<PAGE> 1
As filed with the Securities and Exchange Commission on December 29, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(exact name of registrant as specified in charter)
Delaware 71-0675758
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
914 N. Jefferson Street
Springdale, Arkansas 72764
(501) 756-7400
(address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Joe G. Brooks
914 N. Jefferson Street
Springdale, Arkansas 72764
(501) 756-7400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement depending on 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: [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A common stock 13,126,282 $2.9375 $38,558,453 $10,179
==========================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) 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 December 22, 1999.
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 THE 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> 3
SUBJECT TO COMPLETION, DATED DECEMBER 29, 1999
PROSPECTUS
_________________, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
UP TO 13,126,282 SHARES
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
CLASS A COMMON STOCK
PRINCIPAL EXECUTIVE OFFICE:
914 N. Jefferson Street
Springdale, Arkansas 72764
(501) 756-7400
The shares of Class A common stock offered in this prospectus are being
sold by 55 selling stockholders, all of whom are named under the caption
"SELLING STOCKHOLDERS." We will not receive any of the proceeds from the sale of
the shares by the selling stockholders. The Class A Common Stock and our Class B
Common Stock are similar except that the Class B Common Stock has five votes per
share while the Class A Common Stock has one vote per share. Our Class B Common
Stock is held only by stockholders who acquired those shares before our December
1989 initial public offering, and is held primarily by certain of our directors
and officers. Except in certain instances, the Class B Common Stock is
automatically converted into Class A Common Stock upon any sale or transfer.
Our Class A common stock is traded on the Nasdaq SmallCap Market under
the symbol "AERTA." On December 22, 1999, the last reported sale price of the
Class A common stock was $2.9375 per share, as reported by the Nasdaq SmallCap
Market System.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 2 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ABOUT ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC. ......................1
RISK FACTORS ...................................................................2
USE OF PROCEEDS ...............................................................12
SELLING STOCKHOLDERS ..........................................................12
PLAN OF DISTRIBUTION ..........................................................19
LEGAL MATTERS .................................................................20
EXPERTS .......................................................................20
WHERE YOU CAN FIND MORE INFORMATION ...........................................20
</TABLE>
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ABOUT ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
We manufacture and market composite building materials that can be used
as an alternative to traditional wood products for certain applications. We use
waste wood fiber and reclaimed polyethylene plastics as our raw materials. Our
products are comprised of approximately equal amounts of wood and plastic and
have been extensively tested and used by several leading national companies,
such as the Weyerhaeuser Company and Therma Tru Corporation. Our products are
marketed under the LIFECYCLE(TM) trade names MoistureShield(R) and
ChoiceDek(TM). We recently introduced a new decking line called DreamWorks(TM).
Our sales are primarily in the following three markets:
(a) exterior door and window components,
(b) heavy industrial flooring, in the form of floor blocks for
industrial applications, and
(c) commercial and residential decking surface components.
Our decking components and a limited amount of door and window
components are currently manufactured by our facility in Junction, Texas. We are
currently expanding our manufacturing capabilities by increasing
extrusion/production capacity at our second composite manufacturing and plastic
reclamation facility in Springdale, Arkansas.
Because of their plastic content, our composites exhibit the following
attributes:
o they are engineered for superior moisture resistance and will not
swell or expand like wood,
o they do not require preservative or chemical treatments like
traditional wood,
o they can be designed and extruded through dies to a desired shape
in accordance with customer specifications, minimizing waste,
o they are less subject to rotting, cracking, warping, insect
infestation and water absorption than conventional wood
materials, and
o they are denser than the straight-grained, clear grades of wood
from western United States forests, traditionally used in the
building applications for which our products compete.
Because of their wood fiber content, our composites are less subject to
thermal contraction or expansion and display greater dimensional stability than
conventional plastic materials. Our manufactured end products maintain many
properties similar to traditional wood materials.
The composites manufacturing process involves proprietary and patented
technologies and specialized manufacturing equipment, custom-built or modified
for us. The process employs plentiful, low-cost raw materials such as recycled
plastics and wood-filler materials and, in certain cases, special additives or
virgin plastics in varying mixtures. The mixtures can be specifically formulated
based on our customers' desired end product specifications. The encapsulation of
wood fibers in plastic creates a consistent material, free of foreign matter,
which can be extruded into a desired shape. Our composite building material
became a patented product in June 1998 (U. S. Patent No. 5759680).
In May 1995, we entered into an exclusive marketing and distribution
agreement with a division of Weyerhaeuser, a large forest products company, for
sales of our LIFECYCLE(TM) line of extruded decking components, which are
primarily targeted towards the high-end residential housing market. Weyerhaeuser
has marketed this product under the trade name ChoiceDek(TM) through
approximately 42 of their 80 distribution centers located throughout the United
States. ChoiceDek(TM) decking sales have been limited to date by our limited
manufacturing capacity, which we are in the process of significantly increasing.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and other information contained in this
prospectus before deciding to invest in shares of our Class A common stock.
Investors should seek professional advice in analyzing this offering.
This Prospectus contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements, often
identified by words such as "believes," "anticipates," "expects", "estimates,"
"should," "may," "will" and similar expressions, represent our 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.
WE HAVE A WORKING CAPITAL DEFICIT AND MAY SUFFER CONTINUED LOSSES
AGGREGATE SALES REVENUES AND CUMULATIVE LOSSES
<TABLE>
<CAPTION>
TIME PERIOD AGGREGATE SALES REVENUES NET LOSSES
--------------------------- ------------------------- --------------
<S> <C> <C>
December 2, 1988 $ 54,463,773 $ 23,716,690
(our inception date)
through September 30, 1999
Nine Months Ended $ 15,135,817 $ 269,862
September 30, 1999
Fiscal Year 1998 $ 12,408,591 $ 3,653,070
</TABLE>
At September 30, 1999, we had a working capital deficit of $5,784,893.
As shown in the table above, since inception on December 2, 1988 through
September 30, 1999, we generated aggregate sales revenues in excess of $54.4
million ($12,408,591 for the year ended December 31, 1998 and $15,135,817 for
the nine months ended September 30, 1999). We had incurred cumulative losses
from inception through September 30, 1999 of $23,716,690. We produced net income
of $7,130 for the quarter ended March 31, 1999, and incurred net losses of
$245,234 and $31,758 for the quarters ended June 30, 1999 and September 30,
1999, respectively.
The success of our operations is largely dependent upon our ability to
maintain and improve operating efficiencies and overall production capacity. Our
success also depends on our ability to generate and maintain substantial sales
revenues, increased margins and adequate cash flows from operations. We cannot
give any assurance that we have such abilities. We increased our manufacturing
efforts through expanded production by starting operations at a second
manufacturing facility. We are currently experiencing a large demand and backlog
in purchase orders, which is approximately $22 million for decking alone over
the next twelve months.
WE CONTINUE TO FACE CERTAIN DEVELOPMENT STAGE RISKS AS OUR BUSINESS MATURES
Our operations are subject to numerous risks associated with the
continued establishment of our business, including lack of adequate financing
sources and competition from numerous large, well-established and
well-capitalized competitors who manufacture products for the same applications.
In addition, we have in the past and may again in the future encounter
unanticipated problems, including manufacturing, distribution, litigation and
marketing difficulties, some of which may be beyond our financial and technical
abilities to resolve. The failure to address adequately such difficulties could
have a material adverse effect on our prospects.
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OUR INDEPENDENT PUBLIC ACCOUNTANTS HAVE ISSUED A "GOING CONCERN" QUALIFICATION
The independent public accountants' report on our financial statements
for the year ended December 31, 1998, contains an explanatory paragraph
regarding our ability to continue as a going concern as we have incurred net
losses since inception, have a working capital deficit and are subject to
certain claims in litigation. See the Report of Independent Public Accountants
contained in, and Notes 2 and 12 to, our Financial Statements for the year ended
December 31, 1998 and Note 3 to our Interim Financial Statements contained in
our Quarterly Report on Forms 10-Q for the quarters ended March 31, 1999, June
30, 1999, and September 30, 1999, which are incorporated by reference in this
prospectus (see "WHERE YOU CAN FIND MORE INFORMATION").
WE REQUIRE ADDITIONAL FINANCING TO MEET OUR BUSINESS PLAN OBJECTIVES
We expended substantially all of the proceeds from our private
placements and public financing (including warrant and option exercises) in
1997, 1998, and 1999, which aggregated approximately $9.55 million. Accordingly,
if we cannot generate sufficient cash flow from existing operations, we could be
dependent in the near future on successfully raising additional debt or equity
financing, as to which there can be no assurance. Should we be unable to secure
additional financing our operations and our ability to further expand and pay
existing debt obligations would be materially adversely affected. Our operations
may 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 our products would accept any such delay
or that such purchasers would not locate alternative supply sources.
Consequently, the long-term success of our operations depends upon
increased cash flows from operations or our ability to raise additional funds,
if necessary, through equity or debt financing. There is no assurance that
required additional financing can be obtained on satisfactory terms.
We have recently closed into escrow a tax-exempt bond financing with an
institutional investor in the aggregate amount of approximately $16.5 million
bearing interest at 5.25% per annum from the City of Springdale, Arkansas in
order to preserve a previously granted allocation in such amount from the
Arkansas Development Finance Authority. We will attempt to re-market such bonds
in the first quarter of 2000, at which time the proceeds of such issuance would
be released from escrow to finance further capital expenditures at our
Springdale facility. Such re-marketing could result in a higher interest rate
and would help restructure short-term debt into a longer term. Bond proceeds of
approximately $10.4 million are to be used to expand output capacity. The
expansion will involve our acquisition of approximately 18 acres adjacent to our
existing Springdale facility, completion of a three-building campus and
installation of additional manufacturing lines and other recycling equipment. In
addition, bond proceeds of $1,750,000 will be used to acquire the existing
Springdale plant, which is currently leased. Bond proceeds will also be used to
pay approximately $2.1 million of outstanding construction payables, as of
September 30, 1999, used to expand our facilities. We do not intend to further
expand and continue construction beyond the third extrusion line in Springdale
without the successful re-marketing of the bonds, of which there can be no
assurance.
We intend to finalize this transaction required to break escrow within
the first quarter of 2000, although the initial term of the escrow extends until
October 2000. In addition, we are also pursuing a government loan guarantee and
loan for up to $5 million. An Arkansas based bank on November 15, 1999 approved
the loan. Proceeds are to be used to pay back interim bridge notes, cover
certain bond expenses, and finance the portion of the expansion that would not
qualify for tax-exempt status.
We began implementing a production plan in 1998, which was designed to
focus and streamline production at our two plants and increase sales to levels
sufficient to support operations. The first phase of the production plan
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will be complete when the third Springdale extrusion line becomes operational,
but it may require additional debt or equity financing beyond those resources
currently available to us to finish this phase.
If the pending bond issue is not successfully completed in a timely
manner, additional financial resources will be necessary to fund maturities of
debt and other obligations as they come due in early 2000. We are working on a
contingency plan that would allow refinancing and payment of our construction
payables if this happens. This plan includes increasing production, sales and
margins through better utilization of existing assets (i.e., streamlining
production) along with start-up of the third extrusion line in Springdale. We
expect this line to further increase cash flows and sales. There can be no
assurance that we will be able to further improve operating efficiencies and
attain our desired profitability level. We believe we have sufficient capital
resources to complete our current production plan during the first half of 2000.
We also believe we can restructure debt and other obligations as they become
due, if necessary, although the terms may be more expensive.
There is no assurance that we will be able to successfully complete the
above mentioned refinancing plan or continue to improve and sustain operating
efficiencies beyond current levels. There is no assurance that we will be
successful in securing sufficient capital resources to support ourselves until
such time as we are able to generate positive cash flow sufficient to support
our operations for a sustained period of time, reduce our current payables and
fund maturities of debt and other obligations as they become due.
WE HAVE HISTORICALLY HAD LIMITED SOURCES OF FINANCING
We have met practically all of our working capital and capital
improvement needs for the preceding two years with proceeds from equity
financings of approximately $404,000 and $5 million obtained during 1997 and
1998, respectively, and from bridge loan placements during 1997 and 1998 of
$3,157,463. In addition, a major shareholder, Marjorie S. Brooks, loaned us
$300,000 to help complete construction at the Springdale plant. We have been
primarily dependent, until recently, on financing from Mrs. Brooks, and there is
no assurance that such support will continue. We also maintain an accounts
receivable factoring agreement for up to $2.5 million with Mrs. Brooks. The
terms allow Mrs. Brooks to charge up to 2% on each invoice and require us to
indemnify Mrs. Brooks against any loss on the amounts she advances. As of
September 30, 1999, we owed Mrs. Brooks $822,878 on short-term and long-term
notes payable.
We secured bridge loans in the form of 12% promissory notes from
certain of the selling stockholders, in October 1997, February 1998, April 1998,
June 1998 and August 1998. These loans provided $1.3 million, $800,000,
$410,000, $359,963 and $287,500 respectively, for expansion and general
corporate purposes through August 1998. Under a placement agreement of October
1997, The Zanett Securities Corporation, as placement agent, has a two-year
option to offer and place on our behalf an additional $342,537 in aggregate
principal amount of similar promissory notes. Subject to certain exceptions,
Zanett has rights to approve and participate in our future debt or equity
financings for a two-year term expiring October 30, 2001. Such rights could have
an adverse effect on our ability to obtain additional financing. In the event
that Zanett exercises its option to offer and place additional notes, Zanett
will be entitled to receive a 10% placement agent fee and 3% nonaccountable
expense allowance based on our aggregate gross proceeds from the sale of the
additional notes, and Zanett and Bruno Guazzoni, a Zanett-affiliated consultant
retained by the Company in connection with such financing, will be entitled to
receive additional warrants for up to as many as 726,178 shares of Class A
common stock at an exercise price of $.375 per share, if all of such additional
notes were sold.
CERTAIN PENDING LEGAL PROCEEDINGS COULD ADVERSELY AFFECT OUR PATENTS OR REQUIRE
PAYMENT OF LEGAL FEES
In June 1992, Mobil Oil Corporation (Mobil) commenced an action against
us in the United States District Court for the District of Delaware entitled
"Mobil Oil Corporation v. Advanced Environmental Recycling Technologies, Inc."
In the complaint, Mobil sought entry of a declaratory judgment that:
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o AERT was without right or authority to threaten suit against
Mobil or our customers for alleged infringement of AERT patents;
o certain AERT patents were invalid and unenforceable; and
o Mobil had not infringed the AERT patents through any products or
method.
Mobil sought no monetary damages in that suit, but did seek
reimbursement of its attorneys' fees.
We denied Mobil's claims and asserted counterclaims against Mobil and
three Mobil executives for:
o an illegal combination or contract in restraint of trade in
violation of federal antitrust laws;
o a pattern of intentional misconduct constituting an attempt to
monopolize in violation of federal antitrust laws;
o breach of a confidential relationship between Mobil and AERT; and
o unfair competition.
We sought monetary damages, punitive damages and injunctive relief.
In February 1994, after a trial on the patent issues, the court held
that four AERT patents on our composite product technology were invalid and that
Mobil had not infringed the patents.
In March 1995, we filed a motion with the Court alleging prejudicial
misconduct by Mobil prior to the trial. We also filed an appeal with the U.S.
Court of Appeals in July 1995. In June 1996, the U. S. Court of Appeals reversed
a portion of the earlier ruling which had held that two of the patents were
invalid, but nevertheless ruled that Mobil did not infringe such patents. We did
not further appeal this ruling.
In August 1994, Mobil filed a motion seeking an award of attorneys'
fees and costs for $2.7 million. In September 1999, the Delaware Court dismissed
the Mobil Motion for Attorneys' Fees, for a second time. The Court also
dismissed AERT's motion for new trial based upon discovery misconduct and AERT's
motion to supplement record.
We have evaluated this recent development and after consultation with
legal counsel, have filed a notice of appeal on dismissal of the prejudicial
misconduct motion; however, there can be no assurance that we will receive a
more favorable outcome upon appeal.
Mobil has also filed a notice of appeal on denial and dismissal of the
attorneys' fees motion. The AERT counterclaims are still pending although Mobil
is no longer in the composite products business.
DECLINES IN CONSTRUCTION ACTIVITY MAY AFFECT OUR BUSINESS
Our engineered composites have been 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. Increases in long-term interest rates can have a negative
effect by slowing housing starts due to increased financing costs. Reductions in
construction activity could have an adverse effect on the demand for our
composites in the door and window market, although we believe our decking lines,
which are primarily targeted to the independent contractor-oriented lumber
dealers and the remodeling market are not as susceptible to downturns in
construction activity.
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OUR LIMITED MANUFACTURING CAPABILITIES COULD RESTRAIN OUR BUSINESS GROWTH
Although we have substantially completed development of our commercial
manufacturing processes at our Junction, Texas facility and initial phases of
our new manufacturing plant in Springdale, Arkansas, the long-term success of
our operations will depend upon the manufacture of our composite products on a
substantially greater commercial scale than we have engaged in to-date. We
currently have one composite manufacturing facility in Junction, Texas and a
second composite manufacturing facility in Springdale, Arkansas, but plan to
increase production capacity at both facilities. Our plans to increase
production capacity at the Arkansas plant are subject, in the short-term, to the
completion of our industrial development bond financing. There can be no
assurance that we will be able to expand our operations to the extent required
or achieve improved operational efficiencies, resulting in lower operating costs
as a percentage of revenues, in order to realize profitable operations, even
assuming the availability of adequate financing and customer demand for our
products. Our primary customers and markets are large, and continued increased
sales growth will require significant capital expenditures. There can be no
assurance that financing can be obtained to add production equipment or build
additional manufacturing facilities or that, if obtained, they will become
operational in a timely manner.
WE ARE DEPENDENT ON CERTAIN KEY CUSTOMERS
We have limited our initial marketing to major industrial companies
with large market shares nationwide in the building material, door, and window
construction industries. Since inception, a few large door and window
construction companies have historically purchased substantially our entire
MoistureShield(R) product line. Additional business from existing customers, as
well as new customers for our MoistureShield(R) products are now coming on-line
or are in the early stages of their commercial use of such products. There can
be no assurance of their continuing to wait to purchase products due to
production delays and/or limited current capacities.
A division of Weyerhaeuser, one of the world's largest forest products
companies, provides our principal marketing and distribution channel for
ChoiceDek(TM), the residential decking material produced from our composite
manufacturing facility. Weyerhaeuser has agreed to buy up to $22 million of
material from us next year if we can produce it.
Although our current composites customers have indicated that it is
their intention to purchase products from us 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, most of our key
customers are not contractually obligated to purchase a substantial amount of
additional products. These companies and other prospective customers with which
we have dealt have high quality standards and require elaborate and extensive
testing for new products, component parts, and services. Those that have
accounted for more than 10% of the $15,135,817 in sales for 1999 year to date
are Therma-Tru Corporation, Weyerhaeuser-Building Materials Distribution and
Carolina Builders Corporation. We could be materially adversely affected if we
were to lose one or more of our large existing customers.
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OUR EFFORTS TO PROTECT OUR TECHNOLOGY COULD PROVE UNSUCCESSFUL
Our composite materials manufacturing process and our waste plastics
reclamation technologies involve many proprietary trade secrets, as well as
certain methods, processes and equipment designs for which we have sought and
received patent protection. Although we have taken measures to safeguard our
trade secrets by limiting access to our manufacturing facility and requiring
confidentiality and nondisclosure agreements of employees and third parties,
there can be no assurance that our trade secrets will not be disclosed or that
others will not independently develop comparable or superior technology. To the
extent that our employees, consultants or third parties working with us develop
new technology, disputes may arise as to the proprietary rights to such
technology, which may not be resolved in our favor.
Of the eighteen patent applications we have filed, the United States
Patent and Trademark Office has issued fourteen patents, six of which relate to
our composite materials manufacturing operations and product and eight of which
relate to our waste plastics reclamation technologies. Four of the composite
patents were challenged by Mobil Oil Corporation and found invalid, although two
of these patents were later restored upon appeal. The cost of litigation to
preserve proprietary rights is high and, in the past, has strained our financial
resources and impeded our sales growth.
CHANGES IN GOVERNMENT REGULATION OR ATTENTION TO ENVIRONMENTAL CONCERNS COULD
AFFECT OUR BUSINESS
We are at present able to incorporate a substantial majority of the
waste plastic feedstocks that we receive into our composite materials
manufacturing and plastic reclamation processes without significant waste
disposal problems of our own. However, our current supply sources are relatively
homogeneous and consistent. There can be no assurance that, in the future,
continuing regulations will not adversely affect our operations or require the
introduction of costly additional manufacturing pollution control or waste
disposal processes.
Certain customers have expressed interest in our products because use
of our products could reduce the sawdust or other solid waste generated by such
customers' operations. We believe that the demand for our 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, we believe that
a lessening of environmental concerns could reduce the rate at which plastics
are recycled, which ultimately could have the effect of increasing the cost of
raw materials for our manufacturing operations.
Although state and federal legislation currently provides 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 and product
performance standards required by such guidelines may not be compatible with our
manufacturing capabilities.
WE COULD BE UNSUCCESSFUL IN OUR EFFORTS TO MEET COMPETITION
In seeking to market our composites as alternative building materials
to high-grade western pine and other woods, aluminum, high-performance plastics
and other construction materials, we compete with major forestry product
companies and aluminum fabricating companies. The conventional material
manufacturers with which we must compete have, in many cases, long-established
ties to the building and construction industry and have proven well-accepted
products. Although we have entered into a national marketing and distribution
agreement with Weyerhaeuser, there are many additional large competitors in this
market.
Many of our larger competitors also have research and development
budgets, marketing staffs and financial and other resources, which far surpass
our resources. Competitive products currently in the market include Trex(R),
TimberTech(R), SmartDeck(TM) and Strandex(TM). We must also compete in the
building materials market with certain
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other plastics recyclers currently manufacturing recycled materials intended for
similar building material applications, including decking and fencing.
Trex(R) has previously received Building Code Approval Rating on its
decking products. This gives Trex(R) a marketing advantage in certain places. We
are completing our Building Code Approval Rating application and are preparing
to submit it shortly. Failure to receive a Building Code Approval Rating on our
decking products could slow or impede our continued sales growth.
We compete for certain raw materials with other plastic recyclers,
composite manufacturers such as Trex(R), and some plastic resin producers, most
of which are far larger and better established than us. To date, we have not
experienced significant competition for raw materials, since the plastics
reclamation processes that we have developed for our composites manufacturing
business are able to use raw materials from industrial waste, plastic film waste
and other plastic waste generators whose potential as a recycling source is not
currently being significantly utilized by conventional plastics recyclers.
Conventional plastic recyclers primarily rely on post-consumer, source-separated
plastic container recycling processes such as plastic HDPE (#2) milk containers.
However, we expect new entrants into the plastics reclamation business who could
affect our source of raw materials supply and who may have substantially greater
financial and other resources. Such entrants may include beverage bottlers,
distributors and retailers as well as forestry product, petrochemical and other
companies.
FIRE DISRUPTIONS HAVE ADVERSELY AFFECTED OUR BUSINESS
We experienced a series of fires over the past several years, which
have severely disrupted our manufacturing operations. In 1996, we experienced
two fires at our Rogers, Arkansas plastic reclamation facility, which were ruled
arson by authorities. The pattern of continued fires caused our fire insurance
to be cancelled. We were able to renew our fire insurance, but at a
substantially higher rate. We have increased security, increased fire protection
equipment and added armed guards at our facilities. Our Springdale facility had
an extensive fire sprinkler system installed. However, another major fire or
similar disruption could occur and materially adversely affect us.
WE ARE DEPENDENT UPON MANAGEMENT AND OUTSIDE TECHNICAL ASSISTANCE
We are substantially dependent upon the personal efforts and abilities
of Joe G. Brooks, our Co-Chief Executive Officer and Chairman; J. Douglas
Brooks, our Vice President of Recycled Plastics; Edward J. Lysen, our Chief
Financial Officer; and a limited number of corporate and technical staff who
devote all of their business time to the affairs of the Company. We have
obtained $4 million in "key person" life insurance policies on the life of Joe
G. Brooks. We have obtained a $2.5 million "key person" life insurance policy on
the life of J. Douglas Brooks. The loss of the services of one or more of these
persons could have a material adverse effect upon our activities. We are also
dependent upon the continuing availability of capable outside engineering
services and other technical assistance. Although we currently have established
working relationships with Bargo Engineering and Multi-Craft Contractors in
Arkansas, there is no assurance that we will be able to locate, maintain, and/or
obtain such necessary technical assistance from time to time.
OUR FUTURE GROWTH WILL DEPEND UPON OUR ABILITY TO RECRUIT AND RETAIN QUALIFIED
PERSONNEL
Although we have significantly increased our production capacities and
continue to automate portions of our equipment and production processes, our
ability to grow will be dependent on our ability to recruit, train and retain
qualified people in several areas, primarily manufacturing. The United States
economy has recently been strong and unemployment is currently low. In seeking
personnel to expand, we are currently competing with companies from many
different segments that have greater financial resources and are better
established than our Company.
8
<PAGE> 13
OUR CURRENT MANAGEMENT MAY EXERCISE VOTING CONTROL
At September 30, 1999, our directors and officers in the aggregate
beneficially owned 14,078,511 shares of Class A common stock (which amount
includes 9,706,085 shares underlying currently exercisable outstanding options
and warrants), 1,375,657 shares of Class B common stock and 800 shares of Series
B preferred stock, which constituted approximately 32.7%, 93.9% and 27.6% of the
Class A common stock, Class B common stock, and Series B preferred stock,
respectively, and approximately 42.2% of our combined general voting power.
Accordingly, our current officers and directors may be able to elect our
directors and otherwise control the Company. Holders of Class B common stock,
Class A common stock and Series B preferred 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 and the holders of Series B preferred stock will be
entitled to 2,500 votes per share of Series B preferred 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 and Series B
preferred stock, because of the family and prior business relations among such
stockholders, Class B common stockholders and Series B preferred stockholders
will often vote the same way on matters requiring stockholder approval or
authorization. The Class B common 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 common
stockholder desiring to sell such shares.
OUR COMMON STOCK COULD BE DILUTED OR OTHERWISE ADVERSELY AFFECTED BY ADDITIONAL
ISSUANCES OF PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock,
2,900 shares of which are outstanding. Our Board of Directors 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.
In 1998, we sold 2,900 shares of Series A, B and C convertible
preferred stock for $1,000 per share. The 900 shares of Series B preferred stock
were sold to companies controlled by Marjorie S. Brooks and to certain other
persons have voting rights of 2,500 votes per share of Series B preferred stock,
which votes together with holders of Class A common stock and Class B common
stock on matters submitted to a stockholder vote. The preferred stock has a 10%
per annum accreting premium for conversion, redemption and liquidation purposes.
The convertible preferred stock is convertible into common stock at the holder's
option at any time at a conversion price equal to the lower of a fixed $1.20
conversion price or the 10-trading day average closing bid price immediately
prior to the date of conversion. The alternative floating conversion price
became applicable because we failed to meet certain financial performance
milestones during the six months ended June 30, 1999. If the preferred stock is
not previously redeemed or converted, it automatically converts into Class A
common stock on the seventh anniversary of the issue date at a conversion price
equal to the lower of a fixed $1.20 conversion price or the 5-trading day
average closing bid price immediately prior to the date of conversion. Series X
and Y warrants were issued in connection with the preferred stock and are
exercisable at $1.20 and $2.50 per warrant, respectively, for an aggregate of up
to 2,416,664 and 1,021,539 shares of Class A common stock, respectively. Each of
the warrants has cashless exercise features. Series X warrants are exercisable
at any time through November 10, 2005, provided that each holder cannot exercise
the Series X warrants for more than a specified increasing percentage of the
shares subject to such warrant until March 9, 2000, whereupon the Series X
warrants become fully exercisable. The Series Y warrants are exercisable at any
time from November 10, 2000 through November 10, 2005.
9
<PAGE> 14
WE COULD BE REQUIRED TO REDEEM OR PAY LIQUIDATED DAMAGES ASSOCIATED WITH THE
OUTSTANDING PREFERRED STOCK
A total of 2,900 shares of Series A, B and C convertible preferred
stock are outstanding, with a total stated value of $2,900,000. The preferred
stock has a 10% per annum accreting premium for conversion, redemption and
liquidation purposes. Although the preferred stock is not mandatorily
redeemable, we could be required to either redeem such preferred stock or, at
our option, pay as liquidated damages an amount equal to 10% of the stated value
of the preferred stock if our shares are not listed on at least one of the
Nasdaq SmallCap Market, Nasdaq National Market, New York Stock Exchange or
American Stock Exchange for 10 days or more in any nine month period. The
liquidated damages amount is payable at the Company's option in either cash or
shares of Class A common stock. The preferred stock is also redeemable in the
event we default under certain obligations with respect to the preferred stock.
The redemption price would generally be equal to the greater of (a) the
aggregate market value of the Class A common stock into which the preferred
stock could be converted and (b) 115% of the sum of (i) the stated value, (ii)
the 10% per annum premium, and (iii) any unpaid conversion default payment. Any
requirement to pay such liquidated damages could materially adversely affect us.
POTENTIAL DROP IN STOCK PRICE DUE TO FLOATING CONVERSION FEATURE OF CONVERTIBLE
PREFERRED STOCK
Because we failed to meet certain financial performance milestones
during the six months ended June 30, 1999, the convertible preferred stock is
convertible into common stock at the holder's option at any time at a conversion
price equal to the lower of a fixed $1.20 conversion price or the 10-trading day
average closing bid price immediately prior to the date of conversion. If the
preferred stock is not previously redeemed or converted, it automatically
converts into Class A common stock on the seventh anniversary of the issue date
at a conversion price equal to the lower of a fixed $1.20 conversion price or
the 5-trading day average closing bid price immediately prior to the date of
conversion. Based on these conversion price formulae, as the market price of the
common stock declines, the convertible preferred stock will be convertible into
a proportionately greater number of shares of common stock. The number of shares
we could be required to issue in payment of the premium on the preferred stock
will also increase as the market price of the common stock declines. These
increases in the number of shares issuable upon conversion of the convertible
preferred stock and upon payment of the premium on the preferred stock could
result in a substantial dilution to other holders of Class A common stock and
adversely affect the market price of the Class A common stock. In addition, the
holders of the convertible preferred stock could convert and sell part of their
shares, which could drive the stock price down even further and permit them to
convert additional shares at a lower price.
10
<PAGE> 15
FUTURE SALES OF SHARES COULD BE DILUTIVE AND IMPAIR OUR ABILITY TO RAISE CAPITAL
At September 30, 1999, we had reserved approximately 26,136,381 shares
of Class A common stock for issuance upon conversion of Class B common stock,
convertible preferred stock and upon exercise of outstanding warrants. 8,397,330
of those reserved shares are covered by other registration statements and can be
sold from time to time. This prospectus covers the potential sale from time to
time of up to 13,126,282 of such reserved shares of Class A common stock. At
September 30, 1999, we had also reserved approximately 5,017,000 shares of Class
A common stock for issuance upon exercise of outstanding options under currently
approved employee benefit plans. The sale or availability for sale of a
significant number of shares of Class A common stock in the public market could
adversely affect the market price of the Class A common stock and impair our
ability to raise additional capital.
The holders of such securities 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 our Class A common stock without having to assume the risk of ownership. The
exercise or conversion of such securities will result in a dilution in interest
for our other security holders. As long as such securities remain unexercised or
unconverted, our ability to obtain additional capital may be adversely affected.
The holders of such securities may be expected to exercise their rights at a
time when we would in all likelihood be able to obtain needed capital through a
new offering of our securities on terms more favorable than those provided by
the outstanding securities.
In addition, we have agreed with Zanett, the placement agent for
several of our recent private placements and selling stockholders under this
prospectus, upon restrictions on additional financings through August 2000,
except for bank, equipment leasing and certain other types of institutional debt
financing. The existence of such rights could also adversely affect our ability
to complete future financings.
WE ARE NOT LIKELY TO PAY DIVIDENDS
We have not paid any cash dividends in the past and expect to retain
any future earnings for expansion of our business rather than to pay cash
dividends in the foreseeable future.
YEAR 2000 RISKS
We have been and are currently conducting an evaluation of the
potential effects of the Year 2000 issue on our operations. The evaluation is
ongoing; however at this time, our management is not aware of any problems that
will occur within our plant operations. We have contacted the two major
manufacturers of our operating equipment and have been informed by them that
they are not aware of Year 2000 issues with our equipment. We plan to finalize
our inquiries to the remaining equipment manufacturers during the fourth quarter
of 1999. We have been in contact with some of our significant vendors and
customers to determine their Year 2000 status and plan to continue to contact
others during the fourth quarter of 1999. In assessing the impact of the Year
2000 on administration, including accounting and financial reporting, we have
updated our financial accounting software and have been provided confirmation
that our software is Year 2000 compliant. We upgraded our telephone system in
Springdale and it is now Year 2000 compliant. Based on the information above, we
do not anticipate a material financial impact as a result of the Year 2000
issue. However, we have no control over Year 2000 compliance by our customers
and vendors. If our customers and vendors are not prepared for the Year 2000
issue, this could result in a material adverse financial impact to us; however,
we believe it is unlikely based on the nature of our business, customers and
vendors.
11
<PAGE> 16
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
Class A common stock by the selling stockholders. We would receive proceeds from
any exercise of the warrants exercisable for an aggregate of 5,948,472 shares of
Class A common stock covered by this prospectus. Those warrants are exercisable
at fixed exercise prices (subject to customary anti-dilution adjustments)
ranging from $0.31 to $3.00. Any such proceeds received by us upon exercise of a
warrant will be used for general corporate and working capital purposes.
SELLING STOCKHOLDERS
This prospectus covers the resale of shares of Class A common stock
issued or issuable upon exercise of warrants, conversion of preferred stock or
payment of interest obligations in connection with certain financing
transactions described hereunder.
JUNE 1996-MAY 1997: CLASS I WARRANTS
Between June 1996 and May 1997, 393,344 Class I Warrants were issued in
connection with the private placement of 3,884,478 shares of Class A common
stock for proceeds of $2,079,000, pursuant to Regulation S under the Securities
Act of 1933. Since the original issuance of the Class I Warrants, 42,866 Class I
Warrants have expired, 40,478 have been exercised and 310,000 remain exercisable
(due to extensions) until two years from the effective date of this registration
statement, at exercise prices ranging from $0.31 to $1.125. Each Class I Warrant
is exercisable for one share of Class A common stock.
DECEMBER 1996-NOTE: CLASSES J AND K WARRANTS
In December 1996, in connection with a note payable of $100,000, we
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 for one
share of Class A 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 (subject to
customary anti-dilution adjustments). Both Class J and Class K Warrants expire
in December 2001, five years from their date of issuance.
OCTOBER 1997, FEBRUARY 1998, APRIL 1998, JUNE 1998 AND AUGUST 1998-PRIVATE
PLACEMENT: 12% PROMISSORY NOTES
Under an October 1997 placement agreement, we issued a series of 12%
promissory notes to certain of the selling stockholders as follows:
<TABLE>
<CAPTION>
DATE OF ISSUE DATE OF MATURITY AGGREGATE PRINCIPAL DATE TO WHICH MATURITY
AMOUNT WAS EXTENDED
------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
October 1997 July 27, 1998 $1,300,000 January 1, 2000
February 1998 November 2, 1998 $ 800,000 January 1, 2000
April 1998 January 2, 1999 $ 410,000 January 1, 2000
June 1998 February 28, 1999 $ 359,963 January 1, 2000
August 1998 May 18, 1999 $ 287,500 January 1, 2000
</TABLE>
Quarterly interest on all of the 12% 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 our option.
12
<PAGE> 17
Pursuant to the placement agreement executed concurrently with the
October 1997 note purchase agreement, we granted our placement agent, The Zanett
Securities Corporation, a two-year option to offer and place on our behalf an
additional $2,200,000 in aggregate principal amount of promissory notes.
$1,857,463 of these additional notes were issued and sold in February, April,
June and August 1998, as shown in the table above. The terms of any additional
notes to be issued under the two-year option may vary from the terms of the
earlier 12% notes, but will provide that, unless extended at our option, they
will mature and become payable on a date 270 days from their date of initial
issuance.
In the event that Zanett exercises its option to offer and place
additional notes, we are required to grant Zanett additional warrants. These
warrants will allow their holder to purchase either:
o such number of shares of our Class A 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,
o in the event that the term of the additional notes is extended at
our option from 270 days to 365 days, such number of shares of
Class A common stock as is equal to an additional 6% of the
aggregate purchase price of the additional notes (as expressed in
numerical rather than dollar terms).
In the event of the sale of such additional notes, certain selling
stockholders, including consultant Bruno Guazzoni become entitled under their
consulting agreement with the Company to additional warrants to purchase such
number of shares of our Class A common stock as is equal to:
o 200% of the aggregate purchase price of the additional notes (as
expressed in numerical rather than dollar terms) or
o in the event that the term of the additional notes is extended,
such number of shares as is equal to an additional 50% of the
aggregate purchase price of the additional notes.
The placement warrants and consulting warrants may be exercised for a
period of five years from the date of issuance at a price per share of $0.375.
The warrant shares issuable upon exercise of the placement warrants and
consulting warrants are required to be registered under registration rights
agreements executed with Zanett and Mr. Guazzoni.
Concurrently with the note purchase agreements, we issued warrants to
Zanett. 318,895 warrants remain outstanding under the placement agency
agreements as of September 30, 1999. All of the 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, we entered into the consulting agreement with
Mr. Guazzoni, under which he will provide investment banking and general
financial and strategic advisory services during a five-year term. Under the
terms of the consulting agreement, we are required to issue to Mr. Guazzoni, two
consulting warrants for every dollar of qualified financing in which he
participates in the offer and sale of the promissory notes. In connection with
past financings, we have issued 6,254,926 consulting warrants. Mr. Guazzoni has
the right to participate in the placement of up to an additional $342,537 of
promissory notes, which would result in the issuance of up to an additional
685,074 consulting warrants. All of 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 placement agent warrants.
SEPTEMBER-NOVEMBER 1998: SERIES A, B AND C PREFERRED STOCK
In 1998, we sold 2,900 shares of Series A, B and C convertible
preferred stock for $1,000 per share. The 900 shares of Series B preferred stock
were sold to companies controlled by Marjorie S. Brooks and to certain other
13
<PAGE> 18
persons have voting rights of 2,500 votes per share of Series B preferred stock,
which votes together with holders of Class A common stock and Class B common
stock on matters submitted to a stockholder vote. The preferred stock has a 10%
per annum accreting premium for conversion, redemption and liquidation purposes.
The convertible preferred stock is convertible into common stock at the holder's
option at any time at a conversion price equal to the lower of a fixed $1.20
conversion price or the 10-trading day average closing bid price immediately
prior to the date of conversion. The alternative floating conversion price
became applicable because we failed to meet certain financial performance
milestones during the six months ended June 30, 1999. If the preferred stock is
not previously redeemed or converted, it automatically converts into Class A
common stock on the seventh anniversary of the issue date at a conversion price
equal to the lower of a fixed $1.20 conversion price or the 5-trading day
average closing bid price immediately prior to the date of conversion. Series X
and Y warrants were issued in connection with the preferred stock and are
exercisable at $1.20 and $2.50 per warrant, respectively, for an aggregate of up
to 2,416,664 and 1,021,539 shares of Class A common stock, respectively. Each of
the warrants has cashless exercise features. Series X warrants are exercisable
at any time through November 10, 2005, provided that each holder cannot exercise
the Series X warrants for more than a specified increasing percentage of the
shares subject to such warrant until March 9, 2000, whereupon the Series X
warrants become fully exercisable. The Series Y warrants are exercisable at any
time from November 10, 2000 through November 10, 2005.
JUNE 1998 - FEBRUARY 1999: BONUS WARRANTS
In connection with the exercise of Class B Warrants between June 1998
and February 1999, 1,312,664 Bonus Warrants were issued. Each Bonus Warrant is
exercisable at a price of $3.00 for one share of Class A common stock, and
expires in February 2001.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders,
the number of shares of common stock owned beneficially by each of the selling
stockholders as of September 30, 1999, 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. Although the selling stockholders may
offer all, some or none of their Class A common stock, 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.
14
<PAGE> 19
<TABLE>
<CAPTION>
% Beneficially Owned
Name and Address of Number of Shares Number of Shares Following Completion
Selling Stockholder Beneficially Owned to be Offered of Offering (1)
------------------- ------------------ ---------------- --------------------
<S> <C> <C> <C>
Zanett Lombardier, Ltd. (2)(3) 3,544,939(4) 1,672,760(4) 7.2
Harlow Enterprises, Inc. (2)(3) 145,944(5) 93,752(5) *
Parkland Limited (2)(3) 267,729(6) 219,318(6) *
Samuel L. Milbank (2)(3) 523,427(7) 386,060(7) 1.1
Bruno Guazzoni (2)(3) 2,945,501(8) 1,180,591(8) 6.0
Claudio Guazzoni (2)(3) 433,320(9) 359,704(9) *
David McCarthy (2)(3) 536,153(10) 348,242(10) 1.1
Heriot Holdings, Ltd. (2)(3) 334,223(11) 129,941(11) *
Emral Investment Limited (2)(3) 422,277(12) 436,580(12) *
Telcom Mondial (2)(3) 30,473(13) 31,554(13) *
Goldman Sachs
Performance Partners L.P.(3) 747,592(14) 1,759,537(14) 1.5
Goldman Sachs
Performance Partners (Offshore) L.P.(3) 606,741(15) 1,428,030(15) 1.2
Peter S. Lau 79,715(16) 29,715(16) *
David Cooperberg 10,763(17) 10,763(17) *
Ryan McCarthy 8,571(18) 8,571(18) *
Joseph Petrellese, Jr. 4,000(19) 4,000(19) *
Ike Tull 586,666(20) 614,999(20) 1.2
Michael Tull 922,666(21) 1,059,999(21) 1.9
Razorback Farms 764,308(22) 423,999(22) 1.6
Allen & Co. 206,666(23) 264,999(23) *
Robert Andrew Mackie 1,170,000(24) 1,095,000(24) 2.4
Millenco, L.L.P. 206,666(25) 264,999(25) *
RA Mackie & Co. LP 309,600(26) 309,600(26) *
Allen & Company Incorporated 440,000(26) 440,000(26) *
Kenneth J. Forrester & Deloris A. Forrester 500(26) 500(26) *
M. Bernard Siegel 7,700(26) 7,700(26) *
Richard Read Allen & Silke Hufnagel Allen 300(26) 300(26) *
William F. Harrison TTEE, Fayetteville Women's Clinic 600(26) 600(26) *
Robert K. Wall or Betty J. Wall TTEE 1,000(26) 1,000(26) *
Alan J. & Patricia A. Giolin 50(26) 50(26) *
Paine Webber Inc. 9,120(26) 9,120(26) *
IRA for Brenda J. Lazenby 1,000(26) 1,000(26) *
Sam Lazenby C/F Daniel G. Lazenby 8,000(26) 8,000(26) *
Betty Mayer 1,500(26) 1,500(26) *
Forest Global Converting Fund 7,500(26) 7,500(26) *
Joseph Molloy 2,000(26) 2,000(26) *
Bear Stearns Intl 6,000(26) 6,000(26) *
LLT Limited 1,500(26) 1,500(26) *
R. A. Mackie 75,000(26) 75,000(26) *
Lee Ziedman 2,700(26) 2,700(26) *
Peter J. Urdanick 1,400(26) 1,400(26) *
Keith J. & Cathy E. Goulet 1,500(26) 1,500(26) *
Albert & Patricia M. Green 300(26) 300(26) *
Patricia C. Morgan 300(26) 300(26) *
Julianna Carroll 100(26) 100(26) *
Sam Lazenby 10,000(26) 10,000(26) *
Delbert Allen 160,000(26) 160,000(26) *
Bargo Engineering 75,000(26) 75,000(26) *
Fritz Friday 100,000(26) 100,000(26) *
Marjorie S. Brooks Trust 3,000(26) 3,000(26) *
Brooks Children's Trust 38,250(26) 38,250(26) *
Kenna Katelyn Brooks 1,500(26) 1,500(26) *
Andrew McMahon 1,875(26) 1,875(26) *
Stephen Rinnert & Molly Rinnert 1,500(26) 1,500(26) *
PetePat Trust 34,374(26) 34,374(26) *
13,126,282
</TABLE>
* Beneficially owns less than 1%
15
<PAGE> 20
(1) Assumes the sale of all shares offered hereby.
(2) Address: c/o The Zanett Securities Corporation, Tower 49, 24th Floor, 12
East 49th Street, New York, NY 10017
(3) Except under certain circumstances, none of such selling stockholders is
entitled to convert Preferred stock on exercise of 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 3,544,939 shares as of the date of this Prospectus. The
number of shares to be offered represents (i) up to 575,000 consulting
warrant shares which may be acquired upon exercise of consulting warrants
issued on August 21, 1998, at an exercise price of $0.375 per share, (ii)
up to 66,490 interest shares, of which 23,707 have been issued and of which
42,783 may be issued pursuant to notes in the amounts of $21,153.85,
$626,892, and $287,500, acquired October 30, 1997, February 5, 1998, and
August 21, 1998, respectively (assuming the notes will be fully paid by
January 15, 2000, January 15, 2000, and August 15, 2000, respectively, and
a pro forma conversion price of $2.12 per share on the unissued interest
shares) (equal to the 10-business day average closing stock price
prevailing as of November 17, 1999), (iii) up to 661,854 shares which may
be acquired upon the conversion of 275 shares of Series A Preferred Stock
issued at a purchase price of $275,000 in November 1998, (iv) up to 160,416
shares which may be issued in payment of a 10% premium on the Series A
Preferred Stock, and (v) up to 209,000 shares issuable upon exercise of
Series X and Y Warrants acquired in connection with the purchase of the
Series A Preferred Stock.
(5) Beneficially owns 145,944 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 60,169 shares which may
be acquired upon the conversion of 25 shares of Series A Preferred Stock
issued at a price of $25,000 in November 1998, (ii) up to 14,583 shares
which may be issued in payment of a 10% premium on the Series A Preferred
Stock, and (iii) up to 19,000 shares issuable upon exercise of Series X and
Y warrants acquired in connection with the purchase of the Series A
Preferred Stock.
(6) Beneficially owns 267,729 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 119,963 consulting
warrant shares, which may be acquired upon exercise of consulting warrants
issued on June 3, 1998, at an exercise price of $0.375 per share, (ii) up
to 5,603 interest shares, of which 1,822 have been issued and of which
3,781 may be issued pursuant to notes in the amounts of $1,923.07 and
$59,981.50, acquired October 30, 1997 and June 3, 1998, respectively
(assuming the notes will be fully paid by January 15, 2000 and August 15,
2000, respectively, and a pro forma conversion price of $2.12 per share on
the unissued interest shares) (equal to the 10-business day average closing
stock price prevailing as of November 17, 1999), (iii) up to 60,169 shares
which may be acquired upon the conversion of 25 shares of Series A
Preferred Stock issued at a purchase price of $25,000 in November 1998,
(iv) up to 14,583 shares which may be issued in payment of a 10% premium on
the Series A Preferred Stock and (v) up to 19,000 shares issuable upon
exercise of Series X and Y warrants acquired in connection with the
purchase of the Series A Preferred stock.
(7) Beneficially owns 523,427 as of the date of this prospectus. The number of
shares to be offered represents (i) up to 80,000 consulting warrant shares
which may be acquired upon exercise of consulting warrants issued on June
3, 1998 at an exercise price of $.375 per share, (ii) up to 9,983 interest
shares, of which 5,922 have been issued and of which 4,061 may be issued
pursuant to notes in the amounts of $1,153.85, $34,667, and $40,000,
acquired October 30, 1997, February 5, 1998, and June 3, 1998, respectively
(assuming the notes will be fully paid by January 15, 2000, January 15,
2000, and August 15, 2000, respectively, and a pro forma conversion price
of $2.12
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<PAGE> 21
per share on the unissued interest shares) (equal to the 10-business day
average closing stock price prevailing as of November 17, 1999), (iii) up
to 19,423 private placement warrant shares which may be acquired upon
exercise of private placement warrants issued on June 3, 1998 and August
21, 1998, at an exercise price of $0.375, (iv) up to 36,101 shares which
may be acquired upon the conversion of 15 shares of Series A Preferred
Stock issued at a purchase price of $15,000 in November 1998, (v) up to
8,750 shares which may be issued in payment of a 10% premium on the Series
A Preferred Stock, and (vi) up to 154,301 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series A Preferred Stock, and (vii) up to 77,502 shares issuable upon
exercise of Class I warrants.
(8) Beneficially owns 2,945,501 shares as of the date of this prospectus. The
number of shares to be offered represents (i) 18,067 interest shares, of
which 8,249 have been issued and of which 9,818 may be issued pursuant to
notes in the amounts of $23,846.15, $103,774, and $280,000 acquired October
30, 1997, February 5, 1998, and April 6, 1998, respectively (assuming the
notes will be fully paid by January 15, 2000, January 15, 2000, and August
15, 2000, respectively, and a pro forma conversion price of $2.12 per share
on the unissued interest shares) (equal to the 10-business day average
closing stock price prevailing as of November 17, 1999), (ii) up to 746,091
shares which may be acquired upon the conversion of 310 Shares of Series A
Preferred Stock issued at a purchase price of $310,000 in November 1998,
(iii) up to 180,833 shares which may be issued in payment of a 10% premium
on the Series A Preferred Stock, and (iv) up to 235,600 shares issuable
upon exercise of Series X and Y warrants acquired in connection with the
purchase and placement of the Series A Preferred Stock.
(9) Beneficially owns 433,320 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 29,136 private
placement warrant shares which may be acquired upon exercise of private
placement warrants issued on June 3, 1998 and August 21, 1998, at an
exercise price of $0.375 per share, and (ii) up to 214,319 shares issuable
upon exercise of Series X and Y warrants acquired in connection with the
placement of the Series A Preferred Stock, and (iii) up to 116,249 shares
issuable upon exercise of Class I warrants.
(10) Beneficially owns 536,153 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 29,136 private
placement warrant shares which may be acquired upon exercise of private
placement warrants issued on June 3, 1998 and August 21, 1998, at an
exercise price of $0.375 per share, and (ii) up to 1,109 interest shares
which may be issued pursuant to notes in the amounts of $34,667 and
$15,000, acquired February 5, 1998 and April 5, 1998, respectively
(assuming the notes will be fully paid by January 15, 2000 and August 15,
2000, respectively, and a pro forma conversion price of $2.12 per share on
the unissued interest shares) (equal to the 10-business day average closing
stock price prevailing as of November 17, 1999), (iii) up to 214,319 shares
issuable upon exercise of Series X and Y warrants acquired in connection
with the placement of the Series A Preferred Stock, and (iv) up to 103,678
shares issuable upon exercise of Class I warrants.
(11) Beneficially owns 334,223 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 119,963 consulting
warrant shares which may be acquired upon exercise of consulting warrants
issued on June 3, 1998, at an exercise price of $0.375 per share, and (ii)
up to 9,978 interest shares, of which 1,822 have been issued and of which
8,156 may be issued pursuant to notes in the amounts of $100,000 and
$59,981.50, acquired April 6, 1998 and June 3, 1998, respectively (assuming
the notes will be fully paid by August 15, 2000, and a pro forma conversion
price of $2.12 per share on the unissued interest shares) (equal to the
10-business day average closing stock price prevailing as of November 17,
1999).
(12) Beneficially owns 422,277 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 400,000 consulting
warrant shares which may be acquired upon exercise of consulting warrants
issued on June 3, 1998, at an exercise price of $0.375 per share, and (ii)
up to 36,580 interest shares, of which 22,277 have been issued and of which
14,303 may be issued pursuant to a $200,000 note acquired June 3, 1998
(assuming the note will be fully paid
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<PAGE> 22
by August 15, 2000, and a pro forma conversion price of $2.12 per share on
the unissued interest shares) (equal to the 10-business day average closing
stock price prevailing as of November 17, 1999).
(13) Beneficially owns 30,473 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 30,000 consulting
warrant shares which may be acquired upon exercise of consulting warrants
issued in connection with an April 6, 1998 note, at an exercise price of
$0.375 per share, and (ii) up to 1,554 interest shares, of which 473 have
been issued and of which 1,081 may be issued pursuant to a $15,000 note
originally dated April 6, 1998 (assuming the note will be fully paid by
August 15, 2000, and a pro forma conversion price of $2.12 per share on the
unissued interest shares) (equal to the 10-business day average closing
stock price prevailing as of November 17, 1999).
(14) Beneficially owns 747,592 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 1,129,245 shares which
may be acquired upon the conversion of 469.2 shares of Series A Preferred
Stock issued at a purchase price of $469,200 in November 1998, (ii) up to
273,700 shares which may be issued in payment of a 10% premium on the
Series A Preferred Stock, and (iii) up to 356,592 shares issuable upon
exercise of Series X and Y warrants acquired in connection with the
purchase of the Series A Preferred Stock.
(15) Beneficially owns 606,741 shares as of the date of this prospectus. The
number of shares to be offered represents (i) up to 916,489 shares which
may be acquired upon the conversion of 380.8 shares of Series A Preferred
Stock issued at a purchase price of $380,800 in November 1998, (ii) up to
222,133 shares which may be issued in payment of a 10% premium on the
Series A Preferred Stock, and (iii) up to 289,408 shares issuable upon
exercise of Series X and Y warrants acquired in connection with the
purchase of the Series A Preferred Stock.
(16) Beneficially owns 79,715 shares as of the date of this prospectus. The
number of shares to be offered represents up to 29,715 shares issuable upon
exercise of Class I warrants.
(17) Beneficially owns 10,763 shares as of the date of this prospectus. The
number of shares to be offered represents up to 10,763 shares issuable upon
exercise of Class I warrants.
(18) Beneficially owns 8,571 shares as of the date of this prospectus. The
number of shares to be offered represents up to 8,571 shares issuable upon
exercise of Class I warrants.
(19) Beneficially owns 4,000 shares as of the date of this prospectus. The
number of shares to be offered represents up to 4,000 shares issuable upon
exercise of Class I warrants.
(20) Beneficially owns 586,666 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 83,333 shares which may
be acquired upon the conversion of 100 shares of Series B Preferred Stock
issued at a purchase price of $100,000 in September 1998, (ii) up to 58,333
shares which may be issued in payment of a 10% premium on the Series B
Preferred Stock, (iii) up to 123,333 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series B Preferred Stock, (iv) up to 200,000 shares issuable upon exercise
of Class J warrants, and (v) up to 150,000 shares issuable upon exercise of
Class K warrants.
(21) Beneficially owns 922,666 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 333,333 shares which may
be acquired upon the conversion of 400 shares of Series B Preferred Stock
issued at a purchase price of $400,000 in November 1998, (ii) up to 233,333
shares which may be issued in payment of a 10% premium on the Series B
Preferred Stock, (iii) up to 493,333 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series B Preferred Stock. Mr. Tull, as a director of AERT, currently has a
voluntary lock-up in place, which will not allow sales of stock without the
approval of The Zanett Securities Corporation.
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<PAGE> 23
(22) Beneficially owns 764,308 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 133,333 shares which may
be acquired upon the conversion of 160 shares of Series B Preferred Stock
issued at a purchase price of $160,000 in September 1998, (ii) up to 93,333
shares which may be issued in payment of a 10% premium on the Series B
Preferred Stock, and (iii) up to 197,333 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series B Preferred Stock. Razorback Farms is controlled by Marjorie S.
Brooks and sales of stock are currently restricted without the approval of
The Zanett Securities Corporation, due to a voluntary lock-up by AERT.
(23) Beneficially owns 206,666 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 83,333 shares which may
be acquired upon the conversion of 100 shares of Series C Preferred Stock
issued at a purchase price of $100,000 in September 1998, (ii) up to 58,333
shares which may be issued in payment of a 10% premium on the Series C
Preferred Stock, and (iii) up to 123,333 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series C Preferred Stock.
(24) Beneficially owns 1,170,000 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 250,000 shares which may
be acquired upon the conversion of 300 shares of Series C Preferred Stock
issued at a purchase price of $300,000 in November 1998, (ii) up to 175,000
shares which may be issued in payment of a 10% premium on the Series C
Preferred Stock, (iii) up to 370,000 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series C Preferred Stock, and (iv) up to 300,000 shares issuable upon
exercise of warrants.
(25) Beneficially owns 206,666 shares as of the date of this prospectus. The
number of shares to be offered includes (i) up to 83,333 shares which may
be acquired upon the conversion of 100 shares of Series C Preferred Stock
issued at a purchase price of $100,000 in November 1998, (ii) up to 58,333
shares which may be issued in payment of a 10% premium on the Series C
Preferred Stock, and (iii) up to 123,333 shares issuable upon exercise of
Series X and Y warrants acquired in connection with the purchase of the
Series C Preferred Stock.
(26) Represents shares issuable upon exercise of Bonus warrants.
PLAN OF DISTRIBUTION
This prospectus covers the resale of shares of Class A common stock by
the selling stockholders and their pledgees, donees, assignees and other
successors in interest. The selling stockholders may sell their shares on the
Nasdaq SmallCap Market, in the over-the-counter market or through any other
facility on which the shares are traded, or in private transactions. These sales
may be at market prices or at negotiated prices. The selling stockholders may
use the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker or dealer solicits purchasers;
o block trades in which the broker or dealer attempts to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
o privately negotiated transactions;
o any combination of these methods of sale; or
o any other legal method.
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<PAGE> 24
The selling stockholders may engage in short sales of the Class A
common stock and deliver shares to close out their short positions. The selling
stockholders may also enter into put or call options or other transactions with
broker-dealers or others which require delivery to those persons of shares
covered by this prospectus.
Brokers, dealers or other agents participating in the distribution of
the shares of Class A common stock may receive compensation in the form of
discounts or commissions from the selling stockholders, as well as the purchaser
if they act as agent for the purchaser. The discount or commission in a
particular transaction could be more than the customary amount. We know of no
existing arrangements between any selling stockholder and any underwriter,
broker, dealer or agent relating to the sale or distribution of the shares.
The selling stockholders and any brokers or dealers that participate in
the sale of the shares may be deemed to be "underwriters" within the meaning of
the Securities Act. Any discounts, commissions or other compensation received by
these persons and any profit on the resale of the shares by them as principals
might be deemed to be underwriters' compensation. The selling stockholders may
agree to indemnify any broker, dealer or agent that participates in the sale of
the shares against various liabilities, including liabilities under the
Securities Act.
At the time a particular offer of shares is made, to the extent
required we will file a supplement to this prospectus which identifies the
number of shares being offered, the name of the selling stockholders, the name
of any participating broker or dealer, the amount of discounts and commissions,
and any other material information.
The selling stockholders and any other person participating in a
distribution will be subject to the applicable provisions of the Exchange Act
and its rules and regulations. For example, the anti-manipulative provisions of
Regulation M may limit the ability of the selling stockholders or others to
engage in stabilizing and other market making activities.
The selling stockholders may also sell their shares pursuant to Rule
144 under the Securities Act, rather than pursuant to this prospectus, so long
as they meet the criteria and conform to the requirements of the rule.
We will not receive any of the proceeds from the sale of the shares by
the selling stockholders. We will pay the registration and other offering
expenses related to this offering, but the selling stockholders will pay all
underwriting discounts and brokerage commissions incurred in connection with the
offering. We have agreed to indemnify the selling stockholders against various
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Our outside counsel, Akin, Gump, Strauss, Hauer & Feld, L.L.P., San
Antonio, Texas has issued a legal opinion about the validity of the shares
offered by this prospectus.
EXPERTS
The audited financial statements for the years ended December 31, 1998,
1997 and 1996, 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 reports with respect thereto, and are
included herein in reliance upon the said firm as experts in accounting and
auditing in giving said reports. Reference is made to said report, which
includes an explanatory paragraph with respect to the uncertainty regarding the
Company's ability to continue as a going concern and litigation uncertainties as
discussed in Notes 2 and 12, respectively, to the financial statements.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document that we file
at the SEC's public reference rooms in Washington, D.C., New York
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<PAGE> 25
and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public at
the SEC's web site at http://www.sec.gov. In addition, reports, proxy statements
and other information concerning AERT can be inspected and copied at the offices
of Nasdaq, Report Section, 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act covering the shares of Class A common stock to be sold under
this prospectus. The SEC permits us to omit from this prospectus certain
information, exhibits, and undertakings contained in the registration statement.
Statements contained in this prospectus relating to the contents of any contract
or other document are not necessarily complete and reference is made to the
copies of such documents filed as exhibits to the registration statement, and
each such statement is qualified in its entirety by this reference.
THE SEC ALLOWS US TO "INCORPORATE BY REFERENCE" THE INFORMATION THAT WE
FILE WITH THEM, WHICH MEANS THAT WE CAN DISCLOSE IMPORTANT INFORMATION TO YOU BY
REFERRING YOU TO THOSE DOCUMENTS INSTEAD OF HAVING TO REPEAT THE INFORMATION IN
THIS PROSPECTUS. THE INFORMATION INCORPORATED BY REFERENCE IS CONSIDERED TO BE
PART OF THIS PROSPECTUS, AND LATER INFORMATION THAT WE FILE WITH THE SEC WILL
AUTOMATICALLY UPDATE AND SUPERSEDE THIS INFORMATION. WE INCORPORATE BY REFERENCE
THE DOCUMENTS LISTED BELOW AND ANY FUTURE FILINGS MADE WITH THE SEC UNDER
SECTIONS 13(A), 13(C), 14 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNTIL
THE SELLING STOCKHOLDERS SELL ALL THE SHARES.
o Annual Report on Form 10-K for the fiscal years ended December 31, 1998,
1997 and 1996;
o Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June
30, 1999, and September 30, 1999.
o "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 our Registration Statement on Form 8-A filed
October 23, 1989 (No. 1-10367).
You may request a copy of these documents, without their exhibits,
unless specifically incorporated by reference, free of charge upon request to:
Joe G. Brooks, Chairman of the Board
Advanced Environmental Recycling Technologies, Inc.
914 North Jefferson Street
Springdale, Arkansas 72764
(501) 756-7400
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE SELLING STOCKHOLDERS WILL
NOT MAKE AN OFFER OF THESE SHARES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT
IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE FILED WITH
THE SEC (REGISTRATION NO. 333-_________). MORE INFORMATION ABOUT THE SHARES SOLD
BY THE SELLING STOCKHOLDERS IS CONTAINED IN THAT REGISTRATION STATEMENT AND THE
EXHIBITS FILED ALONG WITH THE REGISTRATION STATEMENT. BECAUSE INFORMATION ABOUT
CONTRACTS REFERRED TO IN THIS PROSPECTUS IS NOT ALWAYS COMPLETE, YOU SHOULD READ
THE FULL CONTRACTS WHICH ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU
MAY READ AND COPY THE FULL REGISTRATION STATEMENT AND ITS EXHIBITS AT THE SEC'S
PUBLIC REFERENCE ROOMS OR THEIR WEB SITE.
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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.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration fee $ 10,179
Legal fees 20,000
Accountant's fees 20,000
Miscellaneous expenses 10,000
---------
TOTAL $ 60,179
</TABLE>
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 our 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 our 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 our 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
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<PAGE> 27
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 any such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
4.1 Certificate of Incorporation (incorporated by reference from
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) (b)
4.2 Certificate of Amendment of Certificate of Incorporation dated
October 12, 1999 (a)
4.3 Certificate of Designation for Series A, Series B and Series C
Preferred Stock (b)
4.4 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) (b)
4.5 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) (b)
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (a)
10.1 Private Placement Agreement (b)
10.2 Consulting Agreement (b)
10.3 October 1997 Note Purchase Agreement (b)
10.4 February 1998 Note Purchase Agreement (b)
10.5 April 1998 Note Purchase Agreement (b)
10.6 June 1998 Note Purchase Agreement (a)
10.7 August 1998 Note Purchase Agreement (a)
10.8 Form of Notes (b)
10.9 Form of Private Placement Warrants (b)
10.10 Form of Consulting Warrants (b)
10.11 Form of X Warrants (b)
10.12 Form of Y Warrants (b)
10.13 Form of I, J, K Warrants (b)
10.14 Form of Bonus Warrants (a)
10.15 Amendment 1 to Preferred Stock Designations (a)
10.16 Amendment 2 to Preferred Stock Designations (a)
10.17 Amendment 3 to Preferred Stock Designations (a)
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<PAGE> 28
23.1 Consent of Arthur Andersen LLP (a)
23.2 Acknowledgment of Arthur Andersen LLP (a)
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5)
(a) Filed herewith
(b) Incorporated by reference from Registration Statement on Form S-1, No.
33-29595 and/or previously filed.
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;
(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 our 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 us 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.
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<PAGE> 29
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 Registration
Statement on Form S-3 to be signed on our behalf by the undersigned, thereunto
duly authorized, in the County of Washington, State of Arkansas, on December 22,
1999.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(Registrant)
By: /s/ Joe G. Brooks By: /s/ Edward J. Lysen
------------------------------ ----------------------------
JOE G. BROOKS EDWARD J. LYSEN
Chairman of the Board Chief Financial Officer
Each of the undersigned directors and officers of Advanced
Environmental Recycling Technologies, Inc. Hereby constitute and appoint Joe G.
Brooks, their true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to execute any and all amendments (including post-effective
amendments) to this Registration Statement, and any and all Registration
Statements filed pursuant to Rule 462 or Rule 429 under the Securities Act of
1933, as amended, and to file the same with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, requisite necessary to be done in
and about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that said attorney-in-fact
and agent, or his substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joe G. Brooks Chairman of the Board and December 22, 1999
- ----------------------------- Co-Chief Executive Officer
JOE G. BROOKS
*/s/ Sal Miwa Vice-Chairman of the Board December 22, 1999
- -----------------------------
SAL MIWA
/s/ Stephen W. Brooks Co-Chief Executive December 22, 1999
- ----------------------------- Officer and Director
STEPHEN W. BROOKS
/s/ Marjorie S. Brooks Secretary, Treasurer December 22, 1999
- ----------------------------- and Director
MARJORIE S. BROOKS
*/s/ Jerry B. Burkett Director December 22, 1999
- -----------------------------
JERRY B. BURKETT
*/s/ Peter S. Lau Director December 22, 1999
- -----------------------------
PETER S. LAU
*/s/ James H. Culp Director December 22, 1999
- -----------------------------
JAMES H. CULP
*/s/ Michael M. Tull Director December 22, 1999
- -----------------------------
MICHAEL M. TULL
*/s/ Thomas J. Hairston Director December 22, 1999
- -----------------------------
THOMAS J. HAIRSTON
*/s/ Joe G. Brooks December 22, 1999
- -----------------------------
By: JOE G. BROOKS, as attorney-in-fact
</TABLE>
25
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
4.1 Certificate of Incorporation (incorporated by reference from
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) (b)
4.2 Certificate of Amendment of Certificate of Incorporation dated
October 12, 1999 (a)
4.3 Certificate of Designation for Series A, Series B and Series C
Preferred Stock (b)
4.4 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) (b)
4.5 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) (b)
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (a)
10.1 Private Placement Agreement (b)
10.2 Consulting Agreement (b)
10.3 October 1997 Note Purchase Agreement (b)
10.4 February 1998 Note Purchase Agreement (b)
10.5 April 1998 Note Purchase Agreement (b)
10.6 June 1998 Note Purchase Agreement (a)
10.7 August 1998 Note Purchase Agreement (a)
10.8 Form of Notes (b)
10.9 Form of Private Placement Warrants (b)
10.10 Form of Consulting Warrants (b)
10.11 Form of X Warrants (b)
10.12 Form of Y Warrants (b)
10.13 Form of I, J, K Warrants (b)
10.14 Form of Bonus Warrants (a)
10.15 Amendment 1 to Preferred Stock Designations (a)
10.16 Amendment 2 to Preferred Stock Designations (a)
10.17 Amendment 3 to Preferred Stock Designations (a)
23.1 Consent of Arthur Andersen LLP (a)
23.2 Acknowledgment of Arthur Andersen LLP (a)
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5)
</TABLE>
(a) Filed herewith
(b) Incorporated by reference from Registration Statement on Form S-1, No.
33-29595 and/or previously filed.
<PAGE> 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., FILED IN THIS OFFICE ON
THE TWELFTH DAY OF OCTOBER, A.D. 1999, AT 3 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
[SEAL]
[SEAL] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
2179925 8100 AUTHENTICATION: 0022221
991430483 DATE: 10-13-99
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 10/12/1999
991430483 - 2179925
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * *
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify that:
The amendment to the Corporation's Certificate of Incorporation set forth
in the following resolution, which provides for an increase in the number of
authorized shares of the Corporation's $.01 par value Class A Common Stock from
50,000,000 shares to 75,000,000 shares, was duly adopted by the Corporation's
Board of Directors and, upon written notice, approved by the Corporation's
stockholders at the annual stockholder's meeting in July 1999, all in
accordance with section 242 of the General Corporation Law of the State of
Delaware:
"RESOLVED that Article FOURTH, subsection (a), of the Certificate of
Incorporation of this Corporation be amended to read as follows:
'FOURTH: (a) The total number of shares of all classes of stock
which the Corporation is authorized to issue is Eighty-Seven Million Five
Hundred Thousand (87,500,000) shares, consisting of Five Million
(5,000,000) shares of Preferred Stock having a par value of $1.00 per
share, Seventy-Five Million (75,000,000) shares of Class A Common Stock
having a par value of $.01 per share, and Seven Million Five Hundred
Thousand (7,500,000) shares of Class B Common Stock having a par value of
$.01 per share.'"
IN WITNESS WHEREOF, ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
has caused this Certificate to be signed and attested by its duly authorized
officers this 12th day of October, 1999.
ADVANCED ENVIRONMENTAL
RECYCLING TECHNOLOGIES, INC.
BY: /s/ JOE G. BROOKS - Chairman
--------------------------------
JOE G. BROOKS, President
ATTEST:
/s/ MARJORIE S. BROOKS, Secretary
- ---------------------------------
MARJORIE S. BROOKS, Secretary
<PAGE> 1
EXHIBIT 5
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]
December 27, 1999
Advanced Environmental Recycling Technologies, Inc.
801 N. Jefferson Street
Springdale, Arkansas 72765
Re: Advanced Environmental Recycling Technologies, Inc. ("Company")
Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for the Company in connection with the
registration by the Company under the Securities Act of 1933, as amended (the
"Act"), pursuant to the Company's registration statement on Form S-3, filed on
or about the date hereof (the "Registration Statement") of an aggregate of up to
13,126,282 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 149,364 Shares (the "Interest Shares") issuable as quarterly
interest payments upon $3,157,463 million aggregate principal amount of 12%
Promissory Notes (the "Notes"), issued to certain of the Selling Stockholders
pursuant to Note Purchase Agreements entered into as of October 1997, February
1998, April 1998, June 1998 and August 1998, as disclosed in more detail in the
Registration Statement;
(ii) up to 6,848,472 Shares (the "Warrant Shares") issuable upon the
exercise of stock purchase warrants (the "Warrants") issued and issuable
hereafter to certain of the Selling Stockholders pursuant to Warrants issued by
the Company to such Selling Stockholders at various times, as disclosed in more
detail in the Registration Statement;
(iii) up to 4,576,783 Shares (the "Conversion Shares") issuable upon
the conversion of Series A, B and C Preferred Stock (the "Preferred Stock")
issued by the Company to certain Selling Stockholders as disclosed in more
detail in the Registration Statement; and
(iv) up to 1,551,663 Shares (the "Premium Shares") issuable as an
accreting premium in accordance with the terms of the Preferred Stock (and which
shares may also be issuable upon conversion of Preferred Stock as to which such
premium has accreted).
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
<PAGE> 2
Advanced Enviromental Recycling Technologies. Inc.
December 27, 1999 - Page 2
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.
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;
(ii) when issued to the holders of the 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 Warrant
Shares will be duly authorized, validly issued, fully paid and nonassessable;
and
(iii) when issued to the holders of Preferred Stock in accordance with
the terms thereof, including upon conversion of the Preferred Stock in
accordance with the terms thereof, the Premium Shares and the Conversion Shares
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 to 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.
AKIN, GUMP, STRAUSS, HAUER &
FELD, L.L.P.
<PAGE> 1
EXHIBIT 10.6
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 3, 1998,
by and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), with
composite headquarters located at FM 2169, HC 10, Box 116, Junction, Texas
76849, and the purchaser (the "PURCHASER") set forth on the execution pages
hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and 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 Three Hundred Fifty Nine Thousand Nine Hundred
Sixty Three Dollars ($359,963) in aggregate principal amount of promissory notes
of the Company, in the form attached hereto as Exhibit A (the "NOTE"). 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 Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
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 Purchaser, and the
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 more than the aggregate principal amount of
Notes set forth on such Purchaser's Execution Page hereto notwithstanding any
failure by the Purchaser to purchase Notes hereunder.
NOTE PURCHASE AGREEMENT
<PAGE> 2
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 June 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.
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
NOTE PURCHASE AGREEMENT
2
<PAGE> 3
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Each 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 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
NOTE PURCHASE AGREEMENT
3
<PAGE> 4
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 Note and the Registration Rights Agreement, to issue and
sell the Note in accordance with the terms hereof and to issue the Note Shares
in accordance with the terms of the Note; (ii) the execution, delivery and
performance of this Agreement, the Note 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 Note 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 Note 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
NOTE PURCHASE AGREEMENT
4
<PAGE> 5
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 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,
NOTE PURCHASE AGREEMENT
5
<PAGE> 6
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 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.
NOTE PURCHASE AGREEMENT
6
<PAGE> 7
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 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.
NOTE PURCHASE AGREEMENT
7
<PAGE> 8
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 the Purchaser 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 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 offers 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.
NOTE PURCHASE AGREEMENT
8
<PAGE> 9
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 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
NOTE PURCHASE AGREEMENT
9
<PAGE> 10
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, 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 Note 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.
NOTE PURCHASE AGREEMENT
10
<PAGE> 11
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 Note and the Registration Rights Agreement. Nothing in this
Section shall affect in any way each Purchaser's obligation 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.
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 Note 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 Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The Purchaser shall have delivered the aggregate principal amount of
the Note 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.
NOTE PURCHASE AGREEMENT
11
<PAGE> 12
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.
b. The Company shall have delivered to such Purchaser the duly executed
Note 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.
NOTE PURCHASE AGREEMENT
12
<PAGE> 13
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 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
NOTE PURCHASE AGREEMENT
13
<PAGE> 14
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:
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.
NOTE PURCHASE AGREEMENT
14
<PAGE> 15
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.
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 Purchaser, 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 Purchaser 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 1, 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 Note 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.
NOTE PURCHASE AGREEMENT
15
<PAGE> 16
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NOTE PURCHASE AGREEMENT
16
<PAGE> 17
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: CEO
------------------------
PURCHASER:
EMRAL INVESTMENT LIMITED
By: /s/ ELAINE MURPHY
---------------------------
Name: Elaine Murphy
-------------------------
Title: Authorized Signatory
------------------------
RESIDENCE:
------------------
ADDRESS:
Emral Investment Limited
c/o Tortola Trust
P. O. Box 129
2F, Commercial House
Commercial Street
JE4 8QS St. Helier, Jersey
Channel Islands
Telecopy: 44-1534-873707
Attention: Elayne Murphy
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $200,000
NOTE PURCHASE AGREEMENT
<PAGE> 18
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: CEO
------------------------
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: $119,963
NOTE PURCHASE AGREEMENT
<PAGE> 19
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: CEO
----------------------
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: $40,000
NOTE PURCHASE AGREEMENT
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EXHIBIT 10.7
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 21,
1998, by and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
with composite headquarters located at FM 2169, HC 10, Box 116, Junction, Texas
76849, and the purchaser (the "PURCHASER") set forth on the execution pages
hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and 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 Two Hundred Eighty Seven Thousand Five Hundred
Dollars ($287,500) in aggregate principal amount of promissory notes of the
Company, in the form attached hereto as Exhibit A (the "NOTE"). 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 Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
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 Purchaser, and the
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 more than the aggregate principal amount of
Notes set forth on such Purchaser's Execution Page hereto notwithstanding any
failure by the Purchaser to purchase Notes hereunder.
NOTE PURCHASE AGREEMENT
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a. 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.
b. 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 August 21, 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.
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
NOTE PURCHASE AGREEMENT
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modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Each 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 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
NOTE PURCHASE AGREEMENT
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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 Note and the Registration Rights Agreement, to issue and
sell the Note in accordance with the terms hereof and to issue the Note Shares
in accordance with the terms of the Note; (ii) the execution, delivery and
performance of this Agreement, the Note 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 Note 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 Note 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
NOTE PURCHASE AGREEMENT
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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 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,
NOTE PURCHASE AGREEMENT
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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 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.
NOTE PURCHASE AGREEMENT
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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, 1997. 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 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.
NOTE PURCHASE AGREEMENT
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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 the Purchaser 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 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 offers 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.
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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 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
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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, 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 Note 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.
NOTE PURCHASE AGREEMENT
10
<PAGE> 11
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 Note and the Registration Rights Agreement. Nothing in this
Section shall affect in any way each Purchaser's obligation 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.
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 Note 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 Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The Purchaser shall have delivered the aggregate principal amount of
the Note 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
NOTE PURCHASE AGREEMENT
11
<PAGE> 12
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.
b. The Company shall have delivered to such Purchaser the duly executed
Note 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.
NOTE PURCHASE AGREEMENT
12
<PAGE> 13
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 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
NOTE PURCHASE AGREEMENT
13
<PAGE> 14
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:
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.
NOTE PURCHASE AGREEMENT
14
<PAGE> 15
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.
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 Purchaser, 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 Purchaser 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 1, 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 Note 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.
NOTE PURCHASE AGREEMENT
15
<PAGE> 16
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
NOTE PURCHASE AGREEMENT
16
<PAGE> 17
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: CEO
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: /s/ Gianluca Cicogna
-----------------------------------
Name: 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: Mr. Peter Goulden
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $287,500
NOTE PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.14
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE LAW. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO THEIR DISTRIBUTION AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933 AND REGISTRATION
OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION, AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER THE SECURITIES LAWS.
No. BW-__ ________ Warrants
VOID AFTER FEBRUARY 12, 2001
(second anniversary of issuance date)
BONUS STOCK PURCHASE WARRANT CERTIFICATE FOR
PURCHASE OF CLASS A COMMON STOCK
Advanced Environmental Recycling Technologies, Inc.
This certifies that FOR VALUE RECEIVED ________________ or registered assigns
(the "Holder") is the owner of the number of Bonus Warrants ("Warrants")
specified above.
1. Exercise of Warrant Issuance of Certificate and Payment for Warrant Shares.
Each Warrant initially entitles the Holder to purchase, subject to the terms and
conditions set forth in this Certificate, one fully paid and nonassessable share
of Class A Common Stock, $0.01 par value, of Advanced Environmental Recycling
Technologies, Inc., a Delaware corporation (the "Company") at any time between
the date hereof and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form attached hereto duly executed, to the Company or its designee, accompanied
by payment of Three Dollars ($3.00) per share (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or certified
check made payable to Advanced Environmental Recycling Technologies, Inc.
Each Warrant represented hereby is exercisable at the option of the Holder, but
no fractional shares of Class A Common Stock will be issued. Holders of
fractional Warrants will be required to exercise such number of Warrants so that
a whole number of shares of Class A Common Stock will be issued or, at the
Company's sole option, the Company may pay the Holder an amount equal to such
fraction multiplied by the Fair Market Value of one share of Class A Common
Stock on the exercise date. The Fair Market Value shall be the
1
<PAGE> 2
average of the closing bid and ask price for a share of Class A Common Stock on
the National Association of Securities Dealers Automatic Quotation System
(NASDAQ) or the closing sale price if reported on the NASDAQ National Market
System or New York or American Stock Exchanges.
In the case of the exercise of less than all the Warrants represented hereby,
the Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor for the balance of such Warrants.
2. Antidilution Provisions. The number of shares of Class A Common Stock into
which this Warrant is convertible and shall be subject to adjustment from time
to time as follows:
(a) In the event the Company declares a dividend upon its Common Stock
payable otherwise than in cash out of earnings or surplus, including a
dividend payable in Common Stock or securities convertible into Common
Stock or in any rights or options to purchase Common Stock or
securities convertible into Common Stock, the Holder shall upon the
conversion of this Warrant be entitled to receive Common Stock at the
Purchase Price then in effect, and, in addition and without payment
therefor, the cash, stock or other securities and other property which
such Holder would have received by way of dividends or distributions
(otherwise than out of earnings or surplus) as if continuously since
the record date for any such dividend or distribution the Holder (i)
had been the record Holder of the number of shares of Common Stock then
received, and (ii) had retained all prior dividends or distributions in
stock or securities payable in respect of such Common Stock or in
respect of any stock or securities paid as dividends or distributions
and originating directly or indirectly from such Common Stock.
(b) In case the Company shall at any time subdivide its outstanding
Common Stock into a greater number of shares, or shall combine
outstanding shares of Common Stock into a smaller number of shares, the
Purchase Price shall be proportionately adjusted to reflect the
respective reduction or increase in value of each such share of Common
Stock.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of the Company's Common Stock shall be entitled to receive
stock, other securities or assets with respect to or in exchange for
such Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Holder shall have
the right to acquire upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of Common Stock
that could be acquired immediately theretofore, such shares of stock,
other securities or assets as would have been
2
<PAGE> 3
issued or delivered to the Holder if the Holder had converted this
Warrant prior to such reorganization, reclassification, consolidation,
merger or sale. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder at the
last address of the Holder appearing on the books of the Company, the
obligation to deliver to the Holder such shares of stock, other
securities or assets as, in accordance with the foregoing provisions,
the Holder may be entitled to acquire.
(d) As used in this Section 2, the term "Common Stock" shall mean and
include the Company's presently authorized shares of Class A and Class
B Common Stock and shall also include any capital stock of any class of
the Company hereafter authorized which shall not be limited to a fixed
sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Company.
3. Warrant Expiration. The term "Expiration Date" shall mean 5:00 p.m. (Arkansas
time) two (2) years from the date hereof, or such earlier date as the Warrants
shall be redeemed. If such date shall in the State of Arkansas be a holiday or a
day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (Arkansas time) the next following day which in the State of
Arkansas is not a holiday or a day on which banks are authorized to close.
4. Restrictions on Transfer. This Warrant and the shares of Class A Common Stock
to be issued upon exercise of this Warrant (the "Warrant Shares") are not
registered under the Securities Act of 1933 (the "Securities Act") or the
securities laws of any state and can be resold only if registered or if,
pursuant to an opinion of Counsel satisfactory to the Company, exemptions from
such registration are available. A restrictive legend outlining the restriction
appears on this Warrant and will appear on the Warrant Shares. However, the
Company has undertaken to prepare, file and cause to be declared effective as
soon as practicable a registration statement under the Securities Act related to
the Warrant Shares.
By acceptance of this Warrant, the Holder represents to the Company and agrees
that:
(a) This Warrant is being acquired for the account of the Holder, and
the Holder has no present intention of offering, selling, transferring
or otherwise disposing (other than by gift) of this Warrant or the
Warrant Shares.
(b) The Holder will not sell, transfer or otherwise dispose of this
Warrant or the Warrant Shares unless:
(i) a registration statement under the Securities Act, as
amended, covering
3
<PAGE> 4
such portion of this Warrant or Warrant Shares which is to be
so offered, sold, transferred or otherwise disposed of has
become effective and such offer and sale is otherwise
registered, qualified or exempt under applicable state law; or
(ii) such Holder has received the opinion of counsel
acceptable to the Company, such opinion to be in writing and
addressed to the Company, that the proposed offer, sale,
transfer or other disposition of this Warrant or Warrant
Shares are exempt from the registration provisions of the
Securities Act and applicable state law.
(c) The certificates representing the Warrant Shares shall contain a
restrictive legend substantially in the form of the legend located at
the top of page 1 hereof.
5. Exchange Transfer and Replacement. This Warrant Certificate is exchangeable,
upon the surrender hereof by the Holder to the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Holder at the time of
such surrender. Upon due presentment with any transfer fee per certificate in
addition to any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
6. (a) Provisions for Registration. The Company will undertake to prepare, file
and cause to be declare effective as soon as it deems practical a registration
statement under the Securities Act related to the Warrant Shares.
(b) Blue Sky. Upon request, the Company shall register or qualify the Warrant
Shares covered by such registration statement under the securities or blue
sky laws of such jurisdictions as the Holders for whom such Warrant Shares
are registered or are to be registered shall reasonably request (not to
exceed five in number) upon the payment by such Holders of the fees and costs
for such registration or qualification (except for the fees and costs related
to qualification in the State of New York, which shall be at the Company's
expense), and do any and all other acts and things which may be necessary or
advisable to enable such Holders to consummate the disposition in such
jurisdictions of such Warrant Shares; provided, however, that the Company
shall not be obligated, by reason thereof, to qualify as a foreign
corporation under the laws of any such jurisdiction or to file any general
consent to service or process; and
(c) Opinion. Upon request, the Company shall furnish to the Holders for whom
such Warrant Shares are registered or are to be registered at the time of the
4
<PAGE> 5
disposition of Warrant Shares by such Holders an opinion of counsel for the
Company reasonably acceptable to such Holders to the effect that a
registration statement covering such Warrant Shares has been filed with the
Commission under the Securities Act and has been made effective by order of
the Commission, that a prospectus complying as to form in all material
respects with the requirements of the Securities Act is available for
delivery, that no stop order has been issued by the Commission suspending the
effectiveness of such registration statement and that, to the best of such
counsel's knowledge, no proceedings for the issuance of such a stop order are
threatened or contemplated, and setting forth the jurisdictions in which the
Warrant Shares have been registered under the securities or blue sky laws of
such jurisdiction; and
(d) Information from Holders. Notices and requests delivered by the Holders
to the Company pursuant to this Section 6 shall contain such information
regarding the Warrant Shares and the intended method of disposition thereof
as reasonably shall be required in connection with the action to be taken.
(e) Indemnification. The Company will indemnify and hold harmless each Holder
whose Warrant Shares are included in a registration statement pursuant to the
provisions of this Section 6 and any underwriter (as defined in the
Securities Act) and each person, if any, who controls such Holders or such
underwriter within the meaning of the Securities Act from and against any and
all loss, damage, liability, cost and expense to which such Holders or any
such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as any such loss, claim, damage,
liability, cost, or expense (or proceedings in respect thereof) arises out of
or is based upon any untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
Warrant Shares were registered under the Securities Act, in any preliminary
prospectus or final prospectus contained therein, or in any amendment or
supplement thereto, or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability, cost, or expense arises out of or is based
upon untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, said preliminary prospectus or
final prospectus, or said amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by such Holders,
underwriter, or controlling person, as the case may be, specifically for use
in the participation thereof; and provided further that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates
to any untrue statement, alleged untrue statement, omission, or alleged
omission made in any preliminary prospectus, but eliminated or remedied in
the final prospectus, such indemnity agreement shall not inure to the benefit
of any person
5
<PAGE> 6
if a copy of the final prospectus was not sent or given to the purchaser of
the securities with or prior to the written confirmation of the sale of such
securities to such person.
By acceptance of this Warrant, each Holder whose Warrant Shares are included
in a registration statement pursuant to the provisions of this Section 6
agrees to indemnify and hold harmless the Company, and controlling person,
and any underwriter from and against any and all loss, damage, liability,
cost, or expense to which the Company or any controlling person or any
underwriter may become subject under the Securities Act or otherwise, insofar
as any such loss, claim, damage, liability, cost, or expense or proceedings
in respect thereof arises out of or is based upon any untrue statement of any
material fact contained, on the Effective Date thereof, in any Registration
Statement under which such Warrant Shares were registered under the
Securities Act, in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arises out of or is
based upon the omission or alleged omission to state therein any material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished or required to be furnished by the Securities Act by such Holders.
Promptly after receipt by any party entitled to be indemnified hereunder of
notice of the commencement of any action in respect to which indemnity may be
sought hereunder, such party shall notify the indemnifying party in writing
of the commencement thereof, and the indemnifying party may assume the
defense of such action (including the employment of counsel reasonably
satisfactory to the notifying party and the payment of expenses) insofar as
such action shall relate to any alleged liability in respect to which
indemnity may be sought against the indemnifying party. Any such indemnified
party shall have the right to employ counsel and to participate in the
defense thereof, but the fees and expenses of such counsel (except fees and
expenses incurred after notice has been given but prior to the assumption by
the indemnifying party of the defense of such action) shall not be at the
expense of the indemnifying party unless the employment of such counsel has
been specifically authorized by the indemnifying party.
7. No Shareholder Rights. Prior to the exercise of any Warrant represented
hereby, the Holder shall not be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company.
8. Ownership of this Warrant. Prior to due presentment for registration of
transfer hereof, the Company may deem and treat the Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing
6
<PAGE> 7
hereon made by anyone other than a duly authorized officer of the Company) for
all purposes and shall not be affected by any notice to the contrary.
9. Miscellaneous. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Arkansas.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
Dated: June 1, 1999 By
-----------------------------------
By
-----------------------------------
7
<PAGE> 8
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to exercise
________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
---------------------------------------------
---------------------------------------------
---------------------------------------------
(please print, or type name, address and
social security or other identification number)
and be delivered to
---------------------------------------------
---------------------------------------------
---------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
Dated: __________________ x
---------------------------
---------------------------
---------------------------
Address
--------------------------------
Taxpayer Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
8
<PAGE> 9
ASSIGNMENT
To Be Executed by the Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers unto
---------------------------------------------
---------------------------------------------
---------------------------------------------
(please print or type name and address and
social security or other identifying number)
____________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_____________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: x
------------------- ----------------------------------
Signature Guaranteed
------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
9
<PAGE> 1
EXHIBIT 10.15
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
FM 2169
HC 10 - Box 116
Junction, Texas 76849
April 12, 1999
TO: Holders of Series A Convertible Preferred Stock
Claudio Guazzoni
David McCarthy
Re: Series A Preferred Stock
Gentlemen:
Advanced Environmental Recycling Technologies, Inc. (the "Company") and
each of the undersigned, for good and valuable consideration, intending to be
legally bound, hereby agree as follows:
1. The Filing date (as defined in Section 2(a) of the Registration
Rights Agreement, dated as of September 30, 1998, by and among
the Company and each of you (the "Registration Rights
Agreement")) shall not mean January 15, 1999, but shall instead
mean June 1, 1999.
2. The number of Registrable Securities (as defined in Section
1(a)(iii) of the Registration Rights Agreement) specified in the
first sentence of Section 2(a) of the Registration Rights
Agreement shall be increased from 5,970,000 Registrable
Securities to 6,196,656 Registrable Securities (which number
includes the Registrable Securities underlying the Series I
Warrants (as defined below)).
3. The Registration Deadline (as defined in Section 2(c) of the
Registration Rights Agreement) shall not mean March 17, 1999, but
shall instead mean August 1, 1999.
4. All accrued but unpaid amounts required to be paid by the Company
pursuant to Section 2(c) of the Registration Rights Agreement are
hereby waived.
5. The fourth sentence of Section 2(c) of the Registration Rights
Agreement is hereby amended and restated in its entirety to read
as follows:
In addition, the Company shall pay to each Investor an amount
equal to the product of (i) the Aggregate Share Price, multiplied
by (ii) two hundredths (.02), for the next thirty (30) day period
(or portion thereof) following the initial thirty (30) day period
referred to in the preceding sentence (A) after the Filing Date
and prior to the date on which the Registration Statement
required to be filed pursuant to Section 2(a) hereof is filed
with the SEC, (B) after the Registration Deadline and prior to
the date on which the Registration Statement required to be filed
pursuant to Section 2(a) hereof is declared effective by the SEC,
and (C) during which sales of any Registrable Securities cannot
be made pursuant to the Registration Statement after the
Registration Statement has been declared effective or the Common
Stock is not listed or included for quotation on the SmallCap,
NNM, NYSE or AMEX.
6. A new fifth sentence is hereby added to Section 2(c) of the
Registration Rights Agreement, which shall read as follows:
In addition, the Company shall pay to each Investor an amount
equal to the product of (i) the Aggregate Share Price, multiplied
by (ii) three hundredths (.03), for each additional thirty (30)
day period (or portion thereof) following the two initial thirty
(30) day periods referred to in the two preceding sentences (A)
after the Filing Date and prior to the date on which the
Registration
<PAGE> 2
Statement required to be filed pursuant to Section 2(a) hereof is
filed with the SEC, (B) after the Registration Deadline and prior
to the date on which the Registration Statement required to be
filed pursuant to Section 2(a) hereof is declared effective by
the SEC, and (C) during which sales of any Registrable Securities
cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective or the Common
Stock is not listed or included for quotation on the SmallCap,
NNM, NYSE or AMEX; provided, however, that there shall be
excluded from each such period any delays which are solely
attributable to changes (other than corrections of Company
mistakes with respect to information previously provided by the
Investors) required by the Investors in the Registration
Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of
distribution.
7. The last three sentences of Section 2(c) of the Registration
Rights Agreement are hereby amended and restated in their
entirety to read as follows:
(For example, if the Registration Statement is not effective by
the Registration Deadline, the Company would pay $10,000 for the
first thirty (30) days, $20,000 for the second thirty (30) days
and $30,000 for each thirty (30) day period thereafter with
respect to each $1,000,000 of Aggregate Share Price until the
Registration Statement becomes effective). Such amounts shall be
paid in cash or shares of Common Stock at the Company's option.
The number of shares so payable shall equal the quotient obtained
by dividing (i) the dollar amount payable by (ii) the product of
(A) 0.90 multiplied by (B) the Variable Conversion Price (as
defined in the Certificate of Designation)). Payments of cash and
issuances of shares of Common Stock pursuant hereto shall be made
within five (5) days after the end of each period that gives rise
to such obligation, provided that, if any such period extends for
more than thirty (30) days, interim payments or issuances shall
be made for each such thirty (30) day period.
8. Article VIII.A(iii) of the Certificate of Designation in respect
of the Series A Preferred Stock (the "Certificate of
Designation") is hereby amended and restated in its entirety as
follows:
(iii) The Corporation shall fail to make any payment of cash or
issuance of stock required by Section 2(c) of the Registration
Rights Agreement by and among the Corporation and the other
signatories thereto entered into in connection with the
Securities Purchase Agreement (the "Registration Rights
Agreement") on or before the (10th) day after the due date of
such payment or issuance.
9. Article VIII.A of the Certificate of Designation is hereby
amended by the addition of a new paragraph at the end of such
article, which paragraph shall read as follows:
Notwithstanding anything in this Article VIII.A to the
contrary, the holders of Series A Preferred Stock shall have
no right to deliver a Redemption Notice following the
occurrence of a Redemption Event specified in clause (i)
above if the Corporation pays to each holder within five (5)
business days after the occurrence of such Redemption Event,
as liquidated damages for the decrease in the value of the
Series A Preferred Stock (and the shares of the
Corporation's Common Stock issuable upon conversion thereof)
which will result from the occurrence of such Redemption
Event, an amount (the "Damages Amount") equal to ten percent
(10%) of the aggregate Stated Value of the shares of Series
A Preferred Stock then held by each such holder. The Damages
Amount shall be payable, at the Corporation's option, in
cash or shares of Common Stock (based upon a price per share
of Common Stock equal to ninety percent (90%) of the
Variable Conversion Price in effect (or which would have
been in effect if a Milestone Failure had previously
occurred) as of the date of such Redemption Event).
10. The expiration date of the warrants to purchase an aggregate of
226,656 shares of common stock of the Company, which warrants are
designated IW-13, IW-14, IW-15, IW-16, IW-17 and IW-19
(collectively, the "Series I Warrants") is hereby extended until
December 31, 1999. The shares of
<PAGE> 3
Common Stock of the Company underlying the Series I Warrants
shall, for all purposes, be deemed to be Registrable Securities
under the Registration Rights Agreement.
11. Each of the undersigned who is a holder of Series A Convertible
Preferred Stock of the Company, together constituting the holders
of all of the issued and outstanding shares of Series A
Convertible Preferred Stock of the Company, hereby consent to the
amendments to the Certificate of Designation set forth in
Paragraphs 8 and 9 of this Letter Agreement.
12. All remaining terms and provisions of the Registration Rights
Agreement, the Certificate of Designation, the Series X Warrants,
the Series Y Warrants and the Series I Warrants shall continue
and survive this Letter Agreement and remain in full force and
effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 4
If the foregoing accurately states the terms of the agreement that each
of you have reached with the Company, please so indicate by signing this Letter
in the space indicated below. This Letter 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.
Very truly yours,
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /S/ Joe G. Brooks, Chairman
---------------------------
Agreed to and accepted as of the date
first written above:
ZANETT LOMBARDIER, LTD. HARLOW ENTERPRISES, INC.
By: /S/ G. A. Cicogna By: /S/ HARLOW
--------------------------- -----------------------------
Name: Gianluca Cicogna Name:
Title: Director to Advisor ----------------------------
Title:
---------------------------
PARKLAND LIMITED THE ZANETT SECURITIES CORPORATION
By: /S/ PARKLAND By: /S/ Samuel L. Milbank
--------------------------- -----------------------------
Name: Name: SAMUEL L. MILBANK
-------------------------- Title: MANAGING DIRECTOR
Title:
-------------------------
[Signatures Continued on Next Page.]
<PAGE> 5
[Signatures continued from Preceding Page.]
GOLDMAN SACHS PERFORMANCE GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P. PARTNERS, L.P.
By: Commodities Corporation LLC, By: Commodities Corporation LLC,
its general partner its general partner
By: /S/ Michael Strashinsky By: /S/ Michael Strashinsky
--------------------------- -----------------------------
Name: Michael Strashinsky Name: Michael Strashinsky
Title: Vice President Title: Vice President
/S/ Samuel L. Milbank /S/ Bruno Guazzoni
- ------------------------------- --------------------------------
SAMUEL L. MILBANK BRUNO GUAZZONI
/S/ David McCarthy /S/ Claudio Guazzoni
- ------------------------------- --------------------------------
DAVID McCARTHY CLAUDIO GUAZZONI
<PAGE> 1
EXHIBIT 10.16
December 17, 1999
TO: Holders of Series A, B and C Convertible Preferred Stock
RE: LETTER AGREEMENT SERIES A, B AND C PREFERRED STOCK
Ladies and Gentlemen:
Advanced Environmental Recycling Technologies, Inc., a Delaware
corporation (the "Company"), believes that certain rights which the holders (the
"Purchasers") of the outstanding shares of Series A, B and C Preferred Stock of
the Company (the "Series A, B and C Preferred Stock") possess may require that
the Series A, B and C Preferred Stock be treated as debt and not as equity. As a
result, the Company has requested that the Purchasers enter into this letter
agreement (this "Agreement") relating to such rights. The Purchasers have agreed
to enter into this Agreement on the terms and conditions set forth below. The
Company and each of the Purchasers, for good and valuable consideration,
intending to be legally bound, hereby agree as follows:
1. Article VIII.A(v)(b) of the Certificates of Designation in respect of
the Series A, B and C Preferred Stock dated November 10, 1998, as
amended April 12, 1999 (the "Certificates of Designation"), is hereby
amended and restated in its entirety as follows:
(b) merge, consolidate or engage in any other business combination
with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation and other than pursuant to a merger
in which the Corporation is the surviving or continuing entity and the
voting capital stock of the Corporation immediately prior to such
merger represents at least 50% of the voting power of the capital
stock of the Corporation after the merger) (provided, however, that no
transaction described in this subparagraph shall constitute a
Redemption Event unless the Board of Directors of the Corporation
shall have approved such transaction (including, in the case of a
tender offer to, or proxy solicitation of, the shareholders of the
Corporation which results in the consummation of any such transaction,
the approval of the commencement of such tender offer or proxy
solicitation)); or
2. Article VIII.A(v)(c) of the Certificates of Designation in respect of
the Series A, B and C Preferred Stock dated November 10, 1998, as
amended April 12, 1999 (the "Certificates of Designation"), is hereby
amended and restated in its entirety as follows:
(c) [Intentionally Deleted]; or
3. All remaining terms and provisions of the Certificates of Designation
shall continue and survive this Agreement and remain in full force and
effect.
4. This agreement shall become effective when (i) counterparts of this
Agreement have been signed by each party hereto and delivered to each
other party hereto and (ii) the Company shall have delivered to each
Purchaser of Series A Preferred stock only a Lock-Up Agreement in
substantially the form of Exhibit A attached hereto duly executed by
each of the parties thereto.
If the foregoing accurately states the terms of the agreement that each of you
have reached with the Company, please so indicate by signing this Agreement in
the space indicated below. This Agreement may
<PAGE> 2
be executed in two or more counterparts, all of which shall be considered one
and the same Agreement. 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.
Very truly yours,
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /S/ Joe G. Brooks, Chairman
-----------------------------
<PAGE> 3
Agreed to and accepted as of the date first written above:
ZANETT LOMBARDIER, LTD. HARLOW ENTERPRISES, INC.
By: /S/ G. A. Cicogna By:
------------------------------ Name:
Name: Gianluca Cicogna --------------------------
Title: Director to Advisor Title:
-------------------------
PARKLAND LIMITED
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
GOLDMAN SACHS PERFORMANCE GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P. PARTNERS, L.P.
By: Commodities Corporation LLC, By: Commodities Corporation LLC,
its general partner its general partner
By: /S/ Michael Strashinsky By: /S/ Michael Strashinsky
------------------------------- ---------------------------
Name: Michael Strashinsky Name: Michael Strashinsky
Title: Vice President Title: Vice President
/S/ Samuel L. Milbank /S/ Bruno Guazzoni
- ---------------------------------- -------------------------------
SAMUEL L. MILBANK BRUNO GUAZZONI
<PAGE> 4
Agreed to and accepted as of the date first written above:
RAZORBACK FARMS, INC. BROOKS INVESTMENTS, INC.
By: /S/ Steve Brooks By: /S/ Marjorie S. Brooks
------------------------------- ----------------------------
Name: RAZORBACK FARMS, INC. Name: BROOKS INVESTMENT CO.
Title: CEO Title: Chairman
/S/ Ike Tull /S/ Michael Tull
- ---------------------------------- -------------------------------
IKE TULL MICHAEL TULL
<PAGE> 5
Agreed to and accepted as of the date first written above:
ALLEN & CO. MILLENCO
By: /S/ Terry Feeney By: /S/ Terence McCarth
------------------------------- ----------------------------
Name: TERRY FEENEY Name: TERENCE MCCARTHY
Title: CHIEF ADMINISTRATIVE OFFICER Title: C.O.O.
/S/ Robert A. Mackie
- ----------------------------------
ROBERT A. MACKIE
<PAGE> 1
EXHIBIT 10.17
December 17, 1999
TO: Holders of Series A, B and C Convertible Preferred Stock
RE: LETTER AGREEMENT SERIES A, B AND C PREFERRED STOCK
Ladies and Gentlemen:
Advanced Environmental Recycling Technologies, Inc. (the "Company") and
each of the undersigned, for good and valuable consideration, intending to be
legally bound, hereby agree as follows:
1. The Filing Date (as originally defined in Section 2(a) of the
Registration Rights Agreement, dated as of September 30, 1998
(the "Registration Rights Agreement"), by and among the Company
and each of you) and as subsequently redefined on April 12, 1999,
shall not mean June 1, 1999, but shall instead mean January 1,
2000.
2. The Registration Deadline (as originally defined in Section 2(c)
of the Registration Rights Agreement, and as subsequently
redefined on April 12, 1999, by and among the Company and each of
you) shall not mean August 1, 1999, but shall instead mean March
1, 2000.
3. This agreement shall become effective when counterparts of this
agreement have been signed by each party hereto and delivered to
each other party hereto; provided however, that this agreement
shall be deemed to be void from the beginning and of no further
force and effect if (a) the Registration Statement (as defined in
the Registration Rights Agreement) is either (i) not filed by
January 1, 2000 or (ii) not declared effective by March 1, 2000
or (b) the Company shall have 50% or more of the voting power of
its capital stock owned beneficially by one person, entity or
"group" (as such term is used under Section 13(d) of the
Securities Exchange Act of 1934, as amended) other than Marjorie
Brooks, Steven Brooks, Joseph Brooks, Douglas Brooks and members
of their immediate family (each of the events in the immediately
preceding clauses (a)(i), (a)(ii) or (b) being a "Termination
Event"). If a Termination Event occurs, all of the rights and
remedies of the Investors (as defined in the Registration Rights
Agreement) shall be restored as if this Agreement had never been
in force, including, without limitation, that the Filing Date
shall mean June 1, 1999 and the Registration Deadline shall mean
August 1, 1999 and all payments pursuant to Section 2(c) of the
Registration Rights Agreement (as amended on April 12, 1999)
shall be calculated as of such dates.
If the foregoing accurately states the terms of the agreement that
each of you have reached with the Company, please so indicate by
signing this agreement in the space indicated below. This agreement
may be executed in two or more counterparts, all of which shall be
considered one and the same agreement. This agreement, once executed
by a party, may be delivered to the other
<PAGE> 2
parties hereto by facsimile transmission of a copy of this agreement
bearing the signature of the party so delivering this agreement.
Very truly yours,
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /S/ Joe G. Brooks, Chairman
--------------------------------
<PAGE> 3
Agreed to and accepted as of the date first written above:
ZANETT LOMBARDIER, LTD. HARLOW ENTERPRISES, INC.
By: /S/ G. A. Cicogna By:
------------------------------- ---------------------------
Name: Gianluca Cicogna Name:
Title: Director to Advisor --------------------------
Title:
-------------------------
PARKLAND LIMITED
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
GOLDMAN SACHS PERFORMANCE GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P. PARTNERS, L.P.
By: Commodities Corporation LLC, By: Commodities Corporation LLC,
its general partner its general partner
By: /S/ Michael Strashinsky By: /S/ Michael Strashinsky
------------------------------- ----------------------------
Name: Michael Strashinsky Name: Michael Strashinsky
Title: Vice President Title: Vice President
/S/ Samuel L. Milbank /S/ Bruno Guazzoni
- ---------------------------------- --------------------------------
SAMUEL L. MILBANK BRUNO GUAZZONI
<PAGE> 4
Agreed to and accepted as of the date first written above:
RAZORBACK FARMS, INC. BROOKS INVESTMENTS, INC.
By: /S/ Steve Brooks By: /S/ Marjorie S. Brooks
------------------------------ -----------------------------
Name: RAZORBACK FARMS, INC. Name: BROOKS INVESTMENT CO.
Title: CEO Title: Chairman
/S/ Ike Tull /S/ Michael Tull
- ---------------------------------- --------------------------------
IKE TULL MICHAEL TULL
<PAGE> 5
Agreed to and accepted as of the date first written above:
ALLEN & CO. MILLENCO
By: /S/ Terry Feeney By: /S/ Terence McCarthy
----------------------------------- ----------------------------
Name: TERRY FEENEY Name: TERENCE MCCARTHY
Title: CHIEF ADMINISTRATIVE OFFICER Title: C.O.O.
/S/ Robert A. Mackie
- --------------------------------------
ROBERT A. MACKIE
<PAGE> 1
EXHIBIT 23.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Environmental Recycling Technologies, Inc.
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 19, 1999
included in the company's Form 10-K for the year ended December 31, 1998 and to
all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
December 22, 1999
<PAGE> 1
EXHIBIT 23.2
December 22, 1999
Advanced Environmental Recycling Technologies, Inc.:
We are aware that Advanced Environmental Recycling Technologies, Inc. has
incorporated by reference in its S-3 Registration Statement filed December 29,
1999, its Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, which includes our reports dated April 27, 1999, August 6,
1999 and November 15, 1999, respectively, covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
