SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 29, 1999
WINDSWEPT ENVIRONMENTAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-17072 11-2844247
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
100 Sweenydale Avenue, Bay Shore, New York 11706
(Address of principal executive offices) (Zip Code)
(516) 434-1300
(Registrant's telephone number, including area code)
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Statements contained in this Current Report on Form 8-K that are not based
upon historical fact are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which could cause actual results, performance (financial or
operating) or achievements expressed or implied by such forward looking
statements not to occur or be realized. Such forward looking statements
generally are based upon our best estimates of future results, performance or
achievement, based upon current conditions and the most recent results of
operations. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue," or similar terms, variations of those
terms or the negative of those terms. Potential risks and uncertainties include
those risks set forth in our filings with the SEC, as well as, among other
things:
- - the amount of our revenues,
- - our success in limiting or reducing our expenses,
- - the frequency and magnitude of environmental disasters or disruptions,
- - the effects of new laws or regulations relating to environmental
- - remediation, our ability to raise additional capital, the competitive
- - environment within our industry, dependence on key personnel, and
- - economic conditions.
Item 1. Change in Control.
On October 26, 1999, the Board of Directors of Windswept Environmental
Group, Inc. ("the "Company") created a class of 50,000 shares of preferred
stock, par value $.01 per share, designated as the Series B Convertible
Preferred Stock (the "Series B Preferred"). Each share of Series B Preferred has
a liquidation preference of $79.04, is initially convertible into 1,000 shares
of common stock, par value $.0001 per share, of the Company (the "Common Stock")
(subject to adjustment) and is entitled to cast 1,000 votes, together with the
Common Stock and the Series A Preferred Stock, par value $.01 per share, on any
matters subject to a vote of the holders of the Common Stock.
On October 29, 1999, the Company entered into a subscription agreement with
Spotless Plastics (USA), Inc., a Delaware corporation ("Spotless"), pursuant to
which the Company sold to Windswept Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Spotless ("Acquisition Corp."),
22,284,683 shares of Common Stock, and 9,346 shares of Series B Preferred, for
an aggregate subscription price of $2,500,000 (the "Purchase Price") or $.07904
per share of Common Stock and $79.04 per share of Series B Preferred. These
shares of Common Stock and Series B Preferred hold voting power equal to 58% of
the Company's issued and outstanding shares. If Acquisition Corp. were to
convert the shares of Series B Preferred, it would hold 66.2% of the issued and
outstanding shares of Common Stock.
In addition, the Company and Trade-Winds Environmental Restoration, Inc.
North Atlantic Laboratories, Inc. and New York Testing Laboratories, Inc., each
of which is a wholly-owned subsidiary of the Company, as joint and several
obligors (collectively, the "Obligors"), also borrowed $2,000,000 from Spotless
(the "Loan") pursuant to a secured convertible promissory note dated October 29,
1999 (the "Note")which bears interest at a rate equal to LIBOR plus one percent
(1%), matures on October 29, 2004, unless the Obligors elect to defer repayment
until October 29, 2005, and is convertible, in whole or in part, at any time,
into 25,304,352 shares of Common Stock or 25,305 shares of Series B Preferred.
The shares of Common Stock issuable upon conversion of the Note would represent
39.7% of the issued and outstanding shares of Common Stock. In connection with
the advance of the Loan and as security for the repayment of the Loan, each of
the Obligors granted Spotless a security interest in substantially all of its
respective assets pursuant to a Security Agreement dated October 29, 1999.
Spotless funded the Purchase Price and the Loan from its existing working
capital line of credit with Bank One Corporation.
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On October 26, 1999, the Board of Directors of the Company, pursuant to the
By-laws of the Company, increased the size of the Board of Directors from five
directors to nine directors. In connection with this transaction, JoAnn O'Reilly
resigned as a director of the Company effective October 26, 1999 and four
nominees of Spotless, Brian S. Blythe, Ronald B. Evans, Peter A. Wilson and
Charles L. Kelly, have been elected to the Board of Directors of the Company. A
fifth nominee of Spotless, John J. Bongiorno, is expected to be elected to the
Board of Directors of the Company upon compliance by the Company with Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the rules and regulations thereunder.
Upon the occurrence of the change in control of the Company described
above, options to purchase 2,000,000 shares of Common Stock exercisable at $.01
per share granted to Michael O'Reilly on September 12, 1996 have vested and
become exercisable for a five-year period.
The Board of Directors has also approved an amendment to the Company's
certificate of incorporation increasing the number of authorized shares of
Common Stock from 50,000,000 to 100,000,000 (the "Amendment"). The Amendment is
expected to become effective promptly after the Company's compliance with
Section 14(c) of the Exchange Act and the rules and regulations thereunder,
approval by the stockholders of the Company and filing with the Secretary of
State of the State of Delaware.
In addition, on October 29, 1999, the Company entered into an Employment
Agreement with Michael O'Reilly. This agreement is for a term of five years,
calls for a base salary of $260,000 per year and a bonus equal to 2.5% of the
Company's pre-tax income (as that term is defined in the Employment Agreement).
Upon the termination of Mr. O'Reilly's employment by the Company (other than
termination for cause, death or disability or his resignation without good
reason, as defined in the Employment Agreement). Mr. O'Reilly will be entitled
to sell, in a single transaction, any or all of shares of Common Stock held by
him as of October 29, 1999 and all shares of Common Stock underlying options to
purchase shares of Common Stock of the Company held by him as of October 29,
1999 (collectively, the "O'Reilly Shares"), to the extent vested and
exercisable, back to the Company (or pursuant to the Letter Agreement (as
defined below)), to Spotless to the extent that the Company's capital would be
impaired by such a repurchase) at a mutually agreeable price. If the parties are
not able to agree upon a purchase price, then the purchase price will be
determined based upon a procedure using the appraised value of the Company at
the time such obligation to purchase arises. Similarly, pursuant to a letter
agreement, dated as of October 29, 1999, by and between Michael O'Reilly and
Spotless (the "Letter Agreement"), Michael O'Reilly has the right, upon receipt
of notice that Spotless and any of its affiliates has acquired a beneficial
ownership of more than seventy-five percent (75%) of the outstanding shares of
Common Stock (on a fully diluted basis), to require Spotless to purchase, in a
single transaction, the O'Reilly Shares. The purchase price applicable to any
such purchase shall be at a price mutually agreed upon. If the parties are not
able to agree upon a purchase price, then the purchase price will be determined
based upon a procedure using the appraised value of the Company at the time such
obligation to purchase arises. As a condition precedent to requiring the Company
or Spotless, as the case may be, to repurchase the O'Reilly Shares, Michael
O'Reilly must forfeit the Conversion Date Option (as defined below), except to
the extent that the Conversion Date Option is at that time vested and
exercisable.
The Company has granted to Mr. O'Reilly an option to purchase 2,674,714
shares of Common Stock, which vests and becomes exercisable on each of the
first, second and third anniversaries of October 29, 1999. The Company has also
granted to Mr. O'Reilly an option to purchase 2,811,595 shares of Common Stock
(the "Conversion Date Option") which are exercisable on or after October 29,
2006; provided, that the exercisability of such option will be accelerated if
and to the extent that Spotless converts or exchanges the Note.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired. Not applicable.
(b) Pro forma financial information. Not applicable.
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(c) Exhibits.
3.1. Certificate of Designations for Series B Preferred Stock.
4.1. Specimen Series B Preferred Stock certificate.
10.1 Subscription Agreement dated October 29, 1999 between the Registrant
and Spotless Plastics (USA), Inc.
10.2 Convertible Promissory Note dated October 29, 1999 issued by the
Registrant to Spotless Plastics (USA), Inc.
10.3. Form of Security Agreement dated October 29, 1999 between each of the
Registrant, Trade-Winds Environmental Remediation, Inc., North
Atlantic Laboratories, Inc. and New York Testing, Inc. and Spotless
Plastics (USA), Inc.
10.4. Employment Agreement dated October 29, 1999 between the Registrant and
Michael O'Reilly.
10.5. Stock Option Agreement dated October 29, 1999 between the Registrant
and Michael O'Reilly.
10.6. Stock Option Agreement dated October 29, 1999 between the Registrant and
Michael O'Reilly relating to options vesting upon exercise of the
convertible note.
10.7. Letter Agreement dated October 29, 1999 between Michael O'Reilly and
Spotless Plastics (USA), Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: November 10, 1999
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
---------------------------------------------
Michael O'Reilly, President and Chief Executive
Officer (Principal Executive Officer)
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CERTIFICATE OF THE DESIGNATION, POWERS,
PREFERENCES AND RIGHTS OF THE SERIES B CONVERTIBLE
PREFERRED STOCK
PAR VALUE $.01 PER SHARE
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The following resolutions were duly adopted by the Board of Directors of
WINDSWEPT ENVIRONMENTAL GROUP, INC., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, on October 26, 1999 at a meeting of the Board of Directors at
which there was at all times present and acting a quorum of the Board of
Directors of the Corporation:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Certificate of Incorporation, by
resolution or resolutions to divide the Corporation's Ten Million (10,000,000)
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"),
into series, to designate each series, to fix and determine separately for each
series any one or more rights or preferences including the rate of dividends,
the price at and the terms and conditions on which shares may be redeemed, the
amount payable upon shares in the event of involuntary liquidation, the amount
payable upon shares in the event of voluntary liquidation, sinking fund
provisions for the redemption or purchase of shares, the terms and conditions on
which shares may be converted if the shares of any series are issued with the
privilege of conversion and voting rights, and to issue shares of any series
then or previously designated, fixed and determined.
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of such preferred stock and the number of shares constituting such
series:
NOW, THEREFORE, BE IT RESOLVED that of the Corporation's Ten Million
(10,000,000) authorized shares of Preferred Stock, 50,000 shares are hereby
designated as Series B Convertible Preferred Stock (the "Series B Preferred
Stock") with a stated value per share of $79.04 (the "Stated Value") and shall
be subject to the following rights, preferences, priorities, conditions,
limitations and restrictions:
(1) Rank. The Series B Preferred Stock shall, with respect to rights on
liquidation, winding up and dissolution, rank on a parity as to the Series A
Convertible Preferred Stock, par value $.01 per share, of the Corporation (the
"Series A Preferred Stock"), and prior to any other equity securities of the
Corporation, whether currently authorized or hereafter created, including any
other series of Preferred Stock and the Common Stock, par value $.0001 per
share, of the Corporation (the "Common Stock"; all of such other equity
securities of the Corporation, including any other series of Preferred Stock and
the Common Stock, are referred to herein collectively as the "Junior
Securities").
(2) Dividends. The Series B Preferred Stock will not bear dividends.
(3) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, the holders of shares of Series
B Preferred Stock then outstanding shall be entitled to be paid out of the
assets
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of the Corporation available for distribution to its stockholders an amount
in cash equal to the Stated Value for each share outstanding, plus an amount in
cash equal to the Premium (as defined below) thereon to the date fixed for
liquidation, dissolution or winding up, before any payment shall be made or any
assets distributed to the holders of any of the Junior Securities. If the assets
of the Corporation are not sufficient to pay in full the liquidation payments
payable to the holders of outstanding shares of Series B Preferred Stock and
Series A Preferred Stock and any other series of Preferred Stock which may
hereafter be created having parity as to liquidation rights with the Series A
Preferred Stock and the Series B Preferred Stock, then the holders of all such
shares shall share ratably in such distribution of assets proportion to the
amounts which the holders of outstanding shares of Series B Preferred Stock,
Series A Preferred Stock and such other series of Preferred Stock are otherwise
entitled to receive.
(b) The liquidation payment with respect to each fractional share of Series
B Preferred Stock outstanding or accrued but unpaid shall be equal to a ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series B Preferred Stock.
(c) For the purposes of this Section 3, neither the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all the property or assets of
the Corporation or the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, unless such voluntary sale, conveyance,
lease, exchange or transfer shall be in connection with a dissolution or winding
up of the business of the Corporation.
(4) Conversion Rights. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time in whole or from
time to time in part, into such number of fully paid and nonassessable shares of
Common Stock (the "Conversion Shares") as is determined in accordance with the
terms of Section 6 hereof (a "Conversion").
(5) Procedure for Conversion.
(a) As a condition to its right to receive the Common Stock into which the
Series B Preferred Stock is convertible, the holder of the Series B Preferred
Stock shall surrender the certificate or certificates thereof at the office of
the Corporation, and shall give written notice to the Corporation at such office
that the holder elects to convert all or part of the certificate or certificates
of Series B Preferred Stock and shall state therein the number of shares of
Series B Preferred Stock that the holder is converting. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to the
holder of the Series B Preferred Stock, (i) a certificate or certificates for
the number of shares of Common Stock to which such holder of the Series B
Preferred Stock shall be entitled as aforesaid, and (ii) to the extent the
holder of the Series B Preferred Stock has converted the certificate of Series B
Preferred Stock in part and not in full, a new certificate for shares of Series
B Preferred Stock, identical in terms to the original certificate except that
the number of shares thereof shall equal the original amount thereof less the
amount converted by the holder of the Series B Preferred Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of surrender of the certificate or certificates of Series B Preferred
Stock for conversion, in whole or in part, and the holder of the Series B
Preferred Stock shall be treated for all purposes as the record holder of such
shares of Common Stock that the holder is entitled to receive upon such
conversion on such date pursuant hereto.
(6) Number of Conversion Shares; Conversion Price.
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(a) The number of Conversion Shares to be delivered by the Corporation
pursuant to a Conversion shall be determined in accordance with the following
formula:
SV + P
CP
where SV represents the aggregate Stated Value of the Series B Preferred Stock
to be converted, P represents the aggregate Premium accrued on such Series B
Preferred Stock, and CP represents the Conversion Price (as defined below) in
effect on the applicable Conversion Date.
(b) "Premium" with respect to a Series B Preferred Stock shall be
determined in accordance with the following formula:
(SV)(.06)(N)
365
where SV represents the Stated Value of such Series B Preferred Stock, and N
represents the number of days elapsed from the date of issuance of the Series B
Preferred Stock through and including the Conversion Date relating to such
Series B Preferred Stock.
(c) Subject to adjustment from time to time as provided elsewhere herein,
the "Conversion Price" shall initially be $0.07904.
(7) Adjustment of Conversion Price. The Conversion Price in effect at any
time with respect to the Series B Preferred Stock and the number of shares of
Common Stock issuable upon the conversion of the shares of Series B Preferred
Stock shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) In case the Corporation shall hereafter (i) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares by reclassification of Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), the Conversion
Price in effect at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or reclassification shall
be proportionately adjusted so that the holder of the Series B Preferred Stock,
upon conversion of all or part of the certificate or certificates of Series B
Preferred Stock after such date shall be entitled to receive the aggregate
number and kind of shares of Common Stock which, if such certificate or
certificates of Series B Preferred Stock had been converted immediately prior to
such record date or effective date, the holder of the Series B Preferred Stock
would have owned upon such conversion and been entitled to receive upon such
dividend, distribution, subdivision, combination or reclassification.
(b) In case the Corporation shall hereafter issue rights or warrants to
holders of its Common Stock entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price per share
(or having a conversion price per share) less than the Fair Market Value (as
defined in subparagraph (l) below) on the record date with respect to such
issuance, the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
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on such record date plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Fair Market Value on such record date, and of
which the denominator shall be the number of shares of Common Stock outstanding
on the record date plus the number of additional shares of Common Stock offered
for subscription or purchase (or into which the convertible securities so
offered are then convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become effective
immediately prior to the date of such issuance; and to the extent that shares of
Common Stock are not delivered (or securities convertible into Common Stock are
not delivered) after the expiration of such rights or warrants, the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants been made
upon the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
(c) In case the Corporation shall hereafter distribute to all holders of
its Common Stock shares of stock other than Common Stock or evidences of its
indebtedness or assets (excluding cash dividends or distributions out of
retained earnings and dividends or distributions referred to in subparagraph (a)
above) or rights or warrants, then in each such case the Conversion Price
thereafter shall be determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction, of which the
numerator shall be the total number of outstanding shares of Common Stock
multiplied by the Conversion Price in effect immediately prior to the date of
such distribution, less the Fair Market Value of said shares of stock, assets or
evidences of indebtedness so distributed or of such rights or warrants, and of
which the denominator shall be the total number of outstanding shares of Common
Stock multiplied by the Conversion Price in effect immediately prior to the date
of such distribution. Such adjustments shall be made whenever any such
distribution is made and shall become effective immediately prior to the date of
such distribution.
(d) In case the Corporation shall hereafter issue shares of its Common
Stock (excluding shares issued (A) in any of the transactions described in
subparagraph (a) above, (B) upon conversion or exchange of securities
convertible into or exchangeable for Common Stock, or upon conversion of rights
or warrants issued to the holders of Common Stock, in existence on the date the
Series B Preferred Stock is first issued or for which an adjustment has already
been made pursuant to subparagraph (b) above or (C) by grant to or upon exercise
of options granted or to be granted to employees or directors pursuant to any
employee benefit plan or program of the Corporation or any of its subsidiaries
in existence on the date the Series B Preferred Stock is first issued or
subsequently approved by the Corporation's stockholders) for a consideration per
share of Common Stock less than the Fair Market Value on the date the
Corporation fixes or has fixed the offering, conversion, exchange or exercise
price of such additional shares, the Conversion Price shall be adjusted so that
it shall equal the price determined by multiplying the Conversion Price for such
series in effect immediately prior thereto by a fraction, of which the numerator
shall be the total number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares plus the number of shares of
Common Stock which the aggregate consideration received (determined as provided
in subparagraph (f) below) for the issuance of such additional shares would
purchase at Fair Market Value on the date the Corporation fixes or has fixed the
offering, conversion, exchange or exercise price of such additional shares, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made and
shall become effective immediately prior to the date of such issuance.
(e) In case the Corporation shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding securities
issued in transactions described in subparagraphs (b) and (c) above) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities (determined as provided in subparagraph (f) below)
less than the Fair Market Value on the issuance date of such securities, the
Conversion Price shall be adjusted so that it shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the date of
such issuance by a fraction, of which the numerator shall
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be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subparagraph (f) below) for
such securities would purchase at Fair Market Value prior to any adjustment
pursuant hereto, and of which the denominator shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the maximum
number of shares of Common Stock of the Corporation deliverable upon conversion
of or in exchange for such securities at the initial conversion or exchange
price or rate. Such adjustment shall be made successively whenever such an
issuance is made and shall become effective immediately prior to date of
issuance of such securities.
(f) For purposes of any computation respecting consideration received
pursuant to subparagraphs (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Corporation for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the Fair Market Value (irrespective of the accounting
treatment thereof); and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Corporation for
the issuance of such securities plus the additional minimum consideration, if
any, to be received by the Corporation upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this subparagraph (f)).
(g) In case the Corporation is a participant in a consolidation, merger or
combination with another corporation (other than with a wholly-owned subsidiary
of the Corporation and other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the Common Stock) or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, as a result of which holders of the Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or any share exchange whereby
Common Stock is converted into other securities or property of the Corporation,
then as a condition to the consummation of such transaction, lawful and adequate
provision shall be made so that the holder of Series B Preferred Stock shall
have the right, with respect to the number of shares of Series B Preferred Stock
held, to receive stock, other securities or property or assets (including cash)
or any combination thereof, having a value equal to the value of the stock,
other securities, property and assets (including cash) which the holder of the
Series B Preferred Stock would have been entitled to receive upon such
consolidation, merger, combination, sale or transfer, or exchange, if the holder
of the Series B Preferred Stock had held the Common Stock issuable upon the
conversion of the Series B Preferred Stock immediately prior to such
consolidation, merger, combination, sale or transfer, or exchange.
(h) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one-thousandth of
one cent ($0.00001) in such price; provided, however, that any adjustments not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 7 shall be made to
the nearest one-thousandth of a cent or to the nearest one-thousandth of a
share, as the case may be.
(i) Anything in this Section 7 to the contrary notwithstanding, the
Corporation shall be entitled, but shall not be required, to make such changes
in the Conversion Price, in addition to those required by this Section 7, as it
in
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its discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights or warrants to
purchase Common Stock or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions in cash out
of retained earnings) referred to hereinabove in this Section 7, hereafter made
by the Corporation to the holder of the Series B Preferred Stock shall not be
taxable to the holder of the Series B Preferred Stock.
(j) Whenever the Conversion Price is adjusted, as herein provided, the
Corporation shall promptly cause a notice setting forth the adjusted Conversion
Price and adjusted number of shares issuable upon conversion of each share of
Series B Preferred Stock to be mailed to the holder of Series B Preferred Stock.
The certificate setting forth the computation shall be signed by the chief
financial officer or other appropriate officer of the Corporation.
(k) In the event that at any time, as a result of any adjustment made
pursuant to this Section 7, the holder of Series B Preferred Stock thereafter
shall become entitled to receive any shares of the Corporation, other than
Common Stock, the number of such other shares so receivable upon conversion of
any shares of Series B Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subparagraphs (a) to
(g) of this Section 7 inclusive, above.
(l) For the purposes of this Section 7, the term "Fair Market Value" shall
mean the fair market value as reasonably established in good faith by the Board
of Directors of the Corporation, whose determination shall be described in a
certified Board resolution.
(8) Voting Rights.
(a) The holders of record of shares of Series B Preferred Stock shall be
entitled to notice of, and to vote or consent to, all actions on which holders
of Common Stock are required or permitted to act upon, including, without
limitation, the election of directors. For such purpose, each share of Series B
Preferred Stock shall have one vote for each share of Common Stock into which
the Series B Preferred Stock is convertible at the Conversion Price in effect at
the time.
(b) So long as any shares of Series B Preferred Stock are outstanding, the
Corporation will not, without the affirmative vote or consent of the holders of
at least a majority of the outstanding shares of Series B Preferred Stock,
voting as a class (i) issue any series of Preferred Stock the terms of which
provided that such series has priority over the Series B Preferred Stock as to
the payment of dividends, the repayment of capital or has class voting rights
except as required by the Delaware General Corporation Law or voting rights in
excess of one vote per share; (ii) create, authorize or issue any shares of any
other class of capital stock the terms of which provided that such class has
priority over the Series B Preferred Stock as to the payment of dividends, the
repayment of capital or has class voting rights except as required by the
Delaware General Corporation Law or voting rights in excess of one vote per
share, (iii) amend, alter or repeal, whether by merger, consolidation or
otherwise, the Corporation's Certificate of Incorporation if the amendment,
alteration or repeal materially and adversely affects the powers, preferences or
special rights of the Series B Preferred Stock, or (iv) declare any reverse
stock dividend with respect to the Series B Preferred Stock or otherwise reduce
the number of outstanding shares of Series B Preferred Stock other than pursuant
to Section 3 or 4 hereof; provided, however, that the approval of not less than
two-thirds of the outstanding shares of Series B Preferred Stock, voting as a
class, shall be required to amend, alter, or repeal any of the provisions of the
Certificate of Incorporation of the Corporation that would adversely affect the
dividend provisions, liquidation rights, conversion terms, or voting rights of
the Series B Preferred Stock or the holders thereof.
6
<PAGE>
(c) A special meeting of holders of the Series B Preferred Stock (or a
request for a vote by written consent without a meeting) to approve or
disapprove any action of the Corporation on which the holders of the Series B
Preferred Stock are entitled to vote as a separate class by law or pursuant to
this Section 8 may be called by the Secretary of the Corporation or by the
holder(s) of twenty-five percent (25%) or more of the outstanding shares of
Series B Preferred Stock on written notice to the address of each holder thereof
as it appears on the records of the Corporation deposited in the U.S. mail, all
charges prepaid, at least ten (10) but no more than sixty (60) days prior to the
applicable vote. The record date for determination of the holders of the Series
B Preferred Stock entitled to vote by written consent or at a meeting shall be
set by the Corporation's Board of Directors, and only holders who are holding of
record on the stock book of the Corporation on that date will be entitled to
participate in such vote. At any time at which any share of Series B Preferred
Stock has been issued and is outstanding, no proposal for the Corporation to
take any action described in this paragraph (c) shall be adopted, nor shall the
Corporation be authorized to take any such action, unless the holders of at
least two-thirds of the outstanding shares of Series B Preferred Stock voting as
a separate class vote in favor of such proposal.
(d) Copies of all notices sent to the holders of Common Stock shall be
simultaneously sent to each holder of the Series B Preferred Stock.
IN WITNESS WHEREOF, Windswept Environmental Group, Inc. has caused this
certificate to be signed by its Chairman, Chief Executive Officer and President
and attested by its Secretary this 26th day of October, 1999.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
---------------------------------------------
Michael O'Reilly
Chairman, Chief Executive Officer and
President
ATTEST:
/s/ Anthony Towell
- --------------------------------
Anthony Towell
Secretary
Front Side
Number Shares
_______ ______
Series B Convertible Preferred Stock
Incorporated under the Laws of the State of Delaware
WINDSWEPT ENVIRONMENTAL GROUP, INC.
See Reverse for Certain Definitions
50,000 Shares, Par Value $.01 Per Share
The Corporation will furnish without charge to each stockholder who
so requests, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
THIS IS TO CERTIFY THAT ___________________________________ is the owner of
____________________________________________________________ fully paid and
non-assessable shares of the above Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly
authoized Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers.
DATED
- ----------------------------- ------------------------------
Secretary President
<PAGE>
Reverse Side
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___ Custodian ___
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrevocably constitute and
- -------------------------------------------------------------------------appoint
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ___________________________
---------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SUBSCRIPTION AGREEMENT
Dated October 29, 1999
by and between
WINDSWEPT
ENVIRONMENTAL GROUP, INC.
and
SPOTLESS PLASTICS (USA) INC.
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is entered into this 29th day of October, 1999
by and between Windswept Environmental Group, Inc., a Delaware corporation (the
"Company"), and Spotless Plastics (USA) Inc., a Delaware corporation
("Spotless").
W I T N E S S E T H :
WHEREAS, the authorized share capital of the Company consists of (i)
50,000,000 shares of common stock, par value $.0001 per share (the "Common
Stock"), of which 16,158,571 shares are issued and outstanding and 11,556,746
shares are reserved for issuance upon the exercise of outstanding stock options,
warrants, convertible notes and convertible preferred stock and (ii) 10,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of
which 1,300,000 shares have been designated as Series A Redeemable Convertible
Preferred Stock, par value $.01 per share, and are issued and outstanding (the
"Series A Preferred");
WHEREAS, Spotless wishes to subscribe for and purchase from the Company,
and the Company wishes to sell to Spotless, (i) 22,284,683 shares of Common
Stock (the "Common Shares") and (ii) 9,346 shares of a new Series of Preferred
Stock which has been designated as the Series B Convertible Preferred Stock, par
value $.01 per share (the "Series B Preferred" and, together with the Common
Shares, the "Shares"); and
WHEREAS, in connection with the purchase and sale of the Shares, Spotless
has agreed to advance to the Company and certain of its Subsidiaries (as that
term is hereinafter defined) the sum of $2,000,000 (the "Loan") pursuant to the
terms of a Convertible Promissory Note substantially in the form attached hereto
as Exhibit A (the "Note"), which is convertible, subject to the terms and
conditions thereof, into either 25,304,352 shares of Common Stock or 25,305
shares of Series B Preferred;
NOW, THEREFORE, in consideration of the premises and the promises and
covenants herein contained, the parties hereto agree as follows:
1. Subscription for the Shares
Spotless hereby subscribes for and agrees to purchase, and the Company
hereby agrees to sell, convey, transfer and deliver to Spotless at the Closing
(as that term is hereinafter defined), the Shares, free and clear of all claims,
pledges, security interests, liens, rights of first refusal, options, warrants,
contractual commitments, sharing arrangements, restrictions, charges and
encumbrances of any nature whatsoever, all on the terms and conditions set forth
in this Agreement.
2. Purchase Price; Closing
a. Purchase Price. Subject to the terms and conditions of this Agreement,
the purchase price payable for the Shares (the "Purchase Price") shall be Two
Million Five Hundred Thousand Dollars ($2,500,000), or $0.07904 per Common Share
and $79.04 per share of Series B Preferred.
b. Time and Place. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Coudert Brothers at 1114 Avenue of
the Americas, New York, New York on October 29, 1999 at 10:00 A.M., or on such
other date or at such other location as the parties shall mutually agree in
writing (the "Closing Date").
c. Deliveries.
(i) Deliveries by the Company. The Company shall deliver to Spotless at the
Closing the following:
<PAGE>
(1) certificates representing the Common Shares and the Series
B Preferred;
(2) the Note duly executed by each of the Company, Trade-Winds
Environmental Restoration, Inc. ("Trade-Winds"), North
Atlantic Laboratories, Inc. ("North Atlantic")and New York
Testing Laboratories, Inc. ("New York Testing" and, together
with the Company, Trade-Winds and North Atlantic, the
"Windswept Entities");
(3) Security Agreements (each, a "Security Agreement"),
each substantially in the form attached hereto as Exhibit B
together with UCC-1 financing statements, duly executed by
the Company, Trade-Winds, North Atlantic and New York
Testing, respectively;
(4) a certificate, dated the Closing Date and executed
by the President of the Company to the effect that (A) each
of the representations and warranties of the Company made
herein is true and correct in all material respects on the
Closing Date as though such representations and warranties
were made on such date and (B) the Company has performed and
complied in all material respects with all covenants,
conditions and obligations under this Agreement which are
required to be performed or complied with by it on or prior
to the Closing Date;
(5) a copy, certified as of the Closing Date by a proper officer
of the Company, of the resolutions of the Board of Directors
of the Company (A) authorizing Series B Preferred and
approving the Certificate of Designation of Rights,
Preferences and Privileges of the Series B Preferred in the
form attached hereto as Exhibit C (the "Certificate of
Designations"), (B) authorizing the issuance of the Common
Shares and the Series B Preferred and the Company's
execution, delivery and performance of this Agreement, (C)
authorizing the borrowing of the Loan and the execution and
delivery of the Note and the Security Agreement to which the
Company will be a party, (D) approving an amendment to the
Company's Certificate of Incorporation (the "Amendment") to
increase the number of authorized shares of Common Stock
from 50,000,000 to 100,000,000 and recommending that the
shareholders of the Company approve such amendment, (E)
subject to shareholder approval of the Amendment, reserving
34,651,000 shares of Common Stock for issuance upon
conversion of the Note and shares of Series B Preferred
(including any shares of Series B Preferred that may be
issued upon conversion of the Note), 25,305 shares of Series
B Preferred for issuance in the event that the Note is
converted into shares of Series B Preferred and 5,486,309
shares of Common Stock for issuance upon the exercise of
stock options to be granted to Michael O'Reilly in
connection with the execution and delivery of the Amended
Employment Agreement (as that term is hereinafter defined),
(F) effective as of the Closing, increasing the size of the
Board of Directors from five (5) to nine (9) directors,
accepting the resignation of JoAnn O'Reilly and appointing
as new directors each of B.S. Blythe, R.B. Evans, Peter A.
Wilson, and Charles L. Kelly, (G) effective as of the date
ten (10) days after the filing with the Securities and
Exchange Commission (the "SEC") of an Information Statement
pursuant to Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14(f)
promulgated thereunder, the appointment of J.J. Bongiorno
as a director of the Company and (H) authorizing and
approving the execution and delivery by the Company of an
Amended and Restated Employment Agreement in the form
attached hereto as Exhibit D (the "Amended Employment
Agreement") by and between the Company and Michael O'Reilly
and stock option agreements (the "Stock Option Agreements")
in the form attached hereto as Exhibit E by and between the
Company and Michael O'Reilly;
(6) a copy, certified as of the Closing Date by a proper
officer of Trade-Winds, of the
2
<PAGE>
resolutions of the Board of Directors of Trade-Winds
authorizing the borrowing of the Loan and the execution
and delivery of the Note and the Security Agreement to
which Trade-Winds will be a party;
(7) a copy, certified as of the Closing Date by a
proper officer of North Atlantic, of the resolutions of the
Board of Directors of North Atlantic authorizing the
borrowing of the Loan and the execution and delivery of the
Note and the Security Agreement to which North Atlantic will
be a party;
(8) a copy, certified as of the Closing Date by a
proper officer of New York Testing, of the resolutions
of the Board of Directors of New York Testing authorizing
the borrowing of the Loan and the execution and delivery
of the Note and the Security Agreement to which New York
Testing will be a party;
(9) a complete and correct copy of the Certificate of
Incorporation of the Company, as amended, certified
by the Secretary of State of the State of Delaware;
(10) a complete and correct copy of the Certificate of
Designations, certified by the Secretary of State of the
State of Delaware;
(11) certificates of good standing dated within five
business days of the Closing Date certifying the
due incorporation, good standing and continued corporate
existence of each of the Windswept Entities, issued by
their respective jurisdictions of incorporation and by
each jurisdiction where each of them is qualified to
do business as a foreign corporation;
(12) the written opinion of Kaufman & Moomjian, LLC,
counsel for the Company, dated the Closing Date,
substantially in the form attached hereto as Exhibit F;
(13) evidence, reasonably satisfactory to Spotless,
that all indebtedness owed by the Windswept Entities to
Business Alliance Capital Corporation ("BACC") has been
duly and validly repaid and that BACC has released any and
all Encumbrances (as that term is hereinafter defined)
on their property and assets; and
(14) third party consents in form and substance
satisfactory to Spotless and its counsel with respect
to the contracts, permits, licenses and sureties specified
in Schedule 2.3(a)(xiv).
(ii) Deliveries by Spotless. Spotless shall deliver to the
Company at the Closing the following:
(1) payment of the Purchase Price by wire transfer in
immediately available funds;
(2) the advance of the Loan by wire transfer in
immediately available funds;
(3) certificates, dated as of the Closing Date and
executed by proper officers of Spotless, to the effect
that (A) each of the representations and warranties of
Spotless made herein is true and correct in all material
respects on the Closing Date as though such representations
and warranties were made on such date and (B) Spotless has
performed and complied in all material respects with all
covenants and obligations under this Agreement which are
to be performed or complied with by Spotless on or prior
to the Closing Date;
(4) a copy, certified as of the Closing Date by a
proper officer of Spotless, of the resolutions
3
<PAGE>
of the Board of Directors of Spotless authorizing (A) the
purchase of the Shares and the execution, delivery and
performance of this Agreement and (B) the advance of the
Loan pursuant to the terms of the Note;
(5) a certificate of good standing dated within five
business days of the Closing Date certifying the due
incorporation, good standing and continued corporate
existence of Spotless issued by the Secretary of State
of the State of Delaware; and
(6) the written opinion of Coudert Brothers, counsel to
Spotless, dated the Closing Date, substantially in the
form attached hereto as Exhibit G;
3. Representations and Warranties of the Company
The Company makes the representations and warranties set forth in this
Article III, each of which is true and correct as of the date hereof and will be
true and correct as of the Closing Date.
a. Organization and Good Standing.
(i) Except as set forth in Schedule 3.1(a), the Company and each Subsidiary
(as that term is hereinafter defined) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate the properties and assets it now owns,
leases or operates and to carry on its business as presently conducted. Except
as set forth in Schedule 3.1(a), the Company and each Subsidiary is qualified to
do business and is in good standing in each jurisdiction where the assets owned,
leased or operated by it or where ownership or operations of the conduct of its
business require such qualification, except where the lack of such qualification
would not have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company and the Subsidiaries taken as
a whole (a "Material Adverse Effect"). A true and complete copy of the
Certificate of Incorporation of the Company and each Subsidiary, as amended to
date, is attached hereto as Exhibit H, and a true and complete copy of the
By-laws of the Company and each Subsidiary is attached hereto as Exhibit I.
(ii) Schedule 3.1(b) sets forth the name and jurisdiction of incorporation
or organization of each corporation, partnership or other legal entity of which
the Company, directly or indirectly, owns any shares of capital stock or other
equity interests (each a "Subsidiary"). Each Subsidiary is wholly owned by the
Company. All of the capital stock and other interests of the Subsidiaries so
held by the Company are owned by it or a Subsidiary as indicated in Schedule
3.1(b), free and clear of any Encumbrance, except for the Encumbrances listed in
Schedule 3.1(b) which are outstanding as of the date hereof, all of which shall
be released on the Closing Date. All of the outstanding shares of capital stock
in each of the Subsidiaries directly or indirectly held by the Company are duly
authorized, validly issued, fully paid and nonassessable and were issued free of
preemptive or similar rights and in compliance with applicable laws. There are
no outstanding options, warrants, rights or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Subsidiary is bound
obligating it to issue additional shares of its capital stock, or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock or securities convertible into or exchangeable for such shares. The
Company does not own, of record or beneficially, directly or indirectly, any
equity or other proprietary interest, or right to acquire any such interest,
contingent or otherwise, in any other corporation, partnership, joint venture,
business enterprise or other entity of any nature whatsoever other than the
Subsidiaries.
b. Authorization; No Violations.
(i) The Company has full corporate power and authority to issue the Shares
and to execute, deliver and perform this Agreement, the Note and the Security
Agreement to which it is a party. Except as set forth in Schedule 3.2, the
issuance of the Shares by the Company and the execution and delivery of this
Agreement, the
4
<PAGE>
Note and the Security Agreement to which it will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
approved by the Board of Directors of the Company, and no other corporate action
on the part of the Company is necessary to authorize and approve the issuance of
the Shares, the execution and delivery of this Agreement, the Note or the
Security Agreement to which it will be a party or the consummation of the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by the Company and constitutes, and upon execution and
delivery each of the Note and the Security Agreement to which the Company will
be a party will constitute, the valid and binding agreement of the Company
enforceable in accordance with its respective terms, except as such
enforceability may be limited by applicable bankruptcy laws and any other
similar laws affecting the rights and remedies of creditors generally and by
general principles of equity.
(ii) Each of Trade-Winds, North Atlantic and New York Testing has full
corporate power and authority to execute, deliver and perform the Note and the
Security Agreement to which it is a party. The execution and delivery of the
Note and the Security Agreement to which it is a party and the consummation of
the transactions contemplated hereby and thereby have been duly approved by the
Board of Directors of Trade-Winds, North Atlantic and New York Testing,
respectively, and no other corporate action on the part of any of them is
necessary to authorize and approve the execution and delivery of the Note or the
respective Security Agreement to which is a party or the consummation of the
transactions contemplated hereby and thereby. Upon execution and delivery, each
of the Note and the Security Agreement to which Trade-Winds, North Atlantic and
New York Testing, respectively, is a party will constitute the valid and binding
agreement of each of them, respectively, enforceable in accordance with its
respective terms, except as such enforceability may be limited by applicable
bankruptcy laws and any other similar laws affecting the rights and remedies of
creditors generally and by general principles of equity.
(iii) Except as set forth in Schedule 3.2, the issuance of the Shares and
the execution, delivery and performance of this Agreement and the Note by the
Company and the consummation of the transactions contemplated hereby and thereby
will not: (i) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of the Company or any Subsidiary; (ii) breach, violate
or (whether immediately or with the lapse of time or the giving of notice or
both) constitute an event of default under or an event which would give rise to
any right of termination, cancellation, modification, acceleration or
foreclosure under, or require any consent of or the giving of any notice to any
third party under, any note, bond, surety, indenture, credit facility, mortgage,
security agreement, lease, license, franchise, permit or other agreement,
instrument or obligation to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
assets may be bound, or give rise to the creation of any Encumbrance upon the
Shares or upon the properties or assets of the Company or any Subsidiary; (iii)
violate or conflict with any law, statute, rule, regulation, ordinance, code,
judgment, order, writ, injunction, decree or other requirement of any court or
of any governmental body or agency thereof applicable to the Company or any
Subsidiary or by which any of their respective properties or assets may be
bound; or (iv) require any registration or filing by the Company or any
Subsidiary with, or any permit, license, exemption, consent, authorization or
approval of, or the giving of any notice by the Company or any Subsidiary to,
any governmental or regulatory body, agency or authority.
c. Capitalization of the Company.
(i) The authorized, issued and outstanding shares of all classes of capital
stock of the Company is set forth in Schedule 3.3 hereto. Upon issuance, the
Shares will constitute 51.0% of the aggregate voting power of all the issued and
outstanding voting securities of the Company on a fully diluted basis (i.e.,
after giving effect to the exercise of all options, warrants, or similar rights
to acquire shares of Common Stock, other than the Note). The Shares have been
duly authorized for issuance and sale to Spotless pursuant to the terms of this
Agreement, and, upon payment of the Purchase Price and delivery of the
certificates representing the Shares, the Shares will be validly issued and
fully paid and nonassessable. The issuance of the Shares is not subject to any
preemptive or other similar rights. Except as set forth in Schedule 3.3, the
shares of Common Stock or Series B Preferred to be issued upon conversion of the
Note, as the case may be, and the shares of Common Stock to be issued upon
conversion of the Series B Preferred will be, upon any such conversion, duly
authorized, validly issued, fully paid
5
<PAGE>
and nonassessable. All of the issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, full paid and
nonassessable. Except as disclosed in Schedule 3.3 hereto, there are no
agreements, arrangements or understandings (including, without limitation,
options or warrants), to which the Company is a party, or by which the Company
is bound relating to the issuance, acquisition or disposition of any shares of
capital stock of the Company or any interest therein, and there are no
agreements, arrangements or understandings to which the Company is a party or by
which it is bound relating to the repurchase or redemption of any shares of its
capital stock. Except for the options, warrants and other rights listed on
Schedule 3.3 hereto, there are no outstanding options, warrants or other rights
to subscribe for or purchase, or securities convertible into or exchangeable
for, shares of the Company's capital stock, and there are no agreements,
arrangements or understandings to which the Company is a party or by which it is
bound pursuant to which the Company is or may be required to issue or sell
additional shares of its capital stock.
d. Securities Filings; Financial Statements.
(i) Since January 1, 1997, the Company has filed all forms, reports,
statements and documents required to be filed with the SEC, and all such forms,
reports, statements and documents comply in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, each as in effect on the date of the
respective filing thereunder. The Company has furnished or made available to
Spotless true and complete copies of (i) its Annual Reports on Form 10-KSB for
the years ended April 30, 1998 and 1999, as filed with the SEC, (ii) its proxy
statements relating to all meetings of shareholders (whether annual or special)
of the Company since January 1, 1998, as filed with the SEC and (iii) all other
reports, statements and registration statements and amendments thereto
(including, without limitation, Quarterly Reports on Form 10-QSB and Current
Reports on Form 8K, as amended) filed by the Company with the SEC since January
1, 1998 and prior to the date hereof (collectively, the "Company Filed
Documents"). As of their respective dates, or as of the date of the last
amendment thereof, if amended after filing, none of the Company Filed Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading. The
Company has heretofore furnished or made available to Spotless a complete and
correct copy of any amendments or modifications which have not yet been filed
with the SEC to executed agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act or the Exchange Act.
(ii) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company Filed Documents (the
"Company Financial Statements" (i) are accurate and complete in all material
respects, (ii) have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied during the periods
covered thereby, except as otherwise specifically indicated therein or in the
notes thereto and (iii) fairly present the financial condition and results of
operations of the Company as at the dates and for the periods then ended
subject, in the case of the unaudited interim financial statements, to normal
year-end audit adjustments (which in the aggregate are not material in nature or
amount). The financial books and records of the Company are accurate and
complete in all material respects and are maintained in accordance with
customary business practices in the industry and all applicable legal
requirements.
(iii) Except as set forth in Schedule 3.4(c), since July 31, 1999, the
Company has not declared a dividend or set aside funds or assets for
distribution or distributed any assets of the Company, whether in connection
with any loan or other form of indebtedness, capital contribution, assignment,
dividend or distribution or otherwise, to or for the benefit of any affiliate of
the Company or any Related Party (as hereinafter defined).
e. Absence of Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, whether known or unknown, and
whether arising out of transactions entered into or any condition or state of
facts existing on or prior to the date hereof except as set forth in Schedule
3.5 and except (i) as disclosed in the Company Filed Documents, (ii) for
obligations incurred pursuant to contracts entered into in the ordinary course
of business and identified in an
6
<PAGE>
appropriate Schedule hereto to the extent required by this Agreement to be
identified in the Schedules hereto, or (iii) for liabilities incurred in the
ordinary course of business since July 31, 1999, all of which liabilities are
properly reflected in the books and records of the Company.
f. Absence of Certain Changes or Events. Except as set forth in Schedule
3.6 hereto, since May 1, 1999, the Company and the Subsidiaries have carried on
their businesses in the ordinary course and in all material respects consistent
with past practice. Except as set forth in Schedule 3.6 hereto, since July 31,
1999, neither the Company nor any Subsidiary has:
(i) incurred any obligation or liability (whether absolute, accrued,
contingent or otherwise), except pursuant to the terms of this Agreement or
except in the ordinary course of business and consistent with past practice;
(ii) suffered any damage, destruction or loss, whether or not covered by
insurance, affecting its properties, assets or business, to the extent that the
same exceeds $5,000 individually or $25,000 in the aggregate;
(iii) mortgaged, pledged or subjected to any lien, charge or other
Encumbrance any of its assets, tangible or intangible, except in the ordinary
course of business and consistent with past practice;
(iv) sold or transferred any of its assets, except in the ordinary course
of business and consistent with past practice, or canceled or compromised any
material debts or waived any claims or rights of a material nature;
(v) leased, licensed or granted to any person or entity any rights in any
of its assets or properties outside the ordinary course of business and
inconsistent with past practice;
(vi) experienced any material adverse change in its financial condition,
results of operations, cash flows, assets, liabilities, business or operations;
(vii) made any change in any accounting principle or practice or in its
method of applying any such principle or practice;
(viii) issued any additional shares of capital stock or any options,
warrants or other rights to purchase, or any securities convertible into or
exchangeable for, shares of its capital stock;
(ix) declared or paid any dividends on or made any other distributions
(however characterized) in respect of shares of its capital stock;
(x) repurchased or redeemed any shares of its capital stock;
(xi) granted any general or specific increase in the salary, commission
rate or other compensation (including, without limitation, bonuses, profit
sharing or deferred compensation) payable or to become payable to any of its
employees or agents, except as required under existing contractual obligations
of the Company or a Subsidiary, or adopted any Benefit Plan (as that term is
hereinafter defined), or increased, augmented or improved the benefits granted
to or for the benefit of any Employee (as that term is hereinafter defined)
under any Benefit Plan; or
(xii) entered into any agreement to do any of the foregoing.
g. No Claims or Litigation. Except as set forth in Schedule 3.7 hereto,
there are no suits, actions, proceedings (including, without limitation,
arbitral and administrative proceedings), claims or governmental investigations
or audits pending or, to the best knowledge of the Company, threatened against
the Company or any Subsidiary or their respective properties, assets or business
(or, to the best knowledge of the Company, pending or
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threatened against, relating to or involving any of the officers,
directors, Employees or agents of the Company or any Subsidiary in connection
with the business of the Company or any Subsidiary). There are no such suits,
actions, proceedings, claims or investigations pending, or, to the best
knowledge of the Company, threatened challenging the validity or propriety of,
or otherwise relating to or involving, this Agreement or the transactions
contemplated hereby. Except as set forth in Schedule 3.7, there is no judgment,
order, writ, injunction, decree or award (whether issued by a court, an
arbitrator, a governmental body or agency thereof or otherwise) for the payment
of an amount in excess of $10,000 individually or $25,000 in the aggregate to
which the Company or any Subsidiary is a party, or involving the properties,
assets or business of the Company or any Subsidiary, which is unsatisfied or
which requires continuing compliance therewith by the Company or any Subsidiary.
h. Taxes.
(i) Except as set forth in Schedule 3.8, all returns and reports relating
to Taxes (as hereinafter defined) which are required to be filed with respect to
the Company on or before the date hereof or which will be required to be filed
on or before the Closing Date have been, or will be, duly and timely filed and
all such returns and reports are, or will be, complete and correct in all
material respects. Except as set forth in Schedule 3.8, all Taxes, assessments,
fees and other governmental charges imposed on or with respect to the Company
which have become due and payable on or before the Closing Date have been, or
will be prior to the Closing Date, paid in a timely manner by the Company, or
shall be accrued for in the Company Financial Statements or in the books of the
Company. Except as set forth on Schedule 3.8 hereto, there are no actions or
proceedings currently pending or, to the best knowledge of the Company,
threatened against the Company by any governmental authority for the assessment
or collection of Taxes, no claim for the assessment or collection of Taxes has
been asserted or, to the best knowledge of the Company, threatened, against the
Company, and there are no matters under discussion by the Company with any
governmental authority regarding claims for the assessment or collection of
Taxes against the Company. Except as set forth on Schedule 3.8 hereof, there are
no agreements, waivers or applications by the Company for an extension of time
for the assessment or payment of any Taxes. There are no Tax liens on any of the
assets of the Company (other than any lien for current Taxes not yet due and
payable). No claim has ever been made by an authority in a jurisdiction where
the Company does not file Tax returns or reports that it is or may be subject to
taxation by that jurisdiction. The Company is not a party to any Tax allocation
or sharing agreement. The Company is not and has never been a member of an
affiliated group of corporations (other than the group consisting of the Company
and its Subsidiaries) filing a consolidated U.S. income Tax return and is not
liable, as a transferee or successor (by contract or otherwise), for the Taxes
of any corporation that previously was a member of such an affiliated group.
(ii) For purposes of this Agreement, the terms "Tax" and "Taxes" shall mean
and include any and all foreign, national, Federal, state, local or other
income, franchise, sales, gross receipts, use, value added, goods and services,
withholding, employment, payroll, social security, unemployment, real and
personal property, stamp duty, customs duty and intangibles tax and all other
taxes of any nature, deficiencies, fees, assessments, interest, penalties or any
other governmental charges, duties, impositions and liabilities of whatever
nature, including, without limitation, any installment payment for taxes and
contributions or other amounts determined with respect to compensation paid to
directors, officers, employees or independent contractors, from time to time
imposed by or required to be paid to any governmental authority (including
penalties and additions to taxes thereon, penalties for failure to file a return
or report and interest on any of the foregoing).
(iii) 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) of the Internal Revenue Code of 1986, as amended (the "Code").
(iv) The Company does not conduct any operations or sales which have been
or are required to be reported to the Internal Revenue Service (the "IRS") under
the provisions of Section 999 of the Code.
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i. Title to Properties and Related Matters.
(i) Except as set forth on Schedule 3.9(a), the Company and the
Subsidiaries have good and marketable title to all real property and tangible
personal property and assets which they own, including, without limitation, the
properties and assets reflected in the Company Financial Statements or acquired
after the date thereof (other than properties and assets sold or otherwise
disposed of since the date thereof in the ordinary course of business and
consistent with past practice), free and clear of any mortgages, pledges,
security interests, liens, claims, charges, equities, conditional sales
contracts, restrictions, reservations, options, first refusal rights or
encumbrances of any nature whatsoever (collectively, "Encumbrances"), except for
the Encumbrances listed in Schedule 3.9(a). All of the Encumbrances listed in
Part 1 of Schedule 3.9(a) will be released on the Closing Date.
(ii) Schedule 3.9(b) contains a complete and correct list and description
of all real property leased by the Company or any Subsidiary (the "Leased Real
Property"), in each case indicating the persons or entities from whom such
property is being leased. The Company or one or more of its Subsidiaries has
good and marketable title to all structures, plants, leasehold improvements,
systems, fixtures and other property located on or about any of the Leased Real
Property which are owned by any of them, as reflected in the Company Financial
Statements, free of any Encumbrances, except for the Encumbrances listed in
Schedule 3.9(a) which are outstanding as of the date hereof, all of which shall
be released on the Closing Date (but subject to the interests of landlords under
any applicable leases), and none of such material assets is subject to any
agreement, arrangement or understanding for their use by any person other than
the Company or one or more of its Subsidiaries. Except as set forth on Schedule
3.9(b), no work has been performed on or with respect to or in connection with
any of the Leased Real Property that would cause such Leased Real Property to
become subject to any mechanics', materialmen's, workmen's, repairmen's,
carriers' or similar liens in excess of $5,000 individually or $25,000 in the
aggregate. The structures, plants, improvements, systems and fixtures
(including, without limitation, storage tanks or other impoundment vessels,
whether above or below ground) located on each such parcel of Leased Real
Property conform in all material respects with all Federal, state and local
statutes and laws and, to the best knowledge of the Company, all ordinances,
rules, regulations and similar governmental and regulatory requirements (except
as set forth on Schedule 3.9(b) hereto) and are in reasonable operating
condition and repair, ordinary wear and tear excepted, taking into consideration
their respective ages and periods of use. Each such parcel of Leased Real
Property, in view of the purposes for which it is currently used or for which it
is proposed to be used pursuant to existing plans, conforms in all material
respects with all covenants or restrictions of record and conforms in all
material respects with all applicable building codes and zoning requirements,
and current, valid certificates of occupancy (or equivalent governmental
approvals) have been issued for each item of Leased Real Property; provided
that, for purposes of this sentence, a "material" non-conformity shall be deemed
to include, without limitation, any condition giving rise to liabilities, costs
or expenses of $5,000 or more individually or $25,000 in the aggregate; and the
Company is not aware of any proposed material change in any such governmental or
regulatory requirements or in any such zoning requirements. All existing
electrical, plumbing, fire sprinkler, lighting, air conditioning, heating,
ventilation, elevator and other mechanical systems located in or about the
Leased Real Property are in reasonable operating condition and repair, ordinary
wear and tear excepted, taking into consideration their respective ages and
periods of use. The maintenance and operation of such items located in or about
Leased Real Property is and has been conducted in compliance in all material
respects with the terms and conditions of all leases to which the Company or any
of its Subsidiaries is a party and all material maintenance or repair projects
(which, for purposes hereof, shall be deemed to include any one or more items
requiring expenditures by the Company or a Subsidiary in excess of $5,000 for
each item of Leased Real Property) required to be undertaken by the Company or a
Subsidiary under the terms of such leases within the first year following the
Closing Date have been disclosed in Schedule 3.9(b) hereto. To the knowledge of
the Company, the Company and its Subsidiaries have the benefit of all material
easements, rights-of-way and similar rights necessary to conduct their
businesses as presently conducted and to use the items of Leased Real Property
as currently used, including, without limitation, easements and licenses for
pipelines, power lines, water lines, roadways and other access. All such
easements and rights are valid, binding and in full force and effect, any
amounts due and payable thereon to date have been paid or have been fully
accrued for in the books and records of the Company, as applicable, neither the
Company or any of its Subsidiaries nor, to the best knowledge of the Company,
any other party thereto is in default thereunder, and there exists no event or
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condition affecting the Company or any of its Subsidiaries or, to the best
knowledge of the Company, any other party thereto, which, with the passage of
time or the giving of notice or both, would constitute a material default
thereunder, which, for purposes hereof, shall be deemed to include, without
limitation, any individual or series of defaults resulting in liabilities, costs
or expenses of $5,000 or more individually or $25,000 in the aggregate. No such
easement or right will be breached by, nor will any party thereto be given a
right of termination as a result of, the transactions contemplated by this
Agreement. Neither the Company nor any of its Subsidiaries currently owns any
real property.
(iii) All items of equipment, machinery, vehicles, furniture, fixtures and
other tangible personal property currently owned or used by the Company or any
Subsidiary as of the date hereof are in reasonable operating condition and
repair, ordinary wear and tear excepted, taking into consideration its age and
period of use, are physically located at or about the Company's place of
business or where it otherwise conducts its business and are owned outright by
the Company or its Subsidiaries or validly leased under one of the leases set
forth in Schedule 3.9(d). No material items of such personal property are
subject to any agreement, arrangement or understanding for its use by any person
other than the Company and its Subsidiaries. To the best knowledge of the
Company, the maintenance and operation thereof has complied in all material
respects with all applicable laws, regulations, ordinances, contractual
commitments and obligations. Except as set forth in Schedule 3.9(a) referred to
above or as disclosed in the Company Financial Statements, no item of tangible
personal property owned or used by the Company or any Subsidiary is subject to
any conditional sale agreement, installment sale agreement or title retention
agreement or arrangement of any kind; as to each material item of personal
property subject to any such agreement or arrangement, Schedule 3.9(c) sets
forth a brief description of the property in question and the amount and
repayment terms of the underlying obligation.
(iv) Schedule 3.9(d) sets forth a complete and correct list and summary
description of all tangible personal property leases to which the Company or any
Subsidiary is a party (either as landlord or tenant), together with a brief
description of the property leased and identifying the date and term of the
lease, the amount and timing of lease payments and any renewal or purchase
options, provided that, with respect to personal property leases, only those
leases wherein the property leased has a fair market value exceeding $1,000 or
the total annual rental payments exceed $5,000 ("Material Personal Property
Leases") shall be required to be disclosed. The Company has made available to
Spotless complete and correct copies of each lease (and any amendments thereto)
listed in Schedule 3.9(d). Except as set forth in Schedule 3.9(d), (i) each such
lease is in full force and effect; (ii) all lease payments due to date on any
such lease have been paid, and neither the Company, any Subsidiary nor (to the
best knowledge of the Company) any other party is in default under any such
lease, and no event has occurred which constitutes, or with the lapse of time or
the giving of notice or both would constitute, a default by the Company, any
Subsidiary or (to the best knowledge of the Company) any other party under such
lease; (iii) there are no disputes or disagreements between the Company and any
Subsidiary, on the one hand, and any other party, on the other hand, with
respect to any such lease; and (iv) the lessor under each such lease has
consented or been given notice (where such consent or the giving of such notice
is necessary) sufficient that such lease shall remain in full force and effect
following the consummation of the transactions contemplated by this Agreement
without any modification in the rights or obligations of the lessee under any
such lease.
j. Computer Software.
(i) Schedule 3.10 hereto sets forth a complete and correct list of all
computer systems and software which are used by the Company and its Subsidiaries
in the administration and/or financial accounting of their businesses (the
"Proprietary Software"). Except as set forth in Schedule 3.10, the Company or a
Subsidiary is the owner of the Proprietary Software, and, to the best knowledge
of the Company, the Proprietary Software does not infringe any patent,
copyright, trade secret or trademark of any other person.
(ii) The Company warrants that (i) all non-Proprietary Software material to
the conduct of its business and its Subsidiaries' businesses was commercially
available at the time of its acquisition by the Company or the relevant
Subsidiary and was acquired by the Company or a Subsidiary though normal
business channels and (ii) to
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the knowledge of the Company, neither the Company, nor its Subsidiaries,
affiliates, agents or third-party consultants (but only with respect to services
rendered to the Company or any Subsidiary) are in breach of any licensing
arrangements (including, without limitation, payment of applicable user fees)
with respect to any non-Proprietary Software.
k. Patents, Trademarks, Etc. Neither the Company nor any of its
Subsidiaries owns, licenses or uses any patents or registered trademarks,
service marks or trade names in the conduct of its respective business. Neither
the Company nor any Subsidiary has received any notice or claim that it is
infringing upon or the intellectual property rights of any other person.
l. Contracts.
(i) Except as set forth in Schedule 3.12(a), neither the Company nor any
Subsidiary is a party to, or subject to:
(1) any contract, arrangement or understanding, or Series
of related contracts, arrangements or understandings,
which involves annual expenditures or receipts by the
Company or any Subsidiary of more than $25,000 or which
provides for performance, regardless of amounts, over a
period in excess of six months after the date of such
contract, arrangement or commitment (unless such contract
is cancelable by the Company or the relevant Subsidiary,
as the case may be, on less than six months' notice);
(2) any Material Personal Property Lease;
(3) any lease of real property;
(4) any license agreement involving an amount in excess of
$25,000;
(5) any contract, arrangement or understanding not made
in the ordinary course of business and consistent with
past practice;
(6) any note, bond, indenture, credit facility,
mortgage, security agreement or other instrument or
document relating to or evidencing indebtedness for money
borrowed (all of which indebtedness is prepayable at any
time at the option of the Company or the relevant
Subsidiary, as the case may be, without premium or penalty)
or a security interest or mortgage in the assets of the
Company or any Subsidiary or any reimbursement
obligation in respect of any letter of credit, guaranty,
bond or surety issued by a third party for the benefit of
the Company;
(7) any warranty, indemnity or guaranty issued by the
Company or any Subsidiary;
(8) any contract, arrangement or understanding granting
to any person the right to use any material item of
property or property right of the Company or any Subsidiary;
(9) any contract, arrangement or understanding
restricting the right of the Company or any Subsidiary to
engage in any business activity or compete with any
business; or
(10) any outstanding offer or commitment to enter into
any contract or arrangement of the nature described in
subsections (i) through (ix) of this Section 3.12(a).
(ii) The Company has delivered to Spotless complete and correct copies of
each contract (and any amendments thereto) listed on Schedule 3.12(a), except to
the extent that Schedule 3.12(a) contains a complete and
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correct description of the material terms of all oral contracts. Except as
set forth in Schedule 3.12(b), (i) each contract listed in Schedule 3.12(a) is
in full force and effect; (ii) neither the Company, any Subsidiary nor (to the
best knowledge of the Company) any other party is in material default under any
such contract, and no event has occurred which constitutes, or with the lapse of
time or the giving of notice or both would constitute, a default by the Company,
any Subsidiary or (to the best knowledge of the Company) by any other party
under such contract; (iii) there are no material disputes or disagreements
between the Company or any Subsidiary, on the one hand, and any other party, on
the other hand, with respect to any such contract; and (iv) each other party to
each such contract has consented or been given notice (where such consent or the
giving of such notice is necessary) sufficient that such contract shall remain
in full force and effect following the consummation of the transactions
contemplated by this Agreement without any modification in the rights or
obligations of the Company or any Subsidiary thereunder.
m. Employees; Employee Benefits.
(i) Schedule 3.13(a) sets forth the names of all employees of the Company
and the Subsidiaries, other than temporary employees, as of October 15, 1999
(the "Employees") and, with respect to each Employee, such Employee's job title
and the date of employment of such Employee. The Company has accrued on its
books and records all obligations for salaries, vacations, benefits and other
compensation with respect to its Employees and any of its Former Employees (as
that term is hereinafter defined), to the extent required by GAAP, including,
but not limited to, severance, bonuses, incentive and deferred compensation, and
all commissions and other fees payable to salespeople, sales representatives and
other agents. The Company accrues for vacation benefits, but does not accrue for
sick pay benefits. The Company and its Subsidiaries do not currently offer, and
have never offered, retiree health and insurance benefits to Employees and
Former Employees, and neither the Company nor any of its Subsidiaries has any
liabilities (contingent or otherwise) with respect thereto. Except as set forth
on Schedule 3.13(a), there are no outstanding loans from the Company or any
Subsidiary to any Related Party. Complete and correct copies of all material
written agreements with or concerning Employees, including, without limitation,
union and collective bargaining agreements, and all employment policies, and all
amendments and supplements thereto, have been delivered to Spotless, and a list
of all such agreements and policies is set forth on Schedule 3.13(a). None of
the Employees has, to the best knowledge of the Company, indicated a desire to
terminate his or her employment other than at normal retirement age, or any
intention to terminate his or her employment in connection with the transactions
contemplated by this Agreement. Except as set forth on Schedule 3.13(a), since
May 1, 1999, neither the Company nor any Subsidiary has (i) except in the
ordinary course of business and consistent with past practice, increased the
salary or other compensation payable or to become payable to or for the benefit
of any of the Employees, (ii) provided any of the Employees with any increased
security or tenure of employment, (iii) increased the amounts payable to any of
the Employees upon the termination of any such person's employment or (iv)
adopted, increased, augmented or improved benefits granted to or for the benefit
of any of the Employees under any Benefit Plan.
(ii) To the best knowledge of the Company, the Company and its Subsidiaries
have complied at all times and in all material respects with all laws, statutes,
rules and regulations applicable with respect to employees in each of the
jurisdictions in which it operates and/or does business. Except as disclosed on
Schedule 3.13(b), the Company and each Subsidiary has complied in all material
respects with Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act, as amended, the Americans with Disabilities
Act, the Family Medical Leave Act, the Fair Labor Standards Act, as amended, and
all applicable laws, statutes and regulations governing payment of minimum wages
and overtime rates, labor standards, working conditions, the withholding and
payment of Taxes or any other kind of governmental charge from compensation,
terms and conditions of employment, workplace safety, workers' compensation,
disability pay, social benefits whether or not imposed by a governmental
program, discriminatory practices, including, without limitation, with respect
to employment and discharge, or otherwise relating to the conduct of employers
with respect to employees or potential employees (collectively, the "Employee
Laws"), and there have been no claims made or, to the knowledge of the Company,
threatened thereunder against the Company or any Subsidiary arising out of or
relating to or alleging any violation of any of the foregoing. The Company and
its Subsidiaries have complied in all material respects with the employment
eligibility verification form requirements under the Immigration and
Naturalization Act, as amended
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("INA"), with respect to Employees, and the Company and its Subsidiaries
have complied with the paperwork provisions and anti-discrimination provisions
of the INA and the Company has obtained and maintained the employee records and
I-9 forms with respect to the Employees in proper order as required by law.
Neither the Company nor any Subsidiary is currently employing any Employees who
are not citizens of the United States and who are not authorized to work in the
United States. To the best knowledge of the Company, there are no controversies,
strikes, work stoppages, picketing, filed grievances, job actions, unfair labor
practice charges, investigations, complaints, disputes or other proceedings
pending or threatened between the Company or any Subsidiary and any of the
Employees or Former Employees; no labor union or other collective bargaining
unit represents or has ever represented any of the Employees in connection with
their employment with the Company and its Subsidiaries; the Company has no
knowledge of any organizational effort by any labor union or other collective
bargaining unit currently under way or threatened with respect to any Employees;
no consent of any labor union or other collective bargaining unit representing
Employees is required to consummate the transactions contemplated by this
Agreement; and neither the Company nor any Subsidiary has incurred any liability
under the Worker Adjustment Retraining Notification Act ("WARN") or similar
state and local laws.
(iii) Except for temporary clerical personnel, none of the Employees are
"leased employees" within the meaning of Section 414(h) of the Code. Schedule
3.13(c) sets forth a list of each defined benefit and defined contribution plan,
stock ownership plan, executive compensation program or arrangement, bonus plan,
incentive compensation plan or arrangement, deferred compensation agreement or
arrangement, supplemental retirement plan or arrangement, vacation pay,
sickness, disability or death benefit plan (whether provided through insurance,
on a funded or unfunded basis or otherwise), medical or life insurance plan,
providing benefits to any Employee, retiree or Former Employee or any of their
dependents, survivors or beneficiaries, employee stock option or stock purchase
plan, severance pay, termination or salary continuation plan, and each other
employee benefit plan, program or arrangement, including, without limitation,
each "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which is
maintained by the Company or any Subsidiary for the benefit of or relating to
any of the Employees or to any former employees of the Company or any Subsidiary
(the "Former Employees") or their dependents, survivors or beneficiaries,
whether or not legally binding, and for which the Company or any Subsidiary
could reasonably have any liabilities, all of which are hereinafter referred to
as the "Benefit Plans." Neither Spotless, the Company nor any Subsidiary will
incur any liability under any severance agreement, deferred compensation
agreement, employment agreement, similar agreement or Benefit Plan solely as a
result of the consummation of the transactions contemplated by this Agreement.
(iv) Each Benefit Plan which is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) meets the requirements of Section 401(a) of
the Code; the trust, if any, forming part of such plan is exempt from U.S.
Federal income Tax under Section 501(a) of the Code; a favorable determination
letter has been issued by the IRS after January 1, 1994 with respect to each
plan and trust and each amendment thereto; and since the date of such
determination letter there are no circumstances which are likely to adversely
affect the qualification of such plan. No Benefit Plan is a "voluntary employees
beneficiary association" (within the meaning of Section 501(c)(9) of the Code)
and there have been no other "welfare benefit funds" relating to Employees or
Former Employees within the meaning of Section 419 of the Code. No event or
condition exists with respect to any Benefit Plan that could subject the Company
or any Subsidiary to any material Tax under Section 4980B of the Code or, for
plan years beginning before January 1, 1989, Section 162(k) of the Code. With
respect to each Benefit Plan, the Company has heretofore delivered to Spotless
complete and correct copies of the following documents, where applicable: (i)
the most recent annual report (Form 5500 series), together with schedules, as
required, filed with the IRS, and any financial statements and opinions required
by Section 103(a)(3) of ERISA, (ii) the most recent determination letter issued
by the IRS, (iii) the most recent summary plan description and all
modifications, (iv) the text of the Benefit Plan and of any trust, insurance or
annuity contracts maintained in connection therewith, (v) the most recent
actuarial report, if any, relating to the Benefit Plan and (vi) the most recent
actuarial valuation, study or estimate of any retiree medical and life insurance
benefits plan or supplemental retirement benefit plan.
(v) Except as set forth on Schedule 3.13(e) hereto, neither the Company,
any Subsidiary nor any
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corporation or other trade or business under common control with the
Company (as determined pursuant to Section 414(b) or (c) of the Code) (a "Common
Control Entity") maintains or contributes to or, to the knowledge of the 15
Company, in any way directly or indirectly has any liability (whether contingent
or otherwise) with respect to, any "multiemployer plan," within the meaning of
Section 3(37) or 4001(a)(3) of ERISA, or any other employee pension benefit plan
subject to Title IV of ERISA or Section 412 of the Code; no Benefit Plan of the
Company, any Subsidiary or of any Common Control Entity is subject to Title IV
of ERISA. No contingent or other liability with respect to which the Company or
any Subsidiary has or could have any liability exists under Title IV of ERISA to
the Pension Benefit Guaranty Corporation (the "PBGC") or to any Benefit Plan;
and no assets of the Company or any Subsidiary are subject to a lien under
Sections 4064 or 4068 of ERISA. Except as set forth on Schedule 3.13(e) hereto,
all contributions required to be made to or with respect to each Benefit Plan
with respect to the service of Employees or Former Employees prior to the date
hereof have been made or have been accrued for in the books and records of the
Company for all periods through the date hereof. Neither the Company nor any
Subsidiary has any obligation to provide post-retirement medical or other
benefits to Employees or Former Employees or their survivors, dependents and
beneficiaries, except as may be required by Section 4980B of the Code or Part 6
of Title I of ERISA or applicable state medical benefits continuation law and
the Company or the relevant Subsidiary may terminate any such post-retirement
medical or other benefits upon thirty (30) days' notice or less without any
liability therefor.
(vi) None of the Benefit Plans has been subject to a "reportable event,"
within the meaning of Section 4043 of ERISA (whether or not waived), within the
24-month period ended on the date hereof; there have been no "prohibited
transactions" within the meaning of Section 4975 of the Code or Part 4 of
Subtitle B of Title I of ERISA in connection with any of the Benefit Plans that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the Company or any Subsidiary to a Tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a Material Adverse Effect; none of the Benefit Plans which are
subject to Section 412 of the Code has incurred any "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code and neither the Company nor any Subsidiary is subject to a lien under
Section 412(n) of the Code; each Benefit Plan has, in all material respects,
been administered to date in accordance with the applicable provisions of ERISA,
the Code and applicable law and with the terms and provisions of all documents,
contracts or agreements pursuant to which such Benefit Plan is maintained; all
reports and information required to be filed with the Department of Labor, the
IRS or the PBGC with respect to any Benefit Plan have been timely filed or
delivered; there is no arbitration, claim or suit pending or, to the best
knowledge of the Company, threatened, involving a Benefit Plan (other than
routine claims for benefits), and, to the best knowledge of the Company, there
is no basis for such a claim; none of the Benefit Plans nor any fiduciary
thereof has been, to the best knowledge of the Company, the direct or indirect
subject of an order or investigation or examination by a governmental or
quasi-governmental agency and there are no matters pending before the IRS, the
Department of Labor, or any other governmental agency with respect to a Benefit
Plan; and there has not been and will be no "parachute payment" (as defined in
Section 280G(b)(2) of the Code) to any of the Employees prior to the Closing or
as a result of the transactions contemplated by this Agreement.
n. Ability to Conduct the Business. Except as may be disclosed in Schedule
3.14 hereto, there is no agreement, arrangement or understanding, nor any
judgment, order, writ, injunction or decree of any court or any governmental
body or agency thereof that could prevent the use by the Company or any
Subsidiary of their properties and assets or the conduct by them of their
businesses as of the Closing Date. Schedule 3.14 sets forth a list of all
permits, licenses, certificates, approvals and other authorizations required by
the Company and its Subsidiaries in connection with the operation of their
respective businesses as presently conducted, all such permits, licenses,
certificates, approvals and other authorizations are in force and the Company or
the relevant Subsidiary, as the case may be, has complied with all of the
conditions and requirements imposed by the terms thereof. Neither the Company
nor any Subsidiary has received any notice of, and neither the Company nor any
Subsidiary has any knowledge of, any intention on the part of any appropriate
authority to cancel, revoke or modify, or any inquiries, proceedings or
investigations the purpose or possible outcome of which is the cancellation,
revocation or modification of any such material permit, license, certificate,
authorization or approval, except as set forth on Schedule 3.14. Except as set
forth in Schedule 3.14, all such permits, licenses, certificates, authorizations
and
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approvals shall remain in full force and effect, without the requirement of
any filing or the giving of any notice, and without any modification thereof,
upon the consummation of the transactions contemplated by this Agreement.
o. Major Customers. Neither the Company nor any Subsidiary has received any
notice or other written communication from any customer of the Company
terminating or reducing, or setting forth an intention to terminate or reduce in
the future, or otherwise reflecting a material adverse change in, the business
relationship between such customer and the Company or any Subsidiary and, to the
knowledge of the Company, there has not been any material adverse change in the
business relationship of the Company with any such customer since May 1, 1999.
p. Sales Representatives and Other Agents. Neither the Company nor any
Subsidiary is currently a party to any agreement with any consultant or sales
representative, and no individual or entity is entitled to any further
compensation, commissions or fees with respect to services rendered to the
Company or any Subsidiary prior to the date hereof.
q. Material Suppliers; Inventories.
(i) The Company and its Subsidiaries purchase their supplies and materials
from a number of suppliers, none of which represented in the fiscal year ended
April 30, 1999 more than five percent (5%) of aggregate purchases of the Company
and the Subsidiaries. None of such suppliers has given the Company or any
Subsidiary any notice or other written communication terminating, suspending or
materially reducing, or setting forth an intention to terminate, suspend or
materially reduce in the future, or otherwise reflecting any change, occurrence
or other event that has resulted in or is reasonably likely to result in,
individually or in the aggregate, a Material Adverse Effect in, the business
relationship between such supplier and the Company or any Subsidiary, as the
case may be, and, to the knowledge of the Company, there has not been any
adverse change in the business relationship of the Company or any Subsidiary
with any such supplier since May 1, 1999.
(ii) The inventory of materials used by the Company and its Subsidiaries in
the conduct of their businesses (the "Inventory") is owned by them free and
clear of any Encumbrances, except for the Encumbrances listed in Schedule 3.9(a)
which are outstanding as of the date hereof, all of which shall be released on
the Closing Date, and all of the Inventory is serviceable and in good condition,
reasonable wear and tear excepted.
r. Compliance with Applicable Law. Neither the Company nor any Subsidiary
is in violation of any applicable foreign or domestic laws, rules, regulations,
ordinances, codes, judgments, orders, injunctions, writs or decrees of any
Federal, state, local or foreign court or governmental body or agency thereof to
which it may be subject which are applicable to or which could reasonably be
expected to affect the respective businesses or operations of the Company and
its Subsidiaries, except for any violations which would not have, individually
or in the aggregate, a Material Adverse Effect. No claims have been filed
against the Company or any Subsidiary, and neither the Company nor any of the
Subsidiaries has received any notice, alleging any such violation, nor, to the
best knowledge of the Company, is there any inquiry, investigation or proceeding
relating thereto.
s. Accounts Receivable. All accounts receivable of the Company and its
Subsidiaries (i) arose from bona fide sales of goods or services in the ordinary
course of business and consistent with past practice; (ii) are owned by the
Company or the relevant Subsidiary and as of the Closing Date shall be free and
clear of any Encumbrances, except for the Encumbrances listed in Schedule 3.9(a)
which are outstanding as of the date hereof, all of which shall be released on
the Closing Date; (iii) are accurately and fairly reflected on the Company
Financial Statements or, with respect to accounts receivable of the Company
created after the date thereof and through the Closing Date, are and will be
accurately and fairly reflected in the books and records of the Company; and
(iv) will be collected, without offset (other than in the ordinary course of
business consistent with past practice, but not to exceed an amount equal to two
percent (2%) of the aggregate amount of the accounts receivable outstanding on
the date hereof) or counterclaim (net of any accounts receivable insurance,
subject, however, to any allowance for doubtful accounts shown in the Company
Financial Statements or the books and records of the Company), in full
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within three hundred sixty-five (365) days of the Closing Date.
t. Insurance. Schedule 3.20 hereto is a complete and correct list of all
insurance policies carried by, or covering, the Company and its Subsidiaries
with respect to their businesses, together with, in respect of each such policy,
the name of the insurance carrier, the policy number, the risk insured against,
the limits of coverage, the policy term, and the expiration date thereof. All
such policies are in full force and effect, and no notice of cancellation has
been given with respect to any such policy. All premiums due thereon have been
paid in a timely manner. The Company believes that the policies of insurance
identified in Schedule 3.20 hereof adequately insure the Company and its
Subsidiaries.
u. Bank Accounts; Powers of Attorney. Schedule 3.21 sets forth a complete
and correct list showing: (a) all banks in which the Company or any Subsidiary
maintains a bank account or safe deposit box (collectively, "Bank Accounts"),
together with, as to each such Bank Account, the account number, the names of
all signatories thereof and the authorized powers of each such signatory and,
with respect to each such safe deposit box, the number thereof and the names of
all persons having access thereto; and (b) the names of all persons holding
powers of attorney from the Company or any Subsidiary and a summary statement of
the terms thereof.
v. Books and Records. All of the records, data, information, databases,
systems and controls maintained, operated or used by the Company and its
Subsidiaries in connection with the conduct or administration of their
businesses (including all means of access thereto and therefrom) are located on
the premises of the Company and are under the exclusive ownership and direct
control of the Company.
w. Transactions with Related Parties. Schedule 3.23 contains an accurate
and complete list and description of all agreements, arrangements and
understandings (including outstanding indebtedness) which are currently in
effect or which occurred at any time after January 1, 1998 between the Company
or any Subsidiary and any of the following (each, a "Related Party"): (i) each
director and officer of the Company or any Subsidiary; (ii) the spouses,
children, grandchildren, siblings, parents, grandparents, uncles, aunts, nieces,
nephews or first cousins of any such director or officer or their spouses
(collectively, "near relatives"); (iii) any trust for the benefit of any such
director or officer of the Company or any of their respective near relatives;
and (iv) any corporation, partnership, joint venture or other entity owned or
controlled by any such director or officer or any of their respective near
relatives.
x. Warranties. The Company has previously delivered to Spotless copies of
all past and present standard and other express warranties extended by the
Company and its Subsidiaries with respect to the services now or in the past six
years sold by the Company. Neither the Company nor any Subsidiary has, and the
Company know of no basis for, any material liability as a result of claims
against the Company or any Subsidiary based on services rendered by the Company
or any of its Subsidiaries on or prior to the date hereof, nor have the Company
or any Subsidiary received any notices from any person threatening any such
claim.
y. Environmental Matters.
(i) Except as set forth in Schedule 3.25, and except for Hazardous
Substances (as hereinafter defined) generated, stored, treated, manufactured,
refined, handled, produced, disposed of or used by the Company or any Subsidiary
in the ordinary course of their respective businesses, in compliance with the
requirements of currently applicable laws, rules and regulations, (i) there are
no Hazardous Substances in, on, under or around any of the Real Property (as
hereinafter defined) at which the operations of the Company or any Subsidiary
are, or have been in the past, conducted; (ii) there are no tanks, impoundments,
vessels or other containers used for the storage of Hazardous Substances on or
below the surface of such Real Property; (iii) none of such Real Property has
been designated, restricted or investigated by any governmental authority as a
result of the actual or suspected presence, spillage, leakage, discharge or
other emission of Hazardous Substances, whether or not such designation,
restriction or investigation of Real Property resulted in a designation of no
further action, de-listing, or clean closure or any such other related
designation by any governmental agency; (iv) no Hazardous Substances have been
generated,
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used, stored, treated, manufactured, refined, handled, produced or
disposed of in, on or under, and no Hazardous Substances have been transported,
released or disposed of at, from or to, any of such Real Property by the Company
or any Subsidiary or by any persons or agents operating under the control,
direction and supervision of the Company or any Subsidiary, including, without
limitation, all Employees, agents and contractors of the Company and its
Subsidiaries; (v) neither the Company nor its Subsidiaries have caused any
release of Hazardous Substances at any Real Property and no Hazardous Substance
originating or emanating from any other property is present in, on, under or
above any Real Property; (vi) neither the Company nor its Subsidiaries have sent
any Hazardous Substances to any sites that (A) have been placed on the "National
Priorities List" of hazardous waste sites or any similar state list or (B) is
otherwise designated or identified as a potential site for remediation, cleanup,
closure or other environmental remedial activity; and (vii) neither the Company
nor any Subsidiary has received any written or oral governmental notice, order,
inquiry, investigation, environmental audit or assessment or any lien,
Encumbrance, decree, easement, covenant, restriction, servitude or proceeding
concerning, or arising by reason of, the actual or suspected presence, spillage,
leakage, discharge or other emission of any Hazardous Substance in, on, under,
around, about or in the vicinity of, or the transportation of any Hazardous
Substance at, from or to, any of such Real Property, and to the best knowledge
of the Company there is no basis for any such notice, order, inquiry,
investigation, environmental audit or assessment or any such lien, Encumbrance,
decree, easement, covenant, restriction, servitude or proceeding.
(ii) Except as disclosed in Schedule 3.25, the Company, its Subsidiaries,
and the Real Property comply in all material respects with, and are not subject
to any liabilities as a result of any past or current violations of all existing
or then existing Federal, state and local laws (including common law), statutes,
ordinances, rules and regulations (and any proposed laws, statutes, ordinances,
rules and regulations), relating to occupational health and safety, or relating
to packaging or transporting Hazardous Substances, or relating to pollution or
protection of the environment, including, without limitation, statutes, laws,
ordinances, rules and regulations relating to the emission, discharge, spillage,
leakage, storage, off-site dumping, release or threatened release of Hazardous
Substances 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 Hazardous Substances, and no material
expenditures are required in connection with the operation of the businesses of
the Company and its Subsidiaries as presently conducted (or as proposed to be
conducted pursuant to existing plans of the Company) in order to comply with any
such existing statutes, laws, ordinances, rules or regulations. Except as
disclosed in Schedule 3.25, the Company, each Subsidiary and the Real Property
have in all material respects passed all inspections conducted by applicable
regulatory bodies in connection with the matters described in the preceding
sentence. All cleanup, removal and other remediation activities carried out by
the Company or any Subsidiary or by any of their respective agents at the Real
Property have been conducted in material compliance with all applicable laws,
statutes, ordinances, rules and regulations of any Federal, state or local
governmental authority, and there is no basis for liability on the part of the
Company or any Subsidiary as a result of such activities. Except as disclosed in
Schedule 3.25, to the best knowledge of the Company, there are no soil or
geological conditions which might impair or adversely affect the current use of
any of the Real Property (or any proposed future use thereof pursuant to
existing plans of the Company) and none of such Real Property is located in an
area identified by an agency or department of Federal, state or local
governments, or identified by the Company as having special flood or mudslide
hazards or wetlands. Except as disclosed in Schedule 3.25, the production and
other facilities at the Real Property have waste treatment and disposal
facilities that are adequate to render any waste, vapors or effluents safe for
discharge in the manner in which they are being discharged and, except as
disclosed in Schedule 3.25, do not discharge, and have not in the past
discharged, into the environment any Hazardous Substances.
(iii) For purposes of this Agreement, the term "Hazardous Substance" shall
mean any product, substance, chemical, contaminant, pollutant, effluent, waste
or other material whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, emission, discharge,
spill, release or effect, either by itself or in combination with other
materials located on any of the Real Properties, is either: (i) injurious to the
public health, safety or welfare, the environment or any of the Real Properties,
(ii) regulated or monitored by any governmental authority, or (iii) defined or
listed in, or otherwise classified pursuant to, any statute, law, ordinance,
rule or regulation applicable to the Real Property (or any proposed statute,
law, ordinance, rule or regulation) as
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"hazardous substances," "hazardous materials," "hazardous wastes,"
"infectious wastes" or "toxic substances". Hazardous Substances shall include,
but not be limited to, (i)(A) any "hazardous substance" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, (B) any
"hazardous waste" as defined in the Solid Waste Disposal Act or (C) any
substance subject to regulation pursuant to the Toxic Substances Control Act, as
such laws are now in effect or may be amended through the Closing Date and any
rule, regulation or administrative or judicial policy statement, guideline,
order or decision under such laws, (ii) petroleum and refined petroleum
products, (iii) asbestos and asbestos-containing products, (iv) flammable
explosives, (v) radioactive materials, (vi) radon, (vii) polychlorinated
biphenyls, (viii) exposed lead-based paint, (ix) urea formaldehyde foam and (x)
any other substance that is regulated or classified as hazardous or toxic under
any Federal, state or local law, statute, ordinance, rule or regulation.
(iv) For purposes of this Section 3.25, the term "Real Property" shall be
deemed to include all Leased Real Property, together with all other locations
(whether leased or owned or previously owned or leased by the Company or any
Subsidiary) at which the operations of the Company or any Subsidiary are, or
have previously been, conducted (to the extent that any prior activities of the
Company, any Subsidiary or any of their respective predecessors-in-interest give
rise to any liabilities, claims or obligations (including, without limitation,
any obligations to investigate, respond, clean up or remediate) with respect to
the matters described in this Section 3.25).
z. Absence of Other Agreements for Sale of Subject Shares or Assets of the
Company. There are no agreements, arrangements or understandings to which the
Company is a party or by which any of the Company's assets are bound involving
the purchase, sale or other disposition of any substantial portion of the assets
or the Shares, whether through a sale of assets or otherwise, other than this
Agreement.
aa. Brokers and Finders. No broker, finder or investment banker has been
retained by the Company or is entitled to any brokerage, finder's or other fee
or commission, in connection with the transactions contemplated hereby, other
than OEM Capital Corp.
bb. Year 2000 Compliance. All functions, including, without limitation,
date-reliant (which includes year-reliant) functions, of the Proprietary
Software are capable of continuing to operate up to, during and after the year
2000. Neither the performance nor functionality of the Proprietary Software will
be affected by any changes to the field configuration which contains the date
information within any part of the Proprietary Software caused by the advent of
the year 2000. The Proprietary Software will perform consistent with past
performance and there shall be no faults in the processing of dates and
date-dependent information or data including, without limitation, in
calculations, comparisons and sequencing of information or data. For the
purposes of this Section 3.28, the term "Proprietary Software" shall not be
deemed to include automated components, automated devices, embedded equipment
and other date sensitive equipment such as security systems, alarms, elevators,
HVAC systems and monitoring equipment used by the Company or the Subsidiaries.
cc. Disclosure. No representation or warranty by the Company contained in
this Agreement (including, without limitation, the Schedules hereto), nor any
other statement, schedule, certificate or other document delivered or to be
delivered by the Company to Spotless pursuant hereto or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances in which they were made, not misleading.
dd. Reliance. The representations and warranties of the Company contained
in this Agreement are made by the Company with the knowledge and expectation
that Spotless is placing complete reliance thereon in entering into, and
performing its obligations under, this Agreement and the Note, and, subject to
Section 4.6, the same shall not be affected or deemed waived in any respect
whatsoever by reason of any investigation heretofore or hereafter conducted or
knowledge gained by or on behalf of Spotless (including, without limitation, by
any of its advisors, consultants or representatives or otherwise) prior to the
Closing, whether in contemplation of this Agreement or otherwise, or by reason
of the fact that Spotless or any of such advisors, consultants or
representatives
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<PAGE>
knew or should have known that any such representation or warranty is or
might be inaccurate, or that any covenant or undertaking has been or might have
been breached, at or prior to the Closing, and no claims by Spotless with
respect thereto shall be waived or otherwise affected as a result of such
knowledge on the part of Spotless (or any of its advisors, consultants or
representatives) and the Company shall not raise any such matter as a defense to
any claim by Spotless for indemnification pursuant to Article VIII hereof.
4. Representations and Warranties of Spotless
Spotless makes the representations and warranties set forth in this Article
IV, each of which is true and correct as of the date hereof and will be true and
correct as of the Closing Date:
a. Corporate Organization. Spotless is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
b. Authorization. Spotless has full corporate power and authority to
execute, deliver and perform this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by the Board of Directors of Spotless, and no other corporate
action on the part of Spotless is necessary to approve and authorize the
execution and delivery of this Agreement by it or the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Spotless, and constitutes the valid and binding agreement of
Spotless enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy laws and any other similar laws
affecting the rights and remedies of creditors generally and by general
principles of equity.
c. Consents and Approvals; No Violations. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby will
not: (i) violate or conflict with any provision of the certificate of
incorporation or by-laws of Spotless, (ii) breach, violate or (whether
immediately or with the lapse of time or the giving of notice or both)
constitute an event of default (or an event which with the lapse of time or the
giving of notice or both would constitute an event of default) under or an event
which would give rise to any right of termination, cancellation, modification,
acceleration or foreclosure under, or require any consent of or the giving of
any notice to any third party under, any note, bond, surety, indenture, credit
facility, mortgage, security agreement, lease, license, franchise, permit or
other agreement, instrument or obligation to which Spotless is a party, or by
which Spotless or any of its properties or assets may be bound, (iii) violate or
conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction, decree or other instrument of any court or governmental
or regulatory body, administration, agency or authority applicable to Spotless
(or any affiliate of Spotless) or by which any of their respective properties
may be bound or (iv) require any registration or filing by Spotless with, or any
permit, license, exemption, consent, authorization or approval of, or the giving
of any notice by Spotless to, any governmental or regulatory body, agency or
authority.
d. Securities Act Matters. Spotless hereby represents and warrants as
follows:
(i) It understands that (i) the Shares have not been registered under the
Securities Act or any state securities laws by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act and
applicable state securities laws (ii) that the Company's reliance on the
availability of such exemption is, in part, based on the accuracy and
truthfulness of the representations and warranties of Spotless set forth in this
Section 4.4 and (iii) the Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from such registration;
(ii) It is acquiring the Shares for its own account and not with a view to,
or for sale in connection with, directly or indirectly, any distribution thereof
that would require registration under the Securities Act or applicable state
securities laws or would otherwise violate the Securities Act or such state
securities laws;
(iii) It is an "accredited investor" pursuant to Rule 501 under the
Securities Act by reason of the fact
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that it is a corporation not formed for the specific purpose of acquiring the
Shares with total assets in excess of $5,000,000; and
(iv) It understands that the Shares will bear the following legend (or a
substantially similar legend):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY
OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.";
(v) Spotless is not a party or subject to or bound by any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
pledge the Shares or the Note or any part thereof to any person, and has no
present intention to enter into such a contract, undertaking, agreement or
arrangement;
(vi) Spotless has received and reviewed copies of the Company's Annual
Report on Form 10-KSB for the fiscal year ended April 30, 1999 and its Quarterly
Report on Form 10-QSB/A for the fiscal quarter ended July 31, 1999
(collectively, the "SEC Reports");
(vii) Spotless has been provided the opportunity to discuss with the
Company's management, and has had access to information concerning, the
business, affairs and financial condition of the Company in order to verify the
accuracy of the SEC Reports; and
(viii) Spotless has evaluated the merits and risks of purchasing the Shares
and the Note and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of such purchase,
is aware of and has considered the financial risks and financial hazards of
purchasing the Shares and the Note, and is able to bear the economic risk of
purchasing the Shares and the Note, including the possibility of a complete loss
with respect thereto.
e. No Other Representations, Warranties, Covenants or Agreements of the
Company. Except as set forth in this Agreement, or the documents referred to
herein, the Company has not made any representation, warranty, covenant or
agreement with respect to the matters contained herein, and Spotless has not and
will not rely on any representation, warranty, covenant or agreement other than
those expressly set forth herein or any information or document other than the
SEC Reports.
f. Spotless' Investigation. To the knowledge of Spotless, Spotless' due
diligence investigation of the Company and its Subsidiaries has not revealed any
facts which would make any representations or warranties of the Company
contained herein inaccurate or untrue in any material respect or which would
result in a breach or violation of this Agreement by the Company.
g. Financial Statements. The audited consolidated financial statements of
Spotless for the fiscal year ended June 30, 1999 which Spotless has provided to
the Company (i) have been prepared in accordance with GAAP consistently applied
during the periods covered thereby, except as otherwise specifically indicated
therein or in the notes thereto and (ii) fairly present the financial condition
and results of operations of Spotless as at the dates and for the periods then
ended.
h. Absence of Agreements Relating to the Company or any Subsidiary. There
are no agreements, arrangements or understandings to which Spotless or any of
its affiliates is a party or by which any of their
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respective assets are bound involving the Company or any Subsidiary.
i. Brokers and Finders. No broker, finder or investment banker has been
retained by Spotless or is entitled to any brokerage, finder's or other fee or
commission, in connection with the transactions contemplated hereby.
5. Conduct of the Company Pending Closing
a. Conduct of the Company. The Company hereby makes the following covenants
and agreements with Spotless:
(i) Affirmative Covenants. Between the date hereof and the Closing Date,
the Company shall, and shall cause each Subsidiary to:
(1) conduct its respective business diligently and only
in the ordinary course consistent with past practice;
(2) use its best efforts to (a) preserve its respective
assets, business and goodwill, (b) keep available the
services of the Employees, (c) preserve the goodwill
of its respective customers, suppliers and others having
business relationships with it, and (d) maintain levels
and quality of Inventory consistent with past practice;
(3) remain in full compliance with all material
permits, laws, rules and regulations, consent orders
and all other orders of applicable courts, regulatory
agencies and similar governmental authorities applicable to
it;
(4) promptly after becoming aware thereof, advise
Spotless in writing of the commencement or threat of any
suit, proceeding or investigation against, relating to or
involving it or which could otherwise have a material
adverse effect on it, whether or not covered by insurance;
(5) promptly advise Spotless in writing of the
existence or occurrence of (i) any Material Adverse Effect
which occurs or is likely to occur and (ii) any event,
condition or state of facts which will or may result in the
failure to satisfy any of the conditions in Article VI
hereof; and
(6) maintain the policies of insurance on the property
and assets of the Company and its Subsidiaries in effect
as of the date hereof in full force and effect without
reduction in coverage.
(ii) Negative Covenants. Between the date hereof and the Closing
Date, neither the Company nor any Subsidiary shall, without the prior
written consent of Spotless:
(1) announce or institute any increase in the salary,
commission or other compensation (including bonuses)
rates payable or to become payable to any Employee or
agent of the Company or any Subsidiary, or approve, adopt,
amend or modify any Benefit Plan or similar plan, agreement
or arrangement, except as required by currently existing
agreements;
(2) make any change in its Certificate of Incorporation
or By-Laws or other constituent documents, except as
contemplated hereby;
(3) enter into any contract or commitment, or series of
related contracts or commitments
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(except for acceptances of purchase orders), unless such
contract or commitment, or Series of related contracts or
commitments, (i) arises in the ordinary course of business,
(ii) involves expenditures or revenues of less than $5,000
in the aggregate or (iii) does not involve a Related Party;
(4) create or permit to become effective any
Encumbrances on its respective property or assets;
(5) issue any additional shares of capital stock or any
options, warrants or other rights to purchase, or
securities convertible into or exchangeable for, shares
of capital stock, other than dividends required to be
declared or paid with respect to the Company's Series A
Preferred Stock;
(6) declare or pay any dividends on or make any other
distributions (however characterized) in respect of shares
of its capital stock;
(7) repurchase or redeem any shares of its capital
stock except pursuant to the transactions contemplated
hereby;
(8) make any change in the accounting principles or
practices reflected in the Company Financial Statements or
in the Company's methods of applying such principles or
practices, or in the credit criteria utilized by it in
connection with the businesses of the Company and its
Subsidiaries;
(9) sell, assign, lease or otherwise transfer or
dispose of any property, equipment or other assets, except
in the ordinary course of business consistent with past
practice;
(10) seek to acquire any business or to start-up any
new business;
(11) merge or consolidate or agree to merge or
consolidate with any other person or entity;
(12) waive any material rights;
(13) commit a material breach of or amend in any
material respect any agreement, permit, license or other
right;
(14) enter into any other transaction outside the
ordinary course of business or prohibited hereunder; or
(15) enter into any agreement or commitment to do any
of the foregoing.
b. Best Efforts. Subject to the terms and conditions of this Agreement,
each of the parties agrees that it shall use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
6. Conditions to the Obligations of Spotless
The obligations of Spotless to consummate the transactions contemplated
hereunder shall be subject to the satisfaction of each of the following
conditions at or prior to the Closing, unless waived by Spotless in writing:
a. Representations and Warranties True. All of the representations and
warranties of the Company
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contained in this Agreement (including, without limitation, the Schedules
hereto) shall be true and correct in all material respects on the Closing Date
as though such representations and warranties were made on such date, and the
Company shall have delivered the certificate to that effect which is described
in Section 2.3(a)(iv) above.
b. Performance. The Company shall have performed and complied in all
material respects with all covenants and obligations under this Agreement which
are required to be performed or complied with by the Company on or prior to the
Closing Date, and the Company shall have delivered the certificate to that
effect which is described in Section 2.3(a)(iv) above.
c. Approvals, Permits, Consents. All consents, authorizations, approvals,
exemptions, licenses or permits of, or registrations, qualifications,
declarations or filings with, any governmental body or agency thereof that are
required in connection with the sale of the Shares to Spotless pursuant to this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made in form and substance reasonably satisfactory to
Spotless and its counsel and shall be effective at and as of the Closing Date.
The Company shall have delivered to Spotless duly executed written consents of
third parties to the sale of the Shares to Spotless required pursuant to any
agreement to which the Company is a party or by which it is bound.
d. Delivery of Closing Documents. The Company shall have delivered to
Spotless the documents referred to in Section 2.3(a) hereof, in form and
substance reasonably satisfactory to Spotless and its counsel.
e. Amended Employment Agreement. The Company and Mr. Michael O'Reilly shall
have duly executed and delivered the Amended Employment Agreement and Stock
Options Agreements.
f. Directors and Officers Insurance. Spotless shall have received evidence
satisfactory to it and its counsel that the Company has obtained a Directors and
Officers Liability Insurance Policy on terms and conditions reasonably
satisfactory to Spotless and its counsel.
g. Absence of Certain Events. No statute, rule or regulation shall have
been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect, by any court or governmental body or agency
thereof which restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby, and no action, suit or proceeding before any
court or governmental body or agency thereof shall have been instituted by any
person (or instituted or threatened by any governmental body or agency thereof),
and no investigation by any governmental body or agency thereof shall have been
commenced, with respect to the transactions contemplated hereby.
h. No Material Adverse Effect. Since July 31, 1999, the Company shall not
have experienced any change, occurrence or event that has resulted in a Material
Adverse Effect and no event shall have occurred that in the reasonable judgment
of Spotless would be likely to result in a Material Adverse Effect.
7. Conditions to the Obligations of the Company
The obligations of the Company to consummate the transactions contemplated
hereunder shall be subject to the satisfaction of each of the following
conditions on or prior to the Closing, unless waived by the Company in writing:
a. Representations and Warranties True. All of the representations and
warranties of Spotless contained in this Agreement (including, without
limitation, the Schedules hereto) shall be true and correct in all material
respects on the Closing Date as though such representations and warranties were
made on such date, and Spotless shall have delivered the certificate to that
effect which is described in Section 2.3(b)(iii) above.
b. Performance. Spotless shall have performed and complied in all material
respects with all
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covenants and obligations under this Agreement which are required to be
performed or complied with by it on or prior to the Closing Date, and Spotless
shall have delivered the certificate to that effect at the Closing which is
described in Section 2.3(b)(iii) above.
c. Approvals, Permits, Etc. All consents, authorizations, approvals,
exemptions, licenses or permits of, or registrations, qualifications,
declarations or filings with, any governmental body or agency thereof that are
required in connection with the sale of the Shares to Spotless pursuant to this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made in form and substance reasonably satisfactory to
the Company and its counsel and shall be effective at and as of the Closing
Date.
d. Delivery of Closing Documents. The Company shall have received the
documents referred to in Section 2.3(b) hereof in form and substance reasonably
satisfactory to the Company and its counsel.
e. Fairness Opinion. The Company have received an opinion from Donald &
Co., or such other advisor as the Company may select, that the transactions
contemplated by this Agreement and the consideration to be received by the
Company are fair to the shareholders of the Company from a financial standpoint.
f. Absence of Certain Events. No statute, rule or regulation shall have
been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect, by any court or governmental body or agency
thereof which restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby, and no action, suit or proceeding before any
court or governmental body or agency thereof shall have been instituted by any
person (or instituted or threatened by any governmental body or agency thereof),
and no investigation by any governmental body or agency thereof shall have been
commenced, with respect to.
8. Indemnification; Survival of Representations and Warranties.
a. Indemnity Obligations of the Company.
(i) Subject to the conditions and limitations set forth in this Article X,
the Company hereby agrees to indemnify and hold Spotless and its stockholders,
affiliates, directors, officers, employees and agents (such parties being
collectively referred to herein as the "Spotless Indemnitees") harmless from,
and to reimburse each such Spotless Indemnitee for, on an afterTax basis, any
loss, damage, deficiency, diminution in value, claim, liability, obligation,
suit, proceeding, action, demand, fee, penalty, fine, interest, surcharge, cost
or expense of any nature whatsoever, including, without limitation,
out-of-pocket expenses, investigation costs and fees and disbursements of
counsel (collectively, "Damages") suffered or incurred by a Spotless Indemnitee
arising out of, based upon or resulting from (i) any inaccuracy in or any breach
of any representation and warranty of the Company contained in this Agreement or
any Schedule, certificate or other written instrument or document delivered by
the Company pursuant hereto or (ii) any breach or nonfulfillment of, or any
failure to perform, any of the covenants, agreements or undertakings of the
Company contained in or made pursuant to this Agreement. Indemnification claims
made by any Spotless Indemnitee based upon the matters described in this Section
8.1 are separately referred to herein as "Spotless Indemnity Claims".
(ii) The indemnification obligations of the Company under this Article VIII
shall apply with respect to, without limitation, Damages arising out of any and
all actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, damages, costs and expenses or deficiencies incident to the disposal
of any Spotless Indemnity Claim under this Section 8.1, together with any
interest, penalties, costs and expenses of any Spotless Indemnitee (including,
without limitation, reasonable out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of or related to any such Spotless Indemnity Claims.
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b. Indemnity Obligations of Spotless.
(i) Spotless hereby agrees to indemnify and hold the Company harmless from,
and to reimburse the Company and its stockholders, affiliates, directors,
officers, employees and agents (such parties being collectively referred to
herein as the "Company Indemnitees") for, on an after-Tax basis, any Company
Indemnity Claims (as that term is hereinafter defined) arising under the terms
and conditions of this Agreement. For purposes of this Agreement, the term
"Company Indemnity Claim" shall mean any Damages arising out of, based upon or
resulting from (i) any inaccuracy in or any breach of any representation and
warranty of Spotless contained in this Agreement or any Schedule, certificate or
other written instrument or document delivered by Spotless pursuant hereto, or
(ii) any breach or nonfulfillment of, or failure to perform, any of the
covenants, agreements or undertakings of Spotless contained in or made pursuant
to the terms and conditions of this Agreement.
(ii) The indemnification obligations of Spotless under this Article VIII
shall apply with respect to, without limitation, Damages arising out of any and
all actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, damages, costs and expenses or deficiencies incident to the disposal
of any Company Indemnity Claim under this Section 8.2, together with any
interest, penalties, costs and expenses of any Company Indemnitee (including,
without limitation, reasonable out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of or related to any such Company Indemnity Claims.
c. Notification of Claims; Procedures.
(i) Subject to the remaining provisions of this Article VIII, a party
wishing to seek indemnification hereunder (the "Indemnified Party") shall
provide the indemnifying party (the "Indemnifying Party") with notice (a "Claim
Notice") of the event or matter giving rise to such claim and its good faith
estimate of the amount of Damages relating to such claim, and shall otherwise
make available to the Indemnifying Party all relevant information which is
material to the claim and which is in the possession of the Indemnified Party.
In the event any claim or demand in respect of which an Indemnified Party might
seek recovery of Damages under this Article VIII is asserted against or sought
to be collected from such Indemnified Party by any third party (a "Third Party
Claim"), the Indemnified Party shall deliver the relevant Claim Notice with
reasonable promptness to the Indemnifying Party. The Indemnifying Party will
notify the Indemnified Party in writing as soon as practicable but in any event
within forty-five (45) days following receipt of such Claim Notice (the "Dispute
Period") whether the Indemnifying Party disputes the claim of the Indemnified
Party in whole or in part and whether the Indemnifying Party desires, without
cost or expense to the Indemnified Party, to assume the defense of such Third
Party Claim. If, following the delivery of a Claim Notice but prior to the
Indemnity Termination Date (as hereinafter defined) for the claim covered by
such Claim Notice, the Indemnified Party determines, in good faith, that the
amount of potential Damages relating to such claim exceeds the estimated Damages
initially set forth in the Claim Notice, then the Indemnified Party shall have
the right to submit an amended Claim Notice to the Indemnifying Party setting
forth such additional amount of estimated Damages. Notwithstanding the
foregoing, if such amended Claim Notice shall be delivered within the Dispute
Period for the initial claim relating to such Claim Notice, the Dispute Period
shall automatically be extended for a further forty-five (45) days following the
Indemnifying Party's receipt of such amended Claim Notice.
(ii) Except as is hereinafter provided in this Section 8.3(b), if the
Indemnifying Party notifies the Indemnified Party within the Dispute Period that
the Indemnifying Party desires to assume the defense of the Third Party Claim,
then the Indemnifying Party will have the right to defend such Third Party Claim
by all appropriate proceedings, which proceedings will be diligently prosecuted
by the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of (i) any settlement that provides for any relief
other than the payment of monetary damages, or (ii) the payment of monetary
damages in an amount in excess of the Indemnity Cap Amount (as defined below)
for such party, which consent will not be unreasonably withheld or delayed). The
Indemnifying Party will have full control of such defense and proceedings,
including (except as provided in the immediately preceding sentence) any
settlement
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thereof; provided, however, that if requested by the Indemnifying Party,
the Indemnified Party will, at no cost to the Indemnified Party, cooperate with
the Indemnifying Party and its counsel in contesting any Third Party Claim that
the Indemnifying Party elects to contest, or, if appropriate and related to the
Third Party Claim in question, in making any counterclaim against the person
asserting the Third Party Claim, or any crosscomplaint against any person (other
than the Indemnified Party or any of its affiliates). Notwithstanding the
foregoing, (i) the Indemnified Party may, at its sole cost and expense, retain
or take over the control of the defense or settlement of any Third Party Claim,
the defense of which the Indemnifying Party has elected to control, if the
Indemnified Party irrevocably waives in writing its right to recover from the
Indemnifying Party any Damages hereunder with respect to such Third Party Claim;
(ii) if the amount of such claim exceeds the Indemnity Cap Amount for the
Indemnifying Party, then the Indemnified Party may, at the sole cost and expense
of the Indemnifying Party, retain or take control over the defense or settlement
of such claim; (iii) the Indemnified Party may, at the sole cost and expense of
the Indemnifying Party, retain separate counsel to represent it in, but not
control, any defense or settlement undertaken by the Indemnifying Party pursuant
to this Section 8.3(b) if outside counsel to the Indemnified Party reasonably
advises the Indemnified Party and the Indemnifying Party in a written opinion
that joint representation of such parties by a single counsel raises a potential
conflict of interest; and (iv) if the proceeding involves a matter solely of
concern to the Indemnified Party, which matter is in addition to the claim for
which indemnification under this Article VIII is being sought, such Indemnified
Party shall have the right to control the defense and settlement of such
additional claim at its own cost and expense and with its own counsel.
(iii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to assume the
defense of the Third Party Claim, or if the Indemnifying Party shall not have
the right to assume control of the dispute of such claim pursuant to Section
8.3(b) above, then the Indemnified Party will have the right and the obligation
(at the sole cost of the Indemnifying Party) to defend the Third Party Claim by
all appropriate proceedings, which proceedings will be diligently prosecuted by
the Indemnified Party to a final conclusion or will be settled at the discretion
of the Indemnified Party. The Indemnified Party will have full control of such
defense and proceedings, including any settlement thereof. Subject to the
foregoing, the Indemnifying Party may, at is sole cost and expense, retain
separate counsel to represent it in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause.
(iv) If the Indemnifying Party notifies the Indemnified Party in writing
that it does not dispute the recoverability of any Damages by the Indemnified
Party with respect to the Third Party Claim or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes the
recoverability of any Damages with respect to such Third Party Claim, the
applicable portion of the Damages arising from such Third Party Claim will be
conclusively deemed recoverable under this Article VIII. If the Indemnifying
Party has timely disputed the recoverability of any Damages with respect to such
claim (a "Dispute Notice"), the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the thirty (30) day period following
receipt by the Indemnified Party of the Dispute Notice (the "Resolution
Period"), such dispute shall be resolved by litigation.
(v) In the event any Indemnified Party seeks to recover any Damages under
this Article VIII that do not involve a Third Party Claim, the Indemnified Party
shall deliver a Claim Notice with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Indemnified Party that it does not
dispute the recoverability of such Damages or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes the
recoverability of such Damages, the Damages arising from the claim specified in
such Claim Notice will be conclusively deemed recoverable under this Article
VIII. If the Indemnifying Party has timely disputed the recoverability of any
Damages with respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the Resolution Period, such dispute
shall be resolved by litigation.
d. Duration.
(i) Notwithstanding anything to the contrary in this Agreement, all
representations, warranties,
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covenants, undertakings and agreements of the parties contained in or made
pursuant to this Agreement, and the rights of the parties to seek
indemnification with respect thereto, shall survive the Closing; provided,
however, that, except in respect of any claims for indemnification as to which
written notice shall have been duly given to the Indemnifying Party prior to the
relevant expiration date set forth below in accordance with the terms of this
Agreement, and subject to the remaining provisions of this Section 8.4, such
representations, warranties, covenants, undertakings and agreements, and the
rights of the parties to seek indemnification with respect thereto, shall expire
on the following dates (the "Indemnity Termination Dates"), other than the
representation and warranties set forth in Section 3.3, which shall survive
indefinitely:
(1) in the case of Spotless Indemnity Claims arising
out of or related to any breach of the representations
and warranties contained in Section 3.8, the date of
expiration of the relevant statute of limitations for
any such claims, including any extensions thereof;
(2) in the case of all other claims for indemnification
arising under this Agreement, on the second anniversary
of the Closing Date.
(ii) Any claim for indemnification under this Article VIII which is made in
good faith and in writing prior to the expiration of such claim on the Indemnity
Termination Date shall survive such expiration until mutually resolved or
otherwise determined hereunder, as applicable, and the Indemnity Termination
Date for all purposes hereunder shall automatically be extended with respect to
such claim (but not any other claims) until such claim is so mutually resolved
or otherwise determined hereunder. Any such claim not so made in writing prior
to the expiration of such claim on the relevant Indemnity Termination Date shall
be deemed to have been waived.
e. Certain Limitations and Remedies.
(i) In no event shall the maximum aggregate liability for each of the
Company, on the one hand, and Spotless, on the other hand, for indemnity claims
under this Article VIII exceed the amount of the Purchase Price.
(ii) In addition to a claim for indemnification under this Article VIII and
any other remedies that Spotless may have, the Company hereby agrees that, in
the event that at any time following the Closing the Company becomes aware that
the representation and warranty set forth in Section 3.3 to the effect that the
Shares, upon issuance, will constitute as of the Closing Date 51.0% of the
aggregate voting power of all issued and outstanding voting securities of the
Company on a fully diluted basis (i.e., after giving effect to the exercise of
all options, warrants, or similar rights to acquire shares of Common Stock,
other than the Note) was inaccurate as of the Closing Date, the Company shall
issue to Spotless, for no additional consideration, such number of shares of
Common Stock as shall be required so that such representation and warranty shall
have been true and accurate as of the Closing Date. Such additional shares of
Common Stock shall be issued to Spotless immediately following receipt by the
Company from Spotless of a written notice indicating that such representation
and warranty was inaccurate as of the Closing Date. Notwithstanding the
foregoing, if the breach of such representation and warranty is the result of
the disclosure following the Closing Date of any agreements, understandings,
arrangements, options, warrants or other rights to subscribe for or purchase, or
securities convertible into or exchangeable for, any voting security of the
Company which were in effect on the Closing Date but not set forth in Schedule
3.3, then, in the event the Company disputes the claim by Spotless that such
representation and warranty, has been breached or was inaccurate as of the
Closing Date, the Company may defer the issuance of such additional shares of
Common Stock until the earliest of (i) the date on which such dispute is
resolved, (ii) the next succeeding record date established by the Board of
Directors for determining shareholders entitled to vote on any matter submitted
to the shareholders or shareholders entitled to a dividend or distribution on
the shares of Common Stock and (iii) the date on which the Company issues to any
third party shares of any voting security pursuant to any such agreement,
understanding, arrangement, option, warrant or other right to subscribe for or
purchase, or securities convertible into or exchangeable for, any voting
security of the Company.
f. NonExclusive Remedy. Indemnification pursuant to this Article VIII shall
not preclude Spotless
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or the Company from exercising any other remedies it may have.
g. Treatment of Indemnity Payments. Any indemnity payments made pursuant to
this Article VIII shall, to the extent permitted by applicable law, be treated
as an adjustment to the Purchase Price.
9. Termination
a. Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(1) by the mutual written consent of Spotless and the Company;
(2) by either Spotless or the Company:
(i) if any statute, rule or regulation has been enacted
which would make any of the transactions
contemplated by this Agreement illegal or would
otherwise prevent the consummation thereof or if
any court or governmental body or agency thereof
shall have issued any writ or injunction, or taken any
other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have
been exhausted;
(ii) if the Closing shall not have occurred on or prior to
[October30,] 1999; provided, however, that the
right to terminate this Agreement pursuant to this
Section 9.1(b)(ii) shall not be available to any party
whose breach of any representation or warranty or
failure to perform or comply with any covenant or
obligation under this Agreement has been the cause of,
or resulted in, the failure of the Closing to occur on
or before such date;
(3) by the Company, if any of the conditions specified
in Article VII have not been met or waived prior to such
time as such condition can no longer be satisfied; or
(4) by Spotless, if any of the conditions specified in
Article VI shall not have been met or waived prior to such
time as such condition can no longer be satisfied.
b. Effect of Termination. In the event of termination of this Agreement,
this Agreement shall forthwith become null and void and there shall be no
liability on the part of any party hereto or their respective officers or
directors, except as provided in Sections 9.3, 11.6 and 11.7 hereof, which shall
remain in full force and effect, and except that nothing herein shall relieve
any party hereto from liability for a breach of this Agreement prior to the
termination hereof.
c. Payment of Expenses. The Company hereby agrees that it will promptly pay
to Spotless the reasonable fees and disbursements of its counsel incurred by
Spotless in connection with the negotiation, execution and delivery of this
Agreement, the Amended Employment Agreement, the Note and the Certificate of
Designations (including, without limitation, the due diligence exercise
conducted by such counsel on behalf of Spotless), up to a maximum of $100,000 in
the event that the Company terminates this Agreement pursuant to Section
9.1(iii).
10. Registration Rights
a. Registrable Securities. For purposes of this Agreement, "Registrable
Securities" shall mean (i) the Common Shares and the additional shares of Common
Stock issued to Spotless upon conversion of shares of Series B Preferred or the
Note, as the case may be, and (ii) any equity securities issued in exchange or
substitution for, or in payment of dividends on, any such Common Shares and
additional shares of Common Stock. Registrable
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Securities shall cease to be Registrable Securities when either (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, (ii) such securities shall have
become eligible for sale and distribution, or be sold, pursuant to Rule 144 (as
currently in effect or as subsequently amended), (iii) such securities shall
have been otherwise lawfully transferred or disposed of, and new certificates
therefor not bearing a legend restricting further transfer thereof under the
Securities Act shall have been delivered by the Company and subsequent transfer
or disposition thereof shall not require their registration or qualification
under the Securities Act or any similar state law then in force, or (iv) such
securities shall have ceased to be outstanding. A "Holder" shall mean Spotless
or any other party to whom Spotless may have transferred or assigned the
registration rights provided for in this Article X in accordance with the
provisions of Section 10.9.
b. Requested Registration.
(i) In case the Company shall receive from a Holder or Holders which hold
in the aggregate not less than fifty percent (50%) of the Registrable Securities
("Initiating Holders") a written request that the Company effect the
registration of at least 20% of the outstanding Registrable Securities then held
by it or them, the Company shall:
(1) promptly give written notice of the proposed registration to
all other Holders; and
(2) use its best efforts to effect such registration
(including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any
other applicable governmental requirements or
regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written
request received by the Company within twenty (20) days
after receipt of such written notice from the Company;
provided, however, that the Company shall not be
obligated to take any action to effect any such
registration, qualification or compliance pursuant to this
Section 10.2:
(i) In any particular jurisdiction in which the Company
would be required to execute a general consent
to service of process in effecting such
registration, qualification or compliance unless
the Company is already subject to service in such
jurisdiction and except as may be required by the
Securities Act;
(ii) During the period ending on the date three (3)
months immediately following the effective date of
any registration statement pertaining to securities
of the Company (other than a registration of
securities in a transaction covered by Rule 145
under the Securities Act (a "Rule 145 Transaction")
or a registration of securities on Form S-8 (or any
successor form) relating solely to an employee
benefit plan);
(iii) If the Company shall furnish to such Holders,
within thirty (30) days of any written request made
pursuant to this Section 10.2(a), a certificate,
signed by the President of the Company, stating that
the Company intends to file, within ninety (90) days
of the date of such certificate, a registration
statement for the Company's securities; or
(iv) If the Company shall furnish to such Holders a
certificate, signed by the
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President of the Company, stating that in the good
faith judgment of the Board of Directors the filing
of a registration statement would require the
disclosure of material information regarding a
possible financing, business combination or other
material transaction, which disclosure the Board has
determined in its good faith judgment would be
detrimental to the Company, then the Company's
obligation to use its best efforts to register,
qualify or comply under this Section 10.2 shall be
deferred for a single period not to exceed one
hundred twenty (120) days from the date of its
receipt of a written request from the Initiating
Holders.
Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders, and in no event, later than ninety (90) days thereafter.
(ii) In the event that a registration pursuant to this Section 10.2 is for
a registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the notice given pursuant to Section 10.2(a)(i).
In such event, the right of any Holder to registration pursuant to this Section
10.2 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 10.2 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent provided in this
Article X.
The Company (together with all Holders proposing to distribute their
securities through such underwriting) shall enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 10.2, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, the Company shall so advise all Holders of
Registrable Securities and the number of shares of Registrable Securities that
may be included in the registration and underwriting shall be allocated among
all Holders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by all Holders who have requested that
Registrable Securities be included in such registration at the time of filing
the registration statement; provided, however, that shares sought to be included
by the Company or any other stockholder in such underwritten offering shall be
excluded from such registration statement before any Registrable Securities held
by the Initiating Holders shall be excluded. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.
c. Company Registration.
(i) If at any time or from time to time, the Company shall determine to
register any of its securities, either for its own account or for the account of
a security holder or holders, other than (i) a registration of securities on
Form S-8 (or any successor form) relating solely to employee benefit plans, or
(ii) a registration of securities in a Rule 145 Transaction, the Company will:
(1) promptly give to each Holder written notice thereof; and
(2) subject to Section 10.3(b), include in such
registration (and any related qualification under blue sky
laws or other compliance), and in any underwriting
involved in such registration, all the Registrable
Securities specified in a written request or requests
received within twenty (20) days after receipt of such
written notice from the Company
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by any Holder.
(ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
10.3(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 10.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (or by the holders who have
demanded such registration). Notwithstanding any other provision of this Section
10.3, if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit or eliminate entirely the Registrable Securities to be included in
such registration. The Company shall advise all Holders who have requested that
Registrable Securities be included in such registration of any limitations
imposed pursuant to this Section 10.3(b). The number of shares of Registrable
Securities that may be included in such registration and underwriting for each
Holder who has requested that Registrable Securities be included in such
registration shall be determined in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by all Holders who have
requested that Registrable Securities be included in such registration at the
time of filing the registration statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company or the underwriters
may round the number of shares allocated to any Holder to the nearest 100
shares. If any Holder disapproves of the terms of any such underwriting, he or
she may elect to withdraw therefrom by written notice to the Company and the
managing underwriter.
d. Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities as
provided in Section 10.2, the Company will, as expeditiously as possible:
(i) Prepare and, in any event within ninety (90) calendar days after the
end of the period within which requests for registration may be given to the
Company, file with the SEC a registration statement (for the purposes of this
Article X, a "Registration Statement") with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become and remain effective: provided, that (i) the obligation of the Company to
effect such registration and/or cause such registration statement to become
effective, may be postponed for such period of time when the financial
statements of the Company required to be included in such registration statement
are not available (due solely to the fact that such financial statements have
not been prepared in the regular course of business of the Company) and (ii) the
obligation of the Company to effect such registration and/or cause such
registration statement to become effective, may be deferred for a single period
not to exceed ninety (90) days if the filing of a registration statement would
require the disclosure of material information concerning a possible financing,
business combination or other material transaction which disclosure the Board of
Directors has determined in good faith would be detrimental to the Company;
(ii) After a Registration Statement is filed with the SEC, prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
a period not in excess of ninety (90) days (or such earlier date by which all
securities that have been requested to be registered are sold) and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the participating Holders
set forth in such Registration Statement;
(iii) Furnish to the participating Holders and to each underwriter, if any,
of such Registrable Securities, such number of copies of a prospectus and
preliminary prospectus for delivery in conformity with the requirements of the
Securities Act, and such other documents, as such person may reasonably request,
in order to facilitate the public sale or other disposition of the Registrable
Securities;
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(iv) Use its best efforts to cause such Registrable Securities covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to enable
the participating Holders to consummate the disposition of such Registrable
Securities in accordance with any plan of distribution described in such
Registration Statement;
(v) Immediately notify the participating Holders, at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 10.4(a), if the Company
becomes aware that the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and at the request of the participating Holders, deliver a
reasonable number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Company of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(vi) Otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make generally available to the participating
Holders, in each case as soon as practicable, but not later than forty-five (45)
calendar days after the close of the period covered thereby (ninety (90)
calendar days in case the period covered corresponds to a fiscal year of the
Company), an earnings statement of the Company which will satisfy the provisions
of Section 11(a) of the Securities Act;
(vii) In the event the offering is an underwritten offering, use its best
efforts to obtain a "cold comfort" letter from the independent public
accountants for the Company in customary form and covering such matters as are
customarily covered by such letters; and
(viii) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take such
other actions and obtain such certificates and opinions as are customary in
underwritten public offerings.
Any participating Holder will, upon the receipt of any notice from the
Company of the occurrence of an event of the kind described in Section 10.4(e),
immediately discontinue disposition of the Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until the Holder
receives copies of the supplemented or amended prospectus contemplated by
Section 10.4(e).
e. Holdback Agreement. If the Company at any time shall register any shares
of Common Stock under the Securities Act (including any registration of
Registrable Securities pursuant to Section 10.2) for sale to the public, the
Holders shall not sell publicly (including any sale pursuant to Rule 144), make
any short sale of, grant any options for the purchase of, or otherwise dispose
publicly of any shares of Registrable Securities, or of any security convertible
into or exchangeable or exercisable for any Registrable Securities (other than
those Registrable Securities included in the registration being effected
pursuant to Section 10.2) without the prior written consent of the Company and
the managing underwriter during a period commencing on the effective date of
such registration and ending a number of calendar days thereafter not exceeding
one hundred eighty (180) as the Company and the managing underwriter shall
reasonably determine is required to effect a successful offering.
f. Expenses. All Registration Expenses (as that term is hereinafter
defined) incurred in connection with the first registration effected under
Section 10.2 and the first registration effected under Section 10.3 shall be
borne by the Company. The participating Holders shall pay the Registration
Expenses incurred in connection with any subsequent registration effected under
Section 10.2 and the incremental expenses resulting from the inclusion of their
Registrable Securities in any subsequent registrations effected under Section
10.3. For the purposes of this Agreement, the term "Registration Expenses" shall
mean all registration, filing and qualification fees, printing expenses, escrow
fees, fees and disbursements of counsel to the Company, blue sky fees and
expenses and the
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expense of any special audits incident to or required by any such
registration (but excluding underwriting commissions and discounts on the sale
of the Registrable Securities).
g. Indemnification.
(i) The Company hereby agrees to indemnify and hold each participating
Holder, each person who controls such participating Holder (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) and their
respective agents and representatives (each, a "Holder Indemnitee"), and to
reimburse any Holder Indemnitee for, on an after-Tax basis and to the extent
permitted by applicable law, all Damages (as defined herein) caused by any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, prospectus or preliminary prospectus relating to the
Registrable Securities or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
participating Holder expressly for use therein or by such participating Holder's
failure to deliver a copy of the Registration Statement or prospectus or any
amendments or supplements thereto after the Company has furnished such
participating Holder with a sufficient number of copies of the same and except
insofar as the same are caused by or contained in any prospectus if such
participating Holder failed to send or deliver a copy of any subsequent
prospectus or prospectus supplement which would have corrected such untrue or
alleged untrue statement of material fact or such omission or alleged omission
of a material fact with or prior to the delivery of written confirmation of the
sale by such participating Holder after the Company has furnished such
participating Holder with a sufficient number of copies of the same.
(ii) In connection with any Registration Statement, each such participating
Holder will furnish to the Company in writing such information as the Company
reasonably requests for use in connection with any such Registration Statement
or prospectus and, to the extent permitted by law, will severally and not
jointly indemnify and hold the Company, each person who controls the Company
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and their respective shareholders, officers, directors,
affiliates, employees, agents and representatives (collectively, for purposes of
this Article X, the "Company Indemnitees") harmless from, and reimburse such
Company Indemnitees for, on after-Tax basis and to the extent permitted by
applicable law, any Damages arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement,
prospectus, or form of prospectus relating to Registrable Securities, or arising
out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, to the
extent, but only to the extent, that such untrue or alleged untrue statement is
contained in, or such omission or alleged omission is required to be contained
in, any information so furnished in writing by such participating Holder to the
Company expressly for use in such Registration Statement or prospectus and that
such statement or omission was relied upon by the Company in preparation of such
Registration Statement, prospectus or form of prospectus; provided, however,
that such participating Holder of Registrable Securities shall not be liable in
any such case to the extent that the participating Holder has furnished in
writing to the Company prior to the filing of any such Registration Statement or
prospectus or amendment or supplement thereto information expressly for use in
such Registration Statement or prospectus or any amendment or supplement thereto
which corrected or made not misleading, information previously furnished to the
Company, and the Company failed to include such information therein. In no event
shall the liability of any participating Holder hereunder be greater in amount
than the dollar amount of the proceeds (net of payment of all expenses borne by
such participating Holder) received by such participating Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such indemnified party.
(iii) If any person shall be entitled to indemnity hereunder such
indemnified party shall give prompt notice to the party or parties from which
such indemnity is sought of the commencement of any action, suit, proceeding,
investigation or written threat thereof (a "Proceeding") with respect to which
such indemnified party seeks indemnification or contribution pursuant hereto;
provided, however, that the failure to so notify the
33
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indemnifying parties shall not relieve the indemnifying parties from any
obligation or liability except to the extent that the indemnifying parties have
been prejudiced by such failure. The indemnifying parties shall have the right,
exercisable by giving written notice to an indemnified party promptly after the
receipt of written notice from such indemnified party of such Proceeding, to
assume, at the indemnifying parties' expense, the defense of any such
Proceeding, with counsel reasonably satisfactory to such indemnified party;
provided, however, that an indemnified party or parties (if more than one such
indemnified party is named in any Proceeding) shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the parties to such Proceeding include
both the indemnified party or parties and the indemnifying party or parties, and
there exists, in the opinion of the parties' counsel, a conflict between one or
more indemnifying parties and one or more indemnified parties, in which case the
indemnifying parties shall, in connection with any one such Proceeding or
separate but substantially similar or related Proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of not more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
or parties. If an indemnifying party assumes the defense of such Proceeding, the
indemnifying parties will not be subject to any liability for any settlement
made by the indemnified party without its or their consent (such consent not to
be unreasonably withheld).
(iv) If the indemnification provided for in this Section 10.7 is
unavailable to an indemnified party or is insufficient to hold such indemnified
party harmless for Damages in respect of which this Section 10.7 would otherwise
apply by its terms, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have an obligation to contribute to
the amount paid or payable by such indemnified party as a result of such
Damages, in such proportion as is appropriate to reflect the relative fault of
the indemnifying party, on the one hand, and such indemnified party, on the
other hand, in connection with the actions, statements or omissions that
resulted in such Damages as well as any other relevant equitable considerations.
The relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been taken by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a result
of any Damages shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent such
party would have been indemnified for such expenses under Section 10.7(c), if
the indemnification provided for in Section 10.7(a) or Section 10.7(b) was
available to such party. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10.7(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 10.7(d), an
indemnifying party that is a Holder of Registrable Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such indemnifying party exceeds the amount of any damages
that such indemnifying party has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person adjudged guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
h. Information by Holders. The Holders shall furnish to the Company such
written information regarding the Holders and the distribution proposed by the
Holders as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Article X.
i. Transfer of Registration Rights. Except as provided below, the rights to
cause the Company to register Registrable Securities under Sections 10.2 and
10.3 hereof may be assigned to a transferee or assignee of Spotless in
connection with any transfer or assignment of Registrable Securities by it;
provided that (a) such transfer or assignment may otherwise be effected in
accordance with applicable securities laws, (b) notice of such transfer or
assignment is given to the Company, and (c) such transferee or assignee (i) is
an entity controlled by, controlling or
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under common control with Spotless, (ii) is a successor in interest of
Spotless or (iii) acquires from Spotless the lesser of (A) 1,000,000 or more
shares of Registrable Securities (as appropriately adjusted for stock splits and
the like) or (B) all of the Registrable Securities then owned by Spotless
j. Rule 144. The Company covenants that it will file the reports required
to filed by it under the Securities Act and the Exchange Act and the rules and
regulations thereunder and it will take such further action as Spotless may
reasonably request, all to the extent required from time to time to enable the
Holders to sell shares of Registrable Securities, subject to the applicable
restrictions on transfer contained herein, without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the SEC.
11. Miscellaneous Provisions
a. Amendment. This Agreement may not be amended except by a written
instrument signed by each of the parties hereto.
b. Waiver of Compliance. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant or
agreement contained herein may be waived only by a written notice from the party
entitled to the benefits thereof. No failure by any party hereto to exercise,
and no delay in exercising, any right hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of either right hereunder
preclude any other or future exercise of that right by that party.
c. Notices. All notices and other communications hereunder shall be deemed
given if given in writing and delivered personally, by courier or by facsimile
transmission, telexed or mailed by registered or certified mail (return receipt
requested), facsimile, telex or postage fees prepaid, to the party to receive
the same at its respective address set forth below (or at such other address as
may from time to time be designated by such party to the others in accordance
with this Section 11.3):
If to the Company:
Windswept Environmental Group, Inc.
100 Sweeneydale Avenue
Bay Shore, New York 11706
Telephone: (800) 325-6287
Facsimile: (516) 434-1803
Attention: Mr. Michael O' Reilly
With copies to:
Kaufman & Moomjian, LLC
50 Charles Lindbergh Boulevard Suite 206
Michel Field, New York 11553
Telephone: (516) 222-5100
Facsimile: (516) 222-5110
Attention: Neil M. Kaufman, Esq.
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If to Spotless, to:
Spotless Enterprises Incorporated
150 Motor Parkway Suite 413
Hauppauge, New York 11788
Telephone: (516) 951-9000
Facsimile: (516) 951-9027
Attention: Mr. Charles L. Kelly
With copies to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036-7703
Telephone: 212-626-4400
Facsimile: 212-626-4120
Attention: Thomas J. Drago, Esq.
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered,
confirmed answerback or other evidence of transmission or the acknowledgment of
receipt returned to the sender by the applicable postal authorities.
d. Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any rights, duties
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other parties and any attempted assignment or transfer
without such prior written consent shall be null and void; provided that,
Spotless shall have the right, without the prior written consent of any other
party hereto, to assign its rights and to delegate its duties under this
Agreement to any affiliate of Spotless.
e. No Third Party Beneficiaries. Neither this Agreement or any provision
hereof, nor any Schedule, certificate or other instrument delivered pursuant
hereto, nor any agreement to be entered into pursuant hereto or any provision
hereof, is intended to create any right, claim or remedy in favor of any person
or entity, other than the parties hereto and their respective successors and
permitted assigns.
f. Expenses. Each party shall pay its own expenses in connection with this
Agreement, the agreements to be entered into pursuant hereto and the
transactions contemplated hereby.
g. Public Announcements. Unless required by law, regulatory authority or
the rules of any applicable securities exchange or automated quotation system,
the parties hereto will not issue any press release or make any other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior consent of the other parties, which consent shall not
be unreasonably withheld. The parties will reasonably cooperate with each other
in the development and distribution of all press releases and other public
announcements with respect to this Agreement and the transactions contemplated
hereby, and will furnish the other parties with drafts of any such releases and
announcements as far in advance as practicable.
h. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
i. Headings. The article and section headings contained in this Agreement
are solely for convenience of reference, are not part of the agreement of the
parties and shall not be used in construing this Agreement or in any way affect
the meaning or interpretation of this Agreement.
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<PAGE>
j. Entire Agreement; Severability. This Agreement, and the Schedules,
certificates and other instruments and documents delivered pursuant hereto,
together with the other agreements referred to herein and to be entered into
pursuant hereto, embody the entire agreement of the parties hereto in respect
of, and there are no other agreements or understandings, written or oral, among
the parties relating to, the subject matter hereof. This Agreement supersedes
all prior agreements and understandings, written or oral, between the parties
with respect to the subject matter hereof. The invalidity, illegality or
unenforceability for any reason of any one or more provisions of this Agreement
shall not affect the validity, legality or enforceability of the remainder of
this Agreement.
k. Governing Law. This Agreement, and the respective rights, duties and
obligations of the parties hereunder, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law thereunder.
l. Schedules. All matters disclosed on any schedule hereto shall be deemed
to be disclosed on any other schedule hereto to which such matters may be
relevant or applicable.
m. Spotless Vote. Spotless hereby agrees to vote all Shares in favor of the
Amendment.
n. Director Information. Spotless will provide the Company on a timely
basis with all information respecting the director nominees of Spotless
contemplated by Section 2.3(a)(iv) (F) as may be required by Section 14(f) of
the Exchange Act and the rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
SPOTLESS PLASTICS (USA) INC.
By: /s/ Charles L. Kelly, Jr.
-------------------------------------
Name: Charles L. Kelly, Jr.
Title: Vice President - Finance and Secretary
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
---------------------------------------
Name: Michael O'Reilly
Title: President and Chief Executive Officer
THIS CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES OF THE COMPANY ISSUABLE IN
CERTAIN CIRCUMSTANCES ON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS CONVERTIBLE PROMISSORY NOTE
NOR THE SECURITIES OF THE COMPANY ISSUABLE HEREUNDER MAY BE TRANSFERRED IN THE
ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN
EXEMPTION THEREFROM.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
TRADE-WINDS ENVIRONMENTAL RESTORATION, INC.
NORTH ATLANTIC LABORATORIES, INC.
NEW YORK TESTING LABORATORIES, INC.
CONVERTIBLE PROMISSORY NOTE
$2,000,000 October 29, 1999
FOR VALUE RECEIVED, each of Windswept Environmental Group, Inc., a Delaware
corporation (the "Company"), Trade-Winds Environmental Restoration, Inc., a New
York corporation ("Trade-Winds"), North Atlantic Laboratories, Inc., a New York
corporation ("North Atlantic"), and New York Testing Laboratories, Inc., a
Delaware corporation ("New York Testing" and, together with the Company,
Trade-Winds and North Atlantic, the "Makers"), jointly and severally, promises
to pay to Spotless Plastics (USA) Inc., a Delaware corporation with its
principal office at 150 Motor Parkway, Suite 413, Hauppauge, New York 11788, or
its assigns (the "Payee"), in the lawful money of the United States of America
("Dollars" or "$") the principal sum of Two Million Dollars ($2,000,000) on the
fifth anniversary of the date of this Note, provided that the Payee may, in its
sole discretion and by written notice to the Makers, extend the maturity of this
Note to a date not later than the sixth anniversary of the date of this Note
(such maturity, as it may be extended by the Payee, being hereinafter referred
to as the "Maturity Date"), together with interest thereon from the date of this
Note to the Maturity Date calculated at the Applicable Interest Rate (as
hereinafter defined).
1. Interest. The Makers agree to pay interest accrued at the Applicable
Interest Rate on the unpaid principal amount of this Note on the last day of
each Interest Period (as hereinafter defined) and on the Maturity Date (each, an
"Interest Payment Date"). Interest on the unpaid principal amount of this Note
shall be calculated on the basis of a year of 360 days and actual days elapsed.
For the purposes of this Note, the following terms shall have the meanings set
forth below:
a. "Applicable Interest Rate" means the rate per annum equal to
the sum of (i) the LIBOR Rate plus (ii) one percent (1%).
b. "Banking Day" means a day on which dealings are carried on in the
London Interbank Market.
c. "Interest Period" means each successive period (commencing on the
date of this Note and thereafter on the expiry of the previous Interest Period)
of one (1) month, provided that
(i) if any Interest Period would otherwise end on a day which is
not a Banking Day, that Interest Period shall be extended to end on
the next succeeding Banking Day unless the result of such extension
would be to carry such Interest Period over into another calendar
month, in which event such Interest Period shall end on the preceding
Banking Day;
(ii) any Interest Period which would otherwise end during
the month preceding or
<PAGE>
extend beyond the Maturity Date shall be of such duration that it
shall end on the Maturity Date; and
(iii) any Interest Period which commences on a day on
which there is no numerically corresponding day in the month of its
expiry shall end on the last Banking Day in that month.
a. "LIBOR Rate" means a rate per annum (rounded upwards if
necessary, to the nearest 1/16 of 1%) determined by the Payee (which
determination shall, absent manifest error, be conclusive) to be equal to
the offered rate for 30-day deposits in Dollars in the London Interbank
Market at approximately 11:00 a.m. (London Time), which appears on the
Telerate Screen, two (2) Banking Days prior to the first day of the
Interest Period.
b. "Telerate Screen" means the display designated as Page 3750 on
Telerate Service (or such other page as may replace such page for the
purpose of displaying London Interbank offered rates of major banks).
4. Time and Place of Payments. All principal and interest due hereunder is
payable in Dollars in immediately payable funds at the Payee's principal office
(or at such other office of the Payee as may be designated from time to time in
writing by the Payee) for the account of the Payee, not later than 11:00 a.m.,
New York City time, on the due date therefor. If any payment of principal or
interest on or with respect to this Note becomes due and payable on a Saturday,
Sunday or any other day on which commercial banks are required or authorized by
law or regulation to be closed in New York City, such amount shall be payable on
the next succeeding day which is not a Saturday, Sunday or other day on which
commercial banks are so required or authorized to be closed and, with respect to
any such payment of principal, interest shall continue to accrue during any such
extension period at the applicable rate of interest in effect immediately prior
to such extension.
5. Defaults and Remedies.
a. The following events shall be "Events of Default" hereunder:
(i) the Makers default on the Maturity Date in the payment of
the principal amount of this Note;
(ii) the Makers default on any Interest Payment Date in the
payment of interest on this Note and such default continues for
five (5) days;
(iii) any of the Makers defaults in payment when due, beyond
any applicable grace period, on any other indebtedness for
borrowed money (other than this Note) in an amount in excess
of $100,000 and such default is not cured within any applicable
grace period;
(iv) any of the Makers defaults, beyond any applicable grace
period, in any other indebtedness for borrowed money prior to
maturity (unless cured or waived by the Payees of such indebtedness);
(v) a court of competent jurisdiction enters a decree or
order in an involuntary case under any present or future federal or
state bankruptcy, insolvency or similar law or appoints a conservator
or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of the affairs of any of the
Makers, which decree or order shall have remained in force
undischarged or unstayed for a period of 30 days;
(vi) any of the Makers consents to the appointment of a
conservator or receiver or
2
<PAGE>
liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to it
or of or relating to all or substantially all of its property;
(vii) any of the Makers admits in writing its inability
to pay its debts generally as they become due, files a petition
to take advantage of any applicable insolvency or reorganization
statue, makes an assignment for the benefit of its creditors, or
voluntarily suspends payment of its obligations;
(viii) a final judgment, decree or order for the
payment of money in excess of $100,000 shall be rendered against
any of the Makers or any of their subsidiaries, and the same shall
not be paid, bonded or discharged or execution thereon stayed
pending appeal within 60 days after such stay shall expire; or
(ix) any representation or warranty made by the Company
in the Subscription Agreement dated the date hereof between
the Company and the Payee (the "Subscription Agreement") or in any
writing furnished in connection there with shall be false in any
material respect on the date as of which made.
b. If an Event of Default, other than the Event of Default
specified in Sections 3(a)(v), (vi) or (vii), occurs and is continuing, the
Payee may, at its option and in addition to any right, power or remedy
permitted by law or equity or herein granted, by notice to the Makers
declare to be due and payable immediately the principal amount of this
Note, and upon any such declaration the same shall become and shall be
immediately due and payable, together with all accrued and unpaid interest
thereon. If an Event of Default specified in Sections 3(a)(v), (vi) or
(vii) hereof occurs, the principal amount of this Note shall automatically
become and be immediately due and payable, without any declaration or other
act on the part of the Payee, together with all accrued and unpaid interest
thereon. The Payee by notice to the Makers may rescind an acceleration and
its consequences if all existing Events of Default have been cured or
waived.
6. Conversion. The Payee shall have the right, at its option, at any time,
subject to the terms and conditions hereof, to convert the unpaid principal
amount of this Note or any portion hereof (together with interest accrued on the
principal amount of this Note or portion thereof to be converted) into shares of
the Company's common stock, par value $.0001 per share (the "Common Stock"), at
the price of $0.07904 per share (the "Common Conversion Price"); provided,
however, that if, in the reasonable opinion of the Board of Directors of the
Company, the consent of any person is required as a condition to the issuance of
such shares of Common Stock and, despite the commercially reasonable efforts of
the Company to obtain such consent, such consent has not been obtained at the
time the Payee gives the Company a notice of conversion in accordance with the
provisions of Section 5 below, the Company may, instead of issuing shares of
Common Stock as aforesaid, issue to the Payee such number of shares of the
Company's Series B Preferred Stock, par value $.01 per share (the "Series B
Preferred"), as is determined by dividing the portion of this Note which is to
be converted by the price of $79.04 per share (the "Preferred Conversion
Price").
7. Mechanics of Conversion. As a condition to its right to receive any
securities into which this Note is convertible, the Payee shall surrender this
Note at the office of the Company, and shall give written notice to the Company
at such office that the Payee elects to convert all or part of this Note and
shall state therein the amount of this Note that the Payee is converting. The
Company shall, as soon as practicable thereafter, issue and deliver at such
office to the Payee, (i) a certificate or certificates for the number and type
of securities of the Company to which such Payee shall be entitled as aforesaid,
and (ii) to the extent the Payee has converted this Note in part and not in
full, a new convertible note, identical in terms to this Note except that the
principal amount thereof shall equal the principal amount hereof less the amount
converted by the Payee. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of this Note
for conversion, in whole or in part, and the Payee shall be treated for all
purposes as the record Payee of such shares of Common Stock or Series B
Preferred, as the case may be, that the Payee is entitled to receive upon such
conversion on such date pursuant
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<PAGE>
hereto.
8. Restrictions. The Payee hereby acknowledges that the securities of the
Company issuable upon conversion of this Note will constitute "restricted
securities" under the Securities Act of 1933, as amended. Each certificate
representing securities of the Company issued upon conversion of this Note shall
be stamped or otherwise imprinted with a legend reading substantially as
follows:
a. If on the certificate representing shares of Series B
Preferred:
"THE SHARES OF SERIES B PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SHARES OF SERIES B PREFERRED STOCK AND ANY SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THESE SHARES OF SERIES B
PREFERRED STOCK HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES OF SERIES B PREFERRED STOCK
AND/OR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER OF THESE SHARES OF SERIES B PREFERRED STOCK AND SUCH
SHARES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
AND SUCH STATE SECURITIES LAWS."
b. If on the certificate representing shares of Common Stock:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SHARES TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE
SECURITIES LAWS."
9. Stock Fully Paid. The Company covenants and agrees that all shares of
capital stock which may be issued pursuant to the terms hereof will, upon
issuance in accordance with the terms hereof (or upon exercise of any warrant
issuable hereunder), be duly authorized, validly issued, fully paid and
nonassessable, free and clear of any and all encumbrances (other than
encumbrances created or granted by the Payee), and of all taxes and charges with
respect to the issue thereof, and that the issuance thereof shall not give rise
to any preemptive rights on the part of any other person or entity.
10. Par Value. Before taking any action which would cause an adjustment
reducing either the
4
<PAGE>
Common Conversion Price or the Preferred Conversion Price below the then
par value of the shares of Common Stock or Series B Preferred, respectively,
issuable upon conversion of the Note, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock or Series B Preferred, as applicable, at such adjusted Common Conversion
Price or Preferred Conversion Price, as applicable.
11. Taxes. The Company shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of securities of
the Company pursuant to the terms hereof.
12. Reservation of Shares. The Company shall reserve, free from preemptive
rights, out of its treasury stock or its authorized but unissued shares of
Series B Preferred and Common Stock, sufficient shares of Series B Preferred and
Common Stock to provide for the conversion of this Note, and sufficient shares
of Common Stock to provide for the conversion of such shares of Series B
Preferred.
13. Fractional Shares. No fractional shares of Common Stock or Series B
Preferred of the Company will be issued in connection with the conversion of
this Note, but in lieu of such fractional shares, the Company shall make a cash
payment therefor equal in amount to the product of the applicable fraction
multiplied by the Common Conversion Price or Preferred Conversion Price, as
applicable, then in effect.
14. Registration Rights. The Payee shall have the right to have registered
any shares of Common Stock owned by it as a result of the conversion of this
Note and the securities issued upon conversion of this Note as set forth in the
Subscription Agreement.
15. Waivers. The Makers hereby waive presentment, demand for payment,
notice of dishonor and any and all other notices or demands in connection with
the delivery, acceptance, performance, default or enforcement of this Note and
hereby consent to any waivers or modifications that may be granted or consented
to by the Payee of this Note. No waiver by the Payee of any breach of any
covenant of the Makers herein contained or any term or condition hereof shall be
construed as a waiver of any subsequent breach of the same or of any other
covenant, term or condition herein.
16. Acceleration. If any sum required to be paid under this Note shall not
be paid when due, the Company shall pay, in addition to the interest otherwise
payable pursuant to this Note, default interest at a rate of two percent (2%)
per annum on the unpaid balance. Notwithstanding anything set forth in this Note
to the contrary, in no event shall interest payable under this Note be higher
than the maximum amount permitted under applicable law.
17. Prepayment. This Note may not be prepaid, in whole or in part, by
the Makers.
18. Enforcement. In the event that any Payee of this Note shall institute
any action for the enforcement or the collection of this Note, there shall be
immediately due and payable, in addition to the unpaid balance of this Note, all
late charges, and all costs and expenses of such action, including reasonable
attorneys' fees. The Makers waive the right to interpose any setoff,
counterclaim or defense of any nature or description whatsoever.
19. Replacement of Note. Upon receipt by the Makers of evidence
satisfactory to them of the loss, theft, destruction or mutilation of this Note,
and (in case of loss, theft or destruction) of an indemnity reasonably
satisfactory to it, and upon reimbursement to the Makers of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this Note if
mutilated, the Makers will make and delivery a new Note of like tenor in lieu of
this Note.
20. Amendments. This Note may not be changed, modified, amended, or
terminated except by a writing duly executed by the Makers and the Payee.
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<PAGE>
21. Governing Law. This Note and all transactions contemplated hereunder or
evidenced hereby shall be governed by, construed under, and enforced in
accordance with the laws of the State of New York.
22. Assignment. This Note may not be assigned, in whole or in part, by any
of the Makers.
23. Successors. This Note shall be binding upon the successors of each of
the Makers.
IN WITNESS WHEREOF, the Makers have executed this Note by its duly
authorized officers as of the day and year first above written.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
-----------------------------------
Name: Michael O'Reilly
Title: President & CEO
TRADE-WINDS ENVIRONMENTAL
RESTORATION, INC.
By: /s/ Michael O'Reilly
-----------------------------------
Name: Michael O'Reilly
Title: President & CEO
NORTH ATLANTIC LABORATORIES, INC.
By: /s/ Michael O'Reilly
-----------------------------------
Name: Michael O'Reilly
Title: Vice President
NEW YORK TESTING LABORATORIES, INC.
By: /s/ Michael O'Reilly
-----------------------------------
Name: Michael O'Reilly
Title: Vice President
6
Exhibit B
SECURITY AGREEMENT
This SECURITY AGREEMENT is made this 29th day of October 1999 by [COMPANY],
a [Delaware] [New York] corporation (the "Debtor"), located at 100 Sweeneydale
Avenue, Bay Shore, New York 11706, in favor of SPOTLESS PLASTICS (USA) INC., a
Delaware corporation (the "Secured Party"), located at 150 Motor Parkway, Suite
143, Hauppauge, New York 11788.
Recitals
A. Pursuant to a Convertible Promissory Note dated the date hereof (as it
may be amended from time to time, the "Note"), the Debtor, as a joint and
several obligor under the Note, is obligated to pay to the Secured Party the sum
of $2,000,000.00; and
B. In connection with the execution and delivery of the Note, the Debtor
has agreed to enter into this Security Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency in which are hereby acknowledged, the Debtor and Secured Party
hereby agree as follows:
1. Defined Terms. As used in this Security Agreement the following terms
shall have the respective meanings assigned to them as follows:
"Accounts" shall mean, in addition to the definition of accounts in the
UCC, all presently existing and hereafter arising accounts receivable and any
and all Contract Rights, Instruments, Documents, Chattel Paper and General
Intangibles, including, without limitation, (i) all accounts created by or
arising from sales of Goods or rendition of services to customers of the Debtor,
whether or not earned by performance, (ii) all credit insurance, guaranties and
security therefor and (iii) all rights to payment that has been earned under a
Contract Right.
"Assigned Agreements" shall mean and include all leases, contracts and
agreements included in the Collateral or in connection with which Accounts now
exist or may hereafter be created.
"Business Day" means any day other than a Saturday or Sunday or a public or
bank holiday or the equivalent for banks generally under the laws of the State
of New York and the United States.
"Chattel Paper" shall have the meaning accorded to that term under the UCC.
"Contract Right" shall mean any right to payment under a contract, whether
or not evidenced by an Instrument or Chattel Paper presently existing or
hereafter arising.
"Collateral" shall have the meaning accorded to that term in Section 3.
"Deposit Accounts" shall mean and include all bank accounts and other
deposit accounts included in the Collateral whether now existing or hereafter
created.
"Document" shall have the meaning accorded to that term under the UCC.
"Equipment" shall mean all present and hereafter acquired machinery,
equipment, furnishings and fixtures,
<PAGE>
and all additions, substitutions and replacements thereof, wherever
located, together with all attachments, component parts, equipment and
accessories installed thereon or affixed thereto, including, without limitation,
equipment as defined in the UCC.
"General Intangibles" shall mean all presently existing or hereafter
acquired general intangibles as defined in the UCC, including, without
limitation, corporate or other business records, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, good will,
copyrights, registrations, licenses, permits, franchises, tax refund claims,
insurance policies and all rights thereunder (including any refunds and returned
premiums) and any security now or hereafter held by or granted to the Debtor to
secure payment of any of the Accounts.
"Goods" shall mean all goods presently existing or hereafter acquired as
defined in the UCC.
"Governmental Authority" means any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Instruments" shall have the meaning accorded to that term under the UCC.
"Inventory" shall mean goods, merchandise and other personal property now
or hereafter held by the Debtor for sale or lease or furnished or to be
furnished under contracts of service or otherwise, raw materials, parts,
finished goods, work-in-process and supplies and materials used or consumed, or
to be used or consumed, in the Debtor's present or any future business, and all
such property the sale, lease or other disposition of which has given rise to
Accounts and which has been returned to, or repossessed or stopped in transit
by, the Debtor.
"Lien" includes any mortgage, deed of trust, security deed, pledge, lien,
security interest, hypothecation, claim, assignment, deposit arrangement,
easement, restriction, charge or encumbrance, and any other security device of
any nature whatsoever (including, without limitation, any lease, title retention
agreement or financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
"Note" shall have the meaning set forth in the recitals herein.
"Obligations" shall have the meaning accorded to that term in Section 2.
"Obligor" shall include any buyer or lessee of Inventory from the Debtor,
any customer for whom services have been rendered or materials furnished by the
Debtor and any other Person that is now or may become obligated to the Debtor on
an Account.
"Person" includes natural persons, sole proprietorships, corporations,
business trusts, unincorporated organizations, associations, companies,
institutions, entities, joint ventures, partnerships, governments (whether
federal, state, county, municipal or otherwise) and Governmental Authorities.
"Tangible Collateral" shall have the meaning accorded to that term in
Section 3.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of New York; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non- perfection of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" shall mean the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or non-
perfection.
2. Obligations Secured. This Security Agreement is given to secure and
shall secure the prompt
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<PAGE>
payment and performance of the following (hereinafter sometimes collectively
referred to as the "Obligations"):
(a) the indebtedness evidenced by the Note, and any and every extension or
renewal thereof;
(b) all sums becoming due and payable by the Debtor under the terms of
this Security Agreement, including, but not limited to, sums advanced by
the Secured Party pursuant to the terms and conditions of this Security
Agreement; and
(c) the compliance with and performance of each and every, obligation,
covenant, duty, condition and agreement in this Security Agreement and the
Note imposed on or agreed to by the Debtor.
3. Collateral. As security for the Obligations, the Debtor does hereby
transfer, assign and convey to the Secured Party, and grant to the Secured Party
a security interest in, all of its right, title and interest in, to and under
the following property, whether real, personal or mixed, whether now owned or
hereafter acquired by the Debtor, and wherever located (hereinafter collectively
called the "Collateral"):
(a) All Equipment, Inventory, materials, vehicles, supplies, fixtures,
goods and other tangible personal property of the Debtor (hereinafter
collectively called the "Tangible Collateral" except to the extent any
lease or agreement with respect thereto would be violated if they were
covered by the terms of this Security Agreement or treated as Collateral
under this Security Agreement);
(b) all existing and future leases and use agreements of personal
property entered into by the Debtor as lessor with other Persons as
lessees, including, without limitation, the right to receive and collect
all rentals and other monies, including security deposits, at any time
payable under such leases and agreements;
(c) any existing and future leases and use agreements of personal
property entered into by the Debtor as lessee with other Persons as lessor,
including, without limitation, the leasehold interest of the Debtor in such
property, and all options to purchase such property or to extend any such
lease or agreement, except any such leases or agreements which would be
violated if they were covered by the terms of this Security Agreement or
treated as Collateral for the purposes of this Security Agreement;
(d) any and all accessions and additions now or hereafter made or
added to any of the property described in subparagraphs (a) through (c)
above, any substitutions and replacements therefor, and all attachments and
improvements now or hereafter placed upon or used in connection therewith,
or any part thereof;
(e) all Accounts of the Debtor;
(f) all General Intangibles of the Debtor and any agreements
constituting part of General Intangibles except such agreements which would
be violated if they were covered by the terms of this Security Agreement or
treated as Collateral for the purposes of this Security Agreement;
(g) all Deposit Accounts and all monies of the Debtor and all
bank accounts in which such monies may at any time be held and all
investments or securities in which such monies may at any time be
invested and all certificates, instruments and documents from time to
time representing or evidencing any such monies;
(h) all interest, dividends, proceeds, products, rents, royalties,
issues and profits of any of the Collateral described in subparagraphs (a)
through (h) above and all notes, certificates of deposit, checks and other
instruments from time to time delivered to or otherwise possessed by the
Secured Party for or on behalf of the Debtor in substitution for or in
addition to any or all of said property;
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<PAGE>
(i) all books, documents and records (whether on computer or
otherwise) related to any of the items described in subparagraphs (a)
through (h) above; and
(j) all products and proceeds of any of the items described in
subparagraphs (a) through (i) above. No submission by the Debtor to the
Secured Party of a schedule or other particular identification of
Collateral shall be necessary to vest in the Secured Party security title
to and a security interest in each and every item of Collateral of the
Debtor now existing or hereafter created and acquired, but rather such
title and security interest shall vest in the Secured Party immediately
upon the creation or acquisition of any item of Collateral hereafter
created or acquired, without the necessity for any other or further action
by the Debtor or by the Secured Party.
4. General Representations and Warranties. The Debtor represents and
warrants as follows:
(a) The Debtor has not granted a security interest in any of the
Collateral, other than pursuant to this Security Agreement or as disclosed
in Schedule 3.9 to the Subscription Agreement dated the date hereof between
the Secured Party and Windswept Environmental Group, Inc.; and
(b) The Debtor's chief place of business, chief executive office and
office where the Debtor keeps its records concerning Accounts is located at
the address set forth below the Debtor's name on the first page of this
Security Agreement.
5. General Covenants and Agreements. The Debtor covenants and agrees with
the Secured Party as follows:
(a) The Tangible Collateral (other than Inventory in transit or in the
process of being sold and other than other items of Collateral which are
sold as permitted pursuant to this Security Agreement and Tangible
Collateral maintained or used off premises in the ordinary course of
business) and the Debtor's records concerning Accounts, shall be kept at
Debtor's principal place of business as set forth on the first page of this
Security Agreement which shall not be changed without prior notice to
Secured Party.
(b) Except for purchase money security interests, the Debtor will not,
without the prior consent of the Secured Party, pledge or grant any
security interest in any of the Collateral to any Person other than the
Secured Party, permit any Lien to attach to any of the Collateral or any
levy to be made thereon or any financing statement (other than those of the
Secured Party) to be on file with respect thereto, or except in the
ordinary course of business, sell, assign or convey any of the Collateral.
(c) At the request of the Secured Party, the Debtor will join with the
Secured Party in executing one or more financing statements pursuant to the
UCC in form satisfactory to the Secured Party covering the Collateral
wherever filing is deemed necessary or prudent by the Secured Party. In the
event that the Debtor fails or refuses to execute any such financing
statement within ten (10) days of written request by Debtor, the Secured
Party may file an executed copy or photocopy of an executed copy of this
Security Agreement as a financing statement in any such offices to the
extent permitted by applicable law.
(d) The Debtor shall inform the Secured Party in writing of any
material adverse change in any of the representations and warranties of the
Debtor under this Security Agreement, promptly after the Debtor shall learn
of such change.
(e) The Debtor will keep and maintain at its own cost and expense
customary business records of the Collateral, including without limitation,
a record of all payments received and all credits granted with respect to
the Collateral and all other dealings with the Collateral. For the further
security of the Secured Party, the Debtor agrees that the Secured Party
shall have a special property interest in all of the Debtor books and
records pertaining to the Collateral. After the occurrence and during the
continuance of an Event of Default the Debtor shall deliver and turn over
to the Secured Party any such books and records at any time on demand of
the Secured
4
<PAGE>
Party.
(f) The Debtor will within 120 days of the close of each fiscal year,
furnish Secured Party with annual financial statements of Debtor consisting
of balance sheets and operating statements for the period(s) involved,
prepared in accordance with generally accepted accounting principles
consistently applied for the period involved.
(g) The Debtor will within 50 days after the close of each of the
first three (3) fiscal quarters of each fiscal year, furnish Secured Party
with unaudited quarterly and year-to-date financial statements of Debtor,
consisting of balance sheets and operating statements for the periods
involved, prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the financial statement(s)
previously furnished to Secured Party, taken from the books and records of
Debtor.
6. Taxes and Assessments. The Debtor shall pay all taxes, rents,
assessments and charges levied against any of the Collateral, or any part
thereof, and all other claims that are or may become Liens against the
Collateral, or any part thereof, and should default be made in the payment of
same, the Secured Party, at its option, may pay them; provided, however, that
Debtor shall not be required to pay or cause to be paid any such taxes, rents,
assessments or charges to the extent that the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and Debtor shall have established and shall maintain adequate reserves on its
books for the payment of the same.
7. Insurance. The Debtor shall keep all Tangible Collateral insured against
loss by fire, theft and, in the case of any vehicle, collision, in such a
manner, in such amounts and with such companies as is customary in the industry
and consistent with past practice. As further security for the Obligations, the
Debtor hereby assigns and pledges to the Secured Party, for its benefit, each
and every policy of insurance covering the Collateral, or any part thereof,
including all proceeds and returned premiums. The Debtor agrees that all
insurance policies required by this Security Agreement shall provide for at
least 30 days' written notice to Secured Party prior to cancellation. If the
Debtor fails to keep the Tangible Collateral, or any portion thereof, insured as
above specified, then (without waiving the resulting Event of Default) the
Secured Party may, at its option, immediately insure the Tangible Collateral, or
any portion thereof for its own benefit. The loss, injury or destruction of the
Collateral, or any part thereof, shall not abate, satisfy or release any of the
Obligations; and the proceeds of such insurance, if collected, less the cost of
collecting the same, shall be used in repairing or replacing the Tangible
Collateral and, to the extent not so used, shall be paid to Secured Party to be
credited on the Obligations.
8. Advances by Secured Party for Insurance, Taxes, etc. If Debtor fails to
pay taxes or provide insurance as set forth in Section 6 or 7, the Secured Party
may pay the same upon ten (10) days' prior written notice to Debtor. All amounts
expended by the Secured Party for insurance, taxes or to satisfy in whole or in
part any prior Lien on the Collateral, or any part thereof, shall become a debt
due and payable at once, without demand upon or notice to any Person, of the
Debtor to the Secured Party, additional to the Obligations hereby specially
secured, and shall be secured hereby, and such amounts shall bear interest until
paid at two (2) percentage points in excess of the rate of interest provided for
in the Note, or the highest rate permitted by law, whichever shall be less.
9. Care of Tangible Collateral: Notice of Loss, etc. The Debtor shall: (a)
keep all Tangible Collateral in as good condition as it is now in, reasonable
wear and tear alone excepted; and (b) notify the Secured Party immediately in
writing of any event causing material loss or depreciation in value of any of
the Collateral, and, to the extent determinable, the amount of such loss or
depreciation (other than depreciation in the Tangible Collateral resulting from
ordinary wear and tear).
10. Records. The Debtor will at all times keep customary business records
of the Collateral, and the Secured Party or its agents shall have the right to
call (with reasonable prior notice unless an Event of Default has occurred and
is then continuing) at the Debtor's place of business (or any other place where
any of the Collateral is located) during regular business hours upon reasonable
notice not more frequently than once each calendar quarter to inspect and
examine
5
<PAGE>
the Collateral and to inspect, audit, check and make abstracts from the
books, records, journals, orders, receipts, correspondence and other data
relating to the Collateral or to any other transactions between the Debtor and
the Secured Party. All information obtained by Secured Party with respect to
Debtor will be kept strictly confidential by Secured Party until an Event of
Default under Section 15 hereof shall occur and be continuing and will be used
by Secured Party thereafter solely as required to protect its rights pursuant to
this Security Agreement.
11. Use of Tangible Collateral. The Debtor agrees (a) not to conceal or
abandon the Tangible Collateral, except in abandonment in the ordinary course of
business or in the event such Collateral is obsolete; and (b) not to lease or
hire any of the Tangible Collateral to any Person or permit the same to be
leased or used for hire otherwise than in the ordinary course of business.
12. Assigned Agreements. The Debtor shall diligently perform all of its
material obligations under each and every Assigned Agreement, if the failure to
perform the same would have a material adverse effect on Debtor's business.
Except in the ordinary course of business or otherwise consistent with prudent
business judgment, the Debtor shall not cancel, terminate or modify any material
Assigned Agreement if such cancellation, termination or modification would have
a material adverse effect on Debtor's business.
13. Underlying Documentation. Upon the occurrence and at any time during
the continuance of an Event of Default, the Debtor will, upon the request
therefor by the Secured Party, promptly deliver possession to the Secured Party
of any or all of the Instruments, Documents and Chattel Paper that constitute a
part of the Collateral.
14. Defeasance. If the Debtor shall have paid in full all of the
Obligations (as defined herein), then this Security Agreement and conveyance
shall become null and void; otherwise, this Security Agreement shall remain in
full force and effect. Thereupon, the Secured Party shall execute and deliver
UCC-3 Termination Statements in recordable form and such other documents and
instruments as reasonably may be required by Debtor to terminate and release the
Liens in the Collateral granted hereby.
15. Events of Default. Upon the occurrence of any Event of Default under
this Security Agreement and at any time during the continuance of an Event of
Default all of the Obligations, with interest thereon, shall at once become due
and payable at the option of the Secured Party. As used in this Security
Agreement, the term "Event of Default" shall mean the occurrence or happening of
any one or more of the following events, circumstances or conditions:
(a) violation of, or default in the observance or performance of, any
term, agreement or covenant contained in this Security Agreement occurs; or
(b) an Event of Default under and as defined in the Note occurs; or
(c) any warranty or representation contained in this Security
Agreement or made on behalf of the Debtor shall prove to be false or
misleading in any material respect; or
(d) the issuance of any execution or the making of any levy, seizure
or attachment on a material portion of the Collateral with respect to a
claim against Debtor exceeding $100,000 occurs, which is not discharged or
stayed within 60 days after notice to Debtor thereof; or
(e) the sale (except as permitted hereunder) of any material
portion of the Collateral occurs.
16. Repossession of the Collateral; Care and Custody of the Collateral;
etc. Upon the occurrence and at any time during the continuance of an Event of
Default, the Debtor hereby expressly and irrevocably consents to, and to the
extent that the Debtor may lawfully do so, invites the Secured Party and its
agents to come upon any premises on which the Collateral, or any part thereof,
is now or hereafter located after the occurrence of and during the continuance
of an Event of Default for any and all purposes related to the Collateral
including without limitation repossession of the Collateral, of any part
thereof. To the extent that the Debtor may lawfully do so, the Debtor further
covenants and
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warrants that, upon the occurrence and continuance of an Event of Default,
(a) any entry by the Secured Party and its agents upon premises for the purpose
of repossessing the Collateral, or any part thereof, shall not be a trespass
upon such premises and (b) any such repossession shall not constitute conversion
of the Collateral, or any part thereof. The Secured Party shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if it takes such reasonable actions for that purpose as the
Debtor shall request in writing. Any omission to do any act not requested by the
Debtor shall not be deemed a failure to exercise reasonable care. The Debtor
shall at all times be responsible for the preservation of the Collateral and
prior to Secured Party taking possession thereof shall be liable for any failure
to realize upon, or to exercise any right or power with respect to, the
Collateral, or for any delay in so doing.
17. Remedies Regarding Accounts. Upon the occurrence of an Event of Default
or at any time thereafter during the continuance of an Event of Default:
(a) The Secured Party shall have the right (i) to collect all Accounts
in the Secured Party's or the Debtor's name and take control of any cash or
non-cash proceeds of Collateral; (ii) to enforce payment of any Accounts;
(iii) to prosecute any action or proceeding with respect to Accounts; (iv)
to extend the time of payment of any and all Accounts; (v) to in good faith
make allowances and adjustments with respect thereto and to issue credits
in the name of the Secured Party or the Debtor; (vi) to settle, compromise,
extend, renew or release, in whole or in part, in good faith any Account or
deal with the same as the Secured Party may deem advisable; and (vii) to
require the Debtor to open all mail only in the presence of a
representative of the Secured Party, who may take therefrom any remittance
on Collateral.
(b) Upon demand by the Secured Party, all checks and other forms of
remittance received by the Debtor as proceeds of Collateral shall be (i)
held in trust for the Secured Party separate and apart from and not
commingled with any other property of the Debtor, (ii) kept capable of
identification as the property of the Secured Party, and (iii) delivered
not less often than daily (or at such other intervals as may be mutually
agreed upon in writing) to the Secured Party in the identical form
received, with appropriate endorsements, and accompanied by a report
prepared by the Debtor in such form as the Secured Party shall require.
Upon demand by the Secured Party, all payments received by the Debtor under
or in connection with any Assigned Agreement or Account or otherwise in
respect of the Collateral shall be received in trust for the benefit of the
Secured Party, shall be segregated from other funds of the Debtor, and
shall forthwith be paid over to the Secured Party in the same form as so
received (with any necessary endorsement). Promptly upon the Secured
Party's request, the Debtor shall do any or all of the following: (A) give
written notice of the Secured Party's security interest in the Accounts to
the Obligors in such form and at such times as the Secured Party may
require; (B) open and maintain at the Debtor's expense a lock box with a
national bank chosen by the Secured Party, in its sole discretion, for the
receipt of all remittances with respect to Collateral and execute an
agreement with the Secured Party in form and substance satisfactory to the
Secured Party governing such lock box; and (C) notify the Obligors to make
payments on the Accounts directly to the Secured Party or to said lock box.
18. Attorney-in-Fact After Default. Upon the occurrence and during the
continuance of an Event of Default, the Debtor hereby constitutes and appoints
the Secured Party, or any other Person whom the Secured Party may designate, as
the attorney-in-fact of the Debtor, at the Debtor's sole cost and expense, to
exercise at any time without notice to the Debtor after the occurrence and at
any time during the continuance of any Event of Default hereunder, all or any of
the following powers, all of which powers, being coupled with an interest, shall
be irrevocable until the Secured Party's security interest shall have been
terminated: (a) to receive, take, endorse, assign and deliver in the Secured
Party's name or in the name of the Debtor any and all checks, notes, drafts and
other instruments relating to Accounts; (b) to receive, open and dispose of all
mail addressed to the Debtor and to notify postal authorities to change the
address for the delivery thereof to such address as the Secured Party may
designate; (c) to transmit to Obligors notice of the Secured Party's interest in
the Accounts and to demand and receive from such Obligors at any time, in the
name of the Secured Party or of the Debtor or of the designee of the Secured
Party, information concerning the Accounts and the amounts owing thereon; (d) to
notify Obligors to make payments on the Accounts directly to the Secured Party
or to a lock box designated by the Secured Party; (e) to take or to bring, in
the name of the Debtor, all steps, action, suits or proceedings deemed by the
Secured Party necessary or desirable to effect collection of the Accounts; (f)
to exercise all of the Debtor's rights and
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remedies with respect to the collection of the Accounts; (g) to settle,
adjust, compromise, extend, renew, discharge, terminate, or release the Accounts
and the Assigned Agreements in whole or in part; (h) to sell or assign the
Accounts upon such terms, for such amounts and at such time or times as the
Secured Party deems advisable; (i) to take control, in any manner, of any item
of payment on, or proceeds of, Collateral; (j) to use the information recorded
on or contained in any data processing equipment and computer hardware and
software relating to any of the Collateral to which the Debtor has access; (k)
to obtain and reasonably adjust insurance proceeds required to be paid to the
Secured Party pursuant to Section 7; and (l) to do all acts and things
necessary, in the Secured Party's sole reasonable judgment, to carry out the
purposes of this Security Agreement. All acts of such attorney-in-fact or
designee taken pursuant to this Section 18 are hereby ratified and approved by
the Debtor and said attorney or designee shall not be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law, except for
acts constituting willful misconduct.
19. Other Rights and Remedies Upon Default. Upon the occurrence of an Event
of Default, and at any time during the continuance of an Event of Default the
whole or any part of the Obligations secured hereby shall become immediately due
and payable at the option of the Secured Party, and the Secured Party shall have
all the rights and remedies of a secured party upon default under the UCC, as
well as all rights and remedies under any other applicable law and under the
terms of this Security Agreement, all of which shall be cumulative. Without
limiting the generality of the foregoing rights and remedies, the Secured Party
may exercise any or all of the following rights, remedies and powers after the
occurrence of and at any time during the continuance of an Event of Default:
(a) The Secured Party may require the Debtor to assemble the
Collateral, or any part thereof, and to make it available to the Secured
Party at any convenient place designated by the Secured Party.
(b) The Secured Party may send any written notice to the Debtor
required by law or this Security Agreement in the manner set forth in
Section 28 of this Security Agreement; and any notice sent by the Secured
Party in such manner at least 10 calendar days (counting the day of
sending) prior to the date of a proposed disposition of the Collateral
shall be deemed to be reasonable notice.
(c) The Secured Party may exercise any and all rights and remedies of
the Debtor under or in connection with any Assigned Agreement or otherwise
in respect of the Collateral, including, without limitation, any and all
rights of the Debtor to demand or otherwise require payment of any amount
under, or performance of any provision of, any Assigned Agreement.
(d) The Secured Party, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below in
this subparagraph of a proposed disposition of the Collateral) to or upon
the Debtor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived, to the extent
permitted by applicable law), may forthwith collect, receive, appropriate
and realize upon the Collateral, or any part thereof, and may forthwith
sell, lease, assign, give option or options to purchase, or sell or
otherwise dispose of and deliver the Collateral (or contract to do so), or
any part thereof, in one or more parcels at public or private sale or
sales, at any exchange broker's board or at any of the Secured Party's
offices or elsewhere at such prices as the Secured Party may deem best, for
cash or on credit or for future delivery without assumption of any credit
risk. The Secured Party shall have the right upon any such public sale or
sales, and to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption, which equity of redemption the Debtor
hereby releases. To the extent permitted by applicable law, the Debtor
waives all claims, damages, and demands against the Secured Party arising
out of the repossession, retention or sale of the Collateral. The Debtor
agrees that the Secured Party need not give more than 10 days' notice as
set forth in subparagraph (b) above of the time and place of any public
sale or of the time after which a private sale may take place.
20. Secured Party May Perform. If the Debtor fails to perform any agreement
contained herein, the Secured Party may itself perform, or cause performance of,
such agreement, and the reasonable expenses of the Secured Party incurred in
connection therewith shall be payable by the Debtor under Section 21.
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21. Indemnity and Expenses. The Debtor agrees to indemnify the Secured
Party from and against any and all claims, losses and liabilities growing out of
or resulting from enforcement of this Security Agreement from and after the
occurrence and during the continuance of an Event of Default, except claims,
losses or liabilities resulting from the Secured Party's gross negligence or
willful misconduct. The Debtor shall upon demand reimburse the Secured Party for
any expenses incurred by the Secured Party in perfecting, protecting or
enforcing or attempting to perfect, protect or enforce any of its rights and
remedies under this Security Agreement from and after the occurrence and during
the continuance of an Event of Default, including, without limitation, all
expenses of filing and recording this Security Agreement or any financing
statements executed in connection with this Security Agreement, and all expenses
of taking possession, holding, preparing for disposition, and disposing of the
Collateral, including reasonable attorneys' fees.
22. Application of Proceeds. The net cash proceeds resulting from the
exercise of any of the rights and remedies of the Secured Party under this
Security Agreement, after deducting all reasonable charges, expenses, costs and
attorneys' fees relating thereto, including any and all costs and expenses
incurred in securing the possession of Collateral, moving, storing, repairing or
finishing the manufacture of Collateral, and preparing the same for sale, shall
be applied by the Secured Party to the payment of the Obligations, whether due
or to become due, in such order and in such proportions as the Secured Party may
elect.
23. Severability, etc., In case any one or more of the provisions contained
in this Security Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not be affected or impaired thereby, and if any one or
more of such provisions shall be invalid, illegal or unenforceable in any
respect in any one jurisdiction, then, to the full extent permitted by
applicable law, the validity, legality and enforceability of such provisions and
of any remaining provisions shall not be affected or impaired thereby in other
jurisdictions.
24. Remedies Cumulative. The rights and remedies of the Secured Party under
this Security Agreement are cumulative and not exclusive of any other rights or
remedies now or hereafter existing at law or in equity.
25. Non-Waiver. No delay in exercising any right, power or privilege given
or granted hereto to the Secured Party shall be construed as a waiver thereof;
nor shall a single or partial exercise thereof preclude any other or further
exercise or the exercise of any other right, power or privilege. Subject to the
rights to cure specified in Section 15, the Secured Party may permit the Debtor
to remedy any default without waiving the default so remedied, and the Secured
Party may waive any default without waiving any other subsequent or prior
default by the Debtor.
26. Debtor Remains Liable. Anything in this Security Agreement to the
contrary notwithstanding, (a) the Debtor shall remain liable under the Assigned
Agreements to perform all of its duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed, (b) the exercise by
the Secured Party of any of the rights hereunder shall not release the Debtor
from any of its duties or obligations under the Assigned Agreements, and (c) the
Secured Party shall not have any obligation or liability under the Assigned
Agreements by reason of this Security Agreement or the receipt by the Secured
Party of any payment hereunder, nor shall the Secured Party be obligated to
perform any of the obligations or duties of the Debtor under the Assigned
Agreements, to take any action to collect, file or enforce any claim for payment
assigned to the Secured Party hereunder, or to make any inquiry as to the nature
or sufficiency of any payment received by it or the sufficiency of any
performance by any party thereunder.
27. Costs. From and after the occurrence and during the continuance of an
Event of Default, Debtor shall promptly reimburse the Secured Party for any and
all reasonable costs and expenses, including but not limited to, the reasonable
fees and disbursements of counsel to the Secured Party, which the Secured Party
may incur in connection with (a) the enforcement of the rights of the Secured
Party in connection with the Obligations, (b) the protection or perfection of
the Secured Party's rights and interests hereunder, and (c) the exercise by or
for the Secured Party of any of the rights or powers herein conferred upon the
Secured Party.
28. Notices. Any notices or other communications required or desired to be
given pursuant to this Security Agreement shall be in writing and shall be
deemed given (i) when personally delivered, or (ii) one business day after being
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sent for next-day delivery by Federal Express or other overnight courier or mail
service providing next-day delivery and confirmation of delivery. Notice shall
be addressed as follows, or to any other address which a party may designate in
a notice given to the other parties in compliance with this Section:
If to Debtor: [Company]
100 Sweeneydale Avenue
Bay Shore, New York 11706
Attn: President
With a copy to: Kaufman & Moomjain, LLC
50 Charles Lindberg Boulevard
Suite 206
Mitchel Field, New York 11553
Attention: Neil Kaufman, Esq.
To Secured Party: Spotless Plastics (USA) Inc.
150 Motor Parkway, Suite 143
Hauppauge, New York 11788
Attention: Mr. Charles L. Kelly
With a copy to: Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Attn: Thomas J. Drago, Esq.
29. Miscellaneous. Plural or singular words used herein to designate the
Debtor shall be construed to refer to the maker or makers of this Security
Agreement, whether one or more persons, associations, partnerships or
corporations, and the successors and assigns of such party or parties; and all
covenants and agreements herein made by the Debtor shall survive the execution
and delivery of this Security Agreement and the Agreement, and shall bind the
heirs, personal representatives, executors, administrators, successors and
assigns of the undersigned, and every option, right and privilege herein
reserved or secured to the Secured Party shall inure to the benefit of, or may
be exercised by, its successors and assigns. Each of the undersigned hereby
acknowledges receipt of a duplicate copy of this Security Agreement. The Debtor
hereby waives presentment, demand, protest or any notice (to the extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral, except as otherwise provided in this Security
Agreement or the Note. No modification, amendment or waiver of any provision of
this Security Agreement or the Note, or consent to any departure by the Debtor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the party against whom enforcement of same is sought and such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on the Debtor in any case shall
entitle the Debtor to any other or further notice or demand in the same, similar
or other circumstances, except as otherwise provided in this Security Agreement
or the Note. The headings and captions in this Security Agreement are for
convenience of reference only and shall in no way restrict or modify any of the
terms hereof. This Security Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument. This Security Agreement
shall be governed by the laws of the State of New York.
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IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to
be executed by a duly authorized officer of the day and year first above
written.
DEBTOR:
-------
[COMPANY]
By: /s/ Michael O'Reilly
------------------------------------
Name: Michael O'Reilly
Title:
SECURED PARTY:
--------------
SPOTLESS PLASTICS (USA) INC.
By: /s/ Charles L. Kelly, Jr.
------------------------------------
Name: Charles L. Kelly, Jr.
Title: Vice President - Finance and Secretary
11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated October 29, 1999, by and between WINDSWEPT
ENVIRONMENTAL GROUP, INC., a Delaware corporation (the "Company"), and MICHAEL
O'REILLY (the "Executive").
WITNESSETH:
WHEREAS, the Executive currently serves as the President and Chief
Executive Officer of the Company and as a member of the Board of Directors of
the Company (the "Board of Directors"); and
WHEREAS, the Board of Directors believes it to be in the best interest of
the Company to enter into this Agreement to ensure the Executive's continued
employment by the Company in the capacity and under the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, the Company and the Executive agree as follows:
Section 1
EMPLOYMENT
1.1 Employment. The Company will employ the Executive and the
Executive accepts employment on the terms and conditions set forth in this
Agreement.
1.2 Titles and Duties.
(a) The Executive shall be employed by the Company as its President and
Chief Executive Officer.
(b) The Executive shall continue to operate the Company on a day-to-day
basis as its President and Chief Executive Officer, and the Executive shall have
all duties and authority customarily accorded the President and Chief Executive
Officer of the Company.
(c) The Executive shall report to the Board of Directors of the
Company.
(d) Executive may engage in personal business and investment activities for
his own account; provided, however, that such personal business and investment
activities do not, in the reasonable opinion of the Board of Directors,
materially interfere with the performance of his duties under this Agreement.
(e) Executive agrees to serve as director of the Company, and as an officer
or director of any affiliate of the Company without any additional compensation
therefor other than as provided in this Agreement.
1.3 Term of Employment. The term of the Executive's employment hereunder
(the "Term of Employment") shall be for a five year period (the "Initial Term")
beginning on October 29, 1999 and ending on September 30, 2004 and shall
automatically be renewed for successive periods of one (1) year (each, a
"Renewal Period") commencing on October 29, 2004 unless either party notifies
the other at least six months prior to the end of the Initial Term or the
current Renewal Period, as the case may be, that it does not wish to renew the
term of the Executive's employment hereunder.
<PAGE>
1.4 Location of Employment. The Executive may be required to move his
office to any location on Long Island, New York, but shall not otherwise be
required to move his office without the Executive's prior written consent.
15. Compensation.
(a) As compensation for the Executive's services during the Term of
Employment, the Company shall pay to the Executive a salary at the annual rate
of $260,000, payable in periodic installments in accordance with payroll
practices of the Company as in effect from time to time.
(b) Base Salary. The Executive's base salary shall be reviewed annually
solely for the purpose of awarding possible base salary increases (taking into
account factors relating to the Executive's performance as well as the Company's
performance as a whole). In the event an increase in Base Salary is awarded, the
Base Salary set forth above shall be automatically amended to reflect the new
amount.
(c) In addition to his salary, the Executive shall be entitled to receive a
cash bonus (the "Annual Bonus") in an amount equal to 2.5% of the "Pre-Tax
Income" of the Company and its consolidated subsidiaries for each fiscal year
during the Term of Employment. For the purposes of this Agreement, the term
"Pre-Tax Income" shall mean the net income of the Company and its consolidated
subsidiaries as determined in accordance with generally accepted accounting
principles at the time applied on a basis consistent with the past practices of
the Company, before any charges for (i) federal, state or other taxes on the
income of the Company and its consolidated subsidiaries, (ii) direct charges of
Spotless Plastics (USA), Inc. ("Spotless") or any of its affiliates for services
rendered to the Company to the extent that such charges are in excess of those
that would be charged by unrelated third parties for comparable services and
(iii) interest charged by Spotless on any funds advanced by it to the Company to
the extent that such interest charges are greater than the sum of the cost of
funds of Spotless with respect to any such advance plus one percent (1%) per
annum. The Annual Bonus shall be paid within thirty (30) days following the
issuance by the Company of the audited financial statements of the Company and
its consolidated subsidiaries for the relevant fiscal year. The Annual Bonus
will be paid at such time on a pro rata basis if Executive has not been employed
pursuant to the terms of this Agreement for the entire fiscal year.
(d) The Executive shall be entitled to participate in all employee pension
and welfare benefit plans, programs and practices maintained by the Company for
its employees generally in accordance with the terms of such plans, programs and
practices as in effect from time to time, and in any other insurance, pension,
retirement or welfare benefit plans, programs and practices which the Company
provides to its executives from time to time, including plans that supplement
such plans. The Executive shall be entitled to four (4) weeks of paid vacation
in each calendar year, all of which shall be deemed accrued, earned and
available for use on the first day of the year.
(e) The Company shall purchase or lease for the Executive's exclusive use a
new luxury class automobile of his choice and shall replace such automobile, at
the Executive's request, once every three (3) years. The Company shall pay, or
reimburse the Executive for his payment of, any and all reasonable expenses for
the maintenance and operation of such automobile, including fuel, oil,
maintenance and repairs, and the cost of liability and property damage
insurance.
(f) The Company shall also purchase or lease for the Executive's exclusive
use a beeper and cellular telephone of his choice and shall pay, or reimburse
the Executive for his payment of, all charges relating thereto.
(g) The Executive is authorized to incur reasonable ordinary and necessary
business expenses in the performance of his duties hereunder, including expenses
for travel, entertainment and other business purposes. The Company shall
reimburse the Executive for all such expenses incurred by him, upon presentation
of itemized accounts and submission of receipts in accordance with Company's
policies and procedures.
(h) In addition to any group-term life insurance coverage available
pursuant to Section 1.3(d) of this
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Agreement, the Company shall, at its sole expense, provide additional term
or other life insurance coverage on the Executive's life providing a death
benefit to Executive's designated beneficiary of not less than One Million
Dollars ($1,000,000).
(i) The Company shall reimburse Executive for fees for membership in one
business or social club of his choice. Executive has elected to be a member of
the North Fork Preserve. If he so desires, he may stop seeking reimbursement for
expenses incurred in connection with such membership and obtain a corporate
membership at the Nissequogue Country Club or similar club.
Section II
TERMINATION OF EMPLOYMENT
2.1 Termination.
(a) Death. The Executive's employment hereunder shall terminate upon his
death.
(b) Disability. The Company may terminate Executive's employment hereunder
due to the Executive's disability. For purposes of this Agreement, "disability"
means a physical or mental illness, incompetency or incapacity which results in
the Executive's inability to actively participate in the Company's business and
perform his duties as required under this Agreement where such incapacity has
lasted for a continuous period of not less than two hundred seventy (270) days.
The Executive shall receive full salary, pro rata bonus and benefits during such
two hundred seventy (270) day period.
(c) Cause. The Company may terminate the Executive's employment hereunder
for Cause. For the purpose of this Agreement, "Cause" shall be defined as (i)
willful misconduct by the Executive in the performance of his duties hereunder
which causes material damage or injury to the business or reputation of the
Company; (ii) Executive's direct and active fraud or embezzlement in the
performance of the Executive's duties; (iii) continuing refusal by the Executive
to perform a material portion of his duties hereunder which is not cured within
thirty (30) days after written notice to Executive specifying the duties which
the Executive has refused to perform; (iv) any material breach of Sections III
or IV of this Agreement to the detriment of the Company; or (v) the conviction
of the Executive for any felony which conviction results in material damage or
injury to the business or reputation of the Company.
(d) Executive may, for any reason, elect to terminate his employment
hereunder by providing ninety (90) days written notice.
(e) Resignation for Good Reason. The Executive may terminate his employment
hereunder for Good Reason which, for purposes hereof, shall be defined as:
(i) any substantial diminution of the duties or
authority of the Executive inconsistent with his title,
authorities, duties and responsibilities provided herein;
(ii) the failure of the shareholders of the Company to
re-elect the Executive as a Director of the Company;
(iii) any reduction or failure to pay the
Executive's compensation required to be paid pursuant this
Agreement;
(iv) any reduction in the benefits required to be
provided herein or any other material breach of this Employment
Agreement;
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(v) breach of any option agreement or failure to issue
shares as required under any option agreement or certificate; or
(vi) any relocation of the principal location of
Executive's employment as set forth herein without his consent.
2.2 Effect of Termination.
(a) Termination by the Company for Cause or Due to Executive's Death or
Disability. If the Executive employed hereunder shall be terminated due to the
Executive's Death, disability or for Cause, the Company shall pay the Executive
his full salary, pro rata share of his Annual Bonus and other benefits through
the date of employment termination at the rate then in effect, and the Company
shall have no further obligations to the Executive under this Agreement except
his rights, if any, under any applicable health insurance, life insurance,
disability insurance and/or any other benefit plan or policy.
(b) Termination by the Company without Cause or Resignation by the
Executive with Good Reason. If the Executive's employment hereunder shall be
terminated by the Company other than for Cause, death or disability or shall be
terminated by the Executive by Resignation with Good Reason, the Company agrees
to pay an amount equal to the Base Compensation which would have been payable
pursuant to Section 1.5(a) hereof over the remaining Term of Employment and to
provide the benefits described or referenced in Sections 1.5(d), (h) and (i)
during the remaining Term of Employment, subject to the Executive's compliance
in full with the terms and conditions of Section IV hereof.
(c) Options. None of the stock options granted to the Executive on or prior
to the date hereof shall expire or be terminated as a result of the termination,
either by the Company or the Executive, of the Executive's employment by the
Company hereunder, including his Resignation for Good Reason, unless otherwise
specifically provided in the relevant stock option agreement or certificate.
(d) Repurchase of Shares and Options. In the event that (i) the Term of
Employment shall expire, (ii) the Executive's employment hereunder shall be
terminated by the Company other than for Cause, death or disability or (iii) the
Executive's employment hereunder shall be terminated by the Executive by
Resignation with Good Reason, then the Executive shall have the right (provided
that at the time of such expiration or termination, as the case may be, the
shares of the common stock of the Company (the "Common Stock") are not listed
for trading on the New York Stock Exchange or the American Stock Exchange or
included in the NASDAQ National Market or Small-Cap Market or any other
comparable trading market, but excluding the OTC Electronic Bulletin Board and
the National Quotation Bureau pink sheets), to require the Company to purchase
(unless such purchase would cause any impairment of the capital of the Company)
in a single transaction (as opposed to a series of transactions) all shares of
the Common Stock owned by the Executive as of the date hereof or which are
issuable to the Executive under stock options which have been granted as of the
date hereof and which shall have at the time of such expiration or termination,
as the case may be, vested and shall be fully exercisable (collectively, the
"Shares"); provided, however, that as a condition precedent to the obligation of
the Company to purchase the Shares the Executive shall surrender to the Company
and forfeit, for no additional consideration, the option to purchase 2,811,595
shares of Common Stock (the "Conversion Date Options") granted to the Executive
pursuant to the Stock Option Agreement dated the date hereof (the "Conversion
Date Option Agreement"), unless the Conversion Date Options shall have vested
and shall be exercisable in accordance with the terms of the Conversion Date
Option Agreement as of the date of such expiration or termination. If the
Executive wishes to exercise his right under this Section 2.2(c), he shall give
the Company written notice (the "Purchase Notice") within thirty (30) days
following the date of termination or expiration of the Term of Employment, as
the case may be, which notice shall specify the number of Shares as to which he
is exercising his right. The Executive and the Company hereby agree that, if
they are not able to mutually agree upon the purchase price payable for the
Shares, the purchase price shall be an amount equal to the product of the
Appraised Value (as hereinafter defined) multiplied by a fraction, the numerator
of which shall be the number of Shares as to which the Executive is exercising
his right under this Section 2.2(c) as set
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forth in the Purchase Notice and the denominator of which shall be the
number of shares of Common Stock outstanding at the date of termination or
expiration of the Term of Employment, as the case may be, on a fully diluted
basis (i.e. assuming the exercise of all outstanding options and warrants for
the purchase of Common Stock and the conversion of all securities convertible or
exchangeable into shares of Common Stock). For the purposes of this Agreement,
the term "Appraised Value" shall mean the appraised value of the Company as a
going concerned determined by two investment banks, appraisers or other
financial advisors, one of which shall be selected by the Company and one of
which shall be selected by the Executive. Each party shall bear the costs and
expenses of the investment bank, appraiser or other financial advisor selected
by it. If the investment banks, appraisers or other financial institutions
selected by the Company and the Executive, respectively, cannot agree on the
Appraised Value, the Appraised Value shall be determined by a third investment
bank, appraiser or other financial advisor jointly selected within sixty (60)
days after the date of the Purchase Notice by the investment banks, appraiser or
other financial institutions selected by the Company and the Executive,
respectively, and the costs and expenses of such third investment bank,
appraiser or other financial advisor shall be shared equally by the Company and
the Executive. The closing with respect to any purchase of Shares under this
Section 2.2(c) shall occur not later than thirty (30) days following the
agreement by the Executive and the Company as to the purchase price payable for
the Shares or the determination of the Appraised Value, as the case may be. The
Executive may withdraw his Purchase Notice at any time prior to such closing,
provided that the Executive pays all expenses incurred by the Company, if any,
in connection with the determination of the Appraised Value and any other
out-of-pocket expenses incurred by the Company, including, without limitation,
reasonable attorneys' fees.
2.3 No Mitigation.
Any amounts paid to Executive as a consequence of termination of
employment shall be paid as severance pay and not as liquidated damages. It is
expressly agreed that Executive shall have no duty to seek or accept subsequent
employment and any amounts or benefits received by him as a result of such
subsequent employment shall not be offset against any amounts required to be
paid by the Company hereunder.
Section III
CONFIDENTIAL INFORMATION AND INVENTIONS
3.1 Nondisclosure of Confidential Information.
(a) The Executive agrees to treat as confidential and retain in the
strictest confidence and shall not use, divulge, disclose or make accessible to
any other firm, partnership, corporation or any other person or entity outside
the Company any Confidential Information (as hereinafter defined), except (i)
while employed by the Company and in the business of and for the benefit of the
Company, (ii) when such information is in the public domain through no fault of
the Executive, or (iii) when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority over the
business of the Company, or by any administrative body or legislative body with
purported or apparent jurisdiction to order the Executive to divulge, disclose
or make accessible such information. The Executive agrees to exercise his best
efforts to prevent the unauthorized use of Confidential Information and to
ensure that Confidential Information shall be stored at locations and under such
conditions as to reasonably prevent the unauthorized disclosure, use or
duplication of such information and materials. All Confidential Information
disclosed by the Company to the Executive under this Agreement (including, or
without limitation, information incorporated in computer software or held in
electronic storage media) shall be and remain the exclusive property of the
Company. All such Confidential Information shall not be retained in any form by
the Executive for personal use or otherwise and all physical embodiments and
copies thereof shall be returned to the Company at its request unless, at the
Company's option, the Company instructs the Executive to destroy all or any part
of the same. Upon termination of the Executive's services with the Company, all
Confidential Information, memoranda, notes, records, reports, papers, drawings,
designs, computer files or programs in any media, and other documents (and all
copies) relating to the business of the Company or its clients, and all
associated property other than material published by the Company for the general
public then in the Executive's possession,
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whether prepared by the Executive or others, will be returned to the Company.
(b) For the purposes of this Agreement, "Confidential Information" means as
of any date all information in whatever form transmitted relating to the past,
present or proposed future business affairs of the Company and its affiliates or
another party whose information the Company has in its possession under
obligation of confidentiality, which is disclosed by the Company and its
affiliates to the Executive, or which is produced or developed during the
employment relationship including, without limitation, trade secrets, computer
programs, product and production planning, customer lists, research,
development, business plans, pricing and fee policies, information relating to
operations, systems, security, merchandising, marketing, affiliate relations,
products, financial data, and specialized knowledge, data or property concerning
any idea, invention, discovery, process, program or service or product provided,
used, developed, investigated, manufactured or considered by the Company, its
affiliates or its customers during the course of the employment of the Executive
by the Company, whether commercial or experimental or patented, patentable or
not and which is not publicly available.
3.2 Inventions.
(a) For the purposes of this Agreement, "Inventions" means any and all
inventions, ideas, disclosures or discoveries including improvements, original
works of authorship, designs, formulas, processes, computer programs, databases
and trade secrets and related proprietary information and materials relating to
the business of the Company and its affiliates or the types of business in which
it is engaged, which Executive (solely or jointly with other) conceives,
develops or makes while employed by the Company. The Executive agrees that all
Inventions that (i) are developed using equipment, supplies, facilities or trade
secrets of the Company and its affiliates; (ii) result from services performed
by the Executive for the Company and its affiliates (solely or jointly with
others); or (iii) relate to the business or actual or anticipated research or
development of the Company and its affiliates, shall be the sole and exclusive
property of the Company, and the Executive shall, and hereby does, assign all of
his rights to such Inventions to the Company and its affiliates. The Executive
agrees promptly to disclose to the Company any Invention developed during or as
the result of the Executive's employment by the Company. In addition, the
Executive hereby transfers and assigns any "moral" rights that the Executive may
have in any such Inventions under any copyright or other similar law, whether
domestic or foreign. The Executive agrees to waive and never to assert any such
"moral" rights in any such Invention during or after the termination of his
employment.
(b) The Executive agrees (at the Company's expense) to assist the Company
in obtaining and enforcing patents, copyrights, and other legal protections in
any and all countries for any Invention. The Executive agrees to execute any
documents that the Company considers necessary to enable it to obtain or enforce
such patents, copyrights and other legal protections. In addition, by execution
of this Agreement, the Executive hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as the Executive's agent and
attorney-in-fact to act for and in his behalf, to execute and file any and all
such documents as the Company in its discretion determine necessary or advisable
in obtaining or enforcing such patents, copyrights and other legal protections,
and to do all other lawfully permitted acts to accomplish the same, with the
same legal force and effect as if executed by the Executive. The Executive
acknowledges that all original works of authorship that are made by the
Executive (solely or jointly with others) within the scope of the Executive's
employment at the Company and that are protected by copyright as "works made for
hire," as that term is defined in the United States Copyright Act (17 U.S.C.
101).
3.3 Specific Enforcement. The Executive agrees that any breach of the
covenants contained in Sections 3.1 and 3.2 would irreparably injure the Company
and its affiliates. Accordingly, the Executive agrees that the Company may, in
addition to pursuing any other remedies it may have under this Agreement or
otherwise in law or in equity, have the provisions of this Agreement
specifically enforced by, and obtain an injunction against the Executive
restraining any further violation of this Agreement by the Executive from, any
court in the State of New York having jurisdiction over the matter.
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Section IV
RESTRICTIVE COVENANTS
Executive hereby covenants and agrees that, during his employment with the
Company and for a period of one (1) year following the date of the expiration of
the Term of Employment or, in the event of his termination of employment with
the Company prior to the expiration of the Term of Employment either by the
Company for Cause or by the Executive other than by Resignation for Good Reason,
for a period of one (1) year following the date of such termination, he shall
not, without the written consent of the Company; (1) become an officer,
employee, consultant, director or trustee of any entity, or any subsidiary or
affiliate of any such entity, that directly competes with the Company in any
market or service area in which it was active during Executive's employment by
the Company; (2) recruit on behalf of a competing entity any person (other than
a family member) who is an employee of the Company on the last day of employment
of Executive by the Company; or (3) solicit current clients on behalf of a
competitor of the Company.
Section V
INDEMNIFICATION AND ATTORNEYS' FEES
The Company shall indemnify and hold harmless Executive from and against
any and all liabilities, claims, costs, expenses or damages incurred in
connection with or arising out of any action, suit or proceeding relating to his
work for the Company to the fullest extent permitted under the Delaware General
Corporation Law; provided, however that in any such action, suit or proceeding
in which Executive is a defendant, the Company shall have the right to select
counsel and control the defense unless it is an adverse party or unless such
representation, in the opinion of counsel to the Company, presents a conflict of
interest.
Section VI
6.1 Parties Benefited: Assignment. This Agreement shall become effective as
of the date hereof and, from and after that time, shall extend to and be binding
upon, and inure to the benefit of, the Executive, his heirs and his personal
representative or representatives, and the Company and its successors and
assigns (including any assignee of substantially all the assets of the Company).
Neither this Agreement nor any obligations hereunder may be assigned by the
Executive.
6.2 Notices. All notice given or served hereunder shall be in writing and
sent by (a) certified or registered mail, return receipt requested, (b) personal
delivery, with receipt or (c) Federal Express, Express Mail or other reputable
overnight courier service, with receipt, to the parties as follows:
If to the Executive:
Michael O'Reilly
35 Tuthill Pt. Road
East Moriches, New York 11940
If To The Company:
Windswept Environmental Group, Inc.
100 Sweeneydale Avenue
Bay Shore, New York 11706
Attention: Chairman of the Board of Directors
Any such notice shall be deemed to have been received on delivery, in the case
of (b) above; on the second business
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day following mailing, in the case of (a) above; and on the first business
day following mailing or transmission in the case of (c) or (d) above.
6.3 Severability. Each section and subsection of this Agreement constitutes
a separate and distinct provision hereof. It is the intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applicable in each jurisdiction
in which enforcement is sought. Accordingly, if any provision of this Agreement
shall be adjudicated to be invalid, ineffective or unenforceable, the remaining
provisions shall not be affected thereby.
6.4 Amendment. This Agreement contains the full and complete agreement of
the parties relating to the employment of the executive hereunder and supersedes
all prior agreements, arrangements or understandings, whether written or oral,
relating thereto. No amendment, supplement, modification, waiver or termination
of this Agreement shall be binding unless executed in writing by the parties. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof, nor shall such waiver
constitute a continuing waiver.
6.5 Disputes. Any dispute or question arising from this Agreement or its
interpretation shall be settled in accordance with the laws of the State of New
York before the state or federal courts in the State of New York. Each party
consents to the exclusive jurisdiction of such courts and shall bear its own
costs and expenses of such proceedings.
6.6 Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
6.7 Third Parties. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any person or entity
other than the Company and the Executive any rights or remedies under, or by
reason of, this Agreement.
6.8 Affiliate. As used herein, the term "affiliate" shall mean any
corporation, partnership or other business entity controlling, controlled by or
under common control with the Company.
6.9 Applicable Law. This Agreement shall be construed and applied in
accordance with the laws of the State of New York without regard to conflict of
law principles.
6.10 Captions and Headings. The captions and headings of the several
Articles and Sections herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and delivered by its duly authorized officer, and the Executive has
duly executed and delivered this Agreement, as of the date first written above.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Anthony P. Towell
--------------------------------------
Name: Anthony P. Towell
Title: Secretary
/s/ Michael O'Reilly
-------------------------------------------
Michael O'Reilly
8
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 29, 1999 between Windswept
Environmental Group, Inc., a Delaware corporation (the "Company"), and Michael
O'Reilly (the "Optionee").
WHEREAS, the Company and the Optionee have entered into an Employment
Agreement dated the date hereof (the "Employment Agreement"); and
WHEREAS, in connection with the execution and delivery of the Employment
Agreement, the Company and the Optionee have agreed to the award of an option to
purchase shares of common stock of the Company, par value $0.0001 per share (the
"Common Stock") on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements hereinafter set forth, the Company and the Optionee agree as
follows:
1. Grant of Option
The Company hereby grants to the Optionee the right and option (the
"Option") to purchase from the Company, on the terms and conditions set forth
herein, an aggregate of 2,674,714 shares of Common Stock (the "Option Shares").
The Option shall vest and become exercisable in accordance with paragraph 3
below and shall terminate on October 1, 2009 if not sooner exercised.
2. Option Price
The price at which the Option Shares may be purchased upon exercise of the
Option shall be $0.07904 per share ("Option Price"), subject to adjustment as
provided in Section 5 hereof.
3. Vesting
The Option shall vest and become exercisable in three equal installments on
the first, second and third anniversaries of the date hereof; provided however,
that the Option shall immediately vest and be fully exercisable in the event
that the Optionee's employment with the Company is terminated under the
Employment Agreement by the Company other than for Cause (as that term is
defined in the Employment Agreement) or the Optionee terminates his employment
by Resignation for Good Reason (as that term is defined in the Employment
Agreement).
4. Method of Exercising Option
(a) The Option may be exercised only upon receipt of written notice of
exercise by the Secretary of the Company (the "Secretary") specifying that the
Option is being exercised and the total number of Option Shares to be purchased.
Such notice shall be accompanied by payment in cash of the aggregate purchase
price for the number of Option Shares purchased, and such exercise shall be
effective on the date upon which the Secretary receives such written notice and
payment. The Company shall, within three (3) business days following receipt of
the purchase price for the number of Option Shares purchased, give instructions
to its transfer agent to issue certificates representing the Option Shares.
(b) The Option may be so exercised during the Optionee's lifetime only by
the Optionee and, in the event of the death of the Optionee, shall be
exercisable by his estate or personal representative within a period not to
exceed twelve (12) months following the death of the Optionee. The Option,
rights and privileges conferred by this Agreement shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
<PAGE>
otherwise), other than by laws of descent and distribution, and shall not be
subject to execution, attachment or similar process.
(c) No person shall have any rights or privileges of a shareholder of the
Company in respect of any of the Option Shares issuable upon exercise of the
Option unless and until certificates representing such Option Shares shall have
been issued and delivered.
(d) If requested by the Company and if the Option Shares have not been
registered under the Securities Act of 1933, as amended, the Optionee (or his
estate or personal representative in the event of the death of the Optionee)
shall provide a written representation that the Option Shares to be acquired
upon any exercise of the Option are for investment only and not for resale or
with a view to the distribution thereof. The Company shall register its sale of
the Option Shares pursuant to a Registration Statement on Form S-8 within ninety
(90) days following the date hereof and comply with all other requirements of
the federal securities laws to enable the Option Shares to be freely tradable
upon exercise of the Option by the Optionee.
5. Adjustment of Option Price
The Option Price in effect at any time with respect to this option and the
number and kind of securities issuable upon the conversion of this option shall
be subject to adjustment from time to time upon the happening of certain events,
as follows:
(a) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares by reclassification of Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the Option Price in
effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Optionee, upon conversion of all or part of
the principal amount of this Option after such date, shall be entitled to
receive the aggregate number and kind of shares of Common Stock which, if such
principal amount of this Option had been converted immediately prior to such
record date or effective date, the Optionee would have owned upon such
conversion and been entitled to receive upon such dividend, distribution,
subdivision, combination or reclassification.
(b) In case the Company shall hereafter issue rights or warrants to holders
of its Common Stock entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares of Common
Stock (or securities convertible into Common Stock) at a price per share (or
having a conversion price per share) less than the Fair Market Value (as defined
in subparagraph (l) below) on the record date with respect to such issuance, the
Option Price shall be adjusted so that the same shall equal the price determined
by multiplying the Option Price by a fraction, of which the numerator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at the
Fair Market Value on such record date, and of which the denominator shall be the
number of shares of Common Stock outstanding on the record date plus the number
of additional shares of Common Stock offered for subscription or purchase (or
into which the convertible securities so offered are then convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately prior to the date of such
issuance; and to the extent that shares of Common Stock are not delivered (or
securities convertible into Common Stock are not delivered) after the expiration
of such rights or warrants, the Option Price shall be readjusted to the Option
Price which would then be in effect had the adjustments made upon the issuance
of such rights or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
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(c) In case the Company shall hereafter distribute to all holders of its
Common Stock shares of stock other than Common Stock or evidences of its
indebtedness or assets (excluding cash dividends or distributions out of
retained earnings and dividends or distributions referred to in subparagraph (a)
above) or rights or warrants, then in each such case the Option Price thereafter
shall be determined by multiplying the Option Price in effect immediately prior
to the date of such distribution by a fraction, of which the numerator shall be
the total number of outstanding shares of Common Stock multiplied by the Option
Price in effect immediately prior to the date of such distribution, less the
then Fair Market Value of said shares of stock, assets or evidences of
indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of outstanding shares of Common Stock
multiplied by the Option Price in effect immediately prior to the date of such
distribution. Such adjustments shall be made whenever any such distribution is
made and shall become effective immediately prior to the date of such
distribution.
(d) In case the Company shall hereafter issue shares of its Common Stock
(excluding shares issued (A) in any of the transactions described in
subparagraph (a) above, (B) upon conversion or exchange of securities
convertible into or exchangeable for Common Stock, or upon conversion of rights
or warrants issued to the holders of Common Stock in existence on the date of
this Option, or for which an adjustment has already been made pursuant to
subparagraph (b) above or (C) by grant to or upon exercise of options granted or
to be granted to employees or directors pursuant to any employee benefit plan or
program of the Company or any of its subsidiaries in existence on the date of
this Option or subsequently approved by the Company's stockholders) for a
consideration per share of Common Stock less than the Fair Market Value on the
date the Company fixes or has fixed the offering, conversion, exchange or
exercise price of such additional shares, the Option Price shall be adjusted so
that it shall equal the price determined by multiplying the Option Price for
such series in effect immediately prior thereto by a fraction, of which the
numerator shall be the total number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares plus the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in subparagraph (f) below) for the issuance of such additional shares
would purchase at Fair Market Value on the date the Company fixes or has fixed
the offering, conversion, exchange or exercise price of such additional shares,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made and
shall become effective immediately prior to the date of such issuance.
(e) In case the Company shall hereafter issue any securities convertible
into or exchangeable for its Common Stock (excluding securities issued in
transactions described in subparagraphs (b) and (c) above) for a consideration
per share of Common Stock initially deliverable upon conversion or exchange of
such securities (determined as provided in subparagraph (f) below) less than the
Fair Market Value on the issuance date of such securities, the Option Price
shall be adjusted so that it shall equal the price determined by multiplying the
Option Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock which the aggregate consideration received (determined as provided
in subparagraph (f) below) for such securities would purchase at Fair Market
Value prior to any adjustment pursuant hereto, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the maximum number of shares of Common Stock of the Company
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made successively
whenever such an issuance is made and shall become effective immediately prior
to date of issuance of such securities.
(f) For purposes of any computation respecting consideration received
pursuant to subparagraphs (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in
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connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination (absent manifest error)
shall be conclusive and described in a certified Board resolution; and
(iii) in the case of the issuance of securities convertible into
or exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the conversion or
exchange thereof (the consideration in each case to be determined in the
same manner as provided in clauses (i) and (ii) of this subparagraph (f)).
(g) In case the Company is a participant in a consolidation, merger or
combination with another corporation (other than with a wholly-owned subsidiary
of the Company and other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the Common Stock) or
in case of any sale or transfer of all or substantially all of the assets of the
Company, as a result of which holders of the Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or any share exchange whereby
Common Stock is converted into other securities or property of the Company, then
as a condition to the consummation of such transaction, lawful and adequate
provision shall be made so that the Optionee shall have the right, with respect
to the principal amount of this Option, to receive stock, other securities or
property or assets (including cash) or any combination thereof, having a value
equal to the value of the stock, other securities, property and assets
(including cash) which the Optionee would have been entitled to receive upon
such consolidation, merger, combination, sale or transfer, or exchange, if the
Optionee had held the Common Stock issuable upon the conversion of this Option
immediately prior to such consolidation, merger, combination, sale or transfer,
or exchange.
(h) No adjustment in the Option Price shall be required unless such
adjustment would require an increase or decrease of at least one-thousandth of
one cent ($0.00001) in such price; provided, however, that any adjustments not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 5 shall be made to
the nearest one-thousandth of a cent or to the nearest one-thousandth of a
share, as the case may be.
(i) Anything in this Section 5 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the Option
Price, in addition to those required by this Section 5, as it in its discretion
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of shares
of Common Stock, issuance of rights or warrants to purchase Common Stock or
distribution of shares of stock other than Common Stock, evidences of
indebtedness or assets (other than distributions in cash out of retained
earnings) referred to hereinabove in this Section 5, hereafter made by the
Company to the Optionee shall not be taxable to the Optionee.
(j) Whenever the Option Price is adjusted, as herein provided, the Company
shall promptly cause a notice setting forth the adjusted Option Price and
adjusted number of shares issuable upon conversion of each dollar of principal
of this Option to be mailed to the Optionee. The certificate setting forth the
computation shall be signed by the chief financial officer or other appropriate
officer of the Company.
(k) In the event that at any time, as a result of any adjustment made
pursuant to this Section 5, the Optionee thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, the number of such
other shares so receivable upon conversion of any dollar of principal of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (a) to (g) of this Section 5 inclusive, above.
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(l) For the purposes of this Section 5, the term "Fair Market Value" shall
mean the fair market value as reasonably established in good faith by the Board
of Directors of the Company, whose determination shall be described in a
certified Board resolution.
6. General
(a) The Company will have the right to withhold from any exercise of the
Option, transfer of Common Stock or payment made to the Optionee or to any
person hereunder, whether such payment is to be made in cash or in Common Stock,
all applicable federal, state, city or other taxes as shall be required, in the
determination of the Company, pursuant to any statute or governmental regulation
or ruling. In connection with such withholding, the Company reserves the right,
where necessary, to deliver to the person entitled to receive Common Stock only
the number of whole shares remaining after the withholding has been
accomplished, or it may make such other arrangements with the person entitled to
receive such payment as it may deem appropriate.
(b) The Company shall not be required to issue or deliver any certificates
for Option Shares purchased upon exercise of the Option unless counsel for the
Company shall advise that such issuance shall not violate any applicable
securities laws or regulations. The Optionee acknowledges that Common Stock
issuable upon exercise of the Option is subject to applicable United States
securities laws with respect to the resale thereof. Unless the resale of the
Option Shares has been registered pursuant to a Registration Statement on Form
S-8, certificates representing the Option Shares shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE, PLEDGE,
ENCUMBRANCE OR OTHER DISPOSITION OF SUCH SECURITIES MAY BE MADE
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES
HAS BECOME EFFECTIVE UNDER THE ACT OR WINDSWEPT ENVIRONMENTAL
GROUP, INC. (THE "COMPANY") IS FURNISHED WITH AN OPINION OF
APPROVED COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) Notwithstanding any other provision of this Agreement, in no event
shall the Option be exercisable in whole or in part after the expiration of the
term of the Option.
(d) Nothing in this Agreement shall be deemed to limit, in any way, the
right of the Company to terminate the Optionee's employment with the Company.
(e) Any notice, consent or other communication under this Agreement shall
be in writing and shall be delivered personally or mailed by registered or
certified mail, postage prepaid. Any such notice shall be deemed given and
effective when so delivered personally or, if mailed, when actually received or
presented for delivery to the following addressee during normal business hours
if such presentation shall be refused for any reason, at the following addresses
(or at such other address as a party may specify by notice in accordance with
the provisions hereof to the other):
If to the Optionee, at:
Michael O'Reilly
35 Tuthill Pt. Road
East Moriches, New York 11940
5
<PAGE>
If to the Company, at:
Windswept Environmental Group, Inc.
100 Sweeneydale Ave.
Bay Shore, New York 11706
(f) This Agreement may be executed in counterparts, each of which shall
constitute one and the same instrument.
(g) The section headings herein are for convenience only and shall not
affect the construction hereof.
(h) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Anthony Towell
----------------------------------
Name: Anthony Towell
Title: Secretary
ACCEPTED BY:
/s/ Michael O'Reilly
- -----------------------------
Michael O'Reilly
6
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 29, 1999 between Windswept
Environmental Group, Inc., a Delaware corporation (the "Company"), and Michael
O'Reilly (the "Optionee").
WHEREAS, pursuant to a Subscription Agreement dated the date hereof, (the
"Subscription Agreement"), Spotless Plastics (USA) Inc., a Delaware corporation
("Spotless"), has purchased 22,284,683 shares of common stock of the Company,
par value $0.0001 per share (the "Common Stock"), and 9,346 shares of Series B
Preferred Stock of the Company, par value $.01 per share (the "Series B
Preferred Stock");
WHEREAS, in connection with the execution and delivery of the Subscription
Agreement, Spotless has advanced to the Company the sum of $2,000,000 pursuant
to the terms of a Convertible Note (the "Convertible Note"), which is
convertible into 25,304,352 shares of Common Stock or, subject to the terms and
conditions thereof, 25,305 shares of Series B Preferred Stock;
WHEREAS, in connection with the execution and delivery of the Subscription
Agreement, the Company and the Optionee have entered into an Employment
Agreement dated the date hereof (the "Employment Agreement") and a Stock Option
Agreement, pursuant to which the Optionee has been granted options to purchase
2,674,714 shares of Common Stock; and
WHEREAS, in connection with the execution and delivery of the Employment
Agreement, the Company and the Optionee have agreed to the award of an option to
purchase shares of Common Stock on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements hereinafter set forth, the Company and the Optionee agree as
follows:
1. Grant of Option
The Company hereby grants to the Optionee the right and option (the
"Option") to purchase from the Company, on the terms and conditions set forth
herein, 2,811,595 shares of Common Stock (the "Option Shares"). The Option shall
vest and become exercisable in accordance with paragraph 3 below and shall
terminate on October 1, 2009 if not sooner exercised.
2. Option Price
The price at which the Option Shares may be purchased upon exercise of the
Option shall be $0.07904 ("Option Price").
3. Vesting
The Option shall vest on the seventh anniversary of the date hereof;
provided, however, that the Option shall vest and be exercisable if and to the
extent that the Convertible Note has been converted into either shares of Common
Stock or Series B Preferred or exchanged for shares of capital stock of the
Company or any other entity. In the event that the Convertible Note is converted
in part, the Option shall be vested and exercisable only in proportion to the
amount of the Convertible Note so converted.
4. Method of Exercising Option
a. The Option may be exercised only upon receipt of written
notice of exercise by the Secretary of
<PAGE>
the Company (the "Secretary") specifying that the Option is being
exercised and the total number of Option Shares to be purchased. Such
notice shall be accompanied by payment in cash of the relevant portion
of the Option Price for the number of Option Shares purchased, and
such exercise shall be effective on the date upon which the Secretary
receives such written notice and payment. The Company shall, within
three (3) business days following receipt of the purchase price for
the number of Option Shares purchased, give instructions to its
transfer agent to issue certificates representing the Option Shares.
b. The Option may be so exercised during the Optionee's lifetime
only by the Optionee, in the event of the death of the Optionee, the
Option shall be exercisable by his estate or personal representative
within a period not to exceed twelve (12) months following the death
of the Optionee. The Option, rights and privileges conferred by this
Agreement shall not be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise), other than by
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process.
c. No person shall not have any rights or privileges of a
shareholder of the Company in respect of any of the Option Shares
issuable upon exercise of the Option unless and until certificates
representing such Option Shares shall have been issued and delivered.
d. If requested by the Company and if the Option Shares have not
been registered under the Securities Act of 1933, as amended, the
Optionee (or his beneficiary or estate in the death of the Optionee)
shall provide a written representation that the Option Shares to be
acquired upon any exercise of the Option are for investment only and
not for resale or with a view to the distribution thereof. The Company
shall register its sale of the Option Shares pursuant to a
Registration Statement on Form S-8 within ninety (90) days following
the date hereof and comply with all other requirements of the federal
securities laws to enable the Option Shares to be freely tradable upon
exercise of the Option by the Optionee.
5. General
a. The Company will have the right to withhold from any exercise
of the Option, transfer of Common Stock or payment made to the
Optionee or to any person hereunder, whether such payment is to be
made in cash or in Common Stock, all applicable federal, state, city
or other taxes as shall be required, in the determination of the
Company, pursuant to any statute or governmental regulation or ruling.
In connection with such withholding, the Company reserves the right,
where necessary, to deliver to the person entitled to receive Common
Stock only the number of whole shares remaining after the withholding
has been accomplished, or it may make such other arrangements with the
person entitled to receive such payment as it may deem appropriate.
b. The Company shall not be required to issue or deliver any
certificates for Option Shares purchased upon exercise of the Option
unless counsel for the Company shall advise that such issuance shall
not violate any applicable securities laws or regulations. The
Optionee acknowledges that Common Stock issuable upon exercise of the
Option is subject to applicable United States securities laws with
respect to the resale thereof. Unless the resale of the Option Shares
has been registered pursuant to a Registration Statement on Form S-8,
certificates representing the Option Shares shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE, PLEDGE,
ENCUMBRANCE OR OTHER DISPOSITION OF SUCH SECURITIES MAY BE MADE
2
<PAGE>
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES HAS
BECOME EFFECTIVE UNDER THE ACT OR WINDSWEPT ENVIRONMENTAL GROUP, INC.
(THE "COMPANY") IS FURNISHED WITH AN OPINION OF APPROVED COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Notwithstanding any other provision of this Agreement, in no
event shall the Option be exercisable in whole or in part after (i)
the expiration of the term of the Option, (ii) the termination by the
Company of the employment of the Optionee for Cause (as that term is
defined in the Employment Agreement) or (iii) the termination by the
Optionee of his employment for any reason other than by Resignation
for Good Reason.
d. Nothing in this Agreement shall be deemed to limit, in any
way, the right of the Company to terminate the Optionee's employment
with the Company.
e. Any notice, consent or other communication under this
Agreement shall be in writing and shall be delivered personally or
mailed by registered or certified mail, postage prepaid. Any such
notice shall be deemed given and effective when so delivered
personally or, if mailed, when actually received or presented for
delivery to the following addressee during normal business hours if
such presentation shall be refused for any reason, at the following
addresses (or at such other address as a party may specify by notice
in accordance with the provisions hereof to the other):
If to the Optionee, at:
Michael O'Reilly
35 Tuthill Pt. Road
East Moriches, New York 11940
If to the Company, at:
Windswept Environmental Group, Inc.
100 Sweeneydale Ave.
Bay Shore, New York 11706
f. This Agreement may be executed in counterparts, each of which
shall constitute one and the same instrument.
g. The section headings herein are for convenience only and shall
not affect the construction hereof.
h. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/Anthony Towell
---------------------------------
Name: Anthony Towell
Title: Secretary
ACCEPTED BY:
/s/ Michael O'Reilly
- -------------------------
Michael O'Reilly
3
October 29, 1999
Mr. Michael O'Reilly
35 Tuthill Pt. Road
East Moriches, New York 11940
Dear Mr. O'Reilly:
We refer to the Employment Agreement dated the date hereof (the
"Agreement") between you and Windswept Environmental Group, Inc. (the
"Company"). As additional consideration for your entering into the Agreement,
Spotless Plastics (USA) Inc. ("Spotless") hereby agrees as follows:
1. Spotless shall give you written notice (the "Notice") in the event
that, at any time after the date hereof and during the Term of Employment (as
that term is defined in the Agreement), Spotless and its affiliates, by means of
additional purchases by Spotless or any of its affiliates of shares of common
stock, par value $.0001 per share, of the Company ("Common Stock") after the
date hereof (as opposed to the cancellation of shares, the repayment or
redemption of convertible securities or the expiration of warrants, options or
similar rights to purchase shares of Common Stock), become the beneficial owners
of more than seventy-five percent (75%) of the outstanding shares of Common
Stock on a Fully Diluted Basis (i.e., after giving effect to the exercise of all
options, warrants, or similar rights to acquire shares of Common Stock).
Spotless further agrees that, in the event that at the time of such purchases
the Common Stock is not listed for trading on the New York Stock Exchange or the
American Stock Exchange or included in the NASDAQ National Market or Small-Cap
Market or any other comparable trading market (but excluding the OTC Electronic
Bulletin Board and the National Quotation Bureau pink sheets) or the Common
Stock ceases to be so listed or included in any of the foregoing exchanges or
markets within the period of one hundred eighty (180) days following your
receipt of the Notice, you shall have the right, subject to the terms and
conditions hereof and for a period of one hundred eighty (180) days following
your receipt of the Notice, to require Spotless to purchase in a single
transaction (as opposed to a series of transactions) all shares of Common Stock
owned by you as of the date hereof or which are issuable to you under stock
options outstanding as of the date hereof and which are vested and fully
exercisable as of the date of the Notice (collectively, the "Shares"); provided,
however, that as a condition precedent to the obligation of Spotless to purchase
the Shares you shall surrender to the Company and forfeit, for no additional
consideration, the option to purchase 2,811,595 shares of Common Stock (the
"Conversion Date Options") granted to you pursuant to the Stock Option Agreement
dated the date hereof (the "Conversion Date Option Agreement"), unless the
Conversion Date Options shall have vested and shall be exercisable in accordance
with the terms of the Conversion Date Option Agreement as of the date of the
Notice. If you wish to exercise your right under this letter agreement, you
shall give the Company written notice (the "Purchase Notice") within one hundred
eighty (180) days following the date of your receipt of the Notice, which
Purchase Notice shall specify the number of Shares as to which you are
exercising your right. We hereby agree that, if we are not able to mutually
agree upon the purchase price payable for the Shares, the purchase price shall
be an amount equal to the product of the Appraised Value (as hereinafter
defined) multiplied by a fraction, the numerator of which shall be the number of
Shares as to which you are exercising your right under this letter agreement as
set forth in the Purchase Notice and the denominator of which shall be the
number of shares of Common Stock outstanding at the date of the Purchase Notice
on a fully diluted basis (i.e. assuming the exercise of all outstanding options
and warrants for the purchase of Common Stock and the conversion of all
securities convertible or exchangeable into shares of Common Stock). For the
purposes of this Agreement, the term "Appraised Value" shall mean the appraised
value of the Company as a going concerned determined by two investment banks,
appraisers or other financial advisors, one of which shall be selected by
<PAGE>
Mr. Michael O'Reilly
October 29, 1999
Page 2 of 2
Spotless and one of which shall be selected by you. Each party shall bear
the costs and expenses of the investment bank, appraiser or other financial
advisor selected by it. If the investment banks, appraisers or other financial
institutions selected by us cannot agree on the Appraised Value, the Appraised
Value shall be determined by a third investment bank, appraiser or other
financial advisor which shall be jointly selected within sixty (60) days after
the date of the Purchase Notice by the investment banks or other financial
institutions selected by us, and the costs and expenses of such third investment
bank, appraiser or other financial advisor shall be shared equally by us. The
closing with respect to any purchase of Shares under this letter agreement shall
occur not later than thirty (30) following our agreement as to the purchase
price payable for the Shares or the determination of the Appraised Value, as the
case may be. You may withdraw your Purchase Notice at any time prior to such
closing, provided that you pay all expenses incurred by Spotless, if any, in
connection with the determination of the Appraised Value and any other
out-of-pocket expenses incurred by Spotless, including, without limitation,
reasonable attorneys' fees.
2. Spotless hereby acknowledges that the Company has agreed, pursuant to
Section 2.2(d) of the Employment Agreement, to purchase the Shares on the terms
and conditions set forth therein, unless such purchase would cause any
impairment in the capital of the Company. Spotless hereby agrees that, to the
extent that such purchase would cause any impairment in the capital of the
Company, it will purchase the Shares on the same terms and conditions set forth
in Section 2.2(d) of the Employment Agreement, provided that the Company shall
still be obligated pay the costs and expenses related to the determination of
the Appraised Value as provided therein as if it were making such purchase.
3. Spotless, on behalf of itself and its affiliates, also agrees that,
during the Term of Employment, Spotless and its affiliates shall not make any
acquisition of substantially all the assets or a majority of the capital stock
of an entity which is principally engaged in the environmental remediation or
disaster remediation business, principally in the United States or its
territories, if the majority of the directors who are not affiliated with
Spotless (excluding any person who may become a director of the Company after
the date hereof as a result of the failure of the Company to pay dividends as
provided in the Certificate of Designations related to the Company's Series A
Preferred Stock, par value $.01 per share) shall have determined in good faith,
on behalf of the Company, that such acquisition would be in the best interests
of the Company. Spotless agrees that the foregoing covenant is made for the
benefit of the Company and yourself and that you, on behalf of the Company
and/or yourself, shall be entitled to seek specific enforcement and any other
remedy, including other equitable remedies, in the event of a breach of such
covenant.
Very truly yours,
SPOTLESS PLASTICS (USA) INC.
By: /s/ Charles L. Kelly, Jr.
-------------------------------------
Name: Charles L. Kelly, Jr.
Title: Vice President - Finance and Secretary
Accepted and Agreed:
/s/ Michael O'Reilly
- -----------------------------
Michael O'Reilly
