SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended: 12-31-96 Commission file number: 0-20806
ECO2, Inc.
(Exact name of issuer as specified in its charter)
Delaware 11-3087145
(State or jurisdiction (IRS Employer
of incorporation) Identification No.)
20005 S.E. Hawthorne Road, Hawthorne, Florida 32640
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 352-481-0187
Former name, former address and former fiscal year, if changed since last
report: N/A.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
As of February 27, 1997, the Company had outstanding 27,849,848 shares of its
common stock.
<PAGE>
ECO2, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended December 31, 1996
CONTENTS
Financial Statements:
Consolidated Balance Sheet F-3-F-4
Consolidated Statement of Operations F-5
Consolidated Statement of
Changes in Stockholders' Equity F-6
Consolidated Statement of Cash Flows F-7
Notes to Financial Statements F-8-F9
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash (Including
Restricted Cash of
$47,133) $488,644
Certificates of
Deposit - Restricted 850,000
Assets Available for Sale 3,806,132
Loans and Advances
Due from Stockholder 108,116
Notes Receivable 206,466
Other Current Assets 63,551
Total Current Assets 5,522,909
Property, Plant and
Equipment, at cost
(Net of Accumulated
Depreciation of $452,515) 1,963,468
Restricted Cash 52,000
Deferred Loan Acquisition Costs 338,866
Total Assets $7,877,243
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts Payable $181,858
Estimated Liability
for Closing Jet
Ski Operations 545,502
Customer Deposits 100,000
Notes Payable 3,546
Interest Payable 93,727
Accrued Expenses 155,093
Total Current
Liabilities 1,079,726
LONG-TERM DEBT
Notes Payable 13,013
Convertible Debentures 1,851,934
Total
Long-Term Debt 1,864,947
Total
Liabilities 2,944,673
STOCKHOLDERS' EQUITY
Preferred Stock
(No Par Value,
Authorized
1,000,000 Shares,
None Issued and
Outstanding) -
Common Stock (Par
Value $.01 Per
Share, Authorized
45,000,000 Shares,
- Issued and
Outstanding
26,949,848
Shares) 269,498
- -
Additional Paid-In Capital 25,710,824
Deficit Accumulated
During the
Development Stage (20,763,703)
Unrealized Loss on
Securities Held for
Resale (250,000)
10,000 Shares of
Common Stock in Treasury,
at cost (34,049)
Total Stockholders'
Equity 4,932,570
Total Liabilities and
Stockholders' Equity $7,877,243
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Inception
(Oct 8, 1990)
For the Three Months Ended to
December 31, December
1996 1995 31, 1996
<S> <S> <S> <S>
REVENUES $893 $1,828 $556,359
OPERATING EXPENSES
Selling, General
and Administrative
Expenses 742,026 1,199,487 13,353,689
Loss on Assets
Held for Sale - - 4,706,354
Loss on Inventory
Write Off 4,812 - 1,511,405
Total Operating
Expenses 746,838 1,199,487 19,571,448
OPERATING LOSS (745,945) (1,197,659) (19,015,089)
OTHER INCOME (EXPENSE)
Interest Income 25,515 87,495 630,088
Interest Expense (46,293) (38,835) (757,128)
Amortization of
Deferred Costs
- Debentures (48,236) - (1,220,748)
Write Off of Note
Receivable for
Exercise of Option - - (91,250)
Other 127,521
Contract Cancellation
Income - - 340,000
Loss on
Underwriting
Deposit - - (240,000)
Gain (Loss) on
Marketable Securities
and Other
Investments 46,766 10,494 49,377
Settlement Income
(Expense) - - (406,473)
Loss on Disposal
of Assets - (4,667) (180,001)
Total Other Income
(Expense) (22,248) 54,487 (1,748,614)
NET LOSS $(768,193) $(1,143,172) $(20,763,703)
Net (Loss) per
Common Share $(0.03) $(0.12)
Shares Used in
Computation of Net
(Loss) Per Share 26,648,800 9,454,518
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
DEFICIT UNREALIZED
ACCUMULATED LOSS ON TOTAL
DURING SECURITIES STOCKHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT AVAILABLE TREASURY EQUITY
ISSUED AMOUNT CAPITAL STAGE FOR SALE STOCK (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1996 25,103,655 $251,036 $25,287,230 (19,995,510) $(250,000) $(34,049) $5,258,707
Issuance of Stock on
Conversion of Debentures
in October 1996 at various
prices less amortization
of Deferred Amortization
Costs through Date on
Conversion 1,846,193 18,462 423,594 - 442,056
Net Loss - Three Months
Ended December 31, 1996 - - - (768,193) - - $(768,193)
Balance, December 31, 1996 26,949,848 $269,498 $25,710,824 $(20,763,703) $(250,000) $(34,049) $4,932,570
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-F5-
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION> Inception
For the Three Months Ended (Oct 8, 1990)
December 31, to
1996 1995 Dec 31, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(768,193) $(1,129,868) $(20,763,703)
Adjustments to Reconcile Net Loss to Net Cash Flows
From (Used in) Operating Activities:
Loss on Disposal of Assets - 3,570 222,956
Inventory Write Off 4,812 - 1,511,405
Write off of note receivable - - 91,250
Bad Debt Expense - 91,250 15,275
Depreciation and Amortization 67,980 199,347 994,448
Amortization of Deferred Costs- Debentures 48,238 - 1,220,750
Settlement Expense (Income) - - 238,081
Compensation Expense - 206,294 1,904,860
Loss (Gain) on assets held for sale (46,766) - 3,685,164
Accrued interest income on note receivable (5,041) - (6,466)
Accrued interest on debentures - - 101,654
Receipt of common stock dividend Re:
Gulf West Oil Company, Inc. - - (17,671)
Realized (Gain) Loss on Marketable Securities - - 22,423
Unrealized (Gain) Loss on Marketable Securities - - -
Issuance of Common Stock for Interest 46,663 - 289,132
Issuance of Common Stock for Consulting Services - 100,000 511,250
Loss on Investment - - 20,000
Changes in Operating Assets and Liabilities:
Accounts Receivable - (1,861) (7,939)
Inventory (4,812) (55,545) (896,863)
Deferred Loan Acquisition Costs - - (983,616)
Other Current Assets (2,993) (18,901) (62,439)
Accounts Payable and Accrued Interest 28,332 - 240,316
Estimated Liability for Closing Jet Ski (309,498) - 545,502
Accrued Expenses and Other Current
Liabilities 8,231 (45,515) 237,736
Net Cash Flows Used in Operating Activities (933,047) (651,229) (10,886,495)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Fixed Assets (148,021) (195,720) (3,257,389)
Investment in Films - (2,396,930)
Acquisition of Gulf West Oil Company, Inc. Common Stock - (500,000)
Acquisition of Spa Faucet, Inc. Common Stock - (2,100,000)
Purchase of Chapter 7 Assets - (2,935,042)
(Purchase) Redemption of Certificates of Deposit 100,000 (902,000)
Purchase of Marketable Securities - (8,732,058) (3,556,267)
Note Receivable From Gulf West Oil Company, Inc. - (200,000)
Proceeds from Marketable Security Maturities - 3,533,844
Proceeds from Sale of Spa Faucet Stock 208,304 208,304
Payments of commissions for financing - (1,500,000)
Borrowings by Shareholder plus Accrued Interest (7,000) (1,696) (146,313)
Principle Repayments Shareholder Loans - (6,500) (442,234)
Other Proceeds - - 87,350
Net Cash Flows Used in Investing Activities 153,283 (8,935,974) (14,106,677)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Convertible Debentures - 4,000,000 13,685,770
Proceeds from Loans Payable - - 761,945
Principle Repayments of Loans, Notes and Leases - (78,166) (851,662)
Net Proceeds from Sale of Common Stock, Stock Options - -
and Notes Receivable for Exercise of Options - 558,622 11,840,753
Proceeds of Notes Payable 16,559 - 16,559
Subscription Receivable - 62,500 62,500
Purchase of Treasury Stock - - (34,049)
Net Cash Flows Provided by Financing Activities 16,559 4,542,956 25,481,816
Net Increase (Decrease) in Cash and Cash Equivalents (763,205) (5,044,247) 488,644
Cash and Cash Equivalents - Beginning of Period 1,251,849 5,457,938 -
Cash and Cash Equivalents - End of Period $488,644 $413,691 $488,644
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-F6-
<PAGE>
<TABLE>
ECO2, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Inception
For the Three Months Ended (Oct 8, 1990)
December 31, to
1996 1995 Dec 31, 1996
<S> <C> <C> <C>
SUPPLEMENTAL NONCASH FINANCING
AND INVESTING ACTIVITIES:
Conversion of Convertible Debentures
to Common Stock $488,066 $- $14,268,066
Valuation of Shares Issued for Compensation,
Interest and Other Services $46,663 $525,000 $1,838,347
Deferred Debt Costs Attributable to
Convertible Debentures $- $- $3,173,985
Receipt of Common Stock Dividend Re:
Gulf West Oil Company, Inc. $- $- $(17,671)
Additional Paid-In Capital in Exchange for Loans $- $- $308,496
Prior Expenses of Initial Public Offering
Charged to Additional Paid-In Capital $- $- $131,827
Acquisition of Land in Exchange for Mortgage Payable $- $- $125,000
Acquisition of Fixed Asset in Exchange for
Notes and Capitalized Leases Payable $- $57,211 $469,508
Acquisition of Viking Stock in Exchange for Stock $- $- $20,000
Return of Equipment in Exchange for
Relief of Related Payable $- $- $27,860
Due on Convertible Debentures $- $558,622 $558,622
Subscription Receivable for Private Placement $- $62,500 $62,500
Transfer of Items to Inventory from Property,
Plant and Equipment $- $806,840 $806,840
SUPPLEMENTAL DISCLOSURES:
Interest Paid - Cash Basis $- $28,137 $234,237
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-F7-
<PAGE>
ECO2, INC.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The accompanying consolidated financial
statements and related notes should be read in conjunction with the audited
financial statements of the Company, and notes thereto, for the fiscal year
ended September 30, 1996.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of the interim periods presented.
NOTE 2 - CASH
Uninsured Balances:
The FDIC insures balances of up to $100,000. As of December 31, 1996, the
Company has uninsured balances in one bank approximating $357,836.
NOTE 3- RESTRICTED CASH
Certain stock issuance's in accordance with the Employee Stock Payment Plan
Registered pursuant to Regulation S-8 of the Securities and Exchange
Commission, require the proceeds to be segregated and used only for payroll.
Cash and certificate of deposit restricted for this purpose at December 31,
1996 total $897,132.
NOTE 4- PROPERTY, PLANT AND EQUIPMENT
The Company made modifications to the premises totaling $148,201 during the
quarter ended December 31, 1996.
NOTE 5 - CONVERTIBLE DEBENTURES
In the quarter ended December 31, 1996, the Company converted $448,066 of its
convertible debentures and $46,663 of accrued interest into 1,846,153 shares of
Common Stock. At December 31, 1996 800,000 shares of common stock were held in
escrow. Subsequent to December 31, 1996 the outstanding debenture holders
demanded shares aggregating approximately 7,000,000 shares. The Company has
not honored their request.
-F8-
ECO2, INC.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - ASSETS AVAILABLE FOR SALE
In December 1996 the Company decided to discontinue operations of Eco Jet
Sytems, Inc. The Company has
recorded a liability of ($855,000) for estimated costs of disposal. For the
quarter ended December 31, 1996 the
Company has advanced $309,498 to Eco Jet Systems, Inc.
On October 31, 1996 the Company sold its interest in Spa Faucet, Inc for
$2,500,000 net of commission of
$500,000. The agreement provides for monthly payments of $208,333 commencing
November 1, 1996. As of
February 23, the company has received only one payment.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company rents office space for its office and research plant from the
President. During the quarter ended December 31, 1996, the Company paid
rent of $21,200 for this space.
NOTE 8 - CONTINGENT LIABILITIES
The Company is contingently liable under an irrevocable standby letter of
credit for $52,000 with the Environmental Protection Agency which expires
December, 1997. The letter is collateralized by a certificate of
deposit in the amount of $52,000 which is included in restricted cash.
Note 9 - COMMITMENTS AND CONTINGENCIES
On January 23, 1997, a former employee filed suit against the Company, certain
officers, and others in Orange County California Superior Court seeking damages
in excess of $250,000 under theories of breach of contract,
breach of implied covenant of good faith and fair dealing, tortuous inducement
of breach of an employment contract, intention infliction of emotional distress
and negligent misrepresentation and for an accounting. The Company has not
yet filed a responsive pleading, but intends to vigorously defend the action.
On August 5, 1996, two entities filed suit against the Company in Orange
County California Superior Court seeking damages in the amount of $166,000.
The Company denies that any commission is due.
No amounts have been accrued for litigation.
-F9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the unaudited
consolidated financial statements included herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced cash flow deficiencies of $763,205 ($933,047 from
operations, offset by cash flow of$153,283 from investing activities) during
the three months ended December 31, 1996. However, the Company has
unrestricted cash of $441,511 as of December 31, 1996. It is questionable
whether this cash is adequate to finance any future losses from operations
for at least the next year at present expense rates. The major changes in
cash flows related to the Company's operating losses.
The Company's balance sheet at December 31, 1996 reflected the impact of working
capital changes, business acquisitions and the issuance of convertible
debentures.
RESULTS OF OPERATIONS
Three months ended December 31, 1996 compared to three months ended
December 31, 1995.
Selling, general and administrative expenses decreased as follows:
A reduction in (primarily due to limited activity)
amortization (due to the conversion of bonds) $ 76,000
consulting costs 312,000
advertising 73,000
commissions 130,000
bad debts 91,000
682,000
An increase in:
salaries $ 108,000
professional fees 67,000
rent and other 50,000
225,000
Decrease in selling and
general administrative expenses $ 457,000
Interest income decreased due to a decrease in available funds due to
operating losses.
Amortization Interest expenses increased due to the convertible
debentures outstanding during the 1996 quarter.
PART II
Item 5. Other Information
On February 26, 1997 the Company and Casinos International, Inc. ("Casinos
International") agreed to merge Casinos International into ECO2 Acquisition,
Inc., a wholly owned subsidiary of ECO2, Inc. In connection with the merger,
the Company agreed to convey all of its assets related to tire recycling and
its right, title and interest in a related patent. The Company will
retain all other assets, including its interests in its jet ski
related assets, Gulf-West, Inc. and Vegas Story. Additionally, the
Company agreed to cancel all amounts loaned to Charles Ledford,
and to grant three-year stock options to Charles
Ledford for 300,000 shares, Vivian Ledford for 200,000 shares,
Raymond Ledford for 200,000 shares, all at an exercise price of $.80 per share.
The Company agreed to 50,000 common shares each Lark
Napier, Jr. and Russel McElmurry options to purchase. Also in connection with
the merger, the Company agreed to pay $800,000 to Energy Systems, $200,000
at closing with the balance of $600,000 in three equal monthly installments of
$200,000 each due 45 days following the closing. Additionally, the Company
transferred all of its right and title to a $50,000 bond issued on ECO2's
behalf in favor of the State of Florida to Energy Systems. In connection
with the transaction, Charles Ledford, Vivian Ledford and Raymond Ledford
each agreed to cancel their employment agreements with the Company
effective on the date of closing. The Company also anticipates that Mr.
Ledford will agree to terminate the existing lease between Mr. Ledford and
the Company. The Merger Agreement further provides for the indemnification
of Energy Systems, Charles Ledford, Vivian Ledford and Raymond Ledford
by ECO2 and Prentice Capital.
On February 26, 1997, the Board of Directors elected Alan S. Lipstein as
director of the Company. On February 26, 1997, Charles Ledford resigned as
President and officer of the Company and Vivian Ledford resigned as Secretary
and officer of the Company. Charles Ledford, Vivian Ledford, Lark Napier, and
Russel McElmurry resigned as directors of the Company on February 26, 1997.
Mr. Lipstein was elected President of the Company on February 26, 1997.
The financial information included in this report was prepared by Charles
Ledford, the Company's former President and Chief Financial Officer.
Mr. Lipstein believes such information to be accurate but he has had
insufficient time since assuming duties as President and Chief Financial
Officer to confirm the accuracy of the information set forth herein. Since
Mr. Lipstein is the sole officer, he is executing this Form 10-QSB so that
it may be filed.
Item 6. Exhibits and Reports on Form 8-K
None.
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.1 Articles of Merger ERI Sales into ECO2, filed July 1,1992<F1>
2.2 Plan and Agreement of Merger of ERI Sales into ECO2, filed
July 1, 1992 <F1>
2.3 Articles of Merger of ERI Florida into ERI Delaware, filed
July 1, 1992 <F1>
2.4 Plan and Agreement of Merger of ERI Florida into ERI Delaware
filed July 1, 1992 <F1>
2.5 Agreement and Plan of Reorganization by and among Eco2, Inc.
and Eco2 Acquisition, Inc. and Casinos International, Inc.
and Prentice Capital, Inc.
3 Articles of Incorporation and By-Laws:
3.1 Restated Certificate of Incorporation of Registrant <F1>
3.2 By-laws of Registrant <F1>
3.3 Certificate of Amendment of Certificate of Incorporation of
Registrant, filed August 4, 1992 <F1>
3.4 Certificate of Amendment of Certificate of Incorporation of
Registrant, filed September 25, 1992 <F1>
4 Instruments defining the Rights of Security Holders
4.1 Unit Purchase Option dated October 29, 1992, between Elliot
Allen & Co. , Inc. and Registrant <F2>
4..2 Warrant Agreement between the Company and North America
Transfer Co. dated October 29, 1992 <F2>
4.3 Subscription Agreement between On-site Environmental, Inc.
and Registrant, dated September 9, 1992 <F1>
4.4 Bridge Note issued to On-site Environmental, Inc. dated
September 9, 1992 <F1>
4.5 Option Agreements with Associated Energies, Inc., Al
Kaczamarek, John O'Brien and Alev Ross <F7>
10 Material Contracts
10.1 Sales Agreement by and between ERI Florida, and Premium
Enterprises, Inc. dated September 11, 1991 <F1>
10.2 Agreement by and between Tire Recycling Canada, Inc. a
Canadian Corporation and ERI Florida dated August 1, 1991
<F1>
10.3 1992 Incentive and Non-Qualified Stock Option Plan dated
September 16, 1992 <F1>
10.4 Form of Stock Option Agreement <F1>
10.5 Employment Agreement by and between Charles D. Ledford and
Registrant, dated July 15, 1992 <F1>
10.6 Employment Agreement by and between Mike M. Mustafoglu and
the Company dated September 25, 1992 <F1>
10.7 Consulting Agreement by and between W.C. Emery and
Registrant
dated March 27, 1992 <F1>
10.8 Commission Agreement by and between Robert C. Langford and
Registrant, dated March 27, 1992 <F1>
10.9 Financial Advisory and Investment Banking Agreement between
Registrant and Elliot Allen & Co., Inc., dated October
29, 1992 <F2>
10.10 Lease Agreement among Charles Ledford, Vivian Ledford, and
Registrant, dated July 6, 1992 <F1>
10.11 Equipment Purchase Agreement by and among ECO2, Inc. Shred
Pax Corporation and Premium Enterprises, Inc. dated
October 1, 1992 <F1>
10.12 Sales Agreement by and between Thomas A. Dardas and
Registrant dated February 1, 1993 <F3>
10.13 Exclusive License Agreement by and between Thomas A.
Dardas and Registrant dated February 1, 1993 <F3>
10.14 Client Services Agreement between Equity Ventures Ltd.,
Inc and Registrant, dated April 19, 1993 <F4>
10.15 Advertising Contract between Wall Street Marketing Group
Inc. and Registrant, dated May 3, 1993 <F4>
10.16 Option Agreement between Equity Ventures Ltd., Inc. and
Registrant, dated May 4, 1993 <F4>
10.17 Letter to Registrant from EnviroTrux Co., Inc. dated June
28, 1993 <F5>
10.19 Promissory Note executed by Resource Recovery, Inc. in
favor of Registrant in the original principal amount of
$100,000 dated July 13, 1993 <F5>
10.20 Amendments to Exclusive License Agreement between Thomas A.
Dardas and Registrant Dated July 14, 1993 <F5>
10.21 Consulting Agreement with Associated Energies, Inc. <F8>
10.22 Sales Agreement with Viking Recycling Inc. <F8>
10.23 Mediation Settlement Agreement with Robert C. Langford <F9>
10.24 Settlement Agreement with Emery Enterprises, Inc. <F10>
10.25 Letter of Agreement with Air Liquide America Corporation
<F10>
10.26 Management Consulting Agreement with TransGlobal Financial
Corporation <F11>
10.27 Financial Services Consulting Agreement with TransGlobal
Financial Corporation <F11>
10.28 ECO2 Employee Stock Payment Plan <F11>
10.29 Stock Purchase Agreement between Recovery Corporation and
Recovery Acquisition Corp. <F12>
10.30 Preliminary Underwriting Agreement between CFO Capital,
S.A. and the Company <F13>
10.31 Stock Purchase Agreement dated November 28, 1994 with
Recovery Corporation of America <F14>
10.32 Corporate Relations Agreement with Corporate Relations
Group, Inc. <F15>
10.33 Independent Agent Agreement with Acceptance & Fiduciary
Services, S.A. <F16>
10.34 Sales Agreement and Related contracts with Wastemasters,
Inc. <F16>
10.35 Agreement dated September 22, 1995 with TransGlobal
Financial Corporation with Mike M. Mustafoglu, Alev
Ross and John O'Brien <F17>
10.36 Consulting Agreement dated September 29, 1995 with
MarketMedia, Inc. <F18>
15 Letter re: Unaudited Interim Financial Information None
18 Letter re: Change in Accounting Principles None
19 Report Furnished to Security Holders None
22 Published Report re: Matters Submitted to Vote of Security
Holders None
23 Consents of Experts and Counsel None
24 Power of Attorney None
27 Financial Data Schedule
99 Additional Exhibits None
[FN]
<F1> Previously filed as an exhibit to Registrant's Registration Statement on
Form S-1 (Reg. No. 33-49390) which became effective on October 22, 1992 and
incorporated herein by reference.
<F2> Previously filed as an exhibit to Registrant's Report on Form 10-K for
the fiscal year ended September 30, 1992 and incorporated herein by reference.
<F3> Previously filed as a exhibit to Registrant's Quarterly Report of Form
10-Q for the Quarterly period ended December 31, 1992 and incorporated herein
by reference.
<F4> Previously filed as an exhibit to Registrant's Registration Statement on
Form S-8 which became effective on April 22, 1993 and incorporated herein by
reference.
<F5> Previously filed as an exhibit to Registrant's Current Report on Form 8-K
under date of June 28, 1993 and incorporated herein by reference.
<F6> Previously filed as an exhibit to Registrant's Current Report on Form 8-K
under the date of September 30, 1993 and incorporated herein by reference.
<F7> Previously filed as an exhibit to Registrant's Registration Statement on
Form S-8 which became effective on December 28, 1993 and incorporated herein
by reference.
<F8> Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 and incorporated herein by
reference.
<F9> Previously filed as an exhibit to Registrant's Quarterly Report on Form
10-Q for the quarterly period ended December 31, 1993 and incorporated herein
by reference.
<F10> Filed as an exhibit to Registrant's Post Effective Amendment No. 1 to
its Registration Statement dated May 10, 1994 and incorporated herein by
reference.
<F11> Filed as an exhibit to Registrant's Quarterly Report On Form 10-Q for
the quarterly period ended June 30, 1994 and incorporated herein by reference.
<F12> Filed as an exhibit to Registrant's Current Report on Form 8-K dated
December 7, 1994 and incorporated herein by reference.
<F13> Filed as an exhibit to Registrant's Report on Form 10-K for the fiscal
year ended September 30, 1994.
<F14> Filed as an exhibit to Registrant's Current Report on Form 8-K under
date of November 30, 1994 and incorporated herein by reference.
<F15> Filed as an exhibit to Registrant's Current Report on Form 8-K dated
April 10, 1995 and incorporated herein by reference.
<F16> Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995 and incorporated herein by reference.
<F17> Filed as an exhibit to Registrant's Current Report on Form 8-K dated
September 29, 1995 and incorporated herein by reference.
<F18> Filed as an exhibit to Registrant's Registration Statement on Form S-3
dated October 13, 1995 and incorporated herein by reference.
(b) Reports on Form 8-K None
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ECO2, INC.
(registrant)
Dated: March 3, 1997
/s/ Alan S. Lipstein
ALAN S. LIPSTEIN, President and
Chief Financial Officer
AGREEMENT
AND
PLAN OF REORGANIZATION
BY AND AMONG
ECO2, INC.
AND
ECO2 ACQUISITION, INC.
AND
CASINOS INTERNATIONAL, INC.
AND
PRENTICE CAPITAL, INC.
Dated: February __, 1997
Agreement and Plan of Reorganization ("Agreement"), dated as of February
__, 1997, by and among ECO2, Inc., a Delaware corporation ("ECO2"); ECO2
Acquisition, Inc., a Florida corporation ("ECO2 Acquisition"); Casinos
International, Inc., a Florida corporation ("Casinos International"); and
Prentice Capital, Inc., a Delaware corporation ("Prentice Capital").
BACKGROUND INFORMATION
ECO2 and Casinos International deem it advisable that Casinos
International be merged into ECO2 Acquisition pursuant to this Agreement and
in accordance with the applicable statutes of the States of Florida. ECO2,
Casinos International, Prentice Capital and ECO2 Acquisition desire to adopt a
plan of reorganization within the meaning of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, in
consideration of the promises contained herein, ECO2, ECO2 Acquisition,
Prentice Capital and Casinos International adopt this plan of reorganization
and agree as follows:
OPERATIVE PROVISIONS
ARTICLE 1
Merger
1.1 Transfer of Property and Liabilities. Upon the Effective Date (as
defined in Article 3 hereof) of the merger, the separate existence of Casinos
International shall cease; all of the outstanding shares of stock of Casinos
International shall be exchanged for and converted into shares of the common
stock of ECO2 and a promissory note issued by ECO2, as hereinafter provided;
and upon the filing of a Certificate of Merger with the Secretary of State of
the State of Florida, ECO2 Acquisition shall possess all the rights,
privileges, immunities, powers and purposes, and all property, causes of
action and every other asset of Casinos International and shall assume and be
liable for all the liabilities, obligations and penalties of Casinos
International, in accordance with Florida law.
1.2 Surviving Corporation. Following the merger, the existence of ECO2
Acquisition shall continue unaffected and unimpaired by the merger, with all
the rights, privileges, immunities and powers, and subject to all the duties,
liabilities, of a corporation organized under the laws of Florida. The
Certificate of Incorporation and Bylaws of ECO2 Acquisition, as in effect
immediately prior to the Effective Date, shall continue in full force and
effect, and, except as provided in Article 1.3, shall not be changed in any
manner by the merger. The Board of Directors of ECO2 Acquisition immediately
prior to the Effective Date shall continue as the Board of Directors of ECO2
Acquisition.
1.3 Name. The name of ECO2 Acquisition shall be changed as of the
Effective Date to "Casinos International, Inc."
ARTICLE 2
Conversion of Shares.
2.1 Conversion Ratio. As a result of the merger contemplated by this
Agreement, Prentice Capital, the sole shareholder of Casinos International,
will receive (a) 5,000,000 shares of the common capital stock of ECO2 (the
"ECO2 Shares"); and (b) ECO2 Acquisition's secured promissory note for
$500,000 (the "Note"). In order to effect such conversion, the shares of
Casinos International's common stock issued and outstanding immediately prior
to the Effective Date (the "Casinos International Shares") shall be converted
by the merger into the ECO2 Shares and the Note. The Note shall bear interest
at an annual rate of 8%. The Note shall be amortized over a five year period
following the Closing Date (as defined below) in equal monthly installments.
The Note shall be secured by all of the shares of ECO2 Acquisition.
2.2 Shares of ECO2 Acquisition. None of the issued shares of ECO2
Acquisition shall be converted as a result of the merger and all of such
shares shall remain issued shares of capital stock of ECO2 Acquisition.
ARTICLE 3.
Closing; Certificate of Merger.
3.1 Closing. The closing contemplated by Section 1.1 (the "Closing")
shall be held at the offices of ECO2's counsel, Billy Bruce Brasheer, Esq.,
920 NW 8th Avenue, Suite A, Gainesville, Florida 32601 on February 26, 1997,
unless another place or date is agreed upon in writing by the parties (the
"Closing Date"). At the Closing, all documents called for by this Agreement
(the "Closing Documents") shall be executed by the respective parties. ECO2
shall deliver to Prentice Capital the stock certificate for the ECO2 Shares,
the Note and an executed Stock Pledge Agreement in the form of Schedule 3.1
attached hereto. Prentice Capital shall deliver to ECO2 Acquisition the stock
certificate for the Casinos International Shares and the books and records of
Casinos International. 3.2 Certificate of Merger. After the Closing
provided for in Section 3.1 above, the Certificate of Merger executed by the
parties at Closing shall be submitted for filing with the Secretary of State
of Florida. The date of the latter of such filing, or such other date as the
parties may agree upon in writing pursuant to applicable law, shall be the
effective date of the Merger (the "Effective Date").
ARTICLE 4.
Related Transactions and Additional Agreements.
4.1 Patent. Immediately prior to the Closing, ECO2 shall convey to
Energy Rec. Systems of North Florida, Inc. ("Energy Systems") all of its
rights, title and interest in and to the patent owned by ECO2 that covers
certain aspect of ECO2's tire recycling process, as more particularly defined
on Schedule 4.1 attached hereto.
4.2 Assets. Immediately prior to the Closing, each of the assets set
forth on Schedule 4.2 shall be transferred by ECO2 to Energy Systems. ECO2
shall prepare and deliver at the Closing bills of sale, certificates of title
to any assets such as motor vehicles and quit claim deeds to any real property
being transferred by ECO2 to Energy Systems.
4.3 Cancellation of Indebtedness. All amounts loaned to Charles
Ledford by ECO2 shall be forgiven as of the Closing Date.
4.4 Stock Options. ECO2 hereby grants to the following individuals
options to buy the following number of shares of ECOs's common stock at an
exercise price of $.80 per share.
Grantee Options
Charles Ledford 300,000
Vivian Ledford 200,000
Raymond Ledford 200,000
The options shall be exercisable, in whole or in part, during the three year
period following the Effective Date. The terms and conditions of the stock
option grant are more particularly set forth in Schedule 4.4 below. ECO2
shall, as soon as practicable after the Closing, register the shares
underlying the options for resale with the United States Securities and
Exchange Commission ("SEC") in the most expeditious fashion that it is
permitted to do so, utilizing, to the extent that it is permitted by law, a
registration statement on form S-8.
4.5 Stock Grant. ECO2 hereby grants to the following directors the
following shares of the common stock of ECO2:
Director Shares
Lark Napier, Jr. 50,000
Russel MacElmurry 50,000
4.6 Cancellation of Employment Agreements. On the effective date, the
employment agreements between ECO2 and each of Charles, Vivian and Raymond
Ledford shall be terminated, and, as consideration for such cancellation, ECO2
shall pay $800,000 to Energy Systems, $200,000 of which is due at Closing, and
the balance, $600,000 will be paid in three installments of $200,000, the
initial installment of which will be due forty five days after the Closing,
and the remaining two payments shall be made monthly thereafter. The
obligations of ECO2 to make the deferred payments under this Section 4.6 shall
be secured by ECO2 pledging 600,000 shares of Spa Faucet, Inc. to Energy
Systems and 600,000 shares of the common stock of ECO2.
4.7 Board of Directors of ECO2; Officers. On the Effective Date the
existing members of the Board of Directors of ECO2 shall appoint Alan S.
Lipstein as a member to the Board of Directors of ECO2 and, immediately
thereafter, all other members of the Board of Directors of ECO2 shall resign.
Additionally, all of the existing officers of ECO2 shall resign effective as
of the Closing. 4.8 Bond. Effective on the Closing Date, ECO2 hereby
transfers to Energy System all of its right and title to the $50,000 bond that
has been issued on ECO2's behalf in favor of the State of Florida.
4.9 Indemnification. ECO2 and Prentice Capital, jointly and severally,
agree to indemnify all of the officers and directors of ECO2 immediately prior
to the Closing Date as more particularly set forth in Section 7 below.
4.10 Shareholders Meeting. ECO2 shall, as soon as practicable after the
Closing Date, prepare and file with the SEC, preliminary proxy materials for
the purpose of conducting a shareholders meeting to approve a new board of
directors and to take such other action as the sole remaining director of
ECO2, Alan Lipstein, deems proper.
ARTICLE 5
Representations and Warranties of
Casinos International
Casinos International represents and warrants to ECO2 and ECO2
Acquisition as follows:
5.1 Organization, Power, Standing and Qualification. Casinos
International is a corporation duly organized, validly existing, and in good
standing under the laws in the State of Florida and has full corporate power
and authority to carry on its business as it is now being conducted and to own
and operate the properties and assets now owned and operated by it. Casinos
International is duly qualified to do business and is in good standing in each
and every jurisdiction where the failure to qualify or to be in good standing
would have an adverse effect upon its financial condition, the conduct of its
business or the ownership of its assets.
Authority. Casinos International has the power and authority to
execute, deliver and perform this Agreement; and this Agreement is a valid and
binding obligation of the Casinos International, enforceable in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, or similar laws affecting the enforcement
of creditors' rights generally.
5.3 Validity of Contemplated Transactions; Interference. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby do not and will not (a) contravene any
provision of the Certificate of Incorporation or Bylaws of Casinos
International; (b) violate, be in conflict with, constitute a default under,
cause the acceleration of any payments pursuant to, or otherwise impair the
good standing, validity, or effectiveness of any material agreement, contract,
indenture, lease, or mortgage to which Casinos International is a party; (c)
subject the assets of Casinos International to any indenture, mortgage,
contract, commitment, or agreement, other than this Agreement; (d) reasonably
interfere with any other agreement to which Casinos International is a party;
or (e) violate any material provision of law, rule, regulation, order, permit,
or license to which Casinos International is subject.
5.4 Capitalization of Casinos International. Casinos International's
authorized capital stock consists of 7,500 shares of common stock, $.001 par
value, 100 of which shares are presently outstanding, validly issued, fully
paid and non-assessable. There are no outstanding options, warrants,
conversion privileges, subscriptions, calls, commitments or rights of any
character relating to any authorized but unissued capital stock of Casinos
International.
5.5 Assets of Casinos International. Casinos International owns no
assets other than a commitment from The Royal Bank of Scotland to loan Casinos
International $6,500,000 for the construction of a gaming vessel and an oral
commitment, which Casinos International is currently negotiating a written
lease agreement for, to lease a gaming vessel and port facility in Tiera
Verde, Florida from Europa Cruise Corporation.
5.6 Absence of Undisclosed Liabilities. Casinos International has no
material liabilities or obligations except for those incurred in the ordinary
course of business. Except as otherwise provided in this Agreement, the term
"liabilities or obligations" as used in this Agreement shall include any
direct or indirect indebtedness, claim, loss, damage, deficiency (including
deferred income tax and other net tax deficiencies), cost, expense,
obligation, guarantee, or responsibility, whether accrued, absolute, or
contingent, known or unknown, fixed or unfixed, liquidated or unliquidated,
secured or unsecured.
5.7 Litigation; Compliance with Laws. There is no suit, action, claim,
arbitration, administrative or legal or other proceeding, or governmental
investigation pending or, to the knowledge of Casinos International,
threatened against or related to Casinos International. There has been no
failure to comply with, nor any default under, any law, ordinance,
requirement, regulation, or order applicable to Casinos International or its
business operations, nor any violation of or default with respect to any
order, writ, injunction, judgment, or decree of any court or federal, state or
local department, official, commission, authority, board, bureau, agency, or
other instrumentality issued or pending against Casinos International which in
any such case would reasonable be expected to have a material adverse effect
on the financial condition, its business, results of operations, properties or
assets of Casinos International.
5.8 Veracity of Statements. To the knowledge of Casinos International,
no representation or warranty by Casinos International contained in this
Agreement and no statement contained in any certificate, schedule or other
instrument furnished to ECO2 Acquisition pursuant hereto or in connection with
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary to make it not
misleading.
5.9 Acquisition of ECO2 Shares for Investment. Prentice Capital will
execute this Agreement, in order confirm that it is acquiring the common stock
of ECO2 for investment purposes, for its own account and not with a view to
the resale or distribution thereof in violation of any state or federal
securities laws. Prentice Capital shall not sell, transfer, pledge or
hypothecate any of the ECO2 Shares in the absence of registration under or
pursuit to an applicable exception from, federal and all applicable security
law.
ARTICLE 6
Representations and Warranties of ECO2
ECO2 represents and warrants to Casinos International as follows:
6.1 Organization, Power, Standing and Qualification. ECO2 is a
corporation duly organized, validly existing and in good standing under the
laws in the State of Delaware and has full corporate power and authority to
carry on its business as it is now being conducted and to own and operate the
properties and assets now owned and operated by it.
6.2 Capitalization of ECO2, Inc.. ECO2's authorized capital stock
consists of 45,000,000 shares of common stock, $.01 par value, 25,103,655 of
which shares are presently outstanding, validly issued, fully paid and non-
assessable.
6.3 Financial Statements. ECO2 has delivered to Casinos International
its consolidated balance sheet for its fiscal year ended September 30, 1996
(the "ECO2 Balance Sheet") as well as its consolidated statement of income and
loss for the year ended September 30, 1996, which have been prepared in
accordance with the applicable books and records of ECO2 and presents fairly
the financial condition of ECO2 as of September 30, 1996, and there has been
no material change in such financial condition of ECO2 since September 30,
1996.
6.4 Absence of Undisclosed Liabilities. ECO2 has no liabilities or
obligations except for those (a) reflected on the ECO2 Balance Sheet; (b)
reflecting contractual liabilities or obligations incurred in the ordinary
course of business that are not required by generally accepted accounting
principles to be reflected in a balance sheet; (c) incurred in the ordinary
course of business subsequent to the date of the ECO2 Balance Sheet and not
required to be disclosed pursuant to the terms of this Agreement; and (d)
specifically disclosed in Schedule 6.4 attached hereto. Except as otherwise
provided in this Agreement, the term "liabilities or obligations" as used in
this Agreement shall include any direct or indirect indebtedness, claim, loss,
damage, deficiency (including deferred income tax and other net tax
deficiencies), cost, expense, obligation, guarantee, or responsibility,
whether accrued, absolute, or contingent, known or unknown, fixed or unfixed,
liquidated or unliquidated, secured or unsecured.
6.5 Certain Tax Matters. ECO2 has duly filed all federal, state, and
local tax returns and reports required to be filed by ECO2 for all periods
ending on or prior to January 31, 1997 and all taxes, including income, gross
receipts, and other taxes and any penalties with respect thereto, shown
thereon to be due and payable, have been paid, withheld, or reserved for or
are reflected as a liability in the ECO2 Balance Sheet. The returns and
reports are, to the best knowledge of ECO2, correct and complete. ECO2 has
not entered into any agreements for the extension of time for the assessment
of any tax or tax delinquency, has received no outstanding or unresolved
notices from the Internal Revenue Service or any taxing body of any proposed
examination or of any proposed deficiency or assessment, and has properly
withheld all amounts required by law to be withheld for income taxes and
unemployment taxes, including without limitation social security and
unemployment compensation, relating to its employees, and remitted such
withheld amounts to the appropriate taxing authority as required by law.
6.6 Litigation; Compliance with Laws. Except as set forth in the
Annual Report on Form 10-KSB for ECO2 for the period ended September 30, 1996,
there is no suit, action, claim, arbitration, administrative or legal or other
proceeding, or governmental investigation pending or, to the knowledge of ECO2
threatened against or related to ECO2. There has been no failure to comply
with, nor any default under, any law, ordinance, requirement, regulation, or
order applicable to ECO2 or its business operations, nor any violation of or
default with respect to any order, writ, injunction, judgment, or decree of
any court or federal, state or local department, official, commission,
authority, board, bureau, agency, or other instrumentality issued or pending
against ECO2 which might have a material adverse effect on the financial
condition, its business, results of operations, properties or assets of ECO2.
6.7 No Changes. Since September 30, 1996 there has not been:
a. Any change in the financial or other condition, assets,
liabilities or business of ECO2, which individually or in the aggregate
has been materially adverse to ECO2;
b. Any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or
may adversely affect the business or assets of ECO2 to a material degree;
c. Any declaration, setting aside or payment of any dividend or
other distribution in respect of any of ECO2's shares or any direct or
indirect redemption, purchase or other acquisition of ECO2's shares or
any direct or indirect payment or incurring of management fees or other
transactions between the shareholders of ECO2 and ECO2; or
d. Any increase in the compensation payable or to become payable
by ECO2 to any of its officers, employees or agents, or any known payment
or arrangement made to or with any thereof, except in the ordinary course
of business.
6.8 Veracity of Statements. No representation or warranty by ECO2 or
ECO2 Acquisition contained in this Agreement and no statement contained in any
certificate, schedule or other instrument furnished to Casinos International
pursuant hereto or in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary to make it not misleading.
6.9 Copies of Articles of Incorporation, Bylaws and Stock Records. A
copy of ECO2's Certificate of Incorporation, Bylaws and stock records
(certified by the Secretary of ECO2) has been delivered to Casinos
International and each is correct and in effect as at the date of this
Agreement. A copy of ECO2 Acquisition's Certificate of Incorporation, Bylaws
and stock records (certified by the Secretary of ECO2 Acquisition) has been
delivered to Casinos International and each is correct and in effect as at the
date of this Agreement. Such books and records have been regularly and
properly kept and are complete, accurate and legally sufficient under
applicable law.
6.10 Directors and Officers. Schedule 6.10 attached hereto is a true
and complete list as of the date of this Agreement showing the names of ECO2's
directors and officers, each of whom has been duly elected.
6.11 Nasdaq SmallCap Market. The shares of the common stock of ECO2 are
listed on the Nasdaq SmallCap Market, ECO2 is in good standing with NASDAQ and
ECO2 has not received any communication, oral or written, from NASDAQ that it
will not be able to continue to list its shares on the Nasdaq SmallCap Market.
ARTICLE 7
INDEMNIFICATION
7.1 ECO2 and Prentice Capital Indemnification of Energy Systems and
the Ledfords. From and after the Effective Date, ECO2 and Prentice Capital
shall, jointly and severally, indemnify and hold harmless Energy Systems,
Charles Ledford, Vivian Ledford and Raymond Ledford (collectively, the
"Indemnitees") from and against any and all damages, losses, obligations,
deficiencies, liabilities, claims, encumbrances, penalties, costs, and
expenses, including reasonable attorneys' fees (together, a "Loss") which the
Indemnitees may suffer or incur, resulting from, related to, or arising out
of: (a) their being an officer or director of ECO2; (b) the transactions
contemplated by this Agreement; (c) misrepresentation, breach of warranty, or
nonfulfillment of any of the covenants or agreements of Casinos International
in this Agreement or from any misrepresentation in or omission from any
certificate or document furnished or to be furnished to the Indemnitees
hereunder and (d) any and all actions, suits, investigations, proceedings,
demands, assessments, audits, judgments, and claims (including employment-
related claims) arising out of any of the foregoing; provided, however, that
before the Indemnitees may assert a claim for indemnity under this Section,
the Indemnitees must give or cause to be given written notice of such claim to
ECO2 and Prentice Capital as provided in Article 7.2.
7.2 Notice. Promptly after acquiring knowledge of any Loss or action,
suit, investigation, proceeding, demand, assessment, audit, judgment, or claim
against which the Indemnitees have been indemnified by ECO2 and Prentice
Capital, the Indemnitees shall give to ECO2 and Prentice Capital written
notice thereof. ECO2 and Prentice Capital shall, at their own expense,
promptly defend, contest or otherwise protect against any Loss or action,
suit, investigation, proceeding, demand, assessment, audit, judgment, or claim
against which they have indemnified the Indemnitees, and ECO2 and Prentice
Capital shall receive from the Indemnitees all necessary and reasonable
cooperation in said defense including, but not limited to, the services of
employees of the other party who are familiar with the transactions out of
which any such Loss or action, suit, investigation, proceeding, demand,
assessment, audit, judgment, or claim may have arisen. ECO2 and Prentice
Capital shall have the right to control the defense of any such proceeding
unless relieved of their liability hereunder with respect to such defense by
the Indemnitees. ECO2 and Prentice Capital shall have the right, at their
option, and, unless so relieved, to compromise or defend, at their own expense
by their own counsel, any such matter involving the asserted liability of the
Indemnitees. In the event that ECO2 and Prentice Capital shall undertake to
compromise or defend any such asserted liability, they shall promptly notify
the Indemnitees of their intention to do so. In the event that ECO2 and
Prentice Capital, after written notice from an Indemnitee, fail to take timely
action to defend the same, the Indemnitees shall have the right to defend the
same by counsel of its or his own choosing, but at the cost and expense of
ECO2 and Prentice Capital.
7.3 Money Damages. If the Loss indemnified against pursuant to the
provisions of Article 7.1 hereof can be compensated by the payment of money,
ECO2 and Prentice Capital shall, within 21 days after receipt of a written
notice of a claim pursuant to Article 7.2 deliver to the Indemnitee either:
(a) the amount of such claim by check or by wire transfer to the bank account
of that party's choosing, or (b) a written notice stating that they object to
the validity of such claim and setting forth in reasonable detail the grounds
on which it is contesting the validity of the claim.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS,
WARRANTIES, GUARANTEES, AND COVENANTS
8.1 Date Certain For Survival. All representations and warranties made
by ECO2, ECO2 Acquisition or Casinos International in this Agreement or
pursuant hereto shall survive the closing hereunder for a period ending on the
first anniversary of the Effective Date.
ARTICLE 9
CONDUCT OF CASINOS INTERNATIONAL ECO2 AND
ECO2 ACQUISITION AFTER THE MERGER
9.1 Additional Actions and Cooperation. After the Effective Date, at
the request of either party and at the requesting party's expense, but without
additional consideration, the other party shall execute and deliver from time
to time such further instruments of assignment, conveyance and transfer, shall
cooperate in the conduct of litigation and the processing and collection of
insurance claims, and shall take such other actions as may reasonably be
required to convey and deliver more effectively to ECO2 Acquisition the assets
of Casinos International or to confirm and perfect the interest of Prentice
Capital in the common stock of ECO2, and otherwise to accomplish the orderly
transfer to ECO2 of the business of Casinos International as contemplated by
this Agreement.
9.2 Audit Access. ECO2 will preserve the books, records, reports,
documents and lists owned by it for a period of at least seven years from the
Effective Date, will not thereafter destroy or otherwise dispose of such
records without giving the Indemnitees notice and the opportunity to take
possession thereof, and, while in possession of such records, will permit
representatives of the Indemnitees to have access at reasonable times to such
books, records, reports, documents and files, to make such copies therefrom as
such representatives reasonably request. The Indemnitees shall, subject to
applicable law and regulation, and the terms of any confidentiality agreement,
hold in confidence any nonpublic information concerning ECO2 obtained
hereunder.
ARTICLE 10
BROKERAGE; EXPENSES
Except as set forth on Schedule 10, none of the parties has employed or
will employ any broker, agent, finder, or consultant (collectively, "Broker")
or has incurred or will incur any liability for any brokerage fees,
commissions, finders' fees, or other fees, in connection with the negotiation
or consummation of the transactions contemplated by this Agreement, except as
herein set forth. Casinos International is responsible for and hereby
indemnifies and holds the Indemnitees harmless against and in respect of any
claim for brokerage fees, commissions, or other finders' fees or commissions
of any such Broker employed by Casinos International and any additional such
claims incurred by the Indemnitees relative to this Agreement and the
transactions contemplated hereby and any attorney fees incurred by any of the
parties in relation to any such claim by a Broker not otherwise disclosed
herein. Similarly, the Indemnitees are responsible for and hereby indemnify
and hold ECO2 harmless against and in respect of any claim for brokerage fees,
commissions, or other finders' fees or commissions of any such Broker employed
by the Indemnitees or ECO2 and not disclosed herein and any additional such
claims incurred by ECO2 relative to this Agreement and the transactions
contemplated hereby and any attorney fees incurred by ECO2 in relation to any
such claim by a Broker.
ARTICLE 11
CORPORATE NAMES
ECO2 Acquisition shall have the exclusive right to use the corporate name
"Casinos International" after the Effective Date.
ARTICLE 12
GENERAL
12.1 Entire Agreement; Amendments. This Agreement constitutes the
entire understanding among the parties with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended,
supplemented, and terminated only by a written instrument duly executed by all
of the parties.
12.2 Headings. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.
12.3 Gender; Number. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
12.4 Exhibits and Schedules. Each Exhibit and Schedule referred to
herein is incorporated into this Agreement by such reference.
12.5 Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability
will not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render
enforceable the provisions hereof.
12.6 Notices. All notices and other communications hereunder shall be
in writing and shall be given to the person by sending a copy thereof by
certified mail or by telecopy. Notice shall be deemed to have been given to
the person entitled thereto when deposited in the United States mail or when
transmitted.
If to ECO2 or the Indemnitees, to:
Mr. Charles Ledford
ECO2, Inc.
20005 S.E. Hawthorne Road
Hawthorne, Florida 32640
With a copy to:
Billy Bruce Brasheer, Esq.
920 NW 8th Avenue, Suite A Gainesville, Florida 32601
If to Casinos International:
Mr. Alan S. Lipstein
Casinos International, Inc.
13902 North Dale Mabry, Suite 119
Tampa, Florida 33618
With a copy to:
John N. Giordano, Esq.
Bush Ross Gardner Warren Rudy, P.A.
220 S. Franklin St.
Tampa, Florida 33602
Notice of any change in any such address shall also be given in the manner
set forth above. Whenever the giving of notice is required, the giving of
such notice may be waived by the party entitled to receive such notice.
12.7 Waiver. The failure of any party to insist upon strict performance
of any of the terms or conditions of this Agreement will not constitute a
waiver of any of its rights hereunder.
12.8 Assignment. No party may assign any of its rights or delegate any
of its obligations hereunder without the prior written consent of the other
parties.
12.9 Successors and Assigns. This Agreement binds, inures to the
benefit of, and is enforceable by the successors and assigns of the parties,
and does not confer any rights on any other persons or entities.
12.10 Governing Law; Jurisdiction. The parties agree that, irrespective
of any wording that might be construed to be in conflict with this paragraph,
this Agreement is one for performance in Florida. The parties to this
Agreement agree that they waive any objection, constitutional, statutory or
otherwise, to a Florida court's taking jurisdiction of any dispute between
them. By entering into this agreement, the parties, and each of them
understand that they might be called upon to answer a claim asserted in a
Florida court. This Agreement shall be construed and enforced in accordance
with law of the State of Florida. Venue for any such action shall be deemed
proper in either Alachua or Hillsborough County, Florida.
12.11 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they shall not be
construed as conferring and are not intended to confer any rights on any other
persons.
12.12 Publicity. Prior to the Effective Date, all notices to third
parties and all other publicity relating to the transactions contemplated by
this Agreement shall be jointly planned, coordinated and agreed to by Prentice
Capital and ECO2. Except as may be required by law, prior to the Effective
Date none of the parties hereto shall act unilaterally in this regard without
the prior approval of Prentice Capital and ECO2; provided, however, that such
approval shall not be unreasonably withheld.
12.13 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not
become effective until counterparts hereof have been executed by all the
parties hereto. It shall not be necessary in making proof of this Agreement
or any counterpart hereof to produce or account for any of the other
counterparts.
12.14 Limitations Upon Consent: Whenever, under the terms of this
Agreement, the parties hereto are called upon to give their written consent,
such written consent will not be unreasonably withheld.
12.15 Form of Consent: All consents of any kind required under this
Agreement shall be in writing. Whenever, under the terms of this Agreement,
ECO2, ECO2 Acquisition, Prentice Capital or Casinos International is
authorized to give consent, such consent may be given and shall be
conclusively evidenced by the Chairman of the Board of Directors or the
president of each respective corporation giving such consent.
12.16 Attorneys' Fees and Court Actions: If a legal action is initiated
by any party to this Agreement against another, arising out of or relating to
the alleged performance or non-performance of any right or obligation
established hereunder, or any dispute concerning the same, any and all fees,
costs and expenses reasonably incurred by each successful party or his or its
legal counsel in investigating, preparing for, prosecuting, defending against,
or providing evidence, producing documents or taking any other action in
respect of, such action shall be the joint and several obligation of and shall
be paid or reimbursed by the unsuccessful party.
12.17 Binding Effect: This Agreement shall inure to the benefit of and
be binding upon ECO2 and Casinos International, and their successors or
assigns, including but not limited to any corporation or other business entity
which may acquire all or substantially all of ECO2's and/or Casinos
International's assets and business, or with, or into which Casinos
International and/or any Casinos International subsidiary may be consolidated
or merged, and upon the executors, administrators and legal representatives
thereof.
In witness whereof, the parties have executed this Agreement on the date
first above written.
ECO2, INC.
By:
Charles Ledford, President
ECO2 ACQUISITION, INC.
By:
Charles Ledford, President
Casinos International, Inc.
By:
Alan S. Lipstein, President
Prentice Capital, Inc.
By:
Alan S. Lipstein, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Financial Statements for the ______ months ended ___________, and is
qualified in its entirety by reference to such form 10QSB for quarterly period
ended _______________.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,390,644
<SECURITIES> 0
<RECEIVABLES> 314,582
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,522,909
<PP&E> 2,415,983
<DEPRECIATION> 452,515
<TOTAL-ASSETS> 7,877,243
<CURRENT-LIABILITIES> 1,079,726
<BONDS> 1,864,947
<COMMON> 269,498
0
0
<OTHER-SE> 4,633,072
<TOTAL-LIABILITY-AND-EQUITY> 4,932,570
<SALES> 0
<TOTAL-REVENUES> 893
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 746,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,529
<INCOME-PRETAX> (768,193)
<INCOME-TAX> 0
<INCOME-CONTINUING> (768,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (768,193)
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
