<PAGE>
As filed with the Securities and Exchange Commission on October 13,
1995
Registration No. 33-89802
- --------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0675758
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
_________________________________
901 West Robinson Joe G. Brooks
Springdale, Arkansas 72764 901 West Robinson
(501) 750-1299 Springdale, Arkansas 72764
(Address of registrant's (501) 750-1299
principal executive offices) (Name, address and telephone
number of agent for service)
_________________________________
Copies of communications to:
Jeffrey J. Gearhart, Esq.
Rose Law Firm, a Professional Association
120 East Fourth Street
Little Rock, Arkansas 72201
(501) 375-9131
__________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box. __
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. __
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. __
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. __
<PAGE>
<TABLE> CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Aggregate Registration
Per Share Offering Price Fee
<S> <C> <C> <C> <C>
Class A Common 2,000,000(2) $1.38(1) $2,760,000.00 $951.72
Stock, ($.01 Par
Value)
Class A Common 3,309,930(2) $1.11(1) $3,647,022.30(1) $1,266.90(3)
Stock, ($.01 Par
Value)
<FN>
(1) Calculated pursuant to Rule 457(c) and solely for the purpose of determining the registration fee, based on the average
high and low sales price per share, as reported by NASDAQ SmallCap Market System for October 9, 1995 and August 21, 1995,
respectively.
(2) Aggregate shares being registered includes 1,361,850 shares of Class A Common Stock held directly by Selling Shareholders
and 3,948,080 additional shares of Class A Common Stock issuable to Selling Shareholders upon the exercise of Class C, D, E,
F, and G Warrants.
(3) Paid with previously filing.
</TABLE>
______________________________________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.<PAGE>
<PAGE>
PROSPECTUS
October 13, 1995
5,309,930 SHARES
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
CLASS A COMMON STOCK
($.01 Par Value Per Share)
______________________________________
This Prospectus relates to 5,309,930 shares (the "Shares") of Class
A Common Stock, par value $.01 per share ("Common Stock") of Advanced
Environmental Recycling Technologies, Inc. (the "Company" or "AERT") which
may be offered from time to time on a continuous basis for the accounts of
the Selling Shareholders. Of the total Shares being offered, 1,361,850
are Shares held by Selling Shareholders directly, 650,000 are Shares
underlying the Company's Class C Warrants, 206,751 are Shares underlying
the Company's Class D Warrants, 128,609 are Shares underlying the
Company's Class E Warrants, 2,481,360 are Shares underlying the
Company's Class F Warrants and 481,360 are Shares underlying the Company's
Class G Warrants (the C, D, E, F, and G Warrants are collectively
hereinafter referred to as the "Warrants"). See "Selling Shareholders."
The Company will not directly receive any of the proceeds from the sale
of the Shares by the Selling Shareholders, however, the Company will
receive all proceeds from the exercise of the Warrants to which such
Shares relate. See "Risk Factors-Outstanding Warrants and Options;
Dilution" for a description of the Warrants, including the exercise price
thereof.
The Company's Class A Common Stock is traded in the over-the-counter
market under the NASDAQ symbol "AERTA". On October 9, 1995 , the
last reported sale price of the Common Stock, as reported by the NASDAQ
SmallCap Market System was $1.38 per share.
This Prospectus is to be used in connection with the sale from time to
time, as market conditions warrant, by the Selling Shareholders of the
Shares. Because the Shares will be sold on the NASDAQ SmallCap Market
System or in privately negotiated transactions, the price at which any
Shares of Common Stock may be sold are unknown and may vary from
transaction to transaction. See "Plan of Distribution."
The expenses of the registration under the Securities Act of 1933 of the
Shares being offered hereby are estimated to be approximately $32,000.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
SEE "RISK FACTORS"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 13, 1995 .
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy, nor shall there be any
sale of these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements, and other information
with the Securities and Exchange Commission (the "SEC") relating to its
business, financial statements, and other matters. The Company has filed
a Registration Statement on Form S-3 (the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with the
SEC covering the Shares of Common Stock to be sold pursuant to this
Prospectus. As permitted by the rules and regulations of the SEC, this
Prospectus omits certain information, exhibits, and undertakings contained
in the Registration Statement. Reference is made to the Registration
Statement and to the exhibits thereto for further information. Statements
contained in this Prospectus relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete
and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or such other document.
Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements, and other information filed with the SEC by the
Company under the Exchange Act, may be inspected and copied at the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located in
Chicago (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661) and in New York (Seven World Trade Center, Suite 1300, New
York, New York 10048). Copies of such material may also be obtained at
prescribed rates by addressing written requests for such copies to the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates certain documents by reference which are not
presented herein or delivered herewith. These documents (without exhibits
unless such exhibits are specifically incorporated by reference) are
available without charge to each person to whom a copy of this Prospectus
is delivered, upon written or oral request to Joe G. Brooks, President,
Advanced Environmental Recycling Technologies, Inc., 901 W. Robinson,
Springdale, Arkansas 72764 (501) 750-1299.
The following documents previously filed by the Company with the SEC are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended by a Form 10-K/A (No. 1) filed with the
SEC on October 13, 1995 ;
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2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, as amended by a Form 10-Q/A (No. 1) filed with the SEC on
October 13, 1995 ; and
4. The "Description of Securities" on pages 37 through 40 in Amendment No.
1 to Registration Statement on Form S-1 filed August 24, 1989 (No. 33-
29595) incorporated by reference in the Company's Registration Statement
on Form 8-A filed October 23, 1989 (No. 1-10367).
The information relating to the Company contained in this Prospectus does
not purport to be comprehensive and should be read together with the
information in the documents incorporated by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to termination of the offering of the Shares shall be deemed to be
incorporated by reference and to be a part of this Prospectus from the
date of filing of such document. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purpose of this Prospectus to
the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
No person is authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made,
such information or representation should not be relied upon as having
been authorized by the Company in connection with the offering made by
this Prospectus. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, the securities offered by this
Prospectus in any jurisdiction in which it is unlawful to make such an
offer or solicitation of an offer. Neither the delivery of this Prospectus
nor any distribution of the securities offered pursuant to this Prospectus
shall, under any circumstances, create any implication that there has been
no change in the information set forth herein or in the affairs of the
Company or any of its respective subsidiaries since the date of this
Prospectus.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Capitalized terms not
defined in the summary are defined elsewhere herein.
THE COMPANY
AERT is comprised of two separate, yet interrelated manufacturing
facilities. The Company's Composite Manufacturing Unit , located in
Junction, Texas, manufactures and markets moisture resistant composite
building materials made from waste plastics and by-product wood fibers.
The Company's Plastics Reclamation Unit, located in Rogers, Arkansas
processes waste plastics and forms various materials that are used by the
Composite Manufacturing Unit . The Company markets its moisture
resistant composite building materials under the trade names
MOISTURESHIELD TM, LIFECYCLE TM and CHOICE DEK TM as an alternative to
wood, aluminum and other conventional construction materials.
Additionally, excess capacity at the Rogers facility is also used
for sale of recycled plastics to manufacturers of plastic grocery bags,
trash bags and other products. The Company, which was founded in
December 1988, has completed research and development which has resulted
in the receipt of eleven U.S. patents. (See "Risk Factors - Legal
Proceedings" for a description of pending litigation relating to the
invalidation of certain of the Company's patents.)
THE OFFERING
Shares Offered Up to 5,309,930 shares of Class A
Common
Stock.
Use of Proceeds The Company will not directly receive any
proceeds from the Shares being offered by
the Selling Shareholders, nor will any
such proceeds be available for use by it
or for its benefit; however, the Company
will receive all proceeds from the exercise
of the Warrants to which such Shares
relate. See "Risk Factors - Options and
Warrants; Dilution" and "Selling
Shareholders" for a description of the
Warrants, including the exercise price
thereof. Any such proceeds received by the
Company upon exercise of a Warrant will be
used for general corporate and working
capital purposes.
NASDAQ Symbol AERTA.
RISK FACTORS
An investment in the Shares involves a high degree of risk. Each
prospective purchaser of the Shares should review the "Risk Factors" for a
discussion of certain factors that should be considered in connection with
an investment in the Shares.
4
<PAGE>
RISK FACTORS
An investment in the Company's securities involves a high degree of risk.
Prior to making an investment, prospective investors should carefully
consider the following factors, among others, and seek professional advice
in analyzing this offering:
Financial Position of the Company, Working Capital Deficit; Report of
Independent Auditors
The Company has just exited the development stage and through June 30,
1993 had only generated aggregate sales revenues of $8,972,806 since
inception in December 1988. At June 30, 1995, the Company had a working
capital deficit of $1,425,141 and had incurred cumulative losses from
inception on December 2, 1988 through June 30, 1995 of $14,136,383. The
Company has not yet generated significant revenues, nor is there any
assurance that the Company will achieve future revenue levels to support
existing operations, generate positive cash flow from operations or
recover its investment in its property, plant and equipment. The Company
expects to continue to incur losses through the third quarter of 1995 and
there can be no assurance that such losses will not continue thereafter.
The success of the Company's operations are largely dependent upon its
ability to maintain and improve operating efficiencies and overall
production capacity, generate substantial sales revenues and generate
adequate cash-flows from operations, as to which there can be no
assurance. The Company has recently increased its manufacturing efforts
through expanded production hours and is currently experiencing a backlog
in purchase orders already received from certain composites customers,
primarily involving the Company's decking products through Weyerhaeuser.
However, the Company's operations are subject to numerous risks associated
with the continued establishment of its business, including lack of
adequate financing sources, competition from numerous large,
well-established and well-capitalized competitors who manufacture products
for the same applications. In addition, the Company has in the past and
may again in the future encounter unanticipated problems, including
manufacturing, distribution and marketing difficulties, some of which may
be beyond the Company's financial and technical abilities to resolve. The
failure to adequately address such difficulties could have a material
adverse effect on the Company's prospects.
The independent accountant's report on the Company's financial statements
for the year ended December 31, 1994 contains an explanatory paragraph
regarding the Company's ability to continue as a going concern. See
Report of Independent Accountant's contained in, and Note 2 to, the
Financial Statements for the year ended December 31, 1994 and Note 3 to
the Company's Interim Financial Statements contained in its Quarterly
Reports on Form 10-Q for the quarters ended March 31 and June 30, 1995,
respectively, which are incorporated by reference herein.
Need for Additional Financing
Substantially all of the Company's working capital needs for the preceding
twenty-four months have been met from proceeds of approximately $2.0
million in additional debt financing obtained during 1994, and of
$3,027,341 obtained from private placements during 1993 and 1994. All of
the proceeds from such financings have been expended by the Company. The
Company has been dependent, to-date, on financing from a major
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<PAGE>
shareholder, and there is no assurance that such support can continue. See
Note 7 to the Financial Statements for the year ended December 31, 1994
and Note 6 to the Company's Interim Financial Statements contained in its
Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1995, respectively, which are incorporated by reference herein. The
Company maintains an accounts receivable factoring agreement for up to
$650,000 through an affiliated company of a related party. The terms of
this agreement call for the factor to advance 99.12% of the total of
invoices presented by the Company and for the Company to indemnify the
factor against loss of the amounts advanced. At June 30, 1995,
approximately $243,000 was available to factor additional receivables.
The Company also secured a line of credit from a major stockholder during
1994 which
provided approximately $981,000 of additional cash for general corporate
purposes through January 1995. In February 1995, this obligation was
restructured, converting the amount previously advanced as of that date
($1,566,903) into a long-term note payable and providing an additional
$433,097 revolving line of credit to be available as needed. As of June
30, 1995, the total amount had been drawn against the line.
The Company currently does not have additional commitments for financing
beyond the sources described immediately above and revenues have not
historically been sufficient to support operational needs. Although the
Company believes that if it can maintain its current production rates and
efficiencies it will be able to achieve a level of operations sufficient
to support its operations for the next 12 months, there can be no
assurance that such production rates or efficiencies will be maintained or
that the Company will not encounter unanticipated difficulties in its
manufacturing processes which adversely affects such rates or
efficiencies. Further, continued improvements in production efficiency
and capacity will be required for the Company to increase sales levels to
those necessary to attain profitable results of operations and provide
funds to repay the Company's outstanding obligations.
Proceeds from the Company's financing sources have been largely expended.
Accordingly, if the Company cannot generate sufficient cash flow from
existing operations, it could be dependent in the near future on
additional debt or equity financing, as to which there can be no
assurance. Should the Company be unable to secure additional financing,
the Company's operations would be materially adversely affected, and in
particular the Company's operations might be delayed or discontinued until
such time, if ever, as funds are generated in order to resume operations.
There can be no assurance that current or prospective purchasers of the
Company's products would accept any such delay or that they would not
locate alternative supply sources.
While it is not anticipated that significant additional capital
expenditures will be required to support existing plant capacity,
management is currently evaluating plans to better position the Company to
address potential increasing sales opportunities on a timely basis. This
could require significant additional composite production capacity beyond
that of the existing composite manufacturing facility in Junction, Texas
and could require additional funds for capital expenditures. Accordingly,
the long-term success of its operations hereafter may depend upon cash
flow from operations and the Company's success in raising additional
funds, if necessary, through equity or debt financing. There is no
assurance that required additional financing can be obtained, or obtained
on terms satisfactory to the Company.
6
<PAGE>
Legal Proceedings
On June 9, 1992, Mobil Oil Corporation ("Mobil") commenced an action
against the Company in the United States District Court for the District
of Delaware entitled Mobil Oil Corporation v. Advanced Environmental
Recycling Technologies, Inc. In its complaint, Mobil sought entry of
declaratory judgment that: (a) AERT is without right or authority to
threaten suit against Mobil or its customers for alleged infringement of
AERT patents; (b) the AERT patents are invalid and unenforceable, and (c)
Mobil has not infringed the AERT patents through any products or method.
Mobil sought no monetary damages in this suit, but does seek reimbursement
of its attorneys' fees.
On December 8, 1992, the Company answered Mobil's Complaint. In its
Answer, the Company denied Mobil's claims and asserted counterclaims
against Mobil and three Mobil executives for: (1) an illegal combination
or contract in restraint of trade in violation of federal antitrust laws;
(2) a pattern of intentional misconduct constituting an attempt to
monopolize in violation of federal antitrust laws; (3) breach of a
confidential relationship between Mobil and the Company; and (4) unfair
competition. The Company sought monetary damages, punitive damages and
injunctive relief. Mobil filed an answer to AERT's counterclaims, denying
any liability. The Delaware Court then bifurcated the trial into patent
and non-patent issues and ordered the patent issues tried first.
In February 1994, after a trial on the patent issues a Delaware jury
returned a verdict that four AERT patents on its composite product
technology were invalid. The jury also determined that Mobil had not
infringed two of the four patents which AERT had asserted against Mobil.
The jury verdict answered a number of interrogatories on the factual
issues, and rendered advisory findings for the Court on Mobil's allegation
that AERT had obtained its patents by inequitable conduct. Thereafter,
the Judge adopted the jury's advisory findings on inequitable conduct and
held that each of the four AERT patents were unenforceable for failure to
disclose certain alleged prior art to the patent office during patent
prosecution.
Because of the nature of certain of the jury verdict interrogatory
responses, AERT counsel have concluded that the verdict was adversely
affected by improper conduct by Mobil counsel during trial, and false
statements of law and fact made during closing argument, that caused the
jury to misapply the law on inequitable conduct and to render clearly
erroneous findings. Consequently, AERT moved for a new trial. The motion
has been denied. The Company's additional post-trial motions
were also denied by the Delaware Court . On March 14, 1995,
the Company filed a sealed motion with the Court based upon newly
discovered evidence which alleges prejudicial misconduct by Mobil prior to
the trial. The motion also brings to the Court's attention, evidence
which the Company believes was intentionally withheld from it in direct
defiance of the Delaware Court's January 4, 1994 Motion to Compel, prior
to the trial. It also brings to the Court's attention, an official
government safety approval document which was altered prior to submission
to AERT during pre-trial discovery, which also relates to a portion of the
alleged withheld discovery documentation. The motion seeks further
discovery into Mobil's misconduct, and a new trial. Although the March
14, 1995, Motion is still pending before the Delaware Court, the Company
filed an appeal with the U.S. Court of Appeals on July 10, 1995 on the
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initial trial arguments. Should the Delaware Court deny the Company's
pending Prejudicial Misconduct Motion, the Company intends to follow-up
with an additional appeal on these issues. Should the Court not rule in
favor of the Company on such motions, all appellate processes available
will be pursued. There can be no assurance that the Company will receive
a more favorable outcome upon appeal.
In August 1994, Mobil filed a motion seeking an award of attorneys' fees
and costs in the amount of $2.7 million. On November 1, 1994, the Court
ruled that the motion was premature and will not be considered at the
present time. In January 1995, Mobil renewed its motion for attorneys'
fees. In April 1995, the Court requested AERT to respond to Mobil's
motion. The motion is currently pending. The Company will vigorously
defend against Mobil's claim for attorneys' fees and costs, however, there
can be no assurances as to the outcome of this litigation.
The Company's counterclaims against Mobil and other defendants are to be
heard in a separate trial which has not yet been scheduled. If the Court
were to award Mobil its attorneys' fees in the near term, the Company does
not have adequate resources to pay them.
Reductions in Construction Activity
AERT engineered composites have been previously marketed primarily to
companies that manufacture products for use by the construction industry
in new home construction and home improvement work. The construction
industry is subject to significant fluctuations in activity as was
experienced during the first half of 1995 and to periodic downturns caused
by general economic conditions. Single housing construction starts were
down 22% over the preceding year during the first quarter of 1995, which
resulted in reduced sales of door and window components to the Company.
Reductions in construction activity can have an adverse effect on the
demand for AERT composites in the door and window market.
The Company believes significant demand now exists for its products and by
broadening its composites sale base it can reduce the effects that
reductions in construction activity would have on the Company. However,
the Company's ability to successfully increase its customer base and sales
is largely dependent upon the Company's ability to improve operating
efficiencies and increase overall capacity and generate adequate cash-
flows from operations, as to which there can be no assurance.
Limited Manufacturing Capabilities
Although the Company has exited the development stage and has
substantially completed development of its commercial manufacturing
processes at its Junction, Texas facility, the long-term success of the
Company's operations will depend upon the manufacture of AERT composite
products on a substantially greater commercial scale than the Company has
engaged in to-date. There can be no assurance the Company will prove able
to expand its operations to the extent required or achieve improved
operational efficiencies, and in particular, increased throughputs in
order to realize profitable operations, even assuming the availability of
adequate financing and customer demand for its products. Assuming it does
achieve the desired operating efficiencies at it facilities, the Company
currently only has one composites manufacturing facility. The Company's
primary customers and markets are large and increased sales growth would
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require significant capital expenditures. There can be no assurance that
financing could be obtained to build additional manufacturing facilities
or that, if obtained, they could become operational in a timely manner.
Dependence on Key Customers
The Company limited its initial marketing to prospective customers that
are major industrial companies with large market shares nationwide in the
plastics and door and window construction industries. A few large door
and window construction companies have purchased substantially all of the
Company's Moistureshield TM product since inception. Additional customers
for the Company's Moistureshield TM and Lifecycle TM products are now
coming on-line or are in the early stages of their commercial use of such
products and there can be no assurance of their continuing or increased
purchase commitments to the Company. A division of Weyerhaeuser, one of
the world's largest forest products companies is engaged with the Company
and is the marketing and distribution channel of Choice Dek TM, the
residential decking material produced from the Company's composite
manufacturing facility. These customers may be key to the Company's
success. Although the Company's composites customers have indicated to
the Company that it is their intention to purchase products from the
Company on a regular basis and in substantial volumes, assuming current
product quality and pricing levels can be achieved commercially and that
volume requirements can be met, none of such key customers is
contractually obligated to purchase a substantial amount of additional
products from the Company. These companies and other prospective
customers with which the Company has dealt have high quality standards,
and require elaborate and extensive testing for new products, component
parts, and/or services. The Company could be materially adversely
affected if it were to lose one or more of its existing customers.
Patents and Protection of Technology
The Company's composite materials manufacturing process and its waste
plastics reclamation technologies involve many proprietary trade secrets,
as well as certain methods, processes and equipment designs for which the
Company has sought and received patent protection. Although the Company
has taken measures to safeguard its trade secrets by limiting access to
its manufacturing facility and requiring confidentiality and nondisclosure
agreements of employees and third parties, there can be no assurance that
its trade secrets will not be disclosed or that others will not
independently develop comparable or superior technology. The Company has
filed seventeen patent applications and has received issuance from the
United States Patent and Trademark Office for eleven patents, five of
which relate to the Company's composite materials manufacturing operations
and six of which relate to its waste plastics reclamation technologies.
However, four composite patents were recently challenged by Mobil Oil
Corporation and found invalid. (See "- Legal Proceedings"). The costs
of litigation to preserve proprietary rights are high and have strained
the financial resources of the Company as well as have impeded sales
growth. Further, to the extent that employees, consultants or other third
parties working with the Company develop new technology, disputes may
arise as to the proprietary rights to such technology which may not be
resolved in favor of the Company.
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Government Regulation
The Company at present is able to incorporate a substantial majority of
the waste plastic feedstocks it receives into its composite materials
manufacturing and plastic reclamation processes without significant waste
disposal problems of its own. However, its current supply sources are
relatively homogeneous and consistent, and there can be no assurance that
in the future continuing regulations will not adversely affect the
Company's operations or require the introduction of costly additional
manufacturing or waste disposal processes.
Certain customers have expressed interest in the Company's products
because use of the Company's products could reduce the sawdust or other
solid waste generated by such customers' operations. The Company believes
that the demand for its products and technology could be decreased if
there is a lessening of public concern or government pressure on private
industries and municipal solid waste disposal authorities to deal with
solid waste disposal problems. Further, the Company believes that a
lessening of environmental concerns could reduce the rate at which
plastics are recycled, which ultimately could have the effect of
increasing the Company's cost of raw materials for its manufacturing
operations.
Although state and federal legislation currently provide for certain
procurement preferences for recycled materials, such preferences for
materials containing waste plastics are dependent upon the eventual
promulgation of product or performance standard guidelines by state or
federal regulatory agencies. Such guidelines for recycled plastic
building materials may not be released or, if released, the product
performance standards required by such guidelines may be incompatible with
the Company's manufacturing capabilities.
Competition
In seeking to market AERT composites as alternative building materials to
high grade western pine and other woods, aluminum, high-performance
plastics and other construction materials, the Company competes with major
forestry product companies and aluminum fabricating companies. The
conventional material manufacturers with which the Company must compete
have, in many cases, long-established ties to the building and
construction industry and have proven, well-accepted products. Although
the Company has recently entered into a national marketing and
distribution agreement with Weyerhaeuser, there are many additional large
competitors in this market.
Many large competitors also have research and development budgets,
marketing staffs and financial and other resources which far surpass the
resources of the Company. There can be no assurance that such competitors
will not attempt to develop and introduce similar recycled composite
materials. The Company must also compete in the building materials market
with certain other plastics recyclers currently manufacturing recycled
materials intended for similar building material applications, including
decking and fencing. None of such recyclers to the Company's knowledge
have achieved significant commercial acceptance to date, however, Mobil
has recently entered the market with a new composite products division and
a product called Timbrex, which was recently renamed Trex. Mobil has many
10
<PAGE>
resources, has initiated a large national marketing and advertising
program, and is a significant competitor in recycled plastic products.
Mobil has also challenged and invalidated four AERT composite patents, and
is continuing to assert a claim for substantial attorneys' fees against
the Company. (See "- Legal Proceedings").
The Company competes for certain raw materials with other plastics
recyclers, or plastic resin producers, most of which are far larger and
better established than the Company. However, management believes that
its focus towards sources of contaminated polyethylene films that it
recycles and uses in its composites business are less attractive to most
producers of recycled plastics. As a result, the Company has not
historically experienced significant competition for such raw materials.
Further, the Company believes that the plastics reclamation processes it
has developed for its composites manufacturing business are able to source
raw materials from industrial waste, plastic film waste and other plastic
waste generators whose potential as a recycling source is not being
significantly utilized by conventional plastics recyclers who primarily
rely on post-consumer, source-separated plastic container recycling
processes such as HDPE milk containers. The Company expects new
entrants into the plastics reclamation business which could effect the
Company's source of raw materials supply and who may have substantially
greater financial and other resources than the Company. Such entrants may
include beverage bottlers, distributors and retailers as well as
forestry product, petrochemical and other companies. For example, Mobil
competes with the Company for raw materials in connection with the
production of its Trex product as described above.
Reliance Upon Management and Qualified Technical Assistance
The Company is substantially dependent upon the personal efforts and
abilities of Jim Brooks, its Chief Executive Officer, Joe G. Brooks, its
President, Robert D. Gorsche, its Chief Operating Officer, and J. Douglas
Brooks, its Vice President of Recycled Plastics, and a limited number of
corporate and technical staff who devote all of their business time to the
affairs of the Company. The Company has also obtained a $1,000,000 "key
man" life insurance policy on the life of Joe G. Brooks. The loss of the
services of one or more of these persons could have a material adverse
effect upon the Company's activities. The Company is also dependent upon
the continuing availability of capable independent engineering services
and other technical assistance. There is no assurance that it will be
able to locate, maintain, and/or obtain such necessary technical
assistance from time to time.
Unsuccessful Prior Business Venture
The Company was initially capitalized with a contribution of production
equipment, plant facilities and technology, most of which was used by
certain members of management in an unsuccessful prior business. That
prior business (the "Firelog Company") was organized in June 1985 to
manufacture artificial firelogs using technology somewhat similar to that
used in the Company's MOISTURESHIELD TM manufacturing process. Joe G.
Brooks, the President and a director of the Company, and Marjorie S.
Brooks, a director and the largest stockholder of the Company, were
officers and/or directors of the Firelog Company. By late 1986, the
Firelog Company had incurred substantial losses from operations, had no
further working capital resources, and the Firelog Company discontinued
its business.
11
<PAGE>
Voting Control by Management
At September 30, 1995, the Company's directors and officers in the
aggregate beneficially owned 11,818,740 shares of Class A Common Stock
(which amount includes shares underlying outstanding options and warrants
which such directors and officers have the right to acquire within sixty
days) and 1,233,846 shares of Class B Common Stock, which constituted
approximately 40.3% and 84.2% of the Class A Common Stock and Class B
Common Stock, respectively, and approximately 49.1% of the combined
general voting power of the Company. Accordingly, such persons will
be able to elect all of the Company's directors and otherwise control the
Company. Holders of Class B Common Stock and Class A Common Stock will
generally vote together as a single class upon matters submitted to a vote
of stockholders, though the holders of Class B Common Stock will be
entitled to five votes per share of Class B Common Stock while holders of
Class A Common Stock will be entitled to only one vote per share.
Although no voting agreement exists among the holders of Class B Common
Stock, because of the family and prior business relations among such
stockholders it may be anticipated that Class B stockholders will often
vote the same way on matters requiring stockholder approval or
authorization. The Class B stockholders have entered into a Right of
First Refusal Agreement among themselves granting such stockholders a
right to purchase Class B Common Stock on a pro rata basis from any Class
B stockholder desiring to sell such shares.
Outstanding Warrants and Options; Dilution
On November 9, 1989, the Company completed a public offering of 1,250,000
units, at a price to the public of $4.00 per unit. In December 1989, the
Company sold an additional 100,000 units to the underwriter in the public
offering at the same price. Each unit consisted of three shares of Class A
Common Stock and three redeemable Class A Warrants, which were separable
and transferable immediately upon issuance. Each Class A Warrant entitled
the holder to purchase a unit consisting of one share of Class A Common
Stock and one Class B Warrant at an exercise price of $2.00. Each Class B
Warrant entitled the holder to purchase one share of Class A Common Stock
at an exercise price of $3.00. The Class A and Class B warrants were
redeemable at $.05 per warrant at the option of the Company if certain
public stock trading prices were achieved and were scheduled to expire in
November 1995.
In March 1992, the Company issued notice of redemption of the
aforementioned Class A Warrants, of which approximately 4.3 million were
outstanding on the redemption date of April 27, 1992. Prior to the
redemption date, holders of 4,212,740 Class A Warrants exercised their
warrants at $2.00 per warrant which totalled $8,425,480 in warrant
exercise proceeds. Accordingly, the Company issued 4,212,740 shares of
Class A Common Stock and 4,212,740 Class B Warrants to the exercisers of
the Class A Warrants. The remaining unexercised Class A Warrants were
redeemed at $.05 per warrant. During the fourth quarter of 1992, holders
of 300 Class B Warrants exercised their warrants at $3.00 per warrant. In
November, 1994 the Company's Board of Directors approved a resolution
extending the expiration date of the outstanding Class B Warrants to
November 8, 1995. In August 1995, the Board of Directors again extended
the expiration date of the outstanding Class B Warrants to September 1,
1996.
12
<PAGE>
In July 1993, the Company completed a $1.2 million private placement by
issuing $650,000 in bridge notes, due June 29, 1994 (the "Bridge Notes")
and 650,000 Class C Warrants. Certain of the Bridge Notes and Class C
Warrants were issued to related parties, including the Company's major
shareholder. The Class C Warrants, which are exercisable ratably into one
share of Class A Common Stock at an exercise price of $3.00 per share,
expire on June 29, 1998. In May 1994, $600,000 of the Bridge Notes were
converted into Class A Common Stock as a portion of the consideration for
May, 1994 private placement offering described below.
In September 1993, the Company initiated an offering of up to $2,000,000
of discounted gross offering proceeds of Class A Common Stock to qualified
foreign investors under Regulation S of the Securities Act of 1933 (the
"Regulation S Offering"). At December 31, 1993, 736,135 shares of such
stock had been issued resulting in approximately $602,000 net offering
proceeds to the Company. In January 1994, an additional 450,000 shares
were issued, resulting in approximately $344,000 net offering proceeds to
the Company. As a part of the Regulation S Offering, the Company has
issued 206,751 Class D Warrants. The Class D Warrants expire two years
from the date of issuance and are exercisable at a price of $1.50 per
share of Class A Common Stock for each Class D Warrant exercised.
Also in connection with Regulation S Offering, the Company reserved for
issuance one Class E Warrant for each two shares of Class A Common Stock
purchased by the aforementioned qualified foreign investors. The Class E
Warrants were issued six months after the Class A Common Stock acquisition
dates assuming such shares of Class A Common Stock were still owned by the
Regulation S Offering investors. At June 30, 1995, there were 128,609
Class E Warrants outstanding exercisable at $1.50 per share of Class A
Common Stock for each Class E Warrant exercised. The Class E Warrants
expire in May and June of 1996.
In May 1994, the Company completed a private placement offering at market
price to certain affiliated stockholders and Bridge Note holders with the
issuance of 3,468,400 shares of Class A Common Stock, 3,468,400 Class F
Warrants, and 3,468,400 Class G Warrants. Net offering proceeds of
approximately $2,065,000 were received by the Company, consisting of
$2,020,000 conversion of debt and accrued interest and $45,000 in cash.
The Class F and Class G Warrants expire five years from the date of
issuance and are exercisable at a price of $.61 and $.92 per share,
respectively, for each share of Class A Common Stock purchased.
In 1995, in connection with an extension of a line of credit to the
Company by it major shareholder (See Note 7 to the Financial Statements
for the year ended December 31, 1994 and Note 6 to the Company's Interim
Financial Statements contained in its Quarterly Reports on Form 10-Q for
the quarters ended March 31 and June 30, 1995, respectively, which are
incorporated by reference herein), the Company's Board of Directors
authorized the issuance of up to 2,000,000 of Class H Warrants on a one-
for-one basis for each dollar advanced under the loan agreement and having
an exercise price equal to the per share market value of the Company's
Class A Common Stock on the date of such advances. While no Class H
Warrants have been issued as of the date of this Prospectus, all
authorized Class H Warrants are currently issuable and are expected to be
issued in the near future. Upon issue, the Class H Warrants will be
exercisable at prices from $.39 to $.49 per share of Class A Common Stock
for each Class H Warrant exercised. The Class H Warrants will expire in
February 2000.
13
<PAGE>
In addition to the Warrants described above, the Company has various stock
option plans which authorize the issuance of up to an aggregate of
3,500,000 shares of Class A Common Stock. At June 30, 1995, the Company
had outstanding stock options under such plans which provided for the
purchase of up to 1,974,000 shares of Class A Common Stock, of which
862,170 were exercisable at exercise prices ranging from $.66 - $3.00 per
share. See Note 3 to the Company's Interim Financial Statements contained
in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1995,
which is incorporated by reference herein.
At June 30, 1995, the Company had Class A Common Stock reserved for
issuance as follows:
Class A
Common Stock
equivalent shares
Class B Warrants 4,212,440
Stock Option Plans 3,500,000
Class C Warrants 650,000
Class D Warrants 206,751
Class E Warrants 128,609
Class F Warrants 3,468,400
Class G Warrants 3,468,400
Class H Warrants 2,000,000
17,634,600
To the extent that the above options and warrants are exercised, the
holders thereof are given an opportunity to profit from a rise in the
market price of the Company's Class A Common Stock with a resultant
dilution of the interests of stockholders at that time if the then
prevailing market price exceeds such exercise prices. The holders thereof
are likely to exercise them when, in all likelihood, the Company could
obtain funds from the sale of its securities on terms more favorable than
those provided by the options and warrants. Accordingly, the Company may
find it more difficult to raise additional capital while the options and
warrants are outstanding.
Potential Issuance of Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, $1.00 par value, none of which have been issued. The Board of
Directors of the Company is empowered to fix the terms of the Preferred
Stock without stockholder approval, which terms may adversely affect the
rights of holders of the Class A Common Stock. The Company has no current
plans to issue any shares of its Preferred Stock.
Public Market for Securities
Although the Company has listed the Class A Common Stock on NASDAQ, the
Company has yet to make a profit and there can be no assurance that a
regular trading market will be sustained for any or all of these
securities in the future. In the absence of a public trading market, an
investor may be unable to liquidate his investment should he desire to do
so.
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<PAGE>
Dividend Policy
The Company has not paid any cash dividends in the past and expects to
retain any future earnings for expansion of its business rather than to
pay cash dividends in the foreseeable future.
Non-Registration in Certain Jurisdictions
Although the Securities have been registered for sale with the Securities
and Exchange Commission under the Securities Act, action has only been
taken in a very limited number of state jurisdictions to register or
qualify the Shares for sale to prospective purchasers. Accordingly, in
the absence of any specific registration or qualification, any purchasers
of the Shares from the Selling Shareholders will be required to rely upon
applicable exemptions from registration in such state jurisdictions.
Purchasers should inquire of the Selling Shareholders to determine what
action, if any, has been taken to qualify the Shares for sale in a
particular state jurisdiction and should consult their own legal counsel
prior to effecting sales of Shares in any jurisdiction.
Limited Liability of Officers and Directors
The Delaware Supreme Court has held that a director's duty of care to a
corporation and its stockholders requires the exercise of an informed
business judgment. Having become informed of all material information
reasonably available to them, directors must act with requisite care in
the discharge of their duties. The Delaware General Corporation law
permits a corporation through its Certificate of Incorporation to
exonerate its directors from personal liability to the corporation or its
stockholders for monetary damages for breach of the fiduciary duty of care
as a director, with certain exceptions. The exceptions include a breach
of the director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law,
improper declarations of dividends and transactions from which the
directors derived an improper personal benefit. The Company's Certificate
of Incorporation exonerates its directors, acting in such capacity, from
monetary liability to the extent permitted by this statutory provision.
The limitation of liability provision does not eliminate a stockholder's
right to seek nonmonetary, equitable remedies such as injunction or
rescission to redress an action taken by directors. However, as a
practical matter, equitable remedies may not be available in all
situations and there may be instances in which no effective remedy is
available.
THE COMPANY
The Company is comprised of two separate, yet interrelated manufacturing
facilities; the Composites Manufacturing Unit, which manufactures and
markets moisture resistant composite building materials made from waste
plastics and by-product wood fibers, and the Plastics Reclamation Unit,
which primarily processes waste plastics, forming various materials that
are used in the composite manufacturing process. The Company, which was
founded in December 1988, has completed research and development which has
resulted in the receipt of eleven U.S. patents. (See "Risk Factors -
Legal Proceedings" for a description of pending litigation relating to the
invalidation of certain of the Company's patents.)
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<PAGE>
The Company's Manufacturing Unit, located in Junction, Texas markets its
moisture-resistant composite building materials under the trade names
MOISTURESHIELD TM, LIFECYCLE TM and CHOICE DEK TM. Because of their
plastic content, the composites can be engineered for moisture resistance,
do not require preservative or chemical treatments like traditional wood,
can be designed and extruded to customer specifications to minimize waste,
and are less subject to rotting, cracking, warping, insect infestation and
water absorption than conventional wood materials. Because of the wood
fiber content, composites are less subject to thermal contraction or
expansion and display greater dimensional stability than conventional
plastic materials. The composites are denser than the straight-grained,
clear grades of wood from western United States forests traditionally used
in the building applications for which AERT's products compete. The
composites manufacturing process involves proprietary technologies and
specialized manufacturing equipment, custom-built or modified for the
Company's purposes. It utilizes recycled plastics and wood-filler
materials and, in certain cases, special additives or virgin plastics in
varying mixtures which can be formulated based on the customer's desired
end-product characteristics. A key advantage of the Company's process is
the ability to utilize plentiful, low-cost raw material components,
encapsulate the wood fibers in the plastic and create a consistent
material, free of foreign matter, which can be extruded into a desired
shape while the end product maintains many properties similar to
traditional wood materials.
In May 1995, the Company entered into an exclusive marketing and
distribution agreement with a division of Weyerhaeuser ("Weyerhaeuser")
for sales of its LIFECYCLE TM line of extruded decking components, which
are primarily targeted towards the high-end residential housing market.
Weyerhaeuser will market the product under the Company's trade-name,
ChoiceDek TM, initially in a limited number of its 80 distribution and
reload centers throughout the United States. As a result of the
Weyerhaeuser agreement, the Company's sales efforts are now primarily
focused towards the following three market areas which are supplied by the
Company's composites manufacturing facility: (1) components for the
national door and window market, (2) the heavy industrial flooring market
as floor blocks for industrial applications, and (3) as decking components
for commercial and residential applications through Weyerhaeuser.
The Plastics Reclamation Unit in Rogers, Arkansas was established to
develop plastic recycling technology to enable it to serve as a
dependable, cost-effective source of plastic raw material for the
composites manufacturing unit. The Company will continue to primarily
utilize production capacity from this facility as a source of supply for
the composites facility. However, as opportunities arise, the Plastics
Reclamation Unit will also use production capacity not required for
processing raw materials for the composite facility to produce other types
of materials for sale to manufacturers of grocery bags and other plastic
goods desiring recycling content in their products. The Company began
activities at its Plastics Reclamation Facility in 1990. Since that
time, the Company has further developed its patented and proprietary waste
plastics reclamation technologies which allow it to recover waste plastics
from the by-product of paper recycling mills, as well as certain waste
plastic from post-consumer or industrial plastic films. Secondary fiber
recovery mills recycle paper and polyethylene-coated paperboard to recover
the paper fiber through a process known as hydropulping. The by-product of
the hydropulping process is a water-saturated mixture of polyethylene and
16
<PAGE>
unrecovered paper fiber, which most such mills currently dispose of
without further processing. Using certain plastics recycling
technologies, the Company has been able to economically recover
polyethylene suitable for use in its composite manufacturing process.
USE OF PROCEEDS
The Company will not directly receive any proceeds from the Shares being
offered by the Selling Shareholders, nor will any such proceeds be
available for use by it or for its benefit. However, the Company will
receive all proceeds from the exercise of the Warrants to which the Shares
relate. See "Risk Factors-Warrants and Options; Dilution" and "Selling
Shareholders" for a description of the Warrants, including the exercise
price thereof. Any such proceeds received by the Company upon exercise of
a Warrant will be used for general corporate and working capital
purposes.
17
<PAGE>
SELLING SHAREHOLDERS
<TABLE>
The following table sets forth, as of June 30, 1995, certain information with regard to the beneficial ownership of the
Company's Class A Common Stock, as well as the number of Shares being offered hereby. Certain of the Shares listed below are
owned beneficially and of record by the Selling Shareholder while other Shares underlie presently exercisable Warrants. For a
Description of the Warrants, see "Risk Factors - Outstanding Warrants and Options; Dilution."
<CAPTION>
Name and Address of Number of Shares Number of Shares Beneficially % Beneficially
Selling Shareholder Beneficially Owned Shares to Owned Following Owned Following
be Offered Completion of Completion of
Offering Offering
<S> <C> <C> <C> <C> <C>
Fritz C. Friday (A) 626,188 626,188 0 0
111 S. Dakota Avenue
New Richmond, WI 54017
Delbert and Pat Allen (B) 806,404 626,404 180,000 *
Route 1, Box 178
Siloam Springs, AR 72761
Bargo Engineering (C) 466,488 466,488 0 0
1775 Armstrong Avenue
Fayetteville, AR 72701
Clayton Murr (D) 75,000 50,000 25,000 *
P. O. Box 425
Junction, TX 76849
Kendall Ross (E) 23,272 23,272 0 0
901 Agarita
Junction, TX 76849
Rolf Leeman (F) 225,000 225,000 0 0
Lavaterstrasse 61
Zurich, Switzerland
Georgy Shugurin (G) 10,827 10,827 0 0
Slovanskaya Plaza #2
Moscow, Russia
Finmanagement, S.A. (H) 150,000 150,000 0 0
Lavaterstrasse 61
Zurich, Switzerland
Berkshire International (I) 206,751 206,751 0 0
Finance
1 Evertrust Plaza
Jersey City, NJ 07302
Jim G. & Marjorie S. (J) 11,511,120 2,925,000 8,586,120 29.3%
Brooks
1717 North Llano
Junction, TX 76849
<FN>
*Less than 1% of outstanding shares
18
<PAGE>
The "Number of Shares Beneficially Owned" prior to the offering was
determined in accordance with Rule 13d-3(d)(1) of the Exchange Act by
including all shares of Class A Common Stock underlying outstanding
options and Warrants which each Selling Shareholder has the right to
acquire within sixty days of September 30, 1995. Because the Selling
Shareholders may offer all or some part of the shares which they hold
pursuant to the continuous offering contemplated by this Prospectus, and
because their offering is not being underwritten, no estimate can be given
as to the amount of Shares that will be held by such Selling Shareholders
following the termination of this offering. Accordingly, the "Shares and
Percentages Owned following Completion of Offering" was calculated based
upon the assumption that all Shares will be sold by each of the Selling
Shareholders.
(A) The Shares to be offered by Mr. Friday include (i) 175,396 Shares
acquired at a market price based upon the average of the closing bid and
ask prices as reported by NASDAQ, (ii) 175,396 Shares issuable upon
exercise of Class F Warrants and (iii) 175,396 Shares issuable upon
exercise of Class G Warrants, all of which were acquired pursuant a
private placement transaction in May 1994. Additionally, the Shares to
be offered include 100,000 Shares issuable upon exercise of Class C
Warrants acquired in connection with the purchase by Mr. Friday of
$100,000 of Bridge Notes in 1993.
(B) The Shares to be offered by the Allens include (i) 175,468 Shares
acquired at a market price based upon the average of the closing bid and
ask prices as reported by NASDAQ, (ii) 175,468 Shares issuable upon
exercise of Class F Warrants and (iii) 175,468 Shares issuable upon
exercise of Class G Warrants, all of which were acquired pursuant a
private placement transaction in May 1994. Additionally, the Shares to
be offered include 100,000 Shares issuable upon exercise of Class C
Warrants acquired in connection with the purchase by the Allens of
$100,000 of Bridge Notes in 1993.
(C) The Shares to be offered by Bargo Engineering include (i) 130,496
Shares acquired at a market price based upon the average of the closing
bid and ask prices as reported by NASDAQ, (ii) 130,496 Shares issuable
upon exercise of Class F Warrants and (iii) 130,496 Shares issuable upon
exercise of Class G Warrants, all of which were acquired pursuant a
private placement transaction in May 1994. Additionally, the Shares to
be offered include 75,000 Shares issuable upon exercise of Class C
Warrants acquired in connection with the purchase by the Bargo of $75,000
of Bridge Notes in 1993.
(D) The Shares to be offered by Mr. Murr are issuable upon exercise of
Class C Warrants acquired in connection with a $50,000 Bridge Note
purchased in 1993.
(E) The Shares to be offered by Mr. Ross were purchased directly for cash
at market value pursuant to a private placement agreement in December,
1994. Mr. Ross is a non-officer employee of the Company.
(F) The Shares to be offered by Mr. Leeman include 150,000 Shares
acquired in November, 1993 via the Regulation S Offering (as defined under
"Risk Factors - Warrants and Options; Dilution") and 75,000 shares to be
issued upon exercise of Class E Warrants acquired in connection with the
such offering.
19
<PAGE>
(G) The Shares to be offered by Mr. Shugurin include 7,218, Shares
acquired in November, 1993 via the Regulation S Offering and 3,609 Shares
to be issued upon exercise of Class E Warrants acquired in connection with
such offering.
(H) The Shares to be offered by Finmanagement, S.A. include 100,000
Shares acquired in December, 1993 via the Regulation S Offering and 50,000
Shares to be issued upon exercise of Class E Warrants acquired in
connection with the such offering.
(I) The Shares to be offered are issuable upon exercise of Class D
Warrants acquired in November, 1993 and January, 1994 in accordance with
the terms of the Private Placement Distribution Agreement related to the
Regulation S Offering.
(J) Jim G. Brooks is Chief Executive Office and Chairman of the Board of
Directors of the Company. Marjorie S. Brooks is a Director of the Company
and served as Secretary and Treasurer until June, 1994. The Shares to be
offered by Mr. and Mrs. Brooks include (i) 600,000 Shares acquired at a
market price based upon the average of the closing bid and ask prices as
reported by NASDAQ and 2,000,000 shares issuable upon exercise of Class
F Warrants all of which were acquired pursuant to a private placement
transaction in May 1994 and (ii) 325,000 Shares issuable upon exercise of
Class C Warrants acquired in connection with the purchase by Mr. and Mrs.
Brooks of 325,000 of Bridge Notes in 1993.
</TABLE>
PLAN OF DISTRIBUTION
The Company's Common Stock is currently traded on the NASDAQ SmallCap
Market System. The distribution of the Shares may be effected from time
to time by the Selling Shareholders in one or more open market
transactions on the NASDAQ SmallCap Market System, in privately negotiated
transactions or in a combination of such methods of sale. The public
offering price for any Shares that are sold will be determined by the
price as reported on NASDAQ, or at such price as shall be determined
through private negotiations between the buyer and the Selling
Shareholders or their respective agents.
LEGAL MATTERS
The validity of the Shares offered hereby is being passed upon for the
Company by Rose Law Firm, a Professional Association, Little Rock,
Arkansas.
EXPERTS
The financial statements incorporated by reference in this prospectus and
elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is
made to said report which includes an explanatory paragraph describing the
going concern and litigation uncertainties discussed in Notes 2 and 18 to
the financial statements to the Annual Report on Form 10-K for the year
ended December 31, 1994.
20
<PAGE>
Future financial statements of the Company and the reports thereon of
Arthur Andersen LLP also will be incorporated by reference in this
prospectus in reliance upon the authority of that firm as experts in
giving those reports to the extent said firm has audited those financial
statements and consented to the use of their reports thereon.
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payable by the
Company in connection with the offering described in this Registration
Statement. No such expenses will be borne by the Selling Shareholders.
Securities and Exchange Commission
Registration Fee $ 2,218.62
Legal Fees 17,500.00
Accountant's Fees 7,500.00
Miscellaneous Expenses 5,000.00
TOTAL $32,218.62
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees or agents against judgments,
fines, amounts paid in settlement, and reasonable costs, expenses and
counsel fees paid or incurred in connection with any proceeding, other
than an action by or in the right of the Registrant, to which such
director, officer or employee or his legal representative may be a party,
provided such director, officer or employee shall have acted in good faith
and shall have reasonably believed (a) in the case of a civil proceeding,
that his conduct was in or not opposed to the best interests of the
Registrant, or (b) in the case of a criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful. In connection with
an action by or in the right of the Registrant against a director,
officer, employee or agent, the Registrant has the power to indemnify such
director, officer, employee or agent for reasonable expenses incurred in
connection with such suit (a) if such person acted in good faith and in a
manner not opposed to the best interest of the Registrant, and (b) if
found liable to the Registrant, only if ordered by a court of law.
Section 145 provides that such section is not exclusive of any other
indemnification rights granted by the Registrant to directors, officers,
employees or agents.
The Certificate of Incorporation of the Registrant provides for mandatory
indemnification of directors, officers and employees to the fullest extent
permitted by section 145, unless the Registrant proves that the person
seeking indemnification did not meet the standard set forth above. The
Certificate permits the Registrant to indemnify agents to the extent
authorized from time to time by the Board of Directors. The right to
indemnification is a contract right and includes the right to be paid by
the Registrant the expenses incurred in defending any such proceeding in
advance of its final disposition, provided that the indemnitee undertakes
to repay all amounts so advanced if it is ultimately determined that such
indemnitee is not entitled to be indemnified for such expenses.
The Certificate of Incorporation of the Registrant also contains a
provision eliminating the liability of a director to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a
II-1
<PAGE>
director, other than liability for (a) breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law, (c) unlawful payment of a dividend or unlawful stock
purchase or redemption, or (d) any transaction from which the director
derived an improper personal benefit.
Inasmuch as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, or otherwise, the Company
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits.
Exhibit
Number Description of Exhibits
4.1 Certificate of Incorporation of Registrant, including
Certificates of Amendment (incorporated by reference from
Exhibit to Registration Statement on Form S-1,
No. 33-29595, filed with the Commission on June 28, 1989
and Exhibit to Amendment No. 1 to Registration Statement
on Form S-1, No. 33-29595, filed with the Commission on
August 24, 1989)
4.2 Bylaws of Registrant (incorporated by reference from
Exhibit to Registration Statement on Form S-1,
No. 33-29595, filed with the Commission on June 28, 1989)
4.3 Form of Class A Common Certificate (incorporated by
reference from Exhibit to Amendment No. 2 to Registration
Statement on Form S-1, No. 33-29595, filed with the
Commission on November 8, 1989)
5 Opinion and Consent of Rose Law Firm, a Professional
Association
10A* Private Placement Agreement
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Rose Law Firm, a Professional Association
(included in Exhibit 5)
*Previously filed
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
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<PAGE>
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10 (a) (3) of the
Securities Act of 1933, unless the information required to be included in
such post-effective amendment is contained in a periodic report filed by
registrant pursuant to Section 13 or Section 15 (d) of the Securities
Exchange Act of 1934 and incorporated herein by reference;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, unless the information required to be included in
such post-effective amendment is contained in a periodic report filed by
registrant pursuant to Section 13 or Section 15 (d) of the Securities
Exchange Act of 1934 and incorporated herein by reference; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
4. That, for purposes of determining liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13 (a) or Section 15 (d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions referred to
in Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and had duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Washington, State of Arkansas, on the 9th day
of October , 1995.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(Registrant)
By: /s/ Jim G. Brooks
Jim G. Brooks
Its: Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Jim G. Brooks Chairman of the Board, October 9, 1995
Jim G. Brooks Chief Executive Officer
/s/ Joe G. Brooks President and Director October 9, 1995
Joe G. Brooks
/s/ Majorie S. Brooks Director October 9, 1995
Marjorie S. Brooks
______________________ Director
Jerry B. Burkett
______________________ Director
Sal Miwa
/s/ David C. Chapman Secretary, Treasurer and October 9, 1995
David C. Chapman Chief Financial Officer
and Principal Accounting
Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
4.1 Certificate of Incorporation of Registrant,
including Certificates of Amendment
(incorporated by reference from Exhibit to
Registration Statement on Form S-1, No. 33-29595,
filed with the Commission on June 28, 1989 and
Exhibit to Amendment No. 1 to Registration
Statement on Form S-1, No. 33-29595, filed with
the Commission on August 24, 1989)
4.2 Bylaws of Registrant (incorporated by reference
from Exhibit to Registration Statement on Form
S-1, No. 33-29595, filed with the Commission on
June 28, 1989)
4.3 Form of Class A Common Certificate (incorporated
by reference from Exhibit to Amendment No. 2 to
Registration Statement on Form S-1, No. 33-29595,
filed with the Commission on November 8, 1989)
5 Opinion and Consent of Rose Law Firm, a Professional
Association
10A* Private Placement Agreement
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Rose Law Firm, a Professional Association
(included in Exhibit 5)
*Previously filed
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<PAGE>
Exhibit 5
ROSE LAW FIRM
a Professional Association
Attorneys
120 East Fourth Street
Little Rock, Arkansas 72201-2893
Telephone (501)375-9131
Facsimile (501)375-1309
October 13, 1995
AERT, Inc.
901 West Robinson
Springdale, Arkansas 72764
Re: Advanced Environmental Recycling Technologies, Inc.
("Company") Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for the Company in connection with the registration
under the Securities Act of 1933, as amended, of 5,309,930 shares of the
Company's Class A Common Stock, par value $.01 per share, issued in
connection with certain private securities offerings.
It is our opinion that such shares of the Company's Class A Common Stock have
been duly and validly authorized by the Company, and such shares of Common
Stock are, or when issued will be, validly and legally issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion as an exhibit to the referenced
Registration Statement.
Very truly yours,
ROSE LAW FIRM,
a Professional Association
By: /s/ Jeffrey J. Gearhart
Jeffrey J. Gearhart
<PAGE>
Exhibit 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 24, 1995,
included in Advanced Environmental Recycling Technologies, Inc.'s Form 10-K
for the year ended December 31, 1994, and to all references to our firm
included in this Registration Statement.
/s/ Arthur Andersen LLP
San Antonio, Texas
October 13, 1995
