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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (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
- ----------------------------------------- ----------------------------------
(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
----- --- ----
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
- ----------------------------------------- ----------------------------------
_________________________________________ __________________________________
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
- --------------------------------------------------------------------------------
(Title of class)
________________________________________________________________________________
(Title of class)
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ENVIRO-CLEAN OF AMERICA, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. Description of Business.
-----------------------
(a) Business Development
Enviro-Clean of America, Inc. (the "Company") is engaged in the purchasing,
marketing and distribution of sanitary and janitorial supplies and related paper
products. 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. As of January 1, 1999, the
Company acquired NISSCO/Sunline, Inc. ("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"). As of January 1, 1999, the Company
completed the acquisition of Kandel & Son, Inc. ("Kandel"), a 48-year old New
York-based sanitary supply distribution company. NISSCO and Kandel are wholly
owned subsidiaries of the Company. (See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.") Management of the Company intends to continue to expand the
revenue base represented by NISSCO and Kandel, and to further increase revenues
rapidly through a series of acquisitions identified by Company management.
(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 and NISSCO. Through Kandel and
NISSCO, the Company engages in the purchasing, marketing and distribution of
janitorial and sanitary supplies and related paper products nationwide.
Management of the Company believes that the market for its products is
characterized by a few large competitors and many small, profitable companies
that could benefit considerably from economies of scale of being part of a
larger organization. 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 possibly in Canada 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 management. 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
According to the International Sanitary Supply Association's most recent
survey in 1995, the sanitary/janitorial distribution industry had $15.2 billion
in sales. This was a 12% increase over the 1992 figures. The sale of chemical
products (cleaners, degreasers, etc.) totaled $5.8 billion, or 38% of the
market, followed by paper and plastics at $4.9 billion, and janitorial supplies
and accessories with sales of $1.8 billion. The remainder consists of services
and other related products.
Demand for janitorial products in the United States has historically grown
at a steady rate unrelated to overall trends in the economy. Traditionally,
people who owned buildings cleaned their properties primarily motivated by
appearance of the property. These motivations now include a significant concern
for health and safety related issues.
Industrial and manufacturing companies account for the largest customer
group for janitorial goods. Sales to this category of customer are currently
approximately $2.7 billion annually. This is followed by education, commercial
properties, and health care at just under $2 billion each. The market
opportunity covers restaurants/clubs, retail, residential, government,
recreation, transportation, hotels/motels, and religious facilities.
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The overall market for sanitary/janitorial distributors is growing as
customers are requesting their suppliers to carry more product and are looking
for more services, including contract cleaning, training and education.
B. Structure of the Industry and Competition
The sanitary/janitorial supply industry, as are most distribution
industries, is undergoing a period of consolidation. There are a few larger
companies dominating the activity, but they are focused at the high end of the
market, targeting companies with $50 million or more in annual revenues. Even
with this activity, there is currently no one dominant player, as the largest
competitor, has approximately 6% market share. Some consolidations are occurring
at the middle levels, as medium-sized companies look for ways to compete with
the larger corporations.
In this environment, there are still a significant number of small,
profitable sanitary/janitorial supply companies. These companies are finding
more competition as a result of the industry activity. Though smaller in size,
these companies often find an advantage in their local geographic market due to
greater levels of service and niche products they can offer. However, these
companies are seeing their competitive position erode due to economies of scale
enjoyed by their larger competitors. Additionally, these companies tend to be
"lifestyle" companies with fewer controls and professional management
techniques.
Management believes that consolidation in the janitorial/sanitary supplies
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, and (iii) the increased application of technology to
monitor inventory, delivery schedules, ordering and related activities.
While price is important from a customer standpoint, it is estimated that
only 3% of the total cost of cleaning relates to costs of materials sold; the
rest is labor, sales and marketing and delivery expense. Thus, from an economic
viewpoint, service is increasingly important, especially concerning training and
education to reduce labor costs.
From the distributors' standpoint, the highest markup is on cleaning
chemicals and specialty soaps as well as services. Profitability is driven by
increasing the proportion of sales comprised of these revenue components.
Delivery costs of janitorial supplies tend to make up a substantial percentage
of cost of goods sold, so reducing the cost of delivery is a key goal along with
inventory management.
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 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 overall wholesale distribution industry has been the second most active
industry for mergers and acquisitions in recent years. This trend is expected to
continue well past the year 2000 and be a major force affecting the
janitorial/sanitary supply industry. Consolidators are attracted by the
opportunities created by exploiting the potential economic advantages of bigger
size or broader geographic reach. Even with the increased consolidation
activity, the
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market remains highly fragmented.
Also fueling industry consolidation is the push toward integrated supply.
Customers 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 with the reach to supply to
geographically dispersed customers. Second, it fuels the acquisition trend as
large wholesale distributors look to expand their product lines.
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
are the Internet, business intelligence applications, and supply chain
management. 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 to streamline the acquisition process. Over
80% 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 website by using credit cards and receive next-day
delivery through a nationally recognized overnight carrier service. 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 "e-commerce" program. The letter of intent expired as of
April 31, 1999 and the parties have decided not to continue working together.
The Company plans on implementing its initial e-commerce website in June of 1999
and has engaged consultants to complete the work necessary to implement this
program.
Business intelligence solutions are being used in every industry to improve
customer service levels, implement overall cost controls, find new customers,
specialize to remain competitive, and identify new product and service
offerings. Key applications in this area include data warehousing, activity-
based costing, customer profitability analysis, and sales force automation. One
of the limiting factors in applying this technology is economy of scale. The
smaller distributors cannot afford to invest the capital or time needed to gain
the advantages business intelligence solutions can bring.
The third area where technology is having a significant impact is in supply
chain management. Many of the costs associated with wholesale distribution are
contained in the movement and warehousing of products. Applications associated
with logistics management, inventory management, warehouse management, and
vendor managed inventory enable distributors to streamline their inventory, cut
costs, and gain a competitive edge.
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.
The combined businesses of the Company represent distribution of over 1,200
products to over 1,000 customers in 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 from a wide variety of manufacturers.
Management of 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 800 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.
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D. Competition
The market for janitorial/sanitary supplies has only a few large, well
capitalized competitors. As stated
previously, no janitorial/sanitary supply industry player has more than 6%
market share. The larger suppliers in the
industry include:
Unisource Worldwide
W.W. Grainger
Corporate Express
ResourceNet International
Waxie Sanitary Supply
Unisource Worldwide is the largest player in the industry, with less than 6% of
the overall market. Unisource is followed by W.W. Grainger and other large
industrial distributors including Corporate Express, ResourceNet International,
and Waxie Sanitary Supply. Most of these corporations have multiple divisions,
of which, sanitary/janitorial supply is only a part. While the larger
distributors are the main competition, 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
independents more vulnerable. With only a few large competitors, over 90% of the
overall market, based on total sales, is divided among over 20,000 smaller
competitors.
The larger competitors have competitive advantages over the Company in the
economies 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 services such as superior,
personalized service. In formulating its competitive strategies, management has
come to the point of view that, while customers are looking for better pricing,
they are often more motivated in their purchase decisions by customer service
and value-added services. 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 $2-10 million dollar range. Management
believes that there are in excess of 10,000 potential acquisition target
companies in the industry. Management intends to acquire approximately 6 to 8
sanitary supply distributors with estimated gross revenues of $15,000,000 to
$25,000,000 and combined pre-tax profits of approximately $2,500,000. Management
attempts to screen acquisition targets so that their net pre-tax profits are at
least 10% of gross revenues. Management believes that this series of
acquisitions can be completed within the third quarter of 1999, though there can
be no assurance that this stage of the program will be completed on time or at
all, or that historical results of target Companies will be replicated under
Company ownership.
On June 1, 1999 the Company completed a private offering of $3,000,000 of
Units, each unit 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 are exercisable at any time from six months from their
date of issuance to four years from that issue date. Management intends to begin
to seek approximately $6,000,000 to $10,000,000 in additional equity financing
to finance acquisitions of approximately 8 to 10 additional companies with
approximately $30,000,000 in aggregate annual revenues. Based on preliminary
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discussions with investment banking sources, the Company believes it will
conduct an offering of Convertible Preferred Stock to raise this capital. Of
course, there can be no assurances that such additional capital will be
available on favorable terms or at all.
F. Corporate Structure, Strategic Planning and Integration of Acquisitions
The Company intends to maximize the revenue and profitability of its
acquired companies through the enhancement of core revenues, reductions in the
costs of goods, the emphasis of personalized customer service and the
implementation of industry technologies that allow centralized purchasing 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 and to enhance this image through the affiliation with Enviro-Clean, a
recognized national industry leader. Integration of operations and
implementation of a "best practices" program will be pursed in a manner that
attempts to retain a high percentage of existing accounts, does not burden local
operations with excessive overhead, thereby preserving current profitable
operations. The Company intends a strong focus on maintaining value-added levels
of customer service while attempting to realize the economies of scale larger
companies are able to enjoy. The Company will employ a strategy that maintains a
competitive edge in appearing as a big player, but maintaining the flexibility
and close customer contact/loyalty associated with a smaller distributor.
The Company then intends to utilize each of its acquired companies as a
regional distribution hub to which additional revenues can be added through
incremental acquisition of 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.
At such time as the Company's aggregate annual revenues are approximately
$25 to $35 million and regional hubs are in place, the Company intends to begin
the centralization of administrative services, such as legal, accounting,
systems integration and implementation, insurance purchasing and auto and truck
purchasing. The goal of this stage will be to maximize cost savings and profits.
During this phase, the Company will also begin to establish a national, private
label brand of products to be sold through the Company's distribution network.
This consolidation will help build economies of scale, enable the application of
professional management techniques, increase the Company's access to capital and
expand its geographic reach. At the same time, local management will typically
be retained to maintain relationships and customer intimacy.
In integrating these businesses, management intends to apply professional
management systems and information and communications systems to realize
economies of scale, lower costs through centralized purchasing, eliminate
duplicative expenditures and focus the Company's operations on maximizing
profits. Initially, the Company will seek to achieve higher profit margins
through the collective purchasing power acquired. Additionally, the small
operators tend to be lifestyle companies, where the application of cost controls
and professional management can achieve higher margin benefits as well.
As the Company grows, broader marketing capabilities can be achieved and
technology can be applied. One of the biggest benefits will be the ability to
apply technology that previously was unattainable to the small distributors due
to the investment required and the nature of the technology. Supply chain
management and business intelligence applications such as data warehousing,
product profitability, customer analysis, and sales force automation can achieve
significant cost savings, but do not cost-effectively scale to a smaller
enterprise. Furthermore, the combined resources will also enable the targeting
of a broader set of customers due to greater geographic reach and more extensive
product line. The ability to offer services will also be enhanced as the
resources needed to develop and maintain them can be shared, while the local
infrastructure needed to deliver them is still in place. Services to be offered
include education and training on product usage and selection, health and safety
issues, regulatory issues, same day delivery, and others.
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Subsequently, the Company will seek to realize further economies through
vertical integration by acquiring one or more manufacturers of
janitorial/sanitary supplies and/or master distributors of such products.
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 currently employs approximately twenty (20) 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. The costs to the Company of complying with environmental regulations are
not material.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company's only activities in the year ended December 31, 1998 consisted
of sales of its securities, the placing of deposits for the NISSCO and Kandel
acquisitions and related administrative expenses, including professional fees.
Liquidity and Capital Resources
The Company's cash and cash equivalents amounted to $109,200 at year end
December 31, 1998. At that date notes receivable totaled $21,320 and the Company
had advanced deposits of $800,000 for the NISSCO and Kandel acquisitions. The
Company's operations are currently cash flow positive. On June 1, 1998 the
Company completed a private offering of Units, pursuant to which the Company
realized $3,000,000 in gross proceeds.
The Company currently plans to expend approximately $2,800,000 of the
offering proceeds, in the cash component of acquisitions and related expenses of
acquisitions prior to August 31, 1999. The Company intends to seek additional
equity financing of $6,000,000 to $10,000,000 during 1999 to finance additional
acquisitions. Based on its preliminary discussions with investment banking
sources, the Company believes it will conduct an offering of Convertible
Preferred Stock to raise this capital. Of course, there can be no assurance that
such capital will be available on favorable terms or at all.
The Company expects its capital requirements to increase at least for
fiscal 1999 and 2000 as it continues its acquisition program and invests in
expanded administrative and sales and marketing infrastructure to support
increasing sales volumes. The Company's future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which the
Company is successful in implementing its acquisition program, the extent to
which the Company is able to use its Common Stock or other securities to effect
acquisitions and thereby preserve cash, the extent to which the Company is able
to bring about economies of scale in purchasing and distribution costs and
timing of expansion of sales, marketing and manufacturing activities, facilities
expansion and competition.
The Company believes that its available cash and any future cash raised
will be sufficient to satisfy its funding
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needs for at least the next six (6) months. Thereafter, the Company will be
required to sell additional equity or debt securities and obtain additional
credit facilities in order to finance the growth called for in the Company's
business plan. There can be no assurance that such financing will be available
on satisfactory terms, if at all.
Item 3. Description of Property.
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(a) The Company's executive offices are located at premises owned by NISSCO's
former shareholder at 14848 Old U.S. 41, # 13 Sunburst Center, Naples, FL 34110.
The Company also maintains offices at Kandel at 211 Park Avenue, Hicksville, NY
11801. At this time the Company does not pay rent at either location. NISSCO and
Kandel currently lease their properties from the former shareholders of the
respective companies, at rates the Company believes are at least as favorable as
market terms. Combined rent expense for NISSCO and Kandel is estimated at
$47,862 for the calendar year 1999.
(b) The Company does not invest in real estate, other than as incident to its
business.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
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(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 five percent (5%) of the Common Stock, par
value $.001 per share, the only class of voting securities of the Company
outstanding, as of the date hereof.
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<TABLE>
<CAPTION>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
- ---------------- -------------------- ----------
<S> <C> <C>
Richard Kandel
c/o Enviro-Clean of America, Inc. 3,275,000/1/ 63.1%
211 Park Avenue
Hicksville, NY
Thomas B. Haines
c/o Enviro-Clean of America, Inc. 1,000,000/(2)/ 20.2%
211 Park Avenue
Hicksville, NY
</TABLE>
(b) Security Ownership of Management
The number of shares of Common Stock of the Company owned by the directors
and executive officers of the
Company is as follows:
<TABLE>
<CAPTION>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
- ---------------- ----------------------------------- ----------
<S> <C> <C>
Richard Kandel 2,275,000 (Direct) 63.1%
1,000,000 (Pursuant to conversion
rights of Series A
Preferred Shares)
Thomas B. Haines/2/ 1,000,000/2/ 20.2%
Steven C. Etra 70,000 (Reserved for issuance 5.0%
pursuant to conversion
of Series E Shares)
25,000 (Reserved for issuance
pursuant to options
held by a company
controlled by Mr. Etra
125,000 (Reserved for issuance
pursuant to options
held by Mr. Etra)
Robert W. Moehler 25,000 (Reserved for issuance (less than 1%)
under options)
Randall K. Davis 100,000 (Direct) 2.4%
All officers and Directors as a Group 4,520,000
</TABLE>
_________________________________
/1/ Includes 2,275,000 shares owned directly and 1,000,000 shares issuable
pursuant to conversion rights of Series A Preferred Shares.
/2/ Includes 750,000 shares to be paid to Mr. Haines in connection with
the acquisition of NISSCO.
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Item 5. Directors, Executive Officers, Promoters and Control Persons.
------------------------------------------------------------
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>
Thomas B. Haines 53 Chairman and a Director
Richard Kandel 46 President and a Director
Randall K. Davis 36 Vice President-Operations
Steven C. Etra 49 Director
Robert W. Moehler 34 Director
</TABLE>
Thomas B. Haines, 53, is the Chairman of the Board and a Director of Enviro-
Clean of America, Inc. since January of 1999. He graduated in 1967 from Miami
University with a Bachelor of Science Degree. Mr. Haines served in the U. S.
Army as a Captain A.B.R. from 1967 to 1972. After his military service Mr.
Haines went to work in the family business until such time as Proctor & Gamble
recruited him. After his departure from P & G in the mid-1970's, he became the
national sales manager for American Home Foods. He later served as the national
accounts manager for Mobil Chemical. In 1982 Mr. Haines decided to return to his
home in Cincinnati, Ohio to start his first business, the ADPA Group - a
national marketing organization for paper distributors. In 1984 he expanded by
starting NISSCO Janitorial Group and further expanded in 1987 with the NISSCO
Restaurant Group. Mr. Haines purchased the Sunline organization in 1991 and
later merged it with the NISSCO Group to become NISSCO/Sunline, Inc. In January
of 1999, Mr. Haines sold NISSCO/Sunline to Enviro-Clean of America, Inc.
Richard Kandel, 46, is the President and a Director of Enviro-Clean of America,
Inc. since January of 1999. He graduated in 1974 from Michigan State University
with a Bachelor of Science Degree. From 1974 until September of 1998, Mr. Kandel
was the owner and President of Kandel & Son, Inc., a leading sanitary supply
distributor in the New York metropolitan region. In January of 1999, Mr. Kandel
sold Kandel & Son, Inc. to Enviro-Clean of America, Inc. 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 children each
year who are homeless and physically and emotionally challenged.
Randall K. Davis, 36, has served as Vice President, Director of Operations of
Enviro-Clean of America since March 1999. He graduated from The University of
Texas in Austin in 1985 with a Bachelor of Arts Degree with a minor in Finance.
Since 1985, Mr. Davis has worked for Davis Family Companies, where he currently
serves as President and Chief Executive Officer. The Davis Family Companies
consists of Davis manufacturers Company, Sanivac Inc. and Cleaning Ideas Inc.
whose headquarters are in San Antonio, Texas. Davis Manufacturing Company is one
of the largest manufacturers of commercial cleaning products in South Texas and
has been in operation since 1929. Sanivac Inc. is a sanitary supply distributor
serving customers throughout San Antonio & South Texas. Cleaning Ideas Inc. is
a chain of 12 retail stores focused on marketing cleaning products directly to
consumers and small businesses. Mr Davis is also the managing partner of Colnic
Investment Corporation 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 and a member of San
Antonio Manufacturers Association, Greater San Antonio Manufacturers
Association, Greater San Antonio Chamber of Commerce, National Association of
Manufacturers, and International Sanitary Supply Association.
Robert W. Moehler, 34, is Secretary, Treasurer and a Director of Enviro-Clean of
America, Inc. since December of 1997. Mr. Moehler has many years of experience
with start-up companies and industry consolidations. Mr. Moehler received an MBA
degree in Management in 1996 from Amber University in Dallas, Texas. He also
received a B.B.A. degree in Finance in 1992 and a B.S. degree in Business
Control Systems in 1987 from the University of North Texas in Denton, Texas.
From 1987-1989 Mr. Moehler served as a Staff Auditor for Western Union Telegraph
Company, Inc. From 1989-1992 he served in various capacities with The Thompson
Group, Inc. and Dedicated Care Holding, Inc., a group of companies located in
Dallas, Texas, that were involved in providing long-term health care services as
well as numerous other related services including therapy, lab and pharmacy.
During his employment with these companies, he served as senior accountant from
1989-1990, controller from 1990-1991 and Treasurer from 1991-1992. Since 1992,
Mr. Moehler has been self-employed providing business consulting services as
well as buying, selling and marketing sports memorabilia. Since November 1995,
Mr. Moehler has served as President of MFC Group, Inc., a Nevada based company
that provides business-consulting services and actively buys and sell sports
memorabilia and historical documents. From January 1996 to January 1997, Mr.
Moehler served as Secretary and Treasurer of The Strateia Group, Inc., a Dallas
based business-consulting firm and a founder of the Company. In addition, he
serves or has served as an officer and/or director of a number of private,
development-stage companies, some of which have sought or are seeking listing on
the NASD OTC Bulletin Board.
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<PAGE>
STEVEN C. ETRA, 49, has been the Sales Manager of Manufacturers Corrugated Box
Company since 1975, a company owned by Mr. Etra's family for more than seventy-
five years. Additionally, Mr. Etra has been a director of Elk Association
Funding Company since 1992. Elk (EKFG) is a publicly traded NASDAQ company with
an investment portfolio totaling $45 million. Since June 1996 Mr. Etra has also
been a director of Gemini Capital, an automobile finance company. Mr. Etra has
extensive experience raising capital for emerging growth companies.
Item 6. Executive Compensation.
----------------------
The Company has entered into an employment agreement with Mr. Kandel
and a consulting agreement with Mr. Haines, each for a term of three (3) years
including terms and conditions usual and customary for executives in the
Company's industry. The annual base compensation for each of Messrs. Haines and
Kandel is:
Thomas B. Haines $ 75,000
Richard Kandel $ 100,000
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.
The Company intends to compensate non-management Directors for their
attendance at meetings of the Board of Directors by issuing to them options
shares of the Company's Common Stock in lieu of cash, and to reimburse Directors
for any out-of-pocket expenses incident to their attendance at such meetings.
The number and exercise price of such options has not been determined at this
time.
Item 7. Certain Relationships and Related Transactions.
----------------------------------------------
The Company was founded in December 1997, by The Strateia Group, Inc.
("Strateia"). In consideration of their efforts in founding the Company and
developing its initial business plan, Strateia received 250,000 shares. Richard
Kandel received 2,300,000 shares for his efforts in developing the Company's
business plan and its initial list of acquisition targets. Of Mr. Kandel's
shares, 1,500,000 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 1,475,000 of these shares were returned to Richard
Kandel and 25,000 were transferred to Martin W. Enright, counsel to the Company.
In December 1998, Steven Etra, a Director of the Company invested
$175,000 in the Company in exchange for 70,000 shares of the Company's Series E
Convertible, Redeemable, Preferred Stock (the "Series E shares"). The Series E
Shares, which were created specifically for the purposes of Mr. Etra's
investment after negotiation with the Company, (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 Share so redeemed. This conversion price and redemption price are
subject to adjustment in the event of recapitalization, stock splits and other
enumerated extraordinary corporate events.
Richard Kandel, President of the Company, was formerly President and
the principal stockholder of Kandel and Son, Inc., a principal subsidiary of the
Company. Thomas Haines, Chairman of the Company, was formerly Chairman of NISSCO
and its NIPPCO division. The terms of the Kandel 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 Moehler (also currently a
Director) and Mary Magourik.
The Company signed preliminary agreements to acquire all the issued
and outstanding capital stock of Kandel in September of 1998 and of NISSCO in
October of 1998. Additional negotiations were finalized in January of 1999.
Richard Kandel, as sole shareholder of Kandel, has received (i) $810,000 in
cash, (ii) a promissory note in the principal
11
<PAGE>
amount of $540,000 due January 15, 2001 and bearing interest at a rate of 4% per
annum (of which $350,000 has been paid) and (iii) 500,000 shares of Series A
Preferred Stock, a class of securities created specifically for the Kandel
transaction (the "Series A Shares"). The Series A Shares (i) bear an annual
dividend of 4%, (ii) are convertible into shares of Common Stock of the Company
at a conversion price of $2.50 per share and are redeemable by the Company at
Mr. Kandel's option at a redemption price of $5 per share at any time after
January 15, 2001.
Thomas Haines, as sole shareholder of NISSCO, has received (i)
$500,000 in cash and (ii) 250,000 shares of Common Stock. In addition, Mr.
Haines is to receive an aggregate of an additional 750,000 shares of Common
Stock in equal annual installments of 250,000 on January 15 of 2000, 2001 and
2002. If on January 15, 2002 the average closing bid price of the Company's
Common Stock for the ten (10) 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 and January 15,
2002, calculated based on the Average Bid Price Per Share, shall be $2,500,000.
Strateia is a business development 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 Etra, a Director of the Company, has entered into a consulting
agreement with the Company for a period of two (2) years pursuant to which Mr.
Etra receives a monthly fee of $2,000 for financial public relations services
including assisting the Company in communicating with investment bankers,
financial analysts and potential investors.
Item 8. 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 9. 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 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
1999
January 1 - March 1 5.625 3.50
</TABLE>
The closing bid price on May 13, 1999 was $4.25.
12
<PAGE>
(b) Holders
There were approximately 63 beneficial owners of the Company's Common
Stock as of April 30, 1999, after broker inquiry.
(c) Dividends
The Company has paid no dividends on its Common Stock to date, nor
does it anticipate doing so in the foreseeable future. Any future determination
to pay dividends will be at the discretion of the Board of Directors and will be
dependent upon there being sufficient capital and surplus as required by the
Nevada Statutes, the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant. There can be no assurance that the Company will ever choose to declare
such a dividend or that if it did that such funds would be legally available for
payment of such dividends.
Item 10. Recent Sales of Unregistered Securities.
---------------------------------------
The Company was incorporated in December of 1997. At that time, an
aggregate of 3,000,000 shares of restricted Common Stock were issued to four
founding shareholders, including Richard Kandel (2,300,000) and Strateia
(250,000), at a price of One Cent ($.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.
In December of 1997 and January of 1998, the Company offered and sold
an aggregate of 390,000 shares of Common Stock to approximately 44 investors at
an offering price of Fifty Cents ($.50) per share, for aggregate offering
proceeds of $195,000 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
Preferred Stock to Steven 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 exemptions from registration contained
in Sections 4(2) and 4(6) of the Securities Act.
In January of 1999, the Company sold 70,000 shares of restricted
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 exemptions from registration contained in Sections 4(2) and
4(6) of the Securities Act.
In March of 1999, the Company sold an aggregate of 100,000 shares of
restricted Common Stock to one private investor at a price of $2.50 per share
for aggregate proceeds of $250,000 in a transaction in reliance upon the
exemptions from registration contained in Section 4(2) and 4(6) of the
Securities Act.
In April of 1999, the Company sold an aggregate of 50,000 shares of
restricted Common Stock to Randall Davis, Vice 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 exemptions from registration contained in Section 4(2) and
4(6) of the Securities Act.
In May of 1999, the Company sold an additional 100,000 shares of
restricted Common Stock to the private investor who purchased shares in March of
1999. The May sale was also effected at a price of $2.50 per share for aggregate
proceeds of $250,000 in a transaction in reliance upon the exemptions from
registration contained in Section 4(2) and 4(6) of the Securities Act.
In June of 1999, the Company sold an additional 50,000 shares to Mr.
Davis at a price of $2.50 per share for aggregate proceeds of $125,000 in a
transaction in reliance upon the exemptions from registration contained in
Section 4(2) and 4(6) of the Securities Act.
13
<PAGE>
Item 11. 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 4,060,000 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 Preferred
Shares issued to Richard Kandel in conjunction with the acquisition of Kandel
and its Series E Preferred Shares issued to Steven Etra in consideration of his
investment of $175,000 in the Company.
The Series A Shares (i) pay an annual dividend of 4%, (ii) are convertible
into Common Stock at a conversion price of $2.50 per share of Common Stock and
(iii) are redeemable by the Company at the option of Mr. Kandel at a redemption
price of $5.00 per share, at any time following January 15, 2001.
The Series E Shares (i) pay an annual dividend of 3%, (ii) are convertible
into Common Stock at a conversion price of $2.50 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 Board could, in the future, authorize and cause the Company to issue up
to an additional 4,430,000 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.
Item 12. 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
14
<PAGE>
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.
Item 13. 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-1 to F-9
of this Form 10-SB. The Company's Consolidated Financial Statements as of and
for the three months ended March 31, 1999, and accompanying notes which are an
integral part thereof, appear on pages F-10 to F-14 of this Form 10-SB. These
financial statements are incorporated by reference herein by reference thereto.
Item 14. Changes In and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
None.
Item 15. Financial Statements and Exhibits.
---------------------------------
(a) 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 & Co. LLP, independent
certified public accountants, with respect thereto, appear on pages F-1 to F-9
of this Form 10-SB. These financial statements are incorporated by reference
herein by reference thereto.
(b) The Company's Consolidated Financial Statements as of and for three months
ended March 31, 1999, and accompanying notes which are an integral part thereof,
appear on pages F-10 to F-14 of this Form 10-SB. These financial statements are
incorporated by reference herein by reference thereto.
15
<PAGE>
(b) Exhibits
Page Exhibit Description
Number Number
2(i) Stock Purchase Agreement among Enviro-Clean of
America, Inc., Enviroacq. I Co. and Kandel & Son,
Inc. 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
3(i) Articles of Incorporation of the Company
3(ii) By-laws of the Company
4(i) Certificate of Designation for the Company's Series A
Preferred Shares
4(ii) Certificate of Designation for the Company's Series E
Preferred Shares
13 The Company's financial statements as of December 31,
1998 and for the period from December 9, 1997 (date
of inception) to December 31, 1998 and the Company's
financial statements as of and for the three months
ended March 31, 1999 are included at pages F-1 to F-9
and F-10 to F-14, respectively.
21 List of Subsidiaries of the Company
16
<PAGE>
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.
/s/ Richard Kandel
By:______________________________
Richard Kandel
President
Date: June 17, 1999
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC.
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONTENTS
December 31, 1998
- --------------------------------------------------------------------------------
Independent Auditor's Report 1
Consolidated Financial Statements:
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4
Statement of Stockholders' Equity 5
Notes to Consolidated Financial Statements 6 - 9
<PAGE>
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 and accumulated
deficit, 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
April 9, 1999, except for the last paragraph of
Note 7, as to which the date is May 12, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEET
======================================================================================
December 31, 1998
- --------------------------------------------------------------------------------------
<S> <C>
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>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT
======================================================================================
Period From December 9, 1997 (Date of Inception) to December 31, 1998
- --------------------------------------------------------------------------------------
<S> <C>
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>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
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
================================================================================
See Notes to Consolidated Financial Statements
F-5
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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 since the effect would be
antidilutive.
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 DEPOSITS: Acquisition deposits consist of deposits paid for
companies acquired in January 1999 as follows:
Kandel and Sons, Inc. $300,000
NISSCO/Sunline, Inc. 500,000
--------------------------------------------------
$800,000
==================================================
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of:
Depreciation
December 31, 1998 Period
--------------------------------------------------
Furniture and fixtures $2,158 5 years
Computer hardware 3,488 3 years
--------------------------------------------------
5,646
Less accumulated depreciation 797
--------------------------------------------------
$4,849
==================================================
F-6
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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:
Taxes (benefit) computed at the federal $(51,000)
statutory rate Taxes computed at a rate 30,000
below the federal statutory rate Valuation 21,000
allowance
-----------------------------------------------------
$ - 0 -
=====================================================
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:
Net operating losses $ 21,000
Less valuation allowance (21,000)
-----------------------------------------------------
Deferred income tax asset $ - 0 -
=====================================================
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' EQUITY: In December 1997, the Company received net 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 December
TRANSACTIONS: 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-7
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. SUBSEQUENT EVENTS: In 1999, the Company authorized up to 500,000
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. The aggregate
purchase price for this acquisition is $3,850,000,
consisting of $810,000 in cash, a promissory note
in the amount of $540,000 due January 15, 2001
bearing interest at the rate of 4% per year, and
500,000 shares of Series A Preferred Stock.
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 $4,375,000,
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.
Both of these acquisitions will be accounted for
as purchases.
In January 1999, the Company issued 70,000 shares
of common stock for an aggregate price of
$175,000.
F-8
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 500,000 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.
F-9
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
Currrents assets
Cash & cash equivalents $ 501,902
Accounts receivable 482,415
Merchandise Inventory 140,200
Prepaid expenses & other 52,021
----------
Total current assets $1,176,538
Property, Plant & Equipment-At cost 484,571
Less: Accumulated Depreciation (285,863) 198,708
---------
Other Assets
Excess of Cost Over Book Value of
Subsidiaries 5,625,439
Other 5,775 5,631,214
---------- ----------
TOTAL ASSETS $7,006,460
==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 503,926
Loans payable 111,744
Current maturities of long-term debt 667,998
-----------
Total Current Liabilities $1,283,668
Long Term Liabilities
Long term debt, less current maturities 327,684
Stockholder's equity
Common stock issued 3,860
Preferred stock 2,675,000
Retained earnings(deficit) (197,907)
Additional paid-in capital 414,155
Common stock to be issued 2,500,000
-----------
Total stockholders' equity 5,395,108
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,006,460
==========
F-10
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net Sales $ 784,140
Costs of sales 329,721
--------
Gross profit 454,419
Operating expenses 498,445
--------
(Loss) before income taxes (44,026)
Other income 671
Income taxes 2,850
---------
NET (LOSS) $ (46,205)
---------
---------
F-11
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Cash flows from operating activities:
Net income (Loss) $ (46,205)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization $ 155,881
(Increase) decrease in accounts receivable (261,037)
(Increase) decrease in prepaid expenses 28,938
(Increase) decrease in inventories 9,913
Increase (decrease) in accounts payable 373,831
Increase (decrease) in income taxes payable 20,500
----------
Total adjustments 328,026
---------
Net cash provided by operating activities 281,821
Cash flows from investing activities:
Excess of cost over book value of subs (4,884,954)
Net cash used by investing activities (4,884,954)
Cash flows from financing activities:
Loans receivable 21,320)
Increase in notes payable 416,831
Preferred stock issued 2,675,000
Common stock to be issued 2,500,000
Common stock issued 160
Additional paid-in capital received (625,624)
----------
Net cash provided by financing activities 4,945,047
-----------
Net increase in cash and equivalents 341,914
Cash and cash equivalents, beginning 159,988
-----------
Cash and cash equivalents, Ending $ 501,902
-----------
-----------
Supplemental information:
Cash paid during the period for:
Interest $ 12,418
-----------
-----------
Taxes $ 1,149
-----------
-----------
F-12
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
Number of Number of Paid-in Developmental Common Stock Stockholders'
Shares Amount Shares Amount Capital Stage To Be Issued Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999: 3,690,000 $ 3,690 $ 879,325 $ (151,702) $ -- $ 731,313
Issuance of common stock for cash
at $2.50 per share 170,000 170 424,830 -- 425,000
Issuance of preferred stock for
cash at $2.50 per share -- 70,000 175,000 175,000
Issuance of preferred stock in
connection with acquisition 500,000 2,500,000 (890,000) 1,610,000
Common stock to be issued at
$2.50 1,000,000 2,500,000 2,500,000
Net Loss (46,205) (46,205)
------------------------------------------------------------------------------------------------
Balance at March 31, 1999 4,860,000 $ 3,860 570,000 $ 2,675,000 $ 414,155 $ (197,907) $ 2,500,000 $ 5,395,108
================================================================================================
</TABLE>
F-13
<PAGE>
Enviro-Clean of America, Inc. & Subsidiaries
Notes to Financial Statements
March 31, 1999
NOTE A
Enviro-Clean of America, Inc. & Subsidiaries is a public company primarily
engaged in owning companies in the fields of wholesale and distribution of
sanitary maintenance supplies, paper goods and related products. The Company's
sales and services are provided to various entities located throughout the
United States.
NOTE B
The numbers in these financial statements are interim numbers. Management
deems them not necessarily indicative of the full year.
F-14
<PAGE>
EXHIBIT 2(i)
Stock Purchase Agreement
among
ENVIRO-CLEAN OF AMERICA, INC.,
ENVIROACQI CO.
and
KANDEL & SON, INC.
dated
January 1, 1999
<PAGE>
Index to Agreement
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I Purchase and Sale of Stock.......................................... 1
Article II Related Matters..................................................... 3
Article III Representations and Warranties of Kandel and the Company ........... 5
Article IV Representations and Warranties of Acquiror and Acquiror's Subsidiary 22
Article V Covenants of Kandel and the Company................................. 23
Article VI Covenants of the Acquiror........................................... 25
Article VII Conditions to the Obligations of Kandel and the Company............. 25
Article VIII Conditions to Obligations of Acquiror and Acquiror's Subsidiary..... 27
Article IX Conduct of the Company's Business Pending the Closing............... 31
Article X Survival of Representations and Warranties.......................... 35
Article XI Termination and Abandonment......................................... 36
Article XII Miscellaneous Provisions............................................ 37
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of January 1, 1999 among ENVIRO-CLEAN OF
AMERICA, INC., a Nevada corporation (Acquiror), ENVIROACQI CO., a Nevada
corporation which is a wholly-owned subsidiary of Acquiror (Acquiror's
Subsidiary), KANDEL & SON, INC., a New York corporation (the Company), and
Richard Kandel, as sole shareholder of the Company ("Kandel").
This Agreement sets forth the terms and conditions upon which Kandel will
sell to Acquiror and convey to Acquiror's Subsidiary or other entities
designated by Acquiror, and Acquiror will purchase from Kandel shares of common
stock, $___ par value per share, of the Company, representing all of the issued
and outstanding capital stock of the Company (the "Company Stock"). As used in
this Agreement, capitalized terms have the meanings ascribed to them in Article
II.
In consideration of the mutual agreements contained herein, intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.01. Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, at the Closing, Kandel shall sell, transfer, convey, assign
and deliver to Acquiror and Acquiror shall purchase, acquire and accept from
Kandel, the Company Stock free and clear of all liens, charges or encumbrances
of whatsoever nature.
1.02. Consideration. Subject to the terms and conditions
-------------
of this Agreement, in reliance on the representations, warranties and agreements
of Kandel and the Company contained
<PAGE>
herein, and in consideration of the sale, assignment, transfer and delivery of
the Company Stock, Acquiror or Acquiror's Subsidiary will deliver, at the
Closing:
(a) the sum of Eight Hundred and Ten Thousand Dollars ($810,000) in
cash, certified check or verified wire transfer;
(b) a promissory note in the principal amount of Five Hundred and
Forty Thousand Dollars ($540,000) due January 15, 2001 and bearing interest at a
rate of four percent (4%) per annum, with the terms and conditions set forth in
Exhibit A hereto (the "Note"); and
(c) Five Hundred Thousand (500,000) shares of Acquiror's Series A
Preferred Stock, par value $.001 per share, with terms and conditions set forth
in the Certificate of Designation of Series A Preferred Stock, the form of which
is attached as Exhibit B hereto (the Series A Shares).
1.03. Closing. The Closing of the transactions contemplated by this
-------
Agreement will take place at the offices of Acquiror in Dallas, Texas on January
15, 1999 at 10:00 a.m., except that any party hereto may, by giving two days'
written notice to all other parties hereto, defer the Closing to a date not
later than April 30, 1999 in order that such party may satisfy any of the
conditions required to be satisfied at or prior to the Closing.
(a) At the Closing, Kandel will deliver to Acquiror or Acquiror's
Subsidiary the Company Stock, together with a stock power duly endorsed for
transfer, and Kandel and the Company will deliver to Acquiror or Acquiror's
Subsidiary all other previously undelivered documents required to be delivered
by Kandel or the Company to Acquiror or Acquiror's Subsidiary at or prior to the
Closing in connection with the transactions contemplated by this Agreement.
3
<PAGE>
(b) At the Closing, there will be delivered (i) to Kandel by Acquiror
or Acquiror's Subsidiary, the consideration referred to in Section 1.02 hereof
to be delivered at the Closing, and (ii) to Kandel or the Company by Acquiror or
Acquiror's Subsidiary, all previously undelivered documents required to be
delivered by Acquiror or Acquiror's Subsidiary to Kandel or the Company at or
prior to the Closing.
1.04. Further Assurances. After the Closing, Kandel and the Company
------------------
shall from time to time, at the request of Acquiror or Acquiror's Subsidiary and
without further cost or expense to Acquiror or Acquiror's Subsidiary, execute
and deliver such other instruments of conveyance and transfer and take such
other actions as Acquiror or Acquiror's Subsidiary may reasonably request, in
order to more effectively consummate the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
2.01. Confidentiality. Each party hereto will hold and will cause its
---------------
employees, consultants and advisors to hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion
of its counsel, by other requirements of law, all documents and information
concerning the other party furnished it by such other party or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) previously known by the party to which it was furnished, (ii) in the public
domain through no fault of such party, or (iii) later lawfully acquired from
other sources by the party
4
<PAGE>
to which it was furnished), and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such information shall not be used to the
detriment of, or in relation to any investment in, the other party and all such
documents (including copies thereof) shall be returned to the other party
immediately upon the written request of such other party. Each party shall be
deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
2.02. Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
"Acquiror" means Enviro-Clean of America, Inc., a corporation formed under
the laws of the State of Nevada.
"Acquiror's Subsidiary" means ENVIROACQI CO., a corporation formed under
the laws of State of Nevada.
The terms "Affiliate" and "Associate" have the meanings prescribed by Rule
12b-2 of the regulations promulgated pursuant to the Securities Exchange Act.
"Balance Sheet" means the unaudited balance sheet of the Company referred
to in Section 3.06(ii) of this Agreement.
"Closing" means the closing referred to in Section 1.03 of this Agreement.
5
<PAGE>
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Kandel & Son, Inc., a corporation formed under the laws of
the State of New York.
"Company Affiliate" means each Affiliate of the Company.
"Company Subsidiary" means any corporation of which the Company (a)
directly or indirectly owns or controls at the time outstanding shares of stock
which have in ordinary circumstances (not dependent upon the happening of a
contingency) voting power to elect a majority of the board of directors of said
corporation, or (b) of which shares of stock of the character described in the
foregoing clause (a) shall at the time be owned or controlled directly or
indirectly by the Company and one or more Company Subsidiaries as defined in the
foregoing clause (a) or by one or more such Company Subsidiaries.
"Disclosure Schedule" means the document delivered by the Company to the
Acquiror simultaneously with the execution hereof containing the information
required to be included therein pursuant to this Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
The plural of any defined term shall have a meaning correlative to such
defined term.
ARTICLE III
6
<PAGE>
REPRESENTATIONS AND WARRANTIES OF KANDEL AND THE COMPANY
Kandel and the Company hereby jointly and severally represent, covenant and
warrant to Acquiror and Acquiror's Subsidiary as follows:
3.01. Corporate Organization; Etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
New York and has full corporate power and authority to carry on its business as
it is now being conducted and to own the properties and assets it now owns; is
duly qualified or licensed to do business as a foreign corporation in good
standing in the jurisdictions listed in Section 3.01 of the Disclosure Schedule,
which are all the jurisdictions in which such qualification is required. The
copies of the Certificate of Incorporation and By-Laws of the Company heretofore
delivered to Acquiror or Acquiror's Subsidiary are complete and correct copies
of such instruments as presently in effect and no vote or comparable action by
the directors or shareholders of the Company has been taken to amend them.
3.02. Capitalization of the Company. As of the date of this Agreement,
-----------------------------
the authorized capital stock of the Company consists of ________ shares of
Common Stock, $_________ par value per share, of which __________________ shares
are issued and outstanding and no shares are held in the treasury of the
Company. All issued and outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. Kandel is the record and
beneficial owner of the Company Stock, free and clear of any lien, charge,
encumbrance or interest of any kind whatsoever. Kandel has good and marketable
title to the Company Stock. Upon delivery to Acquiror's Subsidiary in accordance
with the terms hereof, Acquiror's Subsidiary will obtain good and marketable
title to the Company Stock, free and clear of any lien, charge, encumbrance or
interest whatsoever.
7
<PAGE>
3.03. Subsidiaries and Affiliates. The Company does not own, directly
---------------------------
or indirectly, any capital stock or other equity securities of any corporation
or have any direct or indirect equity or ownership interest in any business.
3.04. Authorization, Etc. Kandel has full competence and authority,
------------------
and the Company has full corporate power and authority, to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors and stockholders of the Company have taken all action required by law,
the Company's Certificate of Incorporation, its By-Laws or otherwise to be taken
by them to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and this Agreement is a
valid and binding agreement of Kandel and the Company enforceable in accordance
with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditor=s rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
3.05 No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated hereby will violate any
provision of the Certificate of Incorporation or By-Laws of the Company, or,
except as specified in Section 3.05 of the Disclosure Schedule, violate, or be
in conflict with, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of the Company under, any agreement or commitment to
which the Company is a party or by which the Company is bound, or to which the
property of the
8
<PAGE>
Company is subject, or violate any statute or law or any judgment, decree,
order, regulation or rule of any court or governmental authority.
3.06. Financial Statements. The Company has heretofore delivered to
--------------------
Acquiror: (i) a balance sheet of the Company as at August 31 in each of the
years 1996 through 1998; and consolidated statements of income, changes in
stockholders' equity and changes in financial position for each of the years
then ended, all certified by Kirschner & Pasternack LLP, independent certified
public accountants, whose reports thereon are included therein; and (ii) an
unaudited balance sheet of the Company as at December 31, 1998, and unaudited
statements of income, changes in stockholders' equity and changes in financial
position for the four month period then ended. Such consolidated balance sheets
and the notes thereto are true, complete and accurate and fairly present the
assets, liabilities and financial condition of the Company as at the respective
dates thereof, and such statements of income, changes in stockholders' equity
and changes in financial position and the notes thereto are true, complete and
accurate and fairly present the results of operations for the periods therein
referred to; all in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except, in the case of
unaudited statements, for normally recurring year-end adjustments, which
adjustments will not be material either individually or in the aggregate.
3.07. No Undisclosed Liabilities; Etc. The Company has no liabilities
-------------------------------
or obligations of any nature (absolute, accrued, contingent or otherwise) which
were not fully reflected or reserved against in the Balance Sheet, except for
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since the date thereof; and the reserves reflected
in the Balance
9
<PAGE>
Sheet for such liabilities or obligations are adequate, appropriate and
reasonable.
3.08. Accounts Receivable. All accounts receivable of the Company,
-------------------
whether reflected in the Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Balance Sheet (which reserves are adequate and were
calculated consistent with past practice). Subject to such reserve, each of the
accounts receivable either has been collected in full or will be collected in
full, without any set-off, within 120 days after the day on which it became due
and payable.
3.09. Inventory. All inventory of the Company, whether reflected in
---------
the Balance Sheet or otherwise, consists of a quality and quantity usable and
salable in the ordinary course of business, except for items of obsolete
materials and materials of below-standard quality, all of which have been
written down in the Balance Sheet to realizable market value or for which
adequate reserves have been provided therein. The quantities of all inventory of
the Company are reasonable and warranted in the present circumstances of their
respective businesses.
3.10. Interim Operations. Since the date of the Balance Sheet, the
------------------
business of the Company has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Balance Sheet, there have
not been any material adverse changes in the financial condition, assets or
results of operations of the Company. Since such date such assets have not been
affected in any way as a result of flood, fire, explosion or other casualty
(whether or not covered by insurance). Neither Kandel nor the Company is aware
of any circumstances which may cause it to suffer any material adverse change in
its business, operations or prospects.
10
<PAGE>
Since the Balance Sheet Date, the Company has not incurred any liabilities
or obligations, or paid (absolute, accrued, contingent or otherwise) except non-
material items incurred in the ordinary course of business and consistent with
past practice, which in the aggregate do not exceed $25,000.
The Company has not, since the Balance Sheet Date:
(i) permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except for
liens for current taxes not yet due;
(ii) canceled any debts or waived any claims or rights of substantial
value;
(iii) sold, transferred, or otherwise disposed of any of its properties or
assets, including rights to the use of any patent, trademark, trade name or
copyright, or disposed of or disclosed (except as necessary in the conduct of
its business) to any person other than representatives of Acquiror or Acquiror's
Subsidiary any trade secret, formula, process or know-how not theretofore a
matter of public knowledge;
(iv) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee, and no such increase is
customary on a periodic basis or required by agreement or understanding; or
(v) agreed, whether in writing or otherwise, to take any action described
in this Section.
3.11. Title to Properties; Encumbrances. The Company has good, valid
---------------------------------
and marketable
11
<PAGE>
title to all the properties and assets which it purports to own (real, personal
and mixed, tangible and intangible), including, without limitation, all the
properties and assets reflected in the Balance Sheet and all the properties and
assets purchased by the Company since the date of the Balance Sheet, which
subsequently acquired properties and assets (other than inventory and short term
investments) are listed in Section 3.11 of the Disclosure Schedule. All
properties and assets reflected in the Balance Sheet have a fair market or
realizable value at least equal to the value thereof as reflected therein, and
all such properties and assets are free and clear of all title defects or
objections, liens, claims, charges, security interests or other encumbrances of
any nature whatsoever and are not, in the case of real property, subject to any
rights of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever except, with respect to all such properties
and assets, (a) liens shown on the Balance Sheet as securing specified
liabilities or obligations with respect to which no default exists; and (b)
liens for current taxes not yet due. The rights, properties and other assets
presently owned, leased or licensed by the Company and described elsewhere in
this Agreement include all rights, properties and other assets necessary to
permit the Company to conduct their businesses in all material respects in the
same manner as their businesses have been conducted prior to the date hereof.
3.12. Plant and Equipment. The plants, structures and equipment of the
-------------------
Company are structurally sound with no defects and are in good operating
condition and repair and are adequate for the uses to which they are being put;
and none of such plants, structures or equipment are in need of maintenance or
repairs except for ordinary, routine maintenance and repairs which are not
material
12
<PAGE>
in nature or cost. Except as set forth in Section 3.12 of the Disclosure
Schedule, neither Kandel nor the Company has received notification that the
Company is in violation of any applicable building, zoning, anti-pollution,
health or other law, ordinance or regulation in respect of its plants or
structures or their operations and no such violation exists.
3.13. Patents, Trademarks, Trade Names, Etc. The Company owns, or is
-------------------------------------
licensed or otherwise has the full and exclusive right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of the business as heretofore conducted. Section
3.13 of the Disclosure Schedule contains an accurate and complete description of
(a) all patents, trademarks, trade names and copyrights used or proposed to be
used by the Company, all applications therefor, and a summary of the terms of
all licenses and other agreements relating thereto and (b) a summary of the
terms of all agreements relating to technology, know-how or processes which the
Company is licensed or authorized to use by others. Except as set forth in
Section 3.13 of the Disclosure Schedule, the Company has the sole and exclusive
right to use the patents, trademarks, trade names, copyrights, technology, know-
how and processes referred to in the Disclosure Schedule, and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights; no claims have been asserted by any person to the use of any such
patents, trademarks, trade names, copyrights, technology, know-how or processes
or challenging or questioning the validity or effectiveness of any such license
or agreement, and the Company does not know of any valid basis for any such
claim; and the use of such patents, trademarks, trade names, copyrights,
technology, know-how or processes by the Company does not infringe on the rights
of
13
<PAGE>
any person.
3.14. Leases. Section 3.14 of the Disclosure Schedule contains an accurate
------
and complete description of the terms of all leases pursuant to which the
Company leases real or personal property. Except as set forth in Section 3.14 of
the Disclosure Schedule, all such leases are valid, binding and enforceable in
accordance with their terms, and are in full force and effect; there are no
existing defaults by the Company thereunder; no event of default has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default thereunder; and all
lessors under such leases have consented (where such consent is necessary) to
the consummation of the transactions contemplated by this Agreement without
requiring modification in the rights or obligations of the lessee under such
leases. Executed counterpart copies of all consents referred to in the preceding
sentence will be delivered to Acquiror or Acquiror's Subsidiary at the Closing.
3.15. Bank Accounts. Section 3.15 of the Disclosure Schedule sets forth the
-------------
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company maintains safe deposit
boxes or accounts of any nature and the names of all persons authorized to draw
thereon, make withdrawals therefrom or have access thereto. At the Closing,
Kandel and the Company will deliver to Acquiror or Acquiror's Subsidiary copies
of all records, including all signature or authorization cards, pertaining to
such bank accounts.
3.16. Taxes. The Company has duly filed all tax reports and returns
-----
required to be filed by it and have duly paid all taxes and other charges due or
claimed to be due from it by federal, state,
14
<PAGE>
local or foreign taxing authorities (including, without limitation, those due in
respect of the properties, income, franchises, licenses, sales or payrolls of
any of them); the reserves for taxes reflected in the Balance Sheet are
adequate; and there are no tax liens upon any property or assets of the Company
except liens for current taxes not yet due. The federal income tax returns of
the Company have been examined by the Internal Revenue Service for all periods
to and including August 31, 1998; and, except to the extent shown therein, all
deficiencies asserted as a result of such examinations have been paid or finally
settled and no issue has been raised by the Internal Revenue Service in any such
examination which, by application of the same or similar principles, reasonably
could be expected to result in a proposed deficiency for any other period not so
examined. Further, no state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability with respect to the
periods which have not been audited by the Internal Revenue Service. Copies of
all income tax returns for the Company in respect of all years not barred by the
statute of limitations have heretofore been delivered by the Company to Acquiror
or Acquiror's Subsidiary and all such returns are listed in Section 3.16 of the
Disclosure Schedule. The Company has not, with regard to any assets or property
held, acquired or to be acquired by the Company, filed a consent to the
application of Section 341(f)(2) of the Code.
3.17. Contracts and Commitments. Except as set forth in Section 3.17 of the
-------------------------
Disclosure Schedule:
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any
15
<PAGE>
charitable contribution;
(b) No purchase contracts or commitments of the Company continue for a
period of more than 12 months or are in excess of the normal, ordinary and usual
requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or proposals
of the Company which continue for a period of more than 12 months or will result
in any loss to the Company upon completion or performance thereof, after
allowance for direct distribution expenses nor are there any outstanding
contracts, bids or sales or service proposals quoting prices which will not
result in a normal profit;
(d) The Company has no outstanding contracts with officers, employees,
agents, consultants, advisors, salesmen, sales representatives, distributors or
dealers that are not cancelable by it on notice of not longer than 30 days and
without liability, penalty or premium or any agreement or arrangement providing
for the payment of any bonus or commission based on sales or earnings;
(e) The Company has no employment agreement, or any other agreement
that contains any severance or any severance or termination pay liabilities or
obligations;
(f) Except as set forth in Section 3.17(f) of the Disclosure Schedule,
the Company has no collective bargaining or union contracts or agreements;
(g) The Company is not in default, nor is there any basis for any
valid claim of default, under any contract made or obligation owed by it;
(h) The Company has no employee (other than Richard Kandel) to whom it
is
16
<PAGE>
paying compensation at the annual rate of more than $100,000 for services
rendered;
(i) The Company is not restricted by agreement from carrying on its
business anywhere in the world;
(k) Except as set forth in the Balance Sheet or Section 3.17(k) of the
Disclosure Schedule, the Company has no debt obligation for borrowed money,
including guarantees of or agreements to acquire any such debt obligation of
others;
(1) Except as set forth in Section 3.17(l) of the Disclosure Schedule,
the Company has no outstanding loan to any person; and
(m) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
3.18. Customers and Suppliers. Sections 3.18(a) and (b), respectively, of
-----------------------
the Disclosure Schedule sets forth: (a) a list of (i) the ten largest customers
of the Company in terms of sales during the fiscal year ended August 31, 1998
and (ii) the ten largest customers of the Company (on a consolidated basis) in
terms of sales during the four (4) months ended December 31, 1998, showing the
approximate total sales by the Company to each such customer during the fiscal
year ended
17
<PAGE>
August 31, 1998 and the four (4) months ended December 31, 1998, respectively;
(b) a list of (i) the ten largest suppliers of the Company in terms of purchases
during the fiscal year ended August 31, 1998, and (ii) the ten largest suppliers
of the Company in terms of purchases during the four (4) months ended December
31, 1998, showing the approximate total purchases by the Company from each such
supplier during the fiscal year ended August 31, 1998 and the four (4) months
ended December 31, 1998, respectively. Except to the extent set forth in Section
3.18(c) of the Disclosure Schedule, there has not been any material adverse
change in the business relationship of the Company with any customer or supplier
named in Sections 3.18(a) and 3.18(b) of the Disclosure Schedule. Except for the
customers and suppliers named in Sections 3.18(a) and 3.18(b) of the Disclosure
Schedule, the Company had no customer who accounted for more than 5% of
Company's sales during the fiscal year ended August 31, 1998, or any supplier
from whom it purchased more than 5% of the goods or services which it purchased
during the fiscal year ended August 31, 1998.
3.19. Orders, Commitments and Returns. Section 3.19(a) of the Disclosure
-------------------------------
Schedule sets forth the aggregate amounts of all accepted and unfulfilled orders
for the sale of merchandise entered into by the Company which provide for sales
of more than $25,000 in the aggregate to any one customer as of December 31,
1998, and the aggregate amount to be paid by the Company pursuant to all
contracts or commitments for the purchase of supplies by them as of December 31,
1998 all of which orders, contracts and commitments will have been made in the
ordinary course of business. Section 3.19(b) of the Disclosure Schedule sets
forth as of December 31, 1998 each claim against the Company or any Company
Subsidiary to return in excess of an aggregate of $25,000 of
18
<PAGE>
merchandise by reason of alleged overshipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an understanding
that such merchandise would be returnable.
3.20. Agreements in Full Force and Effect. All contracts, agreements,
-----------------------------------
plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof have been heretofore
made available to Acquiror or Acquiror's Subsidiary.
3.21. Insurance. Section 3.21(a) of the Disclosure Schedule contains an
---------
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the
Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to which the Company is a
party; are valid, outstanding and enforceable policies; provide adequate
insurance coverage for the assets and operations of the Company; will remain in
full force and effect through the respective dates set forth in Section 3.21(a)
of the Disclosure Schedule without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Section 3.21(b) of the Disclosure
Schedule identifies all risks which the Company, its Board of Directors or
officers have designated as being self insured. The Company has not been refused
any insurance with respect to its assets or operations, nor has its coverage
been limited, by any insurance carrier to which it has applied for any
19
<PAGE>
such insurance or with which it has carried insurance during the last three
years.
3.22. Labor Difficulties. Except to the extent set forth in Section 3.22 of
------------------
the Disclosure Schedule, (a) the Company is in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair labor
practice; (b) there is no unfair labor practice complaint against the Company
pending before the National Labor Relations Board; (c) there is no labor strike,
dispute, slowdown or stoppage actually pending or threatened against or
affecting the Company; (d) no representation question exists respecting the
employees of the Company; (e) no grievance nor any arbitration proceeding
arising out of or under collective bargaining agreements is pending and no claim
therefor exists; (f) no collective bargaining agreement which is binding on the
Company restricts the Company from relocating or closing any of its operations;
and (g) the Company has not experienced any work stoppage or other labor
difficulty at any time during its last three (3) fiscal years or since the
Balance Sheet Date.
3.23. Fringe Benefit Plans. Except as set forth in Section 3.23 of the
--------------------
Disclosure Schedule, the Company has no bonus, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option or any other fringe
benefit plan, arrangement or practice, whether formal or informal. Section 3.23
of the Disclosure Schedule contains an accurate and complete description of, and
sets forth the annual amount payable pursuant to, each bonus, deferred
compensation, pension, profit-sharing or retirement plan or arrangement, and
each other fringe benefit plan, of the Company, whether formal or informal. The
aggregate of such amounts did not exceed $25,000 for the fiscal year ended
August 31, 1998 and the Balance Sheet reflects in the aggregate an accrual of
all amounts
20
<PAGE>
accrued but unpaid under the aforesaid plans and arrangements as of the Balance
Sheet Date. The Company has no commitment, whether formal or informal and
whether legally binding or not, to create any additional such plan or
arrangement.
3.24. Litigation. Except as set forth in Section 3.24 of the Disclosure
----------
Schedule, there is no action, suit, inquiry, proceeding or investigation by or
before any court or governmental or other regulatory or administrative agency or
commission pending or threatened against or involving the Company or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by the Company pursuant to this Agreement or in connection with the
transactions contemplated hereby; nor is there any valid basis for any such
action, proceeding or investigation. Except as set forth in Section 3.24 of the
Disclosure Schedule, the Company is not in default under or in violation of, nor
is there any valid basis for any claim of default under or violation of, any
contract, commitment or restriction to which it is a party or by which it is
bound. The Company is not subject to any judgment, order or decree entered in
any lawsuit or proceeding which may have an adverse effect on its business
practices or on its ability to acquire any property or conduct its business in
any area.
3.25. Consents and Approvals of Governmental Authorities. Except as set
--------------------------------------------------
forth in Section 3.25 of the Disclosure Schedule, no consent, approval or
authorization of, or declaration, filing or registration with any person or
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
21
<PAGE>
3.26. Compliance with Law. The operations of the Company have been
-------------------
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all states,
municipalities and other political subdivisions and agencies thereof, having
jurisdiction over the Company. Neither Kandel nor the Company has received any
notification of any asserted present or past failure by the Company to comply
with such laws, rules or regulations.
3.27. Environmental Protection. Except as set forth in Section 3.27 of the
------------------------
Disclosure Schedule, the Company has obtained all permits, licenses and other
authorizations which are required under federal, state and local laws relating
to pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes.
Except as set forth in Section 3.27 of the Disclosure Schedule, the Company is
in full compliance with all terms and conditions of the required permits,
licenses and authorizations, and is also in full compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in those laws or contained in
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder. Except as set forth in
Section 3.27 of the Disclosure Schedule, neither Kandel nor the Company is aware
of, nor has Kandel or the Company received notice of, any past,
22
<PAGE>
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance, or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste.
3.29. ERISA. The Company has no benefit plans that are subject to the
-----
Employee Retirement Income Security Act of 1974, as amended (ERISA).
3.30. Brokers and Finders. Neither Kandel, the Company nor any of its
-------------------
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
3.31. Personnel. Section 3.31 of the Disclosure Schedule sets forth a true
---------
and complete list of:
(a) the names and current salaries of all directors and elected and
appointed officers, and each employee whose annual compensation is in excess of
$50,000 of the Company, the number of shares of the Company Stock owned
beneficially or of record, or both, by each such person and the amount of annual
compensation of each and the family relationships, if any, among such persons;
and
(b) all group insurance programs in effect for employees of the
Company. The Company is not in default with respect to any of its obligations
referred to in the preceding sentence.
23
<PAGE>
3.32. Insider Interests. Except as set forth in Section 3.32 of the
-----------------
Disclosure Schedule, no officer or director of the Company has any material
interest in any property, real or personal, tangible or intangible, including
without limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Company.
3.33. Products Liability. Except as set forth in Section 3.33 of the
------------------
Disclosure Schedule, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or threatened against or involving
the Company relating to any product alleged to have been manufactured or sold by
the Company and alleged to have been defective, or improperly designed or
manufactured, nor is there any valid basis for any such action, proceeding or
investigation.
3.34. Disclosure. No representations or warranties by Kandel or the
----------
Company in this Agreement and no statement contained in any document (including,
without limitation, financial statements and the Disclosure Schedule),
certificate, or other writing furnished or to be furnished by Kandel or the
Company to Acquiror or any of its representatives pursuant to the provisions
hereof or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
24
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR'S
SUBSIDIARY
Acquiror and Acquiror's Subsidiary, jointly and severally, represent and
warrant to Kandel and the Company as follows:
4.01. Corporate Organization; Etc. Acquiror and Acquiror's Subsidiary
---------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the State of Nevada. All the issued and outstanding shares of capital
stock of Acquiror's Subsidiary have been duly authorized by all necessary
corporation action and are validly issued, fully paid and nonassessable and are
owned by Acquiror.
4.02. Authorization; Etc. Acquiror and Acquiror's Subsidiary have full
------------------
corporate power and authority to enter into this Agreement, to execute and
deliver the Note and to carry out the transactions contemplated hereby and
thereby. The Boards of Directors of Acquiror and Acquiror's Subsidiary have
taken all action required by law, their respective Certificates of Incorporation
and By-Laws or otherwise to authorize the execution and delivery of this
Agreement, the Note and the transactions contemplated hereby, and each of the
Agreement and the Note is a valid and binding agreement of Acquiror and
Acquiror's Subsidiary enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable
25
<PAGE>
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
4.03. No Violation. Neither the execution and delivery of this
------------
Agreement or the Note nor the consummation of the transactions contemplated
hereby will violate any provisions of the respective Certificate of
Incorporation or By-Laws of Acquiror or Acquiror's Subsidiary, or violate, or be
in conflict with, or constitute a default under, or cause the acceleration of
the maturity of any debt or obligation pursuant to, any agreement or commitment
to which Acquiror or Acquiror's Subsidiary is a party or by which Acquiror or
Acquiror's Subsidiary is bound, or violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental authority.
4.04. Series A Shares Authorized. The Series A Shares have been duly
--------------------------
authorized by the Board of Directors of Acquiror, and when issued at the Closing
as provided herein, will contain substantially the terms and conditions set
forth in Exhibit B hereto, and will be validly issued, fully paid and non-
assessable.
ARTICLE V
COVENANTS OF KANDEL AND THE COMPANY
Kandel and the Company hereby jointly and severally covenant and agree with
Acquiror:
5.01. Full Access. The Company shall, and Kandel shall cause the
-----------
Company to, afford to Acquiror, its counsel, accountants and other
representatives full access to the plants, offices, warehouses, properties,
books and records of the Company in order that Acquiror may have full
opportunity to make such investigations as it shall desire to make of the
affairs of the Company; and the Company will, and Kandel will cause the Company
to, cause its officers and accountants to
26
<PAGE>
furnish such additional financial and operating data and other information as
Acquiror shall from time to time request.
5.02. Approval of Stockholders. The Company and its officers and
------------------------
directors shall (a) cause a meeting of the Company's stockholders to be duly
called and held as soon as practicable for the purpose of voting on this
Agreement, (b) recommend approval and adoption of this Agreement to the
Company's stockholders and (c) use their best efforts to obtain the necessary
approval and adoption of this Agreement by the Company's stockholders.
5.03. Consents of Company Lenders, Etc. The Company shall, and Kandel
--------------------------------
shall cause the Company to, use its best efforts to obtain at the earliest
practicable date and prior to the Closing all consents necessary to the
consummation of the transactions contemplated hereby and will provide to
Acquiror copies of each such consent promptly after it is obtained.
5.04. Supplements to Disclosure Schedule. From time to time prior to
----------------------------------
the Closing, Kandel and the Company will promptly supplement or amend the
Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in the Disclosure Schedule. No supplement or amendment
of the Disclosure Schedule made pursuant to this section shall be deemed to cure
any breach of any representation of or warranty made in this Agreement unless
Acquiror specifically agrees thereto in writing.
5.05. Other Transactions. Neither the Company nor its Board of
------------------
Directors shall enter into any discussions concerning, or approve or recommend
to the holders of any shares of its capital
27
<PAGE>
stock, any merger, consolidation, disposition of all or substantially all of its
business, properties or assets (other than pursuant to this Agreement), any
tender offer, acquisition or other business combination, or proposal therefor,
or furnish or cause to be furnished any information concerning the business,
properties or assets of the Company to any party in connection with any tender
offer or other transaction involving the acquisition of the Company or all or
any substantial part of its assets by any person other than Acquiror or
Acquiror's Subsidiary. Kandel shall cause the Company to comply with the
provisions of this Section 5.05.
5.06. Covenant to Satisfy Conditions. Each of the Company and Kandel
------------------------------
will use their best efforts to ensure that the conditions set forth in Article
VIII hereof are satisfied, insofar as such matters are within the control of any
of them.
5.07. Certificates. At the Closing Kandel and the Company will furnish
------------
Acquiror with such certificates of its officers and others to evidence
compliance with the covenants set forth in this Article V as may be reasonably
requested by Acquiror.
ARTICLE VI
COVENANTS OF THE ACQUIROR
6.01. Federal Securities and Blue Sky Filings. Acquiror will take all
---------------------------------------
such action as may be necessary under all applicable federal securities laws and
regulations or the securities or Blue Sky laws of the States or other political
subdivisions of the United States in connection with the transactions
contemplated hereby.
6.02. Eligibility for Trading. Acquiror will use its best efforts to
-----------------------
maintain the eligibility
28
<PAGE>
of Acquiror's Common Stock for trading on the NASD OTC Bulletin Board.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF KANDEL AND THE COMPANY
Each and every obligation of Kandel and the Company under this Agreement to
be performed on or before the Closing shall be subject to the satisfaction, on
or before the Closing, of each of the following conditions, unless waived in
writing by Kandel and the Company:
7.01. Representations and Warranties True. The representations and
-----------------------------------
warranties of Acquiror and Acquiror's Subsidiary contained herein shall be in
all material respects true and accurate as of the date when made at and as of
the Closing as though such representations and warranties were made at and as of
such date, except for changes expressly permitted or contemplated by the terms
of this Agreement.
7.02. Performance. Acquiror and Acquiror's Subsidiary shall have performed
-----------
and complied with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
7.03. Approval of Company's Stockholders. The approval of the stockholders
----------------------------------
of the Company referred to in Section 5.02(c) hereof shall have been obtained.
7.04. No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
29
<PAGE>
contemplated hereby; provided that, in the case of such a proceeding brought by
a person other than a governmental body, the condition set forth in this
sentence of this Section 7.04 shall be deemed to have been satisfied if the
Company shall have been provided with an opinion of counsel to Acquiror to the
effect that it is reasonably probable that the relief sought in such proceeding
will not be granted.
7.05. Certificates. Acquiror and Acquiror's Subsidiary shall have
------------
furnished to Kandel and the Company such certificates of their officers and
others to evidence compliance with the conditions set forth in this Article VII
as may be reasonably requested by Kandel and the Company.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUIROR AND ACQUIROR'S SUBSIDIARY
Each and every obligation of Acquiror and Acquiror's Subsidiary under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Acquiror:
8.01. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Article III hereof, the Disclosure Schedule and in all
certificates and other documents delivered and to be delivered by Kandel and the
Company to Acquiror or Acquiror's Subsidiary or their representatives pursuant
hereto or in connection with the transactions contemplated hereby shall be true,
complete and accurate as of the date when made at and as of the Closing Date as
though such representations and warranties were made at and as of such date,
except for changes expressly
30
<PAGE>
permitted or contemplated by the terms of this Agreement.
8.02. Performance. Kandel and the Company shall have performed and
-----------
complied with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
8.03. Investigations; Etc. Neither any investigation of the Company by
-------------------
Acquiror or Acquiror's Subsidiary, nor the Disclosure Schedule or any supplement
thereto nor any other document delivered to Acquiror or Acquiror's Subsidiary as
contemplated by this Agreement, shall have revealed any facts or circumstances
which, in the sole and exclusive judgment of Acquiror, reflect in a material
adverse way on the financial condition, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves, business, operations or prospects of the
Company.
8.04. Approval of Company's Stockholders; Etc. The approval of the
---------------------------------------
stockholders of the Company referred to in Section 5.02(c) hereof and all
consents from third parties and government agencies required to consummate the
transactions contemplated hereby shall have been obtained.
8.05. No Government Proceeding or Litigation. No suit, action,
--------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby or which in the sole and exclusive judgment of Acquiror
might have a material adverse effect on the business or financial condition of
the Company.
8.06. No Injunction. On the Closing Date there shall be no effective
-------------
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as so provided
31
<PAGE>
or imposing any conditions on the consummation of the transaction contemplated
hereby which the Acquiror deems unacceptable in its sole discretion.
8.07. Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Company shall not have suffered any adverse change (whether or
not such change is referred to or described in any supplement to the Disclosure
Schedule) in its business, prospects, financial condition, working capital,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
8.09. Opinion of Counsel to Kandel and the Company. Kandel and the
--------------------------------------------
Company shall have delivered to Acquiror an opinion of counsel to Kandel and the
Company reasonably acceptable to Acquiror, dated as of the Closing Date, in form
and substance satisfactory to Acquiror, to the effect that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(b) The Company is duly qualified as a foreign corporation and in good
standing in each jurisdiction in which such qualification is necessary;
(c) The Company has the corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns, and the Company has the full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby;
(d) The authorized capital stock of the Company consists of ______
shares of
32
<PAGE>
Common Stock, $_______ par value per share, and, stating the number of such
shares which are issued and outstanding and that such issued shares have been
duly and validly authorized and issued and are fully paid and nonassessable;
(e) Based upon an examination of the records of the Company, to the
best of the knowledge of such counsel except as disclosed in this Agreement or
pursuant hereto, there are no outstanding options, warrants or other rights to
purchase or acquire any capital stock of the Company;
(f) All corporate action by the Company required in order to
authorize the transactions contemplated hereby has been duly and validly taken;
and this Agreement has been duly executed and delivered by Kandel and the
Company and is the valid and binding obligation of Kandel and the Company
enforceable in accordance with its terms except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors, rights, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought;
(g) Kandel has complete and unrestricted power to sell, convey,
assign, transfer and deliver to Acquiror the Company Stock to be sold,
conveyed, assigned, transferred and delivered pursuant hereto; and the
instruments of sale, conveyance, assignment and transfer executed and delivered
to Acquiror or Acquiror's Subsidiary hereunder are duly executed, are valid and
binding obligations of Kandel;
33
<PAGE>
(h) Neither the execution and delivery of this Agreement by Kandel or
the Company nor the consummation of the transactions contemplated hereby will
violate the Certificate of Incorporation or By-Laws of the Company or any
Company Subsidiary or, will violate, conflict with, or constitute a default
under, or cause the acceleration of maturity of any debt or obligation pursuant
to, or result in the creation or imposition of any security interest, lien or
other encumbrance upon any property or assets of the Company under, any
contract, commitment, agreement, trust, understanding, arrangement or
restriction of any kind to which the Company is a party or by which the Company
is bound or violate any statute or law, or any judgment, decree, order,
regulation or rule of any court or governmental authority;
(i) Neither Kandel nor the Company is engaged in or threatened with
any legal action or other proceeding or has incurred or been charged with or is
under investigation with respect to any violation of any federal, state or local
law or administrative regulation which if adversely determined might adversely
affect or impair the business or condition, financial or otherwise, of the
Company, except as specifically disclosed by the Company in this Agreement or
pursuant hereto;
(j) No consent of any governmental body nor of any other person, is
required for the consummation by Kandel or the Company of the transactions
contemplated hereby, except consents the need for which is disclosed in sections
3.04, 3.05, 3.14 and 3.25 of the Disclosure Schedule, all of which have been
duly and validly obtained;
(k) To the best knowledge of such counsel, the Company is in
compliance with all applicable laws and regulations;
34
<PAGE>
(l) No facts have come to the attention of such counsel which would
lead them to believe that any representation or warranty of Kandel or the
Company contained herein or in the Disclosure Schedule or any supplement thereto
is incorrect, false or misleading; and
(m) As to such other matters incident to the matters herein
contemplated as Acquiror and its counsel may reasonably request, including the
form of all documents and the validity of all proceedings.
8.09. Consents Obtained. All consents referred to in Sections 3.04,
-----------------
3.05, 3.14 and 3.25 shall have been obtained.
8.10. Employment Contract. At or prior to the Closing, Acquiror shall
-------------------
have entered into a contract with Richard Kandel satisfactory to Acquiror
providing for his employment by Acquiror commencing upon the Closing.
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING
Pending the Closing, and except as otherwise expressly consented to or
approved by Acquiror in writing:
9.01. Regular Course of Business. The Company will, and Kandel will
--------------------------
cause the Company to, carry on its business diligently and substantially in the
same manner as heretofore conducted, and the Company shall not institute any new
methods of manufacture, purchase, sale, lease, management, accounting or
operation or engage in any transaction or activity, enter into any agreement or
make any commitment, except in the ordinary course of business and consistent
with past practice.
35
<PAGE>
9.02. Amendments. No change or amendment shall be made in the Certificate
----------
of Incorporation or By-Laws of the Company.
9.03. Capital Changes; Dividends; Redemptions. The Company will not
---------------------------------------
issue or sell any shares of its capital stock or other securities except
pursuant to the valid conversion of securities or exercise of options described
in Section 3.02 of the Disclosure Schedule, acquire directly or indirectly, by
redemption or otherwise, any such capital stock, reclassify or split-up any such
capital stock, declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or grant or enter
into any options, warrants, calls or commitments of any kind with respect
thereto.
9.04. Subsidiaries. The Company will not organize any new subsidiary,
------------
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business.
9.05. Organization. The Company shall use its best efforts to preserve
------------
its corporate existence and business organization intact, to keep available to
Acquiror its officers and key employees, and to preserve for Acquiror its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
9.06. Certain Changes. The Company will not:
---------------
(a) Borrow or agree to borrow any funds or incur, or assume or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business and
36
<PAGE>
consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90
days from the date such obligation was issued or incurred;
(d) Permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or
encumbrance, except for those of a kind permitted under Section 3.11 hereof;
(e) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable;
(f) Cancel any debts or waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(g) Dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name or copyright, or dispose of or disclose to any
person any trade secret, formula, process or know-how not theretofore a matter
of public knowledge;
(h) Grant any general increase in the compensation of officers or
employees
37
<PAGE>
(including any such increase pursuant to any bonus, pension, profit sharing or
other plan or commitment) or any increase in the compensation payable or to
become payable to any officer or employee;
(i) Make any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant or equipment or make aggregate capital
expenditures and commitments in excess of $10,000 (on a consolidated basis) for
additions to property, plant or equipment;
(j) Pay, loan or advance any amount to, or sell transfer or lease
any properties or assets to, or enter into any agreement or arrangement with,
any of its officers or directors or any affiliate or associate of any of its
officers or directors, except for directors' fees and compensation to officers
at rates not exceeding the rates of compensation paid during the fiscal year
ended August 31, 1998;
(k) Change any of the banking or safe deposit arrangements
described in Section 3.15 of the Disclosure Schedule;
(l) Grant or extend any power of attorney or act as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity; or
(m) Agree, whether in writing or otherwise, to do any of the
foregoing.
9.07. Contracts. No contract or commitment will be entered into, and
---------
no purchase of raw material or supplies and no sale of assets will be made, by
or on behalf of the Company, except (i) normal contracts or commitments for the
purchase of, and normal purchases of, raw materials or
38
<PAGE>
supplies, made in the ordinary course of business and consistent with past
practice, (ii) normal contracts or commitments for the sale of, and normal sales
of, inventory in the ordinary course of business and consistent with past
practice, and (iii) other contracts, commitments, purchases or sales in the
ordinary course of business and consistent with past practice not in excess of
$10,000 in the aggregate.
9.08. Insurance; Property. The Company shall adequately insure all
-------------------
property, real, personal and mixed, owned or leased by the Company, against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired in a careful and reasonably efficient manner.
9.09. No Default. Neither Kandel nor the Company shall do any act or
----------
omit to do any act, or permit any act or omission to act, which will cause a
breach of any material contract or commitment of the Company or which would
cause the breach of any warranty made hereunder.
9.10. Compliance With Laws. The Company shall duly comply with all laws
--------------------
applicable to it and its properties, operations, business and employees.
9.11. Tax Returns. The Company shall, and Kandel shall cause the
-----------
Company to, prepare and file all federal, state, local and foreign tax returns
and amendments thereto required to be filed by the Company. The Company and
Kandel will ensure that Acquiror shall have a reasonable opportunity to review
each such return and amendment prior to the filing thereof.
39
<PAGE>
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.01. Investigations; Survival of Warranties. The respective
--------------------------------------
representations and warranties of Kandel, the Company, Acquiror's Subsidiary and
Acquiror contained herein or in any certificates or other documents delivered
prior to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party hereto. Each and every such representation
and warranty shall expire with, and be terminated and extinguished by, the
Closing or the termination of the Agreement pursuant to Section 11.01 hereof or
otherwise, and thereafter neither Kandel, Acquiror, the Company nor Acquiror's
Subsidiary nor any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty. This
Section 10.01 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the Closing.
ARTICLE XI
TERMINATION AND ABANDONMENT
11.01. Methods of Termination. The transactions contemplated herein may
----------------------
be terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual consent of Kandel and the respective Boards of
Directors of Acquiror and the Company; or
(b) By the Board of Directors of Acquiror on or after April 30,
1999, or such later date as may be established pursuant to Section 1.03 hereof,
if any of the conditions provided for in
40
<PAGE>
Article VIII of this Agreement shall not have been met or waived in writing by
Acquiror prior to such date; or
(c) By Kandel and the Board of Directors of the Company on or after
April 30, 1999, or such later date as may be established pursuant to Section
1.03 hereof, if any of the conditions provided for in Article VII of this
Agreement shall not have been met or waived in writing by the Company prior to
such date.
11.02. Procedure Upon Termination. In the event of termination and
--------------------------
abandonment by the Board of Directors of Acquiror or by Kandel and the Board of
Directors of the Company, or both, pursuant to Section 11.01 hereof, written
notice thereof shall forthwith be given to the other party and the transactions
contemplated by this Agreement shall be terminated and/or abandoned, without
further action by Acquiror or Kandel and the Company. If the transactions
contemplated by this Agreement are terminated and/or abandoned as provided
herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be treated
in accordance with Section 2.01 hereof; and
(c) No party hereto shall have any liability or further obligation
to any other party to this Agreement except as stated in subparagraphs (a) and
(b) of this Section 11.02.
41
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented by written agreement of the
respective Boards of Directors of the Company and Acquiror and by Kandel or by
their respective officers authorized by such Boards of Directors at any time
prior to the Closing with respect to any of the terms contained herein.
12.02. Waiver of Compliance. Any failure of Kandel and the Company, on the
--------------------
one hand, or Acquiror, on the other, to comply with any obligation, covenant,
agreement or condition herein may be expressly waived in writing by the Chairman
of the Board or the President of Acquiror or by Kandel, on behalf of himself and
the Company, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
12.03. Expenses; Transfer Taxes, Etc. Whether or not the transaction
-----------------------------
contemplated by this Agreement shall be consummated, Kandel and the Company
agree that all fees and expenses incurred by them in connection with this
Agreement shall be borne by them and Acquiror agrees that all fees and expenses
incurred by it in connection with this Agreement shall be borne by it,
including, without limitation as to Kandel, the Company or Acquiror, all fees of
their respective counsel, actuaries and accountants. Acquiror agrees that it
will pay all sales, transfer or other taxes which may be payable in connection
with the transactions contemplated by this Agreement.
42
<PAGE>
12.04. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to Kandel or the Company, to:
Kandel & Son, Inc.
211 Park Avenue
Hicksville, NY 11801
Attn: Richard Kandel
Phone: (516) 931-4455
Fax: (516) 931-3530
or to such other person or address as the Company shall furnish to Acquiror or
Acquiror's Subsidiary in writing.
(b) If to Acquiror or Acquiror's Subsidiary, to:
Enviro-Clean of America, Inc.
13405 Floyd Circle
Suite 103
Dallas, TX 75243
Attn: Robert Moehler
Phone: (972) 241-2669
Fax: (972) 620-2431
(with a copy to:)
Martin W. Enright, Esq.
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, New York
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Company in
writing.
12.05. Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns,
43
<PAGE>
but neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, (except by operation of law and except
that Acquiror may assign its rights, but not its obligations, under this
Agreement to any subsidiary of Acquiror). If such assignment shall be made by
Acquiror, such subsidiary shall be entitled to all of the rights and shall
assume all of the obligations of Acquiror hereunder, provided that Acquiror
shall guarantee the performance of such subsidiary's obligations under this
Agreement and shall deliver evidence thereof reasonably satisfactory to the
Company.
12.06. Publicity. Neither Kandel, the Company nor Acquiror shall make or
---------
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
party. This provision shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any federal or state
governmental agency or any stock exchange, except that the party required to
make such announcement shall, whenever practicable, consult with the other party
concerning the timing and content of such announcement before such announcement
is made.
12.07. Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to its conflicts of law doctrine.
12.08. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
44
<PAGE>
12.09. Headings. The headings of the Sections and Articles of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
12.10. Entire Agreement. This Agreement, including the Exhibits hereto, the
----------------
Disclosure Schedule and the other documents and certificates delivered pursuant
to the terms hereof, set forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and supersede
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto.
12.11. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
________________________________________
Richard Kandel, as sole shareholder of the Company
KANDEL & SON, INC.
By:_______________________________________________
Name: Richard Kandel
Title:
Attest:
__________________________
Name:
Title:
ENVIRO-CLEAN OF AMERICA, INC.
By:_______________________________________________
Name:
Title:
Attest:
__________________________
Name:
Title:
ENVIROACQI CO.
By:_______________________________________________
Name:
Title:
Attest:
__________________________
Name:
Title:
46
<PAGE>
EXHIBIT 2(II)
Stock Purchase Agreement
among
ENVIRO-CLEAN OF AMERICA, INC.,
ENVIROACQII CO.
and
NISSCO/SUNLINE, INC.
dated
January 1, 1999
<PAGE>
Index to Agreement
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I Purchase and Sale of Stock....................................... 1
Article II Related Matters.................................................. 3
Article III Representations and Warranties of Haines and the Company......... 5
Article IV Representations and Warranties of Acquiror and
Acquiror's Subsidiary............................................ 19
Article V Covenants of Haines and the Company.............................. 21
Article VI Covenants of the Acquiror........................................ 22
Article VII Conditions to the Obligations of Haines and the Company.......... 23
Article VIII Conditions to Obligations of Acquiror and Acquiror's Subsidiary.. 24
Article IX Conduct of the Company's Business Pending the Closing............ 29
Article X Survival of Representations and Warranties....................... 33
Article XI Termination and Abandonment...................................... 33
Article XII Miscellaneous Provisions......................................... 34
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated January 1, 1999 among ENVIRO-CLEAN OF
AMERICA, INC., a Nevada corporation ("Acquiror"), ENVIROACQII CO., a Nevada
corporation which is a wholly-owned subsidiary of Acquiror ("Acquiror's
Subsidiary") NISSCO/SUNLINE, INC., a Florida corporation (the "Company") and
Thomas B. Haines, the sole shareholder of the Company ("Haines").
This Agreement sets forth the terms and conditions upon which Haines will
sell to Acquiror and convey to Acquiror's Subsidiary or other entities
designated by Acquiror, and Acquiror will purchase from Haines shares of common
stock, $_____ par value per share, of the Company, representing all of the
issued and outstanding capital stock of the Company (the "Company Stock"). As
used in this Agreement, capitalized terms have the meanings ascribed to them in
Article II.
In consideration of the mutual agreements contained herein, intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.01. Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, at the Closing, Haines shall sell, transfer, convey, assign
and deliver to Acquiror or Acquiror's Subsidiary and Acquiror or Acquiror's
Subsidiary shall purchase, acquire and accept from Haines the Company Stock free
and clear of all liens, charges or encumbrances of whatsoever nature.
1.02. Consideration. Subject to the terms and conditions of this
-------------
Agreement, in reliance on the representations, warranties and agreements of the
Company and Haines contained in this
<PAGE>
Agreement and in consideration of the sale, assignment, transfer and delivery of
the Company Stock, Acquiror or Acquiror's Subsidiary will deliver to Haines, at
the Closing:
(a) the sum of Five Hundred Thousand Dollars ($500,000) in cash,
certified check or verified wire transfer, it being acknowledged by all parties
that such sum has been previously paid to Haines as a deposit, and no further
cash or other payments shall be made;
(b) Two Hundred Fifty Thousand (250,000) shares of Acquiror's Common
Stock, par value $.001 per share, ("Acquiror's Common Stock").
In addition to the sums and securities to be received at Closing, Acquiror
shall also issue and deliver to Haines an aggregate of an additional Seven
Hundred Fifty Thousand (750,000) shares of Acquiror's Common Stock in two annual
installments of 250,000 shares on January 15, 2000, and 500,000 shares on
January 15, 2001. If on January 15, 2001 the average closing bid price of the
Acquiror's Common Stock for the ten (10) trading days immediately preceding
January 15, 2001 as reported on the principal stock exchange, on Nasdaq or on
any other automated quotation system upon which the Acquiror's Common Stock then
trades (the "Average Bid Price Per Share") is not at least $5.00 per share, the
Acquiror shall issue and deliver to Haines such number of additional shares of
its Common Stock such that the aggregate value of the shares issued at Closing,
on January 15, 2000 and on January 15, 2001, calculated based on the Average Bid
Price Per Share, shall be $2,500,000.
1.03. Closing. The Closing of the transactions contemplated by this
-------
Agreement will take place at the offices of Acquiror in Dallas, Texas on January
15, 1999 at 10:00 a.m., except that any party hereto may, by giving two days'
written notice to all other parties hereto, defer the Closing to a date not
later than April 15, 1999 in order that such party may satisfy any of the
conditions required to be satisfied at or prior to the Closing.
(a) At the Closing, Haines will deliver to Acquiror or Acquiror's
Subsidiary
2
<PAGE>
(i) the Company Stock, together with a stock power duly endorsed for transfer;
and (ii) all other previously undelivered documents required to be delivered by
Haines or the Company to Acquiror or Acquiror's Subsidiary at or prior to the
Closing in connection with the transactions contemplated by this Agreement.
(b) At the Closing, there will be delivered to Haines (i) by Acquiror
or Acquiror's Subsidiary, the consideration referred to in Section 1.02 hereof
to be delivered at the Closing, and (ii) by Acquiror or Acquiror's Subsidiary,
all previously undelivered documents required to be delivered by Acquiror or
Acquiror's Subsidiary to Haines at or prior to the Closing.
1.04. Further Assurances. After the Closing, the Company and Haines
------------------
shall from time to time, at the request of Acquiror or Acquiror's Subsidiary and
without further cost or expense to Acquiror or Acquiror's Subsidiary, execute
and deliver such other instruments of conveyance and transfer and take such
other actions as Acquiror or Acquiror's Subsidiary may reasonably request, in
order to more effectively consummate the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
2.01. Confidentiality. Each party hereto will hold and will cause its
---------------
employees, consultants and advisors to hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion
of its counsel, by other requirements of law, all documents and information
concerning the other party furnished it by such other party or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) previously known by the party to which it was furnished, (ii) in the public
domain through no fault of such party, or (iii) later
3
<PAGE>
lawfully acquired from other sources by the party to which it was furnished),
and each party will not release or disclose such information to any other
person, except its auditors, attorneys, financial advisors, bankers and other
consultants and advisors in connection with this Agreement. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into the public domain
through no fault of the party required to hold it in confidence, and such
information shall not be used to the detriment of, or in relation to any
investment in, the other party and all such documents (including copies thereof)
shall be returned to the other party immediately upon the written request of
such other party. Each party shall be deemed to have satisfied its obligation to
hold confidential information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.
2.02. Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
"Acquiror" means Enviro-Clean of America, Inc., a corporation formed under
the laws of the State of Nevada.
"Acquiror's Subsidiary" means ENVIROACQII CO., a corporation formed under
the laws of State of Nevada.
The terms "Affiliate" and "Associate" have the meanings prescribed by Rule
12b-2 of the regulations promulgated pursuant to the Securities Exchange Act.
"Balance Sheet" means the unaudited balance sheet of the Company referred
to in Section 3.06(ii) of this Agreement.
"Closing" means the closing referred to in Section 1.03 of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
4
<PAGE>
"Company" means Nissco/Sunline, Inc., a corporation formed under the laws
of the State of Florida.
"Company Affiliate" means each Affiliate of the Company.
"Company Subsidiary" means any corporation of which the Company (a)
directly or indirectly owns or controls at the time outstanding shares of stock
which have in ordinary circumstances (not dependent upon the happening of a
contingency) voting power to elect a majority of the board of directors of said
corporation, or (b) of which shares of stock of the character described in the
foregoing clause (a) shall at the time be owned or controlled directly or
indirectly by the Company and one or more Company Subsidiaries as defined in the
foregoing clause (a) or by one or more such Company Subsidiaries.
"Disclosure Schedule" means the document delivered by the Company to the
Acquiror simultaneously with the execution hereof containing the information
required to be included therein pursuant to this Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
The plural of any defined term shall have a meaning correlative to such
defined term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HAINES AND THE COMPANY
Haines and the Company hereby jointly and severally represent, covenant and
warrant to Acquiror and Acquiror's Subsidiary as follows:
3.01. Corporate Organization; Etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Florida and has full corporate
5
<PAGE>
power and authority to carry on its business as it is now being conducted and to
own the properties and assets it now owns; is duly qualified or licensed to do
business as a foreign corporation in good standing in the jurisdictions listed
in Section 3.01 of the Disclosure Schedule, which are all the jurisdictions in
which such qualification is required. The copies of the Certificate of
Incorporation and By-Laws of the Company heretofore delivered to Acquiror or
Acquiror's Subsidiary are complete and correct copies of such instruments as
presently in effect and no vote or comparable action by the directors or
shareholders of the Company has been taken to amend them.
3.02. Capitalization of the Company; Ownership of the Shares. The
------------------------------------------------------
authorized capital stock of the Company consists of 100 shares of Common Stock,
$1.00 par value per share, of which all 100 shares are issued and outstanding
and no shares are held in the treasury of the Company. All issued and
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable. All 100 Shares of Company Stock are owned beneficially
and of record by Haines, free and clear of any liens, charges, encumbrances and
claims of any kind. At Closing, Haines will have good and marketable title in
and to the Company Stock and, upon transfer to Acquiror's Subsidiary at Closing,
Acquiror's Subsidiary will receive valid title to the Company Stock, free and
clear of any liens, charges and encumbrances.
3.03. Subsidiaries and Affiliates. The Company does not own, directly
---------------------------
or indirectly, any capital stock or other equity securities of any corporation
or have any direct or indirect equity or ownership interest in any business.
3.04. Authorization, Etc. Haines has full power and authority to
------------------
enter into this Agreement and to carry out the transactions contemplated hereby,
and this Agreement is a valid and binding agreement of the Haines enforceable in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
6
<PAGE>
similar laws now or hereafter in effect relating to creditor's rights and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought.
3.05 No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated hereby will violate any
provision of the Certificate of Incorporation or By-Laws of the Company violate,
or be in conflict with, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of the Company under, any agreement or commitment to
which Haines or the Company is a party or by which Haines or the Company is
bound, or to which the property of the Company is subject, or violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or governmental authority.
3.06. Financial Statements. The Company will, and Haines will cause the
--------------------
Company to, deliver to Acquiror prior to the Closing: (i) a balance sheet of the
Company as at December 31 in each of the years 1996 through 1998; and (ii)
statements of income, changes in stockholders' equity and changes in financial
position for the years ended December 31, 1997 and 1998. Such balance sheets and
the notes thereto are true, complete and accurate and fairly present the assets,
liabilities and financial condition of the Company as at the respective dates
thereof, and such consolidated statements of income, changes in stockholders'
equity and changes in financial position and the notes thereto are true,
complete and accurate and fairly present the results of
7
<PAGE>
operations for the periods therein referred to; all in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except, in the case of unaudited statements, for normally recurring
year-end adjustments, which adjustments will not be material either individually
or in the aggregate.
3.07. No Undisclosed Liabilities; Etc. The Company has no liabilities or
-------------------------------
obligations of any nature (absolute, accrued, contingent or otherwise) which
were not fully reflected or reserved against in the Balance Sheet, except for
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since the date thereof which do not, in the
aggregate, exceed $25,000, and the reserves for liabilities and contingencies
reflected in the Balance Sheet are adequate, appropriate and reasonable.
3.08. Accounts Receivable. All accounts receivable of the Company,
-------------------
whether reflected in the Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Balance Sheet (which reserves are adequate and were
calculated consistent with past practice).
Subject to such reserve, each of the accounts receivable either has been
collected in full or will be collected in full, without any set-off, within 120
days after the day on which it became due and payable.
3.09. Interim Operations. Since the date of the Balance Sheet, the
------------------
business of the Company has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Balance Sheet, there have
not been any material adverse changes in the financial condition, assets or
results of operations of the Company. Since such date such assets have not been
affected in any way as a result of flood, fire, explosion or other casualty
8
<PAGE>
(whether or not covered by insurance). The Company is not aware of any
circumstances which may cause it to suffer any material adverse change in its
business, operations or prospects.
The Company has not, since the Balance Sheet Date:
(i) permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except for
liens for current taxes not yet due;
(ii) canceled any debts or waived any claims or rights of substantial
value;
(iii) sold, transferred, or otherwise disposed of any of its properties
or assets, including rights to the use of any patent, trademark, trade name or
copyright, or disposed of or disclosed (except as necessary in the conduct of
its business) to any person other than representatives of Acquiror or Acquiror's
Subsidiary any trade secret, formula, process or know-how not theretofore a
matter of public knowledge;
(iv) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee, and no such increase is
customary on a periodic basis or required by agreement or understanding; or
(v) agreed, whether in writing or otherwise, to take any action described
in this Section.
3.10. Title to Properties; Encumbrances. The Company has good, valid and
---------------------------------
marketable title to all the properties and assets which it purports to own
(real, personal and mixed, tangible and intangible), including, without
limitation, (i) all assets relating to the business of NIPPCO, a division
operated by the Company and (ii) all the properties and assets
9
<PAGE>
reflected in the Balance Sheet and all the properties and assets purchased by
the Company since the date of the Balance Sheet, which subsequently acquired
properties and assets (other than inventory and short term investments) are
listed in Section 3.10 of the Disclosure Schedule. All properties and assets
reflected in the Balance Sheet have a fair market or realizable value at least
equal to the value thereof as reflected therein, and all such properties and
assets are free and clear of all title defects or objections, liens, claims,
charges, security interests or other encumbrances of any nature whatsoever and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever except, with respect to all such properties and assets, (a)
liens shown on the Balance Sheet as securing specified liabilities or
obligations with respect to which no default exists; and (b) liens for current
taxes not yet due. The rights, properties and other assets presently owned,
leased or licensed by the Company and described elsewhere in this Agreement
include all rights, properties and other assets necessary to permit the Company
to conduct its business in all material respects in the same manner as its
business has been conducted prior to the date hereof.
3.11. Plant and Equipment. The plants, structures and equipment of the
-------------------
Company are structurally sound with no defects and are in good operating
condition and repair and are adequate for the uses to which they are being put;
and none of such plants, structures or equipment are in need of maintenance or
repairs except for ordinary, routine maintenance and repairs which are not
material in nature or cost. Except as set forth in Section 3.11 of the
Disclosure Schedule, the Company has received no notification that it is in
violation of any applicable building, zoning, anti-pollution, health or other
law, ordinance or regulation in respect of its plants or structures or their
operations and no such violation exists.
10
<PAGE>
3.12. Patents, Trademarks, Trade Names, Etc. The Company owns, or is
-------------------------------------
licensed or otherwise has the full and exclusive right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of the business as heretofore conducted. Section
3.12 of the Disclosure Schedule contains an accurate and complete description of
(a) all patents, trademarks, trade names and copyrights used or proposed to be
used by the Company, all applications therefor, and a summary of the terms of
all licenses and other agreements relating thereto and (b) a summary of the
terms of all agreements relating to technology, know-how or processes which the
Company is licensed or authorized to use by others. Except as set forth in
Section 3.12 of the Disclosure Schedule, the Company has the sole and exclusive
right to use the patents, trademarks, trade names, copyrights, technology, know-
how and processes referred to in the Disclosure Schedule, and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights; no claims have been asserted by any person to the use of any such
patents, trademarks, trade names, copyrights, technology, know-how or processes
or challenging or questioning the validity or effectiveness of any such license
or agreement, and the Company does not know of any valid basis for any such
claim; and the use of such patents, trademarks, trade names, copyrights,
technology, know-how or processes by the Company does not infringe on the rights
of any person.
3.13. Leases. Section 3.13 of the Disclosure Schedule contains an
------
accurate and complete description of the terms of all leases pursuant to which
the Company leases real or personal property. Except as set forth in Section
3.13 of the Disclosure Schedule, all such leases are valid, binding and
enforceable in accordance with their terms, and are in full force and effect;
there are no existing defaults by the Company thereunder; no event of default
has occurred which
11
<PAGE>
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a default thereunder; and all lessors under
such leases have consented (where such consent is necessary) to the consummation
of the transactions contemplated by this Agreement without requiring
modification in the rights or obligations of the lessee under such leases.
Executed counterpart copies of all consents referred to in the preceding
sentence will be delivered to Acquiror or Acquiror's Subsidiary at the Closing.
3.14. Bank Accounts. Section 3.14 of the Disclosure Schedule sets
-------------
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names of all persons
authorized to draw thereon, make withdrawals therefrom or have access thereto.
At the Closing, the Company will deliver to Acquiror or Acquiror's Subsidiary
copies of all records, including all signature or authorization cards,
pertaining to such bank accounts.
3.15. Taxes. The Company has duly filed all tax reports and returns
-----
required to be filed by it and have duly paid all taxes and other charges due or
claimed to be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales or payrolls of any of them); the reserves for taxes
reflected in the Balance Sheet are adequate; and there are no tax liens upon any
property or assets of the Company except liens for current taxes not yet due.
The federal income tax returns of the Company have been examined by the Internal
Revenue Service for all periods to and including December 31, 1998; and, except
to the extent shown therein, all deficiencies asserted as a result of such
examinations have been paid or finally settled and no issue has been raised by
the Internal Revenue Service in any such examination which, by application of
the same or similar
12
<PAGE>
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined. Further, no state of facts exists or has
existed which would constitute grounds for the assessment of any tax liability
with respect to the periods which have not been audited by the Internal Revenue
Service. Copies of all income tax returns for the Company in respect of all
years not barred by the statute of limitations have heretofore been delivered by
the Company to Acquiror or Acquiror's Subsidiary and all such returns are listed
in Section 3.15 of the Disclosure Schedule. The Company has not, with regard to
any assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of Section 341(f)(2) of the Code.
3.16. Contracts and Commitments. Except as set forth in Section 3.16 of
-------------------------
the Disclosure Schedule:
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of the Company continue for
a period of more than 12 months or are in excess of the normal, ordinary and
usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than 12 months or
will result in any loss to the Company upon completion or performance thereof,
after allowance for direct distribution expenses nor are there any outstanding
contracts, bids or sales or service proposals quoting prices which will not
result in a normal profit;
(d) The Company has no outstanding contracts with officers,
employees,
13
<PAGE>
agents, consultants, advisors, salesmen, sales representatives, distributors or
dealers that are not cancelable by it on notice of not longer than 30 days and
without liability, penalty or premium or any agreement or arrangement providing
for the payment of any bonus or commission based on sales or earnings;
(e) The Company has no employment agreement, or any other agreement
that contains any severance or termination pay liabilities or obligations;
(f) The Company has no collective bargaining or union contracts or
agreements;
(g) The Company is not in default, nor is there any basis for any
valid claim of default, under any contract made or obligation owed by it;
(h) The Company has no employee (other than Thomas Haines) to whom it
is paying compensation at the annual rate of more than $100,000 for services
rendered;
(i) The Company is not restricted by agreement from carrying on its
business anywhere in the world;
(j) The Company is under no liability or obligation with respect to
the return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or their customers;
(k) The Company has no debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation of others;
(1) The Company has no outstanding loan to any person; and
(m) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer,
14
<PAGE>
endorser, comaker, indemnitor or otherwise in respect of the obligation of any
person, corporation, partnership, joint venture, association, organization or
other entity.
3.17. Agreements in Full Force and Effect. All contracts, agreements,
-----------------------------------
plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof have been heretofore
made available to Acquiror or Acquiror's Subsidiary.
3.18. Insurance. Section 3.18(a) of the Disclosure Schedule contains
---------
an accurate and complete description of all material policies of fire,
liability, workmen's compensation and other forms of insurance owned or held by
the Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to which the Company is a
party; are valid, outstanding and enforceable policies; provide adequate
insurance coverage for the assets and operations of the Company; will remain in
full force and effect through the respective dates set forth in Section 3.18(a)
of the Disclosure Schedule without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Section 3.18(b) of the Disclosure
Schedule identifies all risks which the Company, its Board of Directors or
officers have designated as being self insured. The Company has not been
refused any insurance with respect to its assets or operations, or has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years.
15
<PAGE>
3.19. Labor Difficulties. Except to the extent set forth in Section
------------------
3.19 of the Disclosure Schedule, (a) the Company and all Company Subsidiaries
are in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice; (b) there is no unfair labor practice
complaint against the Company pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or affecting the Company; (d) no representation question
exists respecting the employees of the Company; (e) no grievance nor any
arbitration proceeding arising out of or under collective bargaining agreements
is pending and no claim therefor exists; (f) no collective bargaining agreement
which is binding on the Company restricts any of them from relocating or closing
any of their operations; and (g) the Company has not experienced any work
stoppage or other labor difficulty at any time during its last three (3) fiscal
years or since the Balance Sheet Date.
3.20. Fringe Benefit Plans. Except as set forth in Section 3.20 of the
--------------------
Disclosure Schedule, neither the Company nor any Company Subsidiary has any
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option or any other fringe benefit plan, arrangement or
practice, whether formal or informal. Section 3.20 of the Disclosure Schedule
contains an accurate and complete description of, and sets forth the annual
amount payable pursuant to, each bonus, deferred compensation, pension, profit-
sharing or retirement plan or arrangement, and each other fringe benefit plan,
of the Company and each Company Subsidiary, whether formal or informal. The
aggregate of such amounts will not exceed $15,000 for the fiscal year ended
December 31, 1999 and the Balance Sheet reflects in the aggregate an accrual of
all amounts accrued but unpaid under the aforesaid plans and
16
<PAGE>
arrangements as of the Balance Sheet Date. Neither the Company nor any Company
Subsidiary has any commitment, whether formal or informal and whether legally
binding or not, to create any additional such plan or arrangement.
3.21. Litigation. Except as set forth in Section 3.21 of the
----------
Disclosure Schedule, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or threatened against or involving
the Company, or which questions or challenges the validity of this Agreement or
any action taken or to be taken by the Company pursuant to this Agreement or in
connection with the transactions contemplated hereby; nor is there any valid
basis for any such action, proceeding or investigation. Except as set forth in
Section 3.21 of the Disclosure Schedule, the Company is not in default under or
in violation of, nor is there any valid basis for any claim of default under or
violation of, any contract, commitment or restriction to which it is a party or
by which it is bound. The Company is not subject to any judgment, order or
decree entered in any lawsuit or proceeding which may have an adverse effect on
its business practices or on its ability to acquire any property or conduct its
business in any area.
3.22. Consents and Approvals of Governmental Authorities. Except as set
--------------------------------------------------
forth in Section 3.22 of the Disclosure Schedule, no consent, approval or
authorization of, or declaration, filing or registration with any person or
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.23. Compliance with Law. The operations of the Company have been
-------------------
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all states,
municipalities and other political subdivisions and
17
<PAGE>
agencies thereof, having jurisdiction over the Company. The Company has not
received any notification of any asserted present or past failure by the Company
to comply with such laws, rules or regulations.
3.24. Environmental Protection. The Company has obtained all permits,
------------------------
licenses and other authorizations which are required under federal, state and
local laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. The Company is in full compliance with all terms and
conditions of the required permits, licenses and authorizations, and is also in
full compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder.
The Company is not aware of, nor has the Company received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance, or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste.
3.25. ERISA. The Company has no benefit plans that are subject to the
-----
Employee
18
<PAGE>
Retirement Income Security Act of 1974, as amended ("ERISA").
3.26. Brokers and Finders. Neither the Company nor any of its
-------------------
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
3.27. Personnel. Section 3.27 of the Disclosure Schedule sets forth a
---------
true and complete list of:
(a) the names and current salaries of all directors and elected and
appointed officers, and each employee whose annual compensation is in excess of
$50,000 of the Company, the number of shares of the Company Stock owned
beneficially or of record, or both, by each such person and the amount of annual
compensation of each and the family relationships, if any, among such persons;
and
(b) all group insurance programs in effect for employees of the
Company. The Company is not in default with respect to any of its obligations
referred to in the preceding sentence.
3.28. Insider Interests. Except as set forth in Section 3.28 of the
-----------------
Disclosure Schedule, no officer or director of the Company has any material
interest in any property, real or personal, tangible or intangible, including
without limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Company.
3.29. Disclosure. No representations or warranties by Haines or the
----------
Company in this Agreement and no statement contained in any document (including,
without limitation, financial statements and the Disclosure Schedule),
certificate, or other writing furnished or to be furnished
19
<PAGE>
by the Company to Acquiror or any of its representatives pursuant to the
provisions hereof or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of material fact or omits or will
omit to state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR'S SUBSIDIARY
Acquiror and Acquiror's Subsidiary, jointly and severally, represent and
warrant to the Company as follows:
4.01. Corporate Organization; Etc. Acquiror and Acquiror's Subsidiary
---------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the State of Nevada. All the issued and outstanding shares of capital
stock of Acquiror's Subsidiary have been duly authorized by all necessary
corporation action and are validly issued, fully paid and nonassessable and are
owned by Acquiror.
4.02. Authorization; Etc. Acquiror and Acquiror's Subsidiary have full
------------------
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Boards of Directors of Acquiror and
Acquiror's Subsidiary have taken all action required by law, their respective
Articles of Incorporation and By-Laws or otherwise to authorize the execution
and delivery of this Agreement and the transactions contemplated hereby, and
this Agreement is a valid and binding agreement of Acquiror and Acquiror's
Subsidiary enforceable
20
<PAGE>
in accordance with its terms except that (i) enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.03. No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the respective Certificate of Incorporation or By-Laws
of Acquiror or Acquiror's Subsidiary, or violate, or be in conflict with, or
constitute a default under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, any agreement or commitment to which Acquiror or
Acquiror's Subsidiary is a party or by which Acquiror or Acquiror's Subsidiary
is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
4.04. Acquiror's Common Stock Authorized. The issuance of Acquiror's
----------------------------------
Common Stock to Haines has been duly authorized by the Board of Directors of
Acquiror, and when issued at the Closing as provided herein, will be validly
issued, fully paid and non-assessable.
ARTICLE V
COVENANTS OF HAINES AND THE COMPANY
The Company hereby covenants and agrees with Acquiror:
5.01. Full Access. The Company shall afford, and Haines will cause the
-----------
Company to afford, to Acquiror, its counsel, accountants and other
representatives full access to the plants,
21
<PAGE>
offices, warehouses, properties, books and records of the Company in order that
Acquiror may have full opportunity to make such investigations as it shall
desire to make of the affairs of the Company; and the Company will cause its
officers and accountants to furnish such additional financial and operating data
and other information as Acquiror shall from time to time request.
5.02. Approval of Stockholders. The Company and its officers and
------------------------
directors shall (a) cause a meeting of the Company's stockholders to be duly
called and held as soon as practicable for the purpose of voting on this
Agreement, (b) recommend approval and adoption of this Agreement to the
Company's stockholders and (c) use their best efforts to obtain the necessary
approval and adoption of this Agreement by the Company's stockholders.
5.03. Consents of Company Lenders, Etc. Haines and the Company shall,
--------------------------------
use their best efforts to obtain at the earliest practicable date and prior to
the Closing all consents necessary to the consummation of the transactions
contemplated hereby and will provide to Acquiror copies of each such consent
promptly after it is obtained.
5.04. Supplements to Disclosure Schedule. From time to time prior to
----------------------------------
the Closing, the Company will, and Haines will cause the Company to, promptly
supplement or amend the Disclosure Schedule with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in the Disclosure Schedule. No
supplement or amendment of the Disclosure Schedule made pursuant to this section
shall be deemed to cure any breach of any representation of or warranty made in
this Agreement unless Acquiror specifically agrees thereto in writing.
5.05. Other Transactions. None of Haines, the Company nor its Board of
------------------
Directors shall enter into any discussions concerning, or approve or recommend
to the holders of any
22
<PAGE>
shares of its capital stock, any merger, consolidation, disposition of all or
substantially all of its business, properties or assets (other than pursuant to
this Agreement), any tender offer, acquisition or other business combination, or
proposal therefor, or furnish or cause to be furnished any information
concerning the business, properties or assets of the Company to any party in
connection with any tender offer or other transaction involving the acquisition
of the Company or all or any substantial part of its assets by any person other
than Acquiror or Acquiror's Subsidiary.
5.06. Covenant to Satisfy Conditions. Haines and the Company will use
------------------------------
their best efforts to insure that the conditions set forth in Article VIII
hereof are satisfied, insofar as such matters are within the control of any of
them.
5.07. Certificates. At the Closing Haines and the Company will furnish
------------
Acquiror with such certificates of its officers and others to evidence
compliance with the covenants set forth in this Article V as may be reasonably
requested by Acquiror.
ARTICLE VI
COVENANTS OF THE ACQUIROR
6.01. Federal Securities and Blue Sky Filings. Acquiror will take all
---------------------------------------
such action as may be necessary under all applicable federal securities laws and
regulations or the securities or Blue Sky laws of the States or other political
subdivisions of the United States in connection with the transactions
contemplated hereby.
6.02. Eligibility for Trading. Acquiror will use its best efforts to
-----------------------
maintain the eligibility of Acquiror's Common Stock for trading on the NASD OTC
Bulletin Board.
23
<PAGE>
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF HAINES AND THE COMPANY
Each and every obligation of Haines and the Company under this Agreement to
be performed on or before the Closing shall be subject to the satisfaction, on
or before the Closing, of each of the following conditions, unless waived in
writing by the Company:
7.01. Representations and Warranties True. The representations and
-----------------------------------
warranties of Acquiror and Acquiror's Subsidiary contained herein shall be in
all material respects true and accurate as of the date when made at and as of
the Closing as though such representations and warranties were made at and as of
such date, except for changes expressly permitted or contemplated by the terms
of this Agreement.
7.02. Performance. Acquiror and Acquiror's Subsidiary shall have
-----------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing.
7.03. Approval of Company's Stockholders. The approval of the
----------------------------------
stockholders of the Company referred to in Section 5.02(c) hereof shall have
been obtained.
7.04. No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
7.05. Certificates. Acquiror and Acquiror's Subsidiary shall have
------------
furnished the Company with such certificates of their officers and others to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by the Company.
24
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS
OF ACQUIROR AND ACQUIROR'S SUBSIDIARY
Each and every obligation of Acquiror and Acquiror's Subsidiary under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Acquiror:
8.01. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Article III hereof, the Disclosure Schedule and in all
certificates and other documents delivered and to be delivered by Haines or the
Company to Acquiror or Acquiror's Subsidiary or their representatives pursuant
hereto or in connection with the transactions contemplated hereby shall be true,
complete and accurate as of the date when made at and as of the Closing Date as
though such representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
8.02. Performance. Haines and the Company shall have performed and
-----------
complied with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
8.03. Investigations; Etc. Neither any investigation of Haines or the
-------------------
Company by Acquiror or Acquiror's Subsidiary, nor the Disclosure Schedule or any
supplement thereto nor any other document delivered to Acquiror or Acquiror's
Subsidiary as contemplated by this Agreement, shall have revealed any facts or
circumstances which, in the sole and exclusive judgment of Acquiror, reflect in
a material adverse way on the financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, business, operations or
prospects
25
<PAGE>
of the Company.
8.04. Approval of Company Stockholders; Etc. The approval of the
-------------------------------------
stockholders of the Company referred to in Section 5.02(c) hereof and all
consents from third parties and government agencies required to consummate the
transactions contemplated hereby shall have been obtained.
8.05. No Government Proceeding or Litigation. No suit, action,
--------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby or which in the sole and exclusive judgment of Acquiror
might have a material adverse effect on the business or financial condition of
the Company.
8.06. No Injunction. On the Closing Date there shall be no effective
-------------
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as so provided or imposing
any conditions on the consummation of the transaction contemplated hereby which
the Acquiror deems unacceptable in its sole discretion.
8.07. Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Company shall not have suffered any adverse change (whether or
not such change is referred to or described in any supplement to the Disclosure
Schedule) in its business, prospects, financial condition, working capital,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
8.08. Opinion of the Company's Counsel. Haines and the Company shall
--------------------------------
have delivered to Acquiror an opinion of Kohnen Patton, counsel to Haines and
the Company, dated
26
<PAGE>
as of the Closing Date, in form and substance satisfactory to Acquiror, to the
effect that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(b) The Company is duly qualified as a foreign corporation and in good
standing in each jurisdiction in which such qualification is necessary;
(c) The Company has the corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns, and the Company has the full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby;
(d) The authorized capital stock of the Company consists of 100 shares
of Common Stock, $1.00 par value per share, and, stating that all 100 of such
shares were issued and outstanding, that such issued shares have been duly and
validly authorized and issued and are fully paid and nonassessable and that such
shares are owned beneficially and of record by Thomas Haines, free and clear of
any lien, claim, charge or encumbrance;
(e) Based upon an examination of the records of the Company, to the
best of the knowledge of such counsel except as disclosed in this Agreement or
pursuant hereto, there are no outstanding options, warrants or other rights to
purchase or acquire any capital stock of the Company;
(f) All corporate action by the Company required in order to authorize
the transactions contemplated hereby has been duly and validly taken; and this
Agreement has been duly executed and delivered by the Company and is the valid
and binding obligation of Haines and the Company enforceable in accordance with
its terms except that (i) such enforcement may
27
<PAGE>
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors, rights, and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought;
(g) Haines has complete and unrestricted power to sell, convey,
assign, transfer and deliver to Acquiror the Company Stock to be sold, conveyed,
assigned, transferred and delivered pursuant hereto; and the instruments of
sale, conveyance, assignment and transfer executed and delivered to Acquiror or
Acquiror's Subsidiary hereunder are duly executed, are valid and binding
obligations of Haines as contemplated by this Agreement;
(h) Neither the execution and delivery of this Agreement by Haines and
the Company nor the consummation of the transactions contemplated hereby will
violate the Certificate of Incorporation or By-Laws of the Company or, will
violate, conflict with, or constitute a default under, or cause the acceleration
of maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any security interest, lien or other encumbrance upon any property
or assets of the Company, under any contract, commitment, agreement, trust,
understanding, arrangement or restriction of any kind to which Haines or the
Company is a party or by which Haines or the Company is bound or violate any
statute or law, or any judgment, decree, order, regulation or rule of any court
or governmental authority;
(i) The Company is not engaged in or threatened with any legal action
or other proceeding or has incurred or been charged with or is under
investigation with respect to any violation of any federal, state or local law
or administrative regulation which if adversely determined might adversely
affect or impair the business or condition, financial or otherwise, of
28
<PAGE>
the Company;
(j) No consent of any governmental body nor of any other person, is
required for the consummation by Haines and the Company of the transactions
contemplated hereby;
(k) To the best knowledge of such counsel, the Company is in
compliance with all applicable laws and regulations;
(l) No facts have come to the attention of such counsel which would
lead them to believe that any representation or warranty of Haines or the
Company contained herein or in the Disclosure Schedule or any supplement thereto
is incorrect, false or misleading; and
(m) As to such other matters incident to the matters herein
contemplated as Acquiror and its counsel may reasonably request, including the
form of all documents and the validity of all proceedings.
8.09. Consents Obtained. All consents referred to in Sections 3.04,
-----------------
3.05, 3.14 and 3.25 shall have been obtained.
8.10. Employment Contract. At or prior to the Closing, Acquiror's
-------------------
Subsidiary shall have entered into a contract with Thomas Haines satisfactory to
Acquiror providing for his employment by Acquiror commencing upon the Closing.
29
<PAGE>
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS
PENDING THE CLOSING
Pending the Closing, and except as otherwise expressly consented to or
approved by Acquiror in writing:
9.01. Regular Course of Business. The Company will, and Haines will
--------------------------
cause the Company to, carry on its business diligently and substantially in the
same manner as heretofore conducted, and shall not institute any new methods of
manufacture, purchase, sale, lease, management, accounting or operation or
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business and consistent with past
practice.
9.02. Amendments. No change or amendment shall be made in the
----------
Certificate of Incorporation or By-Laws of the Company.
9.03. Capital Changes; Dividends; Redemptions. The Company will not,
---------------------------------------
and Haines will not cause the Company to, issue or sell any shares of its
capital stock or other securities, acquire directly or indirectly, by redemption
or otherwise, any such capital stock, reclassify or split-up any such capital
stock, declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or grant or enter
into any options, warrants, calls or commitments of any kind with respect
thereto.
9.04. Subsidiaries. The Company will not, and Haines will not cause
------------
the Company to, organize any new subsidiary, acquire any capital stock or other
equity securities of any corporation or acquire any equity or ownership interest
in any business.
30
<PAGE>
9.05. Organization. The Company and Haines shall use their best
------------
efforts to preserve the corporate existence and business organization of the
Company intact, to keep available to Acquiror its officers and key employees,
and to preserve for Acquiror its relationships with licensors, suppliers,
distributors, customers and others having business relations with it.
9.06. Certain Changes. The Company will not:
---------------
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), except obligations and liabilities
incurred in the ordinary course of business and consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90 days
from the date such obligation was issued or incurred;
(d) Permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or
encumbrance, except for those of a kind permitted under Section 3.11 hereof;
(e) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable;
(f) Cancel any debts or waive any claims or rights of substantial
value or sell,
31
<PAGE>
transfer, or otherwise dispose of any of its properties or assets, except in the
ordinary course of business and consistent with past practice;
(g) Dispose of or permit to lapse any rights to the use of any patent,
trademark, trade name or copyright, or dispose of or disclose to any person any
trade secret, formula, process or know-how not theretofore a matter of public
knowledge;
(h) Grant any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee;
(i) Make any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant or equipment or make aggregate capital
expenditures and commitments in excess of $10,000 (on a consolidated basis) for
additions to property, plant or equipment;
(j) Pay, loan or advance any amount to, or sell transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its officers
or directors, except for directors' fees and compensation to officers at rates
not exceeding the rates of compensation paid during the fiscal year ended
December 31, 1998;
(k) Change any of the banking or safe deposit arrangements described
in Section 3.14 of the Disclosure Schedule;
(1) Grant or extend any power of attorney or act as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person,
32
<PAGE>
corporation, partnership, joint venture, association, organization or other
entity; or
(m) Agree, whether in writing or otherwise, to do any of the
foregoing.
9.07. Contracts. No contract or commitment will be entered into, and
---------
no purchase of raw material or supplies and no sale of assets will be made, by
or on behalf of the Company, except (i) normal contracts or commitments for the
purchase of, and normal purchases of, raw materials or supplies, made in the
ordinary course of business and consistent with past practice, (ii) normal
contracts or commitments for the sale of, and normal sales of, inventory in the
ordinary course of business and consistent with past practice, and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
and consistent with past practice not in excess of $10,000 in the aggregate.
9.08. Insurance; Property. The Company shall, and Haines will cause the
-------------------
Company to, adequately insure all property, real, personal and mixed, owned or
leased by the Company, against all ordinary and insurable risks; and all such
property shall be used, operated, maintained and repaired in a careful and
reasonably efficient manner.
9.09. No Default. Neither the Company nor Haines shall do any act or
----------
omit to do any act, or permit any act or omission to act, which will cause a
breach of any material contract or commitment of the Company or which would
cause the breach of any warranty made hereunder.
9.10. Compliance With Laws. The Company shall, and Haines will cause
--------------------
the Company to, duly comply with all laws applicable to it and its properties,
operations, business and employees.
9.11. Tax Returns. The Company shall, and Haines will cause the
-----------
Company to, prepare and file all federal, state, local and foreign tax returns
and amendments thereto required to be
33
<PAGE>
filed by it. Haines will cause the Company to ensure that Acquiror shall have a
reasonable opportunity to review each such return and amendment prior to the
filing thereof.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.01. Investigations; Survival of Warranties. The respective
--------------------------------------
representations and warranties of Haines, the Company, Acquiror's Subsidiary and
Acquiror contained herein or in any certificates or other documents delivered
prior to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party hereto. Each and every such representation
and warranty shall survive the Closing for a period of two (2) years thereafter.
ARTICLE XI
TERMINATION AND ABANDONMENT
11.01. Methods of Termination. The transactions contemplated herein may
----------------------
be terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual consent of the respective Boards of Directors of
Acquiror and the Company; or
(b) By the Board of Directors of Acquiror on or after February 28,
1999, or such later date as may be established pursuant to Section 1.03 hereof,
if any of the conditions provided for in Article VIII of this Agreement shall
not have been met or waived in writing by Acquiror prior to such date.
34
<PAGE>
11.02. Procedure Upon Termination. In the event of termination and
--------------------------
abandonment by the Board of Directors of Acquiror or by the Board of Directors
of the Company, or both, pursuant to Section 11.01 hereof, written notice
thereof shall forthwith be given to the other party and the transactions
contemplated by this Agreement shall be terminated and/or abandoned, without
further action by Acquiror or the Company. If the transactions contemplated by
this Agreement are terminated and/or abandoned as provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be treated
in accordance with Section 2.01 hereof; and
(c) No party hereto shall have any liability or further obligation to
any other party to this Agreement except as stated in subparagraphs (a) and (b)
of this Section 11.02.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented by written agreement of
Haines and the respective Boards of Directors of the Company and Acquiror or by
their respective officers authorized by such Boards of Directors at any time
prior to the Closing with respect to any of the terms contained herein.
35
<PAGE>
12.02. Waiver of Compliance. Any failure of Haines or the Company, on
--------------------
the one hand, or Acquiror, on the other, to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing by
the Chairman of the Board or the President of Acquiror or Haines or the Company,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
12.03. Expenses; Transfer Taxes, Etc. Whether or not the transaction
-----------------------------
contemplated by this Agreement shall be consummated, Haines and the Company
agree that all fees and expenses incurred by him or it in connection with this
Agreement shall be borne by him or it and Acquiror agrees that all fees and
expenses incurred by it in connection with this Agreement shall be borne by it,
including, without limitation, all fees of counsel and accountants. Haines
agrees that it will pay all sales, transfer or other taxes which may be payable
in connection with the transactions contemplated by this Agreement.
12.04. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to Haines or the Company, to:
Nissco/Sunline, Inc.
14848 Old U.S. 41
#13 Sunburst Center
Naples, FL 34110
Attn: Thomas Haines
Phone: 941-594-7988
Fax: 941-514-7299
36
<PAGE>
or to such other person or address as the Company shall furnish to Acquiror or
Acquiror's Subsidiary in writing.
(b) If to Acquiror or Acquiror's Subsidiary, to:
Enviro-Clean of America, Inc.
13405 Floyd Circle
Suite 103
Dallas, TX 75243
Attn: Robert Moehler
Phone: (972) 241-2669
Fax: (972) 620-2431
(with a copy to:)
Martin W. Enright, Esq.
Harrington, Ocko & Monk, LLP
81 Main Street
White Plains, NY 10601
Phone: (914) 686-4800
Fax: (914) 686-4824
or to such other person or address as Acquiror shall furnish to the Company in
writing.
12.05. Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
(except by operation of law and except that Acquiror may assign its rights, but
not its obligations, under this Agreement to any subsidiary of Acquiror). If
such assignment shall be made by Acquiror, such subsidiary shall be entitled to
all of the rights and shall assume all of the obligations of Acquiror hereunder,
provided that Acquiror shall guarantee the performance of such subsidiary's
obligations under this Agreement and shall deliver evidence thereof reasonably
37
<PAGE>
satisfactory to the Company.
12.06. Publicity. None of Haines, the Company nor Acquiror shall make or
---------
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
party. This provision shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any federal or state
governmental agency or any stock exchange, except that the party required to
make such announcement shall, whenever practicable, consult with the other party
concerning the timing and content of such announcement before such announcement
is made.
12.07. Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to its conflicts of law doctrine.
12.08. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.09. Headings. The headings of the Sections and Articles of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
12.10. Entire Agreement. This Agreement, including the Exhibits hereto,
----------------
the Disclosure Schedule and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrangements,
38
<PAGE>
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
12.11. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
_______________________________________
Thomas B. Haines
NISSCO/SUNLINE, INC.
By:____________________________________
Name:
Title:
Attest:
_________________________
Name:
Title:
ENVIRO-CLEAN OF AMERICA, INC.
By:____________________________________
Name:
Title:
Attest:
_________________________
Name:
Title:
ENVIROACQII CO.
By:____________________________________
Name:
Title:
Attest:
_________________________
Name:
Title:
40
<PAGE>
EXHIBIT 3.I
ARTICLES OF INCORPORATION
OF
ENVIRO-CLEAN OF AMERICA, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the laws
of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
Enviro-Clean of America, Inc.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which
this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other things
incidental thereto which are not forbidden by law or by these Articles
of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted
by 78.060 and 78.070 of the Nevada Revised Statutes under which this corporation
is formed. In addition, the Corporation shall have the following specific
powers:
(a) To elect or appoint officers and agents of the Corporation and to fix
their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession
<PAGE>
thereof, sell, or otherwise dispose of, shares or other interests in,
or obligations of, individuals, associations, partnerships,
corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of
shares of the corporation, but such shares may only be purchased,
directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of war, to
make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
-----------------
Corporation is authorized to issue is 25,000,000 shares of Capital Stock at
$.001 par value per share as set forth in subsections (a) and (b) of this
Section 1 of Article VI.
(a) The total number of shares of Common Stock which this Corporation is
authorized to issue is 20,000,000 shares at $.001 par value per share.
(b) The total number of shares of Preferred Stock which this Corporation
is authorized to issue is 5,000,000 shares at $.001 par value per
share, which Preferred Stock may contain special preferences as
determined by the Board of Directors of the Corporation, including,
but not limited to, the bearing of interest and convertibility into
shares of Common Stock of the Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common Stock
-----------------------------
shall be entitled to one vote for each share of stock standing in his name
on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued for
------------------------
such consideration, as shall be fixed from time to time by the Board of
Directors. In the absence of fraud, the judgment of the Directors as to the
value of any property for shares shall be conclusive. When shares are
issued upon payment of the consideration fixed by the Board of Directors,
such shares shall be taken to be fully paid stock and shall be non-
assessable. The Articles shall not be amended in this particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by the
------------------
Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for, or
otherwise acquire any shares of stock of the Corporation of any class now
or hereafter authorized, or any securities exchangeable for or convertible
into such shares, or any warrants or other instruments evidencing rights or
options to subscribe for, purchase, or otherwise acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the power
------------------------
to create and issue rights, warrants, or options entitling the holders
thereof to purchase from the
2
<PAGE>
corporation any shares of its capital stock of any class or classes, upon
such terms and conditions and at such times and prices as the Board of
Directors may provide, which terms and conditions shall be incorporated in
an instrument or instruments evidencing such rights. In the absence of
fraud, the judgment of the Directors as to the adequacy of consideration
for the issuance of such rights or options and the sufficiency thereof
shall be conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after
the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of the
Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
-------------
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name and
post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, NV 89121
Section 2. Powers of Board. In furtherance and not in limitation of the
---------------
powers conferred by the laws of the State of Nevada, the Board of Directors
is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power of
the shareholders to alter or repeal the By-Laws made by the Board of
Directors.
(b) Subject to the applicable provisions of the By-Laws then in effect, to
determine, from time to time, whether and to what extent, and at what
times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open
to shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books or documents of the Corporation,
except as permitted by law, unless and until authorized to do so by
resolution of the Board of Directors or of the Shareholders of the
Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with the
action of the board of directors without vote or
3
<PAGE>
consent of the shareholders and the judgment of the board of directors
as to value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of
the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine, and to
pledge or mortgage, as security therefore, any real or personal
property of the Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned surplus
of the Corporation shall be paid in dividends to the shareholders, and
to direct and determine other use and disposition of any such earned
surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers and
directors, of the Corporation, and to fix the amount of profits to be
shared or distributed, and to determine the persons to participate in
any such plans and the amount of their respective participations.
(h) To designate, by resolution or resolutions passed by a majority of the
whole Board, one or more committees, each consisting of two or more
directors, which, to the extent permitted by law and authorized by the
resolution or the By-Laws, shall have and may exercise the powers of
the Board;
(i) To provide for the reasonable compensation of its own members by By-
Law, and to fix the terms and conditions upon which such compensation
will be paid;
(j) In addition to the powers and authority herein before, or by statute,
expressly conferred upon it, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or
done by the corporation, subject, nevertheless, to the provisions of
the laws of the State of Nevada, of these Articles of Incorporation,
and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between this
--------------------
Corporation and any of its directors, or between this Corporation and any
other corporation, firm, association, or other legal entity shall be
invalidated by reason of the fact that the director of the Corporation has
a direct or indirect interest, pecuniary or otherwise, in such corporation,
firm, association, or legal entity, or because the interested director was
present at the meeting of the Board of Directors which acted upon or in
reference to such contract or transaction, or because he participated in
such action, provided that: (1) the interest of each such director shall
have been disclosed to or known by the Board and a disinterested majority
of the Board shall have nonetheless ratified and approved such contract or
transaction (such interested director or
4
<PAGE>
directors may be counted in determining whether a quorum is present for the
meeting at which such ratification or approval is given); or (2) the
conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suite or proceeding, by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not of itself create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and
that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action or suit by or in the right of the corporation, to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit, if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable
to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the
5
<PAGE>
circumstances of the case the person is fairly and reasonably entitled
to indemnity for such expenses as the court deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and
(b) of this Article, or in defense of any claim, issue or matter
therein, he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by a
court or advanced pursuant to subsection (e), must be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or
proceeding;
(iii) If a majority vote of a quorum consisting of directors who were
not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
(e) Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is
not entitled to be indemnified by the corporation. The provisions of
this subsection do not affect any rights to advancement of expenses to
which corporate personnel other than directors or officers may be
entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the certificate or articles of incorporation or any bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise, for either an action in his official
6
<PAGE>
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court
pursuant to subsection (b) or for the advancement of expenses
made pursuant to subsection (e) may not be made to or on behalf
of any director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to the
cause of action.
(ii) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or offices
and to maintain the books of the Corporation outside the State of Nevada, at
such place or places as may from time to time be designated in the By-Laws or by
appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be added.
All rights herein conferred on the directors, officers and shareholders are
granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
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<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 9th day of December, 1997.
_____________________________
Max C. Tanner
ACKNOWLEDGMENT
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
On December 9, 1997, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for Enviro-Clean of America, Inc., a Nevada corporation.
_____________________________
Notary Public
8
<PAGE>
CERTIFICATE OF ACCEPTANCE
OF APPOINTMENT BY RESIDENT AGENT
IN THE MATTER OF ENVIRO-CLEAN OF AMERICA, INC.
I, Max C. Tanner, do hereby certify that on the 9th day of December, 1997,
I accepted the appointment as Resident Agent of the above-entitled corporation
in accordance with Sec. 78.090, NRS 1957.
Furthermore, that the principal office in this state is located at The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, City of Las Vegas
89121, County of Clark, State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of December,
1997.
MAX C. TANNER
By: _______________________________
Max C. Tanner, Esq.
Resident Agent
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<PAGE>
EXHIBIT 3.II
BY-LAWS OF
ENVIRO-CLEAN OF AMERICA, INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders
--------------
shall be held at such date and time as shall be designated by the board of
directors and stated in the notice of the meeting or in a duly-executed waiver
of notice thereof. If the corporation shall fail to provide notice of the annual
meeting of the shareholders as set forth above, the annual meeting of the
shareholders of the corporation shall be held during the month of December or
January of each year as determined by the Board of Directors, for the purpose of
electing directors of the corporation to serve during the ensuing year and for
the transaction of such other business as may properly come before the meeting.
If the election of the directors is not held on the day designated herein for
any annual meeting of the shareholders, or at any adjournment thereof, the
president shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders may
----------------
be called by the president or the Board of Directors and shall be called by the
president at the written request of the holders of not less than 51% of the
issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
-----------------
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
------------------
(a) The secretary shall sign and deliver to all shareholders of
record written or printed notice of any meeting at least ten (10) days, but
not more than sixty (60) days, before the date of such meeting; which
notice shall state the place, date and time of the meeting, the general
nature of the business to be transacted, and, in the case of any meeting at
which directors are to be elected, the names of nominees, if any, to be
presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid only
if the general nature of the proposal is stated in the notice or written
waiver of notice:
(1) Action with respect to any contract or transaction
between the
<PAGE>
corporation and one or more of its directors or another firm,
association, or corporation in which one or more of its directors
has a material financial interest;
(2) Adoption of amendments to the Articles of
Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution
of the corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address thereof,
as the same appears on the books of the corporation, and the giving of such
notice shall be deemed delivered the date the same is deposited in the
United States mail, postage prepaid. If the address of any shareholder does
not appear upon the books of the corporation, it will be sufficient to
address any notice to such shareholder at the principal office of the
corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and place
the notice was mailed or personally delivered to the several shareholders,
and the addresses to which the notice was mailed shall be prima facie
evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
----------------
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
---------------------------------------
(a) The Board of Directors may at any time fix a future date as
a record date for the determination of the shareholders entitled to notice
of any meeting or to vote or entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any
rights in respect of any other lawful action. The record date so fixed
shall not be more than sixty (60) days prior to the date of such meeting
nor more than sixty (60) days prior to any other action. When a record date
is so fixed, only shareholders of record on that date are entitled to
notice of and to vote at the meeting or to receive the dividend,
distribution or allotment of rights, or to exercise their rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; (2) the record date for determining
shareholders entitled to give consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which written consent is given; and (3) the
record date for determining shareholders for any other purpose shall be at
the close of
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<PAGE>
business on the day on which the Board of Directors adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such
other action, whichever is later.
Section 1.07 Quorum: Adjourned Meetings.
--------------------------
(a) At any meeting of the shareholders, a majority of the issued
and outstanding shares of the corporation represented in person or by
proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding shares
are represented, a majority of shares so represented may adjourn from time
to time at the meeting, until holders of the amount of stock required to
constitute a quorum shall be in attendance. At any such adjourned meeting
at which a quorum shall be present, any business may be transacted which
might have been transacted as originally called. When a shareholders'
meeting is adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, unless the adjournment is for
more than ten (10) days in which event notice thereof shall be given.
Section 1.08 Voting.
------
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote for
each share of stock standing registered in such shareholder's name on the
books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date
(included pledged shares) shall be cast only by that individual or such
individual's duly authorized proxy or attorney-in-fact. With respect to
shares held by a representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be cast by such
holder upon proof of capacity, even though the shares do not stand in the
name of such holder. In the case of shares under the control of a receiver,
the receiver may cast votes carried by such shares even though the shares
do not stand in the name of the receiver provided that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name
of a minor, votes may be cast only by the duly-appointed guardian of the
estate of such minor if such guardian has provided the corporation with
written notice and proof of such appointment.
(c) With respect to shares standing in the name of a corporation
on the record date, votes may be cast by such officer or agents as the by-
laws of such corporation prescribe or, in the absence of an applicable by-
law provision, by such person as may be appointed by resolution of the
Board of Directors of such corporation. In the event no person is so
appointed, such votes of the corporation may be cast by any person
(including the officer making the authorization) authorized to do so by the
Chairman of the Board of Directors, President or any Vice President of such
corporation.
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<PAGE>
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast with
respect thereto on any matter except to the extent that the beneficial
owner thereof possesses and exercises either a right to vote or to give the
corporation holding the same binding instructions on how to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by the
entirety, voting trustees, persons entitled to vote under a shareholder
voting agreement or otherwise and shares held by two or more persons
(including proxy holders) having the same fiduciary relationship respect in
the same shares, votes may be cast in the following manner:
(1) If only one such person votes, the votes of such person
binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed
cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case
of elections of directors. If such holder entitled to vote fails to specify
the number of affirmative votes, it will be conclusively presumed that the
holder is casting affirmative votes with respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote on
any matter shall be the act of the shareholders, unless a vote of greater
number or voting by classes is required by the laws of the State of Nevada,
the Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
-------
shares entitled to vote may authorize another person or persons to vote by proxy
with respect to the shares held by an instrument in writing and subscribed to by
the holder of such shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from the date of execution thereof, unless coupled
with an interest or unless otherwise specified in the proxy. In no event shall
the term of a proxy exceed seven (7) years from the date of its execution. Every
proxy shall continue in full force and effect until its expiration or
revocation. Revocation may be effected by filing an instrument revoking the same
or a duly-executed proxy bearing a later date with the secretary of the
corporation.
Section 1.10 Order of Business. At the annual shareholders meeting, the
-----------------
regular order of business shall be as follows:
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<PAGE>
(1) Determination of shareholders present and existence of
quorum;
(2) Reading and approval of the minutes of the previous
meeting or meetings;
(3) Reports of the Board of Directors, the president,
treasurer and secretary of the corporation, in the order named;
(4) Reports of committee;
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any meeting
-----------------------------
of the shareholders are as valid as though had at a meeting duly-held after
regular call and notice if a quorum is present, either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy (and those who, although present, either
object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice if such objection is
expressly made at the beginning. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be specified
in any written waiver of notice, except as otherwise provided in Section 1.04(b)
of these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be taken by
----------------------
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or such
greater proportion as may be required by the laws of the State of Nevada, the
Articles of Incorporation, or these By Laws. Whenever action is taken by written
consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
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<PAGE>
Section 2.01 Number, Tenure and Qualification. Except as otherwise
--------------------------------
provided herein, the Board of Directors of the corporation shall consist of at
least one (1) but no more than nine (9) persons, who shall be elected at the
annual meeting of the shareholders of the corporation and who shall hold office
for one (1) year or until their successors are elected and qualify.
Section 2.02 Resignation. Any director may resign effective upon giving
-----------
written notice to the chairman of the Board of Directors, the president, or the
secretary of the corporation, unless the notice specifies a later time for
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board or
the shareholders may elect a successor to take office when the resignation
becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
-------------------
directors shall have the effect of removing any director prior to the expiration
of his term of office.
Section 2.04 Removal.
-------
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of a
director who has been declared incompetent by an order of a court of
competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
---------
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be
filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the affirmative
vote of a majority thereof. A Board of Directors consisting of less than
the maximum number authorized in Section 2.01 of ARTICLE II constitutes
vacancies on the Board of Directors for purposes of this paragraph and may
be filled as set forth above including by the election of a majority of the
remaining directors. Each successor so elected shall hold office until the
next annual meeting of shareholders or until a successor shall have been
duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, any holder
or holders of an aggregate of five percent (5%) or more of the total number
of shares entitled to vote may call a special meeting of shareholders to be
held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
Section 2.06 Regular Meetings. Immediately following the adjournment of,
----------------
and at the same place as, the annual meeting of the shareholders, the Board of
Directors, including directors newly elected, shall hold its annual meeting
without notice, other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date and hour for
holding additional regular
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<PAGE>
meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the chairman and shall be called by the chairman upon
the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
-----------------
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in Section
------------------
2.06, the chairman shall deliver to all directors written or printed notice of
any special meeting, at least three (3) days before the date of such meeting, by
delivery of such notice personally or mailing such notice first class mail, or
by telegram. If mailed, the notice shall be deemed delivered two (2) business
days following the date the same is deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting, and the attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
unless such attendance is for the express purpose of objecting to the
transaction of business threat because the meeting is not properly called or
convened.
Section 2.10 Quorum: Adjourned Meetings.
--------------------------
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time,
until a quorum is present, and no notice of such adjournment shall be
required. At any adjourned meeting where a quorum is present, any business
may be transacted which could have been transacted at the meeting
originally called.
Section 2.11 Action Without Meeting. Any action required or permitted
-----------------------
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all of
the members of the Board of Directors or of such committee. Such written consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors or committee. Such action by written consent shall have the same force
and effect as the unanimous vote of the Board of Directors or committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors may
-------------------
be held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting constitutes
presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of the
---------------
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
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<PAGE>
Section 2.14 Powers and Duties.
-----------------
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors is
invested with the complete and unrestrained authority to manage the affairs
of the corporation, and is authorized to exercise for such purpose as the
general agent of the corporation, its entire corporate authority in such
manner as it sees fit. The Board of Directors may delegate any of its
authority to manage, control or conduct the current business of the
corporation to any standing or special committee or to any officer or agent
and to appoint any persons to be agents of the corporation with such
powers, including the power to sub-delegate, and upon such terms as may be
deemed fit.
(b) The Board of Directors shall present to the shareholders at
annual meetings of the shareholders, and when called for by a majority vote
of the shareholders at a special meeting of the shareholders, a full and
clear statement of the condition of the corporation, and shall, at request,
furnish each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
shareholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present. The
contract or act shall be valid and binding upon the corporation and upon
all the shareholders thereof, if approved and ratified by the affirmative
vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers conferred
by the laws of the State of Nevada, the Board of Directors is expressly
authorized and empowered to issue stock of the Corporation for money,
property, services rendered, labor performed, cash advanced, acquisitions
for other corporations or for any other assets of value in accordance with
the action of the Board of Directors without vote or consent of the
shareholders and the judgment of the Board of Directors as to the value
received and in return therefore shall be conclusive and said stock, when
issued, shall be fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and paid all
------------
necessary expenses incurred in attending any meetings of the Board.
Section 2.16 Board Officers.
--------------
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of the Board
of Directors. The Board of Directors may also elect such other board
officers and for such term as it may, from time to time, determine
advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of Directors
for the unexpired portion of the term of such office.
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Section 2.17 Order of Business. The order of business at any meeting of
-----------------
the Board of Directors shall be as follows:
(1) Determination of members present and existence of
quorum;
(2) Reading and approval of the minutes of any previous
meeting or meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
(6) New business;
(7) Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
--------
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and until
their successors are elected and qualify. Any person may hold two or more
offices. The Board of Directors may, from time to time, by resolution, appoint
one or more vice presidents, assistant secretaries, assistant treasurers and
transfer agents of the corporation as it may deem advisable; prescribe their
duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
--------------------
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to which
the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of death,
---------
resignation, removal, or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 President. The president shall be the general manager and
---------
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not
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especially entrusted to some other officer of the corporation. The president
shall preside at all meetings of the shareholders and shall sign the
certificates of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to act
and to vote at any meetings of the shareholders of any corporation in which the
corporation may hold stock and, at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time to time, may confer like powers
on any person or persons in place of the president to represent the corporation
for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one or
--------------
more vice presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed by
the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of all
---------
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be open
for examination by any director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint an
-------------------
assistant secretary who shall have such powers and perform such duties as may be
prescribed for him by the secretary of the corporation or by the Board of
Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
---------
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer shall sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these By-laws or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter regularly in the books of the corporation, to be kept for
that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The
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treasurer shall at all reasonable times exhibit the books of account to any
directors of the corporation and shall perform all acts incident to the position
of treasurer subject to the control of the Board of Directors. The treasurer
shall, if required by the Board of Directors, give a bond to the corporation in
such sum and with such security as shall be approved by the Board of Directors
for the faithful performance of all the duties of the treasurer and for
restoration to the corporation in the event of the treasurer's death,
resignation, retirement, or removal from office, of all books, records, papers,
vouchers, money and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint an
-------------------
assistant treasurer who shall have such powers and perform such duties as may be
prescribed by the treasurer of the corporation or by the Board of Directors, and
the Board of Directors may require the assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for the
restoration to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation shall
--------
be issued in such manner and at such times and upon such conditions as shall be
prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
------------
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be signed by the president or the vice president and also by the
secretary or an assistant secretary. Each certificate shall contain the name of
the record holder, the number, designation, if any, class or series of shares
represented, a statement of summary of any applicable rights, preferences,
privileges, or restrictions thereon, and a statement that the shares are
assessable, if applicable. All certificates shall be consecutively numbered. The
name and address of the shareholder, the number of shares, and the date of issue
shall be entered on the stock transfer books of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All certificates
-----------------------------------------
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificates shall be issued until the
former certificate for a like number of shares shall have been canceled, except
that in case of a lost, stolen, destroyed or mutilated certificate, a new one
may be issued therefor. However, any shareholder applying for the issuance of a
stock certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and an indemnity bond in an amount and upon such terms
as the treasurer, or the Board of Directors, shall require. In no case shall the
bond be in amount less than
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twice the current market value of the stock and it shall indemnify the
corporation against any loss, damage, cost or inconvenience arising as a
consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of Incorporation
-----------------------
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue a
new certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange the same for new certificates within a reasonable time to
be fixed by the Board of Directors. The order may provide that a holder of any
certificate(s) ordered to be surrendered shall not be entitled to vote, receive
dividends or exercise any other rights of shareholders until the holder has
complied with the order provided that such order operates to suspend such rights
only after notice and until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid as
------------------
against the corporation except on surrender and cancellation by the certificate
therefor, accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer on the books of the
corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
--------------
more transfer agents and registrars of transfer and may require all certificates
for shares of stock to bear the signature of such transfer agent and such
registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
--------------------
closed for a period of ten (10) days prior to all meetings of the shareholders
and shall be closed for the payment of dividends as provided in Article V hereof
and during such periods as, from time to time, may be fixed by the Board of
Directors, and, during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the power
-------------
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the provisions of the
laws of the State of Nevada and the Articles of Incorporation, by the Board of
Directors at any regular or special meeting and may be paid in cash, property,
shares of corporate stock, or any other medium. The Board of Directors may fix
in advance a record date, as provided in Section 1.06 of these By-laws, prior to
the dividend payment for the purpose of determining shareholders entitled to
receive
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payment of any dividend. The Board of Directors may close the stock transfer
books for such purpose for a period of not more than ten (10) days prior to the
payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
----------------
in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have an
office in any other state or territory as the Board of Directors may designate.
Section 6.02 Records. The stock transfer books and a certified copy of
-------
the By-laws, Articles of Incorporation, any amendments thereto, and the minutes
of the proceedings of the shareholders, the Board of Directors, and committees
of the Board of Directors shall be kept at the principal office of the
corporation for the inspection of all who have the right to see the same and for
the transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
---------------------------
shareholders holding at least five percent (5%) of the outstanding shares of any
class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such period.
In addition, if no annual report for the last fiscal year has been sent to
shareholders, such shareholder or shareholders may make a request for a balance
sheet as of the end of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year. The statement shall be
delivered or mailed to the person making the request within thirty (30) days
thereafter. A copy of the statements shall be kept on file in the principal
office of the corporation for twelve (12) months, and such copies shall be
exhibited at all reasonable times to any shareholder demanding an examination of
them or a copy shall be mailed to each shareholder. Upon request by any
shareholder, there shall be mailed to the shareholder a copy of the last annual,
semiannual or quarterly income statement which it has prepared and a balance
sheet as of the end of the period. The financial statements referred to in this
Section 6.03 shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 6.04 Right of Inspection.
-------------------
(a) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and committees of the Board
of Directors shall be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to such
holder's interest as a shareholder or as the holder of such voting trust
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<PAGE>
certificate. This right of inspection shall extend to the records of the
subsidiaries, if any, of the corporation. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation and/or
its subsidiary corporations. Such inspection may be made in person or by
agent or attorney, and the right of inspection includes the right to copy
and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by resolution,
--------------
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
-----------
be the calendar year or such other term as may be fixed by resolution of the
Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by resolution,
--------
out of the earned surplus of the corporation such reserves as the directors may,
from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends or to repair or maintain any property of
the corporation, or for such other purpose as the Board of Directors may deem
beneficial to the corporation, and the directors may modify or abolish any such
reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless prohibited
---------------
by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved in
any manner (including, without limitation, as a party or a witness) or is
threatened to be so involved in any threatened, pending or completed action suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its favor
(collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, against all Expenses and Liabilities actually and
reasonably incurred by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed to have been relied
upon by the directors, officers, employees and agents of the corporation and
shall be enforceable as a contract right and inure to the benefit of heirs,
executors and administrators of such individuals.
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Section 7.02 Indemnification Contracts. The Board of Directors is
-------------------------
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific rights
of indemnification in addition to the rights provided hereunder to the fullest
extent permitted by Nevada Law. Such agreements or arrangements may provide (i)
that the Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the corporation as they are
incurred and in advance of the final disposition of any such action, suit or
proceeding provided that, if required by Nevada Law at the time of such advance,
the officer or director provides an undertaking to repay such amounts if it is
ultimately determined by a court of competent jurisdiction that such individual
is not entitled to be indemnified against such expenses, (iii) that the
Indemnitee shall be presumed to be entitled to indemnification under this
Article or such agreement or arrangement and the corporation shall have the
burden of proof to overcome that presumption, (iii) for procedures to be
followed by the corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and (iv) for insurance
or such other Financial Arrangements described in Paragraph 7.02 of this
Article, all as may be deemed appropriate by the Board of Directors at the time
of execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation may,
------------------------------------
unless prohibited by Nevada Law, purchase and maintain insurance or make other
financial arrangements ("Financial Arrangements") on behalf of any Indemnitee
for any liability asserted against him and liability and expenses incurred by
him in his capacity as a director, officer, employee or agent, or arising out of
his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses. Such other Financial
Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
-----------
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs incurred, paid
or accrued, (ii) all attorneys' fees, retainers, court costs, transcripts,
fees of experts, witness fees, travel expenses, food and lodging expenses
while traveling, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service, freight or other transportation fees
and expenses, (iii) all other disbursements and out-of-pocket expenses,
(iv) amounts paid in settlement, to the extent permitted by Nevada Law, and
(v) reasonable compensation for time spent by the Indemnitee for which he
is otherwise not compensated by the corporation or any third party,
actually and reasonably incurred in connection with either the appearance
at or investigation, defense, settlement or appeal of a Proceeding or
establishing or enforcing a right to indemnification under any agreement or
arrangement, this Article, the Nevada Law or otherwise; provided, however,
that "Expenses" shall not include any judgments or fines or excise taxes or
penalties imposed under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or other excise taxes or penalties.
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<PAGE>
Liabilities. "Liabilities" means liabilities of any type
whatsoever, including, but not limited to, judgments or fines, ERISA or
other excise taxes and penalties, and amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or
other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04
of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including
this Paragraph, of these Bylaws may be amended by the stockholders only by
vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the
entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of any
class to vote is otherwise restricted or denied); provided, however, no
amendment or repeal of this Article shall adversely affect any right of any
Indemnitee existing at the time such amendment or repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board of
Directors only by vote of eighty percent (80%) of the total number of
Directors and the holders of sixty-six and two-thirds percent (66 2/3) of
the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of any
class to vote is otherwise restricted or denied); provided, however, no
amendment or repeal of this Article shall adversely affect any right of any
Indemnitee existing at the time such amendment or repeal becomes effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be
---------
made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a consent
in writing signed by the holders of a majority of the issued and outstanding
capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent
------------------
herewith may be adopted by the Board of Directors at any meeting of the Board of
Directors at which a quorum is
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present by an affirmative vote of a majority of the directors present or by the
unanimous consent of the Board of Directors in accordance with Section 2.11 of
these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected secretary of the Corporation, do
hereby certify that the foregoing By-laws were adopted by the Directors on the
9th day of December, 1997.
______________________________
Robert W. Moehler, Secretary
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EXHIBIT 4(I)
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK OF
ENVIRO-CLEAN OF AMERICA, INC.
Section 1. Designation, Amount and Par Value. The series of Preferred
---------- ---------------------------------
Stock shall be designated as the Series A Convertible Redeemable Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be
500,000. The par value of each share of Preferred Stock shall be $.001. Each
share of Preferred Stock shall have a stated value of $2.50 per share (the
"Stated Value").
Section 2. Dividends.
---------- ---------
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 4% per annum, in cash or (as provided for herein)
shares of Common Stock, payable quarterly in arrears on the last day of each
March, June, September and December during the term of the Preferred Stock (each
such date, a "Dividend Payment Date"). Any arrears in payment of dividends with
respect to any share of Preferred Stock shall be payable on the Conversion Date
(as defined in Section 5(b)) applicable to such share or earlier if so
determined by the Company. Dividends on shares of the Preferred Stock shall
accrue daily commencing on the Issue Date of such shares, shall be calculated
based on the actual number of days in such quarterly period in a 365-day year
and shall be deemed to accrue on such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The party that holds the Preferred
Stock on an applicable record date for any dividend payment will be entitled to
receive such dividend payment and any other accrued and unpaid dividends which
accrued prior to such Dividend Payment Date, without regard to any sale or
disposition of such Preferred Stock subsequent to the applicable record date but
prior to the applicable Dividend Payment Date. A transfer of the right to
receive payments hereunder shall be transferable only through an appropriate
entry in the register (the "Register") to be maintained by the Company, in which
shall be entered the names and addresses of the registered holder of shares of
Preferred Stock and all transfers of such shares. References to the Holder or
"Holders" shall mean the Person listed in the Register as the registered holder
of such shares. The ownership of such shares shall be proved by the Register,
absent manifest error. Except as otherwise provided herein, if at any time the
Company pays less than the total amount of dividends then accrued on account of
the Preferred Stock, such payment shall be distributed ratably among the holders
of Preferred Stock based upon the number of shares held by each Holder.
Dividends due hereunder on a Dividend Payment Date shall on the first Dividend
Payment Date, and with respect to any subsequent Dividend Payment Date may, if
so determined by a majority of the Company's entire Board of Directors, be paid
in shares of Common Stock calculated at a price per share of Common Stock equal
to Two Dollars and Fifty Cents ($2.50). Other than payment of dividends in
shares of Common Stock all other amounts due hereunder at any time shall be
paid in immediately available funds.
<PAGE>
b. Notwithstanding anything to the contrary contained herein, the Company
may not, without the prior written consent of each Holder, in each instance,
issue shares of Common Stock in payment of dividends (and must deliver
immediately available funds in respect thereof) on the Preferred Stock if the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all purposes, or held as treasury stock, is insufficient to issue such
dividends to be paid in shares of Common Stock.
c. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
Section 3. Voting Rights. The holders of the Preferred Stock shall
---------- -------------
have no voting rights in such capacity, other than those that may be provided by
law. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority in
interest of the shares of the Preferred Stock then outstanding, (i) alter or
change adversely the powers, preferences or rights given to the Preferred Stock
or (ii) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation senior to, prior to, or pari passu
with, the Preferred Stock; provided, however, that the Company's Series E
-------- -------
Preferred Stock remain outstanding.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-
---------- -----------
up of the Company, whether voluntary or involuntary (a "Liquidation"), the
holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of Preferred Stock an amount equal to Two Dollars and Fifty Cents ($2.50)
per share of Preferred Stock, plus an amount equal to accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay such amounts in full, then the entire
assets of the Company to be distributed shall be distributed among the holders
of Preferred Stock ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full. A
sale, conveyance or disposition of all or substantially all of the assets of the
Company or the effectuation by the Company of a transaction or series of related
transactions in which more than 33 1/3% of the voting power of the Company is
disposed of, or a consolidation or merger of the Company with or into any other
company or companies or a reclassification of the Common Stock shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 60 days prior to the payment date stated therein, to each record
holder of Preferred Stock.
2
<PAGE>
Section 5. Conversion.
---------- ----------
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in
whole or in part at any time and from time to time after the Issue
Date of such share of Preferred Stock. The holder of the Preferred
Stock shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
---------
Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the holder
of Preferred Stock delivers such Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date
that the Holder Conversion Notice is deemed delivered pursuant to
Section 5(j). Each Holder Conversion Notice, once given, shall be
irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates
tendered by such holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(c)) a certificate for such
number of shares of Preferred Stock as have not been converted.
b. On the fifth anniversary of the Issue Date (the "Company Conversion
Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically
convertible into shares of Common Stock at the then applicable
Conversion Price; provided, however, that no shares of Preferred Stock
-------- -------
shall be converted unless the Company shall have duly reserved for
issuance to the holder a sufficient number of shares of Common Stock
to issue upon such conversion. In connection with such conversion, the
Company shall deliver to the holders of such shares of Preferred Stock
a written notice in the form attached hereto as Exhibit B (the
---------
"Company Conversion Notice"). The Company Conversion Notice shall
specify the number of shares of Preferred Stock that will be subject
to automatic conversion on the Company Conversion Date. The Company
shall deliver or cause to be delivered the Company Conversion Notice
at least ten (10) Business Days before the Company Conversion Date.
The holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or the Transfer
Agent not later than ten (10) Business Days after the Company
Conversion Date. Failure of the Company to deliver the Company
Conversion Notice shall not effect the validity or enforceability of
the automatic conversion on the Company Conversion Date and no
dividends shall accrue from that date forward and the Preferred Stock
shall from that date forward enjoy no dividend, liquidation or other
preference over the Common Stock. Each of a Holder Conversion Notice
and a Company Conversion Notice is sometimes referred to herein as a
"Conversion Notice," and each of a "Holder Conversion Date" and a
"Company Conversion Date" is sometimes referred to herein as a
"Conversion Date."
3
<PAGE>
c. Not later than ten (10) Trading Days after the Conversion Date, the
Company will, or will cause the Transfer Agent to deliver to the
holder of Preferred Stock (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock, including certificates
representing the number of shares of Common Stock as equals the
accrued but unpaid dividends thereon divided by the Conversion Price
and (ii) one or more certificates representing the number of shares of
Preferred Stock not converted. If, at the time of any conversion of
Preferred Stock, there shall be an effective Registration Statement
applicable to the shares of Common Stock available for such
conversion, any certificates representing shares of Common Stock to be
delivered upon such conversion hereunder shall be free of restrictive
legends and trading restrictions on the stock transfer books of the
Company. The Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any
shares of Preferred Stock until certificates representing the shares
of Preferred Stock to be converted are either delivered for conversion
to the Transfer Agent for the Common Stock, or until the holder
notifies the Company that such certificates representing the shares of
Preferred Stock have been lost, stolen or destroyed and (if requested
by the Company or the Transfer Agent) provides a bond and other
supporting documentation reasonably satisfactory to the Company and
the Transfer Agent (or other adequate security reasonably acceptable
to the Company and the Transfer Agent) to indemnify the Company from
any loss incurred by it in connection therewith, provided that, if the
Company or the Transfer Agent receives the original certificates
representing the shares of Preferred Stock being converted on or prior
to the time specified for the delivery of such shares of Common Stock,
the date of the Holder Conversion Notice shall be deemed to be the
date of delivery of such original certificates representing the shares
of Preferred Stock.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of
shares, or (c) combine outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(i) shall become
effective immediately upon the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
4
<PAGE>
ii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the Conversion Price per share
of Common Stock, and of which the numerator shall be such
Conversion Price per share of the Common Stock on such record
date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Preferred Stock of the
portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
iii. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
iv. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i) or (ii), the Company shall promptly mail to the holders
of Preferred Stock a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
v. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or
5
<PAGE>
substantially all of the assets of the Company or any compulsory
share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the holders of the
Preferred Stock then outstanding shall have the right thereafter
to convert such shares into the shares of stock and other
securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the
holders of the Preferred Stock shall be entitled upon such event
to receive such amount of securities, cash or property as would
be payable to the holders of the shares of the Common Stock of
the Company into which such shares of Preferred Stock could have
been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to
the holder of Preferred Stock the right to receive the
securities, cash or property set forth in this Section 5(d)(v)
upon any conversion following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply
to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
vi. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a
subdivision of the outstanding shares of Common Stock)
or shall authorize a repurchase or redemption or
otherwise enter into any other transaction (including a
stock split, recapitalization or other transaction)
which would cause a decrease in the number of its
shares of Common Stock issued and outstanding (other
than transactions that similarly decrease the number of
shares of Common Stock into which shares of Preferred
Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(4) the approval of any stockholders of the Company shall
be required in connection with any reclassification of
the Common Stock of the Company (other than a
subdivision or
6
<PAGE>
combination of the outstanding shares of Common Stock),
any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all
of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into
other securities, cash or property; or
(5) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding-up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
repurchase, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, repurchase, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
e. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of Preferred
Stock (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock) or if
at any time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing
the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the
holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price
(including, if necessary, any adjustment as to the securities into
which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without
diluting the rights of the holders of shares of Preferred Stock;
provided, however that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional
Appraiser, in which case the
7
<PAGE>
adjustment shall be equal to the average of the adjustments
recommended by each such Appraiser. The Board of Directors shall make
the adjustment recommended forthwith upon the receipt of such opinion
or opinions or the taking of any such action contemplated, as the case
may be; provided, however, that no such adjustment of the Conversion
Price shall be made which in the opinion of the Appraiser(s) giving
the aforesaid opinion or opinions would result in an increase of the
Conversion Price to more than the Conversion Price then in effect.
f. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon
conversion of Preferred Stock, as herein provided, out of its
authorized and unissued Common Stock free from preemptive rights or
any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock
as would be issuable upon conversion of all of the shares of the
Preferred Stock that are authorized for issuance hereunder as if all
such shares were issued on, and such conversion had occurred on, the
Issue Date and (ii) covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock as
herein provided, free from preemptive rights or any other actual or
contingent purchase rights of persons other than the holders of
Preferred Stock, the number of shares of Common Stock as shall be
issuable (taking into account the adjustments of Section 5(d) hereof)
upon the conversion of the aggregate of all outstanding shares of
Preferred Stock that are authorized for issuance hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable.
g. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Conversion Price. If the
Company elects not to, or is unable to, make such a cash payment, the
holder of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
h. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Common Stock paid as
dividends, shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of
the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the holder of
such shares of Preferred Stock so converted and the Company shall not
be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall
8
<PAGE>
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.
i. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares
of preferred stock.
j. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Operating Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company and if applicable to the Transfer Agent. Any
and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the holder at the facsimile telephone number or address
of the holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if delivered via facsimile
at the facsimile telephone number specified in the Stock Purchase
Agreement prior to 4:30 p.m. (Eastern Time) on a Trading Day, (ii) the
Trading Day after the date of transmission, if delivered via facsimile
at the facsimile telephone number specified in the Stock Purchase
Agreement later than 4:30 p.m. (Eastern Time) on any date and earlier
than 11:59 p.m. (Eastern Time) on such date, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to
whom such notice is required to be given.
Section 6. Redemption.
---------- ----------
(a) The Holder shall, at any time after January 15, 2001 up to and
including the Company Conversion Date, have the right to require the Company to
redeem any or all of the shares of Preferred Stock on any Quarterly Dividend
Payment Date (for purposes of this Section 6 such date shall be the "Redemption
----------
Date"), provided written demand as set forth below is given. The redemption
- ----
price for each share of Preferred Stock to be redeemed shall be paid by the
Company in cash in an amount equal to Five Dollars ($5.00) per share of
Preferred Stock, plus any accrued but unpaid dividends with respect to such
share (the "Redemption Price").
----------------
(b) At least ten (10) days prior to the Redemption Date, the Holder
shall provide the Company with a written demand ("Redemption Notice") to redeem
-----------------
shares of Preferred Stock as provided above, which notice shall specify the
estimated Redemption Price and the number of shares to be redeemed. All
Redemption Notices hereunder shall be sent by certified mail, returned receipt
requested, and shall be deemed to have been provided when received,
9
<PAGE>
(c) On or prior to the Redemption Date, each holder of Preferred Stock
shall surrender his or its certificate or certificates representing the shares
to be redeemed, to the Company at its principal office in the manner set forth
in Section 5(j), above, and if the Holder elects (i) to require the Company to
redeem a portion of its shares of Preferred Stock and (ii) to convert a portion
of such shares of Preferred Stock, a Holder Conversion Notice in conformance
with Section 5 hereof relative to those shares to be converted. If less than all
shares represented by such certificate or certificates are redeemed or
converted, the Company shall issue a new certificate for the balance of such
shares not redeemed or converted. From and after the Redemption Date, unless
there shall be a default in payment of the Redemption Price, all rights of each
holder with respect to shares of Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price and interest at
the rate of 10% in the event payment is not made within 20 days after the
Redemption Date), and such shares shall not be deemed to be outstanding for any
purpose whatsoever.
Section 7. Definitions. For the purposes hereof, the following terms
--------- -----------
shall have the following meanings:
"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company hereafter designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but unpaid dividends thereon through and including
the applicable Conversion Date.
"Conversion Price" means $2.50 per share of Common Stock, subject to
adjustment according to the provisions of this Certificate of Designation.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, other than the Series A Convertible Redeemable
Preferred Stock.
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
10
<PAGE>
"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.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated
as of January 1, 1999, among the Company, Enviroacqi Co. and Kandel & Son, Inc.
11
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder to Convert shares of Series A Preferred
Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series A Convertible Redeemable Preferred Stock indicated below into shares of
Common Stock, par value $.001 per share (the "Common Stock"), of Enviro-Clean of
America, Inc. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series A Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
12
<PAGE>
EXHIBIT B
NOTICE OF AUTOMATIC CONVERSION
The undersigned in the name and on behalf of Enviro-Clean of America, Inc. (the
"Company") hereby notifies the addressee hereof that [ ] shares of the
Series A Convertible Redeemable Preferred Stock held by the Holder will be
converted into shares of Common Stock, par value $.001 per share (the "Common
Stock"), of the Company according to the terms of the Preferred Stock, as of the
date written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series A Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
13
<PAGE>
Exhibit 4(II)
CERTIFICATE OF DESIGNATION OF
SERIES E CONVERTIBLE REDEEMABLE PREFERRED STOCK OF
ENVIRO-CLEAN OF AMERICA, INC.
Section 1. Designation, Amount and Par Value. The series of Preferred
--------- ---------------------------------
Stock shall be designated as the Series E Convertible Redeemable Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 70,000.
The par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $2.50 per share (the "Stated
Value").
Section 2. Dividends.
--------- ---------
a. Holders of outstanding shares of Preferred Stock shall be entitled to
receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 3% per annum, in cash or (as provided for herein)
shares of Common Stock, payable quarterly in arrears on the last day of each
March, June, September and December during the term of the Preferred Stock (each
such date, a "Dividend Payment Date"). Any arrears in payment of dividends with
respect to any share of Preferred Stock shall be payable on the Conversion Date
(as defined in Section 5(b)) applicable to such share or earlier if so
determined by the Company. Dividends on shares of the Preferred Stock shall
accrue daily commencing on the Issue Date of such shares, shall be calculated
based on the actual number of days in such quarterly period in a 365-day year
and shall be deemed to accrue on such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The party that holds the Preferred
Stock on an applicable record date for any dividend payment will be entitled to
receive such dividend payment and any other accrued and unpaid dividends which
accrued prior to such Dividend Payment Date, without regard to any sale or
disposition of such Preferred Stock subsequent to the applicable record date but
prior to the applicable Dividend Payment Date. A transfer of the right to
receive payments hereunder shall be transferable only through an appropriate
entry in the register (the "Register") to be maintained by the Company, in which
shall be entered the names and addresses of the registered holder of shares of
Preferred Stock and all transfers of such shares. References to the Holder or
"Holders" shall mean the Person listed in the Register as the registered holder
of such shares. The ownership of such shares shall be proved by the Register,
absent manifest error. Except as otherwise provided herein, if at any time the
Company pays less than the total amount of dividends then accrued on account of
the Preferred Stock, such payment shall be distributed ratably among the holders
of Preferred Stock based upon the number of shares held by each Holder.
Dividends due hereunder on a Dividend Payment Date shall on the first Dividend
Payment Date, and with respect to any subsequent Dividend Payment Date may, if
so determined by a majority of the Company's entire Board of Directors, be paid
in shares of Common Stock calculated at a price per share of Common Stock equal
to Two Dollars and Fifty Cents ($2.50).
<PAGE>
Other than payment of dividends in shares of Common Stock all other amounts due
hereunder at any time shall be paid in immediately available funds.
b. Notwithstanding anything to the contrary contained herein, the Company
may not, without the prior written consent of each Holder, in each instance,
issue shares of Common Stock in payment of dividends (and must deliver
immediately available funds in respect thereof) on the Preferred Stock if the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all purposes, or held as treasury stock, is insufficient to issue such
dividends to be paid in shares of Common Stock.
c. So long as any shares of Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities, unless in each case all dividends on the Preferred Stock for all
past dividend periods shall have been paid.
Section 3. Voting Rights. The holders of the Preferred Stock shall
--------- -------------
have no voting rights in such capacity, other than those that may be provided by
law. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority in
interest of the shares of the Preferred Stock then outstanding, (i) alter or
change adversely the powers, preferences or rights given to the Preferred Stock
or (ii) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation senior to, prior to, or pari passu
with, the Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-
--------- -----------
up of the Company, whether voluntary or involuntary (a "Liquidation"), the
holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of Preferred Stock an amount equal to Two Dollars and Fifty Cents ($2.50)
per share of Preferred Stock, plus an amount equal to accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay such amounts in full, then the entire
assets of the Company to be distributed shall be distributed among the holders
of Preferred Stock ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full. A
sale, conveyance or disposition of all or substantially all of the assets of the
Company or the effectuation by the Company of a transaction or series of related
transactions in which more than 33 1/3% of the voting power of the Company is
disposed of, or a consolidation or merger of the Company with or into any other
company or companies or a reclassification of the Common Stock shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any
2
<PAGE>
such Liquidation, not less than 60 days prior to the payment date stated
therein, to each record holder of Preferred Stock.
Section 5. Conversion.
--------- ----------
a. Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Price, at the option of the holder in
whole or in part at any time and from time to time after the Issue
Date of such share of Preferred Stock. The holder of the Preferred
Stock shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
---------
Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the holder
of Preferred Stock delivers such Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date
that the Holder Conversion Notice is deemed delivered pursuant to
Section 5(j). Each Holder Conversion Notice, once given, shall be
irrevocable. If a holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates
tendered by such holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(c)) a certificate for such
number of shares of Preferred Stock as have not been converted.
b. On the fifth anniversary of the Issue Date (the "Company Conversion
Date") for each share of Preferred Stock that has not previously been
converted, such share of Preferred Stock shall be automatically
convertible into shares of Common Stock at the then applicable
Conversion Price; provided, however, that no shares of Preferred Stock
-------- -------
shall be converted unless the Company shall have duly reserved for
issuance to the holder a sufficient number of shares of Common Stock
to issue upon such conversion. In connection with such conversion, the
Company shall deliver to the holders of such shares of Preferred Stock
a written notice in the form attached hereto as Exhibit B (the
---------
"Company Conversion Notice"). The Company Conversion Notice shall
specify the number of shares of Preferred Stock that will be subject
to automatic conversion on the Company Conversion Date. The Company
shall deliver or cause to be delivered the Company Conversion Notice
at least ten (10) Business Days before the Company Conversion Date.
The holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or the Transfer
Agent not later than ten (10) Business Days after the Company
Conversion Date. Failure of the Company to deliver the Company
Conversion Notice shall not effect the validity or enforceability of
the automatic conversion on the Company Conversion Date and no
dividends shall accrue from that date forward and the Preferred Stock
shall from that date forward enjoy no dividend, liquidation or other
preference over the Common Stock. Each of a Holder Conversion Notice
and a Company Conversion Notice is sometimes referred to herein as a
"Conversion Notice," and each of a "Holder
3
<PAGE>
Conversion Date" and a "Company Conversion Date" is sometimes referred
to herein as a "Conversion Date."
c. Not later than ten (10) Trading Days after the Conversion Date, the
Company will, or will cause the Transfer Agent to deliver to the
holder of Preferred Stock (i) a certificate or certificates
representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock, including certificates
representing the number of shares of Common Stock as equals the
accrued but unpaid dividends thereon divided by the Conversion Price
and (ii) one or more certificates representing the number of shares of
Preferred Stock not converted. If, at the time of any conversion of
Preferred Stock, there shall be an effective Registration Statement
applicable to the shares of Common Stock available for such
conversion, any certificates representing shares of Common Stock to be
delivered upon such conversion hereunder shall be free of restrictive
legends and trading restrictions on the stock transfer books of the
Company. The Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any
shares of Preferred Stock until certificates representing the shares
of Preferred Stock to be converted are either delivered for conversion
to the Transfer Agent for the Common Stock, or until the holder
notifies the Company that such certificates representing the shares of
Preferred Stock have been lost, stolen or destroyed and (if requested
by the Company or the Transfer Agent) provides a bond and other
supporting documentation reasonably satisfactory to the Company and
the Transfer Agent (or other adequate security reasonably acceptable
to the Company and the Transfer Agent) to indemnify the Company from
any loss incurred by it in connection therewith, provided that, if the
Company or the Transfer Agent receives the original certificates
representing the shares of Preferred Stock being converted on or prior
to the time specified for the delivery of such shares of Common Stock,
the date of the Holder Conversion Notice shall be deemed to be the
date of delivery of such original certificates representing the shares
of Preferred Stock.
d.
i. If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make
any distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its
Common Stock or of capital stock of any class), (b) subdivide
outstanding shares of Common Stock into a larger number of shares,
or (c) combine outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of
Common Stock of the Company outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
Section 5(d)(i) shall become effective immediately upon the record
date for the determination of
4
<PAGE>
stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision or combination.
ii. If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(ii) above),
then in each such case the Conversion Price at which each share
of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the Conversion Price per share
of Common Stock, and of which the numerator shall be such
Conversion Price per share of the Common Stock on such record
date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so
distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding ten percent
(10%) of the assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall
be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Preferred Stock of the
portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
iii. All calculations under this Section 5 shall be made to the
nearest one-cent ($.01) or the nearest 1/100th of a share, as the
case may be.
iv. Whenever the Conversion Price is adjusted pursuant to Section
5(d)(i) or (ii), the Company shall promptly mail to the holders
of Preferred Stock a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
5
<PAGE>
v. In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another
person pursuant to which the Company will not be the surviving
entity, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as would be payable to the
holders of the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(d)(v) upon any conversion
following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
vi. If:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than a
subdivision of the outstanding shares of Common Stock)
or shall authorize a repurchase or redemption or
otherwise enter into any other transaction (including a
stock split, recapitalization or other transaction)
which would cause a decrease in the number of its
shares of Common Stock issued and outstanding (other
than transactions that similarly decrease the number of
shares of Common Stock into which shares of Preferred
Stock are convertible); or
(2) the Company shall declare a special nonrecurring cash
dividend on its then outstanding Common Stock; or
(3) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
6
<PAGE>
(4) the approval of any stockholders of the Company shall
be required in connection with any reclassification of
the Common Stock of the Company (other than a
subdivision or combination of the outstanding shares of
Common Stock), any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(5) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding-up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the Register, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
repurchase, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, repurchase, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
e. If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of Preferred
Stock (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock) or if
at any time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall, at least 30
calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing
the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the
holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price
(including, if necessary, any adjustment as to the securities into
which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to
7
<PAGE>
preserve without diluting the rights of the holders of shares of
Preferred Stock; provided, however that the Company, after receipt of
the determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case the adjustment shall be equal to
the average of the adjustments recommended by each such Appraiser. The
Board of Directors shall make the adjustment recommended forthwith
upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no
such adjustment of the Conversion Price shall be made which in the
opinion of the Appraiser(s) giving the aforesaid opinion or opinions
would result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
f. The Company (i) represents and warrants that as of the Issue Date (as
defined in Section 7), it has duly reserved solely for issuance upon
conversion of Preferred Stock, as herein provided, out of its
authorized and unissued Common Stock free from preemptive rights or
any other actual or contingent purchase rights of persons other than
the holders of Preferred Stock, the number of shares of Common Stock
as would be issuable upon conversion of all of the shares of the
Preferred Stock that are authorized for issuance hereunder as if all
such shares were issued on, and such conversion had occurred on, the
Issue Date and (ii) covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock as
herein provided, free from preemptive rights or any other actual or
contingent purchase rights of persons other than the holders of
Preferred Stock, the number of shares of Common Stock as shall be
issuable (taking into account the adjustments of Section 5(d) hereof)
upon the conversion of the aggregate of all outstanding shares of
Preferred Stock that are authorized for issuance hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid and nonassessable.
g. Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Conversion Price. If the
Company elects not to, or is unable to, make such a cash payment, the
holder of Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
h. The issuance of certificates for (i) shares of Common Stock on
conversion of Preferred Stock or (ii) shares of Common Stock paid as
dividends, shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of
the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the holder of
such shares of Preferred Stock
8
<PAGE>
so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
i. Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares
of preferred stock.
j. Any and all notices or other communications or deliveries to be
provided by the holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Operating Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company and if applicable to the Transfer Agent. Any
and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the holder at the facsimile telephone number or address
of the holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if delivered via facsimile
at the facsimile telephone number specified in the Subscription
Agreement prior to 4:30 p.m. (Eastern Time) on a Trading Day, (ii) the
Trading Day after the date of transmission, if delivered via facsimile
at the facsimile telephone number specified in the Subscription
Agreement later than 4:30 p.m. (Eastern Time) on any date and earlier
than 11:59 p.m. (Eastern Time) on such date, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to
whom such notice is required to be given.
Section 6. Redemption.
--------- ----------
(a) The Company shall, at all times following the date that is two
(2) years from the Issue Date of the Preferred Stock up to and including the
Company Conversion Date, have the right, subject to each Holder's right to
convert all or any portion of its shares of Preferred Stock in accordance with
Section 5 hereof on or prior to the Redemption Date, to redeem any or all of the
shares of Preferred Stock on any Quarterly Dividend Payment Date (for purposes
of this Section 6 such date shall be the "Redemption Date"), provided written
---------------
demand as set forth below is given. The redemption price for each share of
Preferred Stock
9
<PAGE>
to be redeemed shall be paid by the Company in cash in an amount equal to Three
Dollars and Fifty Cents ($3.50) per share of Preferred Stock (the "Redemption
----------
Price").
- -----
(b) At least ten (10) days prior to the Redemption Date, the Company
shall provide each holder of Preferred Stock with a written demand ("Redemption
----------
Notice") (addressed to the holder at its address as it appears on the stock
- ------
transfer books of the Company) to redeem shares of Preferred Stock as provided
above, which notice shall specify the estimated Redemption Price and the number
of shares to be redeemed. All Redemption Notices hereunder shall be sent by
certified mail, returned receipt requested, and shall be deemed to have been
provided when received.
(c) On or prior to the Redemption Date, each holder of Preferred
Stock shall surrender his or its certificate or certificates representing the
shares to be redeemed, in the manner and at the place designated in the
Redemption Notice and if the Holder elects to convert any or all of the Shares
of Preferred Stock, a Holder Conversion Notice in conformance with Section 5
hereof. If less than all shares represented by such certificate or certificates
are redeemed, the Company shall issue a new certificate for the unredeemed
shares. From and after the Redemption Date, unless there shall be a default in
payment of the Redemption Price, all rights of each holder with respect to
shares of Preferred Stock redeemed on the Redemption Date shall cease (except
the right to receive the Redemption Price and interest at the rate of 10% in the
event payment is not made within 20 days after the Redemption Date), and such
shares shall not be deemed to be outstanding for any purpose whatsoever.
Section 7. Definitions. For the purposes hereof, the following terms
--------- -----------
shall have the following meanings:
"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company, stock of any other class into
which such shares may hereafter have been reclassified or changed and any other
equity securities of the Company hereafter designated as Common Stock.
"Conversion Amount" means, with respect to any share of Preferred Stock
surrendered for conversion hereunder, the Stated Value of such share of
Preferred Stock plus accrued but unpaid dividends thereon through and including
the applicable Conversion Date.
"Conversion Price" means $2.50 per share of Common Stock, subject to
adjustment according to the provisions of this Certificate of Designation.
"Junior Securities" means the Common Stock and all other classes of equity
securities of the Company, other than the Series E Convertible Redeemable
Preferred Stock.
10
<PAGE>
"Issue Date" shall mean, with respect to any share of Preferred Stock, the
date of the issuance of such share of Preferred Stock regardless of the number
of transfers of such share of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Subscription Agreement" means the Subscription Agreement dated December
16, 1998, between the Company and the individual named therein.
11
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder to Convert shares of Series E Preferred
Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series E Convertible Redeemable Preferred Stock indicated below into shares of
Common Stock, par value $.001 per share (the "Common Stock"), of Enviro-Clean of
America, Inc. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series E Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
12
<PAGE>
EXHIBIT B
NOTICE OF AUTOMATIC CONVERSION
The undersigned in the name and on behalf of Enviro-Clean of America, Inc. (the
"Company") hereby notifies the addressee hereof that [ ] shares of the
Series E Convertible Redeemable Preferred Stock held by the Holder will be
converted into shares of Common Stock, par value $.001 per share (the "Common
Stock"), of the Company according to the terms of the Preferred Stock, as of the
date written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series E Preferred Stock to be
Converted
Conversion Price
Amount of Accrued but Unpaid Dividends due on the
Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Signature
Name:
Address:
13
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC.
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONTENTS
December 31, 1998
- --------------------------------------------------------------------------------
Independent Auditor's Report 1
Consolidated Financial Statements:
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4
Statement of Stockholders' Equity 5
Notes to Consolidated Financial Statements 6 - 9
<PAGE>
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 and accumulated
deficit, 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
April 9, 1999, except for the last paragraph of
Note 7, as to which the date is May 12, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEET
======================================================================================
December 31, 1998
- --------------------------------------------------------------------------------------
<S> <C>
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>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT
======================================================================================
Period From December 9, 1997 (Date of Inception) to December 31, 1998
- --------------------------------------------------------------------------------------
<S> <C>
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>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
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
================================================================================
See Notes to Consolidated Financial Statements
F-5
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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 since the effect would be
antidilutive.
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 DEPOSITS: Acquisition deposits consist of deposits paid for
companies acquired in January 1999 as follows:
Kandel and Sons, Inc. $300,000
NISSCO/Sunline, Inc. 500,000
--------------------------------------------------
$800,000
==================================================
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of:
Depreciation
December 31, 1998 Period
--------------------------------------------------
Furniture and fixtures $2,158 5 years
Computer hardware 3,488 3 years
--------------------------------------------------
5,646
Less accumulated depreciation 797
--------------------------------------------------
$4,849
==================================================
F-6
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
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:
Taxes (benefit) computed at the federal $(51,000)
statutory rate Taxes computed at a rate 30,000
below the federal statutory rate Valuation 21,000
allowance
-----------------------------------------------------
$ - 0 -
=====================================================
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:
Net operating losses $ 21,000
Less valuation allowance (21,000)
-----------------------------------------------------
Deferred income tax asset $ - 0 -
=====================================================
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' EQUITY: In December 1997, the Company received net 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 December
TRANSACTIONS: 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-7
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. SUBSEQUENT EVENTS: In 1999, the Company authorized up to 500,000
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. The aggregate
purchase price for this acquisition is $3,850,000,
consisting of $810,000 in cash, a promissory note
in the amount of $540,000 due January 15, 2001
bearing interest at the rate of 4% per year, and
500,000 shares of Series A Preferred Stock.
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 $4,375,000,
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.
Both of these acquisitions will be accounted for
as purchases.
In January 1999, the Company issued 70,000 shares
of common stock for an aggregate price of
$175,000.
F-8
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 500,000 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.
F-9
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
Currrents assets
Cash & cash equivalents $ 501,902
Accounts receivable 482,415
Merchandise Inventory 140,200
Prepaid expenses & other 52,021
----------
Total current assets $1,176,538
Property, Plant & Equipment-At cost 484,571
Less: Accumulated Depreciation (285,863) 198,708
---------
Other Assets
Excess of Cost Over Book Value of
Subsidiaries 5,625,439
Other 5,775 5,631,214
---------- ----------
TOTAL ASSETS $7,006,460
==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 503,926
Loans payable 111,744
Current maturities of long-term debt 667,998
-----------
Total Current Liabilities $1,283,668
Long Term Liabilities
Long term debt, less current maturities 327,684
Stockholder's equity
Common stock issued 3,860
Preferred stock 2,675,000
Retained earnings(deficit) (197,907)
Additional paid-in capital 414,155
Common stock to be issued 2,500,000
-----------
Total stockholders' equity 5,395,108
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,006,460
==========
F-10
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net Sales $ 784,140
Costs of sales 329,721
--------
Gross profit 454,419
Operating expenses 498,445
--------
(Loss) before income taxes (44,026)
Other income 671
Income taxes 2,850
---------
NET (LOSS) $ (46,205)
---------
---------
F-11
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Cash flows from operating activities:
Net income (Loss) $ (46,205)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization $ 155,881
(Increase) decrease in accounts receivable (261,037)
(Increase) decrease in prepaid expenses 28,938
(Increase) decrease in inventories 9,913
Increase (decrease) in accounts payable 373,831
Increase (decrease) in income taxes payable 20,500
----------
Total adjustments 328,026
---------
Net cash provided by operating activities 281,821
Cash flows from investing activities:
Excess of cost over book value of subs (4,884,954)
Net cash used by investing activities (4,884,954)
Cash flows from financing activities:
Loans receivable 21,320)
Increase in notes payable 416,831
Preferred stock issued 2,675,000
Common stock to be issued 2,500,000
Common stock issued 160
Additional paid-in capital received (625,624)
----------
Net cash provided by financing activities 4,945,047
-----------
Net increase in cash and equivalents 341,914
Cash and cash equivalents, beginning 159,988
-----------
Cash and cash equivalents, Ending $ 501,902
-----------
-----------
Supplemental information:
Cash paid during the period for:
Interest $ 12,418
-----------
-----------
Taxes $ 1,149
-----------
-----------
F-12
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
Number of Number of Paid-in Developmental Common Stock Stockholders'
Shares Amount Shares Amount Capital Stage To Be Issued Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999: 3,690,000 $ 3,690 $ 879,325 $ (151,702) $ -- $ 731,313
Issuance of common stock for cash
at $2.50 per share 170,000 170 424,830 -- 425,000
Issuance of preferred stock for
cash at $2.50 per share -- 70,000 175,000 175,000
Issuance of preferred stock in
connection with acquisition 500,000 2,500,000 (890,000) 1,610,000
Common stock to be issued at
$2.50 1,000,000 2,500,000 2,500,000
Net Loss (46,205) (46,205)
------------------------------------------------------------------------------------------------
Balance at March 31, 1999 4,860,000 $ 3,860 570,000 $ 2,675,000 $ 414,155 $ (197,907) $ 2,500,000 $ 5,395,108
================================================================================================
</TABLE>
F-13
<PAGE>
Enviro-Clean of America, Inc. & Subsidiaries
Notes to Financial Statements
March 31, 1999
NOTE A
Enviro-Clean of America, Inc. & Subsidiaries is a public company primarily
engaged in owning companies in the fields of wholesale and distribution of
sanitary maintenance supplies, paper goods and related products. The Company's
sales and services are provided to various entities located throughout the
United States.
NOTE B
The numbers in these financial statements are interim numbers. Management
deems them not necessarily indicative of the full year.
F-14
<PAGE>
EXHIBIT 21
List of Subsidiaries
The Company has two wholly-owned subsidiaries: Kandel & Son, Inc. and
NISSCO/Sunline, Inc., which are each Nevada corporations, and Kandel & Son,
Inc., a New York corporation and NISSCO/Sunline, Inc., a Florida corporation.
The latter two subsidiaries are wholly owned by their similarly named Nevada
parents, which are in turn wholly owned by the Company.
