<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-17430
GLOBAL ENVIRONMENTAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-3431486
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
17500 York Road 21740
Hagerstown, Maryland (Zip Code)
(Address of principal executive offices)
(301) 582-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Common Stock July 31, 1996
------------ -------------
$.0001 par value 2,465,144 shares
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
INDEX
PAGE(s)
-------
PART I - CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - July 31, 1996 and
October 31, 1995. 3 -4
Consolidated Statements of Operations -
Three Months and Nine Months Ended July 31, 1996
and 1995 5
Consolidated Statements of Cash Flows -
Nine Months Ended July 31, 1996 and 1995 6-7
Notes to Consolidated Financial Statements 8-16
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-18
PART II - OTHER INFORMATION: 19-31
2
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
JULY 31, OCTOBER 31,
1996 1995
-------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 162,340 $ 335,979
Accounts receivable, less allowance for
doubtful accounts of $66,599 and $38,409
respectively 1,513,034 906,897
Inventories 991,497 790,903
Prepaid expenses and other 198,416 61,549
---------- ----------
Total current assets 2,865,287 2,095,328
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 25,797 25,797
Building and improvements 1,385,502 1,370,328
Equipment 2,426,217 2,383,102
---------- ----------
3,837,516 3,779,227
Less - accumulated depreciation and
amortization (2,150,891) (2,015,605)
---------- ----------
Total property, plant and equipment,
net 1,686,625 1,763,622
---------- ----------
OTHER ASSETS 38,790 32,208
---------- ----------
$4,590,702 $3,891,158
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
JULY 31, OCTOBER 31,
1996 1995
-------- -----------
CURRENT LIABILITIES
Current portion of long-term debt $1,578,669 $ 182,061
Accounts payable 1,634,007 1,044,159
Accrued salaries and wages 132,876 124,787
Accrued expenses, other 507,169 322,420
Discontinued operations, liabilities net of
assets 52,677
---------- ----------
Total current liabilities 3,852,721 1,726,104
---------- ----------
LONG-TERM DEBT, net of current portion 822,722 1,604,567
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share;
20,000,000 shares authorized; 2,465,144
shares issued 247 247
Preferred stock, $.001 par value;
5,000,000 shares authorized; Class of 10%
Cumulative Convertible Senior Preferred
Stock, 10,500 shares authorized, 7,550
shares issued and outstanding in 1996 and
1995 (total of $662,150); Series B
Cumulative Convertible Senior Preferred
Stock, 16,000 shares authorized, issued and
outstanding 1996 and 1995( total of
$1,511,319); 2,173,469 2,173,469
Additional paid-in capital 1,877,784 1,877,784
Deficit (4,043,181) (3,491,013)
Less: Treasury stock, 612,579 shares, at cost ( 93,060) -
---------- ----------
Total stockholders' equity ( 84,741) 560,487
---------- ----------
$4,590,702 $3,891,158
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JULY 30, JULY 30,
-------- --------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $2,307,276 $2,117,945 $6,006,940 $5,714,119
COST OF GOODS SOLD 1,863,549 1,747,144 5,061,362 4,920,952
---------- ---------- ---------- ----------
GROSS PROFIT 443,727 370,801 945,578 793,167
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 369,524 288,705 909,814 679,649
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 74,203 82,096 35,764 113,518
---------- ---------- ---------- ----------
INTEREST EXPENSE, NET (58,915) (66,201) (165,646) (232,812)
OTHER INCOME 14,704 10,496
OTHER EXPENSE (6,631) (42,834)
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 29,992 26,391 (136,513) (162,128)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 20,595 72,811 (238,915) 14,324
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 50,587 $ 99,202 ($ 375,428) ($ 147,804)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER COMMON SHARE DATA:
CONTINUING OPERATIONS ($ .01) ($ .01) ($ .12) ($ .13)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS $ .01 $ .03 ($ .10) $ .01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ .00 $ .02 ($ .22) ($ .12)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,465,144 2,369,565 2,465,144 2,369,565
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) ($375,428) ($147,804)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 135,286 108,760
Write-off of deferred financing fees - 86,569
Net (increase) decrease in non-cash current assets:
Accounts receivable (606,137) (81,461)
Inventories (200,594) (52,407)
Prepaid expenses and other (125,686) (69,897)
Net increase (decrease) in non-debt current liabilities:
Accounts payable 589,848 38,865
Accrued salaries and wages 8,089 (59,588)
Accrued expenses, other (3,172) (253,867))
(Increase) decrease in other assets, net (6,582) 135,607
Discontinue operations, liabilities net of assets (52,677) (75,400)
--------- ---------
Net cash provided by (used in) operating activities (637,053) (370,623)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (58,289) (67,344)
--------- ---------
Net cash used in investing activities (58,289) (67,344)
--------- ---------
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving loan agreement 751,563 343,224
Payments of long-term debt (136,800) (185,655)
Increase in treasury stock (93,060)
Payment of dividends on preferred stock 0 (11,085)
--------- ---------
Net cash provided by (used in) financing activities 521,703 146,484
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (173,639) (291,483)
CASH AND CASH EQUIVALENTS BEGINNING 335,979 348,599
--------- ---------
CASH AND CASH EQUIVALENTS ENDING $162,340 $ 57,116
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31,
--------------------------
1996 1995
-------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for -
Interest $165,646 $ 232,823
-------- ----------
-------- ----------
Income taxes $ - $ -
-------- ----------
-------- ----------
NONCASH FINANCING ACTIVITIES:
Conversion of Renaissance debt to
preferred stock (Note 7) $ - $1,600,000
-------- ----------
-------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Global Environmental Corp. (formerly Affiliated National, Inc.) was incorporated
on October 6, 1987. Effective August 1, 1988, Global Environmental Corp.
acquired all of the issued and outstanding common shares of Global Environmental
Holdings, Inc. (Global).
Danzer Industries, Inc. (Danzer), a wholly-owned subsidiary of Global, is
principally engaged in the design, manufacture and installation of fabricated
metal products. Products produced are normally based upon specifications
received from customers. Danzer's revenues represents the Company's total
revenues and are generated throughout the United States. Rage, Inc. ("Rage"), a
wholly-owned subsidiary of Global, is engaged in the business of engineering,
and supplying pneumatic material handling systems. Effective June 10, 1996 Rage
Inc. was sold to William V. Rice. Balance sheet and operating results are
reflected as discontinued operations.
Effective June 20, 1989, Affiliated National, Inc. changed its name to Global
Environmental Corp. Effective November 22, 1995 Danzer Metal Works Company
changed its name to Danzer Industries, Inc.
The accompanying consolidated financial statements present the accounts of
Global Environmental Corp. and its wholly-owned subsidiary. The entities are
collectively referred to herein as the "Company". All significant intercompany
transactions and balances have been eliminated in consolidation.
The Company uses the equity method of accounting for a 49% owned interest in a
joint venture. The original investment is recorded at cost, adjusted for the
Company's share of undistributed earnings or losses. The operations of the
joint venture are presently immaterial.
Summary of Significant Accounting Policies
REVENUE RECOGNITION
Revenues from the manufacture of sheet metal products and fabrications are
generally recognized when products are shipped to the customer.
DISCONTINUED OPERATIONS
Effective June 10, 1996 Rage was sold to William V. Rice. Assets, liabilities
and operational results relating to the sale have been presented as discontinued
operations. Revenue for the six month period was $1,118,583. Assets include
accounts receivable of $370,974; inventory of $134,479; fixed assets, net of
accumulated depreciation of $521,181. In exchange for the stock of Rage, the
Company has received 517,000 shares of Global Common stock, cancellation of both
the employment and options contracts.
8
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summary of Significant Accounting Policies (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
are comprised of the following components:
JULY 31, OCTOBER 31,
1996 1995
-------- -----------
Raw materials and supplies $529,744 $443,965
Work-in-process 426,844 161,960
Finished goods 34,909 184,978
-------- --------
$991,497 $790,903
-------- --------
-------- --------
Work-in-process and finished goods include purchased materials, direct labor and
allocated overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment placed in service are depreciated on the straight-
line method over the following estimated useful lives:
Building and improvements 10 to 30 years
Equipment 5 to 20 years
CASH EQUIVALENTS
Cash equivalents consist of all highly liquid investments purchased with an
original maturity of three months or less.
INCOME TAXES
The Company files a consolidated income tax return for Federal tax purposes.
Global Environmental Corp., Global and each of Global's subsidiaries file
separate state income tax returns. The Company adopted Statement of Financial
Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES," effective
November 1, 1993.
9
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a bank which, at various times during the
year, exceeded the Federal Deposit Insurance Corporation limit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, FASB issued Statement No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" ("Statement").
The Statement established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset. The Company has
not determined the effect, if any, that this Statement will have on its
financial position or results of operations.
In October 1995, FASB issued SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION," ("Statement") which provides an alternative method of accounting
for stock-based compensation arrangements, based on fair value of the stock-
based compensation utilizing various assumptions regarding the underlying
attributes of the options and the Company's stock, rather than the existing
method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" (APB No. 25). FASB encourages entities to adopt the fair value-based
method but does not require adoption of this method. The Company anticipates
that it will continue its current accounting policy; however, if adopted, SFAS
No. 123 is not expected to have a material impact on its financial position or
its results of operations.
Both of the above standards would be effective for the Company's fiscal year
beginning November 1, 1996.
10
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 2. OTHER ASSETS
In connection with the acquisition of Rage, certain other assets were purchased
and valued as follows:
FAVORABLE LEASE TERMS
A lease agreement was entered into as of the date of the closing with the
previous sole stockholder of Rage for the office, manufacturing and warehouse
facilities. The Company determined that payments under this lease were $175,000
less in the aggregate than those for similar terms for similar space in the
area. This amount was capitalized and amortized over five years, the term of the
lease. The lease agreement expired December 31, 1993.
COVENANT NOT-TO-COMPETE
A covenant not-to-compete was entered into with the previous shareholder of
Rage. This amount, valued at $200,000, was capitalized and amortized on a
straight-line basis over five years, the term of the agreement. The agreement
expired December 31, 1993.
GOODWILL
The purchase price in excess of the fair value of the net assets of Rage
acquired was $105,446. This amount is being amortized over 20 years.
NOTE 3. NOTE PAYABLE
Effective May 28, 1993, Danzer entered into a loan and security agreement (the
"Agreement") with Fremont Financial Corporation comprised of a revolving credit
facility (the "Facility") and an equipment term loan (the "Term Loan"). The
amount available under the Facility is based on a defined percentage of eligible
accounts receivable and inventory. The Company had drawn $1,461,000 at July 31,
1996 which represented 97% of the amount available under the Agreement at that
date. The maximum amounts available under the Facility and the term loan are
$1,150,000 and $350,000, respectively. Borrowings under the Agreement accrue
interest at prime plus 4.5% (13.25% at July 31, 1996). The Agreement was amended
most recently on June 23, 1995, extending the term of the Agreement to January
31, 1997. An extension to January 31, 1998 has been offered by Fremont.
Management has not accepted this offer.
11
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 3. NOTE PAYABLE (CONTINUED
Under the terms of the Agreement, borrowings are collateralized by real estate
and Danzer's accounts receivable, inventory and equipment. Borrowings are also
guaranteed personally by the former President of the Company, limited to a
defined amount. The Agreement provides for certain restrictions including, but
not limited to, that the Company shall not without prior consent of the lender:
a) sell, lease, transfer, exchange or otherwise dispose of any assets except in
the ordinary course of business; b) enter into any merger, consolidation, or
acquisition of any other business organization; c)guaranty or otherwise become
in any way liable with respect to the obligations of any third party; or d)
change its owner ship by greater than 10%. The Agreement also restricts:
payment of compensation and loans and advances to executives, officers,
directors and certain others; capital expenditures to a specified level; and
distributions to Danzer's Parent. For the period ended July 31, 1996 and the
year ended October 31, 1995, the Company was in compliance with these covenants.
Fremont consented to the sale of Rage occurring June 10, 1996.
NOTE 4. LONG-TERM DEBT
On April 25, 1991, the Company issued to Renaissance Capital Partners, Ltd.
("Renaissance") an unsecured 12 1/2% convertible debenture (the "1991
Debenture"), convertible into common stock, with a face value of $1,250,000.
On December 30, 1992, Global entered into a second unsecured 12 1/2% convertible
debenture (the "1992 Debenture") with Renaissance for $350,000.
Effective December 31, 1994, Renaissance exchanged the $1,600,000 aggregate
amount of 1991 and 1992 debentures for an aggregate of 16,000 shares of the
Company's Series B Cumulative Convertible Senior Preferred Stock. In addition,
Renaissance agreed to exchange the accrued but unpaid interest on the Debentures
through September 30, 1994, totaling $211,635 for a 10% Term Note (the "Term
Note") originally due December 31, 1997. (Notes 6 and 7).
As a result of the conversion of the Renaissance Debentures effective
December 31, 1994, the Company no longer has an obligation to meet the minimum
financial standards and ratios under the terms of the Debentures. In addition,
the 10% Term Note contains no covenant default provisions and a default occurs
only for failure to pay principal or interest when due.
As of October 31, 1995 and April 30, 1996, the Company had not paid interest in
the approximate amount of $16,500 on the Term Note due to Renaissance and is
therefore in default of the Term Note Agreement. As of October 31, 1995 and
April 30, 1996, the lender had waived its right to demand payment of the
principal amount of the Term Note of $211,635 until December 31, 1997. The
lender has not waived the payment of any past due or future quarterly interest
payments.
In connection with the conversion, the Company wrote-off approximately $87,000
of related deferred financing costs in December 1994.
12
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 5. LONG-TERM DEBT
Maturities on long-term debt as of October 31, 1995 are as follows:
1996 $ 195,061
1997 1,727,930
1998 136,491
1999 82,012
----------
$2,141,494
----------
----------
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS
The Company has experienced difficulty executing a portion of its backlog due to
its shortage of working capital. The Company was required to supply a
performance bond for approximately $167,000 related to the completion of a
certain contract which occurred in the second quarter of its fiscal year ending
October 31, 1994. The requirement is for a term of 24 months which expired
March 1, 1996. The Company satisfied the requirements of the performance bond
by executing a letter of credit, which letter of credit is collateralized by a
certificate of deposit (restricted cash) of $167,894.
In addition, the Company's Danzer subsidiary is limited by Fremont Financial
Corporation to making distributions of no more than 75% of its net cash flow (as
defined) to the Company's parent. providing that Danzer maintains a minimum net
worth, which net worth was not maintained at October 31, 1995 and July 31, 1996.
The backlog at the Company's Danzer subsidiary has been growing. However, the
backlog at the Company's Rage subsidiary as of April 30, 1996 has decreased from
its average level over the last few years which has. adversely affect the
Company's results of operations in fiscal 1996. Effective June 10, 1996 Rage
Inc. was sold to William V. Rice.
During the fourth quarter of fiscal 1993, the Company acquired the rights,
through a royalty agreement, to manufacture and sell a product line consisting
of utility truck bodies (Morrison) which is similar to a product currently
manufactured by the Company. The Company has begun production of the line and
has in place a sales force and distributor network to market the product. A
portion of the sales of this product, generally approximating 5%, will be paid
as a royalty to the seller of this product line to the Company. The Company
anticipates increased Morrison sales in fiscal 1996, which should increase
coverage of the Company's fixed manufacturing overhead
13
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS (CONTINUED)
During the first quarter of fiscal 1994, the Company entered into a joint
venture agreement (the "Agreement") with Cadema Corporation ("Cadema"). The
joint venture has been capitalized by Cadema with $350,000 in cash and by Global
with $1,000 in cash. The joint venture's principal objective is to provide the
partners with current income by contracting for the design and installation of
air pollution control equipment in its name in all areas of the world outside
the United States and its territories. The term of the Agreement expires
December 31, 1998, unless otherwise extended. Income or loss from the joint
venture will be allocated 51% to Cadema and 49% to the Company. The Agreement
allows Global, subject to certain conditions, to acquire Cadema's interest in
the joint venture for 875,000 shares of Global common stock or $350,000 in cash
or an amount equal to Cadema's capital account, whichever is greater, subject to
certain antidilution provisions. The Agreement also allows for quarterly
distributions of income and capital to the joint venture partners. The Company
had borrowed approximately $364,000 from the joint venture as of October 31,
1995 and July 31, 1996.
In September 1994, the Company completed a 10% Cumulative Convertible Senior
Preferred Stock offering whereby 7,550 shares were issued. The Company realized
$662,150 of net proceeds, after placement fees and expenses of approximately
$93,000. The funds were used to expand the Company's new Morrison product line
and provide working capital for overall business activity.
Effective December 31, 1994, Renaissance exchanged the $1,600,000 aggregate
amount of 1991 and 1992 convertible debentures for an aggregate of 16,000 shares
of the Company's Series B Cumulative Convertible Senior Preferred Stock (Notes 4
and 6).
As of October 31, 1995 and July 31, 1996, the Company was in compliance with
the loan covenants with Fremont Financial Corporation and had received waivers
of such noncompliance from the lender concerning the year ended October 31,
1994. In addition, the terms of the Loan and Security Agreement with Fremont
were modified in 1995 and extend payment of principal until January 1997.
As of October 31, 1995 and July 31, 1996, the Company was in default under the
Term Note due to Renaissance. The lender has waived its right to demand payment
of the principal amount of the Term Note of $211,635 until December 31, 1997.
The lender has not waived any interest payments.
In addition, the terms of the mortgage debt of $354,866 on the Company's
premises (which debt was in default as a result of nonpayment by the Company on
its original due date of April 1, 1995) were modified in January 1996 and the
maturity date extended until April 30, 1997. Such mortgage was assumed by Rage
under the sale agreement closing June 10, 1996.
In early February 1996, the Company's revolving loan payable to Fremont
Financial Corporation was increased by verbal agreement for $200,000. The
increase enables the Company to borrow $200,000 in excess of their allowed
borrowings under the revolving loan agreement (Notes 3) and provides additional
working capital for overall business activity.
14
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS (CONTINUED)
In light of the Company's backlog at July 31, 1996, its projected cash flow from
operations and the market for capital equipment, it is anticipated that the
Company will be dependent on increased sales, higher profit margins and/or
further infusions of capital in order to sustain its operations. The Company
recognizes that the proceeds received from various equity offerings may not be
sufficient to fund its current backlog and provide sufficient working capital
for fiscal 1996. The Company's ability to meet certain interest and principal
payments, as well as its working capital needs to execute its backlog and
generate sales volume during fiscal 1996, will be dependent upon the success of
the Company's efforts to increase sales volume, as well as the profitability of
new business. If it becomes likely that the Company is unable to meet its
scheduled interest and principal payments on its debt securities, the Company
may need to examine the restructuring of these instruments or the sale of
certain assets to satisfy all or a portion of these outstanding liabilities.
If such efforts to increase the level of business and profitability and/or
obtain an infusion of capital are unsuccessful, the Company may need to consider
additional steps to reduce costs, generate working capital and improve operating
efficiencies to sustain its operations. Such steps may involve the sale of
certain assets, the consolidation of operating activities, the sale or
discontinuance of a line of business, reductions in staff or other measures, the
effect of which is the reduction of expenses, conservation of cash, and/or
generation of working capital. The Company is also currently attempting to
limit cash outlays, aggressively collect accounts receivable and channel all
available resources into its sales function in order to continue all operations
on the basis that it can further increase its backlog and sales revenue. The
Company believes that the long-term prospects for the industries in which the
Company operates are positive and therefore, offer Global opportunity for
revenue growth.
NOTE 7. STOCKHOLDERS' EQUITY
On May 7, 1990, the Company's stockholders approved a stock option plan to issue
both "qualified" and "non-qualified" stock options. Under the Plan, 800,000
options to purchase shares of the Company's common stock may be issued at the
discretion of the Company's Board of Directors. The option price per share will
be determined by the Company's Board of Directors, but in no case will the price
be less than 85% of the fair value of the common stock on the date of grant.
Options under the Plan will have a term of not more than ten years with
accelerated termination upon the occurrence of certain events. As of October 31,
1995 there were 375,000 options outstanding. Exercise prices ranged from $.30 to
$.48 per share with 200,000 options, 150,000 options and 25,000 options
exercisable at $.30, $.35, and $.48 per share, respectively. No options have
been exercised as of October 31, 1995 or July 31, 1996. During the year ended
October 31, 1995, 350,000 options were granted and 280,000 options were
terminated. In connection with a legal settlement during 1994, the Company
issued 30,770 shares of common stock, par value $.0001 per share, and warrants
to purchase 75,000 shares of common stock through February 9, 1997 at $1.00 per
share, subject to adjustment as defined. Lori Beer was granted warrants to
purchase 200,000 shares at $.50 as part of his severance plan.
15
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1996
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with a consulting agreement effective November 2, 1994, the
Company issued warrants to purchase 100,000 shares of common stock through
November 1, 1999 at $.50 per share, subject to adjustment as defined.
During 1994, Global Environmental Corp. completed a private placement offering
by selling 7,550 shares of its 10,500 authorized shares of 10% Cumulative
Convertible Senior Preferred Stock (the "10% Senior Preferred Stock") at a
stated value of $100 per share. The Company raised $662,150, net of placement
fees of $92,850 as a result of the offering. Commencing September 30, 1994,
dividends are cumulative, payable quarterly in arrears at an annual rate of $10
per share. Total dividends declared during 1994 were $75,500, of which $28,794
were unpaid as of October 31, 1995. The 10% Senior Preferred Stock is voting and
convertible into the Company's Common Stock, $.0001 par value, at $.50 per share
subject to anti-dilution adjustment and is equivalent to approximately 1,510,000
common shares at October 31, 1995. The Senior Preferred Stock is subject to
redemption, at a price of $100 per share plus accrued but unpaid dividends, at
the option of the Company provided certain conditions are met. Effective April
30, 1995, the Company registered the shares of common stock issuable upon
conversion of the Senior Preferred Stock under the Securities Act of 1933.
Effective December 31, 1994, Renaissance exchanged the $1,600,000 aggregate
amount of 1991 and 1992 Debentures (the "Debentures") (Note 4) for an aggregate
of 16,000 shares of the Company's Series B Cumulative Convertible Senior
Preferred Stock (the "Series B Stock"), par value $.001 per share, stated value
$100 per share. The Company raised $1,511,319 net of legal and other costs of
$88,681 incurred in connection with the offering. Commencing December 31, 1994,
dividends are cumulative, payable quarterly in arrears at an annual rate of $10
per share. Total dividends declared during 1995 of $133,333 were payable as of
October 31, 1995. The Series B Stock is voting and convertible into common stock
at $.50 per share, subject to anti-dilution adjustment, and is equivalent to
approximately 3,200,000 common shares, $.0001 par value, at December 31, 1994.
The Series B stock is subject to redemption at a price of $100 per share plus
accrued but unpaid dividends at the option of the Company, provided certain
conditions are met.
The 10% Cumulative Convertible Preferred Stock and the Series B Stock require
the Company to comply with certain affirmative and negative covenants including,
but not limited to, the timely filing of financial statements. In addition, it
limits the Company's ability to issue new indebtedness, issue other classes of
preferred stock, pay dividends on the Company's common stock, purchase equity
securities, increase executive compensation, enter into liens and acquire new
businesses, among other items. The Company is also subject to registration
requirements under certain circumstances. As of October 31, 1995 and July 31,
1996, the Company did not pay certain preferred dividends and as such the
holders of the Series B Preferred Stock become entitled to vote as a separate
class on certain significant matters.
16
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Global is made up of two wholly-owned subsidiaries. Danzer Industries, Inc.
(Danzer) is principally engaged in the design, manufacture and installation of
fabricated metal products. Rage, Inc. ("Rage") is engaged in the business of
engineering, and supplying pneumatic material handling systems in the capital
goods market. Effective April 30, 1996 Rage Inc. was sold to William V. Rice.
Assets, liabilities and operational results relating to the sale have been
presented as discontinued operations. The sale of Rage Inc. closed on June
10,1996.
RESULTS OF OPERATIONS
Global's sales revenues, from continuing operations, in the third quarter of
fiscal 1996 were $2,307,276 compared to $2,117,945 for the same period last
year, an increase of 9%. Nine month revenue for the current period was
$6,006,940 compared to $5,714,119 of last year, an increase of 5%. This is due
to increased activity in both the truck body and air movement lines. Backlogs
are steady and this trend is expected to continuing into the fourth quarter.
The Company's gross profit margin for the third quarter of fiscal 1996 was 19.2%
compared to 17.5% for the same period last year, an increase of 9.7%. Nine
month gross profit margin for the current period was 15.7% compared to 13.9% of
last year, an increase 12.9%. The increase in gross margin is related to the
increase in revenue, absorption of fixed manufacturing overhead and increase in
labor efficiency.
Selling, general and administrative expenses increased $80,818 for the third
quarter and $230,165 for the nine month period over the same periods last year.
The increase in staffing and promotional expense was planned in expectation of
expanding Danzer's markets and revenue with additional attention to marketing
and sales. The Company's ratio of selling , general and administrative costs
expressed as a percentage of net sales was 16% for the third quarter and 15.1%
for the nine month period compared to 13.6% and 11.9% of the same periods last
year. The Company continues to monitor its costs in an effort to improve this
ratio.
Interest expense during the third quarter and nine months of fiscal 1996
decreased by $3,601 and $67,166 respectively over the same periods last year.
The decrease was due to the conversion of Renaissance debentures to preferred
stock.
Income (loss) from discontinued operations reflects the operating loss and sale
of the assets of Rage which were $20,595 for the third quarter and $238,915 for
the nine months of fiscal 1996. The operating loss of $259,510 was caused by a
significant decrease in revenue, reflecting a soft capital goods market. The
sale of Rage resulted in a gain of $20,595. The sale of Rage closed on June 10,
1996 and additional losses are not expected.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents during the nine months of fiscal 1996 decreased by
$162,340 compared to the decrease of $291,483 for the same period last year.
The current period net loss of $375,428 was the most significant source of the
decrease. Discontinued operations represented $238,915 of the net loss.
The Company has a working capital deficit of $987,434 at July 31, 1996 from a
surplus of $421,901 at October 31, 1995. The Company reclassified loans from
Fremont Financial Corporation totaling $1,397,000 from long-term to current due
to the maturity date of January 31, 1997. Fremont has offered an extension to
January 31, 1998. Management has not accepted this offer and negotiations are
continuing. The Company's current cash position has led to tighter credit terms
with some of its vendors.
17
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
It is anticipated that additional working capital may be required in order to
efficiently execute the Company's work in progress and backlog. The Company's
weakened financial condition has, in turn, led to tighter credit terms with
certain vendors and has therefore further strained the Company's working
capital.
In light of the Company's backlog at July 31, 1996 and its projected cash flow
from operations it is anticipated that the Company will be dependent on
increased sales, higher profit margins and/or further infusions of capital in
order to sustain its operations. The Company's ability to meet certain interest
and principal payments, as well as its working capital needs to execute its
backlog and generate sales volume during fiscal 1996, will be dependent upon the
success of the Company's efforts to increase sales volume, as well as the
profitability of new business. If it becomes likely that the Company is unable
to meet its scheduled interest and principal payments on certain debt
securities, the Company may need to examine the restructuring of these
instruments or the sale of certain assets to satisfy all or a portion of these
outstanding liabilities.
If such efforts to increase the level of business and profitability and/or
obtain an infusion of capital are unsuccessful, the Company may need to consider
additional steps to reduce costs, generate working capital and improve operating
efficiencies to sustain its operations. Such steps may involve the sale of
certain assets, the consolidation of operating activities, the sale or
discontinuance of a line of business, reductions in staff or other measures, the
effect of which is the reduction of expenses, conservation of cash, and/or
generation of working capital. The Company is also currently attempting to
limit cash outlays, aggressively collect accounts receivable and channel all
available resources into its sales function in order to continue all operations
on the basis that it can further increase its backlog and sales revenue. The
Company believes that the long-term prospects for the industries in which the
Company operates are positive and therefore, offer Global opportunity for
revenue growth.
18
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
<S> <C>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS NONE
ITEM 2 CHANGE IN SECURITIES NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES Incorporated by reference to the Notes to the Consolidated
Financial Statements
ITEM 4 SUBMISSION OF MATTERS REQUIRING A VOTE OF SECURITY HOLDERS On August 19, 1996 Lori Beer resigned as President of the
Company. On September 17, 1996 R. Schuster was appointed
by the Board of Directors. As part of Mr. Beer's severance
he received Warrants for 200,000 shares of common stock at
$.50 and salary for thirty days.
ITEM 5 OTHER INFORMATION NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
</TABLE>
Incorporated by reference
Exhibit No. Description or Filed herewith
- ----------- ----------- -----------------
2.1 Common Stock Purchase Agreement Filed herewith
between William V. Rice
and the Company
dated May 21, 1996
3(i)(a) Certificate of Incorporation as Incorporated by reference to
amended through August 18, 1994 Exhibit 3(i) to Registrant's
Form 10-Q for the period ended
July 31, 1994
3(i)(b) Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation filed Exhibit 4.1 to Registrant's
December 30, 1994 Form 8- K dated December 31,
1994
3(ii) By Laws Incorporated by reference to
Exhibit 3.3 to the
Registration Statement on Form
S-18 (No. 33- 18636-NY) (the
"Registration Statement").
4(a) Stock Certificate Incorporated by reference to
Exhibit 4.1 to the
Registration Statement.
4(b) Certificate of Incorporated by reference to
Amendment to Certificate Exhibit 4 of Registrant's Form
of Incorporation filed 10-Q for the period ended
August 18, 1994 (with terms of July 31, 1994.
10% Senior Preferred Stock)
4(c) Certificate of Incorporated by reference to
Amendment to Certificate Exhibit 4.1 to Registrant's
of Incorporation filed Form 8-K dated December 31,
December 30, 1994 (with terms 1994.
of Series B Senior Preferred Stock)
19
<PAGE>
10(a) Employment Incorporated by reference to
Agreement dated Exhibit 10(c) to Form 10-K
April 16, 1991, between Report dated January 28, 1993.
Global Environmental Corp.
and William V. Rice
10(b) Global Incorporated by reference to
Environmental Corp. Exhibit 10(j) to the October
Stock Option Plan 31, 1990 Form 10-K.
10(c) Mortgage Note and Incorporated by reference to
Mortgage Agreement Exhibit 10(k) to the October
dated April 3, 1990 of Global 31, 1990 Form 10-K.
Environmental Corp.
with Continental Bank
10(g) Loan and Security Incorporated by reference to
Agreement dated Exhibit 10(h) to Form 10-K
May 28, 1993 between Report dated January 28, 1994.
Danzer Metal Works Co.
and Fremont Financial Corporation
10(h) Asset purchase Incorporated by reference to
agreement dated Exhibit 10() to Form 10-K
August 25, 1993 between Report dated January 28, 1994.
Morrison Industries L.P.
and Global Environmental Corp.
10(I) Joint Venture Incorporated by reference to
Agreement dated Exhibit 10(j) to Form 10-K
December 31, 1993 Report dated January 28, 1994.
between Global Environmental
Corp. and Cadema Corporation.
10(j) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(k) to Form 10-K
September 17, 1993 Report dated January 28, 1994.
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(k) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(l) to Form 10-K
September 17, 1993 Report dated January 28, 1994.
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(l) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(m) to Form 10-K
September 17, 1993 Report dated January 28, 1994
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(m) Purchase Agreement Incorporated by reference to
dated December 31, Exhibit 99.1 to Registrant's
20
<PAGE>
1994 between Global Form 8-K dated December 31,
Environmental Corp. and 1994.
Renaissance Capital
Partners, Ltd. to exchange
$1,600,000 of Convertible
Debentures for 16,000 Series B
Cumulative Convertible Senior
Preferred Stock.
10(n) 10% Term Note in Incorporated by reference to
principal amount of Exhibit 10(n) to Registrant's
$211,635 due December 31, 1997. Form 8-K dated December 31,
1994
10(o) Loan and Security Agreement Incorporated by reference to
dated June 23, 1995 between Exhibit 10(o) to Registrant's
Danzer Metal Works Co. Form 10-K dated October 31,
and Fremont Financial Corporation 1995
10(p) Mortgage Note and Incorporated by reference to
Mortgage Agreement Exhibit 10(p) to Registrant's
dated January 25, 1996 of Global Form 10-K dated October 31,
Environmental Corp. 1995
with Midlantic Bank
21 List of Subsidiaries Incorporated by reference to
Exhibit 22 to the October
31, 1989 Form 10-K.
(b) Reports on Form 8-K - None
21
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
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 thereunto duly authorized.
Global Environmental Corp.
/s/ William F. Clarke
Dated: September 18 1996 By:
------------------------
Chief Financial Officer
22
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
Exhibit No. Description Sequentially numbered Page
- ----------- ------------ --------------------------
2.1 Common Stock Purchase Agreement 24
between William V. Rice
and the Company
dated May 21, 1996
23
<PAGE>
EXHIBIT NO 2.1
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made on May 22, 1996,
by and between Global Environmental Corp., a New York corporation ("Global"),
Global Environmental Holdings, Inc., a Delaware corporation ("Holdings") (Global
and Holdings shall be referred to collectively in the remainder of this
Agreement as "Global," except where specifically indicated to the contrary),
Rage, Inc., a Delaware corporation ("Rage"), and William V. Rice ("Rice").
WHEREAS, Global Environmental Corp. is a public company which operates its
businesses through subsidiaries;
WHEREAS, Holdings is a wholly-owned subsidiary of Global;
WHEREAS, Rage is a wholly-owned subsidiary of Holdings;
WHEREAS, Global Environmental Corp. and Global Environmental Holdings, Inc.
desire to sell their subsidiary, Rage, and Rice desires to acquire Rage from
Global Environmental Holdings, Inc. through the purchase of all the issued and
outstanding capital stock of Rage upon the terms and conditions set forth in
this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants, representations, and warranties herein contained, and intending to be
legally bound, the parties hereby agree as follows:
1. SALE OF RAGE BY GLOBAL. In reliance upon the representation and
warranties contained and subject to the terms and conditions hereof, and in
consideration of the transfer of assets described in paragraph 2, Global will
assign and deliver to Rice, and Rice will acquire from Global, at the Closing,
the following:
(a) Forty-five (45) shares of common stock of Rage, representing
all the issued and outstanding shares of Rage (the "Rage Stock")
(assigned value of $100,000);
(b) The real property and improvements, commonly referred to as
Bedminster Industrial Park, Unit One, Apple Tree Lane, Township of
Bedminster, Bucks County, Pennsylvania (the "Real Property"). The
transfer of said property shall be accomplished and set forth in a
separate Agreement of Sale for Real Estate ("Real Estate Sale
Agreement"), a copy of which is attached hereto as Exhibit A (assigned
value of $500,000);
(c) $104,600, payable as follows:
(i) Twenty-six (26) equal payment of $2,100 each, to be
paid by Global to Rice on a bi-weekly basis,
commencing May 17, 1996 and continuing bi-weekly
thereafter until paid in full;
(ii) $25,000 paid by Global on May 10, 1996;
(iii) $25,000 to be paid by Global May 25, 1996.
24
<PAGE>
2. PURCHASE BY RICE. In reliance upon the representation and warranties
of Global contained herein, and subject to the terms and conditions hereof, and
in consideration of the transfer of assets described above in paragraph 1, Rice
shall deliver the following to Global at Closing:
(a) 517,000 shares of Common Stock of Global representing all of
the common shares owned by Rice and all the right, title, and interest
in Global (the "Global Stock") (assigned value of $105,000);
(b) All securities representing all of Rice's employee stock
options and/or any derivative rights relating to Global and its
subsidiaries, other than Rage (the "options") (upon execution of this
Agreement, all these derivative rights shall be canceled);
(c) Release by Rice of all amounts payable to Rice under the
terms of the Employment Agreement by and between Rice and Global
Environmental Corp., dated April 16, 1991 (assigned value of
$145,000). Upon execution of this Agreement, said Employment
Agreement shall be canceled, and Rice's employment with Global
Environment Corp. shall terminate.
(d) Assumption by Rice of all mortgage debt on the Real Property
(approximately $350,000).
3. CLOSING. The purchase and sale of the assets described above in
paragraphs 1 and 2, and the execution of the Real Estate Sale Agreement, and the
delivery of the documents and the performance of the other matters described in
paragraphs 1, 2, 4 and 5 hereof, shall take place at the offices of Global,
Bedminster Industrial Park, Unit One, Apple Tree Lane, Township of Bedminster,
Bucks County, Pennsylvania, on May 22, 1996, or at any later date mutually
agreed upon by Rice and Global. The closing is referred to in this Agreement as
the "Closing". The agreed upon date of the closing is referred to in this
Agreement as the "Closing Date".
4. DOCUMENTS TO BE DELIVERED BY GLOBAL. At the Closing, Global shall
deliver to Rice the following documents:
(a) any certificate or certificates and stock powers as shall be
necessary to convey and vest in Rice all Global's right, title, and
interest in and to all of the Rage Stock;
(b) The executed Real Estate Agreement of Sale and other
documents as shall be necessary to convey and vest in Rice all of
Global's right, title, and interest to the property commonly referred
to as Bedminster Industrial Park, Unit One, Apple Tree Lane, Township
of Bedminster, Bucks County, Pennsylvania.
5. DOCUMENTS TO BE DELIVERED BY RICE. At the Closing, Rice shall deliver
to Global the following:
(a) 517,000 shares of Common Stock of Global, represented by
such stock certificate or certificates and/or stock powers as shall be
necessary to convey and vest in Global all the Global Stock;
(b) all certificates or other securities evidencing all the
Options and any securities powers as shall be necessary to convey
and/or cancel the Options;
25
<PAGE>
(c)all original signature copies of Rice's employment contract,
which shall be marked "Canceled" at the Closing and initialed by Rice
and Global.
6. REPRESENTATION AND WARRANTIES BY GLOBAL. Global represents and
warrants to Rice as follows:
(a) CORPORATE STATUS. Global Environmental Corp. and Global
Holdings, Inc. are corporations duly organized, validly existing, and
in good standing under the laws of the State of New York and Delaware,
respectively, with full corporate power and authority to carry on
their businesses, as now conducted at 17500 York Road, Hagerstown, MD,
21740. Global Environmental Corp. owns 100% of the issued and
outstanding shares of capital stock of Global Environment Holdings,
Inc. and Global Environmental Holdings, Inc. owns 100% of the issued
and outstanding stock of Rage, Inc.
(b) AUTHORITY OF THE AGREEMENT. The Board of Directors of
Global Environmental Corp., and the Board of Directors of Global
Environmental Holdings, Inc. have unanimously approved the sale of
Rage and has instructed the Secretary to deliver a proxy statement to
Global's common shareholders calling for a special to ratifying this
transaction. Global anticipates holding this meeting on or around
July 22, 1996. The Board of Directors of Global has given the
requisite authority to Lawrence Beer to negotiate and execute all
documents relating to this transaction. Upon ratification by the
common shareholders of Global, this Agreement shall constitute the
valid and legally binding obligation of Global, enforceable against
Global in accordance with its terms, except to the extent, if any,
that such enforceability may be limited by bankruptcy, insolvency,
reorganization, or other laws affecting the enforcement of creditors'
rights generally, now or hereafter in effect and subject to the
application of equitable principles and the availability of equitable
remedies. The execution, delivery, and performance of this Agreement
and the other instruments and agreements to be executed, delivered,
and performed by Global pursuant hereto and the consummation of the
transaction contemplated hereby and thereby by Global do not and will
not, with or without the giving of notice and/or the passage of time,
violate or conflict with or result in a breach or termination of any
provision of, or constitute a default under, any order, judgment,
decree, statute, regulation, contract, agreement, or other restriction
of any kind or description to which Global may be bound.
(c) STOCK OWNERSHIP. Global Environmental Corp. is the lawful
record and beneficial owner of 100% of the issued and outstanding
capital stock of Global Environmental Holdings, Inc. and Global
Environmental Holdings, Inc. is the lawful record and beneficial owner
of 100% of the issued and outstanding capital stock of Rage and the
Rage Stock is free of all security interests, liens, encumbrances,
claims, pledges, rights, or any obligations of any kind, except for
the lien filed by Patriot Funding as more fully described in the UCC-1
filed by Patriot Funding. Global has the full right, power, and
authority to sell the Global Stock pursuant to the terms and
conditions of this Agreement, to the effect that Rice, immediately
after the Closing, shall be the lawful record and beneficial owner of
Rage Stock, which, as of the date hereof, shall comprise 100% of the
issued and outstanding Common Stock of Rage and shall be free of all
encumbrances, except as otherwise described herein and except as may
arise from acts or omissions of Rice.
(d) COMPLETE TRANSFER. As evidenced by the transfer of all the
Rage Stock, Global is conveying all assets owned or associated with
Rage, and all liabilities associated with Rage, both those asserted
and those nonasserted, as listed to the greatest extent possible on
Exhibit B.
26
<PAGE>
(e) CAPITALIZATION OF RAGE. Rage is authorized by its Article
of Incorporation to issue 1000 shares, no par value, all of which are
of the same class and all of which are to be designated as Common
Stock. Rage has no authorized, issued or outstanding shares of
preferred stock.
7. REPRESENTATION AND WARRANTIES OF RICE. Rice represents and warrants
to Global as follows:
(a) INDIVIDUAL STATUS. Rice is an individual living at 4895
Gloucester, Doylestown, Pennsylvania, 18901.
(b) AUTHORITY FOR AGREEMENT. Rice has the power and authority
to execute and deliver this Agreement and to carry out its obligations
hereunder. Rice owns all of the securities being transferred pursuant
to this Agreement, owns the securities individually, and does not own
any of these securities in common with any other individual,
including, but not limited to, his spouse. This Agreement constitutes
a valid and legally binding obligation of Rice, enforceable against
Rice in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization, or other laws affecting the
enforcement of creditors' rights generally now or hereafter in effect
and subject to the application of equitable principles and the
availability of equitable remedies.
(c) COMPLETE TRANSFER. As evidenced by the transfer of all
Global Stock, Rice is conveying all assets owned or associated with
Global, and all liabilities owned or associated with Global, both
those asserted and those nonasserted, as listed to the greatest extent
possible in Exhibit B.
(d) STOCK OWNERSHIP. Rice is the lawful record and beneficial
owner of 517,000 shares of Common Stock of Global, and has an option
or a derivative right in _______________ additional shares of Global
Common Stock. These securities are free and clear of any and all
security interest, liens, encumbrances, claims, pledges, rights,
charges, escrows, options, rights of first refusal, contracts,
commitments, understandings and obligations of any kind. Rice has the
full right, power, and authority to sell the Stock to be transferred
by him pursuant to the terms and conditions of this Agreement, and
these securities represent 100% of Rice's ownership interest in
Global. Immediately after the Closing, Global shall be the lawful and
beneficial owner of 517,000 shares of Global, free and clear of any
and all security interests, liens, encumbrances, claims, pledges,
rights, charges, escrows, options, rights of first refusal, contracts,
commitments, understandings or obligation of any kind, except as may
arise from acts or omissions of Global. The execution, delivery, and
performance of this Agreement and the other instruments and agreements
to be executed, delivered, and performed by Rice pursuant hereto, and
the consummation of the transaction contemplated hereby and thereby do
not and will not, with or without the giving of notice and/or the
passage of time, violate or conflict with or result in a breach or
termination of any provision of, or constitute a default under, any
order, judgment, decree, stature, regulation, contract, agreement, or
any other restriction of any kind or description to which Rice is a
party or by which Rice may be bound. Rice acknowledges that he was
the founder of Global and its predecessor companies and is fully aware
of the financial conditions of both Global and Rage, and that until
April 9,1996, Rice held the position of President and member of the
Board of Directors. Rice acknowledges that Global makes no
representations or warranties as to the present or future financial
health of Rage.
(e) RESTRICTED SECURITIES. Rice understands that the stock of
Rage is not registered under the Securities Act on the grounds that
the sale provided for in this Agreement is exempt from registration
under the Securities Act, pursuant to Section 4.2 thereof. The Shares
are and
27
<PAGE>
will be "restricted securities," as the term is defined in Rule 144 of
the Rules and Regulations promulgated under the Act. The Shares may
not be sold or otherwise transferred unless they first have been
registered under the Act and all applicable state securities laws, or
unless exemptions from such registration provisions are available with
respect to said resale or transfer. Global's reliance on such
exemption is predicated in part on Rice's representation that he is an
"Accredited Investor". The term "Accredited Investor" as used herein
shall be defined pursuant to the Rules and Regulations of the SEC.
(f) EXEMPTIONS. Rice understands that the Shares are being
offered and sold in reliance on specific exemptions from the
registration requirements of United States Federal and State
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments, and understandings of Rice set forth herein in order
to determine the applicability of such exemptions and the suitability
of Rice to acquire the Shares, and Rice acknowledges that it is solely
Rice's responsibility to satisfy himself as to the full observance by
this offering and the sale of the Shares.
(g) LEGENDS. Rice's stock certificates, representing all shares
of Rage owned by Rice, shall be endorsed with the legends set forth
below:
(6) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(7) Any legend imposed or required by the Company's Bylaws or
applicable state securities laws.
(h) RECEIPT OF INFORMATION. Rice acknowledges that he has had
extensive access to all relevant information necessary to his
consideration of whether or not this transaction is appropriate for
him. Rice represents that he is experienced in evaluating these types
of transactions, that he can bear the economic risk of such a
transaction, and that he possesses such knowledge and experience in
financial and business matters as to render him capable of evaluating
the merits and risks of the transaction.
(ii) CAPITALIZATION. Rice warrants that Global Environmental
Corp. owns 100% of the issued and outstanding shares of capital stock
of Global Environment Holdings, Inc. and Global Environmental
Holdings, Inc. owns 100% of the issued and outstanding stock of Rage,
Inc.
(a) VOTE OF STOCK. Rice agrees to vote all his shares held in
Global in favor of the transaction contemplated herein.
(k) CONFIDENTIALITY. Rice agrees not to approach Morrison
Industries, Inc., or Buffalo Ventures for the purpose of obtaining a
license to make truck bodies or to obtain truck bodies from Morrison
for period of two (2) years from the date of this Agreement.
3. CONDITIONS TO EFFECTIVENESS OF TRANSACTIONS.
28
<PAGE>
(a) Board of Director and Shareholder approval by Global is a
condition precedent;
(b) Renaissance Capital Partners, Ltd. must give a signed letter to
the parties of this transaction that it will agree to vote all of
its shares held in Global in favor of the transaction
contemplated herein;
(c) The Real Estate Sale Agreement must be executed;
(d) All inter-company transaction (debit and credits) shall have been
canceled prior to Closing; and
(e) Assumption by Rice of the lease on his personal automobile.
9. TAX ASPECTS OF THE TRANSACTION. Global shall be responsible for taxes
incurred by Rage for all periods prior to the Closing. Rice shall be
responsible for all taxes incurred by Rage in periods beginning after the
Closing. Any taxes incurred in the transfer of the Real Property shall be paid
equally by Rice and Global. Rice shall be allocated the corresponding Net
Operating Loss carry forward applicable to Rage, less any taxes incurred by Rage
by the cancellation of inter-company accounts.
10. RELEASE BY RICE. Rice does hereby, and for anyone claiming by or
through or under him, fully remise, release, acquit, and forever discharge
Global and any subsidiary or affiliated corporation, their partners, agents,
lenders, employees, stockholders, directors, officers, successors and assigns,
jointly and severally (collectively, "Released Parties"), of any from any and
all rights, claims, demands, actions, and causes of action, of any nature
whatsoever, whether arising at law or in equity, including accrued vacation or
sick leave and travel expenses, which Rice may have had, may now have, or may
hereafter have, against the Released Parties by reason of any matter, cause,
happening or thing occurring prior to and including the date of this Agreement.
It is intended by Rice by this Agreement to forever remise, acquit, waiver,
release and forever discharge the Released Parties from all claims, demands for
losses, injuries, and damages, rights known or unknown, direct or indirect,
arising from the aforementioned described matters, and from any other matter
occurring prior to the date of this Agreement, it being understood that all
rights which Rice or any person who claims by, through, or under him may have
against Released Parties shall be forever barred from bringing or asserting the
same in their own name or names, jointly with or through any person, natural or
corporate, for or upon or by reason of any act, matter, transaction, cause or
thing whatsoever. In addition, Rice hereby agrees to refrain at all times from
any defamation, libel, or slander of the Company and any of its officers or
directors.
11. RELEASE BY GLOBAL. Global does hereby, and for anyone claiming by or
through or under it, fully remise, release, acquit, and forever discharge Rice,
Rage and any subsidiary or affiliated corporation, their partners, agents,
lenders, employees, stockholders, directors, officers, successors and assigns,
jointly and severally (collectively, "Released Parties"), (the "Released
Parties"), of any from any and all rights, claims, demands, actions, and causes
of action, of any nature whatsoever, whether arising at law or in equity, which
Global may have had, may now have, or may hereafter have, against the Released
Parties by reason of any other matter, cause, happening or thing occurring prior
to and including the date of this Agreement. Global intends, by this Agreement,
to forever remise, acquit, waive, release, and forever discharge the Released
Parties from all claims, demands for losses, injuries and damages, rights known
or unknown, direct or indirect, arising from the aforementioned described
matters, and from any other matter occurring prior to the date of this
Agreement, it being understood that all rights which Global or any person who
claims by, through, or under it may have against the Released Parties shall be
forever barred from bringing or asserting the same in their own name or names,
jointly with or through any
29
<PAGE>
person, natural or corporate, for or upon or by reason of any act, matter,
transaction, cause or thing whatsoever. In addition, Global hereby agrees to
refrain at all times from any defamation, libel or slander of the Released
Parties.
12. INDEMNIFICATION.
(a) From time to time, and after the date hereof, Global will
indemnify and hold harmless Rice against any and all liability, damage,
deficiency, loss, cost, or expense (including reasonable attorneys' fees and
expenses) that are based upon or that arise out of any misrepresentation or
breach of any warranty or agreement made by Global herein. Global agrees to
indemnify Rage against any and all claims and liabilities of Global asserted
against Rage.
(b) From and after the date hereof, Rice will indemnify and hold
harmless Global against any and all liability, damage, deficiency, loss, cost,
or expense (including reasonable attorneys' fees and expenses) that are based
upon or that arise out of any warranty or agreement made by Rice herein. Rice
agrees to indemnify Global against any and all claims and liabilities of Rage
asserted against Global.
(c) Each party entitled to indemnification under this Agreement (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "indemnifying Party") promptly after each indemnified Party
has actual knowledge of any third-party claim as to which indemnity may be
sought, and shall permit the Indemnifying Party (at its expense) to assume the
defense of any claim or any litigation resulting therefrom; PROVIDED that
counsel for the Indemnifying Party who shall conduct the defense of such claim
or litigation, shall be reasonably satisfactory to the Indemnified Party, and
the Indemnified Party may participate in such defense, but only at such
Indemnified Party's expense; and PROVIDED FURTHER that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnification obligations under this Agreement
except to the extent that the omission results in a failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged as a result of the
failure to give notice. No Indemnifying Party, in the defense of such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation. In the event that the Indemnifying Party does not accept the
defense of any matter as above provided, the Indemnified party shall have the
full right to defend against any such claim or demand, and shall be entitled to
settle or agree to pay in full such claim or demand in its sole discretion. In
any event, Global and Rice shall cooperate in the defense of such action and the
records of each shall be available to the other with respect to such defense.
13. SEVERABILITY. If any provision of this Agreement shall be held or
deemed to be or shall, in fact, be inoperative or unenforceable as applied to
any particular case because it conflicts with any other provision or provisions
hereof or any constitution or statute or rule of public policy, or for any other
reason, such circumstances shall not have the effect of rendering the provision
in question inoperative or unenforceable in any other case or circumstance, or
of rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatever. The invalidity of any one
or more phrases, sentences, clauses, section, or subsections of this Agreement
shall not affect the remaining portions of this Agreement.
14. FURTHER ASSURANCES. At any time, and from time to time after the
Closing, each party shall, without further consideration, execute and deliver to
the other party such other instruments of transfer and assumption, and shall
take such other actions as the other party may reasonably request to carry out
the transfers contemplated by this Agreement.
30
<PAGE>
15. MISCELLANEOUS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect of the subject matter
hereof and may not be modified or amended except in writing signed by both
parties hereto. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument. this Agreement shall be governed in all respects, including
validity, interpretation, and effect, by the laws of the Commonwealth of
Pennsylvania, applicable to contracts made and to be performed in Pennsylvania.
This agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of the parties hereto. This Agreement
shall not be assignable by either party without the prior written consent of the
other, such consent not to be unreasonably withheld. The rights and obligations
contained in this Agreement are solely for the benefit of the parties hereto and
are not intended to benefit or be enforceable by any other party, under the
third party beneficiary doctrine or otherwise. All representations and
warranties made by Rice and Global herein shall survive delivery of the
securities and the execution of this Agreement.
All matters affecting the interpretation, form, validity, enforcement and
performance of this Agreement shall be decided under the laws of the
Commonwealth of Pennsylvania and in a forum located in Bucks County,
Pennsylvania. Both parties consent to the jurisdiction of the Federal Court for
the Eastern District of Pennsylvania with respect to any claims or litigation
arising out of this Agreement. Any and all disputes concerning the rights and
obligation of the parties hereto shall be resolved by binding arbitration under
the supervision of three (3) arbitrators appointed under and pursuant to the
rules of the American Arbitration Association.
16. PENNSYLVANIA SECURITY LAWS:
RICE AGREES TO COMPLY WITH THE PROVISIONS OF THE PENNSYLVANIA SECURITIES
LAWS WITH RESPECT TO THE RAGE STOCK BEING ACQUIRED PURSUANT TO THE TERMS OF THIS
AGREEMENT.
UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972
ACT"), EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS
ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IN ANY)
OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE
ISSUER OF HIS WRITTEN BRINGING CONTRACT OF PURCHASE OR IN THE CASE OF A
TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN
TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING
OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR
TELEGRAM TO THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE
MEMORANDUM, INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR
TELEGRAM SHOULD BE SENT OR POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
SECOND BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO ENSURE THAT IT WAS RECEIVED AND ALSO TO EVIDENCE
THE TIME WHEN IT WAS MAILED. IF THE REQUEST IF MADE ORALLY (IN PERSON OR BY
TELEPHONE, TO THE SELLING AGENT AT THE NUMBER LISTED IN THE TEXT OF THE
MEMORANDUM), A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE
REQUESTED.
31
<PAGE>
The parties have duly executed this Agreement as of the date first above
written.
GLOBAL ENVIRONMENTAL CORP.
By:
-----------------------------------
Lawrence Beer
President
GLOBAL ENVIRONMENTAL HOLDINGS, INC.
By:
-----------------------------------
Lawrence Beer
President
WILLIAM V. RICE
By:
-----------------------------------
William V. Rice
Individually
I, Leonora C. Rice, understand that this contract transfers legal title to
securities and assets that I may have an ownership interest in based on
community property laws. I hereby consent to this contract and shall be legally
bound by its terms and conditions.
By:
-----------------------------------
Leonora C. Rice
32
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<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 162340
<SECURITIES> 0
<RECEIVABLES> 1579633
<ALLOWANCES> 66599
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