<PAGE>
As filed with the Securities and Exchange Commission on June 1, 1998
Registration No. 333-42555
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
-----------------------
Joe G. Brooks
801 N. Jefferson Street 801 N. Jefferson Street
Springdale, Arkansas 72764 Springdale, Arkansas 72764
(501) 750-1299 (501) 750-1299
(Address of registrant's (Name, address and telephone
principal executive offices) number of agent for service)
-----------------------
Copies of communications to:
J. Patrick Ryan, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, TX 78205
(210) 281-7000
-----------------------
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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount Proposed Proposed Amount of
securities to be Maximum Maximum Registration
to be registered Registered Offering Price Aggregate Fee
Per Share(1) Offering Price(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, 7,075,676 (2) $1.30 $9,198,379 $2,714 (3)
($0.01 Par Value) $2,189: balance due
===================================================================================================
</TABLE>
(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 on May 22,
1998.
(2) Represents up to 348,876 shares (the "Interest Shares") of the Company's
Class A Common Stock, par value $0.01 per share ("Common Stock"),
issuable as quarterly interest payments upon $2,510,000 aggregate
principal amount of 12% Promissory Notes due July 27, 1998, November 2,
1998 and January 2, 1999, (extendable at the Company's option to October
30, 1998, January 31, 1999 and April 2, 1999, respectively) (the "Notes")
and up to 6,726,800 shares of Common Stock issuable upon the exercise of
certain stock purchase warrants (the "Warrants") issued by the Company
and, pursuant to Rule 416 of the Securities Act of 1933, as amended (the
"Securities Act"), also includes an indeterminate number of shares of
Common Stock which may become issuable: (A) with respect to the Interest
Shares or upon exercise of the Warrants to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (B)
pursuant to the Notes by reason of increases in the interest rates
applicable thereto and/or the amount of interest payable thereon and by
reason of reduction in the market price of the Company's Common Stock.
(3) Of this $2,714 registration fee, $525 has been previously paid.
------------------------------------
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>
PROSPECTUS
- ----------
MAY 29, 1998
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 THAT THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY 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.
SUBJECT TO COMPLETION, DATED MAY 29, 1998
UP TO 7,075,676 SHARES
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
CLASS A COMMON STOCK
($0.01 PAR VALUE PER SHARE)
______________________________________
This Prospectus relates to an aggregate of up to 7,075,676 shares (the
"Shares") of Class A Common Stock, par value $0.01 per share ("Common Stock"),
of Advanced Environmental Recycling Technologies, Inc. (the "Company" or "AERT")
which may be offered from time to time by the selling stockholders named herein
(the "Selling Stockholders"). See "Selling Stockholders." The Shares are
issuable from time to time by the Company to the Selling Stockholders as
follows:
(i) up to 348,876 Shares (the "Interest Shares") are issuable as quarterly
interest payments upon $2,510,000 aggregate principal amount of 12%
Promissory Notes (the "Notes"), issued and issuable hereafter to certain of
the Selling Stockholders (the "Noteholders") in connection with a private
placement of securities pursuant to Note Purchase Agreements entered into as
of October 30, 1997, February 5, 1998 and April 7, 1998, between the Company
and the Noteholders (the "Note Purchase Agreements") and due July 27, 1998,
November 2, 1998 and January 2, 1999, respectively, (as described herein,
the actual number of Interest Shares that are issued will depend on the
average closing bid price of the Common Stock prior to each quarterly
payment);
(ii) up to 451,800 Shares (the "Private Placement Warrant Shares") are
issuable upon the exercise of stock purchase warrants (the "Private Placement
Warrants") issued and issuable hereafter to certain of the Selling
Stockholders pursuant to a Placement Agency Agreement (the "Placement
Agreement") dated October 30, 1997, executed with The Zanett Securities
Corporation (the "Placement Agent"); and,
(iii) up to 6,275,000 Shares (the "Consulting Shares") are issuable upon
the exercise of stock purchase warrants (the "Consulting Warrants") issued to
certain Selling Stockholders pursuant to Consulting Agreements dated October
30, 1997, with Bruno Guazzoni (the "Consultant"), one of such Selling
Stockholders.
This prospectus also covers, pursuant to Rule 416 of the Securities Act of
1933, as amended, (the "Securities Act") the offer and sale by the Selling
Stockholders of any and all shares of Common Stock which may become issuable
with respect to the Interest Shares, or upon exercise of the Private Placement
Warrants and the Consulting Warrants to prevent dilution resulting from stock
splits, stock dividends and similar transactions and pursuant to the Notes by
reason of increases in the interest rate applicable thereto and/or the amount of
interest payable thereon and by reason of reductions in the average closing bid
price of the Common Stock.
<PAGE>
The Company will receive proceeds, under certain conditions, only upon the
exercise of the Private Placement Warrants and the Consulting Warrants and will
not receive any of the proceeds from the sale of the Shares by the Selling
Stockholders. See "Use of Proceeds".
The Company's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol "AERTA". On May 21, 1998, the last reported sale price of the Common
Stock, as reported by the NASDAQ SmallCap Market System was $1.2813 per share.
The Shares covered under the Registration Statement of which this Prospectus
is a part may be offered and sold from time to time by the Selling Stockholders
in the open market, on the NASDAQ SmallCap Market, in privately negotiated
transactions, as an underwritten offering, or in a combination of such methods,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Shares are intended to
be sold through one or more broker-dealers or directly to purchasers. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Stockholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). The Selling Stockholders and any broker-
dealers acting in connection with the sale of the Shares hereunder may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profits realized by them on resale
of the Shares as principals may be deemed underwriting compensation under the
Securities Act. See "Selling Stockholders" and "Plan of Distribution".
The Company has agreed to bear the expenses incident to the offer and sale of
the Shares to the public, including the costs associated with the registration
of the Shares under the Securities Act and preparing and printing this
Prospectus. Underwriting commissions and broker fees, however, as well as any
applicable transfer taxes, are payable individually by the Selling Stockholders.
The Company and the Selling Stockholders have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
THE SECURITIES OFFERED HERBY 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 May 29, 1998.
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,
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.
Reports, proxy and information statements filed by the Company with the
Commission pursuant to the information requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; Los Angeles Regional
Office, Suite 1100, 5670 Wilshire Boulevard, Los Angeles, California 90036; and
Chicago Regional Office, 500 W. Madison
2
<PAGE>
Street, 4th Floor, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxies and information statements and other information regarding
registrants (including the Company) that file electronically. In addition,
reports, proxy statements and other information concerning the Company can be
inspected and copied at the offices of NASDAQ, Report Section, 1735 K Street,
N.W., Washington, D.C. 20006.
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., 801 N. JEFFERSON STREET, 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, 1997;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and,
3. 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.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus has been delivered, upon the oral or
written request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits to such documents, unless
specifically incorporated by reference). Such requests for copies should be
directed to Joe G. Brooks, President, Advanced Environmental Recycling
Technologies, Inc., 801 N. Jefferson Street, Springdale, Arkansas 72764 (501)
750-1299.
3
<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
The Company manufactures and markets a line of engineered composite
building material products that exhibit superior moisture resistance and
dimensional stability, as well as several other unique properties over
traditional wood products. The Company's products have been extensively
tested and used by several leading national companies. The Company
primarily utilizes waste wood fiber and reclaimed polyethylene plastic as
its raw material sources. The Company markets its products under the trade
names MoistureShield(TM) and ChoiceDek(TM) and its sales are now primarily
focused towards the following three market areas which are currently
supplied by the Company's composites manufacturing facility in Junction,
Texas: (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 Company is currently expanding its
manufacturing capabilities with the addition of a second composite
manufacturing and plastic reclamation facility in Springdale, Arkansas.
THE OFFERING
Shares Offered .................. Up to 7,075,676 shares of Common Stock.
Use of Proceeds ................. The Company will not directly receive any
proceeds from the Shares being offered by
the Selling Stockholders, nor will any
such proceeds be available for use by it
or for its benefit; however, the Company
could receive proceeds from the exercise
of the Warrants to which certain of such
Shares relate. See "Risk Factors" "Notes,
Warrants and Options; Dilution" and
"Selling Stockholders" for a description
of the Warrants, including the exercise
price thereof. Any such proceeds received
by the Company upon exercise of Warrants
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 "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. In addition, this Prospectus contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Such forward-looking statements, which are often
identified by words such as "believes," "anticipates," "expects", "estimates,"
"should," "may," "will" and similar expressions, represent the Company's
expectations or beliefs concerning future events. Numerous assumptions, risks
and uncertainties, including the factors set forth below, could cause actual
results to differ materially from the results discussed in the forward looking
statements. Prospective purchasers of the Shares should carefully consider the
factors set forth below, as well as the other information contained herein or in
the documents incorporated herein by reference.
FINANCIAL POSITION OF THE COMPANY, WORKING CAPITAL DEFICIT; REPORT OF
INDEPENDENT AUDITORS
The Company through March 31, 1998 has generated aggregate sales revenues of
$29,426,665, since inception in December 1988 ($7,982,381 for the year ended
December 31, 1997 and $2,507,300 for the quarter ended March 31, 1998). At
March 31, 1998, the Company had a working capital deficit of $4,269,120 and had
incurred cumulative losses from inception on December 2, 1988 through March 31,
1998 of $20,312,699 ($1,156,020 for the year ended December 31, 1997 and
$518,941 for the quarter ended March 31, 1998). The Company has not yet
generated operating income from operations, nor is there any assurance that the
Company will achieve future revenue levels and operating efficiencies to support
existing operations, consistently 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 at least the second quarter of 1998
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, has commenced
operations at a second manufacturing facility, and is currently experiencing a
backlog in purchase orders and projects pending already received from certain
composites customers. 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 materially adverse effect on
the Company's prospects.
The independent public accountant's report on the Company's financial
statements for the year ended December 31, 1997, contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. See
Report of Independent Public Accountant's contained in, and Note 2 to, the
Financial Statements for the year ended December 31, 1997 and Note 3 to the
Company's Interim Financial Statements contained in its Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, which is incorporated by reference
herein.
NEED FOR ADDITIONAL FINANCING
Substantially all of the Company's working capital and capital improvement
needs for the preceding twelve months have been met from proceeds of additional
debt financing of approximately $1.3 million and $1.21 million obtained during
1997 and 1998, respectively, and of $2,260,000 obtained from equity private
placements during 1996 and 1997. Substantially all of the proceeds from such
financings have been expended by the Company. The Company has been primarily
dependent, until recently, on financing from a major stockholder, and there is
no assurance that such support can continue. In particular the Company has been
dependent over the last twelve months on the fund raising efforts of its
President with accredited investors. The Company maintains an accounts
receivable factoring agreement for up to $700,000 through Marjorie S. Brooks, a
major stockholder. 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. The Company as of
March 31, 1998 also owed $825,942 to Marjorie S. Brooks, a major stockholder,
which was classified as long-term debt.
The Company has secured bridge loans from certain of the Selling
Stockholders, all of whom are accredited investors, during October 1997,
February 1998 and April 1998, which provided $1.3 million, $800,000 and
$410,000, respectively, of additional cash for expansion and limited corporate
purposes through April 1998. Pursuant to the Placement Agreement, the Company
granted to the Placement Agent a two-year option to offer and place on behalf of
the Company an additional $990,000 (in addition to the $1.21 million of Notes
already issued in February and April 1998) in aggregate principal amount of
promissory notes (the "Additional Notes"); the terms of any further Additional
Notes which may be issued may vary from the terms of the Notes, but shall
provide that, unless extended by the Company at its option, the Additional Notes
shall
5
<PAGE>
mature and become payable on a date 270 days from the date of initial issuance
thereof. In addition, subject to certain exceptions, the Placement Agent has
rights to approve and/or participate in future debt or equity financings by the
Company for a two-year term. Such rights could have an adverse effect on the
Company's ability to obtain additional financing. In the event that the
Placement Agent exercises its option to offer and place the Additional Notes,
the Placement Agent will be entitled to receive a 10% placement agent fee and
3% nonaccountable expense allowance based on the aggregate gross proceeds to
the Company from the sale of the Additional Notes and the Placement Agent and
the Consultant will be entitled to receive additional warrants. See "Risk
Factors-Notes, Warrants and Options-Dilution".
The Company is also currently pursuing low interest bond financing from a
state economic development agency, and a working capital line of credit with a
major financial institution although consummation of these financings is
conditioned upon, among other things, the Company's completion of a second
multi-purpose facility in Springdale, Arkansas. There can be no assurance that
the Company will be successful in its efforts to secure additional financing.
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 twelve 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, approximately $2.5
million of which represent short-term indebtedness.
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 ability to pay its existing
debt obligations and 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 creditors and
purchasers of the Company's products would accept any such delay or that such
purchasers would not locate alternative supply sources.
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.
LEGAL PROCEEDINGS
In June 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 a 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 seeks no monetary damages in this suit,
but does seek reimbursement of its attorneys' fees.
In December 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's counsel 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. That motion
6
<PAGE>
was 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. In December 1995, the Company also moved to supplement its pending
March 14, 1995 Motion with additional tampered evidence and discovery misconduct
by Mobil. The March 14, 1995 Motion is currently stayed before the Delaware
Court. The Company filed an appeal with the U.S. Court of Appeals on July 10,
1995 on the initial trial arguments. In January 1996, oral arguments were
presented before the U.S. Court of Appeals. In June 1996, the U. S. Court of
Appeals reversed a portion of the earlier ruling that two of the patents were
invalid, and that Mobil did not infringe. The Company did not further appeal
this issue to the Supreme Court. 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 attorney's 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 Attorney's Fees. In April 1995, the
Court requested AERT to respond to Mobil's Motion. The Motion is currently
stayed. The Company will vigorously defend against Mobil's claim for attorney's
fees and costs; however, there can be no assurances as to the outcome of this
litigation. The Company at present cannot predict when the Mobil motion for
attorney's fees and the AERT prejudicial misconduct motion for a new trial will
be addressed by the Delaware Court. The Company has not recorded any liability
related to such litigation at March 31, 1998. Mobil Oil divested its composites
business in 1996 and no longer directly competes with the Company.
In a related matter, the Company recently received a formal notice of
allowance from the United States Patent and Trademark Office concerning a
related product by process patent application, which has been pending throughout
the litigation. This is an application, which was filed on the same date as
those currently in litigation, although substantial additional disclosures have
been made.
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 and to periodic downturns caused
by general economic conditions. Single housing construction starts were steady
over the proceeding year and there was good demand for door and window
components from the Company. Reductions in construction activity could have an
adverse effect on the demand for AERT composites in the door and window market.
The Company's decking line is primarily targeted to the remodeling 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.
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. The Company currently
only has one composite manufacturing facility, although the Company is currently
constructing a second composite manufacturing facility in Springdale, Arkansas.
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 and or capacities in order to realize
profitable operations, even assuming the availability of adequate financing and
customer demand for its products. The Company's primary customers and markets
are large and increased sales growth will require significant capital
expenditures. There can be no assurance that financing can be obtained to
expand existing or build additional manufacturing facilities or that, if
obtained, they could become operational in a timely manner.
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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 building
material 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/ 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 interest or support regarding ongoing production delays by 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 ChoiceDek/TM/, the residential decking material produced from the
Company's composite manufacturing facility. These large customers are 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. Those that account for more than
10% of sales for the current year are Carolina Builders Corporation, Therma Tru
Corporation and Weyerhaeuser. The Company could be materially adversely
affected if it were to lose one or more of its large 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
thirteen patents, five of which relate to the Company's composite materials
manufacturing operations and eight of which relate to its waste plastics
reclamation technologies. However, four composite patents have been challenged
by Mobil Oil Corporation and found invalid. (See "Legal Proceedings"). Two
were later restored upon appeal. The cost of litigation to preserve proprietary
rights is high and in the past has strained the financial resources of the
Company as well as 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.
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
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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. Several such competitors are currently attempting to develop and
introduce similar recycled composite materials. Competitive products currently
entering the market include Trex(R), TimberTech(TM) and Strandex. 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, has achieved significant commercial
acceptance to-date.
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.
FIRE DISRUPTIONS
The Company experienced a series of fires over the past several years, which
has severely disrupted its manufacturing operations. In 1996, the Company
experienced two fires at its Rogers, Arkansas plastic reclamation facility,
which were ruled arson by authorities. The pattern of continued fires caused
the Company's fire insurance to be cancelled. The Company was able to renew its
fire insurance, but at a substantially higher rate. The Company has increased
security and added armed guards at its facilities. However, another major fire
or similar disruptions could materially adversely affect the Company.
RELIANCE UPON MANAGEMENT AND QUALIFIED TECHNICAL ASSISTANCE
The Company is substantially dependent upon the personal efforts and
abilities of Joe G. Brooks, its President, Grant Martin, its Chief Operating
Officer, J. Douglas Brooks, its Vice President of Recycled Plastics, Steve
Brooks, its CEO, 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.
VOTING CONTROL BY MANAGEMENT
At March 31, 1998, the Company's directors and officers in the aggregate
beneficially owned 14,743,388 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 1,345,657 shares
of Class B Common Stock, which constituted approximately 36.1% and 91.8% of the
Class A Common Stock and Class B Common Stock, respectively, and approximately
44.6% of the combined general voting power of the Company. Accordingly, such
persons may 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.
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NOTES, 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. Each unit consisted of three
shares of Class A Common Stock and three redeemable Class A Warrants. 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. As a result thereof the Company has issued
and outstanding 4,212,740 shares of Class B Warrants. The Board of Directors
has extended the expiration date of the outstanding Class B Warrants to July 1,
1998.
In July 1993, the Company completed a $1.2 million private placement by
issuing $650,000 in short-term notes, due June 29, 1994 and 650,000 Class C
Warrants. Certain of such notes and Class C Warrants were issued to related
parties, including the Company's major stockholder. 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 consideration of other
financing and support provided by Marjorie S. Brooks, the expiration date of
325,000 Class C Warrants was extended by the Board of Directors to June 2003.
In May 1994, $600,000 of such notes were converted into Class A Common Stock as
a portion of the consideration for May 1994 private placement offering described
below.
In May 1994, the Company completed a private placement offering at market
price to certain affiliated stockholders and noteholders 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 consideration of other financing and support provided by Marjorie S. Brooks,
the expiration dates of 856,094 Class F Warrants and 2,986,590 Class G Warrants
were extended by the Board of Directors to June 2004.
In 1995, in connection with an extension of a line of credit to the Company
by its major stockholder, 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. The Class H Warrants for 2,000,000 shares are exercisable at
prices from $0.39 to $0.49 per share of Class A Common Stock. The Class H
Warrants will expire in February 2005.
In May 1996, the Company completed a private placement offering with the
issuance of 338,624 shares of Class A Common Stock to an accredited investor for
$200,000 in cash.
Between April and December of 1996, the Company issued 2,956,396 shares of
Class A Common Stock in Regulation S transactions for $1,831,000, and issued
295,608 warrants as part of the transactions at exercise prices ranging from
$0.375 to $1.125. Between January and March of 1997, the Company issued 977,367
shares of Class A Common Stock in Regulation S transactions for $229,000, and
issued 97,736 warrants as part of the transactions at exercise prices ranging
from $0.31 to $0.375.
In December 1996, in connection with a note payable of $100,000, the Company
authorized and issued two sets of Warrants, Class J for 200,000 shares and Class
K for 150,000 shares. Each Class J and Class K Warrant is exercisable on a
one-for-one basis with common stock. Each Class J Warrant is exercisable at
$0.50 per share and each Class K Warrant is exercisable at $0.75 per share.
Both Class J and Class K Warrants expire five years from the date of issuance.
In October 1997, the Company issued $1.3 million aggregate principal amount
of 12% promissory notes due July 27, 1998 (extendable at the Company's option to
October 30, 1998) in a private placement to certain of the Selling Stockholders.
Pursuant to the Placement Agreement, the Company also issued similar 12% Notes
for $800,000 in February 1998, and $410,000 in April 1998, which mature November
2, 1998 and January 2, 1999, respectively, (extendable at the Company's option
to January 31, 1999 and April 2, 1999, respectively). Quarterly interest on the
Notes is payable in shares of Common Stock, valued at the average closing bid
price over the ten trading days prior to each such interest payment date, or
cash at the Company's option. Pursuant to the Placement Agreement executed
concurrently with the October 1997 Note Purchase Agreement, the Company also
granted to the Placement Agent a two-year option to offer and place on behalf of
the Company an additional $2,200,000 in aggregate principal amount of promissory
notes, $1,210,000 of which has been issued and sold in February and April 1998
on substantially similar terms; the terms of any further Additional Notes, which
may be issued may vary from the terms of the Notes, but will provide that,
unless extended by the Company at its option, the Additional Notes will mature
and become payable on a date 270 days from the date of initial issuance thereof.
In the event that the Placement Agent exercises its option to offer and place
the Additional Notes, the Company is required to deliver to the Placement Agent
warrants, in substantially the form of the Private Placement Warrants, to
purchase such
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number of shares of the Company's Common Stock as is equal to 12% of the
aggregate purchase price of the Additional Notes (as expressed in numerical
rather than dollar terms) or in the event that the term of the Additional Notes
is extended, at the Company's option from 270 days to 365 days, such number of
shares of Common Stock as is equal to 18% of the aggregate purchase price of the
Additional Notes (as expressed in numerical rather than dollar terms) (in either
case the "Additional Placement Warrants"). In addition, in the event of the sale
of such Additional Notes, the Consultant becomes entitled under the Consulting
Agreement to additional warrants, in substantially the form of the Consulting
Warrants, to purchase such number of shares of the Company's Common Stock as is
equal to 200% of the aggregate purchase price of the Additional Notes (as
expressed in numerical rather than dollar terms) or in the event that the term
of the Additional Notes is extended, such number of shares as is equal to 250%
of the aggregate purchase price of the Additional Notes (the "Additional
Consulting Warrants"). The Additional Placement Warrants and Additional
Consulting Warrants will be exercisable for a period of five years from the date
of issuance at a price per share equal to the average of the closing bid prices
(as defined) for the Common Stock during the five consecutive trading days
ending on the trading day immediately preceding the closing date for the sale of
the Additional Notes. The warrant shares issuable upon exercise of the
Additional Placement Warrants and Additional Consulting Warrants will be
considered "Registrable Securities" under the Registration Rights Agreement
executed with the Placement Agent and Consultant. Concurrently with the Note
Purchase Agreements, the Company issued Private Placement Warrants to the
Placement Agent, 301,200 of which Private Placement Warrants were outstanding as
of May 21, 1998. The Private Placement Warrants are exercisable at a price of
$0.375 per share, for a five-year term, and are subject to customary anti-
dilution provisions for stock splits, stock dividends, reverse stock splits,
mergers or consolidations, below-market stock issuances and similar events.
Also, in October 1997, the Company entered into the Consulting Agreement with
the Consultant pursuant to which the Consultant will provide investment banking
and general financial and strategic advisory services during a five-year term.
In consideration thereof, the Company granted consulting warrants to the
Consultant and one affiliated Selling Stockholder, 5,020,000 of which Consulting
Warrants were outstanding as of May 21, 1998. The Consulting Warrants are
exercisable at a price of $0.375 per share for a five-year term and are subject
to customary anti-dilution adjustments similar to the Private Placement
Warrants.
In January 1998, in consideration of renewal of the Company's $700,000
receivable line, the Company issued 700,000 warrants (the "Financing Warrants")
at market ($0.875) to the major shareholder.
In addition to the Warrants described above, the Company has various stock
option plans which authorize the issuance of up to an aggregate of 5,600,000
shares of Class A Common Stock. At March 31, 1998, the Company had outstanding
stock options under such plans which provided for the purchase of up to
4,141,500 shares of Common Stock at exercise prices ranging from $0.375 to $3.00
per share, of which 1,941,500 were currently exercisable.
For the term of each of the warrants discussed herein, the holders thereof
will have, at a fixed cost, and in some cases a nominal cost, the opportunity to
profit from a rise in the market price of the Common Stock without assuming the
risk of ownership, with a resulting dilution in the interest of the other
security holders. As long as such warrants and options remain unexercised, the
Company's ability to obtain additional capital might be adversely affected.
Moreover, the holders of such warrants and options may be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital through a new offering of its securities on terms more favorable
than those provided by warrants.
POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED.
Out of an authorized capitalization of 62,500,000 shares of capital stock,
including 50,000,000 of Class A Common Stock, as of March 31, 1998, there were
20,530,147 shares of Common Stock and 1,465,530 shares of Class B Common Stock
outstanding (which shares of Class B Common Stock are convertible into Common
Stock and for which 1,465,530 shares of authorized but unissued Common Stock
have been reserved). In addition, the Company has reserved a total of
28,297,902 shares of Common Stock for issuance as follows: (i) 12,618,839 shares
for issuance upon exercise of the Series B through Series K Warrants described
above; (ii) 4,950,668 shares for issuance pursuant to the stock option plans
described above; (iii) 648,395 shares for potential issuance of Interest Shares;
(iv) 700,000 shares for potential issuance pursuant to Financing Warrants; (v)
630,000 shares for potential issuance pursuant to Private Placement Warrants or
Additional Private Placement Warrants, and (vi) 8,750,000 shares for potential
issuance pursuant to Consulting Warrants or Additional Consulting Warrants. The
Company also has contractual commitments for the issuance of options or warrants
for an additional 293,579 shares of Class A Common Stock, for which no
reservation has been made, subject to stockholder approval of an increase in the
authorized capital stock, consummation of a previously authorized reverse stock
split, or expiration of sufficient outstanding options or warrants without
exercise. The existence of the warrants and options described herein and the
unavailability of additional shares of authorized Class A Common Stock, may
adversely affect the Company's ability to consummate future equity financing.
Further, the holders of such warrants and options may exercise them at a time
when the Company would otherwise be able to obtain additional equity capital on
terms more favorable to the Company.
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POTENTIAL INFLUENCE ON THE MARKET AND THE COMPANY.
A significant amount of the Shares offered hereby will be held by, and may be
sold to customers of the Placement Agent. If the Placement Agent participates
in the market, as a market maker or otherwise, the Placement Agent may exert a
dominating influence on the market for the Shares described in this Prospectus.
Such market making activity may be discontinued at any time. The price and
liquidity of the Common Stock may be significantly affected by the degree, if
any, of the Placement Agent's participation in such market.
NO ASSURANCE OF NASDAQ SMALLCAP MARKET LISTING; RISK OF LOW-PRICED SECURITIES;
RISK OF APPLICATION OF PENNY STOCK RULES.
The Board of Governors of the National Association of Securities Dealers,
Inc. has established certain standards for the initial listing and continued
listing of a security on the NASDAQ SmallCap Market. The standards for initial
listing require, among other things, that an issuer have total assets of
$4,000,000 and capital and surplus of at least $2,000,000; that the minimum bid
price for the listed securities be $3.00 per share; that the minimum market
value of the public float (the shares held by non-insiders) be at least
$2,000,000; and that there be at least two market makers for the issuer's
securities. The maintenance standards require, among other things, that an
issuer have total assets of at least $2,000,000 and capital and surplus of at
least $1,000,000; that the minimum bid price for the listed securities be $1.00
per share; that the minimum market value of the "public float" be at least
$1,000,000; and that there be at least two market makers for the issuer's
securities. A deficiency in either the market value of the public float or the
bid price maintenance standard will be deemed to exist if the issuer fails the
individual stated requirement for ten consecutive trading days. If an issuer
falls below the bid price maintenance standard, it may remain on the NASDAQ
SmallCap Market if the market value of the public float is at least $1,000,000
and the issuer has $2,000,000 in equity. The NASDAQ SmallCap Market has
recently adopted new maintenance criteria, which eliminates the exception to the
$1.00 per share minimum bid price and require, among other things, $2,000,000
net tangible assets, $1,000,000 market value of the public float and adherence
to certain corporate governance provisions. The Company has been formally
notified by NASDAQ that it had until May 28, 1998 to bring the price of its
stock up to a minimum $1.00 bid. As of December 31, 1997, the Company's bid
price was below $1.00. As of May 21, 1998, the Company's closing bid price was
$1.2813. The Company on April 14, 1998 was notified by NASDAQ that it had
regained minimum bid price compliance. The Company's stockholders, in August
authorized a 6 for 1 reverse stock split, which has not yet been implemented.
There can be no assurance that the Company will continue to satisfy the
requirements for maintaining a NASDAQ SmallCap Market listing. If the Company's
securities were to be excluded from the NASDAQ SmallCap Market, it would
adversely affect the prices of such securities and the ability of holders to
sell them, and the Company would then be required to comply with the more
difficult initial listing requirements to be re-listed on the NASDAQ SmallCap
Market.
If the Company is unable to satisfy maintenance requirements and the price
per share were to continue below $1.00, then unless the Company satisfied
certain net tests, the Company's securities would become subject to certain
penny stock rules promulgated by the SEC (the "Commission"). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the nature and level of risks of penny stock market securities. The broker-
dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in
the transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
such rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock. If the Common Stock
becomes subject to the penny stock rules, investors may find it more difficult
to sell their shares.
Unaudited information subsequent to December 31, 1997 and March 31, 1998
indicates that losses are continuing. Due to continuing net losses, there can
be no assurance that the Company will be able to maintain compliance with the
net tangible asset requirement in the future.
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.
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.
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NON-REGISTRATION IN CERTAIN JURISDICTIONS
Although the Shares are being registered for sale with the SEC 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 Stockholders will
be required to rely upon applicable exemptions from registration in such state
jurisdictions. Purchasers should inquire of the Selling Stockholders 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.
THE COMPANY
The Company manufactures and markets a line of engineered composite building
material products that exhibit superior moisture resistance and dimensional
stability, as well as, several other unique properties over traditional wood
products. The Company's products have been extensively tested and used by
several leading national companies. The Company primarily utilizes waste wood
fiber and reclaimed polyethylene plastic as its raw material sources. The
Company markets its products under the trade names MoistureShield/TM/ and
ChoiceDek/TM/ and its sales are now primarily focused towards the following
three market areas which are currently supplied by the Company's composites
manufacturing facility in Junction, Texas: (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 Company is currently
expanding its manufacturing capabilities with the addition of a second composite
manufacturing and plastic reclamation facility in Springdale, Arkansas.
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 ChoiceDek/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 has marketed 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.
To date, Weyerhaeuser decking sales have been limited primarily by the companies
limited ability to produce product.
USE OF PROCEEDS
The Company will not directly receive any proceeds from the Shares being
offered by the Selling Stockholders, nor will any such proceeds be available for
use by it or for its benefit. However, the Company could receive proceeds from
the exercise of the Private Placement Warrants and the Consulting Warrants to
which certain of the Shares relate. Any such proceeds received by the Company
upon exercise of a Warrant will be used for general corporate and working
capital purposes.
13
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders, the
number of shares of Commons Stock owned beneficially by each of the Selling
Stockholders as of May 29, 1998, and the number of shares which may be offered
for sale pursuant to this Prospectus. Information set forth herein with respect
to each Selling Stockholder's beneficial ownership of Common Stock has been
provided by such Selling Stockholder. Because the Selling Stockholders may offer
all, some or none of their Common Stock, no definitive estimate as to the number
of shares that will be held by the Selling Stockholders after such offering can
be provided and the following table has been prepared on the assumption that all
shares of Common Stock covered by this prospectus will be sold. Unless
otherwise indicated, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Except as stated herein,
none of the Selling Stockholders are affiliated with the Company or has had any
material relationship with the Company within the past three years.
This prospectus also covers, pursuant to Rule 416 of the Securities Act,
the offer and sale by the Selling Stockholders of any and all shares of Common
Stock which may become issuable with respect to the Interest Shares or upon
exercise of the Private Placement Warrants and the Consulting Warrants to
prevent dilution resulting from stock splits, stock dividends and similar
transactions and pursuant to the Notes by reason of increases in the interest
rate applicable thereto and/or the amount of interest payable thereon and by
reason of reductions in the average closing bid price of the Common Stock.
<TABLE>
<CAPTION>
Name and Address(2) of Number of Shares Number of Shares Shares Beneficially % Beneficially
Selling Stockholder Beneficially to be Offered Owned Following Owned Following
Owned Completion of Completion of
Offering (1) Offering(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zanett Lombardier, Ltd.(2) 42,184 (4) 159,842 (4) 0 -
Harlow Enterprises, Inc.(2) 2,753 (5) 6,700 (5) 0 -
Parkland Limited(2) 2,753 (6) 6,700 (6) 0 -
Samuel L. Milbank(2)(3) 122,550 (7)(9) 159,143 (7)(9) 0 -
Bruno Guazzoni(2)(3) 4,996,116 (8) 6,356,563 (8) 0 -
Claudio Guazzoni (2)(3) 120,480 (9) 180,720 (9) 0 -
David McCarthy (2)(3) 121,138 (9)(10) 190,219 (9)(10) 0 -
Heriot Holdings, Ltd. (2) - (11) 15,789 (11) 0 -
</TABLE>
(1) Assumes the sale of all Shares offered hereby.
(2) Address: c/o The Zanett Securities Corporation, Tower 49, 31st Floor, 12
East 49th Street, New York, NY 10017
(3) Except under certain circumstances, none of such Selling Stockholders is
entitled to exercise Consulting Warrants or Private Placement Warrants, as
applicable, to the extent that such exercise would cause the Selling
Stockholder to beneficially own more than 4.99% of the total outstanding
Common Stock of the Company. Therefore the number of shares set forth
herein and which a Selling Stockholder may sell pursuant to this prospectus
may exceed the number of shares such Selling Stockholder may be deemed to
beneficially own as determined pursuant to Section 13(d) of the Exchange
Act.
(4) Beneficially owns 42,184 shares as of the date of this Prospectus. Number
of Shares to be Offered represents up to 159,842 Interest Shares (assuming
a one-year term for the Notes and a pro forma Conversion Price of $1.52 per
share on the unissued Interest Shares) (equal to the 10-business day
average closing bid price prevailing as of May 21, 1998), of which 42,184
has been issued and of which 117,658 may be issued on a quarterly basis
pursuant to $550,000 and $626,892 principal amounts of Notes acquired
October 30, 1997 and February 5, 1998, respectively.
(5) Beneficially owns 2,753 shares as of the date of this Prospectus. Number of
Shares to be Offered represents up to 6,700 Interest Shares (assuming a
one-year term for the Notes and a pro forma Conversion Price of $1.52 per
share) (equal to the 10-business day average closing bid price prevailing
as of May 21, 1998), of which 2,753 has been issued and of which 3,947 may
be issued on a quarterly basis pursuant to $50,000 principal amount of
Notes acquired October 30, 1997.
14
<PAGE>
Beneficially owns 2,753 shares as of the date of this Prospectus. Number of
Shares to be Offered represents up to 6,700 Interest Shares, (assuming a
one-year term for the Notes and a pro forma Conversion Price of $1.52 per
share on the unissued interest shares) (equal to the 10-business day
average closing bid price prevailing as of May 21, 1998), of which 2,753
has been issued and of which 3,947 may be issued on a quarterly basis
pursuant to $50,000 principal amount of Notes acquired October 30, 1997.
(6) Number of Shares to be Offered represents (i) up to 8,783 Interest Shares
(assuming a one-year term for the Notes and pro forma Conversion Price of
$1.52 per share on the unissued interest shares) (equal to the 10-business
day average closing bid price prevailing as of May 21, 1998), of which
2,310 has been issued and of which 6,473 may be issued on a quarterly basis
pursuant to $30,000 and $34,667 principal amount of Notes acquired October
30, 1997 and February 5, 1998 and (ii) up to 60,000 Consulting Warrant
Shares (subject to adjustment), which may be acquired upon exercise of
Consulting Warrants at a price of $0.375 per share.
(7) Represents (i) up to 2,540,000, 1,600,000 and 820,000 Consulting Warrant
Shares (subject to adjustment), which may be acquired upon exercise of
Consulting Warrants issued on October 30, 1997, February 5, 1998 and April
7, 1998, respectively, at a price of $0.375 per share, (ii) up to 650,000,
400,000 and 205,000, respectively, additional Consulting Warrant Shares,
which may be issued upon exercise of Additional Consulting Warrants which
may become issuable in the future depending upon whether the term of the
Notes is extended from 270 days to 365 days, and (iii) up to 141,563
Interest Shares (assuming a one-year term for the Notes and pro forma
Conversion Price of $1.52 per share on the unissued interest shares) (equal
to the 10-business day average closing bid price prevailing as of May 21,
1998), of which 36,116 has been issued and of which 105,447 may be issued
on a quarterly basis pursuant to $620,000, $103,774 and $280,000, principal
amount of Notes acquired October 30, 1997, February 5, 1998 and April 7,
1998, respectively. Represents up to 156,000, 96,000 and 49,200 Private
Placement Warrant Shares (subject to adjustment), which may be acquired
upon exercise of Private Placement Warrants issued on October 30, 1997,
February 5, 1998 and April 7, 1998, respectively, at a price of $0.375 per
share and up to 78,000, 48,000 and 24,600, respectively, additional Private
Placement Warrant Shares which may be issued upon exercise of additional
Private Placement Warrants, which may become issuable in the future
depending upon whether the term of the Notes is extended from 270 days to
365 days. The Private Placement Warrants are held by David McCarthy
(120,480 shares), Claudio Guazzoni (120,480 shares), and Samuel L. Milbank
(60,240 shares) of The Zanett Securities Corporation.
(8) Beneficially owns 658 shares as of the date of this Prospectus. Number of
Shares to be offered represents up to 9,499 Interest Shares (assuming a
one-year term for the Notes and a pro forma Conversion Price of $1.52 per
share on the unissued interest shares) (equal to the 10-business day
average closing bid price prevailing as of May 21, 1998), of which 658 has
been issued and of which 8,841 may be issued on a quarterly basis pursuant
to $34,667 and $30,000, principal amount of Notes acquired February 5, 1998
and April 7, 1998, respectively.
(9) Beneficially owns 0 shares as of the date of this Prospectus. Number of
Shares to be offered represents up to 15,789 Interest Shares (assuming a
one-year term for the Notes and a pro forma Conversion Price of $1.52 per
share, (equal to the 10-business day average closing bid price prevailing
as of May 21, 1998), which may be issued on a quarterly basis pursuant to
$100,000 principal amount of Notes acquired April 7, 1998.
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by the Selling
Stockholders, or by pledgees, donees or transferees of, or other successors in
interest to, the Selling Stockholder, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed price which may be changed. The
distribution of the Shares maybe effected in one or more of the following
methods: (i) ordinary brokers' transactions, which may include long or short
sales; (ii) transactions involving cross or block trades or otherwise on the
NASDAQ SmallCap Market System; (iii) purchases by broker, dealers or
underwriters as principal and resale by such purchasers for their own accounts
pursuant to this Prospectus; (iv) "at the market" to or through market makers or
into an existing market for the Common Stock; (v) in other ways not involving
market makers or established trading markets, including direct sales to
purchasers or sales effected through agents; (vi) through transactions in
options, swaps or other derivatives
15
<PAGE>
(whether exchange-listed or otherwise), or (vii) any combination of the
foregoing, or by any other legally available means. In addition, the Selling
Stockholders or their successors in interest may enter into hedging transactions
with broker-dealers who may engage in short sales of Common Stock in the course
of hedging the positions they assume with the Selling Stockholders. The Selling
Stockholders or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery to such broker-
dealers of the Shares, with Shares may be resold thereafter pursuant to this
Prospectus. Brokers, dealers, underwriters or agents participating in the
distribution of the Shares as agent may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders (and, if
they act as agent for the purchaser of such Shares, from such purchaser). Such
discounts, concessions or commissions as to a particular broker, dealer,
underwriter or agent might be greater or less than those customary in the type
of transaction involved.
The Selling Stockholders and any brokers, dealers, underwriters or agents that
participate in the distribution of the Shares may deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such persons might be deemed to be underwriting
discounts and commissions under the Securities Act. Neither the Company nor the
Selling Stockholders can presently estimate the amount of such compensation.
The Company knows of no existing arrangements between any Selling Stockholder
and any other Stockholder, broker, dealer, underwriter or agent relating to the
sale or distribution of the Shares.
To the extent required, the Company will file, during any period in which offers
or sales are being made, a supplement to this Prospectus which sets forth, with
respect to a particular offering, the specific number of Shares to be sold, the
name of the selling Stockholder, the sales price, the name of any participating
broker, dealer, underwriter or agent, any applicable commission or discount and
any other material information with respect to the plan of distribution not
previously disclosed. The Company will not receive any of the proceeds from the
sale of the Shares offered hereby. The Company will pay substantially all of
the expenses incident to this Offering of the Shares by the Selling Stockholders
to the public other than commissions and discounts of brokers, dealers,
underwriters or agents. Such expenses are currently estimated to be
approximately $57,714. The Company has agreed to indemnify the Selling
Stockholders and certain related persons against certain liabilities, including
certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Shares offered hereby is being passed upon for the Company
by Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Antonio, Texas.
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 11 to the financial statements to the
Annual Report on Form 10-K for the year ended December 31, 1997.
16
<PAGE>
______________________________________
NO PERSON HAS BEEN AUTHORIZED, IN CONNECTION WITH THE OFFERING MADE HEREBY, TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITITUE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
______________________________________
TABLE OF CONTENTS
Page
Available Information ............................................ 2
Incorporation of Certain Documents by
Reference......................................................... 3
Prospectus Summary................................................ 4
Risk Factors...................................................... 5
The Company....................................................... 13
Use of Proceeds................................................... 13
Selling Stockholders.............................................. 14
Plan of Distribution.............................................. 15
Legal Matters..................................................... 16
Experts........................................................... 16
______________________________________
Up to 7,075,676 Shares
Advanced Environmental Recycling Technologies, Inc.
______________
P R O S P E C T U S
______________
May 29, 1998
<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 Stockholders.
Securities and Exchange Commission
Registration Fee $ 2,714
Legal Fees 20,000
Accountant's Fees 25,000
Miscellaneous Expenses 10,000
-------
TOTAL $57,714
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 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.
II-1
<PAGE>
ITEM 16. EXHIBITS.
- -------------------
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.1 Certificate 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) (a)
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) (a)
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) (a)
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(b)
10.1 Private Placement Agreement (a)
10.2 Consulting Agreement (a)
10.3 October 1997 Note Purchase Agreement (a)
10.4 February 1998 Note Purchase Agreement (b)
10.5 April 1998 Note Purchase Agreement (b)
10.6 Form of Notes (a)
10.7 Form of Private Placement Warrants (a)
10.8 Form of Consulting Warrants (a)
23.1 Consent of Arthur Andersen LLP (b)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5) (b)
(a) Filed previously
(b) Filed herewith
ITEM 17. UNDERTAKINGS.
- ----------------------
The undersigned registrant hereby undertakes:
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;
II-2
<PAGE>
(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.
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-3
<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 has duly caused this Amendment No. 1 to
Registration Statement (Reg. No. 333-42555) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Washington, State of
Arkansas, on May 29, 1998.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(Registrant)
By: /s/ Joe G. Brooks
-----------------------------------
JOE G. BROOKS
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
*/s/ Sal Miwa Chairman of the Board May 29, 1998
- ------------------------
SAL MIWA
/s/ Joe G. Brooks President and Director May 29, 1998
- ------------------------
JOE G. BROOKS
*/s/ Jerry B. Burkett Director May 29, 1998
- ------------------------
JERRY B. BURKETT
/s/ Stephen W. Brooks Chief Executive Officer May 29, 1998
- ------------------------ and Director
STEPHEN W. BROOKS
/s/ Marjorie S. Brooks Secretary, Treasurer and Director May 29, 1998
- ------------------------
MARJORIE S. BROOKS
*/s/ Peter Lau Director May 29, 1998
- ------------------------
PETER LAU
*/s/ James Culp Director May 29, 1998
- ------------------------
JAMES CULP
* /s/ Joe G. Brooks
- --------------------------------------
By: Joe G. Brooks, as attorney-in-fact
II-4
<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) (a)
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) (a)
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) (a)
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (b)
10.1 Private Placement Agreement (a)
10.2 Consulting Agreement (a)
10.3 October 1997 Note Purchase Agreement (a)
10.4 February 1998 Note Purchase Agreement (b)
10.5 April 1998 Note Purchase Agreement (b)
10.6 Form of Notes (a)
10.7 Form of Private Placement Warrants (a)
10.8 Form of Consulting Warrants (a)
23.1 Consent of Arthur Andersen LLP (b)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5) (b)
(a) Filed previously
(b) Filed herewith
II-5
<PAGE>
Exhibit 5
AKIN, GUMP, STRAUSS, HAUER, & FELD, L.L.P.
Attorneys at Law
A Registered Limited Liability Partnership
Including Professional Corporations
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
(210) 270-0800
Fax (210) 224-2035
May 27, 1998
Advanced Environmental Recycling Technologies, Inc.
801 N. Jefferson Street
Springdale, Arkansas 72765
Re: Advanced Environmental Recycling Technologies, Inc. ("Company")
Amendment No. 1 to Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for the Company in connection with the
registration by the Company under the Securities Act of 1933, as amended
(the "Act"), pursuant to the Company's registration statement on Form S-3,
Reg. No. 333-42555, as amended on or about May 27 1998 (the "Registration
Statement") of an aggregate of up to 7,075,676 shares of the Company's
Class A Common Stock, $0.01 par value (the "Common Stock"), issued or
issuable from time to time by the Company as follows:
(i) up to 348,876 Shares (the "Interest Shares") issuable as
quarterly interest payments upon $2.51 million aggregate principal amount
of 12% Promissory Notes (the "Notes"), issued to certain of the Selling
Stockholders pursuant to a Note Purchase Agreement entered into as of
October 30, 1997, February 5, 1998 and April 7, 1998;
(ii) up to 451,800 Shares (the "Private Placement Warrant Shares")
issuable upon the exercise of stock purchase warrants (the "Private
Placement Warrants") issued and issuable hereafter to certain of the
Selling Stockholders pursuant to a Placement Agency Agreement dated October
30, 1997; and,
(iii) up to 6,275,000 Shares (the "Consulting Shares") issuable upon
the exercise of stock purchase warrants (the "Consulting Warrants") issued
to certain Selling Stockholders pursuant to a Consulting Agreement dated
October 30, 1997.
We have, as counsel, examined such corporate records, certificates and
other documents and reviewed such questions of law as we have deemed
necessary, relevant or appropriate to enable us to render the opinion
expressed below. In rendering such opinion, we have assumed the legal
capacity of all natural persons, the genuineness of all signatures and the
authenticity of all documents examined by us. As to various questions of
fact material to such opinion, we have relied upon representations of the
Company.
<PAGE>
AKIN, GUMP, STRAUSS, HAUER, & FELD, L.L.P.
Advanced Environmental Recycling Technologies, Inc.
May 27, 1998 - Page 2
-------------------------------------------------------------------------
Based upon such examination and representations, we advise you that,
in our opinion:
(i) when issued to the holders of the Notes in accordance with the
terms of the Notes, the Interest Shares will be duly authorized,
validly issued, fully paid and nonassessable; and
(ii) when issued to the holders of the Private Placement Warrants and
the Consulting Warrants upon the exercise thereof in accordance
with the terms of the respective warrant agreements (including
the payment of the exercise price specified therein), the Private
Placement Warrant Shares and Consulting Warrant Shares, as the
case may be, will be duly authorized, validly issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference of this firm under the caption
"Legal Matters" in the Prospectus contained therein.
This opinion is to be used only in connection with the issuance of the
Common Stock while the Registration Statement is in effect.
Very truly yours,
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE>
EXHIBIT 10.4
NOTE PURCHASE AGREEMENT
-----------------------
NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January 30, 1998,
by and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), with
headquarters located at FM 2169, HC 10, Box 116, Junction, Texas 76849, and each
of the purchasers (collectively, the "PURCHASERS") set forth on the execution
pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Purchasers desire to purchase, upon the terms and conditions stated
in this Agreement, up to Eight Hundred Thousand Dollars ($800,000) in aggregate
principal amount of promissory notes of the Company, in the form attached hereto
as Exhibit A (the "NOTES"). All interest which may become due and payable by
the Company in accordance with the terms of the Notes shall be paid, at the
Company's option, either (i) in cash or (ii) through the issuance of shares of
the Company's Class A Common Stock, par value $.01 per share (the "COMMON
STOCK"). The shares of Common Stock issuable as payment of interest due on the
Notes are referred to herein as the "NOTE SHARES." The Notes and the Note
Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Purchase of Notes. On the Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, Note(s) in the
aggregate principal amount set forth on such Purchaser's Execution Page hereto.
Each Purchaser's obligation to purchase Notes hereunder is distinct and separate
from the other Purchasers' obligation to purchase Notes and no Purchaser shall
be required to purchase hereunder
<PAGE>
more than the aggregate principal amount of Notes set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by the other Purchasers to
purchase Notes hereunder.
b. Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate principal amount of the Notes being purchased by such Purchaser
hereunder by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of the duly executed Notes being
purchased by such Purchaser and the Company shall deliver such Notes against
delivery of such aggregate principal amount.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon, New York City time, on February 3, 1998, or such other time
as may be mutually agreed upon by the parties (the "CLOSING DATE"). The Closing
shall occur at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401
Walnut Street, Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for the
Purchaser's own account for investment purposes and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the Securities
are being offered and sold to the Purchaser in reliance upon 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, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
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<PAGE>
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that its investment in the Securities involves a high degree of
risk.
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred under an exemption from such
registration, or (c) sold under Rule 144 promulgated under the Securities Act
(or a successor rule) ("RULE 144"), or (d) sold or transferred to an affiliate
of the Purchaser; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement).
g. Legends. The Purchaser understands that the Notes and, until such time
as the Note Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by the Purchaser under
Rule 144, the certificates for the Note Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state of the United States. The securities represented hereby may not be
offered or sold in the absence of an effective registration statement for
the securities under applicable securities laws unless offered, sold or
transferred under an available exemption from the registration requirements
of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which such
legend is stamped, if, unless otherwise required by state securities laws, (a)
the sale of such Security is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder), or (b) such holder provides the
Company
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<PAGE>
with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144. The Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective registration
statement or under an exemption from the registration requirements of the
Securities Act. In the event the above legend is removed from any
certificate(s) and thereafter the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to the Purchaser the Company may require that the
above legend be placed on any such Security and the Purchaser shall cooperate in
the prompt replacement of such legend. Such legend shall be removed when such
Security may be sold pursuant to an effective registration statement or sold
under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of the Purchaser and are valid and binding agreements of the Purchaser
enforceable in accordance with their terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as it is now
being conducted. The Company and each of its subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the ability of the Company to perform its
obligations hereunder and under the Notes or the Registration Rights Agreement
or (iii) the business, operations, properties, prospects or financial condition
of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes and the Registration Rights Agreement, to issue and
sell the Notes in accordance with the terms hereof and to issue the Note Shares
in accordance with the terms of the Notes; (ii) the execution, delivery and
performance of this Agreement, the Notes and the Registration Rights Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Notes and
the issuance and reservation for issuance of the Note Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
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<PAGE>
authorization of the Company, its Board or Directors or its stockholders is
required (under the rules promulgated by the National Association of Securities
Dealers ("NASD") or otherwise); (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and, upon
execution and delivery by the Company of the Notes and the Registration Rights
Agreement, such agreements will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock and the number of shares to be
reserved for issuance pursuant hereto is set forth on Schedule 3(c). All of
such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company (including the Note Shares) are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances. Except for the obligation of the Company to issue the Note Shares
in accordance with the terms of the Notes and except as disclosed in Schedule
3(c), as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule 3(c), there are
no securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement or the Notes. The Company has furnished to each Purchaser
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-
laws as in effect on the date hereof (the "BY-LAWS"), and all other instruments
and agreements governing securities convertible into or exercisable or
exchangeable for capital stock of the Company.
d. Issuance of Note Shares. The Note Shares are duly authorized and
reserved for issuance in accordance with the terms of the Notes, and, upon
issuance in accordance with the terms of the Notes, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Notes by the Company, and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes and the
issuance and reservation for issuance of the Note Shares) will not (i) result in
a violation of the Certificate of Incorporation or By-laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or
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<PAGE>
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted, and shall not be conducted
so long as the Notes are outstanding or any Purchaser beneficially owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for actual or possible violations, if any, the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Notes, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of The
Nasdaq Smallcap Market ("NASDAQ") and the Company does not reasonably anticipate
that the Common Stock will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to the Purchaser true and complete copies of the SEC Documents, except
for the exhibits and schedules thereto and the documents incorporated therein.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be updated or amended under applicable
law. As of their respective dates, the financial statements
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<PAGE>
of the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial statements,
which liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3(g) or in the SEC Documents
filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents filed
prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such which will have a Material Adverse Effect. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could have a Material
Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company
nor any subsidiary of the Company infringes or is in conflict with any right of
any other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has
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<PAGE>
entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company and its subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company of its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities.
l. Acknowledgment Regarding the Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, and the relationship
between the Company and each of the Purchasers is "arms length" and that any
statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to each Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration
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statement on Form S-3 with respect to the Registrable Securities (as defined in
the Registration Rights Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any Purchaser relating to this Agreement or the transactions contemplated
hereby except for dealings with The Zanett Securities Corporation, whose
commissions and fees will be paid by the Company.
q. Tax Status. Except as set forth in the SEC Documents filed prior to
the date hereof or on Schedule 3(q), the Company and each of its subsidiaries
has made or filed all federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any federal, state or local tax.
None of the Company's tax returns has been or is being audited by any taxing
authority.
r. Title. The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(r) or such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially interfere
with the
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use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
s. Absence of Events of Default. No Event of Default (as defined in the
Notes) and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default, has occurred and is continuing.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
c. Reporting Status. So long as the Notes are outstanding or any
Purchaser beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the Exchange Act, and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Prepaid Warrants as set forth on Schedule 4(d).
e. Financial Information. The Company agrees to send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one (1) business
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
f. Reservation of Shares. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the issuance of the Note Shares required by the Notes.
g. Listing. The Company shall promptly secure the listing of the Note
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all of the Note Shares. The Company
will take all action necessary to continue the listing and trading of its Common
Stock on the NASDAQ,
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the Nasdaq National Market ("NNM"), the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
such exchanges and the NASD, as applicable. In the event the Common Stock is not
eligible to be traded on any of the NASDAQ, NNM, NYSE or AMEX and the Common
Stock is not eligible for listing on any such exchange or system, the Company
shall use its best efforts to cause the Common Stock to be eligible for trading
on the over-the-counter bulletin board at the earliest practicable date and
remain eligible for trading while any Securities are outstanding. The Company
shall promptly provide to the Purchasers copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading in the over-
the-counter market or, if applicable, any securities exchange (including the
NASDAQ) on which securities of the same class or series issued by the Company
are then listed or quoted, if any.
h. Corporate Existence. So long as the Notes are outstanding or any
Purchaser beneficially owns any Note Shares, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale of
all or substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the Notes and the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is listed for trading on the NASDAQ, NNM, NYSE or AMEX.
i. Redemptions and Dividends. So long as any of the Notes are
outstanding, the Company shall not, without first obtaining the written approval
of each of the holders of the Notes, redeem, or declare or pay any cash dividend
or distribution on, any shares of capital stock of the Company.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Note Shares in
such amounts as specified from time to time by such Purchaser to the Company.
To the extent and during the periods provided in Section 2(f) and Section 2(g)
of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Note Shares prior to
registration of the Note Shares under the Securities Act or without an exemption
therefrom, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Notes and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an exemption from the registration requirements of applicable securities law.
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<PAGE>
c. If a Purchaser provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration, or a Purchaser provides the Company with reasonable assurances
that such Securities may be sold under Rule 144, the Company shall permit the
transfer, and, in the case of the Note Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes to a
Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The applicable Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Purchaser shall have delivered the aggregate principal
amount of the Note(s) being purchased by it in accordance with Section 1(b)
above.
c. The representations and warranties of the applicable Purchaser shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the applicable Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Notes hereunder
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser at any time in the Purchaser's
sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to such Purchaser.
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<PAGE>
b. The Company shall have delivered to such Purchaser the duly executed
Note(s) being purchased by such Purchaser (in such denominations as such
Purchaser shall request) in accordance with Section 1(b) above.
c. The Common Stock shall be authorized for quotation on the NASDAQ and
trading in the Common Stock (or the NASDAQ generally) shall not have been
suspended by the SEC or the NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. Such Purchaser shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
h. No material adverse change or development in the business, operations,
properties, prospects, financial condition, or results of operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The
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<PAGE>
Company further agrees that service of process upon the Company mailed by first
class mail shall be deemed in every respect effective service of process upon
the Company in any such suit or proceeding. Nothing herein shall affect the
right of any Purchaser to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the other agreements
and instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
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<PAGE>
If to the Company:
Advanced Environmental Recycling
Technologies, Inc.
FM 2169
HC 10, Box 116
Junction, Texas 76849
Telecopy: (915) 446-3864
Attention: Chief Executive Officer
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
Telecopy: (210) 224-2035
Attention: Pat Ryan, Esq.
If to a Purchaser, to the address set forth under such Purchaser's name on
the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the
foregoing, any Purchaser may assign its rights hereunder to any of its
"affiliates," as that term is defined under the Exchange Act, without the
consent of the Company or to any other person or entity with the consent of the
Company. This provision shall not limit a Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement, the Notes or the
Registration Rights Agreement or to assign such Purchaser's rights hereunder
and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
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<PAGE>
j Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l Termination. In the event that the Closing Date shall not have
occurred on or before February 5, 1998, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Notes and
the Registration Rights Agreement. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
n Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
o "TRADING DAY" and "BUSINESS DAY" shall mean any day on which the New
York Stock Exchange is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
--------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
--------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. Cicogna
--------------------------
Name: /s/ Gianluca Cicogna
------------------------
Title: Director
-----------------------
RESIDENCE: Cayman Islands
ADDRESS:
Zanett Lombardier, Ltd.
c/o Bank Julius Baer
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (809) 949-0993
Attention: Peter Goulden
with a copy to:
The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Mr. Claudio Guazzoni
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $626,892
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
--------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
--------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
/s/ Bruno Guazzoni
- -----------------------------
BRUNO GUAZZONI
RESIDENCE: Italy
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Mr. Claudio Guazzoni
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $103,774
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
--------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
--------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
/s/ Samuel L. Milbank
- -----------------------------
SAMUEL L. MILBANK
RESIDENCE: New York
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $34,667
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
--------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
--------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
/s/ David McCarthy
- -----------------------------
DAVID McCARTHY
RESIDENCE: New York
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $34,667
<PAGE>
EXHIBIT 10.5
NOTE PURCHASE AGREEMENT
-----------------------
NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 6, 1998 by
and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), with
headquarters located at FM 2169, HC 10, Box 116, Junction, Texas 76849, and each
of the purchasers (collectively, the "PURCHASERS") set forth on the execution
pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Purchasers desire to purchase, upon the terms and conditions stated
in this Agreement, up to Four Hundred Ten Thousand Dollars ($410,000) in
aggregate principal amount of promissory notes of the Company, in the form
attached hereto as Exhibit A (the "NOTES"). All interest which may become due
and payable by the Company in accordance with the terms of the Notes shall be
paid, at the Company's option, either (i) in cash or (ii) through the issuance
of shares of the Company's Class A Common Stock, par value $.01 per share (the
"COMMON STOCK"). The shares of Common Stock issuable as payment of interest due
on the Notes are referred to herein as the "NOTE SHARES." The Notes and the
Note Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Purchase of Notes. On the Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, Note(s) in the
aggregate principal amount set forth on such Purchaser's Execution Page hereto.
Each Purchaser's obligation to purchase Notes hereunder is distinct and separate
from the other Purchasers' obligation to purchase Notes and no Purchaser shall
be required to purchase hereunder
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<PAGE>
more than the aggregate principal amount of Notes set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by the other Purchasers to
purchase Notes hereunder.
b. Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate principal amount of the Notes being purchased by such Purchaser
hereunder by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of the duly executed Notes being
purchased by such Purchaser and the Company shall deliver such Notes against
delivery of such aggregate principal amount. The Company hereby acknowledges
that in connection with the purchase of the Notes hereunder by Bruno Guazzoni,
an amount of $85,000 has been delivered to the Company by wire transfer on March
26, 1998 which amount shall be credited towards such Purchaser's purchase price
on the Closing Date.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon, New York City time, on April 7, 1998, or such other time as
may be mutually agreed upon by the parties (the "CLOSING DATE"). The Closing
shall occur at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401
Walnut Street, Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for the
Purchaser's own account for investment purposes and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the Securities
are being offered and sold to the Purchaser in reliance upon 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, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
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<PAGE>
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that its investment in the Securities involves a high degree of
risk.
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred under an exemption from such
registration, or (c) sold under Rule 144 promulgated under the Securities Act
(or a successor rule) ("RULE 144"), or (d) sold or transferred to an affiliate
of the Purchaser; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement).
g. Legends. The Purchaser understands that the Notes and, until such time
as the Note Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by the Purchaser under
Rule 144, the certificates for the Note Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state of the United States. The securities represented hereby may not be
offered or sold in the absence of an effective registration statement for
the securities under applicable securities laws unless offered, sold or
transferred under an available exemption from the registration requirements
of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without
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<PAGE>
such legend to the holder of any Security upon which such legend is stamped, if,
unless otherwise required by state securities laws, (a) the sale of such
Security is registered under the Securities Act (including registration pursuant
to Rule 416 thereunder), or (b) such holder provides the Company with an opinion
of counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act or (c) such
holder provides the Company with reasonable assurances that such Security can be
sold under Rule 144. The Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
pursuant to an effective registration statement or under an exemption from the
registration requirements of the Securities Act. In the event the above legend
is removed from any certificate(s) and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to the Purchaser the
Company may require that the above legend be placed on any such Security and the
Purchaser shall cooperate in the prompt replacement of such legend. Such legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or sold under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of the Purchaser and are valid and binding agreements of the Purchaser
enforceable in accordance with their terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as it is now
being conducted. The Company and each of its subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the ability of the Company to perform its
obligations hereunder and under the Notes or the Registration Rights Agreement
or (iii) the business, operations, properties, prospects or financial condition
of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes and the Registration Rights Agreement, to issue and
sell the Notes in accordance with the terms hereof and to issue the Note Shares
in accordance with the terms of the Notes; (ii) the execution, delivery and
performance of this Agreement, the Notes and the Registration Rights Agreement
by the Company
4
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and the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes and the issuance and
reservation for issuance of the Note Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors or its stockholders is required (under the rules
promulgated by the National Association of Securities Dealers ("NASD") or
otherwise); (iii) this Agreement has been duly executed and delivered by the
Company; and (iv) this Agreement constitutes, and, upon execution and delivery
by the Company of the Notes and the Registration Rights Agreement, such
agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock and the number of shares to be
reserved for issuance pursuant hereto is set forth on Schedule 3(c). All of
such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company (including the Note Shares) are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances. Except for the obligation of the Company to issue the Note Shares
in accordance with the terms of the Notes and except as disclosed in Schedule
3(c), as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule 3(c), there are
no securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement or the Notes. The Company has furnished to each Purchaser
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-
laws as in effect on the date hereof (the "BY-LAWS"), and all other instruments
and agreements governing securities convertible into or exercisable or
exchangeable for capital stock of the Company.
d. Issuance of Note Shares. The Note Shares are duly authorized and
reserved for issuance in accordance with the terms of the Notes, and, upon
issuance in accordance with the terms of the Notes, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Notes by the Company, and
the consummation by the
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Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and the issuance and reservation for
issuance of the Note Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted, and shall not be conducted
so long as the Notes are outstanding or any Purchaser beneficially owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for actual or possible violations, if any, the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Notes, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of The
Nasdaq Smallcap Market ("NASDAQ") and the Company does not reasonably anticipate
that the Common Stock will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to the Purchaser true and complete copies of the SEC Documents, except
for the exhibits and schedules thereto and the documents incorporated therein.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a
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material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the statements
made in any such SEC Documents is, or has been, required to be updated or
amended under applicable law. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial statements,
which liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3(g) or in the SEC Documents
filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents filed
prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such which will have a Material Adverse Effect. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could have a Material
Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company
nor any subsidiary of the Company infringes or is in conflict with any right of
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any other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company and its subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company of its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities.
l. Acknowledgment Regarding the Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, and the relationship
between the Company and each of the Purchasers is "arms length" and that any
statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to each Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
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m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any Purchaser relating to this Agreement or the transactions contemplated
hereby except for dealings with The Zanett Securities Corporation, whose
commissions and fees will be paid by the Company.
q. Tax Status. Except as set forth in the SEC Documents filed prior to
the date hereof or on Schedule 3(q), the Company and each of its subsidiaries
has made or filed all federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any federal, state or local tax.
None of the Company's tax returns has been or is being audited by any taxing
authority.
r. Title. The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(r) or such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to
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be made of such property by the Company and its subsidiaries. Any real property
and facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries.
s. Absence of Events of Default. No Event of Default (as defined in the
Notes) and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default, has occurred and is continuing.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
c. Reporting Status. So long as the Notes are outstanding or any
Purchaser beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the Exchange Act, and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Notes as set forth on Schedule 4(d).
e. Financial Information. The Company agrees to send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one (1) business
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
f. Reservation of Shares. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the issuance of the Note Shares required by the Notes.
g. Listing. The Company shall promptly secure the listing of the Note
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common
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Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all of the Note Shares. The Company will take all action necessary to
continue the listing and trading of its Common Stock on the NASDAQ, the Nasdaq
National Market ("NNM"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such
exchanges and the NASD, as applicable. In the event the Common Stock is not
eligible to be traded on any of the NASDAQ, NNM, NYSE or AMEX and the Common
Stock is not eligible for listing on any such exchange or system, the Company
shall use its best efforts to cause the Common Stock to be eligible for trading
on the over-the-counter bulletin board at the earliest practicable date and
remain eligible for trading while any Securities are outstanding. The Company
shall promptly provide to the Purchasers copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading in the over-
the-counter market or, if applicable, any securities exchange (including the
NASDAQ) on which securities of the same class or series issued by the Company
are then listed or quoted, if any.
h. Corporate Existence. So long as the Notes are outstanding or any
Purchaser beneficially owns any Note Shares, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale of
all or substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the Notes and the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is listed for trading on the NASDAQ, NNM, NYSE or AMEX.
i. Redemptions and Dividends. So long as any of the Notes are
outstanding, the Company shall not, without first obtaining the written approval
of each of the holders of the Notes, redeem, or declare or pay any cash dividend
or distribution on, any shares of capital stock of the Company.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Note Shares in
such amounts as specified from time to time by such Purchaser to the Company.
To the extent and during the periods provided in Section 2(f) and Section 2(g)
of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Note Shares prior to
registration of the Note Shares under the Securities Act or without an exemption
therefrom, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Notes and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an
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exemption from the registration requirements of applicable securities law.
c. If a Purchaser provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration, or a Purchaser provides the Company with reasonable assurances
that such Securities may be sold under Rule 144, the Company shall permit the
transfer, and, in the case of the Note Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes to a
Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The applicable Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Purchaser shall have delivered the aggregate principal
amount of the Note(s) being purchased by it in accordance with Section 1(b)
above.
c. The representations and warranties of the applicable Purchaser shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the applicable Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Notes hereunder
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser at any time in the Purchaser's
sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the
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Registration Rights Agreement, and delivered the same to such Purchaser.
b. The Company shall have delivered to such Purchaser the duly executed
Note(s) being purchased by such Purchaser (in such denominations as such
Purchaser shall request) in accordance with Section 1(b) above.
c. The Common Stock shall be authorized for quotation on the NASDAQ and
trading in the Common Stock (or the NASDAQ generally) shall not have been
suspended by the SEC or the NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. Such Purchaser shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
---------
h. No material adverse change or development in the business, operations,
properties, prospects, financial condition, or results of operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in
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respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company further agrees that service of process upon
the Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the right of any Purchaser to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the other agreements
and instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
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If to the Company:
Advanced Environmental Recycling
Technologies, Inc.
FM 2169
HC 10, Box 116
Junction, Texas 76849
Telecopy: (915) 446-3864
Attention: Chief Executive Officer
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
Telecopy: (210) 224-2035
Attention: Pat Ryan, Esq.
If to a Purchaser, to the address set forth under such Purchaser's name on
the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the
foregoing, any Purchaser may assign its rights hereunder to any of its
"affiliates," as that term is defined under the Exchange Act, without the
consent of the Company or to any other person or entity with the consent of the
Company. This provision shall not limit a Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement, the Notes or the
Registration Rights Agreement or to assign such Purchaser's rights hereunder
and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
15
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j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall not have
occurred on or before April 7, 1998, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Notes and
the Registration Rights Agreement. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
n. Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
o. "TRADING DAY" and "BUSINESS DAY" shall mean any day on which the New
York Stock Exchange is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
-------------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
-------------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
HERIOT HOLDINGS, LTD.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
RESIDENCE:
------------------------
ADDRESS:
------------------------
------------------------
------------------------
------------------------
------------------------
Telecopy:
---------------
Attention:
--------------
with a copy to:
The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Mr. Claudio Guazzoni
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $100,000
17
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
-------------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
-------------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
/s/ Bruno Guazzoni
- ----------------------------------
BRUNO GUAZZONI
RESIDENCE: Italy
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Mr. Claudio Guazzoni
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $280,000
18
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ Joe G. Brooks
-------------------------------
Name: Joe G. Brooks
Title: President
By: /s/ Steve Brooks
-------------------------------
Name: Steve Brooks
Title: Chief Executive Officer
PURCHASER:
/s/ David McCarthy
- ----------------------------------
DAVID McCARTHY
RESIDENCE: New York
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $30,000
19
<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 13, 1998
included in Advanced Environmental Recycling Technologies, Inc.'s Form 10-K for
the year ended December 31, 1997 and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
May 15, 1998
