's
acquisition profile and the initial success management has achieved in acquiring
financing for the Company. If for any reason the Company is unable to obtain
sufficient financing to complete its program or is unsuccessful in identifying
favorable acquisition targets, negotiating acquisition transactions and
completing its program, it is likely that the Company would not be able to meet
the revenue growth plans contained in its current business plan. Should that
occur, management would focus the Company's efforts on internal growth and
greater profitability through expanded marketing programs and information
technology and, in particular on its efforts to market and sell its products
through the Internet. Growth through these means would be slower than that
management believes is possible through acquisitions. Factors external to the
Company, including the performance of the stock markets and the general
availability of credit through banks and other sources could adversely affect
the ability of the Company to continue to effect acquisition transactions.
G. TRADEMARKS
The Company has no trademarks, patents or other licenses that
are material to the conduct of its business.
H. RESEARCH AND DEVELOPMENT
The Company has no material research and development expenses.
I. EMPLOYEES
The Company, through its subsidiaries, currently employs
approximately sixty (60) full-time employees. Four of the Company's drivers and
warehousemen are members of various collective bargaining units, with contracts
extending to September 1, 2001. The Company has not experienced any work
stoppages and believes its relationships with its employees are satisfactory.
J. GOVERNMENTAL REGULATIONS
There are a number of government agencies that set standards
and regulations on the use and handling of chemical products and for sanitary
conditions. Included in these agencies are
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<PAGE> 13
the Occupational Safety and Health Administration (OSHA) which regulates
chemicals related to occupational safety, the Environmental Protection Agency
(EPA) chartered to protect land, air, and water, and the Consumer Product Safety
Commission (CPSC) which regulates use and labeling of chemicals and products.
These agencies issue rulings that directly affect the practices and purchases of
the sanitary/janitorial supplier's customers.
Maintenance and distribution of many of the Company's products
are subject to extensive regulation at the federal, state and local levels. In
particular, the Company is subject to regulations involving storage of hazardous
materials promulgated by the Federal Environmental Protection Agency and the
Occupational Safety and Health Act. As such, the Company's business is dependent
upon continued compliance with governmental regulations regarding the operations
of the Company's facilities. The Company believes that it is in substantial
compliance with all such regulations that are applicable to its business.
However, failure to maintain and demonstrate compliance with all such
regulations could result in the preclusion of handling certain product lines,
result in mandated clean up expenditures, and could have a material adverse
effect on the business and prospects of the Company.
The costs to the Company of complying with environmental
regulations are not material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATIONS
During the 12-month period following the date of this Amendment No. 1
to Form 10-SB, the Company intends to substantially expand its business through
the completion of several acquisition transactions. (See Item 1. Description of
Business) An acquisition program such as that being conducted by the Company
requires virtually constant access to capital in order to enable the Company to
purchase companies. Assuming the Company is successful in identifying
acquisition targets and completing acquisitions according to its plan, the
Company will require additional funding of approximately $6,000,000 prior to the
end of calendar 1999. The Company has begun negotiations with various investment
banking sources regarding such a transaction. Based upon these negotiations, the
Company believes it will be successful in attracting such capital on acceptable
terms prior to the end of 1999. If the Company continues to be successful in
implementing its business plan, there will be a need for additional capital
sometime in the first six months of calendar 2000. If the Company is not
successful in completing acquisitions according to the schedule contemplated by
its current business plan, the Company's need for additional capital will be
reduced or delayed.
There can be no assurance that the Company will be successful in
attracting the requisite capital on terms favorable to the Company or at all.
Failure to attract such capital would seriously impair the Company's ability to
grow according to its current plans and to attain its revenue and profit
targets.
The Company has no material research and development expenditures nor
does it anticipate that it will have any such expenditures in the next 12
months.
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<PAGE> 14
The Company's additions to plant and equipment will be incident to the
acquisitions that have been previously discussed. If the Company is successful
in completing its acquisitions as planned, the number of employees of the
Company, including its subsidiaries, could expand to as many as approximately
250 by the end of calendar 2000.
RESULTS OF OPERATIONS
Results of operations for the six-month period ended June 30, 1999 and
1998:
The net sales increased $902,924 for the six-month period ended June
30, 1999 ("1999") as compared to the six-month period ended June 30 1998
("1998") from $919,451 to $1,822,375. This increase is attributable to NISSCO
being consolidated with the Company in 1999. Net sales of Kandel & Son are
comparable for each period.
The gross profit percentage increased from 46% for 1998 to 53% for
1999. This increase is attributable to the inclusion of NISSCO in 1999. NISSCO
averages a gross profit percentage of approximately 70% because it sells
services rather than products. The gross profit percentage for Kandel & Son
decreased slightly from 1998 to 1999 due to competition in Kandel & Son's
market; however, NISSCO's gross profit percentage offsets this decrease.
The operating expense increased from $415,860 for 1998 to $1,024,066
for 1999, approximately 146%. The majority of this increase, approximately
$450,000, was due to the inclusion of NISCCO in 1999. Additionally, there was an
amortization of goodwill booked on the acquisition of NISSCO of approximately
$149,000. Kandel & Son's expenses were comparable between 1999 and 1998.
The Company had a net loss in 1999 of $58,300, or $.03 per share, as
compared to net income of $7,929, or $.00 per share in 1998. If the amortization
of goodwill, a non-cash expense, were eliminated in 1999, the Company would have
had a net income of approximately $90,700 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's only activities in the year ended December 31, 1998
consisted of extensive research, developing and refining of its business plan,
sales of its securities to raise initial capital, the placing of deposits for
the NISSCO and Kandel & Son acquisitions and related administrative expenses,
including professional fees. For the six-month period ended June 30, 1999, the
Company's financial statements have been restated to include the accounts of
Kandel & Son as if Kandel & Son had been acquired at January 1, 1998.
The Company has funded its requirements for working capital and
acquisitions through a series of equity private placements and the issuance of
long-term debt. During the six-month period ended June 30, 1999, the Company
issued a total of 370,000 shares of Common Stock for $925,000. In addition, as
of June 1, 1999, the Company received net proceeds of $2,350,113 on
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<PAGE> 15
the issuance of 12.75% promissory notes due April 1, 2002 and common stock
purchase warrants in the aggregate amount of $3,000,000. The Company's only
significant use of cash was the balance of cash paid for the Nissco and Kandel
acquisitions of $652,451.
For the six-month period ended June 30, 1999, the Company's cash flows
from operations was positive $331,721, as a result of a net loss of $56,091 and
adjustments to arrive at cash provided by operating activities of depreciation
and amortization of $171,417, a decrease in accounts receivable of $36,961, a
decrease in inventory of $24,613 and increases in accounts payable and income
taxes payable of $176,550 and $3,102, respectively, offset by an increase in
prepaid expenses of $24,831.
The Company expects its capital requirements to increase for the
remainder of 1999 and for 2000 as it continues its acquisition program and
invests in expanded administrative and sales and marketing infrastructure to
support increasing sales volume. The Company's future liquidity and capital
funding requirements will depend on many factors, including the extent to which
the Company is successful in implementing its acquisition program, and the
extent to which the Company is able to raise additional funds through equity and
debt issuances.
The Company intends to structure its next financing transaction as a
private offering of convertible preferred stock. Until the terms of such
offering are set, it is not possible to determine the number of shares of the
Company's Common Stock that may be issuable upon conversion of the preferred
stock. It is also impossible currently to determine the number of shares of
Common Stock that will be issuable to Thomas B. Haines in connection with the
purchase by the Company of NISSCO. Under the terms of Mr. Haines' agreement with
the Company, the Company is obligated to issue additional shares of Common Stock
to Mr. Haines in the event that the bid price per share of the Company's Common
Stock is less than $5.00 for the ten (10) trading days immediately preceding
January 15, 2001 (the "Average Bid Price Per Share"). The number of shares to be
issued is equal to the number of shares necessary so that the dollar amount of
additional shares, valued at the Average Bid Price Per Share, issued to Mr.
Haines on January 15, 2001, is equal to $2,500,000. The Company is authorized to
issue 20,000,000 shares of common stock, par value $.001 per share ("Common
Stock"), of which 4,385,000 shares are currently issued and outstanding.
ITEM 3. DESCRIPTION OF PROPERTY.
(a) The Company's executive offices are located at 211 Park Avenue,
Hicksville, NY 11801, where Kandel & Son's offices are located. The
Company also maintains offices at the offices of Cleaning Ideas at 1023
Morales Street, San Antonio, TX 78207. At this time the Company does
not pay rent at either location, as Kandel & Son and Cleaning Ideas are
the lessees for the respective premises. NISSCO and Kandel & Son
currently lease their properties from unrelated parties and Cleaning
Ideas and Superior lease their facilities from their former owners.
Management of the Company believes that the rental rates for each of
these facilities is at least as favorable as market terms. Combined
rent expense for NISSCO, Kandel & Son, Cleaning Ideas and Superior is
estimated to be approximately $463,000 for the next 12 months.
(b) The Company does not invest in real estate, other than as incident to
its business.
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<PAGE> 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information relates to those persons known to the Company
to be the beneficial owner of more than 5% of the Common Stock, the only class
of voting securities of the Company outstanding, as of the date of this
Memorandum.
<TABLE>
<CAPTION>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNER % OF CLASS
- ------------------- ------------------------ --------------
<S> <C> <C>
Richard Kandel
c/o Enviro-Clean of America, Inc. 2,850,400(1) 57.75%
211 Park Avenue
Hicksville, NY 11801
Steven C. Etra
c/o Manufacturers Corrugated Box Co., Inc. 455,554(2) 9.86%
5830 57th Street
Maspeth, NY 11378
Randall K. Davis
c/o Enviro-Clean of America, Inc. 420,000(3) 8.93%
1023 Morales Street
San Antonio, TX 78207
Thomas B. Haines
c/o Nissco/Sunline, Inc. 250,000(4) 5.70%
14848 Old US 41
#13 Sunburst Center, Naples, FL 84110
</TABLE>
- --------
(1) Includes 500,000 shares of Common Stock issuable pursuant to conversion
rights of Series A Stock (as defined herein), 24,000 shares of Common
Stock issuable upon exercise of warrants held by Kara Kandel, daughter
of Richard Kandel and 26,400 shares of Common Stock issuable upon
exercise of warrants held by Ross Kandel, son of Richard Kandel.
(2) Includes 150,000 shares of Common Stock issuable upon exercise of
options; 70,000 shares of Common Stock issuable pursuant to conversion
rights of Series E Stock (as defined herein); 20,000 shares of Common
Stock held by, and 7,200 shares of Common Stock issuable upon exercise
of warrants held by, Lances Property Development Pension Plan, a
company 50% owned by Mr. Etra; 6,000 shares of Common Stock held by,
and 2,400 shares of Common Stock issuable upon exercise of warrants
held by Blaire Etra, wife of Mr. Etra; 7,200 shares of Common Stock
issuable upon exercise of warrants held by Irving Etra Family Trust,
which Mr. Etra is a beneficiary; and 128,500 shares of Common Stock
held by SRK Associates, a company controlled by Mr. Etra
(3) Includes 100,000 shares of Common Stock held by Colnic Investment
Corporation, which is controlled by Randall K. Davis; 250,000 shares of
Common Stock issuable pursuant to conversion rights Series D Stock (as
defined herein) held by Mr. Randall Davis; 70,000 shares of Common
Stock issuable pursuant to conversion rights of Series D Stock held by
Charles H. Davis, father of Randall K. Davis, which Randall K. Davis
disclaims any beneficial interest therein.
(4) Excludes 250,000 shares of Common Stock to be issued on January 1, 2000
and 500,000 shares of Common Stock (subject to adjustment) to be issued
on January 1, 2001.
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<PAGE> 17
(b) SECURITY OWNERSHIP OF MANAGEMENT
The number of shares of Common Stock of the issuer owned by
the directors and executive officers of the issuer is as follows:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
------------------- -------------------- -----------
<S> <C> <C>
Richard Kandel 2,850,400(5) 57.75%
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Steven C. Etra 455,554(6) 9.86%
c/o Manufacturers Corrugated Box Co., Inc.
5830 57th Street
Maspeth, NY 11378
Randall K. Davis 420,000(7) 8.93%
c/o Enviro-Clean of America, Inc.
1023 Morales Street
San Antonio, TX 78207
Thomas B. Haines 250,000(8) 5.70%
c/o Nissco/Sunline, Inc.
14848 Old US 41 #13 Sunburst Center
Naples, FL 84110
Steven Haynes 50,000 1.14%
c/o Superior Chemical & Supply, Inc.
1038 West Main Street
Bowling Green, KY 42101
Barry J. Gordon 23,000(9) .52%
c/o American Fund Advisors
1415 Kellum Place, Suite 205
Garden City, NY 11530
Gary C. Granoff 12,000(10) .27%
c/o Ameritrans Capital Corp.
747 Third Avenue, Suite 4C
New York, NY 10017
All officers and directors 4,060,954 73.54%
As a group
</TABLE>
- -----------------
(5) See FN 1 above.
(6) See FN 2 above.
(7) See FN 3 above.
(8) See FN 4 above
(9) Includes 18,000 shares of Common Stock issuable upon exercise of
warrants.
(10) Includes 6,000 shares of Common Stock to be issued upon exercise of
warrants held by Leslie Granoff, wife of Gary C. Granoff, and 6,000
shares of Common Stock issuable upon exercise of warrants held by
Drapary Management Corp., a company controlled by Mr. Granoff.
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<PAGE> 18
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following is biographical information regarding the executive
officers and directors of the Company. Directors of the Company serve for a term
of one year or until their successors are elected. Executive officers are
appointed by, and serve at the pleasure of, the Board.
The executive officers and directors of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard Kandel 47 Chairman, CEO, and Treasurer
Randall K. Davis 36 President and Director
Steven C. Etra 51 Secretary and Director
Barry J. Gordon 54 Director
Gary C. Granoff 51 Director
</TABLE>
Richard Kandel, 47, has served as the Chairman and Chief Executive
Officer of the Company from September 1999 to the present. Mr. Kandel has served
as the Company's Treasurer since September of 1999. Since July of 1999, Mr.
Kandel has served as Chairman of the Board of b2bstores.com, Inc., a business to
business full service eCommerce mail mall on the Internet. He graduated in 1974
from Michigan State University with a Bachelor of Science Degree. From 1974
until 1998, Mr. Kandel was the owner and president of Kandel & Son, a sanitary
supply distributor in the New York metropolitan region. In January of 1999, Mr.
Kandel sold Kandel & Son to the Company. Mr. Kandel is also an owner/director of
Camp Pontiac LLC, an eight-week summer sports camp for over 400 boys and girls.
In addition, Mr. Kandel is the founder and chairman of No Small Affair, a New
York/Florida-based all volunteer organization. This foundation provides events,
parties, and outings for thousands of homeless, physically or emotionally
challenged.
Randall K. Davis, 36, has served as a Director and President of the
Company from September 1999 to the present. From March 1999 to August 1999, Mr.
Davis served as Vice President of the Company. Mr. Davis graduated from the
University of Texas in Austin in 1985 with a Bachelor of Arts Degree. From May
of 1985 until 1999, Mr. Davis was the co-owner and President/CEO of Davis
Manufacturing Company, whose holdings included Sanivac, Inc., and Cleaning Ideas
Inc. Davis Manufacturing Company was one of the largest manufacturers of
commercial cleaning products in South Texas and had been in operation since
1929. In August of 1999, Mr. Davis, along with family members, sold the Davis
family of companies to the Company.
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<PAGE> 19
Mr. Davis is also the managing partner of Colnic Investment Corp., a private
investment company, that invests in private and publicly traded companies. Mr.
Davis also serves on the boards of The Texas Manufacturers Assistance Center,
Cystic Fibrosis Foundation and Oakwell Farms Association. Mr. Davis spends about
80% of his working hours in fulfilling his duties at the Company
Steven C. Etra, 51, has served as a Director of the Company from March
1999 to the present. Mr. Etra has served as the Company Secretary from September
1999 to the present. Mr. Etra has been the Sales Manager of Manufacturers
Corrugated Box Company since September of 1970, a company owned by Mr. Etra's
family for more than 75 years. Additionally, Mr. Etra has been a director of Elk
Associates Funding Company ("Elk") since November of 1995. Elk is a publicly
traded NASDAQ company under the symbol of "EKFG", with an investment portfolio
totaling $45 million. Since June 1996, Mr. Etra has also been a director of
Gemini Capital, an automobile finance company.
Barry J. Gordon, 54, has served as a Director of the Company from
September 1999 to the present. Mr. Gordon has over 28 years of investment
experience. After several years with New York Hanseatic Corporation as a Senior
Security Analyst specializing in aviation and technology, Mr. Gordon joined
National Aviation & Technology Corporation as a Portfolio Manager in 1973. He
was instrumental in the formation of American Fund Advisors in 1979 and is now
Chairman and President.Mr.Gordon is also President of John Hancock Global
Technology Fund. In addition, he is Chairman and Managing Partner of the New
Jersey Cardinals, a Class A affiliate of the St. Louis Cardinals and Chairman
and Managing Partner of the Norwich Navigators, a Class AA affiliate of the New
York Yankees. Mr. Gordon serves as a Director of Robocom Systems, Inc. and
Winfield Capital Corp., is a shareholder of the General Partnership that
operates a hotel, and won the 1992 Long Island Entrepreneur of the Year Award
for Financial Services. Mr. Gordon has been featured in both televisions and
print mediums including Good Morning America, Forbes Magazine, CNBC, The Wall
Street Journal, The Chicago Tribune, Fortune, and Newsday. Mr. Gordon has also
appeared on the CBS, ABC, and NBC Evening News. Mr. Gordon holds an MBA in
Finance from Hofstra University and a BBA in Marketing from the University of
Miami.
Gary C. Granoff, 51, has served as a Director of the Company from
September 1999 to the present. Mr. Granoff is a Chairman of the Board and
President of Ameritrans, a Business Development Company under the Investment
Company Act of 1940 (in formation) since 1998, as well as Elk Associates Funding
Corporation ("Elk"), a Small Business Investment Company, licensed by the U.S.
Small Business Administration since July 1979, where he has served as President
since its incorporation in 1979, as its chairman of the board since December
1995. Elk is also a Business Development Corporation and is registered as an
Investment Company under the Investment Company Act of 1940. Mr. Granoff has
been a practicing attorney for the past twenty-six years and is presently an
officer and stockholder in the law firm of Granoff, Walker & Forlenza, P.C. Mr.
Granoff is a member of the bar of the State of New York and the State of Florida
and is admitted to the United States District Court of the Southern District of
New York. Since 1983, Mr. Granoff is also sole stockholder and President of GCG
Associates, Inc., an investment consulting firm. He has served as the President
and is the sole stockholder of Seacrest Associates, Inc., a hotel operator,
since August 1994. Mr. Granoff has also been a director and President since June
1996 of Gemini Capital Corporation, a company primarily engaged in the business
of making consumer loans. In February 1998, Mr. Granoff was elected to and is
presently serving as a trustee
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<PAGE> 20
of the Board of Trustees of The George Washington University. Mr. Granoff holds
a Bachelor of Business Administration degree in Accounting and a Juris Doctor
degree (with honors) from The George Washington University.
Thomas B. Haines and Robert W. Moehler, formerly directors of the
Company, resigned effective July 12, 1999 and June 30, 1999, respectively, so
that board seats might be freed up for those who will be more intimately
involved in the Company's ongoing growth and financial activities.
ITEM 6. EXECUTIVE COMPENSATION.
The Company has entered into an employment agreement with Richard
Kandel for a term of three years including terms and conditions usual and
customary for executives in the Company's industry. Mr. Kandel's salary for the
year ending December 31, 1999, is $100,000 per annum, and shall increase by
$100,000 per annum on January 1, 2000 and January 1, 2001. The Company entered
into an employment agreement with Randall K. Davis for a term of three years
including terms and conditions usual and customary for executives in the
Company's industry. Mr. Davis' salary for the year ending December 31, 1999 is
$50,000 and shall increase by $100,000 per annum on January 1, 2000 and January
1, 2001. Randall K. Davis has also entered into an employment agreement with
Cleaning Ideas Corporation, a wholly owned subsidiary of the Company, for a term
of five years at an annual salary of $50,000. Steven C. Etra, a Director and
Secretary of the Company, entered into a consulting agreement with the Company
dated March 1, 1999, for a term of two years pursuant to which Mr. Etra receives
a monthly fee of $2,000 for financial public relations services. The annual base
compensation for each of Messrs. Kandel, Davis, Gorelick, Haines, and Haynes
are:
<TABLE>
<S> <C> <C>
Richard Kandel $100,000
Randall K. Davis $100,000 (includes $50,000 in his capacity as President of CIC)
Irwin Gorelick $ 90,000 (in his capacity as President of Kandel & Son)
Thomas B. Haines $ 75,000 (in his capacity as President of NISSCO)
Stephen Haynes $ 40,000 (in his capacity as President of Superior)
</TABLE>
Neither Mr. Kandel, Mr. Davis, nor Mr. Haines received any compensation
from the Company during the year ended December 31, 1998. Mr. Kandel received a
yearly salary of $100,000 from Kandel & Son in his prior capacity as its
president.
The Company intends to implement a stock option plan for its executive
management in the future, but the terms and conditions of such plan have not yet
been determined. However, certain members of management of the Company hold
options to purchase Common Stock, which were not issued pursuant to any option
plan.
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<PAGE> 21
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company was founded on December 9, 1997. At the time of its
founding, The Strateia Group, Inc. ("Strateia") received 250,000 shares of
Common Stock at a price of $.01 per share. Richard Kandel, Chairman, Chief
Executive Officer and Treasurer of the Company, received 2,300,000 shares of
Common Stock at a price of $.01 per share. Of Mr. Kandel's shares, 1.5 million
shares were initially held in the name of the Palmetto Group, Inc. pursuant to
certain proposed financing arrangements. When the Company was able to arrange
financing on more favorable terms than initially planned, the proposed financing
was abandoned and such 1.5 million shares were returned to Richard Kandel.
On January 26, 1998, SRK Associates LLC, a company controlled by Steven
C. Etra, a Director and the Secretary of the Company, purchased 50,000 shares of
Common Stock for $.50 per share in an offering in which 43 other investors also
purchased Common Stock upon the same terms.
On December 22, 1998, Steven C. Etra, a Director and the Secretary of
the Company bought 70,000 shares of the Company's Series E Convertible
Redeemable Preferred Stock (the "Series E Stock") for $175,000. The Series E
Stock were created specifically for the purposes of Mr. Etra's investment and
(i) have a stated value of $2.50 per share, (ii) pay an annual dividend equal to
3% of the stated value, (iii) are convertible into shares of Common Stock, par
value $.001 per share, of the Company at a conversion price of $2.50 per share
and (iv) may be redeemed by the Company at any time after December, 2000, at a
redemption price of $3.50 per Series E Stock so redeemed. These conversion and
redemption prices are subject to adjustment in the event of recapitalization,
stock splits and other enumerated extraordinary corporate events.
Richard Kandel, Chairman, Chief Executive Officer and Treasurer of the
Company, was formerly President and the principal stockholder of Kandel & Son, a
company which is currently a principal Subsidiary of the Company. Thomas B.
Haines, a former Director of the Company, was formerly Chairman of NISSCO which
is also currently a principal subsidiary of the Company, and its NIPPCO
division. The terms of the Kandel & Son and NISSCO acquisitions were negotiated
between Messrs. Kandel and Haines and the Board of Directors of the Company,
which at the time was comprised of Robert W. Moehler and Mary Magourik.
The Company signed preliminary agreements to acquire all the issued and
outstanding capital stock of Kandel & Son in September of 1998 and of NISSCO in
October of 1998. Additional negotiations for both companies were finalized on
January 15, 1999. Pursuant to the agreements, the Company assumed $665,596 of
debt of Kandel & Son, consisting of amounts due and owing in respect of
principal and interest to (i) Citibank, N.A. of $99,914, (ii) miscellaneous
other debt of $183,329, and (iii) shareholder loans from Richard Kandel totaling
$382,353. Richard Kandel, as sole shareholder of Kandel & Son, has received (1)
$810,000 in cash, (2) a promissory note in the principal amount of $540,000 due
January 15, 2001 and bearing interest at a rate of 4% per annum, and (3) 500,000
shares of Series A Convertible Preferred Stock (the "Series A Stock"), a class
of securities created specifically for the Kandel & Son transaction. The
promissory note described in (2) above has been paid in full by the Company and
no longer remains outstanding. The Series A Stock (a) bear an annual dividend of
4%, and (b) are
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<PAGE> 22
convertible into shares of Common Stock of the Company at a conversion price of
$5.00 per share. Originally, the Series A Stock were redeemable by the Company
at Mr. Kandel's option at a redemption price of $5.00 per share at any time
after January 15, 2001 and the conversion price was $2.50 per share, however,
Mr. Kandel, as the sole holder of the Series A Stock, and the Company entered
into an agreement effective on September 30, 1999, in which the certificate of
designation for the Series A Stock would be amended to remove Mr. Kandel's
ability to put the Series A Stock to the Company and increased the conversion
price from $2.50 to $5.00 per share.
Thomas B. Haines, as sole shareholder of NISSCO, received $500,000 in
cash, and 250,000 shares of Common Stock in connection with the sale of NISSCO
to the Company. In addition, Mr. Haines is to receive an aggregate of an
additional 750,000 (subject to adjustment as described below) shares of Common
Stock in installments of 250,000 on January 15 of 2000, and 500,000 shares of
Common Stock on January 15, 2001. If on January 15, 2001, the average closing
bid price of the Company's Common Stock for the ten trading days immediately
preceding January 15, 2002 (the "Average Bid Price Per Share") is not at least
$5.00 per share, the Company shall issue additional shares of Common Stock to
Mr. Haines such that the aggregate value of the shares issued on January 15,
2001, calculated based on the Average Bid Price Per Share, shall be $2,500,000.
Strateia is an investment banking and management consulting firm that
specializes in initiating consolidation opportunities in fragmented industries.
Messrs. Kandel and Haines have invested, and may continue to invest, in
opportunities generated by Strateia, other than the Company.
Steven C. Etra, Director and Secretary of the Company, has entered into
a consulting agreement with the Company dated March 1, 1999 for a period of two
years pursuant to which Mr. Etra receives a monthly fee of $2,000 for financial
public relations services which includes assisting the Company in communicating
with investment bankers, financial analysts and potential investors.
The Company does not have a stock option plan, but has granted options
to several of its current and former Board members. On April 15, 1999, the
Company granted 125,000 options to purchase shares of Common Stock to Steven C.
Etra, a Board member, exercisable immediately, at an exercise price of $3.50 per
share; such options are to expire after the sixth anniversary of the date of
their grant.
On April 15, 1999, the Company granted 25,000 options to purchase
Common Stock, exercisable immediately, at an exercise price of $3.50 to SRK
Associates, LLC, a company controlled by Steven C. Etra, a Board member; such
options are to expire on the sixth anniversary of the date of their grant.
On April 15, 1999, the Company granted 25,000 options to purchase
Common Stock, exercisable immediately, at an exercise price of $4.25 per share
to Robert W. Moehler, a former
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<PAGE> 23
Director of the Company; such options are to expire on the third anniversary of
the date of their grant.
In April and June of 1999, Colnic Investment Corp., a private
investment Company controlled by Randall K. Davis, President of the Company and
President of CIC, purchased an aggregate of 100,000 shares of the Company's
Common Stock at a purchase price of $2.50 per share for an aggregate investment
of $250,000. The investments were made in two purchases of $125,000 each.
On June 15, 1999, the Company sold 10,000 shares of Common Stock to SRK
Associates LLC, a company controlled by Steven C. Etra, a Director of the
Company, at a price of $2.50 per share for aggregate proceeds of $25,000.
On June 15, 1999, the Company sold 6,000 shares of Common Stock to
Blaire Etra, wife of Steven C. Etra, a Director of the Company, at a price of
$2.50 per share for aggregate proceeds of $15,000.
On July 13, 1999, the Company issued 25,000 shares of Common Stock to
Harrington, Ocko & Monk, LLP, an outside counsel to the Company, at a price of
$5.00 per share in consideration for legal services rendered.
The Company agreed to purchase CIC in August of 1998. Prior to its
acquisition by the Company, CIC was owned by Randall K. Davis, President of the
Company, and his parents, Charles H. Davis and Carolyn Davis. According to the
purchase agreement, the consideration for the merger included: (a) $500,000 in
cash; (b) a secured promissory note in the original principal amount of $900,000
(the "Davis Note") payable to Charles H. Davis; (c) assumption of $400,000 of
debt; and (d) 320,000 shares of the Series D Cumulative Convertible Preferred
Stock (the "Series D Stock"), a class of securities created specifically for the
transaction of which 250,000 shares are held by Randall K. Davis and 70,000
shares are held by Charles H. Davis. In connection with the merger, the Company
entered into a Pledge and Security Agreement to secure the payment of the Davis
Note. Furthermore, the Company granted piggyback registration rights for the
shares of Common Stock into which the Series D Stock is convertible.
In connection with the acquisition of CIC, CIC subsequently entered
into employment agreements for a period of five years beginning August 1, 1999
with Randall K. Davis, President of the Company, with an annual salary of
$50,000 per year, and with Charles H. Davis, father of Randall K. Davis, with an
annual salary of $15,000 per year.
In connection with the purchase of CIC in August of 1999, the Company
entered into four leases to rent parcels of real estate. These leases include:
(a) a 5-year triple net lease for 1023 Morales Street in San Antonio,
Texas, for the administrative offices and manufacturing facilities
at an annual rental of $70,872, by and between the Company and
Charles H. Davis;
23
<PAGE> 24
(b) a 5-year triple net lease for 724 Perez Street in San Antonio,
Texas, for a warehouse and distribution facility at an annual
rental of $21,060, by and between the Company and Charles H.
Davis;
(c) a 5-year triple net lease for 723 Perez Street in San Antonio,
Texas, for a warehouse at an annual rental of $29,592, by and
between the Company and Charles H. Davis; and
(d) a 5-year triple net lease for 401 Main Street in Kerrville, Texas,
for a Cleaning Ideas store at an annual rental of $60,000, by and
among the Company, Randall K. Davis and his father, Charles H.
Davis.
In August of 1999, the Company acquired Superior pursuant to a stock
purchase agreement with Stephen Haynes, the current President of Superior. The
acquisition documents provide that Mr. Haynes was to receive the following: (a)
$400,000 in cash; (b) a promissory note (the "Haynes Notes") in the original
principal amount of $1,200,000, and bearing interest at a rate of 8% per annum,
and (c) escrowed consideration of 50,000 shares of Common Stock, to be issued in
five yearly installments of 10,000 shares; each subject to adjustments for not
meeting annual financial thresholds. Mr. Haynes is to be paid an earn-out bonus
for the years 1999, 2000, 2001 and 2002 based on a portion of the pre-tax
earnings of Superior above the annual, increasing thresholds. Mr. Haynes is also
entitled, pursuant to the purchase agreement, to a yearly payment for five years
beginning in 2000 for 25% of the net, after tax profits for the five fiscal
years (including 1999) from sales of janitorial products similar to those sold
by Superior prior to its acquisition, made by the Company through its eCommerce
program, to customers located within a 60-mile radius of any of Superior's three
Kentucky locations. The Haynes Note is payable in 12 equal installments of
$100,000 and, upon default of the note, without being cured during the 30-day
cure period, permits Mr. Haynes to exercise upon the collateral and causes the
noncompetition provisions contained in Mr. Haynes' employment contract to become
void.
Upon the acquisition of Superior, the Company, through Superior, came
into possession of certain real property located at 1038 West Main Street,
Bowling Green, Kentucky pursuant to a lease. This real property is held by ACH
Holdings, Inc., of which Stephen Haynes, President of Superior, owns an
interest. The property is leased by Superior for a five-year duration, which
expires on March 31, 2004, and may be extended an additional five years by
Superior. The annual rent of the premises is $30,000, payable in equal monthly
installments of $2,500.
The Company and Messrs. Kandel, Davis and Etra have invested in
b2bstores.com, Inc., a California based company which designs Internet-based
electronic commerce programs. B2bstores.com, Inc. has assisted the Company to
develop the Company's eCommerce website. The Company has entered into an
agreement with b2bstores.com, Inc. in which b2bstores.com, Inc. will host five
on-line stores at their website and the Company will receive 2-5% of the top
line revenues on each product sold at such stores. Mr. Kandel, the Chairman and
Chief Executive Officer of the Company, serves as Chairman of the Board of
b2bstores.com, Inc.
Effective on September 30, 1999, the Company entered into an agreement
with Richard Kandel, Chairman, Chief Executive Officer and Treasurer of the
Company, pursuant to which
24
<PAGE> 25
Mr. Kandel, as sole holder of the Series A Stock, consented to the amendment of
the Certificate of Designation for the Series A. Stock to remove the ability of
the holder of the Series A Stock to put the Series A Stock to the Company at any
date after January 15, 2001 and to increase the conversion price of the Series A
Stock from $2.50 to $5.00.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $.001 per share, of which 4,335,000 shares are outstanding on
the date hereof. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably, dividends when, as, and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution, or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is validly authorized and issued, fully paid, and nonassessable.
Holders of Common Stock are not entitled to accumulate their votes for
the election of directors or otherwise. Accordingly, the holders of a majority
of the Common Stock present at a meeting of shareholders will be able to elect
all of the directors of the Company and the minority shareholders will not be
able to elect a representative to the Company's Board of Directors. Moreover,
current shareholders will be able to control the outcome of all matters
submitted to the Company's shareholders for approval, including extraordinary
transitions such as mergers or sale of all or substantially all the assets of
the Company.
PREFERRED STOCK
Under the Company's Certificate of Incorporation, the Board of
Directors of the Company is authorized to designate, and cause the Company to
issue, up to five million (5,000,000) shares of preferred stock of any class or
series, having such rights, preferences, powers and limitations as the Board
shall determine.
The Company's Board of Directors has authorized its Series A Stock
issued to Richard Kandel in conjunction with the acquisition of Kandel & Son,
its Series E Stock issued to Steven C. Etra in consideration of his investment
of $175,000 in the Company and Series D Stock issued to Charles Davis and
Randall K. Davis in connection with the acquisition of Cleaning Ideas.
The Series A Stock (i) pay an annual dividend of 4%, and (ii) are
convertible into Common Stock at a conversion price of $5.00 per share of Common
Stock.
25
<PAGE> 26
The Series E Stock (i) pay an annual dividend of 3%, (ii) are
convertible into Common Stock at a conversion price of $5.00 per share of Common
Stock and (iii) may be redeemed at the option of the Company at any time after
December 15, 2000 at a redemption price of $3.50 per share.
The Series D Stock (i) pay an annual dividend of 8.75%, (ii) are
convertible into Common Stock at a conversion price of $5.00 per share of Common
Stock and (iii) may be redeemed at the option of the Company at any time at a
redemption price of $5.00, plus any accrued and unpaid dividends per share.
The Board could, in the future, authorize and cause the Company to
issue up to an additional 4,110,000 shares of preferred stock of one or more
series or classes, having rights, preferences and powers as determined by the
Board, which could be senior to those of the Common Stock, including the right
to receive dividends and/or preferences upon liquidation, dissolution or
winding-up of the Company in excess of, or prior to, the rights of the holders
of the Common Stock. This could have the effect of materially impairing the
rights of the holders of the Common Stock to receive such dividends or
preferential payments and/or of reducing, or eliminating, the amounts that would
otherwise have been available for payment to the holders of the Common Stock.
There are no provisions of the articles or by-laws of the Company that
are designed to, or are likely to have the effect of, delaying, deferring or
preventing a change of control of the Company.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION
The Company's Common Stock was approved for quotation on the NASD OTC
Bulletin Board under the symbol "EVCL" and began trading on May 21, 1998. There
is currently a limited trading market for the Common Stock. The high and low
closing bid prices for the shares of the Company's Common Stock, as reported by
National Quotation Bureau, LLC are listed in the following chart. These prices
are between dealers and do not include retail markups, markdowns or other fees
and commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
1998 HIGH LOW
<S> <C> <C>
May 21 - June 30 $ 3.25 $ .25
July 1 - September 30 $ 3.75 $1.50
October 1 - December 31 $ 4.25 $2.50
</TABLE>
<TABLE>
<CAPTION>
1999
<S> <C> <C>
January 1 - March 31 $5.625 $3.50
April 1 - June 30 $5 $3.25
July 1- September 8 $6.25 $5
</TABLE>
26
<PAGE> 27
The closing bid price on September 8, 1999 was $6.00.
(b) HOLDERS
There were approximately 69 beneficial owners of the Company's Common
Stock as of September 30, 1999, after broker inquiry.
(c) DIVIDENDS
The Company has paid no dividends on its Common Stock to date, nor does
it anticipate doing so in the foreseeable future. Any future determination to
pay dividends will be at the discretion of the Board of Directors and will be
dependent upon there being sufficient capital and surplus as required by the
Nevada Statutes, the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant. There can be no assurance that the Company will ever choose to declare
such a dividend or that if it did that such funds would be legally available for
payment of such dividends.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any litigation, nor is it aware of any
threatened litigation or similar proceeding that would, if initiated and
resolved against the Company, have a material adverse effect on the Company, its
properties or its prospects.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in December of 1997. At that time, an
aggregate of 3,000,000 shares of Common Stock were issued to five founding
shareholders; Richard Kandel (800,000), The Palmeto Group, Inc. (1,5000,000),
Delta Financial Resources, Inc. (250,000), Barry Bendett (200,000) and Strateia
(250,000), at a price of $.01 per share in reliance upon the exemption for
offerings not involving a public offering pursuant to Section 4(2) of the
Securities Act and analogous state exemptions for isolated, non-public
transactions. The Palmeto Group, Inc., an affiliate of Richard Kandel, later
transferred 1,500,000 shares of Common Stock to Richard Kandel. (See "Certain
Relationships and Related Transactions").
27
<PAGE> 28
In December of 1997 and January of 1998, the Company offered and sold
an aggregate of 400,000 shares of Common Stock to approximately 44 investors at
an offering price of $.50 per share, for aggregate offering proceeds of $200,000
in reliance upon the exemption from registration provided by Rule 504 of
Regulation D.
In December of 1998 and January of 1999, the Company sold an aggregate
of 300,000 shares of Common Stock to approximately 11 investors, at an offering
price of $2.50 per share for aggregate proceeds of $750,000, in reliance upon
the exemption from registration provided by Rule 504 of Regulation D.
In December of 1998, the Company sold 70,000 shares of Series E Stock
to Steven C. Etra, a Director for the Company, in a negotiated private
transaction, for proceeds to the Company of $175,000, in an isolated private
transaction in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act.
In January of 1999, the Company sold 70,000 shares of Common Stock to a
single accredited investor at a price of $2.50 per share for aggregate proceeds
to the Company of $175,000. The transaction was effected in reliance upon the
exemption from registration contained in Section 4(2) of the Securities Act.
In January of 1999, the Company undertook to issue 500,000 shares of
its Series A Stock to Richard Kandel, Chairman and CEO of the Company, in
connection with the acquisition of Kandel & Son. The issuance was made in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act.
In January of 1999, the Company undertook to issue to Thomas B. Haines,
a former Director of the Company, an aggregate of 1,000,000 shares of Common
Stock, subject to adjustment, as partial consideration for the acquisition of
NISSCO. In connection with the sale, the Company issued 250,000 shares of Common
Stock to Mr. Haines at the closing of the acquisition, and 250,000 shares are to
be issued to Mr. Haines on January 1, 2000. In addition, pursuant to the
acquisition agreement, an undetermined number of shares, but in no case less
than 500,000 shares of Common Stock, are to be issued by the Company on January
15, 2001. (See "Certain Relationships and Related Transactions.") These
issuances will be made in reliance on the exemption from registration under
Section 4(2) of the Securities Act.
In March of 1999, the Company sold an aggregate of 100,000 shares of
Common Stock to an accredited investor at a price of $2.50 per share for
aggregate proceeds of $250,000 in a transaction in reliance upon the exemption
from registration contained in Section 4(2) of the Securities Act.
In March of 1999, the Company sold an aggregate of 300 units, each unit
consisting of a 12.75% Subordinated Promissory Note due April 1, 2002 in the
principal amount of $10,000 and 2,400 common stock purchase warrants. The units
were sold for $10,000 per unit for aggregate offering proceeds of $3,000,000 in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
28
<PAGE> 29
In April of 1999, the Company sold an aggregate of 50,000 shares of
Common Stock to Colnic Investment Corporation ("Colnic"), a private investment
company controlled by Randall K. Davis, President of the Company, at a price of
$2.50 per share for aggregate proceeds of $125,000 in a transaction in reliance
upon the exemption from registration contained in Section 4(2) of the Securities
Act.
In May of 1999, the Company sold an aggregate of 100,000 shares of
Common Stock to an accredited investor at a price of $2.50 per share for
aggregate proceeds of $250,000 in a transaction in reliance upon the exemption
from registration contained in Section 4(2) of the Securities Act.
In June of 1999, the Company sold an additional 10,000 shares of Common
Stock to SRK Associates, LLC, a company controlled by Steven C. Etra, a Director
of the Company, at a price of $2.50 per share for aggregate proceeds of $25,000
in a transaction in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
In June of 1999, the Company sold an additional 6,000 shares of Common
Stock to Blaire Etra, wife of Steven C. Etra, a Director of the Company, at a
price of $2.50 per share for aggregate proceeds of $15,000 in a transaction in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
In June of 1999, the Company sold an additional 50,000 shares of Common
Stock to Colnic at a price of $2.50 per share for aggregate proceeds of $125,000
in a transaction in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
In July of 1999, the Company issued 25,000 shares of Common Stock to
Harrinton, Ocko & Monk, LLP, an outside counsel to the Company, at a price of
$5.00 per share in consideration for legal services rendered, in a transaction
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
In August of 1999, the Company, in connection with the purchase of CIC,
issued, as partial consideration for CIC, 320,000 shares of Series D Stock to
Randall K. Davis, President of the Company, and Charles H. Davis, his father, in
a transaction in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
In August of 1999, in connection with the purchase of Superior, the
Company issued 50,000 shares of Common Stock to Stephen Haynes, President of
Superior, as partial consideration for Superior in a transaction in reliance
upon the exemption from registration under Section 4(2) of the Securities Act.
All sales of Common Stock and Preferred Stock were made pursuant to
subscription agreements and investor questionnaires containing representations
and warranties, and eliciting
29
<PAGE> 30
information intended to enable the Company to establish the facts and
circumstances entitling the Company to rely upon the relevant exemptions from
the registration requirements of the Securities Act. Management of the Company
believes these representations, warranties and information established a
sufficient basis for its reliance upon such exemptions.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Nevada Revised Statutes (the "Statutes"), the Company shall
have the power to eliminate the personal liability of the directors and officers
of the Company for monetary damages to the fullest extent possible under the
Statutes or other applicable law. These provisions eliminate the liability of
directors or officers to the Company and its shareholders for monetary damages
arising out of any violation of a director of his fiduciary duty of due care.
Under the Statutes, the Company may, by a majority of its disinterested
directors, shareholders, or in some cases by independent legal counsel,
indemnify any officer or director against expenses actually and reasonably
incurred, if such person acted in good faith in a manner reasonably believed to
be in the best interests of the Company, and in the case of any criminal action
or proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. The Company may indemnify any officer or director against expenses and
amounts actually paid or incurred in settlement not exceeding, in the judgement
of the Board of Directors, estimated expenses of litigation. Indemnification
and/or advancement of expenses provided by the Statutes are not exclusive and
the Company may make any further advancement or payment of expenses. However, no
indemnification and/or advancement will be made to any officer or director if
such person shall have been adjudged to be liable, unless, upon application and
determination of the court that in view of the circumstances in the case, such
person is fairly and reasonably entitled to indemnification.
30
<PAGE> 31
FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements as of December 31,
1998, and for the period from December 9, 1997 (date of inception) to December
31, 1998 and accompanying notes which are an integral part thereof, and the
independent auditor's report of Goldstein Golub Kessler LLP, independent
certified public accountants, with respect thereto, appear on pages F-6 to F-25
of this Amendment No.1 to Form 10-SB. The Company's Unaudited Consolidated
Financial Statements as of and for the six months ended June 30, 1999 and 1998,
and accompanying notes which are an integral part thereof, appear on pages F-5
to F-15 of this Amendment No.1 to Form 10-SB. Kandel & Son, Inc.'s financial
statements as of December 31, 1998, for the period ended August 31, 1998, and
for the period ended August 31, 1997, and accompanying notes which are an
integral part thereof, and the independent auditor's report of Kirschner &
Pasternack, LLP, independent certified public accountants, with respect to
thereto, appear on pages F-26 to F-42 of this Amendment No.1 to Form 10-SB.
Nissco/Sunline, Inc. and its subsidiaries' financial statements as of December
31, 1998, and for the period ended December 31, 1997 and accompanying notes
which are an integral part thereof, and the independent auditor's report of
Kirschner & Pasternack, LLP, independent certified public accountants, with
respect to thereto, appear on pages F-43 to F-56 of this Amendment No.1 to Form
10-SB. These financial statements are incorporated by reference herein by
reference thereto.
F-1
<PAGE> 32
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year
Ended December 31, 1998 F-4
HISTORICAL:
Enviro-Clean of America, Inc. & Subsidiaries:
Unaudited Consolidated Balance Sheet as of June 30, 1999 F-5
Unaudited Consolidated Balance Sheet as of June 30, 1998 F-6
Unaudited Consolidated Statement of Operations for the Period Ended June 30, 1999 F-7
Unaudited Consolidated Statement of Earnings F-8
Unaudited Consolidated Statement of Stockholders' Equity for the Period Ended
June 30, 1999 F-9
Unaudited Consolidated Statement of Stockholders' Equity for the Period Ended
June 30, 1998 F-10
Unaudited Consolidated Statement of Cash Flows for the Period Ended
June 30, 1999 F-11
Unaudited Consolidated Statement of Cash Flows for the Period Ended
June 30, 1998 F-12
Notes to Consolidated Financial Statements F-13 - F-15
Independent Auditor's Report F-16
Balance Sheet as of December 31, 1998 F-17
Statement of Operations for the Year Ended December 31, 1998 F-18
Statement of Stockholders' Equity F-19
Statement of Cash Flows for the Year Ended December 31, 1998 F-20
Notes to Consolidated Financial Statements F-21 - F-24
Kandel & Son, Inc.:
Independent Auditor's Report F-25
Balance Sheet as of December 31, 1998 F-26
Statement of Earnings and Retained Earnings for the Period Ended
December 31, 1998 F-27
Statement of Cash Flows for the Period Ended December 31, 1998 F-28
Notes to Consolidated Financial Statements F-29 - F-30
</TABLE>
F-2
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
Independent Auditor's Report F-31
Balance Sheet as of August 31, 1998 F-32
Statement of Earnings and Retained Earnings for the Year Ended August 31, 1998 F-33
Statement of Cash Flows for the Year Ended August 31, 1998 F-34
Notes to Consolidated Financial Statements F-35 - F-36
Independent Auditor's Report F-37
Balance Sheet as of August 31, 1997 F-38
Statement of Earnings and Retained Earnings for the Year Ended August 31, 1997 F-39
Statement of Cash Flows for the Year Ended August 31, 1997 F-40
Nissco/Sunline, Inc. & Subsidiaries:
Independent Auditor's Report F-41
Balance Sheet as of December 31, 1998 F-42
Statement of Changes In Retained Earnings for the Year Ended
December 31, 1998 F-43
Statement of Cash Flows for the Year Ended December 31, 1998 F-44
Notes to Consolidated Financial Statements F-45 - F-46
Independent Auditor's Report F-47
Balance Sheet as of December 31, 1997 F-48
Statement of Income for the Year Ended December 31, 1997 F-49
Statement of Changes In Retained Earnings F-50
Statement of Cash Flows for the Year Ended December 31, 1997 F-51
Notes to Consolidated Financial Statements F-52 - F-54
</TABLE>
F-3
<PAGE> 34
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
ENVIRO-CLEAN 1998 PRO FORMA
OF AMERICA, INC. ACQUISITION COMBINED
---------------- --------------- ---------------
<S> <C> <C> <C>
Net sales $ 1,812,154 $ 1,789,202 $ 3,601,356
Cost of sales 928,063 231,611 1,159,674
--------------- --------------- ---------------
Gross profit 884,091 1,557,591 2,441,682
Operating expenses 875,766 1,107,603 1,983,369
--------------- --------------- ---------------
Earnings before income taxes 8,325 449,988 458,313
Income taxes 2,500 102,000 104,500
--------------- --------------- ---------------
Net earnings $ 5,825 $ 347,988 $ 353,813
=============== =============== ===============
</TABLE>
F-4
<PAGE> 35
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
JUNE 30, 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 3,220,995
Accounts receivable 670,428
Merchandise inventory 125,500
Prepaid expenses and other 85,569
-----------
TOTAL CURRENT ASSETS 4,102,492
-----------
Property, Plant and Equipment - at cost 488,468
Less accumulated depreciation 305,490
-----------
182,978
-----------
Other Assets:
Goodwill 2,828,352
Other 5,775
-----------
2,834,127
-----------
TOTAL ASSETS $ 7,119,597
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 713,919
Loans payable 7,329
-----------
TOTAL CURRENT LIABILITIES 721,248
-----------
Long-term Liabilities:
Notes payable - subordinated 3,000,000
-----------
Redeemable Preferred Stock Series A:
$.001 par value; stated value $5.00; authorized, issued and outstanding 500,000 shares 2,500,000
-----------
Stockholders' Equity:
Preferred stock Series E-$.001 par value; stated value $2.50; authorized, issued
and outstanding 70,000 shares 175,000
Common stock - $.001 par value; authorized 20,000,000 shares, issued and outstanding
4,310,000 shares 4,310
Additional paid-in capital 2,428,705
Retained earnings (deficit) (3,584,666)
Common stock to be issued 1,875,000
-----------
TOTAL STOCKHOLDERS' EQUITY 898,349
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,119,597
===========
</TABLE>
F-5
<PAGE> 36
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
JUNE 30, 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 26,530
Accounts receivable 240,294
Merchandise inventory 144,000
Prepaid expenses and other 49,880
---------
TOTAL CURRENT ASSETS 460,704
---------
Property, Plant and Equipment - at cost 234,463
Less: accumulated depreciation 106,716
---------
127,747
---------
Other Assets 25,775
---------
TOTAL ASSETS $ 614,226
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 135,374
Loans payable 98,918
Current maturities of long-term debt 127,787
---------
TOTAL CURRENT LIABILITIES 362,079
---------
Long-term Liabilities - long-term debt, less current maturities 401,931
---------
Stockholder's Equity:
Common stock issued - $.001 par value; authorized 20,000,000
shares, issued and outstanding 3,400,000 shares 3,400
Retained earnings (deficit) (314,299)
Additional paid-in capital 161,115
---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (149,784)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 614,226
=========
</TABLE>
F-6
<PAGE> 37
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
SIX-MONTH PERIOD ENDED JUNE 30, 1999
Net sales $ 1,822,375
Cost of sales 856,609
-----------
Gross profit 965,766
Operating expenses:
Salaries 291,866
Professional fees 123,878
Depreciation and amortization 171,488
Marketing 107,316
Rent 34,356
Other 295,162
-----------
Operating (loss) (58,300)
Other income 7,609
-----------
(Loss) before income taxes (50,691)
Income taxes 5,400
-----------
Net (loss) (56,091)
Preferred stock dividends (52,625)
-----------
Net (loss) attributable to common stockholders $ (108,716)
===========
(Loss) per share - basic $ (.03)
===========
Weighted average number of shares outstanding 3,882,147
===========
</TABLE>
F-7
<PAGE> 38
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
SIX-MONTH PERIOD ENDED JUNE 30, 1998
Net sales $ 919,451
Cost of sales 495,662
----------
Gross profit 423,789
Operating expenses 415,860
----------
Earnings before income taxes 7,929
Income taxes 1,000
----------
Net earnings $ 6,929
==========
Net earnings per share - basic $ 0.00
==========
Weighted average number of shares outstanding 3,400,000
==========
</TABLE>
F-8
<PAGE> 39
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JUNE 30, 1999
COMMON STOCK PREFERRED STOCK
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 3,690,000 $ 3,690 -- --
Issuance of common stock for cash at
$2.50 per share 370,000 370 -- --
Issuance of preferred stock for cash at
$2.50 per share -- -- 70,000 $ 175,000
Distribution to stockholder -- -- -- --
Common stock issued in connection with
acquisition of Nissco/Sunline, Inc. 250,000 250 -- --
Common stock to be issued at $2.50 750,000 -- -- --
Net (loss) -- -- -- --
--------------- --------------- --------------- ---------------
Balance at June 30, 1999 5,060,000 $ 4,310 70,000 $ 175,000
=============== =============== =============== ===============
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT COMMON STOCK STOCKHOLDERS'
CAPITAL STAGE TO BE ISSUED EQUITY
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ 879,325 $ (151,702) -- $ 731,313
Issuance of common stock for cash at
$2.50 per share 924,630 -- -- 925,000
Issuance of preferred stock for cash at
$2.50 per share -- -- -- 175,000
Distribution to stockholder -- (3,376,873) -- (3,376,873)
Common stock issued in connection with
acquisition of Nissco/Sunline, Inc. 624,750 -- -- 625,000
Common stock to be issued at $2.50 -- -- $ 1,875,000 1,875,000
Net (loss) -- (56,091) -- (56,091)
--------------- --------------- --------------- ---------------
Balance at June 30, 1999 $ 2,428,705 $ (3,584,666) $ 1,875,000 $ 898,349
=============== =============== =============== ===============
</TABLE>
F-9
<PAGE> 40
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JUNE 30, 1998
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
NUMBER OF PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 3,189,000 $ 3,189 $ 94,311 $ (321,228) $ (223,728)
Issuance of common stock for cash
at $2.50 per share 211,000 211 66,804 -- 67,015
Net earnings -- -- -- 6,929 6,929
-------------- -------------- -------------- -------------- --------------
Balance at June 30, 1998 3,400,000 $ 3,400 $ 161,115 $ (314,299) $ (149,784)
============== ============== ============== ============== ==============
</TABLE>
F-10
<PAGE> 41
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
SIX-MONTH PERIOD ENDED JUNE 30, 1999
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (56,091)
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 22,556
Amortization 148,861
(Increase) decrease in accounts receivable 36,961
(Increase) decrease in prepaid expenses (24,831)
(Increase) decrease in inventories 24,613
Increase (decrease) in accounts payable 176,550
Increase (decrease) in income taxes payable 3,102
-----------
TOTAL ADJUSTMENTS 387,812
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 331,721
-----------
Cash flows from investing activities:
Cash paid for acquisitions (652,451)
Cash acquired from subsidiaries 68,046
-----------
NET CASH USED BY INVESTING ACTIVITIES (584,405)
-----------
Cash flows from financing activities:
Loans receivable 21,320
Net cash received (paid) on notes payable 2,350,113
Common stock issued 925,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,296,433
-----------
Net increase in cash and cash equivalents 3,043,749
Cash and cash equivalents at beginning of period 177,246
-----------
Cash and cash equivalents at ending of period $ 3,220,995
===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 15,259
===========
Taxes $ 2,298
===========
</TABLE>
F-11
<PAGE> 42
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JUNE 30, 1998
<S> <C>
Cash flows from operating activities:
Net income $ 6,929
--------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization $ 17,492
(Increase) decrease in accounts receivable (44,837)
(Increase) decrease in prepaid expenses (29,254)
(Increase) decrease in inventories (10,000)
(Increase) decrease in other assets (20,000)
Increase (decrease) in accounts payable 42,818
--------
TOTAL ADJUSTMENTS (43,781)
--------
NET CASH USED BY OPERATING ACTIVITIES (36,852)
--------
Cash flows from investing activities - purchase of fixed assets (5,646)
--------
Cash flows from financing activities:
(Decrease) in loans payable (37,906)
Common stock issued 211
Additional paid-in capital received 66,804
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 29,109
--------
Net increase in cash and equivalents (13,389)
Cash and cash equivalents, beginning 39,919
--------
Cash and cash equivalents, ending $ 26,530
========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 22,015
========
Taxes $ --
========
</TABLE>
F-12
<PAGE> 43
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. PRINCIPAL The accompanying consolidated financial statements
BUSINESS include the accounts of Subsidiaries (collectively
ACTIVITY AND the Enviro-Clean of America, Inc and its
SUMMARY OF "Company"). All significant intercompany balances
SIGNIFICANT and transactions have been eliminated in
ACCOUNTING POLICIES: consolidation.
The principal business activity of the Company is
the wholesale distribution of sanitary maintenance
supplies and paper products.
The Company also provides buying services and
group discounts to wholesale distributors of
sanitary maintenance supplies, paper goods and
related products.
The Company considers all highly liquid
instruments purchased with a maturity of three
months or less to be cash equivalents.
Property and equipment are recorded at cost.
Depreciation is provided for by the straight-line
method over the estimated useful lives of the
property and equipment.
INVENTORIES CONSISTING OF FINISHED GOODS ARE
VALUED AT THE LOWER OF COST OR MARKET. COST IS
DETERMINED USING THE FIRST-IN, FIRST-OUT METHOD.
The preparation of financial statements in
accordance with generally accepted accounting
principles requires the use of estimates by
management. Actual results could differ from these
estimates.
At each balance sheet date, the Company evaluates
the period of amortization of intangible assets.
The factors used in evaluating the period of
amortization include: (i) current operating
results, (ii) projected future operating results,
and (iii) any other material factors that effect
the continuity of the business.
Preferred stock dividends in arrears which
represent dividends owed, but undeclared at June
30, 1999 totals $52,625.
Earnings per share ("EPS") is computed by dividing
net income or loss by the weighted-average number
of common shares outstanding for the year. Diluted
EPS is not presented because the Company had no
dilutive securities outstanding at December 31,
1998. At June 30, 1999 there were 750,000 shares
of common stock to be issued in connection with
the Nissco Acquisition (see note 2) and warrants
to acquire 740,000 shares of common stock
outstanding. These amounts have not been taken
into account in the computation of earnings per
share because the effect would be anti-dilutive.
Management does not believe that any recently
issued, but not yet effective, accounting
standards, if currently adopted, would have a
material effect on the accompanying financial
statements.
2. ACQUISITIONS: On January 1, 1999, the Company entered into an
agreement to purchase all of the stock of Kandel &
Son, Inc. ("Kandel"), a New York-based sanitary
supply distribution Company. Richard Kandel, the
sole stockholder and chief executive
F-13
<PAGE> 44
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
officer ("CEO") of Kandel is the majority
stockholder and CEO of the Company. The Company
paid $1,350,000 in cash and exchanged 500,000
shares of Series A Preferred Stock for all of the
outstanding common stock of Kandel. The $1,350,000
cash was distributed as follows: $684,404 went
directly to Mr. Kandel, and $665,596 paid
obligations of Kandel as follows: $99,914 bank
line of credit, $382,353 stockholder loan owed to
Mr. Kandel, and $183,329 of miscellaneous
accruals. This acquisition has been accounted for
at historical cost in a manner similar to a
pooling of interest, because Richard Kandel is the
majority stockholder of the Company. As such, the
excess of cost over book value of net assets
acquired of approximately $3,377,000 will be
deemed a distribution to Richard Kandel.
Assets and liabilities acquired, at historical
cost, include:
<TABLE>
<S> <C>
Cash $ 50,787
Accounts receivable 200,058
Inventory 150,113
Property and equipment 142,295
Other assets 21,112
---------
Total assets $ 564,365
=========
Accounts payable and accrued expenses $ 57,241
Loans payable 499,595
Other 200,000
---------
$ 756,836
=========
</TABLE>
On January 1, 1999, the Company entered into an
agreement to purchase all of the stock of
NISSCO/Sunline, Inc. ("NISSCO"), a Florida-based
company engaged in group marketing of
sanitary/janitorial supplies. The aggregate
purchase price for this acquisition is $3,000,000,
consisting of $500,000 in cash and 1,000,000
shares of the Company's common stock. The common
stock will be issued to the seller in
installments, as defined in the agreement. This
acquisition is accounted for as a purchase.
The fair value of assets acquired and liabilities
assumed amounted to approximately $584,000 and
$561,000, respectively, which resulted in an
excess of cost over the fair value of the net
assets acquired (goodwill), of approximately
$2,977,000 which is being amortized over 10 years.
The operations of NISSCO are included in the
consolidated financial statements from January 1,
1999, the date of acquisition. The operations of
the Company for the six-month period ended June
30, 1998 have been restated to include the
operations of Kandel as if the acquisition had
occurred prior to January 1, 1998.
The seller received 250,000 shares on January 15,
1999 and will receive 250,000 shares on January
15, 2000, and 500,000 shares on January 15, 2001.
All shares have been valued at $2.50, the fair
market value of the Company's common stock on
January 1, 1999. If on January 15, 2001 the
Company's Average Bid Price Per Share for the ten
days preceding January 15, 2001 is not at least
$5.00, the Company shall issue additional shares
of common stock to the seller such that the
aggregate value of all shares issued shall be
$2,500,000. The value of
F-14
<PAGE> 45
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
any contingently issuable shares has not been
accounted for in the valuation of the NISSCO
acquisition.
3. PROPERTY AND Property and equipment, at cost, consists of:
EQUIPMENT:
<TABLE>
<CAPTION>
Depreciation
June 30, 1999 1998 Period
-------- ---------- ---------- ------------
<S> <C> <C> <C>
Furniture and fixtures $ 319,884 $ 78,115 5 years
Transportation equipment 168,584 156,348 5 years
---------- ----------
488,468 234,463
Less accumulated depreciation 305,490 106,716
---------- ----------
$ 182,978 $ 127,747
========== ==========
</TABLE>
4. NOTES PAYABLE: On June 1, 1999 subordinated notes payable were
issued. The notes are due April 1, 2002 and pay
interest in arrears quarterly on the principal
sum, at the rate of 12.75% per annum. Issued along
with the notes were warrants entitling the Holder
to purchase shares at $4.25 each. Because of the
high exercise price the fair value of these
warrants is deemed to be immaterial. Therefore no
value has been allocated to the warrants.
5. COMMITMENTS: The Company leases certain office and warehouse
facilities under operating leases expiring in
2000.
Minimum annual rental commitments under the leases
are summarized as follows:
<TABLE>
<S> <C>
1999 $23,931
2000 46,499
</TABLE>
Rent expense charged to earnings was $34,356 and
$19,409 for the six-month periods ended June 30,
1999 and June 30, 1998, respectively.
6. STOCKHOLDERS' EQUITY: In January 1999, the Company issued 70,000 shares
of common stock for an aggregate price of
$175,000.
In March 1999, the Company issued 100,000 shares
of common stock for an aggregate price of
$250,000.
In April 1999, the Company issued 50,000 shares of
common stock for an aggregate price of $125,000.
In May 1999, the Company issued 100,000 shares of
common stock for an aggregate price of $250,000.
In June 1999, the Company issued 50,000 shares of
common stock for an aggregate price of $125,000.
F-15
<PAGE> 46
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Enviro-Clean of America, Inc.
We have audited the accompanying consolidated balance sheet of Enviro-Clean of
America, Inc. and Subsidiaries (a development stage company) as of December 31,
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from December 9, 1997 (date of inception)
to December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enviro-Clean of
America, Inc. and Subsidiaries as of December 31, 1998 and the results of its
operations and its cash flows for the period from December 9, 1997 (date of
inception) to December 31, 1998 in conformity with generally accepted accounting
principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
/s/ Goldstein Golub Kessler LLP
- ---------------------------------
Signature
April 9, 1999, except for the last paragraph of
Note 7, as to which the date is May 12, 1999
F-16
<PAGE> 47
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
DECEMBER 31, 1998
ASSETS
Current Assets:
Cash $ 109,200
Notes receivable 21,320
Acquisition deposits 800,000
Prepaid expenses and other current assets 44,300
---------
TOTAL CURRENT ASSETS 974,820
Property and Equipment - at cost, net of accumulated depreciation of $797 4,849
Deferred Income Tax Asset, net of valuation allowance of $21,000
---------
TOTAL ASSETS $ 979,669
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 16,000
Accounts payable and accrued expenses 57,356
Subscriptions received in advance for preferred stock 175,000
---------
TOTAL CURRENT LIABILITIES 248,356
---------
Stockholders' Equity:
Common stock - $.001 par value; authorized 20,000,000 shares, issued and
outstanding 3,690,000 shares 3,690
Additional paid-in capital 879,325
Deficit accumulated during the development stage (151,702)
---------
STOCKHOLDERS' EQUITY 731,313
=========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 979,669
=========
</TABLE>
F-17
<PAGE> 48
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<S> <C>
PERIOD FROM DECEMBER 9, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1998
General and administrative expenses:
Professional fees $ 108,047
Travel and entertainment 22,758
Other 20,897
-----------
Net loss $ (151,702)
===========
Basic loss per common share $ (.05)
===========
Weighted-average number of common shares outstanding 3,204,072
===========
</TABLE>
F-18
<PAGE> 49
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
NUMBER PAID-IN DEVELOPMENT STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL STAGE EQUITY
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Period from December 9, 1997 (date of inception) to
December 31, 1998:
Issuance of common stock for cash at $.01 per share 3,000,000 $ 3,000 $ 3,000
Issuance of common stock for cash at $.50 per share 179,000 179 $ 89,321 89,500
Issuance of common stock for cash at $.50 per share 211,000 211 105,289 105,500
Issuance of common stock for cash at $2.50 per share 300,000 300 684,715 685,015
Net loss $ (151,702) (151,702)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 3,690,000 $ 3,690 $ 879,325 $ (151,702) $ 731,313
========= =========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 50
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
<S> <C>
PERIOD FROM DECEMBER 9, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1998
Cash flows from operating activities:
Net loss $ (151,702)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,547
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets (44,300)
Increase in accounts payable and accrued expenses 57,356
-----------
NET CASH USED IN OPERATING ACTIVITIES (137,099)
-----------
Cash flows from investing activities:
Acquisition deposits (800,000)
Purchase of property and equipment (5,646)
Increase in notes receivable (21,320)
Organization costs (750)
-----------
CASH USED IN INVESTING ACTIVITIES (827,716)
-----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 883,015
Proceeds from subscriptions received in advance for preferred stock 175,000
Increase in notes payable 16,000
-----------
CASH PROVIDED BY FINANCING ACTIVITIES 1,074,015
-----------
Net increase in cash and cash and at end of period $ 109,200
===========
</TABLE>
F-20
<PAGE> 51
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. PRINCIPAL The accompanying consolidated financial statements
BUSINESS include the accounts of Enviro-Clean of America,
ACTIVITY AND Inc. and its Subsidiaries (collectively the
SUMMARY OF "Company"). All significant intercompany balances
SIGNIFICANT and transactions have been eliminated in
ACCOUNTING consolidation.
POLICIES:
The principal business activity of the Company is
the consolidation of companies in the sanitary
supply and chemical industry.
The Company considers all highly liquid
instruments purchased with a maturity of three
months or less to be cash equivalents.
Property and equipment are recorded at cost.
Depreciation is provided for by the straight-line
method over the estimated useful lives of the
property and equipment.
The preparation of financial statements in
accordance with generally accepted accounting
principles requires the use of estimates by
management. Actual results could differ from these
estimates.
The estimated fair values of the notes receivable
and notes payable approximate their carrying
amounts due to the short-term nature of the
instruments.
Earnings per share ("EPS") is computed by dividing
net income or loss by the weighted-average number
of common shares outstanding for the year. Diluted
EPS is not presented because the Company had no
dilutive securities outstanding at December 31,
1998.
Management does not believe that any recently
issued, but not yet effective, accounting
standards, if currently adopted, would have a
material effect on the accompanying financial
statements.
2. ACQUISITION Acquisition deposits consist of cash paid in
DEPOSITS: advance of closing for companies acquired in
January 1999. Such amounts were good faith advance
payments on the acquisitions.
<TABLE>
<S> <C>
Kandel & Son, Inc. $ 300,000
NISSCO/Sunline, Inc. 500,000
---------
$ 800,000
=========
</TABLE>
3. PROPERTY AND Property and equipment, at cost, consists of:
EQUIPMENT
<TABLE>
<CAPTION>
Depreciation
Period
------------
<S> <C> <C>
Furniture and fixtures $2,158 5 years
Computer hardware 3,488 3 years
-------
5,646
Less accumulated depreciation 797
-------
$ 4,849
=======
</TABLE>
F-21
<PAGE> 52
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. INCOME TAXES: The difference between the income tax provision
(benefit) computed at the federal statutory rate
and the actual tax provision (benefit) is
accounted for as follows:
<TABLE>
<S> <C>
Taxes (benefit) computed at the federal statutory rate $ (51,000)
Taxes computed at a rate below the federal statutory rate 30,000
Valuation allowance 21,000
---------
$ - 0 -
=========
</TABLE>
The tax effects of loss carryforwards and the
valuation allowance that give rise to the deferred
income tax asset at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Net operating losses $ 21,000
Less valuation allowance (21,000)
---------
DEFERRED INCOME TAX ASSET $ - 0 -
=========
</TABLE>
As of December 31, 1998, the Company had net
operating loss carryforwards available to offset
future taxable income of approximately $152,000
which expire through 2013. Between December 1997
and December 1998, the Company completed offerings
of securities. Under Section 382 of the Internal
Revenue Code, these activities effect an ownership
change and thus may severely limit, on an annual
basis, the Company's ability to utilize its net
operating loss carryforwards. The Company uses the
lowest marginal U.S. corporate tax of 15% to
determine deferred tax amounts and the related
valuation allowance because the Company had no
taxable earnings through December 31, 1998.
5. STOCKHOLDERS' In December 1997, the Company received net
EQUITY: proceeds of $3,000 from the issuance of 3,000,000
shares of stock to the Company's founders.
In December 1997, the Company received net
proceeds of $89,500 from the issuance of 179,000
shares of common stock in connection with a
private placement. Between January and October
1998, the Company received net proceeds of
$790,515 from the issuance 511,000 shares of
common stock in connection with private
placements.
In December 1998, the Company received a
subscription to preferred stock in advance in the
amount of $175,000.
6. RELATED PARTY During the period from December 7, 1997 to
TRANSACTIONS: December 31, 1998, shareholders advanced various
amounts to the Company for the payment of
expenses. All such amounts were
noninterest-bearing and were repaid during the
period.
F-22
<PAGE> 53
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. SUBSEQUENT In 1999, the Company authorized up to 500,000
EVENTS: shares of Series A convertible redeemable
preferred stock with a par value of $.001 and a
stated value of $5 per share. The Series A
preferred stock pays cumulative cash dividends of
4% per year. The dividend is payable quarterly in
arrears, on the last day of each calendar quarter.
The first dividend payment date is June 30, 1999.
Upon any liquidation, dissolution, or winding up
of the Company, the holders of Series A preferred
stock shall be entitled to receive $5 per share of
preferred stock plus any unpaid dividends, prior
to any payments or distributions to holders of any
junior securities, as defined. Each share of
preferred stock is convertible into shares of
common stock at the conversion price of initially
$2.50 per share at the option of the holder. On
the fifth anniversary of the issue date, for each
share of preferred stock not previously converted,
such share will automatically be convertible into
shares of common stock at the then applicable
Conversion Price. The Company will, at any time
after January 15, 2001, have the right to redeem
any or all shares of Series A preferred stock for
$5 per share plus any unpaid dividends.
In 1999, the Company authorized and issued 70,000
shares of Series E convertible redeemable
preferred stock with a par value of $.001 and
stated value of $2.50 per share. The Series E
preferred stock pays cumulative cash dividends of
3% per year. The dividend is payable quarterly in
arrears, on the last day of each calendar quarter.
The first dividend payment date is June 30, 1999.
Upon liquidation, dissolution, or winding up of
the Company, the holders of Series E preferred
stock shall be entitled to receive $2.50 per share
of preferred stock plus any unpaid dividends,
prior to any payments or distributions to holders
of any junior securities, as defined. Each share
of preferred stock is convertible into shares of
common stock at the conversion price of initially
$2.50 per share at the option of the holder. On
the fifth anniversary of the issue date, for each
share of preferred stock not previously converted,
such share will automatically be convertible into
shares of common stock at the then applicable
Conversion Price. The Company will, at any time
after two years from the issue date, have the
right to redeem any or all shares of Series E
preferred stock for $3.50 per share plus any
unpaid dividends.
On January 1, 1999, the Company entered into an
agreement to purchase all of the stock of Kandel &
Son, Inc. ("Kandel"), a New York-based sanitary
supply distribution company. Richard Kandel, the
sole stockholder and chief executive officer
("CEO") of Kandel, is the majority stockholder and
CEO of the Company. The Company paid $1,350,000 in
cash and exchanged 500,000 shares of Series A
preferred stock for all of the outstanding common
stock of Kandel. The $1,350,000 cash was
distributed as follows: $684,404 went directly to
Mr. Kandel, and $665,596 paid obligations of
Kandel as follows: $99,914 bank line of credit,
$382,353 stockholder loan owed to Mr. Kandel, and
$183,329 of miscellaneous accruals. This
acquisition has been accounted for at historical
cost in a manner similar to a pooling of interests
because Mr. Kandel is the majority stockholder of
the Company. As such, the excess of cost over book
value of net assets acquired of approximately
$3,377,000 will be deemed a distribution to Mr.
Kandel.
On January 1, 1999, the Company entered into an
agreement to purchase all of the stock of
NISSCO/Sunline, Inc., a Florida-based company
engaged in group marketing of sanitary/janitorial
supplies. The aggregate purchase price for this
acquisition is $3,000,000, consisting of $500,000
in cash and 1,000,000 shares of
F-23
<PAGE> 54
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
the Company's common stock. The common stock will
be issued to the seller in installments, as
defined in the agreement. This acquisition will be
accounted for as a purchase.
In January 1999, the Company issued 70,000 shares
of common stock for an aggregate price of
$175,000.
In March 1999, the Company issued 100,000 shares
of common stock for an aggregate price of
$250,000.
In April 1999, the Company issued 50,000 shares of
common stock for an aggregate purchase price of
$125,000.
In May 1999, the Company issued 100,000 shares of
common stock for an aggregate purchase price of
$250,000.
In June 1999, the Company issued 50,000 shares of
common stock for an aggregate purchase price of
$125,000.
F-24
<PAGE> 55
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Kandel & Son, Inc.
We have audited the accompanying balance sheet of Kandel & Son, Inc. (a New York
corporation) as of December 31, 1998, and the related statements of income,
retained earnings, and cash flows for the four-month period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kandel & Son, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
four-month period then ended in conformity with generally accepted accounting
principles.
KIRSCHNER & PASTERNACK, LLP
Great Neck, New York
/s/ Kirschner & Pasternack, LLP
- -------------------------------
Signature
April 12, 1999
F-25
<PAGE> 56
KANDEL & SON, INC.
BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
DECEMBER 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 50,787
Accounts receivable 200,058
Merchandise inventories 150,113
Prepaid expenses and other 15,337
---------
TOTAL CURRENT ASSETS 416,295
---------
Property, Plant and Equipment - at cost 272,536
Less Accumulated Depreciation 130,241
---------
142,295
---------
Other Assets 5,775
---------
TOTAL ASSETS $ 564,365
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 57,241
Loans payable 117,241
Current maturities of long-term debt 68,770
---------
TOTAL CURRENT LIABILITIES 243,252
---------
Long-term Liabilities:
Long-term debt, less current maturities 313,584
Deposit on contract 200,000
---------
TOTAL LONG-TERM LIABILITIES 513,584
---------
Stockholders' Deficiency:
Common stock 3,000
Retained earnings 180,193
Cost of treasury stock (375,664)
---------
STOCKHOLDERS' DEFICIENCY (192,471)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 564,365
=========
</TABLE>
F-26
<PAGE> 57
KANDEL & SON, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
================================================================================
<TABLE>
<S> <C>
FOUR-MONTH PERIOD ENDED DECEMBER 31, 1998
Net sales $590,856
Cost of sales 280,133
--------
Gross profit 310,723
Operating expenses 229,734
--------
Earnings before income taxes 80,989
Income taxes 28,190
--------
Net earnings 52,799
Retained earnings at beginning of period 127,394
--------
Retained earnings at end of period $180,193
========
</TABLE>
F-27
<PAGE> 58
KANDEL & SON, INC.
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<S> <C>
FOUR-MONTH PERIOD ENDED DECEMBER 31, 1998
Cash flows from operating activities:
Net income $ 52,799
---------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 13,320
Changes in operating assets and liabilities:
Increase in accounts receivable (3,429)
Increase in merchandise inventories (14,170)
Decrease in prepaid expenses 6,663
Decrease in accounts payable and accrued expenses (68,726)
---------
TOTAL ADJUSTMENTS (66,342)
---------
NET CASH USED IN OPERATING ACTIVITIES (13,543)
---------
Cash flows used in investing activity - purchase of fixed assets (28,657)
---------
Cash flows from financing activities:
Proceeds from deposit on contract 200,000
Proceeds from financing of equipment 21,987
Principal payments on debt (135,660)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 86,327
---------
Net increase in cash and equivalents 44,127
Cash and equivalents at beginning of period 6,660
---------
Cash and equivalents at end of period $ 50,787
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 20,220
=========
Income taxes $ 6,255
=========
</TABLE>
F-28
<PAGE> 59
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
1. BUSINESS AND Kandel & Son, Inc. (the "Company") is primarily
SUMMARY OF engaged in the wholesale distribution :of sanitary
ACCOUNTING maintenance supplies and paper products. The
POLICIES Company's products are sold to various entities
located in the New York metropolitan area.
Assets and liabilities and revenue and expenses
are recognized on the accrual basis of accounting.
Merchandise inventories, consisting of finished
goods, are valued at the lower of cost or market.
Cost is determined using the first-in, first-out
method.
Depreciation of property, plant and equipment is
provided for by the straight-line method over the
estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the
economic life of the improvement or the lease
term. Deferred taxes, if any, are not material.
Property, plant and equipment is comprised of the
following, at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 69,998
Leasehold improvements 24,628
Transportation and delivery equipment 178,210
272,536
Less accumulated depreciation (130,241)
----------
$ 142,295
==========
</TABLE>
Expenses charged to earnings were $13,320.
Accounts receivable are reported net of an
allowance for doubtful accounts of $14,022.
Income taxes have been accrued based upon the net
earnings for the period. There is no longer any
loss carryforward to offset against earnings.
In preparing financial statements in conformity
with generally accepted accounting principles,
management is required to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, as well as the reported
amounts of revenue and expenses during the
reporting period. Actual results could differ from
those estimates. The Company estimates an
allowance for doubtful accounts based on the
creditworthiness of its customers, as well as
general economic conditions. Consequently, an
adverse change in those factors could affect the
Company's estimate.
2. LOANS PAYABLE: The Company has a $100,000 line of credit facility
with Citibank, N.A. The outstanding balance is
$98,918 payable in minimum monthly installments of
interest only at prime, currently at 8.5% per
annum.
F-29
<PAGE> 60
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
In October 1998, the Company purchased
transportation equipment financed through Ford
Motor Credit. The total financed was $21,763
payable in 12 monthly installments of $1,832
including interest at 1.9% per annum.
Long-term debt consists of the following at
December 31, 1998:
<TABLE>
<S> <C>
Stockholder loan payable in monthly installments of
$8,985 including interest at approximately 8% $382,354
Less current maturities (68,770)
--------
$313,584
========
</TABLE>
Total interest charged against earnings was
$20,223
A stockholder loan of $382,354 is to be repaid and
replaced with other long-term financing during the
first and second quarters of 1999.
3. COMMITMENTS The Company leases certain office and warehouse
AND facilities in Hicksville, NY under a lease
CONTINGENCIES: expiring December 31, 2000. Minimum rental
commitments under the lease are $76,861.
Rent expense charged to earnings was $12,661.
4. RETIREMENT The Company has both defined benefit and defined
PLANS: contribution plans. All non-union employees are
eligible for participation following completion of
6 months of service and attainment of age 20-1/2.
Participants begin to vest after two years of
service and are fully vested after six years.
Effective September 1, 1998, the Company
terminated the defined benefit plan and
consolidated the assets with those of the defined
contribution plan. Both plans are in compliance
with Internal Revenue Code and regulations and are
properly funded.
5. SUBSEQUENT In January 1999, all of the stock of the Company
EVENTS: was sold to Enviro-Clean of America, Inc.
("Enviro-Clean"). As payment, the stockholder
received cash plus convertible preferred
securities in Enviro-Clean. A deposit on contract
in the amount of $200,000 has been received from
Enviro-Clean and is reflected as a long-term
liability because it is not expected to be repaid
within the next fiscal year.
6. COMMON STOCK: Common stock consists of the following:
<TABLE>
<S> <C>
Shares authorized 20,000
Issued and outstanding 5,000
Stated value $ 3,000
</TABLE>
F-30
<PAGE> 61
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Kandel & Son, Inc.
We have audited the accompanying balance sheet of Kandel & Son, Inc. (A New York
corporation) as of August 31, 1998, and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kandel & Son, Inc. as of August
31, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KIRSCHNER & PASTERNACK, LLP
Great Neck, New York
/s/ Kirschner & Pasternack, LLP
- -------------------------------
Signature
April 12, 1999
F-31
<PAGE> 62
KANDEL & SON, INC.
BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
AUGUST 31, 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 6,660
Accounts receivable 196,629
Merchandise inventory 135,943
Prepaid expenses and other 22,000
---------
TOTAL CURRENT ASSETS 361,232
---------
Property, Plant and Equipment - at cost 243,879
Less: accumulated depreciation (116,921)
---------
126,958
---------
Other Assets 5,775
---------
TOTAL ASSETS $ 493,965
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 125,967
Loans payable 98,918
Current maturities of long-term debt 112,419
---------
TOTAL CURRENT LIABILITIES 337,304
---------
Long-term liabilities - long-term debt, less current maturities 401,931
---------
Stockholders' Equity:
Common stock 3,000
Retained earnings 127,394
Cost of Treasury Stock (375,664)
---------
(245,270)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 493,965
=========
</TABLE>
F-32
<PAGE> 63
KANDEL & SON, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
================================================================================
<TABLE>
<S> <C>
FOR YEAR ENDED AUGUST 31, 1998
Net sales $1,785,205
Cost of sales 952,462
----------
Gross profit 832,743
Operating expenses 761,278
----------
Earnings before taxes 71,465
Income taxes 4,577
----------
Net earnings 66,888
Retained earnings, September 1 60,506
----------
Retained earnings, August 31 $ 127,394
==========
</TABLE>
F-33
<PAGE> 64
KANDEL & SON, INC.
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<S> <C>
FOR YEAR ENDED AUGUST 31, 1998
Cash flows from operating activities:
Net income $ 66,888
---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,520
(Increase) decrease in accounts receivable 40,302
(Increase) decrease in prepaid expenses (940)
(Increase) decrease in inventories (2,743)
Increase (decrease) in accounts payable 21,797
---------
TOTAL ADJUSTMENTS 61,936
---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 128,824
---------
Cash flows from investing activities - purchase of fixed assets (15,062)
---------
Cash flows from financing activities - principal payments on debt (110,333)
---------
Net increase (decrease) in cash and equivalents 3,429
Cash and equivalents, September 1, 1997 3,231
---------
Cash and equivalents, August 31, 1998 $ 6,660
=========
SUPPLEMENTARY DATA:
Cash paid during the year:
Interest expense $ 64,802
=========
Income taxes $ 1,023
=========
</TABLE>
F-34
<PAGE> 65
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
================================================================================
1. BUSINESS AND Kandel & Son, Inc. (the "Company") is primarily
SUMMARY OF engaged in the wholesale distribution of sanitary
ACCOUNTING maintenance supplies and paper products. The
POLICIES: Company's products are sold to various entities
located in the New York metropolitan area.
Assets and liabilities and revenue and expenses
are recognized on the accrual basis of accounting.
Merchandise inventories, consisting of finished
goods, are valued at the lower of cost or market.
Cost is determined using the first-in, first-out
method.
Depreciation of property, plant and equipment is
provided for by the straight-line method over the
estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the
economic life of the improvement or the lease
term. Deferred taxes, if any, are not material.
Property, plant and equipment is comprised of the
following, at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 63,203
Leasehold improvements 24,328
Transportation and delivery equipment 156,348
--------
243,879
Less accumulated depreciation (116,921)
--------
$126,958
========
</TABLE>
Expenses charged to earnings were $35,808.
2. LOANS PAYABLE: The Company has a $100,000 line of credit facility
with Citibank, N.A. The outstanding balance is
$98,918 payable in minimum monthly installments of
interest only at prime, currently at 8.5% per
annum.
Long-term debt consists of the following at August
31, 1998:
<TABLE>
<S> <C>
Stockholder loan payable in monthly installments
of $8,985 including interest at approximately 8%. $ 482,062
Various transportation and delivery equipment
loans payable in monthly installments of $3,655
through December 1998 including interest at
varying rates. 32,288
----------
514,350
Less current maturities (112,419)
----------
$ 401,931
==========
</TABLE>
Total interest charged against earnings was
$65,042.
F-35
<PAGE> 66
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
================================================================================
3. COMMITMENTS The Company leases certain office and warehouse
AND facilities in Hicksville, NY under a lease
CONTINGENCIES: expiring December 31, 2000. Minimum rental
commitments under the lease are $89,115.
Rent expense charged to earnings was $36,918.
4. RETIREMENT The Company has both defined benefit and defined
PLANS: contribution plans. All non-union employees are
eligible for participation following completion of
6 months of service and attainment of age 20-1/2.
Participants begin to vest after two years of
service and are fully vested after six years. The
contributions made during the year were $19,401.
Effective September 1, 1998, the Company
terminated the defined benefit plan and
consolidated the assets with those of the defined
contribution plan. Both plans are in compliance
with Internal Revenue Code regulations and are
properly funded.
5. SUBSEQUENT In January 1999, all of the stock of the Company
EVENTS: was sold to Enviro-Clean of America, Inc.
("Enviro-Clean"). As payment, the sole stockholder
received cash plus convertible preferred
securities in Enviro-Clean. A deposit on contract
in the amount of $200,000 has been received from
Enviro-Clean and is reflected as a long-term
liability as it is not expected to be repaid
within the next fiscal year.
6. COMMON STOCK: Common stock consists of the following:
<TABLE>
<S> <C>
Shares authorized 20,000
Issued and outstanding 5,000
Stated value $ 3,000
</TABLE>
F-36
<PAGE> 67
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Kandel & Son, Inc.
We have audited the accompanying balance sheet of Kandel & Son, Inc. (a New York
corporation) as of August 31, 1997, and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kandel & Son, Inc. as of August
31, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KIRSCHNER & PASTERNACK, LLP
Great Neck, NY
/s/ KIRSCHNER & PASTERNACK, LLP
- -------------------------------
Signature
April 12, 1999
F-37
<PAGE> 68
KANDEL & SON, INC.
BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
AUGUST 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 3,231
Accounts receivable 204,643
Merchandise inventory 133,200
Prepaid expenses and other 21,060
---------
TOTAL CURRENT ASSETS 362,134
---------
Property, Plant and Equipment - at cost 228,817
Less: accumulated depreciation (77,789)
---------
151,028
---------
Other Assets 5,775
---------
TOTAL ASSETS $ 518,937
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 104,171
Loans payable 98,918
Current maturities of long-term debt 113,657
---------
TOTAL CURRENT LIABILITIES 316,746
---------
Long-term Liabilities - long-term debt, less current maturities 514,350
---------
Stockholders' Equity:
Common stock 3,000
Retained earnings 60,505
Cost of Treasury Stock (375,664)
---------
(312,159)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 518,937
=========
</TABLE>
F-38
<PAGE> 69
KANDEL & SON, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
================================================================================
<TABLE>
<S> <C>
FOR YEAR ENDED AUGUST 31, 1997
Net sales $1,803,946
Cost of sales 878,795
----------
Gross profit 925,151
Operating expenses 890,787
----------
Earnings before taxes 34,364
Income taxes 3,072
----------
Net earnings 31,292
Retained earnings - September 1 29,213
----------
Retained earnings - August 31 $ 60,505
==========
</TABLE>
F-39
<PAGE> 70
KANDEL & SON, INC.
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<S> <C>
FOR YEAR ENDED AUGUST 31, 1997
Cash flows from operating activities:
Net income $ 31,293
--------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 26,067
(Increase) decrease in accounts receivable (7,469)
(Increase) decrease in prepaid expenses 11,093
(Increase) decrease in inventories 7,900
(Increase) decrease in accounts payable (27,931)
--------
TOTAL ADJUSTMENTS 9,660
--------
NET CASH PROVIDED OPERATING ACTIVITIES 40,953
--------
Cash flows from investing activities - purchase of fixed assets (96,909)
--------
Cash flows from financing activities:
Net borrowings on line of credit 98,918
Principal payments on debt (43,930)
--------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 54,988
--------
Net increase (decrease) in cash and equivalents (968)
Cash and equivalents, September 1, 1996 4,199
--------
Cash and equivalents, August 31, 1997 $ 3,231
========
SUPPLEMENTAL DATA:
Cash paid during the year:
Interest expense $ 64,340
========
Income taxes $ 980
========
</TABLE>
F-40
<PAGE> 71
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
================================================================================
1. BUSINESS AND Kandel & Son, Inc. (the "Company") is primarily
SUMMARY OF engaged in the wholesale distribution of sanitary
ACCOUNTING maintenance supplies and paper products. The
POLICIES: Company's products are sold to various entities
located in the New York metropolitan area.
Assets and liabilities and revenue and expenses
are recognized on the accrual basis of accounting.
Merchandise inventories, consisting of finished
goods, are valued at the lower of cost or market.
Cost is determined using the first-in, first-out
method.
Depreciation of property, plant and equipment is
provided for by the straight-line method over the
estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the
economic life of the improvement or the lease
term. Deferred taxes, if any, are not material.
Property, plant and equipment is comprised of the
following, at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 48,141
Leasehold improvements 24,328
Transportation and delivery equipment 156,348
--------
228,817
Less accumulated depreciation 77,789
--------
$151,028
========
</TABLE>
Expenses charged to earnings were $26,067.
2. LOANS PAYABLE: The Company has a $100,000 line of credit facility
with Citibank, N.A. The outstanding balance is
$98,918 payable in minimum monthly installments of
interest only at prime, currently at 8.5% per
annum.
Long-term debt consists of the following at
August 31, 1997:
<TABLE>
<S> <C>
Stockholder loan payable in monthly installments
of $8,985 including interest at approximately 8%. $ 558,944
Various transportation and delivery equipment
loans payable in monthly installments of $3,655
through December 1998 including interest at
varying rates. 64,063
----------
628,607
Less current maturities (112,419)
----------
$ 514,350
==========
</TABLE>
Total interest charged against earnings was
$65,298.
F-40A
<PAGE> 72
KANDEL & SON, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
================================================================================
3. COMMITMENTS The Company leases certain office and warehouse
AND facilities in Hicksville, NY under a lease
CONTINGENCIES: expiring December 31, 2000. Minimum rental
commitments under the lease are $125,519.
Rent expense charged to earnings was $36,505.
4. RETIREMENT The Company has both defined benefit and defined
PLANS: contribution plans. All non-union employees are
eligible for participation following completion of
6 months of service and attainment of age 20-1/2.
Participants begin to vest after two years of
service and are fully vested after six years. The
contributions made during the year were $44,895.
Effective September 1, 1998, the Company
terminated the defined benefit plan and
consolidated the assets with those of the defined
contribution plan. Both plans are in compliance
with Internal Revenue Code regulations and are
properly funded.
5. COMMON STOCK: Common stock consists of the following:
<TABLE>
<S> <C>
Shares authorized 20,000
Issued and outstanding 5,000
Stated value $ 3,000
</TABLE>
F-40B
<PAGE> 73
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Nissco, Inc. & Subsidiaries
14848 Old U.S. 41
#1 Sunburst Center
Naples, FL 34110
We have audited the accompanying balance sheet of Nissco, Inc & Subsidiaries (a
Florida corporation) as of December 31, 1998, and the related statements of
income, retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statements were prepared to present the net assets and
continuing operations of Nissco, Inc. & Subsidiaries sold to Enviro-Clean of
America, Inc. pursuant to the purchase agreement described in Note D. It is not
intended to be complete presentations of Nissco, Inc & Subsidiaries' assets and
liabilities or operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nissco, Inc & Subsidiaries as
of December 31, 1998 and the results of their operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KIRSCHNER & PASTERNACK LLP
Great Neck, NY
/s/ Kirschner & Pasternack LLP
- ------------------------------
Signature
April 12, 1999
F-41
<PAGE> 74
NISSCO, INC. & SUBSIDIARIES
BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
DECEMBER 31, 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 17,259
Accounts receivable 507,331
Prepaid expenses 2,001
--------
TOTAL CURRENT ASSETS 526,591
Fixed Assets 57,487
--------
TOTAL ASSETS $584,078
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accruals $321,670
Due to stockholder 141,621
Taxes payable 98,000
--------
TOTAL LIABILITIES 561,291
--------
Stockholder's Equity:
Common stock - $1 par value, issued 110 shares 1,100
Retained earnings 21,687
--------
TOTAL STOCKHOLDER'S EQUITY 22,787
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $584,078
========
</TABLE>
F-42
<PAGE> 75
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF CHANGES IN RETAINED EARNINGS
================================================================================
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Retained earnings at January 1, 1998 $ 10,320
Net earnings for year 347,988
Dividends paid or accrued (336,621)
---------
Retained earnings at December 31, 1998 $ 21,687
=========
</TABLE>
F-43
<PAGE> 76
NISSCO, INC. & SUBSIDIARIES
CASH FLOW STATEMENT
================================================================================
<TABLE>
<S> <C>
FOR YEAR ENDED DECEMBER 31, 1998
Cash flows from operating activities:
Net income $ 347,988
---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization $ 7,727
Increase in accounts receivable (3,199)
Increase in prepaid expenses (841)
Decrease in shareholder loan receivable 159,070
Decrease in accounts payable (322,164)
Increase in dividends due stockholder & other accruals 141,621
Decrease in income taxes payable 12,374
---------
TOTAL ADJUSTMENTS (5,412)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 342,576
---------
Cash flows from investing activity - cash payments for the purchase of equipment (33,659)
---------
Cash flows from financing activity - dividends paid or accrued (336,621)
---------
Net decrease in cash and equivalents (27,704)
Cash and cash equivalents, January 1 44,963
---------
Cash and cash equivalents, December 31 $ 17,259
---------
SUPPLEMENTAL INFORMATION:
Cash paid for taxes $ 35,962
---------
Cash paid for interest $ 7,953
---------
</TABLE>
F-44
<PAGE> 77
NISSCO, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
1. BUSINESS Nissco Inc. & Subsidiaries (collectively the
AND SUMMARY "Company") is primarily engaged in providing
OF ACCOUNTING buying services and group discounts to wholesale
POLICIES: distributors of sanitary maintenance supplies,
paper goods and related products. The Company's
services are provided to various entities located
in the eastern United States.
Assets and liabilities and revenue and expenses
are recognized on the accrual basis of accounting.
Service income is based primarily on percentages
applied to member-customer's purchases from
suppliers. Income is recognized when substantially
all events relative to the underlying purchase
have been completed. Collections are normally
received in 30 to 180 days. An estimated allowance
is provided for uncollectible accounts.
Depreciation of property, plant and equipment is
provided by the straight-line method over the
estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the
economic life of the improvement or the lease
term. Deferred taxes, if any are not material.
Assets are comprised of the following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment $ 208,507
Improvements 5,690
Less accumulated depreciation (156,710)
----------
NET FIXED ASSETS $ 57,487
==========
</TABLE>
Receivables are reported net of an allowance for
doubtful accounts of $26,692.
Income taxes are provided for the tax effects of
transactions currently reported in the financial
statements. Differences between financial and
income tax earnings due not give rise to material
deferrals.
In preparing financial statements in conformity
with generally accepted accounting principles,
management is required to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, as well as the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates. The Company estimates an
allowance for doubtful accounts based on the
creditworthiness of their customers, as well as
general economic conditions. Consequently, an
adverse change in those factors could affect the
Company's estimate.
2. COMMITMENTS & The Company leases certain office and warehouse
CONTINGENCIES: facilities in Naples, Florida, under a lease
expiring September 30, 2000.
F-45
<PAGE> 78
NISSCO, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 10,000
2000 7,500
--------
$ 17,500
========
</TABLE>
Rent expense charged to earnings was $28,488.
3. RETIREMENT The Company adopted a Savings Incentive Match Plan
PLANS: ("SIMPLE" IRA) for all eligible employees
effective February 4, 1998. The employer matches
employee salary deferrals up to a maximum of three
per cent of compensation.
4. SUBSEQUENT Effective January 15, 1998 the sole stockholder
EVENTS: sold all of his shares to Enviro- Clean of
America, Inc. ("EVCL"). The purchase price is
$500,000 plus 250 thousand shares of EVCL per year
each January for four years commencing in 1999.
The first two years stock is restricted by
contract for two years from the date of issuance.
The last two years stock is restricted by contract
for one year from the date of issuance.
Additionally, there are consulting and or
employment contracts with the shareholder that run
for the term of the agreement. A deposit of
$484,000 was paid to the shareholder in October
1998.
The nonacquired assets and nonassumed liabilities
were removed from the Companies' reports in 1997
and 1998. The excess net asset value of 1997 over
1998 is reflected as a shareholder receivable at
December 31, 1997. This amount was settled and
reduced to $-0 - in 1998.
5. CONSOLIDATED From 1996 through 1999, changes of corporate
STATEMENTS: entities have taken place. However, the companies
have effectively operated as one during that
period of time through common ownership and
management. Sunline Partners, Inc was merged into
Nissco Inc. December 31, 1996. Nissco/Sunline Inc.
was incorporated in September 1998 and became the
parent company of Nissco Inc. Nissco Inc. (New)
continues as an unrelated company owned by the
former shareholder. Nissco/Sunline, Inc. is the
entity acquired by EVCL (Note D).
F-46
<PAGE> 79
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Nissco, Inc. & Subsidiaries
14848 Old U.S. 41
#1 Sunburst Center
Naples, FL 34110
We have audited the accompanying balance sheet of Nissco, Inc. & Subsidiaries (a
Florida corporation) as of December 31, 1997, and the related statements of
income, retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statements were prepared to present the net assets and
continuing operations of Nissco, Inc. & Subsidiaries sold to Enviro-Clean of
America, Inc. pursuant to the purchase agreement described in Note D. It is not
intended to be complete presentations of Nissco, Inc & Subsidiaries assets and
liabilities or operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nissco, Inc. & Subsidiaries as
of December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KIRSCHNER & PASTERNACK LLP
Great Neck, NY
/s/ Kirschner & Pasternack LLP
- ------------------------------
Signature
April 12, 1999
F-47
<PAGE> 80
NISSCO INC. & SUBSIDIARIES
BALANCE SHEET
================================================================================
<TABLE>
<S> <C>
DECEMBER 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 44,963
Accounts receivable 504,132
Prepaid expenses 1,160
Advances to stockholders 159,070
--------
TOTAL CURRENT ASSETS 709,325
Fixed Assets 31,555
--------
TOTAL ASSETS $740,880
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accruals $643,834
Taxes payable 85,626
--------
TOTAL LIABILITIES 729,460
--------
STOCKHOLDER'S EQUITY:
Common stock - $1 par value; issued 1,100 shares 1,100
Retained earnings 10,320
--------
TOTAL STOCKHOLDER'S EQUITY 11,420
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $740,880
========
</TABLE>
F-48
<PAGE> 81
NISSCO INC. & SUBSIDIARIES
STATEMENT OF INCOME
================================================================================
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1997
Revenue $2,535,888
Cost of sales and services 739,210
----------
Gross profit 1,796,678
Operating expenses 1,201,584
----------
Pre-tax income 595,094
Income taxes 85,626
----------
Net income $ 509,468
==========
</TABLE>
F-49
<PAGE> 82
NISSCO INC. & SUBSIDIARIES
STATEMENT OF CHANGES IN RETAINED EARNINGS
================================================================================
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1997
Retained earnings at January 1 $ 398,903
Net earnings for year 509,468
Distribution of nonacquired assets (898,051)
---------
Retained earnings at December 31 $ 10,320
=========
</TABLE>
F-50
<PAGE> 83
NISSCO INC. & SUBSIDIARIES
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities:
Net income $ 509,468
---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,328
Increase in accounts receivable (261,743)
Increase in loans receivable - shareholders (159,070)
Decrease in accounts payable (50,467)
Decrease in income taxes payable (41,152)
---------
TOTAL ADJUSTMENTS (508,104)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,364
Cash flows from investing activity - cash payments for the purchase of equipment (13,281)
---------
Net decrease in cash and equivalents (11,917)
Cash and cash equivalents at January 1 56,880
---------
Cash and cash equivalents at December 31 $ 44,963
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Taxes $ 126,497
=========
Interest $ 13,374
=========
</TABLE>
F-51
<PAGE> 84
NISSCO INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
1. BUSINESS Nissco Inc. & Subsidiaries (the "Company") is
SUMMARY AND primarily engaged in providing buying services and
ACCOUNTING group discounts to wholesale distributors of
POLICIES: sanitary maintenance supplies, paper goods and
related products. The Company's services are
provided to various entities located in the
eastern United States.
A summary of the significant accounting policies
applied in the preparation of the accompanying
financial statements follows:
Assets and liabilities and revenue and expenses
are recognized on the accrual basis of accounting.
Service income is based primarily on percentages
applied to member- customer's purchases from
suppliers. Income is recognized when substantially
all events relative to the underlying purchase
have been completed. Collections are normally
received in 30 to 180 days. An estimated allowance
is provided for uncollectible accounts.
Depreciation of property, plant and equipment is
provided by the straight-line method over the
estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the
economic life of the improvement or the lease
term. Deferred taxes, if any, are not material.
Assets are comprised of the following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment $ 180,538
Less accumulated depreciation 148,983
---------
Net fixed assets $ 31,555
</TABLE> =========
Receivables are reported net of an allowance for
doubtful accounts of $49,423.
Income taxes are provided for the tax effects of
transactions currently reported in the financial
statements. Differences between financial and
income tax earnings do not give rise to material
deferrals.
F-52
<PAGE> 85
NISSCO INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
In preparing financial statements in conformity
with generally accepted accounting principles,
management is required to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, as well as the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates. The Company estimates an
allowance for doubtful accounts based on the
creditworthiness of their customers, as well as
general economic conditions. Consequently, an
adverse change in those factors could affect the
Company's estimate.
2. COMMITMENTS The Company leases certain office and warehouse
AND facilities in Naples, Florida under a lease
CONTINGENCIES expiring September 30, 2000.
Minimum annual rental commitments under the leases
are summarized as follows:
<TABLE>
<S> <C>
1998 $ 10,000
1999 10,000
2000 7,500
---------
$ 27,500
=========
</TABLE>
Rent expense charged to earnings was $29,576.
3. RETIREMENT The Company adopted a Savings Incentive Match Plan
PLANS: ("SIMPLE" IRA) for all eligible employees
effective February 4, 1998. The employer matches
employee salary deferrals up to a maximum of three
per cent of compensation.
4. SUBSEQUENT Effective January 15, 1998 the sole stockholder
EVENTS sold all of his shares to Enviro-Clean of America,
Inc. ("EVCL"). The purchase price is $500,000 plus
250 thousand shares of EVCL per year each January
for four years commencing in 1999. The first two
years stock is restricted by contract for two
years from the date of issuance. The last two
years stock is restricted by contract for one year
from the date of issuance. Additionally there are
consulting and or employment contracts with the
shareholder that run for the term of the
agreement. A deposit of $484,000 was paid to the
shareholder in October 1998.
The nonacquired assets and non-assumed liabilities
were removed from the companies' reports in 1997
and 1998. The excess net asset value of 1997 over
1998 is reflected as a shareholder receivable at
December 31,1997. This amount is settled and
reduced to $-0- in 1998.
F-53
<PAGE> 86
NISSCO INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
5. CONSOLIDATED From 1996 through 1999, changes of corporate
STATEMENTS entities have taken place. However, the companies
have effectively operated as one during that
period of time through common ownership and
management. Sunline Partners, Inc was merged into
Nissco Inc. December 31, 1996. Nissco/Sunline Inc.
was incorporated in September 1998 and became the
parent company of Nissco Inc. Nissco Inc. (New)
continues as an unrelated company owned by the
former shareholder. Nissco/Sunline, Inc. is the
entity acquired by EVCL.
F-54
<PAGE> 87
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
INDEX EXHIBIT
<S> <C>
2(i) Stock Purchase Agreement among Enviro-Clean of America, Inc.,
Enviroacq I Co. and Kandel & Son dated as of January 1, 1999*
2(ii) Stock Purchase Agreement among Enviro-Clean of America, Inc. Enviroacq
II Co. and NISSCO/Sunline, Inc. dated as of January 1, 1999*
2(iii) Agreement & Plan of Merger of Cleaning Ideas, Inc.**
2(iv) Stock Purchase Agreement of Superior Chemical & Supply, Inc.**
2(v) Articles of Incorporation of the Company*
2(vi) By-Laws of the Company*
3(i) Certificate of Designation for the Company's Series A Stock*
3(ii) Certificate of Designation for the Company's Series E Stock*
3(iii) Subscription Agreement between the Company and Steven C. Etra
regarding the purchase and sale of the Series E Stock
3(iv) Certificate of Designation for the Company's Series D Stock**
3(v) Certificate of Amendment to the Certificate of Designation for the
Company's Series A Stock
3(vi) Form of 12.75% Subordinate Note
3(vii) Form of the Warrant Certificate
3(viii) Pledge and Security Agreement between the Company and Charles H.
Davis**
3(ix) Security Agreement between the Company and Stephen Haynes**
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
INDEX EXHIBIT
<S> <C>
3(x) Registration Rights Agreement among the Company, Charles H. Davis and
Randall K. Davis**
6(i) Employment Agreement between the Company and Richard Kandel
6(ii) Employment Agreement between the Company and Randall K. Davis
6(iii) Employment Agreement between CIC and Randall K. Davis**
6(iv) Employment Agreement between CIC and Charles H. Davis**
6(v) Employment Agreement between Superior and Stephen Haynes**
6(vi) Consulting Agreement between the Company and Steven C. Etra
21 List of Subsidiaries of the Company*
</TABLE>
- --------------------------
* Incorporated by reference to the Company's Form 10-SB filed with the
Commission on June 16, 1999.
** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on September 3, 1999.
<PAGE> 89
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ RICHARD KANDEL
----------------------------------
Richard Kandel
Chairman of the Board and
Chief Executive Officer
Date: October 22, 1999
<PAGE> 90
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
INDEX EXHIBIT
<S> <C>
2(i) Stock Purchase Agreement among Enviro-Clean of America, Inc.,
Enviroacq I Co. and Kandel & Son dated as of January 1, 1999*
2(ii) Stock Purchase Agreement among Enviro-Clean of America, Inc. Enviroacq
II Co. and NISSCO/Sunline, Inc. dated as of January 1, 1999*
2(iii) Agreement & Plan of Merger of Cleaning Ideas, Inc.**
2(iv) Stock Purchase Agreement of Superior Chemical & Supply, Inc.**
2(v) Articles of Incorporation of the Company*
2(vi) By-Laws of the Company*
3(i) Certificate of Designation for the Company's Series A Stock*
3(ii) Certificate of Designation for the Company's Series E Stock*
3(iii) Subscription Agreement between the Company and Steven C. Etra
regarding the purchase and sale of the Series E Stock
3(iv) Certificate of Designation for the Company's Series D Stock**
3(v) Certificate of Amendment to the Certificate of Designation for the
Company's Series A Stock
3(vi) Form of 12.75% Subordinate Note
3(vii) Form of the Warrant Certificate
3(viii) Pledge and Security Agreement between the Company and Charles H.
Davis**
3(ix) Security Agreement between the Company and Stephen Haynes**
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
INDEX EXHIBIT
<S> <C>
3(x) Registration Rights Agreement among the Company, Charles H. Davis and
Randall K. Davis**
6(i) Employment Agreement between the Company and Richard Kandel
6(ii) Employment Agreement between the Company and Randall K. Davis
6(iii) Employment Agreement between CIC and Randall K. Davis**
6(iv) Employment Agreement between CIC and Charles H. Davis**
6(v) Employment Agreement between Superior and Stephen Haynes**
6(vi) Consulting Agreement between the Company and Steven C. Etra
21 List of Subsidiaries of the Company*
</TABLE>
- --------------------------
* Incorporated by reference to the Company's Form 10-SB filed with the
Commission on June 16, 1999.
** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on September 3, 1999.
<PAGE> 1
EXHIBIT 3(iii)
SUBSCRIPTION AGREEMENT
Enviro-Clean of America, Inc.
c/o Kandel & Son, Inc.
211 Park Ave.
Hicksville, NY 11801
Attention: Richard Kandel, President
Gentlemen:
1. Pursuant to the terms of the offer made by Enviro-Clean of America, Inc.
(the "Company"), the undersigned hereby tenders this subscription and applies
for the purchase of One Hundred and Seventy-Five Thousand ($175,000) stated
amount of the Company's Series E Preferred Stock (the "Series E Shares") set
forth on the signature page hereof. The Series E Shares are being sold at a
purchase price of Two Dollars and Fifty Cents ($2.50) per Series E Share, are
redeemable at the option of the Holder at any time after two (2) years from
their date of issuance and are convertible into shares of common stock of
various issuers, as set forth in the term sheet annexed as Exhibit A to this
Subscription Agreement. The Series E Shares and the shares into which they are
convertible are sometimes referred to herein as the "Securities." Payment for
the Series E Shares may be made by wire transfer to:
KAPLAN GOTTBETTER & LEVENSON, LLP
Bank of New York
100 East 42nd Street
New York, NY 10017
ABA Routing No. 021000018
Account No. 6300584649
Reference: EVCL
2. Representations and Warranties. In order to induce the Company to
accept this subscription, the undersigned hereby represents and warrants to,
and covenants with, the Company as follows:
(i) The undersigned has had a reasonable opportunity to ask questions
of and receive answers from the Company concerning the Company and the
offering of the Securities, and all such questions, if any, have been
answered to the full satisfaction of the undersigned;
(ii) The undersigned has such knowledge and expertise in financial and
<PAGE> 2
business matters that the undersigned is capable of evaluating the merits and
risks involved in an investment in the Securities;
(iii) The Confidential Purchaser Questionnaire being delivered by the
undersigned to the Company simultaneously herewith is true, complete and
correct in all material respects; and the undersigned understands that the
Company has determined that the exemption from the registration provisions of
the Securities Act of 1933, as amended (the "Act"), which is based upon
non-public offerings are applicable to the offer and sale of the Securities,
based, in part, upon the representations, warranties and agreements made by the
undersigned herein and in the Confidential Purchaser Questionnaire referred to
above;
(iv) Except for the questions and responses referred to in paragraph (i)
above, no representations or warranties have been made to the undersigned by
the Company or any agent, employee or affiliate of the Company and in entering
into this transaction the undersigned is not relying upon any information,
other than the results of independent investigation by the undersigned;
(v) The undersigned understands that (A) the Securities have not been
registered under the Act or the securities laws of any state, based upon an
exemption from such registration requirements for non-public offerings pursuant
to Sections 4(2) and 4(6) of the Act and Regulation D under the Act; (B) the
Securities are and will be "restricted securities", as said term is defined in
Rule 144 of the Rules and Regulations promulgated under the Act; (C) the
Securities may not be sold or otherwise transferred unless they have been first
registered under the Act and all applicable state securities laws, or unless
exemptions from such registration provisions are available with respect to said
resale or transfer, (D) the Series E Shares bear and the certificates for the
shares into which they are convertible may bear a legend to the effect that the
transfer of the securities represented thereby is subject to the provisions
hereof; and (E) stop transfer instructions may have been placed with the
transfer agent for the shares comprising the Securities. Notwithstanding
anything in this subsection (v) to the contrary, the Company shall use its
reasonable best efforts to ensure that all shares into which the Series E Shares
are convertible are eligible for resale under Rule 144;
(vi) The undersigned is acquiring the Securities solely for the account of
the undersigned, for investment purposes only, and not with a view towards the
resale or distribution thereof;
(vii) The undersigned will not sell or otherwise transfer any of the
Securities, or any interest therein, unless and until (i) said Securities shall
have first been registered under the Act and all applicable state securities
laws; or (ii) the undersigned shall have first delivered to the Company a
written opinion of counsel
2
<PAGE> 3
(which counsel and opinion (in form and substance) shall be reasonably
satisfactory to the Company), to the effect that the proposed sale or
transfer is exempt from the registration provisions of the Act and all
applicable state securities laws;
(viii) The undersigned has full power and authority to execute and
deliver this Subscription Agreement and to perform the obligations of the
undersigned hereunder; and this Subscription Agreement is a legally binding
obligation of the undersigned in accordance with its terms;
(ix) The undersigned is an "accredited investor," such term is defined
in Regulation D of the Rules and Regulations promulgated under the Act and
as set forth in the Confidential Purchaser Questionnaire; and
(x) The undersigned has carefully reviewed the jurisdictional notices
listed below and agrees to abide by any restrictions contained therein
applicable to the undersigned.
JURISDICTIONAL NOTICES
FOR RESIDENTS OF ALL STATES:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND SUCH LAWS PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEW YORK RESIDENTS:
THE MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE
3
<PAGE> 4
ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
* * *
3. The undersigned understands that this subscription is not binding upon
the Company until the Company accepts it, which acceptance is at the sole
discretion of the Company and it to be evidenced by the Company's execution of
this Subscription Agreement where indicated. This Subscription Agreement shall
be null and void if the Company does not accept it as aforesaid.
4. The undersigned understands that the Company may, in its sole
discretion, reject this subscription, in whole or in part, and/or reduce this
subscription in any amount and to any extent, whether or not pro rata
reductions are made of any other investor's subscription.
5. The undersigned agrees to indemnify the Company and hold it harmless
from and against any and all losses, damages, liabilities, costs and expenses
which it may sustain or incur in connection with breach by the undersigned of
any representation, warranty or covenant made by the undersigned.
6. Neither this Subscription Agreement nor any of the rights of the
undersigned hereunder may be transferred or assigned by the undersigned.
7. Except as provided in paragraphs 3 and 4 above, this Subscription
Agreement (i) may only be modified by a written instrument executed by the
undersigned and the Company; (ii) sets forth the entire agreement of the
undersigned and the Company with respect to the subject matter hereof; (iii)
shall be governed by the laws of the State of New York applicable to contracts
made and to be wholly performed therein; and (iv) shall inure to the benefit
of, and be binding upon the Company and the undersigned and their respective
heirs, legal representatives, successors and permitted assigns.
8. Unless the context otherwise requires, all personal pronouns used in
this Subscription Agreement, whether in the masculine, feminine or neuter
gender, shall include all other genders.
9. All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or mailed by
certified or registered mail, return receipt requested, postage prepaid, as
follows: if to the undersigned, to the address set forth in the Confidential
Purchaser Questionnaire referred to above; and if to the Company, to Enviro-
Clean of America, Inc., c/o Kandel & Son, Inc., 211 Park Ave., Hicksville, NY
11801, Attention: Richard Kandel, President, or to such other address or
facsimile number as the Company or the undersigned shall have designated to the
other by like notice.
4
<PAGE> 5
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ___ day of _________ 199__.
Organization Signature: Individual Signature:
/s/ STEVEN ETRA
- ----------------------------- -----------------------------
Print name of Organization
By:
-------------------------- -----------------------------
Name: Signature(s)
Title:
-----------------------------
Print Name(s)
-----------------------------
Print Name(s)
5
<PAGE> 6
(ALL SUBSCRIBERS SHOULD PLEASE PRINT INFORMATION BELOW EXACTLY AS YOU
WISH IT TO APPEAR IN THE RECORDS OF THE RECORDS OF THE COMPANY)
/s/ STEVEN ETRA 068 38 0835
- ----------------------------------------- ---------------------------------
Name and capacity in which subscription Social Security Number of
is made -- see below for particular Individual or other Taxpayer
requirements I.D. Number
Address: Address for notices if different:
/s/ HEATHER HILL
- ----------------------------------------- ---------------------------------
Number and Street Number and Street
Brookville NY 11545
- ----------------------------------------- ---------------------------------
City State Zip Code City State Zip Code
Please check the box to indicate form of ownership (if applicable):
TENANTS-IN-COMMON [ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP [ ]
(Both Parties must sign above) (Both Parties must sign above)
The foregoing subscription is hereby accepted by ENVIRO-CLEAN OF
AMERICA, INC. for Series E Shares in the aggregate Stated Amount of $175,000
this ___ day of ________ 1998.
ENVIRO-CLEAN OF AMERICA, INC.
By:
------------------------------------
Richard Kandel
President
6
<PAGE> 1
EXHIBIT 3(V)
ENVIRO-CLEAN OF AMERICA, INC.
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
BY RESOLUTION OF THE BOARD OF DIRECTORS
The undersigned, Randall K. Davis and Steven Etra, President and
Secretary of Enviro-Clean of America, Inc., a Nevada corporation (the
"Company"), in accordance with the provisions of Section 78.1955 of the Nevada
Statutes, do HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by the
bylaws of the Company, said Board of Directors, acting by unanimous written
consent, adopted a resolution providing for the amendments to the series of
preferred stock, designated "Series A Convertible Redeemable Preferred Stock,"
(the "Series A Stock") which resolution is set forth as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of Enviro-Clean of America, Inc., a Nevada corporation (the
"Company"), by the bylaws of the Company, the Board of Directors does hereby
provide for the amendments to the Certificate of Designation for the Series A
Stock (the "Certificate") as follows:
ARTICLE ONE
The designation of the Series A Stock is SERIES A CONVERTIBLE
REDEEMABLE PREFERRED STOCK.
ARTICLE TWO
The new designation of the Series A Stock is to be SERIES A CONVERTIBLE
PREFERRED STOCK.
ARTICLE THREE
The approval of the shareholders required by Section 78.1955(3) of the
Private Corporations Laws of Nevada has been obtained. Such shareholders
exclusively include holders of the Company's Series D Cumulative Convertible
Preferred Stock and Series E Convertible Redeemable Preferred Stock, and the
approval by a majority of holders of each such series has been obtained as
prescribed in the certificates of designation for each such series.
1
<PAGE> 2
ARTICLE FOUR
Section 6 of the Certificate entitled "Redemption" is hereby deleted
from the Certificate and shall have no further effect on the Series A Stock.
ARTICLE FIVE
The definition of the phrase "Conversion Price" as set forth in Section
7 is hereby amended as follows:
"Conversion Price" means $5.00 per share of Common
Stock, subject to adjustment according to the
provisions of this Certificate of Designation".
2
<PAGE> 3
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Randall K. Davis, its President, and Steven Etra, its Secretary, this
____ day of _____________, 1999.
ENVIRO-CLEAN OF AMERICA, INC.
By: ------------------------------
Randall K. Davis, President
By: ------------------------------
Steven Etra, Secretary
STATE OF )
-------------- )
COUNTY OF )
------------- )
On _____________, 1999, personally appeared before me, a Notary Public,
RANDALL K. DAVIS, who acknowledged that he executed the above instrument.
---------------------------------------------
NOTARY PUBLIC,
IN AND FOR THE STATE OF
----------------------
3
<PAGE> 1
EXHIBIT 3(vi)
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) OF, AND REGULATION D
PROMULGATED UNDER, THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, THIS SUBORDINATED NOTE MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE SUBSCRIPTION AGREEMENT.
THIS SUBORDINATED NOTE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
SET FORTH IN A SUBSCRIPTION AGREEMENT, DATED AS OF JUNE 1, 1999, BETWEEN THE
COMPANY AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE COMPANY.
NO.____ $10,000
ENVIRO-CLEAN OF AMERICA, INC.
12.75% SUBORDINATED NOTE DUE APRIL 1, 2002
THIS Note is one of a duly authorized issue of Notes of ENVIRO-CLEAN OF
AMERICA, INC., a corporation organized and existing under the laws of the State
of Nevada and having a principal place of business at 14848 Old U.S. 41, #13
Sunburst Center, Naples, Florida 34110 (the "Company"), designated as its 12.75%
Subordinated Notes, due April 1, 2002 (the "Notes"), in an aggregate principal
amount of Ten Thousand Dollars ($10,000). This Note is hereby issued on June 1,
1999 (the "Issue Date").
FOR VALUE RECEIVED, the Company promises to pay to , or its registered
assigns (the "Holder"), the principal sum of Ten Thousand Dollars ($10,000) on
April 1, 2002 (the "Maturity Date"), and to pay interest to the Holder on the
principal sum, at the rate of Twelve and Three-Fourths Percent (12.75%) per
annum, payable in arrears quarterly within ten (10) Business Days from each
March 31, June 30, September 30 and December 31, as applicable, during the term
of this Note, and on the Maturity Date; provided, however, that the first
interest payment date shall be September 30, 1999. This Note is subordinated to
any and all debt of the Company and is subject to prepayment by the Company at
any time following the date that is two (2) years from the Issue Date as further
described in Section 3 hereof. Interest shall accrue daily commencing on the
Issue Date until payment in full of the principal sum represented hereby,
together with all accrued and unpaid interest and other amounts which may become
due hereunder, has been made or duly provided for. Interest hereunder will be
paid to the person in whose name this Note is registered on the records
maintained by the Company as specified in Section 1, below regarding
registration and transfers of the Notes (the "Note Register"); provided,
however, that the Company's obligations to a transferee of this Note arises only
if the transfer, sale or other disposition is
<PAGE> 2
made in accordance with the terms and conditions hereof and of the Subscription
Agreement, dated as of June 1, 1999 (the "Subscription Agreement"), executed by
the original Holder, including, without limitation, the undertaking of any
transferee to be bound by the terms and conditions of the Subscription Agreement
as if it were an original party thereto. The principal of, and interest on, this
Note are payable in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts. A
transfer of the right to receive principal and interest under this Note shall be
transferable only through an appropriate entry in the Note Register as provided
herein. All terms defined in the Subscription Agreement and not otherwise
defined herein shall have for purposes hereof the meanings provided for therein.
This Note is subject to the following additional provisions:
SECTION 1. THE COMPANY SHALL KEEP THE NOTE REGISTER IN WHICH SHALL BE
ENTERED THE NAMES AND ADDRESSES OF THE REGISTERED HOLDER OF THIS NOTE AND
PARTICULARS OF THIS NOTE HELD BY SUCH HOLDER AND OF ALL TRANSFERS OF THIS NOTE.
REFERENCES TO THE HOLDER OR "HOLDERS" SHALL MEAN THE PERSON LISTED IN THE NOTE
REGISTER AS THE REGISTERED HOLDER OF SUCH NOTE. THE OWNERSHIP OF THIS NOTE SHALL
BE PROVED BY THE NOTE REGISTER.
SECTION 2. THIS NOTE HAS BEEN ISSUED SUBJECT TO CERTAIN INVESTMENT
REPRESENTATIONS OF THE ORIGINAL HOLDER SET FORTH IN THE SUBSCRIPTION AGREEMENT
AND MAY BE TRANSFERRED OR EXCHANGED ONLY IN COMPLIANCE WITH THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER
THE ACT. THE COMPANY IS UNDER NO OBLIGATION, AND HAS NO PRESENT INTENTION, TO
REGISTER, OR TO CAUSE ANY OTHER PARTY TO REGISTER, ANY NOTE FOR RESALE UNDER THE
ACT. PRIOR TO DUE PRESENTMENT TO THE COMPANY FOR TRANSFER OF THIS NOTE, THE
COMPANY, AND ANY OTHER AGENT OF THE COMPANY, MAY TREAT THE PERSON IN WHOSE NAME
THIS NOTE IS DULY REGISTERED ON THE NOTE REGISTER AS THE OWNER HEREOF FOR THE
PURPOSE OF RECEIVING PAYMENT AS HEREIN PROVIDED AND FOR ALL OTHER PURPOSES,
WHETHER OR NOTE THIS NOTE IS OVERDUE, AND NEITHER THE COMPANY NOR ANY SUCH AGENT
SHALL BE AFFECTED BY NOTICE TO THE CONTRARY.
SECTION 3. SUBORDINATION; PREPAYMENT; DEFAULT.
1. THIS NOTE IS NOT SECURED BY ANY ASSETS OF THE COMPANY AND IS
SUBORDINATED TO ALL INDEBTEDNESS OF THE COMPANY, INCLUDING ANY AMOUNTS DUE AND
OWING TO OFFICERS AND DIRECTORS OF THE COMPANY.
(b) This Note may be prepaid, at the option of the Company, at any time
following the date that is two (2) years from the Issue Date.
(c) Upon any default in the payment of interest or principal of this
Note, and the failure of the Company to cure such default within thirty (30)
days, the unpaid principal amount of this Note shall bear interest at a default
rate of Fifteen Percent (15%) from the date of such default until the default is
cured.
<PAGE> 3
Section 4. 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.
"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.
Section 5. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at the time,
place, and rate, and in the coin or currency, herein prescribed. This Note is a
direct obligation of the Company.
Section 6. If this Note shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost,
stolen or destroyed Note, a new Note for the principal amount of this Note so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Note, and of the ownership hereof, and
indemnify, if requested, all reasonably satisfactory to the Company.
Section 7. This Note may not be modified without prior written consent
of the Company and the Holder.
Section 8. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Holder consents to the jurisdiction of, and laying of venue
in, any New York State or federal court sitting in the City of New York.
Section 9. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must be
in writing signed by the party against whom such waiver is sought to be
enforced.
Section 10. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 11. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the appropriate calendar
month).
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
ENVIRO-CLEAN OF AMERICA, INC.
Dated: June 1, 1999
By:
Richard Kandel
President
<PAGE> 1
EXHIBIT 3(vii)
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE AND THE UNDERLYING SHARES
ISSUABLE UPON EXERCISE OF THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED BY
SECTIONS 4(2) AND 4(6) OF THE SECURITIES ACT AND RULE 506 OF REGULATION D
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND REGULATIONS.
ACCORDINGLY, THE WARRANTS AND THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE OF
THE WARRANTS ARE "RESTRICTED SECURITIES" AND MAY ONLY BE RESOLD PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAWS AND REGULATIONS.
ENVIRO-CLEAN OF AMERICA, INC.
WARRANT CERTIFICATE
Dated as of June 1, 1999
Warrants to Purchase Common Stock
ENVIRO-CLEAN OF AMERICA, INC., a Nevada corporation (the "Company"),
hereby certifies that, for value received, Blair Etra ("Holder"), or its
registered assigns, is the registered owner of Two Thousand Four Hundred (2,400)
Warrants (the "Warrants"), each of which will entitle the Holder thereof to
purchase one share, as adjusted from time to time as provided in Section 7, of
the Common Stock, par value $.001 per share, of the Company (the "Common Stock",
each such share being a "Warrant Share" and all such shares being the "Warrant
Shares") at the exercise price of Four Dollars and Twenty-Five Cents ($4.25) per
share (as adjusted from time to time as provided in Section 7, the "Exercise
Price") at any time on or after the date that is one hundred and eighty (180)
days from the date hereof (the "Initial Exercise Date") and prior to or on the
date that is four (4) years from the date hereof (the "Expiration Date"), all
subject to the following terms and conditions.
The Warrants and the Warrant Shares are being issued in reliance upon
the exemptions from registration provided by Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended (the "Securities Act") and Rule 506
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act.
1. Registration of Warrants. The Company shall register each Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder of such Warrant from time to time.
The Company may deem and treat the registered Holder
<PAGE> 2
of each Warrant as the absolute owner thereof for the purpose of any exercise
thereof or any distribution to the Holder thereof, and for all other purposes,
and the Company shall not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
a. The Company shall register, or instruct the transfer agent of
the Company's Common Stock (the "Transfer Agent") to register, the transfer of
any Warrants in the Warrant Register, upon surrender of this Warrant
Certificate, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or the Company at the office specified in or
pursuant to Section 3(c). Upon any such registration of transfer, a new Warrant
Certificate, in substantially the form of this Warrant Certificate ("New
Warrants"), evidencing the Warrants so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining Warrants not so
transferred, if any, shall be issued to the then registered holder thereof.
b. This Warrant Certificate is exchangeable, upon the surrender
hereof by the holder hereof to the Transfer Agent or at the office of the
Company specified in or pursuant to Section 3(c), for New Warrants evidencing in
the aggregate the right to purchase the number of Warrant Shares which may then
be purchased hereunder, each of such New Warrants to be dated the date of such
exchange and to represent the right to purchase such number of Warrant Shares as
shall be designated by said holder hereof at the time of such surrender.
3. Duration and Exercise of Warrants.
a. Warrants shall be exercisable by the registered Holder thereof
on any business day before 5:00 P.M., Eastern time, at any time and from time to
time on or after the Initial Exercise Date to and including the Expiration Date.
At 5:00 P.M., Eastern time, on the Expiration Date, each Warrant not exercised
prior thereto shall be and become void and of no value.
b. Subject to the limitations set forth in Section 3(c) and to
the other provisions of this Warrant Certificate, including adjustments to the
number of Warrant Shares issuable on the exercise of each Warrant and to the
Exercise Price pursuant to Section 7, the Holder of this Warrant shall have the
right to purchase from the Company (and the Company shall be obligated to issue
and sell to the Holder) at the Exercise Price one fully paid Warrant Share which
is non-assessable.
c. Subject to Sections 2(b), 4 and 8, upon surrender of this
Warrant Certificate, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 211 Park Avenue,
Hicksville, NY 11801, Attention: Richard Kandel, President, or at such other
address as the Company may specify in writing to the then registered Holder of
the Warrants, and upon payment of the Exercise Price multiplied by the number of
Warrant Shares then issuable upon exercise of the Warrants being exercised in
lawful money of the United States of America, all as specified by the Holder of
this Warrant Certificate in the Form of Election to Purchase, the Company shall
promptly issue and cause to be delivered to or upon the written order of the
registered Holder of such Warrants, and in such name or names as such registered
Holder may designate, a certificate or certificates for the Warrant Shares
issued upon such exercise of such Warrants. Any
2
<PAGE> 3
person so designated to be named therein shall be deemed to have become Holder
of record of such Warrant Shares as of the Date of Exercise of such Warrants.
The Holder may elect to pay all or a portion of the Exercise Price in
respect of the exercise of any or all Warrants by reducing the principal amount
of the promissory note, dated June 1, 1999 (the "Note") due and owing to the
Holder by the Company. Any such election must be clearly indicated in the
Election to Purchase provided to the Company in connection with such exercise.
The "Date of Exercise" of any Warrant means the date on which the
Transfer Agent or the Company shall have received (i) this Warrant Certificate
(or any New Warrant, as applicable) with the Form of Election to Purchase
attached hereto (or thereto) appropriately completed and duly signed, and (ii)
payment of the Exercise Price for such Warrant (whether in cash or forgiveness
of indebtedness under the Note, as provided above).
d. The Warrants evidenced by this Warrant Certificate shall be
exercisable, either as an entirety or, from time to time, for part of the number
of Warrants evidenced by this Warrant Certificate so long as at least five
hundred (500) Warrant Shares are exercised; provided, however, that if the
remaining number of Warrant Shares for which this Warrant Certificate is
exercisable is less than five hundred (500), this Warrant Certificate may be
exercised for such lesser number of remaining Warrant Shares. If less than all
of the Warrants evidenced by this Warrant Certificate are exercised at any time,
the Company shall issue, at its expense, a New Warrant for the remaining number
of Warrants evidenced by this Warrant Certificate.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of the Warrants
represented by this Warrant Certificate; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver the certificates for Warrant Shares 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. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring the
Warrants represented by this Warrant Certificate or receiving the Warrant Shares
under this Warrant Certificate.
5. Replacement of Warrant. If this Warrant Certificate is mutilated,
lost, stolen or destroyed, the Company may in its discretion issue in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant Certificate, a new Warrant Certificate of like
tenor, but only upon receipt of evidence reasonably satisfactory to the Company
or, if applicable, the Transfer Agent of such loss, theft or destruction and
bond or other indemnity, if requested, satisfactory to the Company and the
Transfer Agent. Applicants for a substitute Warrant Certificate also shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common
3
<PAGE> 4
Stock or its authorized and issued Common Stock held in its treasury, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of the Warrants, a number of shares of Common Stock equal to at least
the maximum number of Warrant Shares (as adjusted from time to time pursuant to
Section 7 hereof) which may then be deliverable upon the exercise of this
Warrant and all other outstanding options, warrants or other purchase rights.
The Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance thereof, be duly and validly authorized,
issued, fully paid, and nonassessable.
7. Adjustment to the Number of Warrant Shares Issuable. The number of
Warrant Shares issuable upon the exercise of this Warrant is subject to
adjustment from time to time as set forth in this Section 7. Upon each such
adjustment of the Exercise Price pursuant to this Section 7, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
1. If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of any class), (ii)
subdivide outstanding shares of Common Stock into a larger number of shares,
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of shares of Common Stock any shares
of capital stock of the Company, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
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 7(a) shall become effective immediately after 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, combination or reclassification.
2. If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or options to subscribe for or
purchase any security (excluding those referred to in Sections 7(a), 7(c) and
7(d) hereof), then in each such case the Exercise Price for which the Warrant
Shares shall be purchased shall be determined by multiplying the Exercise Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be the Exercise Price on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Company. The adjustments
shall be described in a statement provided to the Holder setting forth 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.
4
<PAGE> 5
3. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, 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, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities 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 Holder shall be entitled upon such event to
receive such amount of securities or property as the holder of the shares of the
Common Stock into which this Warrant could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. 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 the right to receive the securities or property set forth in
this Section 7(c) upon any exercise following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
4. For the purposes of this Section 7, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in convertible
securities, or (B) to subscribe for or purchase Common Stock or convertible
securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall not be
considered an issue or sale of Common Stock for the purposes of this subsection
(d).
5. 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 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 for
which this Warrant is exercisable); or
5
<PAGE> 6
(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 mailed to the Holder at the last address that
appears upon the Warrant Register, at least thirty (30) days 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, distributions, 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.
6. In any case in which this Section 7 shall require that an
adjustment be made effective as of the record date for a specified event, the
Company may elect to defer until occurrence of such event (A) issuing to the
Holder, if this Warrant is exercised after such record date, the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Price prior to
adjustment and (B) paying to the Holder any amount in cash in lieu of a
fractional share pursuant to Section 7 hereof; provided, however, that the
Company shall deliver to the Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional Warrant Shares, other
capital stock and/or cash upon the occurrence of the event requiring such
adjustment.
6
<PAGE> 7
7. Any determination that the Company or the Board of Directors
makes pursuant to this Section 7 shall be conclusive absent manifest error.
8. 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
affect the rights of the Holders (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 such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the Holders at least thirty (30) calendar days
prior to the effective date of such action, and an Appraiser selected by the
Holders of majority in interest of the Warrants shall give its opinion as to the
adjustment, if any (not inconsistent with the standards established in Section
7(e)), of the Exercise Price (including, if necessary, any adjustment as to the
Warrant Shares to be purchased upon exercise of this Warrant) and any
distribution which is or would be required to be preserved without diluting the
rights of the Holders.
8. Resales of Warrant Shares. The Warrants are being issued, and the
Warrant Shares will be issued, to the Holder in reliance upon the exemption from
registration under the Securities Act of 1933, as amended (the "Securities Act")
provided by Sections 4(2) and 4(6) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act by the Securities and Exchange
Commission (the "Commission") and applicable state or "Blue Sky" laws and
regulations. Accordingly, the Warrants and Warrant Shares are "restricted
securities" under Rule 144 and may only be sold pursuant to an effective
registration statement under, or an exemption from registration pursuant to, the
Securities Act and applicable state laws and regulations.
9. Fractional Shares. The Company shall not be required to issue
fractional Warrant Shares on the exercise of this Warrant. The number of full
Warrant Shares which shall be issuable upon the exercise of this Warrant shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of this Warrant so presented. If any fraction of an Warrant Share
would, except for the provisions of this Section 9, be issuable on the exercise
of this Warrant, the Company shall, at its option (a) pay an amount in cash
equal to the Exercise Price multiplied by such fraction or (b) shall round the
number of Warrant Shares issuable, up to the next whole number of such shares.
10. Warrant Agent.
a. The Company shall serve as Warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
Warrant agent.
b. Any corporation into which any Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at
7
<PAGE> 8
the Holder's last address as shown on the register maintained by the Warrant
agent pursuant to this Warrant.
11. Notices. All notices or other communications hereunder shall be
given, and shall be deemed duly given and received if given, by facsimile and by
mail, postage prepaid: (1) if to the Company, addressed as follows: Enviro-Clean
of America, Inc., 211 Park Avenue, Hicksville, NY 11801, Attention: Richard
Kandel, President, or to facsimile no. (516) 931-3530; or (ii) if to the Holder,
addressed to the Holder at the facsimile telephone number and address of the
Holder appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
11. Any such notice shall be deemed given and effective upon the earliest to
occur of (1) receipt of such facsimile at the facsimile telephone number
specified in this Section 11, (ii) five (5) Business Days after deposit in the
United States malls or (iii) upon actual receipt by the party to whom such
notice is required to be given.
12. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns (provided that
the Company's obligation to a transferee of this Warrant arises only if such
transfer is made in accordance with the terms of this Warrant Certificate) and
the transferee agrees to be bound by the terms of this Warrant Certificate, and
provided, further, that the Company may condition such transfer or assignment on
receipt of such additional documents, certificates and/or opinions of counsel as
the Company shall reasonably request to verify that such purported transfer or
assignment is in compliance with all applicable federal and state securities
laws and regulations.
b. Subject to Section 12(a) above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company, the
Holder and any registered holder of the Warrants any legal or equitable right,
remedy or cause under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company, the Holder and any other registered holder of
the Warrants evidenced by this Warrant Certificate.
c. This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. The Holder consents to the
jurisdiction of, and laying of venue in, any New York State or Federal Court
sitting in the City of New York.
d. The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
e. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its authorized officer as of the date first indicated above.
ENVIRO-CLEAN OF AMERICA, INC.
By:
-------------------------------------
Richard Kandel
President
<PAGE> 10
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise Warrants
Evidenced by the Foregoing Warrant Certificate)
TO ENVIRO-CLEAN OF AMERICA, INC.:
The undersigned hereby irrevocably elects to exercise _____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, __________________ full shares of Common Stock issuable upon
exercise of said Warrants.
Check one and complete
___ The Holder is delivering herewith a check to the order of Enviro-Clean
of America, Inc. in the amount of $____________, constituting the
Exercise Price of the Warrants exercised hereby.
___ The Holder hereby forgives repayment of the sum of $____________ in
aggregate principal amount of and accrued interest on Promissory Note
No.___ of the Company dated ___________, 1999 in payment of the
Exercise Price for the Warrants exercised hereby.
The undersigned requests that certificates for such shares be issued in
the name of:
PLEASE INSERT SOCIAL SECURITY OR TAX
- ----------------------------------- IDENTIFICATION NUMBER
--------------
- -----------------------------------
(Please print name and address)
- -----------------------------------
- -----------------------------------
If said number of Warrants shall not be all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercise be issued in the name of and
delivered to:
- -----------------------------------
(Please print name and address)
- -----------------------------------
- -----------------------------------
Dated: , 19 Name of Holder:
---------------------- ---
(Print)
----------------------
(By:)
------------------------
(Title:)
10
<PAGE> 11
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns, and transfers to each assignee set forth below all of the rights of the
undersigned in and to the number of Warrants (as defined in and evidenced by the
foregoing Warrant Certificate) set opposite the name of such assignee below and
in and to the foregoing Warrant Certificate with respect to said Warrants and
the shares of Common Stock issuable upon exercise of said Warrants:
<TABLE>
<CAPTION>
Name of Assignee Address Number of Warrants
- ---------------- ------- ------------------
<S> <C> <C>
</TABLE>
If the total of said Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so assigned be issued in the
name of and delivered to the undersigned.
Dated: , Name of Holder:
---------------------- ------
(Print)
----------------------
(By:)
------------------------
(Title:)
11
<PAGE> 1
EXHIBIT 6(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated October , 1999, by and between
Enviro-Clean of America, Inc., a Nevada corporation with offices at 211 Park
Avenue, Hicksville, New York 11801 (hereinafter referred to as the "Company")
and Richard Kandel, an individual residing at c/o 211 Park Avenue, Hicksville,
New York 11801 (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company as the
Chief Executive Officer of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") desires to
provide for the continued employment of the Executive, which the Board believes
is in the best interests of the Company and its shareholders, and the Executive
is willing to commit himself to serve the Company, on the terms and conditions
herein provided;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
The Company agrees to employ the Executive, and the Executive agrees to
serve the Company, on the terms and conditions set forth herein.
1. Title; Capacity. The Executive shall serve as Chief Executive
Officer of the Company and shall be based at the Company's headquarters in
Hicksville, New York. The Executive hereby accepts such employment and agrees to
undertake the duties and responsibilities inherent in such position and such
other duties and responsibilities as the Board or its designee shall from time
to time reasonably assign to him. The Executive agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company.
The Company further agrees to use its best efforts to cause the
Executive to be nominated as a member of the Board and a member of the Executive
Committee (if such a committee is created).
2. Term of Employment. The Company agrees to employ the Executive, and
the Executive agrees to serve the Company for a period commencing on the date
hereof (the "Commencement Date") and continuing for three years thereafter (such
period, including all extensions thereto, to be collectively referred to as the
"Employment Period"), unless otherwise terminated pursuant to the terms hereof.
The Employment Period shall automatically renew annually for a new three-year
term unless prior to the end of the first year of each three-year term, either
the Company or the Executive provides notice to the other party to this
Agreement of its intention not to extend the Employment Period beyond the then
current three-year term. Any notice given pursuant to this Section shall be
provided in accordance with the terms of Section 8.1 hereof and shall be
provided not later than 30 days prior to the end of such one-year period.
<PAGE> 2
3. Compensation and Benefits.
3.1. Salary. The Company will compensate the Executive for services
to be rendered by the Executive hereunder at the per annum rate of (i)
one hundred thousand ($100,000) dollars for the year ending December
31, 1999, (ii) two hundred thousand ($200,000) dollars for the year
ending December 31, 2000, and (iii) three hundred thousand ($300,000)
dollars for the year ending December 31, 2001, and for periods
subsequent thereto (the "Base Compensation"), payable in accordance
with the Company's customary payroll practices. Additionally, the Base
Compensation may be increased annually as determined by the Board of
Directors of the Company.
3.2. Bonus and Fringe Benefits. In addition to the compensation
provided in Section 4(a) above, the Company agrees to pay the Executive
an annual bonus payment (the "Basic Bonus Payment") for each of the
fiscal years during the Employment Period equal to fifteen thousand
($15,000) dollars upon the occurrence of each of the following events:
(a) listing of the Company's shares on NASDAQ, a comparable
inter-dealer automated quotation system, or a recognized exchange, (b)
the Company achieves revenues for any monthly period that would, if
annualized, equal $50 million or more in revenues, (c) the Company
achieves revenues for any monthly period that would, if annualized,
equal $75 million or more in revenues, (d) the Company achieves
revenues for any monthly period that would, if annualized, equal $100
million or more in revenues. The term "Revenues" shall mean the
revenues of the Company for such month as determined by the independent
public accountants then employed by the Company.
3.3. Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to,
the performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers and/or such other supporting information as the
Company may reasonably request, provided, however, that the amount
available for such travel, entertainment and other expenses may be
fixed in advance by the Board.
3.4. Insurance. The Executive shall be entitled to health insurance
coverage, term life insurance and long term disability insurance to the
extent that the Executive's position, tenure, salary, age, health and
other qualifications make him eligible to participate.
3.5. Vacation. The Executive shall be entitled to six weeks paid
vacation per year.
4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement may be terminated under the following
circumstances:
4.1. Expiration of Term. Expiration of the Employment Period in
accordance with Section 2.
4.2. Death. Upon the death of the Executive.
4.3. Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have failed to
perform the services contemplated under this Agreement for a period of
270 consecutive days, or a total of at least 300 calendar days during
any 365-day
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<PAGE> 3
period, or a determination of disability shall have been made by a
physician satisfactory to both the Executive and the Company, provided
that if the Executive and the Company do not agree on a physician, the
Executive and the Company shall each select a physician and these two
together shall select a third physician whose determination as to
disability shall be binding on both parties.
4.4. Cause. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder in the
event:
(i) Executive shall have willfully failed and continued to fail
subsequently to perform the duties (other than any failure resulting
from the Executive's incapacity due to physical or mental illness or
any actual or anticipated failure after the issuance by him of a
Notice of Termination, as defined in Section 4.6), for 30 days after
a written demand for performance is delivered to the Executive on
behalf of the Company which specifically identifies the manner in
which it is alleged that the Executive has not substantially
performed his duties; provided that the Company's economic
performance or failure to meet any specific projection shall not, in
and of itself, constitute "Cause"; or
(ii) the Executive shall have engaged in (A) any material
misappropriation of funds, properties or assets of the Company, it
being understood that "material" for these purposes shall take into
account both the amount of funds, properties or assets
misappropriated and the circumstances thereof (including the intent
of the Executive in connection therewith), or (B) any malicious
damage or destruction of any property or assets of the Company,
whether resulting from the Executive's wilful actions or omissions
or the Executive's gross negligence; or
(iii) the Executive shall (A) have been convicted of a crime
involving moral turpitude or constituting a felony or (B) entered a
plea of nolo contendere to any such crime, either of which has had a
material adverse effect upon the business of the Company; or
(iv) the Executive shall have (A) materially breached his
obligations under Section 6 hereof or (B) breached any of the other
material provisions of this Agreement and such breach shall remain
uncured by the Executive within 30 days following receipt of notice
from the Company specifying such breach.
4.5. Termination by the Executive. The Executive may terminate his
employment hereunder (i) upon 90 days written notice or (ii) for Good
Reason (as defined below).
For purposes of this Agreement, "Good Reason" shall exist if there is a
Change in Control (as defined below) of the Company and one or more of the
following events shall have occurred (without the Executive's express written
consent):
(a) the assignment to the Executive of any duties
inconsistent with his status as Chief Executive Officer of the
Company, his removal from the position of Chief Executive
Officer of the Company, or a substantial alteration
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<PAGE> 4
in the nature or status of his responsibilities from those in
effect immediately prior to the Change in Control;
(b) a reduction by the Company of the Executive's annual
base salary in effect on the date immediately prior to the
Change in Control;
(c) the relocation by the Company's principal executive
offices to a location more than twenty-five miles from its
present location or a requirement that the Executive shall be
based anywhere other than the Company's principal executive
offices except for required travel on the Company's business to
an extent substantially consistent with his business travel
obligations prior to the Change in Control;
(d) the failure by the Company to continue in effect any
bonus plan in which the Executive was participating immediately
prior to the Change in Control; or
(e) the failure by the Company to continue to provide the
Executive with benefits at least as favorable as those enjoyed
by him under any of the Company's pension, life insurance,
medical, health and accident, disability, deferred compensation
or savings plans in which he was participating at the time of
the Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed
by him at the time of the Change in Control, or the failure by
the Company to provide the Executive with the number of paid
vacation days to which he was entitled at the time of the Change
in Control.
For purposes of this Agreement, a "Change in Control" of the Company shall
mean a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended.
4.6. Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination
pursuant to Section 4.2) shall be communicated by Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances which
provide a basis for termination of the Executive's employment under the
provisions so indicated.
4.7. Date of Termination. "Date of Termination" shall mean (i) of
the Executive's employment is terminated pursuant to Section 4.1, the
date on which the Employment Period expires pursuant to Section 2, (ii)
if the Executive's employment is terminated pursuant to Section 4.2,
the date of the Executive's death, (iii) if the Executive's employment
is terminated pursuant to Section 4.3, 30 days after the Notice of
Termination is given (provided that the Executive shall not have
returned to the performance of his duties on a full-time basis during
such 30 day period), (iv) if the Executive's employment is terminated
pursuant to Section 4.4 or subsection (i) of Section 4.5, the date
specified in the Notice of Termination, provided that in the case of a
Section 4.4 termination it is at least 30 days subsequent to the date
of the issuance of such Notice of Termination and in the case of a
subsection (i) of Section 4.5 termination it is at least 90 days
subsequent to the date of the issuance of such Notice of
-4-
<PAGE> 5
Termination, (v) if the Executive's employment is terminated pursuant
to subsection (ii) of Section 4.5, the date specified in such Notice of
Termination, and (iv) if the Executive's employment is terminated other
than as provided herein, the date specified in the Notice of
Termination, provided that it is at least 30 days subsequent to the
date of the issuance of such Notice of Termination.
5. Compensation Upon Termination.
5.1 If the Executive's employment is terminated under the provisions
of Sections 4.1, .4.4 or subsection (i) of Section 4.5, the Company
shall pay to the Executive his full salary, bonus and benefits through
the Date of Termination.
5.2 If the Executive's employment is terminated by the Executive's
death under the provisions of Section 4.2, the Company shall pay to
Executive's estate the Executive's full salary, bonus and benefits to
the Executive through the Date of Termination.
5.3 If the Executive's employment is terminated under the provisions
of Section 4.3, the Company shall pay to the Executive his full salary,
bonus and benefits through the Date of Termination. During any period
that the Executive fails to perform his duties hereunder as a result of
disability (as defined in Section 4.3), the Executive shall continue to
receive his full salary, bonus and benefits through the Date of
Termination.
5.4 If the Company shall terminate the Executive's employment other
than as provided herein or the Executive shall terminate his employment
pursuant to subsection (ii) of Section 4.5, then:
(i) The Company shall pay the Executive his full salary, bonus
and benefits through the Date of Termination.
(ii) Subject to subsection (iv) of this Section 5.4, in lieu of
any further salary payments to the Executive for periods subsequent
to the Date of Termination, the Company shall pay as severance pay
to the Executive an amount equal to the remainder of the salary,
bonus and value of the fringe benefits which the Executive would be
entitled to receive for the balance of the Employment Period.
(iii) The Company shall pay all other damages to which the
Executive may be entitled as a result of such termination, including
damages for any and all legal fees and expenses incurred by him as a
result of such termination.
(iv) In the event that (A) any payment or benefit received or to
be received by the Executive in connection with a Change in Control
of the Company or the termination of the Executive's employment
(whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company) (collectively referred to
herein as "Severance Payments") would not be deductible (in whole or
part) as a result of section 280G of the Internal Revenue Code of
1986, as amended, (the "Code") by the Company, an affiliate or other
person making such payment or providing such benefit and (B) it
shall be determined that the net amount retained by the Executive,
after deduction of the excise tax imposed by section 4999 of the
Code and any federal, state and local income and employment taxes on
\the Severance Payments, does not exceed 110% of the net amount
retained by the Executive after applying the limitations
-5-
<PAGE> 6
of this subsection (iv) of Section 5.4 and after deduction of any
federal, state and local income and employment taxes on the
Severance Payments as so reduced, the Severance Payments shall be
reduced until no portion of the Severance Payments is not
deductible, or the Severance Payments are reduced to zero. For
purposes of this limitation (i) no portion of the Severance Payments
the receipt or enjoyment of which the Executive shall have
effectively waived in writing prior to the date of payment of the
Severance Payments shall be taken into account, (ii) no portion of
the Severance Payments shall be taken into account which in the
opinion of tax counsel selected by the Company's independent
auditors and acceptable to the Executive does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the
Code, (iii) the Severance Payments shall be reduced only to the
extent necessary so that the Severance Payments (other than those
referred to in clauses (i) or (ii) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code or are otherwise not
subject to disallowance as deductions, in the opinion of the tax
counsel referred to in clause (ii); and (iv) the value of any
non-cash benefit or any deferred payment or benefit included in the
Severance Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. For purposes of determining the income taxes on
the Severance Payments, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Severance Payments are to be made
and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal taxes which
could be obtained from deduction of such state and local taxes.
6. Proprietary Information and Developments.
6.1 Proprietary Information.
(i) The Executive agrees that all information and know how,
whether or not in writing, of a private, secret or confidential
nature concerning the Company's business or financial affairs
(collectively, "Proprietary Information") is and shall be the
exclusive property of the Company. The Executive will not disclose
any Proprietary Information to others outside the Company or use the
same for any unauthorized purposes without written approval by the
Board, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault by
the Executive.
(ii) The Executive agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, or other written,
photographic, or other tangible material containing Proprietary
Information, whether created by the Executive or others, which shall
come into his custody or possession, shall be and are the exclusive
property of the Company to be used by the Executive only in the
performance of his duties for the Company.
(iii) The Executive agrees that his obligation not to disclose
or use information, know-how and records of the types set forth in
subsection (i) and (ii) above, also extends to such types of
information, know-how, records, and tangible property of
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<PAGE> 7
third parties who may have disclosed or entrusted the same to the
Company or to the Executive in the course of the Company's business.
6.2 Other Agreements. The parties acknowledge that Executive may
also enter into employment and other agreements with other parties,
including, but not limited to, B2bstores.com, Inc., with respect to
business activities in which he may engage and devote up to fifty (50%)
percent of his time.
7. Non-Competition, Non-Soliciting.
7.1 Non-solicitation of Employees. The Executive agrees that during
the term of the Executive's employment with the Company, the Executive
shall not directly recruit, solicit or otherwise induce or attempt to
induce any employees of the Company to leave the employment of the
Company.
7.2 Non-competition. The Executive agrees that during the term if
the Executive's employment with the Company, the Executive shall not
directly or indirectly, except as a passive investor in publicly held
companies and except for investments held at the date hereof, engage in
competition with the Company, or any of its subsidiaries, or own or
control any interest in, or act as director, officer or employee of, or
consultant to, any firm, corporation or institution directly engaged in
competition with the Company or any of its subsidiaries; provided the
Company or one of its subsidiaries are actively engaged in such
business at the time the Executive's employment by the Company is
terminated.
8. Miscellaneous.
8.1 Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other addresses as either
party shall designate to the other in accordance with this Section 8.1.
8.2 Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall
include the plural, and vice versa.
8.3 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter
of this Agreement.
8.4 Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
8.5 Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New York.
8.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the
Company may be merged or which may succeed to its assets or business,
provided, however, that the obligations of the Executive are personal
and shall not be assigned by him.
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<PAGE> 8
8.7 Waivers. No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one
occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
8.8 Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
8.9 Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected
or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
ENVIRO-CLEAN OF AMERICA, INC.
By:
-------------------------------------
Title: President
EXECUTIVE:
----------------------------------------
Richard Kandel
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EXHIBIT 6(ii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated October ____, 1999, by and between
Enviro-Clean of America, Inc., a Nevada corporation with offices at 211 Park
Avenue, Hicksville, New York 11801 (hereinafter referred to as the "Company")
and Randall K. Davis, an individual residing at c/o 1023 Morales Street, San
Antonio, Texas 78207 (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company as the
President of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") desires
to provide for the continued employment of the Executive, which the Board
believes is in the best interests of the Company and its shareholders, and the
Executive is willing to commit himself to serve the Company, on the terms and
conditions herein provided;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
1. Title: Capacity. The Executive shall serve as President of the
Company and shall be based at the Company's offices in San Antonio, Texas. The
Executive hereby accepts such employment and agrees to undertake the duties and
responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time
reasonably assign to him. The Executive agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company. The
Executive shall devote one hundred (100%) percent of his time to the business
of the Company.
The Company further agrees to use its best efforts to cause the
Executive to be nominated as a member of the board of directors.
2. Term of Employment. The Company agrees to employ the Executive, and
the Executive agrees to serve the Company for a period commencing on the date
hereof (the "Commencement Date") and continuing for three years thereafter
(such period, including all extensions thereto, to be collectively referred to
as the "Employment Period"), unless otherwise terminated pursuant to the terms
hereof. The Employment Period shall automatically renew for one year unless
prior to the end of the three-year term, or any renewal periods, either the
Company of the Executive provides notice to the other party to this Agreement
of its intention not to exceed the Employment Period beyond the then current
three-year term. Any notice given pursuant to this Section shall be provided in
accordance with the terms of Section 8.1 hereof and shall be provided not later
than 90 days prior to the end of such three-year term or one-year renewal
period, as the case may be.
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3. Compensation and Benefits.
3.1. Salary. The Company will compensate the Executive for
services to be rendered by the Executive hereunder at the per annum
rate of (i) fifty thousand ($50,000) dollars for the year ending
December 31, 199, (ii) one hundred and fifty thousand ($150,000)
dollars for the year ending December 31, 2000, and (iii) two hundred
and fifty thousand ($250,000) dollars for the year ending December 31,
2001, and for periods subsequent thereto (the "Base Compensation"),
payable in accordance with the Company's customary payroll practices.
Additionally, the Base Compensation may be increased annually as
determined by the Board of Directors of the Company.
3.2. Bonus and Fringe Benefits. In addition to the
compensation provided in Section 4(a) above, the Company agrees to pay
the Executive an annual bonus payment (the "Basic Bonus Payment") for
each of the fiscal years during the Employment Period equal to ten
thousand ($10,000) dollars upon the occurrence of each of the
following events: (a) listing of the Company's shares on NASDAQ, a
comparable inter-dealer automated quotation system, or a recognized
exchange, (b) the Company achieves revenues for any monthly period
that would, if annualized, equal $50 million or more in revenues, (c)
the Company achieves revenues for any monthly period that would, if
annualized, equal $75 million or more in revenues, (d) the Company
achieves revenues for any monthly period that would, if annualized,
equal $100 million or more in revenues. The term "Revenues" shall mean
the revenues of the Company for such month as determined by the
independent public accountants then employed by the Company.
3.3. Reimbursement of Expenses. The Company shall reimburse
the Executive for all reasonable travel, entertainment and other
expenses incurred or paid by the Executive in connection with, or
related to, the performance of his duties, responsibilities or
services under this Agreement, upon presentation by the Executive of
documentation, expense statements, vouchers and/or such other
supporting information as the Company may reasonably request,
provided, however, that the amount available for such travel,
entertainment and other expenses may be fixed in advance by the Board.
3.4. Insurance. The Executive shall be entitled to health
insurance coverage, term life insurance and long term disability
insurance to the extent that the Executive's position, tenure, salary,
age, health and other qualifications make him eligible to participate.
3.5. Vacation. The Executive shall be entitled to three weeks
paid vacation per year.
4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement may be terminated under the following
circumstances:
4.1. Expiration of Term. Expiration of the Employment Period
in accordance with Section 2.
4.2. Death. Upon the death of the Executive.
4.3. Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have
failed to perform the services contemplated under this Agreement for a
period of 270 consecutive days, or a total of at least 300 calendar
days during any 365-day
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period, or a determination of disability shall have been made by a
physician satisfactory to both the Executive and the Company, provided
that if the Executive and the Company do not agree on a physician, the
Executive and the Company shall each select a physician and these two
together shall select a third physician whose determination as to
disability shall be binding on both parties.
4.4. Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment
hereunder in the event:
(i) Executive shall have willfully failed and
continued to fail substantially to perform the duties (other
than any failure resulting from the Executive's incapacity
due to physical or mental illness or any actual or
anticipated failure after the issuance by him of a Notice of
Termination, as defined in Section 4.6), for 30 days after a
written demand for performance is delivered to the Executive
on behalf of the Company which specifically identifies the
manner in which it is alleged that the Executive has not
substantially performed his duties; provided that the
Company's economic performance or failure to meet any
specific projection shall not, in and of itself, constitute
"Cause"; or
(ii) the Executive shall have engaged in (A) any
material misappropriation of funds, properties or assets of
the Company, it being understood that "material" for these
purposes shall take into account both the amount of funds,
properties or assets misappropriated and the circumstances
thereof (including the intent of the Executive in connection
therewith) or (B) any malicious damage or destruction of any
property or assets of the Company, whether resulting from the
Executive's willful actions or omissions or the Executive's
gross negligence; or
(iii) the Executive shall (A) have been convicted of
a crime involving moral turpitude or constituting a felony or
(B) entered a plea of nolo contendere to any such crime,
either of which has had a material adverse effect upon the
business of the Company; or
(iv) the Executive shall have (A) materially
breached his obligations under Section 6 hereof or (B)
breached any of the other material provisions of this
Agreement and such breach shall remain uncured by the
Executive within 30 days following receipt of notice from the
Company specifying such breach.
4.5. Termination by the Executive. The Executive may
terminate his employment hereunder upon 90 days written notice.
4.6. Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive (other than
termination pursuant to Section 4.2) shall be communicated by Notice
of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances which provide a basis for termination of the Executive's
employment under the provisions so indicated.
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4.7. Date of Termination. "Date of Termination" shall mean
(i) if the Executive's employment is terminated pursuant to Section
4.1, the date on which the Employment Period expires pursuant to
Section 2, (ii) if the Executive's employment is terminated pursuant
to Section 4.2, the date of the Executive's death, (iii) if the
Executive's employment is terminated pursuant to Section 4.3, 30 days
after the Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a
full-time basis during such 30 day period), (iv) if the Executive's
employment is terminated pursuant to Section 4.4 or Section 4.5, the
date specified in the Notice of Termination, provided that in the case
of a Section 4.4 termination it is at least 30 days subsequent to the
date of the issuance of such Notice of Termination, and in the case of
a Section 4.5 termination, it is at least 90 days subsequent to the
date of the issuance of such Notice of Termination, and (v) if the
Executive's employment is terminated other than as provided herein,
the date specified in the Notice of Termination, provided that it is
at least 30 days subsequent to the date of the issuance of such Notice
of Termination.
5. Compensation Upon Termination.
5.1. If the Executive's employment is terminated under the
provisions of Section 4.1, 4.4 or Section 4.5, the Company shall pay
to the Executive his full salary, bonus and benefits through the Date
of Termination.
5.2. If the Executive's employment is terminated by the
Executive's death under the provisions of Section 4.2, the Company
shall pay to the Executive's estate the Executive's full salary, bonus
and benefits to the Executive through the Date of Termination.
5.3. If the Executive's employment is terminated under the
provisions of Section 4.3, the Company shall pay to the Executive his
full salary, bonus and benefits through the Date of Termination.
During any period that the Executive fails to perform his duties
hereunder as a result of disability (as defined in Section 4.3), the
Executive shall continue to receive his full salary, bonus and
benefits through the Date of Termination.
5.4. If the Company shall terminate the Executive's
employment other than as provided herein or the Executive shall
terminate his employment pursuant to Section 4.5, then the Company
shall pay the Executive his fully salary, bonus and benefits through
the Date of Termination, and the Company shall thereafter have no
further obligation whatsoever to Executive
6. Proprietary Information and Developments.
6.1. Proprietary Information.
(i) The Executive agrees that all information and
know how, whether or not in writing, of a private, secret or
confidential nature concerning the Company's business or
financial affairs (collectively, "Proprietary Information")
is and shall be the exclusive property of the Company. The
Executive will not disclose any Proprietary Information to
others outside the Company or use the same for any
unauthorized purposes without written approval by the Board,
either during or after his employment, unless and until
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such Proprietary Information has become public knowledge
without fault by the Executive.
(ii) The Executive agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, or
other written, photographic, or other tangible material
containing Proprietary Information, whether created by the
Executive or others, which shall come into his custody or
possession, shall be and are the exclusive property of the
Company to be used by the Executive only in the performance
of his duties for the Company.
(iii) The Executive agrees that his obligation not
to disclose or use information, know-how and records of the
types set forth in subsection (i) and (ii) above, also
extends to such types of information, know-how, records, and
tangible property of third parties who may have disclosed or
entrusted the same to the Company or to the Executive in the
course of the Company's business.
6.2. Other Agreements. Executive represents and warrants that
he is not a party to any other employment or other agreement which
would cause him to violate the terms of this agreement or such other
agreements.
7. Non-Competition, Non-Solicitation.
7.1. Non-solicitation of Employees. The Executive agrees that
during the term of the Executive's employment with the Company and for
two years thereafter, the Executive shall not directly recruit,
solicit or otherwise induce or attempt to induce any employees of the
Company to leave the employment of the Company.
7.2. Non-competition. The Executive agrees that during the
term of the Executive's employment with the Company and for one year
thereafter, the Executive shall not directly or indirectly, except as
a passive investor in publicly held companies and except for
investments held at the date hereof, engage in competition with the
Company or any of its subsidiaries, or own or control any interest in,
or act as director, officer or employee of, or consultant to, any
firm, corporation or institution directly engaged in competition with
the Company or any of its subsidiaries; provided the Company or one of
its subsidiaries are actively engaged in such business at the time the
Executive's employment by the Company is terminated.
8. Miscellaneous.
8.1. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon
personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or
addresses as either party shall designate to the other in accordance
with this Section 8.1.
8.2. Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and pronouns
shall include the plural, and vice versa.
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8.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject
matter of this Agreement.
8.4. Amendment. This Agreement may be amended or modified
only by a written instrument executed by both the Company and the
Executive.
8.5. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the substantive laws of
the State of New York. Any dispute, claim, or controversy arising
between the parties shall be submitted and subject to the exclusive
jurisdiction of the Supreme Court of the State of New York, Nassau
County, or the Federal District Court, Eastern District, New York.
8.6. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or into
which the Company may be merged or which may succeed to its assets or
business, provided, however, that the obligations of the Executive are
personal and shall not be assigned by him.
8.7. Waivers. No delay or omission by the Company in
exercising any right under this Agreement shall operate as a waiver of
that or any other right. A waiver or consent given by the Company on
any one occasion shall be effective only in that instance and shall
not be construed as a bar or waiver of any right on any other
occasion.
8.8. Captions. The captions of the sections of this Agreement
are for inconvenience of reference only and in no way define, limit or
affect the scope or substance of any section of this Agreement.
8.9. Severability. In case any provision of this Agreement
shall be invalid, illegal or otherwise unenforceable, the validity,
legality and enforceability of the remaining provisions shall in no
way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
ENVIRO-CLEAN OF AMERICA, INC.
By:
--------------------------------
Title:
EXECUTIVE:
-----------------------------------
RANDALL K. DAVIS
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EXHIBIT 6(vi)
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of the
1st day of March, 1999 by and between Enviro-Clean of America, Inc., a Nevada
corporation having its principal place of business at 211 Park Ave.,
Hicksville, NY 11801 (the "Company") and Steven Etra, an individual residing at
Heather Hill, Brookville, NY 11545 (the "Consultant"):
WHEREAS, the Company is a publicly traded company whose common stock,
par value $.001 per share (the "Common Stock"), trades on the NASD OTC Bulletin
Board under the symbol "EVCL"; and
WHEREAS, the Company wishes to engage Consultant to assist the Company
in conducting its public relations activities with the financial community and
Consultant wishes to accept such engagement, all upon the terms and subject to
the conditions contained in this Agreement;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
consideration and promises contained herein and intending to be bound, hereby
agree as follows:
1. Appointment.
The Company hereby appoints Consultant, and Consultant agrees to serve
as, financial public relations consultant to the Company, all upon the terms,
and subject to the conditions of this Agreement. Consultant's appointment shall
be non-exclusive, but the Company undertakes promptly to notify Consultant of
the appointment of any other financial relations consultant or the employment
of any person as an employee of the Company to serve in a similar capacity and
to promptly inform consultant of the duties to be undertaken by any such other
consultant or employee.
2. Term.
The term of this Agreement shall begin on the date first set forth
above and shall continue until the date that is one (1) year from the date of
this Agreement unless earlier terminated by either party hereto pursuant to
Paragraph 11, below. This Agreement shall automatically be renewed for
successive periods of one (1) year unless either party gives written notice to
the other of its intention not to renew this Agreement, which notice must be
given at least sixty (60) days prior to the end of the initial term or any
renewal term thereof.
3. Duties of Consultant.
Consultant shall assist senior management of the Company in
communicating to existing and potential shareholders, market makers, analysts,
stockbrokers, investment bankers, institutional investors and traders, the
various new media and other members of the financial community. Consultant shall
report to Richard Kandel, President of the Company and shall
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comply with all Company policies regarding dissemination of financial and
related information to the investment community and to the public at large.
4. Securities Laws, Rules and Regulations.
The Company and Consultant hereby acknowledge that they are aware of
their respective duties and obligations regarding the dissemination of
information to the public under both Federal and State laws, rules and
regulations. To ensure that these duties and obligations are met, the parties
hereto agree that:
(a) The Company shall provide Consultant with true, accurate and
complete copies of all:
(i) materials filed by the Company with the U.S. Securities and
Exchange Commission (the "Commission"), with the securities regulatory
authorities of any State or other jurisdiction and with NASDAQ or any stock
exchange during the term of this Agreement;
(ii) press releases disseminated by the Company;
(iii) written communications by the Company with shareholders,
analysts, market makers, stockbrokers, money managers, traders or other members
of the financial community;
(iv) product and service brochures and marketing or advertising
materials prepared by or on behalf of the Company to promote its products and
services;
(v) news or trade publication articles regarding the Company, its
management or its products and services; and
(vi) a current list of the Company's shareholders, certified by its
transfer agent in each case, whether such materials were prepared by or with
the assistance of Consultant or not.
(b) The Company hereby represents and warrants that any materials
provided to Consultant pursuant to the terms of this Agreement will be true,
accurate and complete and will not contain any misleading statements and will
not fail to contain any statements necessary to ensure that the statements
contained therein are not misleading. Any delivery of materials to Consultant
hereunder shall constitute a separate ongoing representation and warranty by the
Company to this effect. In the absence of notice to the contrary to Consultant
pursuant to Paragraph 4(c), below, Consultant shall be entitled to continue to
rely upon information provided to Consultant by the Company under this
Agreement.
(c) The Company will notify Consultant of any event or state of
affairs that would (1) result in any issuance of securities of the Company, (2)
involve incurrence of any material debt not in the ordinary course of business,
(3) otherwise result in any material change in the
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capitalization of the Company, (4) materially impair or encumber any
substantial portion of its assets, (5) present a special disclosure or
non-disclosure obligation with respect to any information or materials provided
to Consultant hereunder (including, without limitation, information which is of
a sensitive, non-public nature and may be deemed "inside information" or which
the Company is under a duty not to disclose), (7) materially affect the
business or prospects of the Company or (8) result in any information
previously provided to Consultant being misleading or failing to contain
information required to make the information contained therein not misleading.
(d) The Company agrees to make available to Consultant at reasonable
times during regular business hours the Company's counsel and any employee or
outside consultant of the Company responsible for the Company's SEC, NASD and
state Blue Sky compliance policies and procedures to advise Consultant in
carrying out its duties under this Agreement. The Company acknowledges that
Consultant will also be free to consult counsel of its own in determining its
responsibilities under applicable laws, rules and regulations with regard to
its duties under this Agreement and that Consultant shall be justified in
acting, or declining to act, in reliance upon the advice of such counsel.
(e) Consultant agrees that it will not disseminate any materials
regarding the Company that (i) have not been provided to Consultant by the
Company or (ii) if prepared by any person other than the Company, that have not
been approved by management of the Company, nor will Consultant divulge or
disseminate any such information to any party that the Company advises
Consultant in writing should not receive such information.
5. Representations and Warranties of the Company.
The Company hereby represents and warrants to Consultant that the
Company:
(a) is a corporation duly organized and validly existing under the
laws of the State of Nevada;
(b) has the power and authority, and that all necessary corporate
action has been taken to empower the Company, to enter into this Agreement and
to carry out its obligations hereunder.
6. Compensation.
As compensation to the Consultant for the services to be rendered
under this Agreement, the Company agrees to pay to Consultant a monthly fee of
Two Thousand Dollars ($2,000) throughout the term of this Agreement, which fee
shall be paid on or before the tenth day of every calendar month for services
rendered in the immediately preceding month; and
The Company also agrees to reimburse Consultant for any out-of-pocket
expenses incurred by Consultant in rendering the services contemplated under
this Agreement.
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7. Status as Independent Contractor.
The parties intend and acknowledge that Consultant is acting as an
independent contractor and not as an employee of the Company. Consultant shall
have full discretion in determining the amount of time and activity to be
devoted to rendering the services contemplated under this Agreement and the
level of compensation to Consultant is not dependent upon any preordained time
commitment or level of activity. The Company acknowledges that Consultant shall
remain free to accept other consulting engagements of a like nature to the
engagement under this Agreement. Consultant, however, hereby undertakes to
notify the Company in writing of any engagement undertaken by Consultant that,
in the view of Consultant, creates a conflict of interest with the Company's
engagement of Consultant. The Company shall not be responsible for any
withholding in respect of taxes or any other deductions in respect of the fees
to be paid to Consultant and all such amounts shall be paid without any
deduction or withholding. Nothing in this Agreement shall be construed to
create any partnership, joint venture or similar arrangement between the
Company and Consultant or to render either party responsible for any debts or
liabilities of the other (except as specifically set forth in Paragraph 9,
below).
8. Confidentiality.
(a) Consultant acknowledges that in connection with the services to be
rendered under this Agreement, Consultant may be provided with confidential
business information of the Company. Consultant agrees to keep any information
or materials specifically designated in writing by a responsible officer of the
Company as confidential (the "Confidential Information") in the strictest
confidence and not to disclose or disseminate any such Confidential Information
to any person, firm or other business entity except to those employees,
consultants or other independent contractors of the Company or Consultant as
shall be necessary or advisable for the carrying out of the purposes of this
Agreement and who are under a similar obligation of confidentiality.
(b) The Company acknowledges that Consultant will, in rendering the
services to be rendered hereunder, be employing lists and other materials that
are proprietary to Consultant. The Company acknowledges that any such materials
that are specifically designated in writing to the Company to be proprietary to
Consultant will remain the property of Consultant and the Company will treat
such materials as confidential information of Consultant and will not disclose
or disseminate any such confidential information to any person, firm or other
business entity except to those employees, consultants or other independent
contractors of the Company or Consultant as shall be necessary or advisable for
the carrying out of the purposes of this Agreement and who are under a similar
obligation of confidentiality.
9. Indemnification.
The Company shall indemnify Consultant for any loss, damage, expenses,
claims or other liabilities (including, without limitation, attorneys' fees)
resulting from a breach or alleged
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breach of any of the representations and warranties of the Company, or the
failure of the Company to perform any of its obligations, contained in this
Agreement.
10. Termination.
(a) This Agreement may be terminated at any time by either party upon
sixty (60) days' prior written notice to the other.
(b) Either party may terminate this Agreement immediately upon the
occurrence of any of the following:
(i) the other party shall become party to any proceeding,
whether voluntary or involuntary, seeking the dissolution, winding up or
liquidation of the party or substantially all of its assets, or seeking the
protection of any bankruptcy or insolvency laws, or seeking to have a trustee,
receiver, conservator or like party appointed to take control over the party or
substantially all of its assets, and such proceeding shall not be dismissed for
a period of sixty (60) days; or
(ii) the non-payment by the other party of any amounts due
hereunder, or any other material breach by such party of any of the terms of
this Agreement, and such non-payment or other breach shall remain uncured for a
period of sixty (60) days.
(c) No termination pursuant to this Paragraph 10 shall relieve the
Company for responsibility for any payments to be made in respect of all
periods up to, and including, the date of termination or for the payment of any
amounts pursuant to the indemnities contained in Paragraph 9, above.
11. Amendments, Modifications, Waivers, Etc.
No amendment or modification to this Agreement, nor any waiver of any
term or provision hereof, shall be effective unless it shall be in a writing
signed by the party against whom such amendment, modification or waiver shall
be sought to be enforced. No waiver of any term or provision shall be construed
as a waiver of any other term or condition of this Agreement, nor shall it be
effective as to any other instance unless specifically stated in a writing
conforming with the provisions of this Paragraph 11.
12. Successors and Assigns.
This Agreement shall be enforceable against any successors in
interest, if any, to the Company and Consultant. Neither the Company nor
Consultant shall assign any of their respective rights or obligations hereunder
without the written consent of the other in each instance.
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13. Notices.
Any notices required or permitted to be given under this Agreement
shall be effective upon receipt at the respective addresses (or if by e-mail or
fax at the numbers set forth) in the recitals to this Agreement unless the
address for notice to either party shall have been changed by a notice given in
accordance with this Paragraph 13.
14. Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the substantive laws of the State of New York for contracts executed and to be
performed wholly within such state, without regard for principals of conflicts
of laws.
IN WITNESS WHEREOF, the parties hereto have set their respective hands
as of the date first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ RICHARD KANDEL
------------------------------
Richard Kandel
President
/s/ STEVEN ETRA
------------------------------
Steven Etra
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