<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
September 30, 1996
Date of Report
(Date of earliest event reported)
Exsorbet Industries, Inc
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho
-----
(State or other jurisdiction of incorporation)
0-25970 82-0474589
------- ----------
(Commission file number) (IRS employer identification no.)
4294 Lakeland, Suite 200
Jackson, Mississippi 39208
---------------------- -----
(Address of principal executive offices) (Zip code)
(601) 936-4440
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On August 5, 1996, Exsorbet Industries, Inc. (the "Company")
entered into an Agreement and Plan of Merger (the "Agreement") by and among the
Company, 7-7 Merger, Inc., an Arkansas corporation and wholly owned subsidiary
of the Company ("Merger Subsidiary"), 7-7, Inc., an Ohio corporation ("7-7")
and Calvin F. Lowe, Sr., Calvin F. Lowe, II, James Hodgson, Gary Platek, G.
Howard Collingwood, and Edward Kurzenberger (collectively, the "Shareholders").
A copy of the Agreement is filed herewith. Pursuant to the terms of the
Agreement, the Company acquired all of the stock of 7-7 from the Shareholders
on September 30, 1996 (the "Acquisition") and 7-7 was then merged with and into
the Merger Subsidiary. In return the Shareholders received $3,000,000 in cash,
874,545 shares of the Company's common stock, par value $.001 per share (the
"Common Stock") valued at $3,250,000, and subordinated notes in the aggregate
stated principle amount of $900,000. The Company also agreed to nominate
Calvin F. Lowe, II for election to the Board of Directors by the shareholders
of the Company at the next annual meeting. The amount of the Common Stock
given to the Shareholders was determined by taking the average closing price of
the Common Stock for the period between June 4, 1996 (which was the date the
parties began true negotiations) and ten days prior to closing. The average
price of the Common Stock utilizing such formula was approximately $3.71 per
share. The number of shares of Common Stock given to the Shareholders was
determined by dividing such average price into $3,250,000. The Board of
Directors of the Company determined the consideration to be fair and reasonable
by concluding that the fair market value of 7-7, Inc. to be in excess of
$7,150,000. Concurrent with the closing of the Acquisition, each Shareholder
executed a consulting or employment agreement with the Company. A copy of each
such agreement is filed herewith. The employment agreement of G. Howard
Collingwood will be superseded by a new employment agreement effective on
September 30, 1996 upon the same terms as the employment agreement filed
simultaneously herewith.
To finance the transaction, the Company entered into a Stock Purchase
Agreement with American Physicians Service Group, Inc., a Texas corporation
("APS"), dated September 30, 1996 (the "Stock Purchase Agreement") pursuant to
which the Company issued 1,200,000 shares of Common Stock to APS for $3,300,000
in cash of which $3,000,000 was used to consummate the Acquisition. A copy of
the Stock Purchase Agreement is filed herewith. The Company also entered into
a Stock Put Agreement, as filed herewith, dated September 30, 1996 with APS
pursuant to which the Company agreed to repurchased such shares sold to APS for
the same price that APS paid under the Stock Purchase Agreement upon APS's
request during the next sixty days. If APS exercises the option to sell the
shares back to the Company, the Company may elect, in lieu of a $3,300,000 cash
payment for the shares, to issue a promissory note in the stated principal
amount of $3,300,000 which shall accrue interest at a 15.75% annual rate and
all the outstanding principal together with accrued but unpaid interest on such
note shall be due and payable on October 1, 1997. If APS does not exercise
such option, the Company shall pay APS a sum of $60,000 following the
expiration of the sixty day period.
2
<PAGE> 3
To secure its obligations under the Stock Purchase Agreement, the
Company entered into an Assignment and Security Agreement, dated September 30,
1996 (the "Security Agreement") with APS in which the Company assigned and
granted to APS a security interest in certain collateral (the "Collateral").
The Collateral includes all issued and outstanding shares of 7-7, all rights,
accounts and other property that the Company may receive under the Merger
Agreement and all proceeds arising out of the disposition of any other
Collateral. In the Security Agreement the Company agreed not to enter into any
merger or consolidation, other than the proposed reincorporation of the Company
into Delaware. The Company further agreed in the Security Agreement not to
sell, lease or assign any assets except in the normal course of business.
Additionally, under the Security Agreement, the Company agreed not to incur any
indebtedness for items including, without limitation, borrowed money, deferred
payment for the purchase of assets, lease payments, obligations as surety or
guarantor of the debt of another or any other such transactions with any party
other than APS without the prior written consent of APS. Under the Security
Agreement the Company will retain the ability to incur trade debts incurred in
the ordinary course of business.
To further induce APS to enter into the Stock Purchase Agreement each
of the Company's directors and an executive officer entered into option
agreements with APS, each dated September 30, 1996 (the "Option Agreements")
granting APS options to purchase an aggregate of 1,400,000 shares pursuant to
such Option Agreements, within the next sixty days and at a price of $2.75 per
share. The Company also entered into a Contingent Warrant Agreement, also
filed herewith, with APS dated September 30, 1996 whereby the Company will use
its best efforts to cause one or more of its shareholders to enter into option
agreements to sell an additional 400,000 shares of Common Stock to APS. If by
October 30, 1996 the Company is unsuccessful, the Company shall execute and
deliver an additional warrant to APS for the purchase of up to 400,000 shares
at the price of $2.75 per share within the next sixty days.
All of the shares of Common Stock acquired by APS are subject to a
Shareholders Rights Agreement, dated September 30, 1996 between the Company and
APS which provides registration rights for such shares (the "Shareholders
Rights Agreement").
Additionally, pursuant to the Shareholders Rights Agreement, APS has
agreed to hold 1,000,000 of the shares of Common Stock initially purchased by
APS for at least one year after the date of the agreement; except that APS may
sell such shares prior to such time (i) pursuant to the Stock Put Agreement,
and/or (ii) pursuant to a registration of such shares as contemplated by this
agreement. In the event APS desires to sell more than 20,000 shares of Common
Stock for cash on any particular day (other then pursuant to a registration
statement in effect with respect thereto), then APS will give the Company five
days advance written notice of such intention, specifying the price, or other
pricing methodology, and any other terms and conditions of such sale, and the
Company shall be entitled, during such five day period to elect to purchase
such Common Stock from APS on the same terms and conditions. This restriction
shall not apply to APS unless all of the Company's shareholders who own at
least five percent of the Company's Common Stock agree to be bound by the same.
3
<PAGE> 4
The Company further agreed, pursuant to the Shareholders Rights
Agreement, to increase the membership of the Board of Directors by one and
appoint an individual designated by APS to the Board of Directors promptly
after the next Annual Meeting. The Shareholders Rights Agreement further
requires the Company to appoint a second individual designated by APS if APS
acquires one-half of the shares of Common Stock that APS is entitled to
purchase pursuant to the Stock Warrant and the Option Agreements. Once APS
possesses the right to appoint two members of the Board of Directors and in the
event the membership of Board of Directors is increased or otherwise becomes
larger than ten members, the Board of Directors will increase its membership by
one and APS shall be entitled to designate a third member to be appointed by
the Company to the Board of Directors. After an APS designee is appointed to
the Board of Directors, the Company shall nominate and use its best efforts to
cause the Company's shareholders to elect and thereafter maintain all of APS's
designees on the Board of Directors for the period stated below. The Company
will also cause all the Company's shareholders who are also directors of the
Company to execute and deliver to APS an agreement in form and substance
acceptable to APS, to vote their shares in favor of the election of APS
designees to the Company's Board of Directors. The foregoing provisions
related to the designation by APS of individuals to serve on the Board of
Directors of the Company shall remain in place until APS (together with its
subsidiaries and affiliates) owns less than five percent of the issued and
outstanding Common Stock of the Company, and thereafter in the event APS
exercises its rights under the Stock Put Agreement until APS has been paid in
full all amounts due APS upon sale of the stock to the Company pursuant to the
Stock Put Agreement. All APS designees to the Board of Directors of the
Company may be changed from time to time by written notice of APS to the
Company. The Company agrees to cause such new designees to be elected to its
Board of Directors promptly upon receipt of such notice.
In the event that, at any time during a period of three years after
the date of the Shareholders Rights Agreement, the Company proposes to engage
in any transaction that involves the issuance of additional equity securities
of the Company, options or other rights to acquire equity securities of the
Company, or rights convertible into any equity securities of the Company, or
proposes to engage in any other non-equity related transaction that involves
amounts in excess of $100,000 (all the foregoing are collectively referred to
as "Target Transactions"), in which any person or entity who owns five percent
or more of the Company's outstanding common stock ("Major Shareholders") is to
be a participant, or has the right to participate, APS shall have a right of
first refusal to participate in any such transaction on the same basis and
terms as the applicable Major Shareholder(s). The Company agrees to give APS
sixty days advance written notice of any proposed Target Transaction.
On September 30, 1996, the Company entered into an Assignment and
Security Agreement (the "Security Agreement") with APS pursuant to which the
Company assigned and granted to APS a security interest in certain collateral
(the "Collateral"). The Collateral includes all issued and outstanding shares
of 7-7, all rights, accounts and other property that the Company may receive
under the Merger Agreement and all proceeds arising out of the disposition of
any other Collateral. In the Security Agreement, the Company agreed not to
enter into any merger or consolidation, other
4
<PAGE> 5
than the proposed reincorporation of the Company into Delaware. The Company
further agreed in the Security Agreement not to sell, lease or assign any
assets except in the normal course of business. Additionally, under the
Security Agreement, the Company agreed not to incur any indebtedness for items
including, without limitation, borrowed money, deferred payment for the
purchase of assets, lease payments, obligations as surety or guarantor of the
debt of another or any other such transactions with any party other than APS
without the prior written consent of APS. Under the Security Agreement the
Company will retain the ability to incur trade debts incurred in the ordinary
course of business.
(b) The assets acquired in the acquisition have been used as an
operating facility for 7-7, Inc. The assets include personal property,
intangible property rights, equipment, accounts receivables and real estate.
The Company intends to continue substantially the same use for such acquired
assets.
5
<PAGE> 6
ITEM 7. FINANCIAL STATEMENTS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
7-7, INC.
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Interim Balance Sheet, dated September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 6
Interim Statement of Income for the ten months ended September 30, 1996 . . . . . . . . . . . . 8
Interim Statement of Cash Flows for the ten months ended September 30, 1996 . . . . . . . . . . 9
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Balance Sheet, dated November 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Statement of Shareholders' Equity, for the year ended November 30, 1995 . . . . . . . . . . . . 13
Statement of Income for the year ended November 30, 1995 . . . . . . . . . . . . . . . . . . . 14
Statement of Cash Flow for the year ended November 30, 1995 . . . . . . . . . . . . . . . . . . 15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Balance Sheet, dated November 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Statement of Retained Earnings, for the year ended November 30, 1994 . . . . . . . . . . . . . 26
Statement of Income for the year ended November 30, 1994 . . . . . . . . . . . . . . . . . . . 27
Statement of Cash Flows for the year ended November 30, 1994 . . . . . . . . . . . . . . . . . 28
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
6
<PAGE> 7
BALANCE SHEET
7-7, Inc.
September 30, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and equivalents: $ 51,822.72
Accounts Receivable 1,866,234.16
Allowance for Bad Debts (30,000.00)
Prepaid Expenses & Supplies 244,996.17
Federal Income Tax Deposit 12,236.00
------------------
Total Current Assets 2,145,289.05
PROPERTY AND EQUIPMENT:
Land 30,000.00
Building and improvements 422,500.81
Licensed equipment 1,805,759.97
Field equipment 8,487,348.92
Office furniture and fixtures 126,576.78
------------------
10,892,186.48
Less accumulated depreciation (4,449,402.49)
------------------
6,442,783.99
OTHER ASSETS:
Cash surrender value of officers' life insurance 135,220.76
Deposits 8,243.88
Prepaid expenses 30,514.35
------------------
173,978.99
------------------
Total Assets $ 8,762,052.03
==================
</TABLE>
7
<PAGE> 8
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 917,000.00
Line-of-credit 1,690,000.00
Accounts payable 2,888,160.35
Accrued expenses 179,698.59
Accrued income taxes (560.00)
------------------
Total Current Liabilities 5,674,298.94
LONG-TERM DEBT:
Notes Payable - financial institution 1,954,551.15
Notes Payable - shareholders 121,813.77
------------------
Total Long-Term Debt 2,076,364.92
SHAREHOLDERS' EQUITY:
Common stock 23,700.00
Paid-in capital 775,644.21
Retained earnings 212,043.96
------------------
Total Shareholders' Equity 1,011,388.17
------------------
Total Liabilities and Shareholders' Equity $ 8,762,052.03
===================
</TABLE>
8
<PAGE> 9
STATEMENT OF INCOME
7-7, Inc.
Ten Months Ending September 30, 1996
<TABLE>
<S> <C>
Revenue $ 10,871,169.43
Operating expenses 9,555,821.60
--------------------
Gross Profit 1,315,347.83
Selling, general and administrative expenses 2,272,240.32
--------------------
Income from Operations (956,892.49)
Other Income (Expense):
Interest expense (359,878.66)
Miscellaneous 35,264.07
--------------------
(324,614.59)
Income before Provision for Income Taxes (1,281,507.08)
Provision for city income taxes (3,773.00)
--------------------
Net Income $ (1,277,734.08)
=====================
</TABLE>
9
<PAGE> 10
STATEMENT OF CASH FLOWS
7-7, Inc.
Ten Months Ending September 30, 1996
<TABLE>
<S> <C>
Net Cash Used by Operating Activities $ 1,410,605
====================
Cash Flows from Investing Activities:
Net Purchases of Plant and Equipment and Proceeds
from Sale of Property, Plant and Equipment (3,063,198)
--------------------
Net Cash Flows Used in Investing Activities (3,063,198)
--------------------
Cash Flows from Financing Activities:
Net Proceeds from borrowings on Notes Payable
and Long-Term Debt 1,255,109
Issuance of Common Stock 346,941
--------------------
Net Cash Flows from Financing Activities 1,602,050
--------------------
Decrease in Cash and Cash Equivalents (50,543)
Cash and Cash Equivalents - December 1, 1995 102,366
====================
Cash and Cash Equivalents - September 30, 1996 $ 51,823
====================
</TABLE>
10
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
Board of Directors
7-7, Inc.
We have audited the accompanying balance sheet of 7-7, INC., as of November 30,
1995 and the related statements of income, shareholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 7-7, Inc. as of November 30,
1995, and the results of its operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, LTD.
Certified Public Accountants
January 8, 1996
Cleveland, Ohio
11
<PAGE> 12
BALANCE SHEET
7-7, Inc.
November 30, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS: $ 102,366
Cash and equivalents
Accounts receivable, net of allowance for
doubtful accounts of $50,000 4,789,284
Prepaid expenses 64,739
Deposit 25,000
-----------------
Total Current Assets 4,981,389
PROPERTY AND EQUIPMENT:
Land 30,000
Building and improvements 422,414
Licensed equipment 1,654,412
Field equipment 5,087,800
Office furniture and fixtures 124,618
-----------------
7,319,244
Less accumulated depreciation 3,864,977
-----------------
3,454,267
Equipment under construction 587,318
-----------------
4,041,585
OTHER ASSETS:
Cash surrender value of officers' life insurance 133,690
Deposits 6,994
Prepaid expenses 38,603
-----------------
179,287
-----------------
Total Assets $ 9,202,261
=================
</TABLE>
See accompanying notes.
12
<PAGE> 13
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 774,701
Line-of-credit 1,347,961
Accounts payable 2,448,370
Billings in excess of costs and estimated
earnings on contracts in progress 419,552
Accrued expenses 281,354
-----------------
Total Current Liabilities 5,271,938
LONG-TERM DEBT:
Notes Payable - net of current portion of long-term debt 1,174,674
Notes Payable - related parties 130,920
---------------
Total Long-Term Debt 1,305,594
SHAREHOLDERS' EQUITY:
Common stock, no par value, 500 shares authorized,
225.50 shares issued and outstanding, stated at 22,550
Paid-in capital 429,853
Retained earnings 2,172,326
-----------------
Total Shareholders' Equity 2,624,729
-----------------
Total Liabilities and Shareholders' Equity $ 9,202,261
=================
</TABLE>
13
<PAGE> 14
STATEMENT OF SHAREHOLDERS' EQUITY
7-7, Inc.
For the Year Ended November 30, 1995
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
----------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at November 30, 1994 $ 23,775 $ 526,628 $ 1,650,033
Purchase of 12.25 shares of stock
for $1 per share (1,225) (96,775) 97,988
Net Income - - 424,305
----------------- ---------------- -----------------
Balance at November 30, 1995 $ 22,550 $ 429,853 $ 2,172,326
================= ================ =================
</TABLE>
See accompanying notes.
14
<PAGE> 15
STATEMENT OF INCOME
7-7, Inc.
For the Year Ended November 30, 1995
<TABLE>
<S> <C>
Revenue $ 18,172,410
Operating expenses 14,395,706
-----------------
Gross Profit 3,776,704
Selling, general and administrative expenses 3,081,957
-----------------
Income from Operations 694,747
Other Income (Expense):
Interest expense (290,016)
Loss on disposal of equipment (995)
Cash discounts (886)
Miscellaneous 25,775
-----------------
(266,142)
-----------------
Income before Provision for Income Taxes 428,605
Provision for city income taxes 4,300
-----------------
Net Income $ 424,305
=================
Income Per Share $ 1,806
=================
</TABLE>
See accompanying notes.
15
<PAGE> 16
STATEMENT OF CASH FLOWS
7-7, Inc.
For the Year Ended November 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 17,410,705
Cash paid to suppliers and employees (16,414,247)
Interest paid (290,016)
-----------------
Net Cash Provided by Operating Activities 706,442
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 28,000
Capital expenditures (1,043,146)
-----------------
Net Cash Used in Investing Activities (1,015,146)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line-of-credit 700,000
Additional borrowings 274,868
Principal payments on debt (719,589)
Purchase of company stock (12)
-----------------
Net Cash Provided by Financing Activities 255,267
-----------------
Decrease in Cash (53,437)
Cash and Cash Equivalents - December 1, 1994 155,803
-----------------
Cash and Cash Equivalents - November 30, 1995 $ 102,366
=================
</TABLE>
See accompanying notes.
16
<PAGE> 17
<TABLE>
<S> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATIONS:
Net income $ 424,305
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization 672,683
Loss on disposal of equipment 995
Changes in Assets and Liabilities:
Increase in accounts receivable (1,098,390)
Decrease In prepaid expenses and supplies inventory 17,020
Increase in accounts payable 227,775
Increase in billing in excess of costs and estimated earnings 419,552
Increase in accrued expenses 66,130
Increase in other assets (27,928)
Increase in income taxes payable 4,300
----------------
Total Adjustments 282,137
----------------
Net Cash Provided by Operating Activities $ 706,442
================
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
7-7, Inc.
November 30, 1995
1. Summary of Significant Accounting Principles
Business Description:
7-7, Inc., (the Company) provides comprehensive environmental services
including transportation, recovery and disposal of hazardous and
nonhazardous materials for industrial and governmental customers. The
Company operates and derives revenue from contracts in various states.
Revenue and Cost Recognition:
For financial reporting purposes, revenue on long-term service
contracts is recognized as income when earned, based upon the
Company's estimate of the percentage-of-completion on individual
contracts, which is determined by comparing actual costs incurred to
total estimated contract costs or based on the volume of waste
processed. Any changes in these estimates are reflected in income
currently. Related costs and expenses are charged to operations as
incurred. The total amount of estimated losses, if any, on
uncompleted contracts is provided when known. Billings in excess of
costs and estimated earnings of $419,552 represent billings on unit
priced contracts for which the units of waste have been removed from
the customers site and have not yet been completely processed. At
November 30, 1995, work-in-process on non unit based long-term fixed
price contracts was minimal.
Property and Equipment:
Property and equipment are carried at cost with expenditures for
maintenance and repairs charged to income as incurred. Asset costs and
the related accumulated depreciation on disposals are removed from the
respective accounts in the year of disposal and any gain or loss is
reflected in the income statement.
18
<PAGE> 19
The Company provides depreciation using the straight-line method over
the estimated useful life of the assets as follows:
<TABLE>
<CAPTION>
Life
-------------
<S> <C>
Building and improvements 27 Years
Licensed equipment 5 - 10 Years
Field Equipment 5 - 10 Years
Office furniture and fixtures 5 - 7 Years
</TABLE>
Depreciation expense for the year amount to $668,272.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles, Continued
Income Taxes:
Beginning December 1, 1992 the Company has elected to be treated as an
"S" Corporation whereby the income of the Company is taxed at the
shareholder level for Federal and state income tax purposes.
Accordingly, there is no provision for Federal or state income taxes.
Corporate Distribution Policy:
Management's policy is to distribute cash to its shareholders to at
least cover the tax effect of any income passed through to the
shareholders. No distributions were made during the current fiscal
year.
Cash Equivalents:
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
2. Line-of-Credit
The Company has a line-of-credit with a bank providing a maximum loan
facility of $2,500,000. The loan is due upon demand. All borrowings
under the loan agreement bear interest at the prime rate plus 1.5%,
are secured by accounts receivable, property and equipment, and are
guaranteed by several shareholders and the majority shareholder's
spouse. The Company has letters of credit totaling $105,000 which are
secured by this loan agreement and restrict the amount available to be
borrowed. At November 30, 1995 the Company has $2,100,000 borrowed
against the line-of-credit.
Subsequent to November 30, 1995, the Company refinanced borrowings on
its line-of-credit. The terms of the refinancing call for 48 monthly
payments of approximately $19,000. The notes bear interest at 9.5%.
The financial statements reflect the revised payment requirements (See
Note 4).
3. Accounts Receivable/Litigation
The Company has accounts receivable of $247,155 due under a contract
for which payment is being withheld pending the outcome of a lawsuit.
7-7, Inc. has filed suit against the general contractor and its
bonding company for $1,271,468. A counter claim of $311,250 has been
submitted to 7-7, Inc. by the general contractor.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
3. Accounts Receivable/Litigation, continued
During the year, the Company charged against the gross profit of the
contract $121,503 of costs previously deferred.
The ultimate outcome of this litigation cannot be determined at this
time. Accordingly, any gain or loss which may ultimately arise has
not been recorded in these financial statements.
4. During November, 1995 two major shareholders loaned $130,920 to the
Company. The unsecured notes are due December, 1996 with interest at
10%. No interest was paid or accrued on the notes during the year.
5. Long-term debt
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
Current Long-term
Portion Portion
-------------- --------------
<S> <C> <C>
Line-of-credit (See Note 2) $ 147,973 $ 604,066
Bank note payable in forty-eight principal installments of $15,208,
beginning January, 1994. The note bears interest at 1.5% over prime and
is secured by certain equipment. 182,500 197,708
Bank note payable in sixty principal installments of $7,920, beginning
March, 1992. The note bears interest at 1-3/4% over prime and is secured
by a blanket lien on all non-leased equipment.
95,040 30,816
Installment notes payable to financial institutions in varying monthly
installments, including interest at rates ranging from 6.9% to 14.5%
maturing through September, 2000, secured by certain equipment,
substantially all notes are guaranteed by a shareholder.
336,598 231,214
Mortgage note payable to bank with monthly payments of $2,079, including
interest at 10.5%, maturing in October, 2003, secured by land and
building. 12,590 110,870
------------- --------------
$ 774,701 $ 1,174,674
============== ==============
</TABLE>
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
5. Long-term Debt, Continued
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $ 774,701
1997 667,588
1998 299,539
1999 243,684
2000 40,976
Thereafter 53,807
---------------
$ 2,080,295
===============
</TABLE>
6. Lease Commitments
The Company leases various equipment and property under month-to-month
rental agreements and operating leases expiring through 1996. Total
rental expense for fiscal 1995 was $2,254,326. At November 30, 1995,
future commitments on leases with an initial term in excess of one
year are insignificant.
7. Insurance
The Company is presently covered by a general liability insurance plan
which includes $6,000,000 coverage for its transportation operations.
In addition, the Company has environmental impairment liability
insurance of $1,000,000 for its environmental services contracting
operations. Management believes it has obtained the types and
coverages needed to meet regulatory requirements. Several claims have
been filed against the Company which are covered by insurance. One
claim is in excess of insurance coverage. However, the company and
counsel believe that final settlement demands will be reduced below
the insurance limits.
8. Stock Buy-sell Agreement
In November 1992, stock buy-sell agreements were entered into by all
shareholders to ensure unity and continuity of control in the
ownership and management of the Company.
The Company will purchase the stock of a "key management employee"
upon termination of employment, for $1 if such event occurs within the
first five years of their employment agreement. After five years the
purchase price is based on a formula as stated in the buy-sell
agreement.
In addition, in the event of death, the Company shall purchase the
stock of all the shareholders, at a price based on a formula as stated
in the buy-sell agreement. Proceeds from life insurance policies
would fund a significant portion of the purchase price of the major
shareholders.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
9. Stock Purchase
During 1995, the Company repurchased and retired 12.25 shares of its
common stock for $1 per share.
10. Stock Option
The Company has granted stock options to two shareholders. The
agreement grants the right to purchase 11.5 shares at $8,000 per share
which approximates fair market value. The stock options expire the
earlier of termination of employment or January 1, 2010.
11. Operating Agreement
The Company has entered into an operating agreement to build and
operate a coal chemical recycling facility. The term of the agreement
is for five years beginning May, 1995, with a provision to extend the
term upon the mutual consent of the parties.
Costs incurred through November 30, 1995 for construction of the
facility amount to $587,318. The Company expects the total costs of
this facility to be approximately $1,050,000.
23
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
Board of Directors
7-7, Inc.
We have audited the accompanying balance sheet of 7-7, INC., as of November 30,
1994 and the related statements of income, retained earnings and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 7-7, Inc. as of November 30,
1994, and the results of its operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles.
As disclosed in Note 7 to the financial statements, the Company is involved in
a dispute on a contract. The ultimate outcome of the dispute cannot be
determined at this time. Accordingly, any gain or loss which may ultimately
arise has not been recorded in these financial statements.
/s/ Meaden & Moore, Inc.
MEADEN & MOORE, Inc.
Certified Public Accountants
January 5, 1995
Cleveland, Ohio
24
<PAGE> 25
BALANCE SHEET
7-7, Inc.
November 30, 1994
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and equivalents $ 155,803
Accounts receivable, net of allowance for
doubtful accounts of $50,000 3,581,923
Accounts receivable - other 109,531
Prepaid expenses and supplies inventory 81,759
-----------------
Total Current Assets 3,929,016
PROPERTY AND EQUIPMENT:
Land 30,000
Building and improvements 400,840
Licensed equipment 1,498,121
Field equipment 4,925,640
Office furniture and fixtures 124,618
-----------------
6,979,219
Less accumulated depreciation 3,283,513
-----------------
3,695,706
OTHER ASSETS:
Cash surrender value of officers' life insurance 121,012
Deposits 16,744
Prepaid expenses 43,014
-----------------
180,770
-----------------
Total Assets $ 7,805,492
=================
</TABLE>
The accompanying note to financial statements are an integral part hereof.
25
<PAGE> 26
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 702,109
Line-of-credit 1,400,000
Accounts payable 2,220,595
Accrued expenses 211,484
-----------------
Total Current Liabilities 4,534,188
LONG-TERM DEBT, net of current portion 1,070,868
SHAREHOLDERS' EQUITY:
Common stock, no par value, 500 shares authorized,
237.75 shares issued and outstanding, stated at 23,775
Paid-in capital 526,628
Retained earnings 1,650,033
-----------------
Total Shareholders' Equity 2,200,436
-----------------
Total Liabilities and Shareholders' Equity $ 7,805,492
=================
</TABLE>
26
<PAGE> 27
STATEMENT OF RETAINED EARNINGS
7-7, Inc.
For the Year Ended November 30, 1994
<TABLE>
<S> <C>
Balance at November 30, 1993 $ 1,929,644
Net loss (279,611)
----------------
Balance at November 30, 1994 $ 1,650,033
================
</TABLE>
The accompanying note to financial statements are an integral part hereof.
27
<PAGE> 28
STATEMENT OF INCOME
7-7, Inc.
For the Year Ended November 30, 1994
<TABLE>
<S> <C>
Revenue $ 11,576,816
Operating expenses 9,493,960
----------------
Gross Profit 2,082,856
Selling, general and administrative expenses 2,086,701
----------------
Loss from Operations (3,845)
Other Income (Expense):
Interest expense (288,543)
Loss on disposal of equipment (5,233)
Cash discounts (12,552)
Miscellaneous 29,442
----------------
(276,886)
----------------
Loss before Provision for Income Taxes (280,731)
Recovery of city income taxes (1,120)
----------------
Net Loss $ (279,611)
================
Loss per share $ (1,176)
================
</TABLE>
The accompanying note to financial statements are an integral part hereof.
28
<PAGE> 29
STATEMENT OF CASH FLOWS
7-7, Inc.
For the Year Ended November 30, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 9,703,774
Cash paid to suppliers and employees (9,468,645)
Interest paid (288,543)
Income taxes recovered 115,810
-----------------
Net Cash Provided by Operating Activities 62,396
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 85,100
Capital expenditures (493,313)
-----------------
Net Cash Used in Investing Activities (408,213)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line-of-credit 680,000
Additional borrowings 484,006
Principal payments on debt (772,982)
-----------------
Net Cash Provided by Financing Activities 391,024
-----------------
Increase in Cash 45,207
Cash and Cash Equivalents - December 1, 1993 110,596
-----------------
Cash and Cash Equivalents - November 30, 1994 $ 155,803
=================
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATIONS:
Net loss $ (279,611)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and amortization 548,880
Loss on disposal of equipment 5,233
Changes in Assets and Liabilities:
Increase in accounts receivable (1,822,522)
Increase in prepaid expenses and supplies
inventory (10,406)
Increase in accounts payable 1,599,220
Decrease in accrued expenses (89,013)
Increase in other assets (4,075)
Increase in income taxes recoverable (1,120)
Decrease in income tax deposits 115,810
------------------
Total Adjustments 342,007
-----------------
Net Cash Provided by Operating Activities $ 62,396
=================
</TABLE>
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
7-7, Inc.
November 30, 1994
1. Summary of Significant Accounting Principles
Business Description:
7-7, Inc., (the Company) provides comprehensive environmental services
including transportation, recovery and disposal of hazardous and
nonhazardous materials for industrial and governmental customers.
During the year the Company sold services to one customer which
amounted to 21% of revenues. The Company operates and derives revenue
from contracts in various states. Management believes the Company
operates in only one business segment.
Revenue and Cost Recognition:
For financial reporting purposes, revenues on long-term service
contracts are recognized as income when earned, based upon the
Company's estimate of the percentage-of-completion on individual
contracts, which is determined by comparing actual costs incurred to
total estimated contract costs or based on the volume of waste
processed. Any changes in these estimates are reflected in income
currently. Related costs and expenses are charged to operations as
incurred. The total amount of estimated losses, if any, on
uncompleted contracts is provided when known.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out
basis) or market. They consist of supplies used in operations.
Property and Equipment:
Property and equipment are carried at cost with expenditures for
maintenance and repairs charged to income as incurred. Asset costs and
the related accumulated depreciation on disposals are removed from the
respective accounts in the year of disposal and any gain or loss is
reflected in the income statement. Included in field equipment is
approximately $360,000 of equipment not placed in service at November
30, 1994.
31
<PAGE> 32
The Company provides depreciation using the straight-line
method over the estimated useful life of the assets as
follows:
<TABLE>
<CAPTION>
Life
-------------
<S> <C>
Building and improvements 27 Years
Licensed equipment 5 - 10 Years
Field Equipment 5 - 10 Years
Office furniture and fixtures 5 - 7 Years
</TABLE>
Depreciation expense for the year amount to $534,487.
32
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles, Continued
Income Taxes:
Beginning December 1, 1992 the Company has elected to be treated as an
"S" Corporation whereby the income of the Company is taxes at the
shareholder level for Federal and state income tax purposes.
Accordingly, there are no Federal or state income taxes.
Corporate Distribution Policy:
Management's policy is to distribute cash to its shareholders to at
least cover the tax effect of any income passed through to the
shareholders. No distributions were made during the current fiscal
year.
Cash Equivalents:
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
2. Line-of-Credit
The Company has a line-of-credit with a bank providing a maximum loan
facility of $2,500,000. The loan is due upon demand. All borrowings
under the loan agreement bear interest at the prime rate plus 1.5%,
are secured by accounts receivable, property and equipment, and are
guaranteed by several shareholders and the majority shareholder's
spouse. The Company has letters of credit totaling $137,200 which are
secured by this loan agreement and restrict the amount available to be
borrowed. At November 30, 1994 the Company has $1,400,000 borrowed
against the line-of-credit.
3. Accounts Receivable/Litigation
The Company has included in accounts receivable $121,503 of change
orders for work beyond the original scope of a contract.
The change orders have been disputed by the project owner and general
contractor. 7-7, Inc. has filed suit against the general contractor
and its bonding company for $1,271,468. A counter claim of $311,250
has been submitted to 7-7, Inc. by the general contractor.
In addition, the Company has accounts receivable of $227,580 due under
the original contract for which payment is being withheld pending the
outcome of this matter.
The ultimate outcome of this litigation cannot be determined at this
time. Accordingly, any gain or loss which may ultimately arise has
not been recorded in these financial statements.
33
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
4. Long-term debt
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
Current Long-term
Portion Portion
-------------- --------------
<S> <C> <C>
Bank note payable in forty-eight principal installments of $15,208,
beginning January, 1994. The note bears interest at 1.5% over prime and
is secured by certain equipment. $ 182,500 $ 380,208
Bank note payable in sixty principal installments of $7,920, beginning
March, 1992. The note bears interest at 1-3/4% over prime and is secured
by a blanket lien on all non-leased equipment.
95,040 125,856
Installment notes payable to financial institutions in varying monthly
installments, including interest at rates ranging from 6.9% to 14.5%
maturing through January, 1999, secured by certain equipment,
substantially all notes are guaranteed by a shareholder.
413,230 441,353
Mortgage note payable to bank with monthly payments of $2,079, including
interest at 10.5%, maturing in October, 2003, secured by land and
building. 11,339 123,451
-------------- --------------
$ 702,109 $ 1,070,868
============== ==============
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1995 $ 702,109
1996 585,519
1997 313,722
1998 72,716
1999 25,979
Thereafter 72,932
---------------
$ 1,772,977
===============
</TABLE>
34
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
5. Lease Commitments
The Company leases various equipment and property under month-to-month
rental agreements and operating leases expiring through 1995. Total
rental expense for fiscal 1994 was $741,430. At November 30, 1994,
future commitments on leases with an initial term in excess of one
year are insignificant.
6. Insurance
The Company is presently covered by a general liability insurance plan
which includes $6,000,000 coverage for its transportation operations.
In addition, the Company has environmental impairment liability
insurance of $1,000,000 for its environmental services contracting
operations. Management believes it has obtained the types and
coverages needed to meet regulatory requirements and is not aware of
any claim asserted against the Company which would have a material
effect on the financial position of the Company.
7. Stock Buy-sell Agreement
In November 1992, stock buy-sell agreements were entered into by all
shareholders to ensure unity and continuity of control in the
ownership and management of the Company.
The Company will purchase the stock of a "key management employee"
upon termination of employment, for $1 if such event occurs within the
first five years of their employment agreement, subsequently, at a
price based on a formula as stated in the buy-sell agreement.
In addition, in the event of death, the Company shall purchase the
stock of the two major shareholders, at a price based on a formula as
stated in the buy-sell agreement. Proceeds from life insurance
policies would fund a significant portion of the purchase price.
35
<PAGE> 36
(b) PRO FORMA FINANCIAL INFORMATION. The acquisition was accounted
for under the purchase method. The pro-forma results of operations for the
nine months ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
----------------------------------- ---------------------------------------
Exsorbet Exsorbet
Industries, Industries,
Inc. & Pro-forma Inc. & Pro-forma
Subsidiaries 7-7, Inc. Amounts Subsidiaries 7-7, Inc. Amounts
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . $ 22,419,265 $ 9,038,890 $31,458,155 $ 16,443,693 $12,655,812 $ 29,099,505
Net Income (Loss) . . . . . 2,066,332 (1,970,281) 96,051 707,111 332,710 1,039,821
Earnings per share . . . . 0.01 0.09
</TABLE>
36
<PAGE> 37
(c) EXHIBITS
2.1 Agreement and Plan of Merger dated August 5, 1996 by and among
Exsorbet Industries, Inc., an Idaho corporation, 7-7 Merger, Inc., 7-7, Inc.,
an Arkansas corporation, Calvin F. Lowe, Sr., Calvin F. Lowe, II, Gary Platek,
G. Howard Collingwood, James Hodgson and Edward Kurzenberger
10.1 Consulting Agreement of Calvin F. Lowe, Sr. dated September
30, 1996
10.2 Employment Agreement of Calvin F. Lowe, II, dated September
30, 1996
10.3 Employment Agreement of Gary Platek, dated September 30, 1996
10.4 Employment Agreement of G. Howard Collingwood dated August 5,
1996 (the parties have agreed to cause this agreement to be superseded by a new
agreement effective September 30, 1996)
10.5 Employment Agreement of James Hodgson, dated September 30,
1996
10.6 Employment Agreement of Edward Kurzenberger, dated September
30, 1996
10.7 Form of Promissory Note Payable to Individual 7-7, Inc.
Shareholders
10.8 Stock Purchase Agreement dated September 30, 1996 by and
between Exsorbet Industries, Inc., an Idaho corporation, and American
Physicians Service Group, Inc., a Texas corporation.
10.9 Stock Put Agreement dated September 30, 1996 by and between
Exsorbet Industries, Inc., an Idaho corporation, and American Physicians
Service Group, Inc., a Texas corporation.
10.10 Shareholder Rights Agreement dated September 30,1996 by and
between Exsorbet Industries, Inc., an Idaho corporation, and American
Physicians Service Group, Inc., a Texas corporation.
10.11 Stock Warrant dated September 30, 1996 from Exsorbet
Industries, Inc., an Idaho corporation, to American Physicians Service Group,
Inc., a Texas corporation.
10.12 Contingent Warrant dated September 30, 1996 from Exsorbet
Industries, Inc., an Idaho corporation, to American Physicians Service Group,
Inc., a Texas corporation.
10.13 No Contest Agreement dated September 30, 1996 by and between
Exsorbet Industries, Inc., an Idaho corporation, and American Physicians
Service Group, Inc., a Texas corporation.
37
<PAGE> 38
10.14 Form of Option Agreement dated September 30, 1996 by and
between individual shareholders of Exsorbet Industries, Inc., an Idaho
corporation, and American Physicians Service Group, Inc., a Texas corporation.
10.15 Assignment and Security Agreement dated September 30, 1996 by
and between Exsorbet Industries, Inc., an Idaho corporation, and Ameritech
Physician Service Group, Inc., a Texas corporation.
23.1 Consent of Meaden & Moore, Ltd.
99.1 Press Release of Exsorbet Industries, Inc. dated September 30,
1996 (The copy included with this filing was re-released on October 3, 1996
with correction for minor typographical errors).
38
<PAGE> 39
SIGNATURES
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 hereunto duly authorized.
EXSORBET INDUSTRIES, INC.
/s/ Edward L. Schrader
------------------------------
Edward L. Schrader
President
Date: November 27, 1996
39
<PAGE> 40
EXHIBIT INDEX
2.1 Agreement and Plan of Merger dated August 5, 1996 by and among
Exsorbet Industries, Inc., an Idaho corporation, 7-7 Merger, Inc., 7-7, Inc.,
an Arkansas corporation, Calvin F. Lowe, Sr., Calvin F. Lowe, II, Gary Platek,
G. Howard Collingwood, James Hodgson and Edward Kurzenberger
10.1 Consulting Agreement of Calvin F. Lowe, Sr. dated September
30, 1996
10.2 Employment Agreement of Calvin F. Lowe, II, dated September
30, 1996
10.3 Employment Agreement of Gary Platek, dated September 30, 1996
10.4 Employment Agreement of G. Howard Collingwood dated August 5,
1996 (the parties have agreed to cause this agreement to be superseded by a new
agreement effective September 30, 1996)
10.5 Employment Agreement of James Hodgson, dated September 30,
1996
10.6 Employment Agreement of Edward Kurzenberger, dated September
30, 1996
10.7 Form of Promissory Note Payable to Individual 7-7, Inc.
Shareholders
10.8 Stock Purchase Agreement dated September 30, 1996 by and
between Exsorbet Industries, Inc., an Idaho corporation, and American
Physicians Service Group, Inc., a Texas corporation.
10.9 Stock Put Agreement dated September 30, 1996 by and between
Exsorbet Industries, Inc., an Idaho corporation, and American Physicians
Service Group, Inc., a Texas corporation.
10.10 Shareholder Rights Agreement dated September 30,1996 by and
between Exsorbet Industries, Inc., an Idaho corporation, and American
Physicians Service Group, Inc., a Texas corporation.
10.11 Stock Warrant dated September 30, 1996 from Exsorbet
Industries, Inc., an Idaho corporation, to American Physicians Service Group,
Inc., a Texas corporation.
10.12 Contingent Warrant dated September 30, 1996 from Exsorbet
Industries, Inc., an Idaho corporation, to American Physicians Service Group,
Inc., a Texas corporation.
10.13 No Contest Agreement dated September 30, 1996 by and between
Exsorbet Industries, Inc., an Idaho corporation, and American Physicians
Service Group, Inc., a Texas corporation.
<PAGE> 41
10.14 Form of Option Agreement dated September 30, 1996 by and
between individual shareholders of Exsorbet Industries, Inc., an Idaho
corporation, and American Physicians Service Group, Inc., a Texas corporation.
10.15 Assignment and Security Agreement dated September 30, 1996 by
and between Exsorbet Industries, Inc., an Idaho corporation, and Ameritech
Physician Service Group, Inc., a Texas corporation.
23.1 Consent of Meaden & Moore, Ltd.
99.1 Press Release of Exsorbet Industries, Inc. dated September 30,
1996 (The copy included with this filing was re-released on October 3, 1996
with correction for minor typographical errors).
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (hereinafter "Agreement") is entered into
as of this 5th day of August, 1996, by and among 7-7, INC., an Ohio corporation
with its principal place of business being 607 Freedlander Road, Wooster, Ohio
66791 (the "Target Corporation"), CALVIN F. LOWE, SR., CALVIN F. LOWE, II,
EDWARD KURZENBERGER, GARY PLATEK, JAMES HODGSON, and G. HOWARD COLLINGWOOD,
(together the "Shareholders" and individually a "shareholder"), EXSORBET
INDUSTRIES, INC., an Idaho corporation with its principal place of business
being 4294 Lakeland Drive, Suite 200, Jackson, Mississippi 39208 (and having
further offices at 1401 South Waldron Road, Suite 201, Fort Smith, Arkansas
72903) (hereinafter "Exsorbet") and 7-7 MERGER, INC., an Arkansas corporation
and a wholly owned subsidiary of Exsorbet (hereinafter the "Merger Sub").
RECITALS
A. The Target Corporation is engaged in the business of environmental
site remediation, hazardous waste transportation, removal and disposal and
liquiefication of coal tars (all of which, taken together, are hereinafter
referred to as the "Business").
B. Each of the directors of Target Corporation, Merger Sub, and Exsorbet
has determined that it is in the best interest of its respective shareholders
for Target Corporation to merge with and into Merger Sub upon the terms and
subject to the conditions of this Agreement (the "Merger").
C. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
D. Target Corporation, Merger Sub, Exsorbet, and Shareholders desire to
make certain representations, warranties, covenants and agreements in
connection with the Merger.
IT IS, THEREFORE, AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. BASIC TRANSACTION
(a) The Merger. Subject to the terms and conditions of this Agreement, at
the effective time, the Target Corporation will be merged with and into Merger
Sub in accordance with the provisions of Ark. Code Ann. Section 4-26-1006 with
the effect provided in such section and in accordance with the provisions of
Section 1701/79 of the Ohio General Corporation Law, with the effect provided in
such section. The separate corporate existence of the Target Corporation shall
thereupon cease and Merger Sub shall be the surviving corporation of the Merger
(the "Surviving
<PAGE> 2
Corporation") and shall continue to be governed by the laws of the State of
Arkansas.
(b) Effective Date. The Merger shall become effective on the date and at
the time (the "Effective Time") that the Articles of Merger shall have been
accepted for filing by the Secretary of State of the State of Arkansas and the
Secretary of State of the State of Ohio (or such later date and time as may be
specified in the Articles of Merger), which shall be the Closing Date as
provided in this Agreement.
(c) Article of Incorporation. The Articles of Incorporation of Merger Sub
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and of the Arkansas Business Corporation Act.
(d) By-Laws. The By-Laws of Merger Sub as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation, until
duly amended in accordance with the terms thereof, of the Surviving
Corporation's Articles of Incorporation of the Arkansas Business Corporation
Act.
(e) Directors. The Directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and By-Laws.
Provided, however, such directors of the Surviving Corporation shall act
promptly after the Effective Time to increase the number of directors of the
Surviving Corporation and to appoint one (1) new director. The individual
selected by Shareholders shall be nominated to serve on the Board for a minimum
period of five (5) years. Further, such individual shall also be nominated to
serve on the Board of Exsorbet.
(f) Officers. From and after the Effective Time, the following persons
shall be officers of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and By-Laws: (i) Calvin F. Lowe, II -- president; (ii) Edward
Kurzenburger -- vice-president and chief financial officer; and (iii) G. Howard
Collingwood -- secretary.
2. Conversion of Shares in the Merger; Purchase Price.
(a) Shareholders covenant and warrant that, upon execution of this
Agreement and continuing until the closing, they are the sole and exclusive
direct owners of all outstanding stock of all classes of Target Corporation and
that no other person, persons, or entities are entitled to claim any interest
whatsoever (whether direct, indirect, beneficially, by security interest, lien,
mortgage or otherwise) in any of the shares of stock of any class of the Target
Corporation. Each
2
<PAGE> 3
of the shareholders further covenants and warrants that no current or former
spouse of any Shareholders is entitled to claim any interest in any of the
shares of stock of the Target Corporation, by statute, property division,
through community property laws, or otherwise.
(b) The entire unauthorized capital stock of the Target Corporation
consists of five hundred (500) shares of common stock, of which Two Hundred
Thirty-Seven (237) shares are issued and outstanding. No treasury shares are
held. All the issued and outstanding shares of stock of all classes of the
Target Corporation have been duly authorized, are validly issued, fully paid,
and nonassessable and are held of record by the Shareholders.
(c) All of the Target Corporation shares issued, outstanding and owned by
Shareholders immediately prior to the Effective Time, by virtue of the Merger
and without any action on the Shareholders' part, shall be exchanged for (i)
that number of shares of Exsorbet Common Stock that, valued at the Average
Closing Market Price for the time period between June 4, 1996 and ending ten
days prior to the date of execution of this Agreement, is equivalent to Three
Million Two Hundred Fifty Thousand Dollars ($3,250,000.00); (ii) cash in the
amount of Three Million Dollars ($3,000,000.00) to be paid by check, draft, or
negotiable instrument made payable to all Shareholders as indicated below; and
(iii) a subordinated note in the sum of Nine Hundred Thousand Dollars
($900,000.00) in the form as is attached hereto as Exhibit "A." Such Note
will be amortized over a five (5) year period and shall bear interest at a rate
of eight percent (8%) per annum. A copy of the amortization schedule for such
note is attached hereto as Exhibit "B." As used herein, the term "Purchase
Price" shall refer to the shares of stock of Exsorbet Industries, Inc., the
cash supplied to the Shareholders, and the subordinated note, all as identified
in the section.
(d) For the purposes of determining and paying the Merger consideration:
(i) "Average Closing Market Price" means the final sale or trading
price of Exsorbet Common Stock on the Nasdaq Stock Market, Inc. small
cap market at the close of such stock market on any given date. The
determination of the closing trade price by Bloomberg, L.P. shall be
conclusive.
(ii) "Stock" means the total number of shares of Exsorbet Common
Stock issued pursuant to Subparagraph 2(c).
(e) All shares of the Target Corporation to be exchanged for Exsorbet
Common Stock pursuant to this Section 2, shall cease to be outstanding, shall
be canceled and retired and shall cease to exist, and each holder of a stock
certificate representing any such Target Corporation Shares shall thereafter
cease to have any rights with respect to such Target Corporation Shares, except
the right to receive for each of the Target Corporation Shares, upon the
surrender of such stock certificate in Accordance with this Section, the number
of shares of Exsorbet Common Stock
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specified above, together with the cash portion of the Purchase Price.
(f) Each of the Shareholders, being all shareholders of 7-7, Inc., waives
any and all rights that a dissenter may possess pursuant to the laws of the
State of Ohio, or of any State, or of the United States to obtain any payment,
compensation, or other consideration by virtue of failing to consent to the
merger of 7-7, Inc. with 7-7 Merger, Inc.
3. Form of Consideration.
(a) At the Effective Time, each Shareholder shall surrender to the
Surviving Corporation all outstanding certificates representing Target
Corporation Shares together with stock powers duly endorsed in blank with
signatures appropriately guaranteed, and shall thereupon receive, in exchange
therefore, his pro rata share of the Purchase Price. Until such surrender,
each of the outstanding certificates representing Target Corporation Shares
shall, after the Effective Time, be deemed for all purposes to evidence only a
right to receive a pro rata portion of the Purchase Price as follows: Calvin
F. Lowe, Sr. -- 33.333%; Calvin F. Lowe, II -- 36.287%; Edward Kurzenberger --
7.595%; G. Howard Collingwood -- 7.595%; Gary Platek -- 7.595%; and James
Hodgson -- 7.595%.
(b) The Purchase Price shall be paid as follows:
(i) The cash consideration call for in Article 2(c) herein shall be
paid at Closing.
(ii) The stock consideration shall be exchanged and issued at Closing.
(iii) The delivery of the Promissory Note referred to in Article 2(c)
shall take place at closing. Said Promissory Note shall consist of
six (6) separate Promissory Notes payable to each of the six
individual shareholders, pro rata.
(c) No fractional share of Exsorbet Common Stock shall be issued in the
Merger. In lieu of any such fractional shares, each holder of Target
Corporation Shares who would otherwise have been entitled to a fraction of a
share of Exsorbet Common Stock upon surrender of stock certificates for
exchange pursuant to this Article 3 shall be entitled to receive an amount in
cash (without interest) equal to the last reported sale price of one share of
Exsorbet Common Stock on the NASDAQ Small Cap Market on the last business day
prior to the Closing Date, multiplied by such fraction.
(d) Stock Registration. At the request of any Shareholder, the Merger Sub
shall begin the "process of registration" of all the shares of common (capital)
stock of Exsorbet Industries, Inc. provided to the Shareholders under this
Agreement. No Shareholder shall be obligated to allow
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<PAGE> 5
his shares of stock to be registered. However, failure to participate in the
registration process will result in waiving of the right to register the shares
of stock at the expense of the Merger Sub. The obligations of the Merger Sub
in the process of registration shall be: (i) paying the costs and expenses
(including attorney's fees and filing fees with the United States Securities
and Exchange Commission) for filing a registration statement; (ii) providing
such information and cooperation as is reasonably requested by the Shareholders
or the attorneys filing the registration statement; (iii) execute such lawful
documentation as is necessary to effectuate registration; and (iv) take all
other action reasonably requested by the Shareholders or the attorneys
registering the shares of stock, to register the shares of stock. The
attorneys handling the registration process shall determine the type of
registration to be sought. No Shareholder may sell more than fifty percent
(50%) of his shares of stock obtained pursuant to this Agreement within one
year after the date of this Agreement, even if all shares are registered.
(e) Stock of the Target Corporation. At closing, the Shareholders will
deliver to the Merger Sub certificates representing all of the shares of stock
of any class of the Target Corporation, representing all shares of stock of any
class of the Target Corporation. At such time, the Shareholders shall execute
such certificates and take such action as is required to transfer such shares
of stock to Merger Sub. In the event that the Target Corporation utilizes the
service of an agent for transfer of shares of certificates of the Target
Corporation, the Shareholders shall designate the name, address, and telephone
number of such agent in a writing signed by Merger Sub and attached to this
Agreement.
(f) Other Documents. Contemporaneously with the execution of this
Agreement, Merger Sub shall deliver to the Shareholders all documents,
certificates, and exhibits as are specified herein. At the same time,
Shareholders shall deliver to the Merger Sub all documents, certificates, and
exhibits as are specified herein. Each party warrants and represents the
accuracy and truthfulness of all such documents.
4. Time of Closing. As used herein, the term "closing" refers to that
time when all parties to this Agreement exchange and provide the documentation,
exhibits, and consideration that is required under this Agreement. Closing
shall take place at the Effective Time, as defined above, at a mutually
agreeable location no later than August 31, 1996. At the option of the Merger
Sub, closing may occur upon five days written notice by the Merger Sub to the
Shareholders. In the event that a location for closing cannot be agreed upon,
closing shall occur at the facilities of 7-7, Inc.
5. Overseas Market. 7-7, Inc. shall be allowed reasonable flexibility in
pursuing overseas markets, provided the markets are commercially reasonable.
6. Nomination to Board of Directors. The board of directors of Exsorbet
Industries, Inc. will create a new position on its board of directors. An
individual selected by Shareholders shall be nominated to serve on the board
for a minimum period of five years.
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7. Confidentiality. Each of the parties, and their employees, agents,
officers, and directors shall keep confidential all information acquired
concerning the operation of 7-7, Inc. and Exsorbet Industries, Inc. prior to
merger unless such information is already publicly available, is subsequently
made publicly available without a breach of this Agreement, or is generally
known. The provisions of this paragraph shall not prohibit the release of such
information as is necessary to provide a press release concerning the proposed
merger of 7-7, Inc. with 7-7 Merger, Inc. Additionally, a copy of this
Agreement and any other agreements between the parties may be filed with Form
8-K, or any other filings, with the United States Securities and Exchange
Commission.
8. Representations and Warranties.
(a) Representations and Warranties of the Shareholders. Each of the
Shareholders jointly and severally represents and warrants to the Merger Sub
that the statements contained in this section are correct and complete as of
the date of this Agreement and will continue to be true at merger.
(i) Organization of Target Corporation. The Target Corporation is duly
organized, validly existing, and in good standing under the laws of the
State of Ohio. The Target Corporation is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where
such qualification is required, except where the lack of such qualification
would not have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Target Corporation. The Target Corporation has full corporate power and
authority to carry on the businesses in which it is engaged and to use the
properties used by it. A list of the officers and directors of the Target
Corporation is attached hereto as Exhibit "C."
(ii) Capitalization.
(a) The entire authorized capital stock of 7-7, Inc. consists of Five
Hundred (500) shares of common stock, of which Two Hundred Thirty
Seven (237) shares are issued and outstanding. No treasury shares are
held. All of the issued and outstanding shares of stock of all
classes of the Target Corporation has been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record
by the Shareholders. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
the Target Corporation to issue, sell, or otherwise cause to become
outstanding any of its stock of any class. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation,
or similar rights with respect to the Target
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Corporation. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of
the Target Corporation. The Shareholders directly own all of the
issued and outstanding stock of all classes of the Target Corporation,
free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws and as
otherwise stated in a Buy-Sell Agreement dated November, 1992, a copy
of which is attached hereto as Exhibit "D"), taxes, security
interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Shareholders are not a party to
any option, warrant, purchase right, or other contract or commitment
that could require the Shareholders to sell, transfer, or otherwise
dispose of any stock of the Target Corporation. The Shareholders are
not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any stock of the Target
Corporation. The Buy-Sell Agreement specified above shall terminate
as of the merger of the Target Corporation with the Merger Sub.
(b) There are in existence certain stock option agreements existing by
and between the individual Shareholders. These stock options will be
exercised prior to merger. All proceeds received from the exercise of
such options will be paid to the Target Corporation. The exercise of
such stock options will not change any terms of this Agreement, will
not increase the number of shareholders of the Target Corporation, and
will not add a new shareholder or shareholders of the Target
Corporation.
(iii) Authorization of Transaction. The Shareholders have full power and
authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes valid and legally binding
obligations of the Shareholders, enforceable in accordance with its terms
and conditions. The Shareholders need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iv) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Shareholder or the
Target Corporation is subject; or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create
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in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which either Shareholder or the Target
Corporation is a party or by which either Shareholder or the Target
Corporation is bound or to which any of the assets of either Shareholder or
the Target Corporation is subject. Notwithstanding the provisions of this
subsection, the Shareholders will provide the Merger Sub with copies of all
of the Target Corporation's material lease, promissory notes, and other
obligations prior to merger for which prior notice or consent of a creditor
may be required to effectuate the signing of this Agreement.
(v) Brokers' Fees. The Shareholders have no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Merger Sub could
become liable or obligated.
(vi) Investment. The Shareholders (A) understand that, at the time of
issuance, the restricted common stock of Exsorbet Industries, Inc.,
provided as a portion of the consideration for this Agreement, has not been
registered under the Securities Act, or under any state securities laws,
and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering; (B) are
acquiring the restricted common stock solely for their own account for
investment purposes, and not with a view to the immediate distribution
thereof; (C) are sophisticated investors with knowledge and experience in
business and financial matters; (D) have received certain information
concerning the Merger Sub and have had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks
inherent in holding the restricted common stock; and (E) are able to bear
the economic risk and lack of liquidity inherent in holding the restricted
common stock.
(vii) Assets of the Target Corporation. The Target Corporation has good
and marketable title to the properties and assets used by it, located on
its premises, or shown on the most recent balance sheet or acquired after
the date thereof, free and clear of all security interests, except for
properties and assets disposed of in the ordinary course of business since
the date of the most recent balance sheet. Shareholders warrant that no
other person or entity is entitled to claim a mortgage interest, security
interest, or otherwise claim a right to possession of the real or personal
property utilized by the Target Corporation, except as is disclosed in
Exhibit "E," attached hereto.
(viii) Pending Litigation Concerning Property. There are no pending or,
to the knowledge of any of the Shareholders and the directors and officers
of the Target Corporation, threatened condemnation proceedings, lawsuits,
or administrative
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actions relating to the real and personal property utilized by the Target
Corporation. All real property improvements utilized by the Target
Corporation have received all required approvals of governmental
authorities (including material licenses and permits) required in
connection with the ownership or operation thereof, and have been operated
and maintained in accordance with applicable laws, rules, and regulations
in all material respects.
(ix) Agreement to Merge. Merger of the Target Corporation and Merger Sub
will take place as is specified above. Each of the parties to this
Agreement consents to such merger. The merger shall qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
(x) Financial Statements. Attached hereto as Exhibit "F" are the following
financial statements (collectively the "financial statements"): (i) audited
consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended
November 30, 1993, 1994, and 1995, and unaudited financial statements for
the six months ended May 30, 1996, which are maintained in accordance with
generally accepted accounting procedures, for the Target Corporation. The
financial statements (including the notes thereto) have been prepared in
accordance with generally accepted accounting principles in effect in the
United States applied on a consistent basis throughout the periods covered
thereby and present fairly the financial condition of the Target
Corporation as of such dates and the results of operations of the Target
Corporation for such periods.
(xi) Events Subsequent to Most Recent Fiscal Year End. Since May 31, 1996,
there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Target Corporation taken as a whole. (As used in this paragraph, the term
"material" shall mean a change in an amount equal to more than ten percent
of the total consideration provided under this Agreement to the
Shareholders.) Without limiting the generality of the foregoing, since
that date:
(a) the Target Corporation has not sold, leased, transferred, or
assigned any material assets, tangible or intangible, outside the
ordinary course of business;
(b) the Target Corporation has not entered into any material
agreement, contract, lease, or license outside the ordinary course of
business;
(c) no party (including the Target Corporation) has accelerated,
terminated, made material modifications to, or canceled any material
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<PAGE> 10
agreement, contract, lease, or license to which the Target Corporation
is a party or by which any of them is bound;
(d) the Target Corporation has not imposed any security interest upon
any of its assets, tangible or intangible, outside the ordinary course
of business;
(e) the Target Corporation has not made any material capital
expenditures outside the ordinary course of business;
(f) the Target Corporation has not made any material capital
investment in, or any material loan to, any other person or entity
outside the ordinary course of business;
(g) the Target Corporation has not created, incurred, assumed, or
guaranteed any debt outside the ordinary course of business;
(h) the Target Corporation has not granted any license or sublicense
of any material rights under or with respect to any "intellectual
property," as defined below;
(i) there has been no change made or authorized in the charter or
by-laws of the Target Corporation;
(j) the Target Corporation has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock, except that options
to acquire 5.75 shares of capital stock of the Target Corporation have
been granted to individual Shareholders Gary Platek and James Hodgson,
which will be exercised prior to merger, as indicated above [the
percentage ownership of the shares of stock of the Target Corporation
computed above have considered that such options have already been
exercised];
(k) the Target Corporation has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(l) the Target Corporation has not experienced any material, damage,
destruction, or loss (whether or not covered by insurance) to its
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property;
(m) the Target Corporation has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees outside the ordinary course of business;
(n) the Target Corporation has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement, except
as is disclosed in Exhibit "G," attached hereto;
(o) the Target Corporation has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the ordinary course of business;
(p) the Target Corporation has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other employee benefit plan);
(q) the Target Corporation has not made any other material change in
employment terms for any of its directors, officers, and employees
outside the ordinary course of business; and
(r) the Target Corporation has not obligated or promised to take any
of the actions specified in the subparagraphs above.
(xii) Undisclosed Liabilities. The Target Corporation has not incurred
any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due,
including any liability for taxes), except for (i) liabilities set forth on
the face of the most recent balance sheet (rather than in any notes
thereto) and (ii) liabilities which have arisen after the most recent
fiscal month end in the ordinary course of business. However,
contingencies attached hereto as Exhibit "H" are known contingencies that
existed prior to Merger for which no indemnification will be provided by
Shareholders. Any unrecorded liabilities prior to Merger which were not
the result of the contingencies identified on the exhibited specified in
this subsection are liabilities for which indemnity to the Merger Sub and
Exsorbet will be provided, as specified below, for a period of two years
following Merger.
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(xiii) Legal Compliance. The Target Corporation has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal,
state, local, and foreign governments (and all agencies thereof), and no
facts have occurred which would form the basis for any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand on,
against, or involving the Target Corporation.
(xiv) Tax Matters.
(a) The Target Corporation has filed all Income Tax Returns that it
was required to file. All such Income Tax Returns were correct and
complete in all material respects. All Income Taxes owed by the Target
Corporation (whether or not shown on any Income Tax Return) have been
paid. The Target Corporation is not the beneficiary of any extension
of time within which to file any Income Tax Return.
(b) There is no material dispute or claim concerning any Income Tax
liability of the Target Corporation either (A) claimed or raised by
any authority in writing or (B) as to which any of the Shareholders
and the directors and officers of the Target Corporation has Knowledge
based upon personal contact with any agent of such authority.
(c) Attached hereto as Exhibit "I" is a disclosure listing all
federal, state, local, and foreign Income Tax Returns filed with
respect to the Target Corporation for which an audit has been
conducted or the Target Corporation have been notified that an audit
will be conducted. The Shareholders have delivered to the Merger Sub,
or allowed the Merger Sub to inspect, correct and complete copies of
all federal Income Tax Returns, examination reports, and statements of
deficiencies assessed against, or agreed to by the Target Corporation
for the time periods through and including November 30, 1995. The
Target Corporation has not waived any statute of limitations in
respect of Income Taxes or agreed to any extension of time with
respect to an Income Tax assessment or deficiency.
(d) The Target Corporation has not filed a consent under Internal
Revenue Code Section 341(f) concerning collapsible corporations. The
Target Corporation has not made any material payments, is obligated to
make any material payments, or is a party to any agreement that under
certain circumstances could obligate it to make any material
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payments that will not be deductible under Internal Revenue Code
Section 280G. The Target Corporation has not been a United States
real property holding corporation within the meaning of Internal
Revenue Code Section 897(c)(2) during the applicable period specified
in Internal Revenue Code Section 897(c)(1)(A)(ii). The Target
Corporation is not a party to any tax allocation or sharing agreement.
The Target Corporation (A) has not been a member of an affiliated
group filing a consolidated federal Income Tax Return (other than a
group the common parent of which was the Target Corporation) and (B)
has no liability for the taxes of any Person (other than the Target
Corporation) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(e) The Target Corporation is a subchapter S corporation, and neither
the Target Corporation nor any of the Shareholders has taken any
action which has, or could result in, revocation of such status prior
to execution of this Agreement. The Target Corporation has not, and
will not, take any action on or after July 1, 1996 which would
materially affect its financial statements or the financial status of
the Target Corporation.
(xv) Intellectual Property.
(a) The term "intellectual property" as used herein refers to: (i)
all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (ii) all trademarks, service
marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith,
(iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (iv) all mask
works and all applications, registrations, and renewals in connection
therewith, (v) all trade secrets and confidential business information
(including ideas, research and development, know- how, formulas,
compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and
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business and marketing plans and proposals), (vi) all computer
software (including data and related documentation), (vii) all other
proprietary rights, and (viii) all copies and tangible embodiments
thereof (in whatever form or medium);
(b) The Target Corporation has not interfered with, infringed upon,
misappropriated, or violated any material "Intellectual Property"
rights of third parties in any material respect, and none of the
Shareholders and the directors and officers of the Target Corporation
has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Target Corporation must
license or refrain from using any "Intellectual Property" rights of
any third party). To the knowledge of any of the Shareholders and the
directors and officers of the Target Corporation, no third party has
interfered with, infringed upon, misappropriated, or violated any
material "Intellectual Property" rights of the Target Corporation in
any material respect.
(c) No patent or registration has been issued to Target Corporation
with respect to any of its "Intellectual Property," except for patent
numbers 4,788,115, 4,579,563, and 4,758,246 issued by the United
States Patent Office ("the patents"). The patents are, and shall
remain, the property of the Target Corporation, subject only to a
settlement agreement which has been provided to the Merger Sub. No
further applications for patents have been made for any additional
Intellectual Property. No third party has been granted any right,
license, or agreement to use any of the "Intellectual Property" of the
Target Corporation, except as stated in the confidential settlement
agreement. The Target Corporation possesses all right, title, and
interest to all "Intellectual Property" used by it, without
restriction by any contract, court order, or governmental authority.
(xvi) Inventory. The Target Corporation has no major inventory, except for
feedstock and processed tar products.
(xvii) Contracts. Attached hereto as Exhibit "J" is a list of all
contracts and agreements to which the Target Corporation is a party. Such
list may exclude any non-material contract creating an obligation on the
Target Corporation in an amount less than Two Thousand Five Hundred Dollars
($2,500.00). Such list shall specifically include: all partnership and
joint venture agreements; contracts of indemnity; confidentiality
agreements; any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material
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plan or arrangement for the benefit of its current or former directors,
officers, and employees; any collective bargaining agreement; any agreement
for the employment of any individual on a full-time, part-time, consulting,
or other basis providing annual compensation in excess of Two Thousand Five
Hundred Dollars ($2,500.00) or providing material severance benefits; any
agreement under which either Target Corporation has advanced or loaned any
amount to any of its directors, officers, and employees outside the
ordinary course of business; or any agreement under which the consequences
of a default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or future
prospects of the Target Corporation.
(xviii) Notes and Accounts Receivable. Except as disclosed in Exhibit "K,"
all notes and accounts receivable of the Target Corporation are reflected
properly on their books and records, are valid receivables subject to no
setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the face of the most recent
balance sheet (rather than in any notes thereto) as adjusted for operations
and transactions through the merger date in accordance with the past custom
and practice of the Target Corporation.
(xix) Powers of Attorney. To the knowledge of any of the Shareholders and
the directors and officers of the Target Corporation, there are no material
outstanding powers of attorney executed on behalf of the Target
Corporation.
(xx) Insurance. Exhibit "L" attached hereto is a list of each material
insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety
arrangements) with respect to which the Target Corporation is a party, a
named insured, or otherwise the beneficiary of coverage.
(xxi) Litigation. Exhibit "M," attached hereto is a list of each instance
in which the Target Corporation (a) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (b) is a party
or, to the knowledge of any of the Shareholders and the directors and
officers of the Target Corporation, is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator.
(xxii) Employees. To the knowledge of any of the Shareholders and the
directors and officers of the Target Corporation, no executive, key
employee, or significant group of employees plans to terminate employment
with the Target Corporation during the next 12 months. The Target
Corporation is a party to and bound by a
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collective bargaining agreement, has not experienced any strike or material
grievance, claim of unfair labor practices, or other collective bargaining
dispute within the past three years. The Target Corporation has not
committed any material unfair labor practice. None of the Shareholders and
the directors and officers of the Target Corporation has any knowledge of
any organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of the Target
Corporation.
(xxiii) Employee Benefits. Each such Employee Benefit Plan (and each
related trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(xxiv) Guaranties. The Target Corporation is not a guarantor or otherwise
is responsible for any liability or obligation (including indebtedness) of
any other person or entity.
(xxv) Environment, Health, and Safety.
(a) As used in this section, the term "Environmental, Health, and
Safety Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, and the Occupational Safety and Health Act of
1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee
health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants,
or chemical, industrial, hazardous, or toxic materials or wastes.
(b) Except as disclosed in Exhibit "H," the Target Corporation (A) has
complied with the Environmental, Health, and Safety Laws in all
material respects (and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any such failure to
16
<PAGE> 17
comply), (B) has obtained and been in substantial compliance with all
of the terms and conditions of all material permits, licenses, and
other authorizations which are required under the Environmental,
Health, and Safety Laws, and (C) has complied in all material respects
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables
which are contained in the Environmental, Health, and Safety Laws.
(c) The Target Corporation will not have any known material
liabilities pursuant to any Environmental, Health, and Safety Laws at
the time of merger. It is understood that the Target Corporation is
in the business of handling and arranging for disposal of various
substances. The Target Corporation represents that the prior handling
and disposal services performed were performed in compliance with
Environmental, Health and Safety Laws in effect at the time such
services were performed.
(d) It is understood that the Target Corporation is in the business of
transporting, handling, and processing hazardous materials and
hazardous wastes, and that the properties and equipment utilized by it
may contain or temporarily store such materials as is required to
perform these services. The Shareholders are not aware of any
information that would indicate that the Target Corporation is
presently exposed to any liability whatsoever arising as a result of
transporting, handling, or processing such hazardous materials and
hazardous wastes.
(b) Representations and Warranties of the Merger Sub and Exsorbet. The
Merger Sub and Exsorbet represent and warrant to the Shareholders that the
statements contained in this section are correct and complete as of the date of
this Agreement and will continue to be true at merger.
(i) Organization of the Merger Sub and Exsorbet. Exsorbet Industries, Inc.
is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Idaho. 7-7 Merger, Inc. is a wholly owned
subsidiary of Exsorbet Industries, Inc. and is duly organized, validly
existing, and in good standing under the laws of the State of Arkansas.
(ii) Authorization of Transaction. The Merger Sub has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Merger Sub, enforceable in accordance with its terms and conditions. The
Merger Sub need not give any notice to, make any filing
17
<PAGE> 18
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Merger Sub or
Exsorbet is subject or any provision of its charter or bylaws.
(iv) Brokers Fees. The Merger Sub and Exsorbet have no liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
any Shareholder could become liable or obligated.
(v) Investment. The Merger Sub is not obtaining the Target Corporation
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of any securities laws.
9. Post-Merger Covenants. The parties agree as follows with respect to the
period after execution of this Agreement.
(a) General. In case at any time after the execution of this Agreement,
any further action is necessary to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party unless such action was specifically required under the terms of this
Agreement. The Shareholders acknowledge and agree that from and after the
Merger the Merger Sub will be entitled to possession of all documents, books,
records (including tax records), agreements, and financial data of any sort
relating to the Target Corporation.
(b) Litigation Support. In the event and for so long as any party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the merger date
involving the Target Corporation, each of the other parties will cooperate with
him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party.
18
<PAGE> 19
(c) Transition. Neither of the Shareholders will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Target Corporation from
maintaining the same business relationships with the Target Corporation after
the merger as it maintained with the Target Corporation prior to the merger.
(d) Removal of Personal Guarantees. The Merger Sub and Exsorbet will use
their best efforts to effectuate the removal of any personal guarantees by the
Shareholders for debts of the Target Corporation guaranteed individually by the
Shareholders. Such attempts will take place within 180 days after merger.
10. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Merger Subs and Shareholders contained herein shall
survive the merger hereunder (even if the aggrieved party knew or had reason to
know of any misrepresentation or breach of warranty at the time of merger) and
continue in full force and effect for a period of two years thereafter.
(b) Indemnification Provisions for the Benefit of the Merger Sub and
Exsorbet. In the event any of the Shareholders breaches any of their
representations, warranties, or covenants contained herein, then each of the
Shareholders agrees to indemnify the Merger Sub and Exsorbet from and against
the entirety of any damages the Merger Sub and Exsorbet may suffer as a result
of such breach except as follows:
(i) if available, the Merger Sub will either maintain the Target
Corporation's existing liability insurance or purchase new insurance with
the same coverage, which names the individual Shareholders as additional
insureds thereof, to provide coverage for any claims subject to this
provision during the term of indemnification; and
(ii) Each Shareholder's maximum personal liability for indemnification
shall not exceed sixty-five percent (65%) of the shareholder's pro rata
portion of cash consideration received under this Agreement. The
provisions of this paragraph shall not, however, relieve any third party
(including in insurance company, bonding company, or other third party
providing indemnity) from the same liability to the extent that such third
party would be liable under another agreement.
(c) Indemnification Provisions for Benefit of the Shareholders. In the
event the Merger Sub or Exsorbet breaches any of its representations,
warranties, and covenants contained herein, then the Merger Sub and Exsorbet
agree to indemnify the Shareholders from and against the entirety of any
damages the Shareholders, or any of them, may suffer as a result of such
breach.
19
<PAGE> 20
(d) Matters Concerning Indemnity. In the event that either party becomes
aware of any claim or threatened claim being made against such party for which
any other party could ultimately be held liability, either directly or by
virtue of the indemnity requirements of this Agreement, the party becoming
aware of such claim or threatened claim shall immediately cause written notice
of the claim or threatened claim to be given to all other parties. Any party
which could ultimately be held liable, by virtue of the indemnity provisions of
this paragraph, shall have the right to participate in, and control, the legal
defense of the party against whom a claim or threatened claim has been made.
No claim for indemnity shall be made which results from a settlement or consent
judgment without the consent of the indemnifying party, which consent shall not
be unreasonably withheld. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable, or common law
remedy any Party may have for breach of representation, warranty, or covenant.
11. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
12. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
13. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective
successors, heirs, administrators, personal representatives, and permitted
assigns. No party may assign either this Agreement or any of his or its rights,
interests, or obligations hereunder without the prior written approval of the
Merger Sub and the Shareholders. Provided however, this provision shall not be
construed as prohibiting a transfer of the cash consideration that Shareholders
are to receive under this Agreement nor as providing any greater restriction on
transferability of the restricted common stock of Exsorbet Industries, Inc.
than is otherwise stated herein.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. Furthermore, a facsimile
signature contained on this document or a facsimile copy of this document shall
be as valid and binding as the original.
15. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth
20
<PAGE> 21
below:
If to the Shareholders: Calvin F. Lowe, Sr., 2895 S. Dockside Drive, Avon
Park, FL 33825.
Calvin F. Lowe, II, 2958 TWP Road, #709,
Londonville, OH 44842.
Edward Kurzenberger, 927 Buchholz Drive, Wooster,
OH 44691.
G. Howard Collingwood, Carriage Hill Apartments,
5208 Everhand Road, N.W., Apartment #11, Canton,
OH 44718.
Gary Platek, 9460 Mulberry Road, Chesterland, OH
44026.
James Hodgson, 21408 W. Holts East, Genoa, OH
43430.
If to the Merger Sub: Charles E. Chunn, Jr., 1401 South Waldron Road,
Suite 201, Fort Smith, AR 72903 [or such other
address as the Shareholders are hereafter
directed in writing].
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
17. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Merger Sub and the Shareholders, or any individual Shareholder if such
amendment or waiver concerns only one Shareholder. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
18. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
21
<PAGE> 22
19. Expenses. Each of the parties and the Target Corporation will bear
their own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Shareholders agree that the Target Corporation has not borne and will not bear
any of the Shareholders costs and expenses (including any of their legal fees
and expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
20. Construction. The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
21. Incorporation of Exhibits, Annexes, and Schedules. The Exhibits
identified in this Agreement are incorporated herein by reference and made a
part hereof.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
7-7 MERGER, INC.,
an Arkansas corporation
By: /s/ Edward L. Schrader
-----------------------
Officer
EXSORBET INDUSTRIES, INC.,
an Idaho corporation
By: /s/ Edward L. Schrader
-----------------------
Officer
7-7, INC.,
an Ohio corporation
By: /s/ Calvin F. Lowe, II
-----------------------
Officer
/s/ CALVIN F. LOWE, SR.
------------------------------------
Calvin F. Lowe, Sr.
/s/ CALVIN F. LOWE, II
------------------------------------
Calvin F. Lowe, II
/s/ EDWARD KURZENBERGER
------------------------------------
Edward Kurzenberger
/s/ G. HOWARD COLLINGWOOD
------------------------------------
G. Howard Collingwood
/s/ GARY PLATEK
------------------------------------
Gary Platek
/s/ JAMES HODGSON
------------------------------------
James Hodgson
23
<PAGE> 1
EXHIBIT 10.1
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into on this 30th day of September,
1996 by and between 7-7, Inc., an Ohio corporation (hereinafter "7-7"), and Cal
Lowe, Sr. (hereinafter "Lowe").
WHEREAS, Lowe has continuously conducted operations of 7-7 through the
date of this Agreement; and
WHEREAS, Lowe desires to continue to provide consulting services to 7-7
on a basis where his attendance at 7-7 is not required on a daily basis;
IT IS, THEREFORE, AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. Consulting Services. For a period of five years following the
date of execution of this Agreement, Cal Lowe, Sr. shall provide consultation
to 7-7, to the extent requested by 7-7 president Cal Lowe, Jr. All
consultation services shall be coordinated through Cal Lowe, Jr. All such
consultation shall be conducted by telephone. In the event that Cal Lowe, Sr.
is requested to provide any consulting services other than by telephone, 7-7
shall reimburse Cal Lowe, Sr. for all of his costs and expenses associated with
any travel to provide such services. 7-7 warrants that it will not request
consulting services which are overly burdensome to Cal Lowe, Sr.
2. Health Insurance. 7-7 shall provide health insurance for Cal
Lowe, Sr. for a minimum period of five years. If allowed, the policy of health
insurance existing on the date of closing shall be continued. However, Buyer
may provide identical coverage which contains the same benefits and does not
limit any pre-existing conditions not already excluded in the current policy of
Lowe and containing the same deductible, co-payment requirements, exclusions,
coverages afforded, and maximum lifetime benefits as are in the current policy.
In the event that the insurance company issuing such health insurance coverage
at closing shall cease for any reason to provide a continuation in coverage for
a period of five years, 7-7 shall use its reasonable efforts to purchase
similar coverage elsewhere provided that such coverage can be obtained at
approximately the same price. In the event that the provisions of this
paragraph conflict with any provision of the Employee Retirement Income
Security Act of 1974 (ERISA) or the Consolidated Omnibus Budget Reconciliation
Act (COBRA), the provisions of this paragraph shall conform to the requirements
of such acts.
3. Compensation. Lowe shall receive the sum equal to 8.3325
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7 or its successor will operate as a subsidiary or separate
division of Exsorbet Industries, Inc.;
1
<PAGE> 2
(b) only expenses incurred by 7-7 will be used in determining "pre-tax
income;"
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7.
will not be used in calculating "pre-tax income" unless agreed to by and
between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other than
7-7 causes additional capital to be placed into the operation of 7-7 for
working capital, equipment, or other capital expenditures, an interest
charge equivalent to the prime interest rate may be taken as a deduction
to "pre-tax income," and management of 7-7 will have reasonable input
regarding the revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 $3,041,750.00
1-1-2001 to 12-31-2001 $3,498,013.00.
</TABLE>
The amount specified herein will be paid no later than April 15 of the year
following the year in which such amounts were earned. The provisions of this
paragraph shall constitute the consideration for this Agreement.
4. Life Insurance on Lowe. There is an existing life insurance
policy or policies on the life of Cal Lowe, Sr. which is owned by 7-7, Inc.
Cal Lowe, Sr. shall be allowed to purchase the existing life insurance policy
or policies for the cash surrender value of such policy or policies at closing.
5. Noncompetition and Nondisclosure.
(a) Lowe acknowledges that he is privy to a substantial amount of
confidential information and numerous trade secrets about the
business, sales policies, and
2
<PAGE> 3
manufacturing methods of 7-7. Lowe understands that the nature of the
business of 7-7 is such that the relationship between 7-7 and its
customers is maintained through close personal contact with the
company employees and consultants. Therefore, Lowe agrees that during
the period of this Agreement and for a period of two years immediately
following termination of such Agreement, Lowe will not, directly or
indirectly, for himself or on behalf of others, as an individual on
his own account or as an employee, agent, or employee for any person,
partnership, firm, or corporation:
(1) solicit or provide services to any individual or entity which
had been a customer or client of the Company or of Exsorbet
Industries, Inc., or any of its subsidiaries, within the one year
period immediately prior to Lowe's termination with the Company;
or
(2) solicit or provide services to any individual or entity which
had negotiated with the Company, Exsorbet Industries, Inc., or any
of its subsidiaries for services to be provided by any such entity
within the one year period immediately prior to Lowe's termination
with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same
type as is performed by the Company, Exsorbet Industries, Inc., or any
of its subsidiaries. The provisions of this agreement shall be
limited to North America.
(b) Lowe agrees that the trade secrets, customer lists, price lists,
operating manuals, policy manuals, confidential corporate documents,
or other specialized information learned while with the Company is
proprietary and the product of the Company. Lowe agrees that he will
not, after the termination of his employment with the Company, whether
during the initial term of this agreement, at the end of the initial
term, or thereafter, use or divulge such information, directly or
indirectly, without the express written consent of the Company. In
the event that the provisions of this paragraph are construed as being
overly broad, such provisions shall be limited to a two year time
period following the termination of Lowe's employment relationship
with the Company.
(c) Lowe agrees that during the period of his employment and for two
years thereafter he will not, directly or indirectly, induce or
attempt to induce any employee to terminate employment with the
Company or interfere with or disrupt Company's relationship with other
employees, unless such action is taken as a part of the duties of Lowe
under this agreement and in consideration of the fiduciary duty owed
by Lowe to the Company. Lowe further agrees that for the same time
period, he will not solicit, entice, take away, or employ any person
employed with the Company.
3
<PAGE> 4
6. Entire Agreement. This Agreement is the entire agreement between
the parties. The Employee agrees that no other promises or inducements have
been made to him unless contained in writing, attached hereto or incorporated
herein by reference. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
7. Binding Effect. This Agreement shall be binding upon the parties,
their successors, heirs, administrators, and assigns. In the event of the
death of Lowe during the term of this Agreement, all sums which would become
due under the provisions of paragraph 3 above, shall be distributed in
accordance with the Last Will and Testament of Lowe. Should Lowe fail to
provide for the distribution of such sums in his Last Will and Testament
(either directly or by a residuary clause), such sums shall pass according to
the applicable laws of descent and distribution.
8. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity or enforceability of
the other provisions.
9. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
10. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
11. No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties.
12. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
13. Applicable Law. This Agreement shall be construed in accordance
with the laws and statutes of the State of Arkansas.
14. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall consist of an
arbitrator chosen by each party. The two arbitrators chosen shall select a
neutral arbitrator. The decision of the arbitration panel shall be
conclusively binding upon both parties unless there has been a clear error in
applicable of law to the facts determined by such arbitration panel.
15. Entire Agreement. This Agreement is the entire agreement between
the parties. The Employee agrees that no other promises or inducements have
been made to him unless contained
4
<PAGE> 5
in writing, attached hereto or incorporated herein by reference. This
Agreement shall be binding upon the parties, their successors and assigns.
This Agreement may not be modified unless such modification is made in writing
and signed by all parties.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC.
By: /s/ James Connors
Authorized Officer of the Company
EMPLOYEE
/s/ Calvin F. Lowe Sr.
5
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 30th day of September, 1996 by
and between 7-7, Inc., a corporation (hereinafter referred to as the "Company")
and Calvin F. Lowe, II (hereinafter referred to as the "Employee").
WHEREAS, the Company desires to employ the Employee to serve as an
officer and employee of the Company, serving in the capacity of president of 7-
7, Inc., to perform various functions and duties related thereto; and
WHEREAS, the Employee desires to be employed by the Company as an
employee and officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee agree as follows.
1. Employment. The Company agrees to employ the Employee for a
period of five (5) years beginning as of the date of the merger of 7-7, Inc.,
an Ohio corporation into 7-7 Merger, Inc., an Arkansas corporation. Employee
agrees to be employed by the Company for such time period upon the terms and
conditions stated herein. The Employee shall be an employee of the Company and
shall provide services to the Company or to Exsorbet Industries, Inc., an Idaho
corporation, or the successor of either, as the Company may direct. The
Employee will observe all Company policies and procedures as are applicable to
similarly situated executive employees and conduct himself in accordance with
directions from the Company. The Employee shall devote his working time and
best efforts to performance of the duties of this employment as designated by
the Company and shall, at all times, conduct himself so as to reflect favorably
upon the Company. The provisions of this paragraph shall not be construed as
limiting Employee from continuing the performance of part time businesses in
existence on the date of this Agreement. Employee shall be a salaried,
management level employee. As such, no additional compensation shall be
provided for hours worked in excess of forty per week or in excess of any
maximum time period established by the United States of America or any State
thereof in which Employee may provide services for the Company.
2. Identification of the Company. 7-7, Inc. is an Arkansas
corporation. It is a wholly-owned subsidiary of Exsorbet Industries, Inc., an
Idaho corporation (hereinafter referred to as "Exsorbet"). Exsorbet is a
publicly traded company, trading under the symbol "EXSO" on the NASDAQ Stock
Market.
3. Duties. Employee shall act as an officer of the Company, serving
as its president. Employee's job duties include: (a) those duties normally
associated with the person serving in the capacity of president of a
corporation of a similar size, providing similar services, in the same
geographical locality; and (b) any other duties reasonably required by the
president of Exsorbet Industries, Inc. The duties of Employee include the
supervision and direction of affairs of the
1
<PAGE> 2
Company, subject to the Company's by-laws and Board of Directors approval.
4. Removal by Shareholder Action. Both parties understand and
acknowledge that Employee may be removed as an officer of the Company by
certain shareholder action. If Employee is removed as an officer of the
Company, he shall continue to serve the Company as an employee providing the
same type of sales, supervisory, and technical services as exist on the date of
execution of this agreement and thereafter. The remaining provisions of this
agreement concerning benefits and compensation due to Employee shall remain in
full force and effect despite removal of Employee as a Company officer unless
such removal is for cause, as defined herein, or is otherwise in compliance
with other provisions of this agreement.
5. Company Benefits. The Employee will be the beneficiary of and
permitted to participate in all of the Company s standard benefit plans and
perquisites which are from time to time made available to employees similarly
situated. The Employee understands, however, that all such standard benefit
plans of the Company are subject to change from time to time and can also be
eliminated completely. Employee may elect to purchase disability insurance
equal to two-thirds of the base salary of Employee, through an insurance
company and agent determined by Employee. Such expense shall be paid by
Employee. However, the Company agrees to cause such amount to be withheld from
compensation due to Employee on a pre-tax basis, to the extent permissible
under the Internal Revenue Code and applicable state statutes and regulations.
6. Compensation. The Company shall pay the Employee an annual
salary equal to One Hundred Fifty Thousand Dollars ($150,000.00) for the period
beginning on the merger of 7-7, Inc. with 7-7 Merger, Inc., an Arkansas
corporation. Such amount shall be adjusted annually in accordance with the
cost of living index, to be paid bi-weekly or upon such other basis as is
reasonably determined by Exsorbet Industries, Inc. In no event shall Employee
be provided with a compensation check less frequently than one time per month.
The compensation due to Employee may, at the option of the Company, be
increased based upon the contributions of Employee. The increase in
compensation described herein shall not, however, place a mandatory obligation
upon the Company.
7. Additional Compensation. Employee shall receive 9.07175
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7, Inc. or its successor will operate as a subsidiary or
separate division of Exsorbet Industries, Inc.;
(b) only expenses incurred by 7-7, Inc. will be used in determining
"pre-tax income;"
2
<PAGE> 3
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7,
Inc. will not be used in calculating "pre-tax income" unless agreed to
by and between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other
than 7-7, Inc. causes additional capital to be placed into the
operation of 7-7, Inc. for working capital, equipment, or other
capital expenditures, an interest charge equivalent to the prime
interest rate may be taken as a deduction to "pre-tax income," and
management of 7-7, Inc. will have reasonable input regarding the
revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 $3,041,750.00
1-1-2001 to 12-31-2001 $3,498,013.00.
</TABLE>
It is specifically noted that should Employee voluntarily terminate
this Agreement, the right to receive the proceeds specified in this paragraph
shall immediately cease. If Employee is terminated without cause, however,
such proceeds will be distributed to Employee.
8. Expenses. The Company shall reimburse Employee for all
authorized, ordinary, and necessary expenses incurred by Employee in connection
with the duties of Employee. Employee shall submit all reasonably requested
receipts and documentation evidencing the nature and incurring of such expenses
to the accounting department of Exsorbet Industries, Inc. Reimbursement will
occur during the next pay period.
9. Noncompetition and Nondisclosure.
(a) The Employee acknowledges that the Company has or will provide
substantial training and will impart to the Employee confidential
information and trade secrets
3
<PAGE> 4
about its business, sales policies, and manufacturing methods. The
Employee also understands that the nature of the business is such that
the relationship between the Company and its customers is maintained
through close personal contact with the Company Employees. Therefore,
the Employee agrees that during the period of his employment and for
a period of two years immediately following termination of such
employment, the Employee will not, directly or indirectly, for himself
or on behalf of others, as an individual on his own account or as an
employee, agent, or employee for any person, partnership, firm, or
corporation:
(1) solicit or provide services to any individual or entity which
had been a customer or client of the Company or of Exsorbet
Industries, Inc., or any of its subsidiaries, within the one year
period immediately prior to Employee's termination with the
Company; or
(2) solicit or provide services to any individual or entity which
had negotiated with the Company, Exsorbet Industries, Inc., or any
of its subsidiaries for services to be provided by any such entity
within the one year period immediately prior to Employee's
termination with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same type
as is performed by the Company, Exsorbet Industries, Inc., or any of
its subsidiaries. The provisions of this agreement shall be limited to
North America.
(b) Employee agrees that the trade secrets, customer lists,
price lists, operating manuals, policy manuals, confidential corporate
documents, or other specialized information learned while with the
Company is proprietary and the product of the Company. Employee
agrees that he will not, after the termination of his employment with
the Company, whether during the initial term of this agreement, at the
end of the initial term, or thereafter, use or divulge such
information, directly or indirectly, without the express written
consent of the Company. In the event that the provisions of this
paragraph are construed as being overly broad, such provisions shall
be limited to a two year time period following the termination of
Employee's employment relationship with the Company.
(c) The Employee also agrees that during the period of his
employment and for two years thereafter he will not, directly or
indirectly, induce or attempt to induce any employee to terminate
employment with the Company or interfere with or disrupt Company's
relationship with other employees, unless such action is taken as a
part of the duties of Employee under this agreement and in
consideration of the fiduciary duty owed by Employee to the Company.
Employee further agrees that for the same time period, he will not
solicit, entice, take away, or employ any person employed
4
<PAGE> 5
with the Company.
10. Termination. This employment agreement may be terminated at any
time:
(a) by the Employee's death or disability which renders Employee
unable to perform services required by Employee under this Agreement;
(b) by the Company for good cause as hereinafter defined;
(c) upon thirty (30) days written notice by the Employee; or
(d) at the election of the Company without good cause, provided that
the Employee shall receive a separation pay in an amount equal to all the
direct compensation that would otherwise have been due had this employment
agreement been carried out to its full term.
The term "good cause" means (a) intentional or reckless misrepresentation
by the Employee to the Company s customers or potential customers concerning
the Company' s ability to provide its products or services; (b) a criminal act
[or acts] by the Employee which results in a financial loss to the Company; (c)
intentional and repeated refusal by the Employee to perform the duties assigned
to him under this Agreement; (d) conviction of the Employee of a felony crime
or a crime involving moral turpitude; or (e) intentional misconduct by Employee
which is probable to result in a material financial harm to the Company unless
termination of Employee occurs. The provisions of subparts (c) and (e) of this
paragraph shall not be "good cause" unless Employee is given written notice of
the specific event(s) or act(s) in question. Thereafter, "good cause" shall
only exist if either Employee engages in such event(s) or act(s) or Employee
fails to provide assurances that he will no longer engage in such event(s) or
act(s).
11. Waiver. Failure of the Company to exercise any rights under this
Agreement, or to insist on full performance of all obligations hereunder shall
not be construed as waiving any such rights.
12. Assignment. This agreement shall not be assignable by either
party without the written consent of the other. However, any payments due
hereunder shall, in the event of the death of Employee, be payable to
Employee's beneficiary or estate, as designated by Employee's last will and
testament or in accordance with applicable law.
13. Vesting. No title to any payments due herein shall vest in
Employee until actual payment is made by the Company in accordance with the
provisions of this agreement. Neither party shall have the right or power to
assign, anticipate, transfer, mortgage, or encumber any payment prior to its
actual receipt.
14. Miscellaneous Matters.
5
<PAGE> 6
(a) Entire Agreement. This Agreement is the entire agreement between the
parties. The Employee agrees that no other promises or inducements have
been made to him unless contained in writing, attached hereto or
incorporated herein by reference.
(b) Binding Effect. This Agreement shall be binding upon the parties,
their heirs, personal representatives, successors, and permitted assigns.
It is specifically understood and agreed that the compensation specified in
paragraph 7, above, shall become due and payable even in the event of the
death or disability of the Employee. In the event of the death of the
Employee, such amount shall be paid as directed in the Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws) of the Employee, or in the event that
the Employee fails to make provision for such amount in his Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws), such amount shall be paid in
accordance with the laws of descent and distribution in the State where the
estate of the Employee is probated.
(c) Modification. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity or enforceability of
the other provisions.
16. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
17. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
18. No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties,
except as is specified in paragraph 14(b), above.
19. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
20. Applicable Law. This Agreement shall be construed in accordance
with the laws and statutes of the State of Arkansas.
21. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall
6
<PAGE> 7
consist of an arbitrator chosen by each party. The two arbitrators chosen
shall select a neutral arbitrator. The decision of the arbitration panel shall
be conclusively binding upon both parties unless there has been a clear error
in applicable of law to the facts determined by such arbitration panel.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC., an Arkansas corporation
By: /s/ James Connors
Authorized Officer of the Company
EMPLOYEE
/s/ Calvin F. Lowe, II
Calvin F. Lowe, II
7
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 30th day of September, 1996 by
and between 7-7, Inc., a corporation (hereinafter referred to as the "Company")
and Gary Platek (hereinafter referred to as the "Employee").
WHEREAS, the Company desires to employ the Employee to serve as an
officer and employee of the Company, serving in the capacity of the director of
engineering and compliance of 7-7, Inc., to perform various functions and
duties related thereto; and
WHEREAS, the Employee desires to be employed by the Company as an
employee and officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee agree as follows.
1. Employment. The Company agrees to employ the Employee for a
period of five (5) years beginning as of the date of the merger of 7-7, Inc.,
an Ohio corporation into 7-7 Merger, Inc., an Arkansas corporation. Employee
agrees to be employed by the Company for such time period upon the terms and
conditions stated herein. The Employee shall be an employee of the Company and
shall provide services to the Company or to Exsorbet Industries, Inc., an Idaho
corporation, or the successor of either, as the Company may direct. The
Employee will observe all Company policies and procedures as are applicable to
similarly situated executive employees and conduct himself in accordance with
directions from the Company. The Employee shall devote his working time and
best efforts to performance of the duties of this employment as designated by
the Company and shall, at all times, conduct himself so as to reflect favorably
upon the Company. The provisions of this paragraph shall not be construed as
limiting Employee from continuing the performance of part time businesses in
existence on the date of this Agreement. Employee shall be a salaried,
management level employee. As such, no additional compensation shall be
provided for hours worked in excess of forty per week or in excess of any
maximum time period established by the United States of America or any State
thereof in which Employee may provide services for the Company.
2. Identification of the Company. 7-7, Inc. is an Arkansas
corporation. It is a wholly-owned subsidiary of Exsorbet Industries, Inc., an
Idaho corporation (hereinafter referred to as "Exsorbet"). Exsorbet is a
publicly traded company, trading under the symbol "EXSO" on the NASDAQ Stock
Market.
3. Duties. Employee shall act as an officer of the Company, serving
as its director of engineering and compliance. Employee's job duties include:
(a) those duties normally associated with the person serving in the capacity of
the director of engineering and compliance, and as have been performed on
behalf of 7-7, Inc., an Ohio corporation prior to its merger with 7-7 Merger,
Inc., an Arkansas corporation; and (b) any other duties reasonably required by
the president of Exsorbet
1
<PAGE> 2
Industries, Inc. The duties of Employee include the supervision and direction
of affairs of the Company, subject to the Company's by-laws and Board of
Directors approval.
4. Removal by Shareholder Action. Both parties understand and
acknowledge that Employee may be removed as an officer of the Company by
certain shareholder action. If Employee is removed as an officer of the
Company, he shall continue to serve the Company as an employee providing the
same type of sales, supervisory, and technical services as exist on the date of
execution of this agreement and thereafter. The remaining provisions of this
agreement concerning benefits and compensation due to Employee shall remain in
full force and effect despite removal of Employee as a Company officer unless
such removal is for cause, as defined herein, or is otherwise in compliance
with other provisions of this agreement.
5. Company Benefits. The Employee will be the beneficiary of and
permitted to participate in all of the Company s standard benefit plans and
perquisites which are from time to time made available to employees similarly
situated. The Employee understands, however, that all such standard benefit
plans of the Company are subject to change from time to time and can also be
eliminated completely. Employee may elect to purchase disability insurance
equal to two-thirds of the base salary of Employee, through an insurance
company and agent determined by Employee. Such expense shall be paid by
Employee. However, the Company agrees to cause such amount to be withheld from
compensation due to Employee on a pre-tax basis, to the extent permissible
under the Internal Revenue Code and applicable state statutes and regulations.
6. Compensation. The Company shall pay the Employee an annual
salary equal to Seventy-Five Thousand Dollars ($75,000.00) for the period
beginning on the merger of 7-7, Inc. with 7-7 Merger, Inc., an Arkansas
corporation. Such amount shall be adjusted annually in accordance with the
cost of living index, to be paid bi-weekly or upon such other basis as is
reasonably determined by Exsorbet Industries, Inc. In no event shall Employee
be provided with a compensation check less frequently than one time per month.
The compensation due to Employee may, at the option of the Company, be
increased based upon the contributions of Employee. The increase in
compensation described herein shall not, however, place a mandatory obligation
upon the Company.
7. Additional Compensation. Employee shall receive 1.89875
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7, Inc. or its successor will operate as a subsidiary or
separate division of Exsorbet Industries, Inc.;
(b) only expenses incurred by 7-7, Inc. will be used in determining
"pre-tax income;"
2
<PAGE> 3
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7,
Inc. will not be used in calculating "pre-tax income" unless agreed to
by and between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other
than 7-7, Inc. causes additional capital to be placed into the
operation of 7-7, Inc. for working capital, equipment, or other
capital expenditures, an interest charge equivalent to the prime
interest rate may be taken as a deduction to "pre-tax income," and
management of 7-7, Inc. will have reasonable input regarding the
revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 $3,041,750.00
1-1-2001 to 12-31-2001 $3,498,013.00.
</TABLE>
It is specifically noted that should Employee voluntarily terminate
this Agreement, the right to receive the proceeds specified in this paragraph
shall immediately cease. If Employee is terminated without cause, however,
such proceeds will be distributed to Employee.
8. Expenses. The Company shall reimburse Employee for all
authorized, ordinary, and necessary expenses incurred by Employee in connection
with the duties of Employee. Employee shall submit all reasonably requested
receipts and documentation evidencing the nature and incurring of such expenses
to the accounting department of Exsorbet Industries, Inc. Reimbursement will
occur during the next pay period.
9. Noncompetition and Nondisclosure.
(a) The Employee acknowledges that the Company has or will provide
substantial training and will impart to the Employee confidential
information and trade secrets
3
<PAGE> 4
about its business, sales policies, and manufacturing methods. The
Employee also understands that the nature of the business is such that
the relationship between the Company and its customers is maintained
through close personal contact with the Company Employees. Therefore,
the Employee agrees that during the period of his employment and for
a period of two years immediately following termination of such
employment, the Employee will not, directly or indirectly, for himself
or on behalf of others, as an individual on his own account or as an
employee, agent, or employee for any person, partnership, firm, or
corporation:
(1) solicit or provide services to any individual or entity
which had been a customer or client of the Company or of
Exsorbet Industries, Inc., or any of its subsidiaries, within
the one year period immediately prior to Employee's
termination with the Company; or
(2) solicit or provide services to any individual or entity
which had negotiated with the Company, Exsorbet Industries,
Inc., or any of its subsidiaries for services to be provided
by any such entity within the one year period immediately
prior to Employee's termination with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same
type as is performed by the Company, Exsorbet Industries, Inc., or any
of its subsidiaries. The provisions of this agreement shall be
limited to North America.
(b) Employee agrees that the trade secrets, customer lists, price
lists, operating manuals, policy manuals, confidential corporate
documents, or other specialized information learned while with the
Company is proprietary and the product of the Company. Employee
agrees that he will not, after the termination of his employment with
the Company, whether during the initial term of this agreement, at the
end of the initial term, or thereafter, use or divulge such
information, directly or indirectly, without the express written
consent of the Company. In the event that the provisions of this
paragraph are construed as being overly broad, such provisions shall
be limited to a two year time period following the termination of
Employee's employment relationship with the Company.
(c) The Employee also agrees that during the period of his employment
and for two years thereafter he will not, directly or indirectly,
induce or attempt to induce any employee to terminate employment with
the Company or interfere with or disrupt Company's relationship with
other employees, unless such action is taken as a part of the duties
of Employee under this agreement and in consideration of the fiduciary
duty owed by Employee to the Company. Employee further agrees that
for the same time period, he will not solicit, entice, take away, or
employ any person employed
4
<PAGE> 5
with the Company.
10. Termination. This employment agreement may be terminated at any
time:
(a) by the Employee's death or disability which renders Employee
unable to perform services required by Employee under this Agreement;
(b) by the Company for good cause as hereinafter defined;
(c) upon thirty (30) days written notice by the Employee; or
(d) at the election of the Company without good cause, provided that
the Employee shall receive a separation pay in an amount equal to all the
direct compensation that would otherwise have been due had this employment
agreement been carried out to its full term.
The term "good cause" means (a) intentional or reckless misrepresentation
by the Employee to the Company s customers or potential customers concerning
the Company' s ability to provide its products or services; (b) a criminal act
[or acts] by the Employee which results in a financial loss to the Company; (c)
intentional and repeated refusal by the Employee to perform the duties assigned
to him under this Agreement; (d) conviction of the Employee of a felony crime
or a crime involving moral turpitude; or (e) intentional misconduct by Employee
which is probable to result in a material financial harm to the Company unless
termination of Employee occurs. The provisions of subparts (c) and (e) of this
paragraph shall not be "good cause" unless Employee is given written notice of
the specific event(s) or act(s) in question. Thereafter, "good cause" shall
only exist if either Employee engages in such event(s) or act(s) or Employee
fails to provide assurances that he will no longer engage in such event(s) or
act(s).
11. Waiver. Failure of the Company to exercise any rights under this
Agreement, or to insist on full performance of all obligations hereunder shall
not be construed as waiving any such rights.
12. Assignment. This agreement shall not be assignable by either
party without the written consent of the other. However, any payments due
hereunder shall, in the event of the death of Employee, be payable to
Employee's beneficiary or estate, as designated by Employee's last will and
testament or in accordance with applicable law.
13. Vesting. No title to any payments due herein shall vest in
Employee until actual payment is made by the Company in accordance with the
provisions of this agreement. Neither party shall have the right or power to
assign, anticipate, transfer, mortgage, or encumber any payment prior to its
actual receipt.
14. Miscellaneous Matters.
5
<PAGE> 6
(a) Entire Agreement. This Agreement is the entire agreement between the
parties. The Employee agrees that no other promises or inducements have
been made to him unless contained in writing, attached hereto or
incorporated herein by reference.
(b) Binding Effect. This Agreement shall be binding upon the parties,
their heirs, personal representatives, successors, and permitted assigns.
It is specifically understood and agreed that the compensation specified in
paragraph 7, above, shall become due and payable even in the event of the
death or disability of the Employee. In the event of the death of the
Employee, such amount shall be paid as directed in the Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws) of the Employee, or in the event that
the Employee fails to make provision for such amount in his Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws), such amount shall be paid in
accordance with the laws of descent and distribution in the State where the
estate of the Employee is probated.
(c) Modification. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity or enforceability of
the other provisions.
16. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
17. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
18. No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties,
except as is specified in paragraph 14(b), above.
19. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
20. Applicable Law. This Agreement shall be construed in accordance
with the laws and statutes of the State of Arkansas.
21. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall
6
<PAGE> 7
consist of an arbitrator chosen by each party. The two arbitrators chosen
shall select a neutral arbitrator. The decision of the arbitration panel shall
be conclusively binding upon both parties unless there has been a clear error
in applicable of law to the facts determined by such arbitration panel.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC., an Arkansas corporation
By: /s/ James Connors
Authorized Officer of the Company
EMPLOYEE
/s/ Gary Platek
Gary Platek
7
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 5th day of August, 1996 by and
between 7-7, Inc., an Arkansas corporation (hereinafter referred to as the
"Company") and G. Howard Collingwood (hereinafter referred to as the
"Employee").
WHEREAS, 7-7, Inc., is an Arkansas corporation, being the successor
corporation of the merger of 7-7, Inc., an Ohio corporation to 7-7 Merger,
Inc., an Arkansas corporation, and the resulting change of corporate name of 7-
7 Merger, Inc. to 7-7, Inc.; and
WHEREAS, the Company desires to employ the Employee to serve as an
officer and employee of the Company, serving in the capacity of the director of
coal chemical recycling of 7-7, Inc., to perform various functions and duties
related thereto; and
WHEREAS, the Employee desires to be employed by the Company as an
employee and officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee agree as follows.
1. Employment. The Company agrees to employ the Employee for a
period of five (5) years beginning as of the date of the merger of 7-7, Inc.,
an Ohio corporation into 7-7 Merger, Inc., an Arkansas corporation. Employee
agrees to be employed by the Company for such time period upon the terms and
conditions stated herein. The Employee shall be an employee of the Company and
shall provide services to the Company or to Exsorbet Industries, Inc., an Idaho
corporation, or the successor of either, as the Company may direct. The
Employee will observe all Company policies and procedures as are applicable to
similarly situated executive employees and conduct himself in accordance with
directions from the Company. The Employee shall devote his reasonable efforts
to performance of the duties of this employment as designated by the Company
and shall, at all times, conduct himself so as to reflect favorably upon the
Company. The provisions of this paragraph shall not be construed as limiting
Employee from continuing the performance of part time businesses in existence
on the date of this Agreement. Employee shall be a salaried, management level
employee. As such, no additional compensation shall be provided for hours
worked in excess of forty per week or in excess of any maximum time period
established by the United States of America or any State thereof in which
Employee may provide services for the Company.
2. Identification of the Company. 7-7, Inc. is an Arkansas
corporation. It is a wholly-owned subsidiary of Exsorbet Industries, Inc., an
Idaho corporation (hereinafter referred to as "Exsorbet"). Exsorbet is a
publicly traded company, trading under the symbol "EXSO" on the NASDAQ Stock
Market.
3. Duties. Employee shall act as an officer of the Company, serving
as its director of coal chemical recycling. Employee's job duties include: (a)
those duties normally associated with
1
<PAGE> 2
the person serving in the capacity of the director of coal chemical recycling,
and as have been performed on behalf of 7-7, Inc., an Ohio corporation prior to
its merger with 7-7 Merger, Inc., an Arkansas corporation; and (b) any other
duties reasonably required by the president of Exsorbet Industries, Inc. The
duties of Employee include the supervision and direction of affairs of the
Company, subject to the Company's by-laws and Board of Directors approval. The
Company recognizes that the Employee is currently engaged in brokering and
consulting activities in the same and related industries as those of the
Company. The Company agrees that such activities may continue without
constraint except that Employee may not compete directly with the Company in
any activity that the Company is actively conducting on or before August 30,
1996. The Company further agrees that the Employee may serve on the Board of
Directors of any public or non-public company provided that the Company is not
in direct competition with the Company in the business of recycling.
4. Removal by Shareholder Action. Both parties understand and
acknowledge that Employee may be removed as an officer of the Company by
certain shareholder action. If Employee is removed as an officer of the
Company, he shall continue to serve the Company as an employee providing the
same type of sales, supervisory, and technical services as exist on the date of
execution of this agreement and thereafter. The remaining provisions of this
agreement concerning benefits and compensation due to Employee shall remain in
full force and effect despite removal of Employee as a Company officer unless
such removal is for cause, as defined herein, or is otherwise in compliance
with other provisions of this agreement.
5. Company Benefits. The Employee will be the beneficiary of and
permitted to participate in all of the Company s standard benefit plans and
perquisites which are from time to time made available to employees similarly
situated. The Employee understands, however, that all such standard benefit
plans of the Company are subject to change from time to time and can also be
eliminated completely. Employee may elect to purchase disability insurance
equal to two-thirds of the base salary of Employee, through an insurance
company and agent determined by Employee. Such expense shall be paid by
Employee. However, the Company agrees to cause such amount to be withheld from
compensation due to Employee on a pre-tax basis, to the extent permissible
under the Internal Revenue Code and applicable state statutes and regulations.
6. Compensation. The Company shall pay the Employee an annual
salary equal to One Hundred Three Thousand Dollars ($103,000.00) for the period
beginning on the merger of 7-7, Inc. with 7-7 Merger, Inc., an Arkansas
corporation. Such amount shall be adjusted annually in accordance with the
cost of living index, to be paid bi-weekly or upon such other basis as is
reasonably determined by Exsorbet Industries, Inc. In no event shall Employee
be provided with a compensation check less frequently than one time per month.
The compensation due to Employee may, at the option of the Company, be
increased based upon the contributions of Employee. The increase in
compensation described above in this paragraph shall not, however, place a
mandatory obligation upon the Company. In addition to the compensation
provided for by this paragraph, the Employee shall be provided with a bonus
plan in accordance with the following specification:
2
<PAGE> 3
(a) Employee shall submit a business plan on an annual basis to the
president of the Company which outlines the projected performance of the
coal chemical recycling facilities that Employee is responsible for
managing. The Company and Employee shall, in good faith, agree on the
goals and forecasts of the plan. In the event that the goals and
forecasts are met or succeeded through Employee's efforts, Employee
shall receive the bonus identified in the next paragraph.
(b) Upon successful attainment of the goals and forecasts through the
efforts of Employee, as indicated in the preceding paragraph, Employee
shall receive a bonus equal to two and one- half (2.5) percent of the
net goal and forecast amount. If Employee's efforts result in exceeding
the goals and forecasted amounts, Employee shall receive the additional
sum equal to five (5) percent of the difference between the net goal and
forecast amount and the amount actually attained. On all amounts
exceeding the net goal and forecast amounts, Employee's bonus shall be
equal to five (5) percent of the amount by which the goal and forecast
amounts are exceeded.
7. Additional Compensation. Employee shall receive 1.89875
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7, Inc. or its successor will operate as a subsidiary or separate
division of Exsorbet Industries, Inc.;
(b) only expenses incurred by 7-7, Inc. will be used in determining
"pre-tax income;"
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7,
Inc. will not be used in calculating "pre-tax income" unless agreed to
by and between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other than
7-7, Inc. causes additional capital to be placed into the operation of
7-7, Inc. for working capital, equipment, or other capital expenditures,
an interest charge equivalent to the prime interest rate may be taken as
a deduction to "pre-tax income," and management of 7-7, Inc. will have
reasonable input regarding the revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
3
<PAGE> 4
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 3,041,750.00
1-1-2001 to 12-31-2001 3,498,013.00.
</TABLE>
It is specifically noted that should Employee voluntarily terminate this
Agreement, the right to receive the proceeds specified in this paragraph shall
immediately cease. If Employee is terminated without cause, however, such
proceeds will be distributed to Employee.
The Company acknowledges that sales commissions are due to the Employee
upon the completion of previously agreed upon jobs.
8. Expenses. The Company shall reimburse Employee for all
authorized, ordinary, and necessary expenses incurred by Employee in connection
with the duties of Employee. Employee shall submit all reasonably requested
receipts and documentation evidencing the nature and incurring of such expenses
to the accounting department of Exsorbet Industries, Inc. Reimbursement will
occur during the next pay period.
9. Noncompetition and Nondisclosure.
(a) The Employee acknowledges that the Company has or will provide
substantial training and will impart to the Employee confidential
information and trade secrets about its business, sales policies, and
manufacturing methods. The Employee also understands that the nature of
the business is such that the relationship between the Company and its
customers is maintained through close personal contact with the Company
Employees. Therefore, the Employee agrees that during the period of his
employment and for a period of two years immediately following
termination of such employment, the Employee will not, directly or
indirectly, for himself or on behalf of others, as an individual on his
own account or as an employee, agent, or employee for any person,
partnership, firm, or corporation:
(1) solicit or provide services to any individual or entity
which had been a customer or client of the Company or of
Exsorbet Industries, Inc., or any of its subsidiaries, within
the one year period immediately prior to Employee's termination
with the Company; or
4
<PAGE> 5
(2) solicit or provide services to any individual or entity
which had negotiated with the Company, Exsorbet Industries,
Inc., or any of its subsidiaries for services to be provided by
any such entity within the one year period immediately prior to
Employee's termination with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same type
as is performed by the Company, Exsorbet Industries, Inc., or any of its
subsidiaries. The provisions of this agreement shall be limited to
North America.
(b) Employee agrees that the trade secrets, customer lists, price
lists, operating manuals, policy manuals, confidential corporate
documents, or other specialized information learned while with the
Company is proprietary and the product of the Company. Employee agrees
that he will not, after the termination of his employment with the
Company, whether during the initial term of this agreement, at the end
of the initial term, or thereafter, use or divulge such information,
directly or indirectly, without the express written consent of the
Company. In the event that the provisions of this paragraph are
construed as being overly broad, such provisions shall be limited to a
two year time period following the termination of Employee's employment
relationship with the Company. The Company excludes from the definition
of Confidential Information, information which the Employee has brought
to the Company, information which the Employee obtains from sources
outside of the Company, and information which is generally available in
the marketplace.
(c) The Employee also agrees that during the period of his employment
and for two years thereafter he will not, directly or indirectly, induce
or attempt to induce any employee to terminate employment with the
Company or interfere with or disrupt Company's relationship with other
employees, unless such action is taken as a part of the duties of
Employee under this agreement and in consideration of the fiduciary duty
owed by Employee to the Company. Employee further agrees that for the
same time period, he will not solicit, entice, take away, or employ any
person employed with the Company.
10. Termination. This employment agreement may be terminated at any
time:
(a) by the Employee's death or disability which renders Employee
unable to perform services required by Employee under this Agreement;
(b) by the Company for good cause as hereinafter defined;
(c) upon thirty (30) days written notice by the Employee; or
5
<PAGE> 6
(d) at the election of the Company without good cause, provided that
the Employee shall receive a separation pay in an amount equal to all the
direct compensation that would otherwise have been due had this
employment agreement been carried out to its full term.
The term "good cause" means (a) intentional or reckless misrepresentation
by the Employee to the Company s customers or potential customers concerning
the Company' s ability to provide its products or services; (b) a criminal act
[or acts] by the Employee which results in a financial loss to the Company; (c)
intentional and repeated refusal by the Employee to perform the duties assigned
to him under this Agreement; (d) conviction of the Employee of a felony crime
or a crime involving moral turpitude; or (e) intentional misconduct by Employee
which is probable to result in a material financial harm to the Company unless
termination of Employee occurs. The provisions of subparts (c) and (e) of this
paragraph shall not be "good cause" unless Employee is given written notice of
the specific event(s) or act(s) in question. Thereafter, "good cause" shall
only exist if either Employee engages in such event(s) or act(s) or Employee
fails to provide assurances that he will no longer engage in such event(s) or
act(s).
Any post-employment restraints apply only if the Employee voluntarily
leaves the employ of the Company and such leave is not due to a breach by the
Company.
11. Waiver. Failure of the Company to exercise any rights under
this Agreement, or to insist on full performance of all obligations hereunder
shall not be construed as waiving any such rights.
12. Assignment. This agreement shall not be assignable by either
party without the written consent of the other. However, any payments due
hereunder shall, in the event of the death of Employee, be payable to
Employee's beneficiary or estate, as designated by Employee's last will and
testament or in accordance with applicable law.
13. Vesting. No title to any payments due herein shall vest in
Employee until actual payment is made by the Company in accordance with the
provisions of this agreement. Neither party shall have the right or power to
assign, anticipate, transfer, mortgage, or encumber any payment prior to its
actual receipt.
14. Miscellaneous Matters.
(a) Entire Agreement. This Agreement is the entire agreement between the
parties. The Employee agrees that no other promises or inducements have
been made to him unless contained in writing, attached hereto or
incorporated herein by reference.
(b) Binding Effect. This Agreement shall be binding upon the parties,
their heirs, personal representatives, successors, and permitted assigns.
It is specifically understood and agreed that the compensation specified
in paragraph 7, above, shall become due and payable even in the event of
the death or disability of the Employee. In the event of the
6
<PAGE> 7
death of the Employee, such amount shall be paid as directed in the Last
Will and Testament (including any codicils, changes, alterations, or
modifications in compliance with applicable laws) of the Employee, or in
the event that the Employee fails to make provision for such amount in
his Last Will and Testament (including any codicils, changes,
alterations, or modifications in compliance with applicable laws), such
amount shall be paid in accordance with the laws of descent and
distribution in the State where the estate of the Employee is probated.
(c) Modification. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity or enforceability of
the other provisions.
16. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
17. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
18. No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties,
except as is specified in paragraph 14(b), above.
19. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
20. Applicable Law. This Agreement shall be construed in accordance
with the laws and statutes of the State of Arkansas.
21. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall consist of an
arbitrator chosen by each party. The two arbitrators chosen shall select a
neutral arbitrator. The decision of the arbitration panel shall be
conclusively binding upon both parties unless there has been a clear error in
applicable of law to the facts determined by such arbitration panel. All fees
shall be paid by the losing party including all reasonable attorneys' fees,
expenses, and other costs directly related to dispute resolution.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC., an Arkansas corporation
By: /s/ Edward L. Schrader
Authorized Officer of the Company
EMPLOYEE
/s/ G. Howard Collingwood
G. Howard Collingwood
8
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 30th day of September, 1996 by
and between 7-7, Inc., a corporation (hereinafter referred to as the "Company")
and James Hodgson (hereinafter referred to as the "Employee").
WHEREAS, the Company desires to employ the Employee to serve as an
officer and employee of the Company, serving in the capacity of the director of
project development of 7-7, Inc., to perform various functions and duties
related thereto; and
WHEREAS, the Employee desires to be employed by the Company as an
employee and officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee agree as follows.
1. Employment. The Company agrees to employ the Employee for a
period of five (5) years beginning as of the date of the merger of 7-7, Inc.,
an Ohio corporation into 7-7 Merger, Inc., an Arkansas corporation. Employee
agrees to be employed by the Company for such time period upon the terms and
conditions stated herein. The Employee shall be an employee of the Company and
shall provide services to the Company or to Exsorbet Industries, Inc., an Idaho
corporation, or the successor of either, as the Company may direct. The
Employee will observe all Company policies and procedures as are applicable to
similarly situated executive employees and conduct himself in accordance with
directions from the Company. The Employee shall devote his working time and
best efforts to performance of the duties of this employment as designated by
the Company and shall, at all times, conduct himself so as to reflect favorably
upon the Company. The provisions of this paragraph shall not be construed as
limiting Employee from continuing the performance of part time businesses in
existence on the date of this Agreement. Employee shall be a salaried,
management level employee. As such, no additional compensation shall be
provided for hours worked in excess of forty per week or in excess of any
maximum time period established by the United States of America or any State
thereof in which Employee may provide services for the Company.
2. Identification of the Company. 7-7, Inc. is an Arkansas
corporation. It is a wholly-owned subsidiary of Exsorbet Industries, Inc., an
Idaho corporation (hereinafter referred to as "Exsorbet"). Exsorbet is a
publicly traded company, trading under the symbol "EXSO" on the NASDAQ Stock
Market.
3. Duties. Employee shall act as an officer of the Company,
serving as its director of engineering and compliance. Employee's job duties
include: (a) those duties normally associated with the person serving in the
capacity of the director of project development, and as have been performed on
behalf of 7-7, Inc., an Ohio corporation prior to its merger with 7-7 Merger,
Inc., an Arkansas corporation; and (b) any other duties reasonably required by
the president of Exsorbet
1
<PAGE> 2
Industries, Inc. The duties of Employee include the supervision and direction
of affairs of the Company, subject to the Company's by-laws and Board of
Directors approval.
4. Removal by Shareholder Action. Both parties understand and
acknowledge that Employee may be removed as an officer of the Company by
certain shareholder action. If Employee is removed as an officer of the
Company, he shall continue to serve the Company as an employee providing the
same type of sales, supervisory, and technical services as exist on the date of
execution of this agreement and thereafter. The remaining provisions of this
agreement concerning benefits and compensation due to Employee shall remain in
full force and effect despite removal of Employee as a Company officer unless
such removal is for cause, as defined herein, or is otherwise in compliance
with other provisions of this agreement.
5. Company Benefits. The Employee will be the beneficiary of and
permitted to participate in all of the Company s standard benefit plans and
perquisites which are from time to time made available to employees similarly
situated. The Employee understands, however, that all such standard benefit
plans of the Company are subject to change from time to time and can also be
eliminated completely. Employee may elect to purchase disability insurance
equal to two-thirds of the base salary of Employee, through an insurance
company and agent determined by Employee. Such expense shall be paid by
Employee. However, the Company agrees to cause such amount to be withheld from
compensation due to Employee on a pre-tax basis, to the extent permissible
under the Internal Revenue Code and applicable state statutes and regulations.
6. Compensation. The Company shall pay the Employee an annual
salary equal to Seventy-Five Thousand Dollars ($75,000.00) for the period
beginning on the merger of 7-7, Inc. with 7-7 Merger, Inc., an Arkansas
corporation. Such amount shall be adjusted annually in accordance with the
cost of living index, to be paid bi-weekly or upon such other basis as is
reasonably determined by Exsorbet Industries, Inc. In no event shall Employee
be provided with a compensation check less frequently than one time per month.
The compensation due to Employee may, at the option of the Company, be
increased based upon the contributions of Employee. The increase in
compensation described herein shall not, however, place a mandatory obligation
upon the Company.
7. Additional Compensation. Employee shall receive 1.89875
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7, Inc. or its successor will operate as a subsidiary or
separate division of Exsorbet Industries, Inc.;
(b) only expenses incurred by 7-7, Inc. will be used in determining
"pre-tax income;"
2
<PAGE> 3
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7,
Inc. will not be used in calculating "pre-tax income" unless agreed to
by and between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other
than 7-7, Inc. causes additional capital to be placed into the
operation of 7-7, Inc. for working capital, equipment, or other
capital expenditures, an interest charge equivalent to the prime
interest rate may be taken as a deduction to "pre-tax income," and
management of 7-7, Inc. will have reasonable input regarding the
revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 $3,041,750.00
1-1-2001 to 12-31-2001 $3,498,013.00.
</TABLE>
It is specifically noted that should Employee voluntarily terminate
this Agreement, the right to receive the proceeds specified in this paragraph
shall immediately cease. If Employee is terminated without cause, however,
such proceeds will be distributed to Employee.
8. Expenses. The Company shall reimburse Employee for all
authorized, ordinary, and necessary expenses incurred by Employee in connection
with the duties of Employee. Employee shall submit all reasonably requested
receipts and documentation evidencing the nature and incurring of such expenses
to the accounting department of Exsorbet Industries, Inc. Reimbursement will
occur during the next pay period.
9. Noncompetition and Nondisclosure.
(a) The Employee acknowledges that the Company has or will provide
substantial training and will impart to the Employee confidential
information and trade secrets
3
<PAGE> 4
about its business, sales policies, and manufacturing methods. The
Employee also understands that the nature of the business is such that
the relationship between the Company and its customers is maintained
through close personal contact with the Company Employees. Therefore,
the Employee agrees that during the period of his employment and for
a period of two years immediately following termination of such
employment, the Employee will not, directly or indirectly, for himself
or on behalf of others, as an individual on his own account or as an
employee, agent, or employee for any person, partnership, firm, or
corporation:
(1) solicit or provide services to any individual or entity
which had been a customer or client of the Company or of
Exsorbet Industries, Inc., or any of its subsidiaries, within
the one year period immediately prior to Employee's
termination with the Company; or
(2) solicit or provide services to any individual or entity
which had negotiated with the Company, Exsorbet Industries,
Inc., or any of its subsidiaries for services to be provided
by any such entity within the one year period immediately
prior to Employee's termination with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same
type as is performed by the Company, Exsorbet Industries, Inc., or any
of its subsidiaries. The provisions of this agreement shall be
limited to North America.
(b) Employee agrees that the trade secrets, customer lists, price
lists, operating manuals, policy manuals, confidential corporate
documents, or other specialized information learned while with the
Company is proprietary and the product of the Company. Employee
agrees that he will not, after the termination of his employment with
the Company, whether during the initial term of this agreement, at the
end of the initial term, or thereafter, use or divulge such
information, directly or indirectly, without the express written
consent of the Company. In the event that the provisions of this
paragraph are construed as being overly broad, such provisions shall
be limited to a two year time period following the termination of
Employee's employment relationship with the Company.
(c) The Employee also agrees that during the period of his employment
and for two years thereafter he will not, directly or indirectly,
induce or attempt to induce any employee to terminate employment with
the Company or interfere with or disrupt Company's relationship with
other employees, unless such action is taken as a part of the duties
of Employee under this agreement and in consideration of the fiduciary
duty owed by Employee to the Company. Employee further agrees that
for the same time period, he will not solicit, entice, take away, or
employ any person employed
4
<PAGE> 5
with the Company.
10. Termination. This employment agreement may be terminated at any
time:
(a) by the Employee's death or disability which renders Employee
unable to perform services required by Employee under this Agreement;
(b) by the Company for good cause as hereinafter defined;
(c) upon thirty (30) days written notice by the Employee; or
(d) at the election of the Company without good cause, provided that
the Employee shall receive a separation pay in an amount equal to all the
direct compensation that would otherwise have been due had this employment
agreement been carried out to its full term.
The term "good cause" means (a) intentional or reckless misrepresentation
by the Employee to the Company s customers or potential customers concerning
the Company' s ability to provide its products or services; (b) a criminal act
[or acts] by the Employee which results in a financial loss to the Company; (c)
intentional and repeated refusal by the Employee to perform the duties assigned
to him under this Agreement; (d) conviction of the Employee of a felony crime
or a crime involving moral turpitude; or (e) intentional misconduct by Employee
which is probable to result in a material financial harm to the Company unless
termination of Employee occurs. The provisions of subparts (c) and (e) of this
paragraph shall not be "good cause" unless Employee is given written notice of
the specific event(s) or act(s) in question. Thereafter, "good cause" shall
only exist if either Employee engages in such event(s) or act(s) or Employee
fails to provide assurances that he will no longer engage in such event(s) or
act(s).
11. Waiver. Failure of the Company to exercise any rights under this
Agreement, or to insist on full performance of all obligations hereunder shall
not be construed as waiving any such rights.
12. Assignment. This agreement shall not be assignable by either
party without the written consent of the other. However, any payments due
hereunder shall, in the event of the death of Employee, be payable to
Employee's beneficiary or estate, as designated by Employee's last will and
testament or in accordance with applicable law.
13. Vesting. No title to any payments due herein shall vest in
Employee until actual payment is made by the Company in accordance with the
provisions of this agreement. Neither party shall have the right or power to
assign, anticipate, transfer, mortgage, or encumber any payment prior to its
actual receipt.
14. Miscellaneous Matters.
5
<PAGE> 6
(a) Entire Agreement. This Agreement is the entire agreement between the
parties. The Employee agrees that no other promises or inducements have
been made to him unless contained in writing, attached hereto or
incorporated herein by reference.
(b) Binding Effect. This Agreement shall be binding upon the parties,
their heirs, personal representatives, successors, and permitted assigns.
It is specifically understood and agreed that the compensation specified in
paragraph 7, above, shall become due and payable even in the event of the
death or disability of the Employee. In the event of the death of the
Employee, such amount shall be paid as directed in the Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws) of the Employee, or in the event that
the Employee fails to make provision for such amount in his Last Will and
Testament (including any codicils, changes, alterations, or modifications
in compliance with applicable laws), such amount shall be paid in
accordance with the laws of descent and distribution in the State where the
estate of the Employee is probated.
(c) Modification. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity or enforceability of
the other provisions.
16. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
17. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
18. No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties,
except as is specified in paragraph 14(b), above.
19. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
20. Applicable Law. This Agreement shall be construed in accordance
with the laws and statutes of the State of Arkansas.
21. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall
6
<PAGE> 7
consist of an arbitrator chosen by each party. The two arbitrators chosen
shall select a neutral arbitrator. The decision of the arbitration panel shall
be conclusively binding upon both parties unless there has been a clear error
in applicable of law to the facts determined by such arbitration panel.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC., an Arkansas corporation
By: /s/ James Connors
Authorized Officer of the Company
EMPLOYEE
/s/ JAMES HODGSON
---------------------------------
James Hodgson
7
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 30th day of September, 1996 by
and between 7-7, Inc., a corporation (hereinafter referred to as the "Company")
and Edward Kurzenberger (hereinafter referred to as the "Employee").
WHEREAS, the Company desires to employ the Employee to serve as an
officer and employee of the Company, serving in the capacity of the director of
accounting and finance of 7-7, Inc., to perform various functions and duties
related thereto; and
WHEREAS, the Employee desires to be employed by the Company as an
employee and officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Employee agree as follows.
1. Employment. The Company agrees to employ the Employee for a
period of five (5) years beginning as of the date of the merger of 7-7, Inc.,
an Ohio corporation into 7-7 Merger, Inc., an Arkansas corporation. Employee
agrees to be employed by the Company for such time period upon the terms and
conditions stated herein. The Employee shall be an employee of the Company and
shall provide services to the Company or to Exsorbet Industries, Inc., an Idaho
corporation, or the successor of either, as the Company may direct. The
Employee will observe all Company policies and procedures as are applicable to
similarly situated executive employees and conduct himself in accordance with
directions from the Company. The Employee shall devote his working time and
best efforts to performance of the duties of this employment as designated by
the Company and shall, at all times, conduct himself so as to reflect favorably
upon the Company. The provisions of this paragraph shall not be construed as
limiting Employee from continuing the performance of part time businesses in
existence on the date of this Agreement. Employee shall be a salaried,
management level employee. As such, no additional compensation shall be
provided for hours worked in excess of forty per week or in excess of any
maximum time period established by the United States of America or any State
thereof in which Employee may provide services for the Company.
2. Identification of the Company. 7-7, Inc. is an Arkansas
corporation. It is a wholly-owned subsidiary of Exsorbet Industries, Inc., an
Idaho corporation (hereinafter referred to as "Exsorbet"). Exsorbet is a
publicly traded company, trading under the symbol "EXSO" on the NASDAQ Stock
Market.
3. Duties. Employee shall act as an officer of the Company,
serving as its director of accounting and finance. Employee's job duties
include: (a) those duties normally associated with the person serving in the
capacity of the director of accounting and finance, and as have been performed
on behalf of 7-7, Inc., an Ohio corporation prior to its merger with 7-7
Merger, Inc., an Arkansas corporation; and (b) any other duties reasonably
required by the president of Exsorbet
1
<PAGE> 2
Industries, Inc. The duties of Employee include the supervision and direction
of affairs of the Company, subject to the Company's by-laws and Board of
Directors approval.
4. Removal by Shareholder Action. Both parties understand and
acknowledge that Employee may be removed as an officer of the Company by
certain shareholder action. If Employee is removed as an officer of the
Company, he shall continue to serve the Company as an employee providing the
same type of sales, supervisory, and technical services as exist on the date of
execution of this agreement and thereafter. The remaining provisions of this
agreement concerning benefits and compensation due to Employee shall remain in
full force and effect despite removal of Employee as a Company officer unless
such removal is for cause, as defined herein, or is otherwise in compliance
with other provisions of this agreement.
5. Company Benefits. The Employee will be the beneficiary of and
permitted to participate in all of the Company s standard benefit plans and
perquisites which are from time to time made available to employees similarly
situated. The Employee understands, however, that all such standard benefit
plans of the Company are subject to change from time to time and can also be
eliminated completely. Employee may elect to purchase disability insurance
equal to two-thirds of the base salary of Employee, through an insurance
company and agent determined by Employee. Such expense shall be paid by
Employee. However, the Company agrees to cause such amount to be withheld from
compensation due to Employee on a pre-tax basis, to the extent permissible
under the Internal Revenue Code and applicable state statutes and regulations.
6. Compensation. The Company shall pay the Employee an annual
salary equal to Seventy-Five Thousand Dollars ($75,000.00) for the period
beginning on the merger of 7-7, Inc. with 7-7 Merger, Inc., an Arkansas
corporation. Such amount shall be adjusted annually in accordance with the
cost of living index, to be paid bi-weekly or upon such other basis as is
reasonably determined by Exsorbet Industries, Inc. In no event shall Employee
be provided with a compensation check less frequently than one time per month.
The compensation due to Employee may, at the option of the Company, be
increased based upon the contributions of Employee. The increase in
compensation described herein shall not, however, place a mandatory obligation
upon the Company.
7. Additional Compensation. Employee shall receive 1.89875
percent of the "pre-tax income," of Exsorbet Industries, Inc. which is solely
attributable to the operation of 7-7, Inc. or its successor and which exceeds
the "base amount" specified below for the time periods indicated. "Pre-tax
income" shall be calculated in accordance with generally accepted accounting
principles, and the following guidelines shall apply in calculating such "pre-
tax income:"
(a) 7-7, Inc. or its successor will operate as a subsidiary or
separate division of Exsorbet Industries, Inc.;
(b) only expenses incurred by 7-7, Inc. will be used in determining
"pre-tax income;"
2
<PAGE> 3
(c) expenses of Exsorbet Administration, Inc. in the operation of 7-7,
Inc. will not be used in calculating "pre-tax income" unless agreed to
by and between the parties; and
(d) if Exsorbet Industries, Inc. or one of its subsidiaries other
than 7-7, Inc. causes additional capital to be placed into the
operation of 7-7, Inc. for working capital, equipment, or other
capital expenditures, an interest charge equivalent to the prime
interest rate may be taken as a deduction to "pre-tax income," and
management of 7-7, Inc. will have reasonable input regarding the
revenues and expenses of 7-7; and
(e) any corporate charges from Exsorbet Industries, Inc. to the
"pre-tax income" must be mutually agreed.
The "base amount" and time period for pay-out is as follows:
<TABLE>
<CAPTION>
Time Period Base Amount
----------- -----------
<S> <C>
7-1-1996 to 12-31-1996 $0.00
1-1-97 to 12-31-97 $2,000,000.00
1-1-98 to 12-31-98 $2,300,000.00
1-1-99 to 12-31-99 $2,645,000.00
1-1-2000 to 12-31-2000 $3,041,750.00
1-1-2001 to 12-31-2001 $3,498,013.00.
</TABLE>
It is specifically noted that should Employee voluntarily terminate
this Agreement, the right to receive the proceeds specified in this paragraph
shall immediately cease. If Employee is terminated without cause, however,
such proceeds will be distributed to Employee.
8. Expenses. The Company shall reimburse Employee for all
authorized, ordinary, and necessary expenses incurred by Employee in connection
with the duties of Employee. Employee shall submit all reasonably requested
receipts and documentation evidencing the nature and incurring of such expenses
to the accounting department of Exsorbet Industries, Inc. Reimbursement will
occur during the next pay period.
9. Noncompetition and Nondisclosure.
(a) The Employee acknowledges that the Company has or will provide
substantial training and will impart to the Employee confidential
information and trade secrets
3
<PAGE> 4
about its business, sales policies, and manufacturing methods. The
Employee also understands that the nature of the business is such that
the relationship between the Company and its customers is maintained
through close personal contact with the Company Employees. Therefore,
the Employee agrees that during the period of his employment and for
a period of two years immediately following termination of such
employment, the Employee will not, directly or indirectly, for himself
or on behalf of others, as an individual on his own account or as an
employee, agent, or employee for any person, partnership, firm, or
corporation:
(1) solicit or provide services to any individual or entity
which had been a customer or client of the Company or of
Exsorbet Industries, Inc., or any of its subsidiaries, within
the one year period immediately prior to Employee's
termination with the Company; or
(2) solicit or provide services to any individual or entity
which had negotiated with the Company, Exsorbet Industries,
Inc., or any of its subsidiaries for services to be provided
by any such entity within the one year period immediately
prior to Employee's termination with the Company.
As used in this entire paragraph, the term "solicit or provide
services" shall refer to soliciting work or employment of the same
type as is performed by the Company, Exsorbet Industries, Inc., or any
of its subsidiaries. The provisions of this agreement shall be
limited to North America.
(b) Employee agrees that the trade secrets, customer lists, price
lists, operating manuals, policy manuals, confidential corporate
documents, or other specialized information learned while with the
Company is proprietary and the product of the Company. Employee
agrees that he will not, after the termination of his employment with
the Company, whether during the initial term of this agreement, at the
end of the initial term, or thereafter, use or divulge such
information, directly or indirectly, without the express written
consent of the Company. In the event that the provisions of this
paragraph are construed as being overly broad, such provisions shall
be limited to a two year time period following the termination of
Employee's employment relationship with the Company.
(c) The Employee also agrees that during the period of his employment
and for two years thereafter he will not, directly or indirectly,
induce or attempt to induce any employee to terminate employment with
the Company or interfere with or disrupt Company's relationship with
other employees, unless such action is taken as a part of the duties
of Employee under this agreement and in consideration of the fiduciary
duty owed by Employee to the Company. Employee further agrees that
for the same time period, he will not solicit, entice, take away, or
employ any person employed
4
<PAGE> 5
with the Company.
10. Termination. This employment agreement may be terminated at
any time:
(a) by the Employee's death or disability which renders Employee
unable to perform services required by Employee under this Agreement;
(b) by the Company for good cause as hereinafter defined;
(c) upon thirty (30) days written notice by the Employee; or
(d) at the election of the Company without good cause, provided
that the Employee shall receive a separation pay in an amount equal to
all the direct compensation that would otherwise have been due had
this employment agreement been carried out to its full term.
The term "good cause" means (a) intentional or reckless
misrepresentation by the Employee to the Company s customers or potential
customers concerning the Company' s ability to provide its products or
services; (b) a criminal act [or acts] by the Employee which results in a
financial loss to the Company; (c) intentional and repeated refusal by the
Employee to perform the duties assigned to him under this Agreement; (d)
conviction of the Employee of a felony crime or a crime involving moral
turpitude; or (e) intentional misconduct by Employee which is probable to
result in a material financial harm to the Company unless termination of
Employee occurs. The provisions of subparts (c) and (e) of this paragraph
shall not be "good cause" unless Employee is given written notice of the
specific event(s) or act(s) in question. Thereafter, "good cause" shall only
exist if either Employee engages in such event(s) or act(s) or Employee fails
to provide assurances that he will no longer engage in such event(s) or act(s).
11. Waiver. Failure of the Company to exercise any rights under
this Agreement, or to insist on full performance of all obligations hereunder
shall not be construed as waiving any such rights.
12. Assignment. This agreement shall not be assignable by either
party without the written consent of the other. However, any payments due
hereunder shall, in the event of the death of Employee, be payable to
Employee's beneficiary or estate, as designated by Employee's last will and
testament or in accordance with applicable law.
13. Vesting. No title to any payments due herein shall vest in
Employee until actual payment is made by the Company in accordance with the
provisions of this agreement. Neither party shall have the right or power to
assign, anticipate, transfer, mortgage, or encumber any payment prior to its
actual receipt.
14. Miscellaneous Matters.
5
<PAGE> 6
(a) Entire Agreement. This Agreement is the entire agreement between
the parties. The Employee agrees that no other promises or
inducements have been made to him unless contained in writing, attached
hereto or incorporated herein by reference.
(b) Binding Effect. This Agreement shall be binding upon the parties,
their heirs, personal representatives, successors, and permitted
assigns. It is specifically understood and agreed that the compensation
specified in paragraph 7, above, shall become due and payable even in
the event of the death or disability of the Employee. In the event of
the death of the Employee, such amount shall be paid as directed in the
Last Will and Testament (including any codicils, changes, alterations,
or modifications in compliance with applicable laws) of the Employee,
or in the event that the Employee fails to make provision for such
amount in his Last Will and Testament (including any codicils, changes,
alterations, or modifications in compliance with applicable laws), such
amount shall be paid in accordance with the laws of descent and
distribution in the State where the estate of the Employee is probated.
(c) Modification. This Agreement may not be modified unless such
modification is made in writing and signed by all parties.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any one or more of
the provisions of this Agreement shall not affect the validity or
enforceability of the other provisions.
16. Governing Law. This agreement and any amendments or addendums
thereto shall be governed by and construed in accordance with the laws of the
State of Arkansas.
17. Headings. Titles of the paragraphs are placed herein for
convenient reference only and shall not to any extent have the effect of
modifying, amending or changing the express terms and provisions of this
Agreement.
18. No Third Party Rights. None of the provisions contained in
this Agreement shall be for the benefit of or enforceable by any third parties,
except as is specified in paragraph 14(b), above.
19. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
20. Applicable Law. This Agreement shall be construed in
accordance with the laws and statutes of the State of Arkansas.
21. Dispute Resolution. In the event of any dispute arising under
this agreement or between the parties whatsoever, resolution of such disputes
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association. Any such arbitration proceeding shall
6
<PAGE> 7
consist of an arbitrator chosen by each party. The two arbitrators chosen shall
select a neutral arbitrator. The decision of the arbitration panel shall be
conclusively binding upon both parties unless there has been a clear error in
applicable of law to the facts determined by such arbitration panel.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the date first written.
7-7, INC., an Arkansas corporation
By: /s/ James Connors
Authorized Officer of the Company
EMPLOYEE
/s/ Edward Kurzenberger
Edward Kurzenberger
7
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
$___________ September 30, 1996
Wooster, Ohio
FOR VALUE RECEIVED, the undersigned, Exsorbet Industries, Inc., an
Idaho corporation, promises to pay to the order of ________________, the sum of
___________________________ with interest thereon at the rate of eight percent
(8.0%) per annum due and payable as follows:
First payment of principal and interest in the amount of
__________________________________________ due on the 1st day of December,
1996, and quarterly payments to continue thereafter due on the first day of the
months of March, June, September, and December of each year until all principal
and interest are paid in full.
Both principal and interest under this note shall be payable at 2958
TWP Road #709, Londonville, OH 44842 or such other place as the holder may
designate in writing.
In the event of default continuing for a period of ninety (90) days in
the payment of any installment following notice by certified mail to the makers
of this note at their last known address, the holder of this indebtedness shall
have the option to declare the entire indebtedness to be immediately due and
payable and the same shall thereafter bear interest at the rate of ten percent
(10%) per annum until paid. Notice of the exercising of said option is hereby
waived and no delay in the exercise of it shall be construed as a waiver of
such right; and said option may be exercised at any subsequent time during
default.
The maker hereof agrees to indemnify the holder of this note for all
reasonable attorney's fees which are incurred for services actually rendered in
the collection of this note, provided that such fee shall not exceed ten
percent (10%) of the amount of principal plus accrued interest due.
The entire outstanding principal may be prepaid at any time, without penalty.
EXSORBET INDUSTRIES, INC.,
an Idaho corporation
By: /s/ James Connors
Authorized Officer
<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
This Agreement is made and entered into on this 30th day of September,
1996, by and between American Physicians Service Group, Inc., a Texas
corporation (the "Buyer"), and Exsorbet Industries, Inc., an Idaho corporation
(the "Seller").
In consideration of the premises and the mutual promises herein made,
and in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows:
1. Definitions.
"Exsorbet" and "Exsorbet Industries, Inc." refer to that certain
entity which is incorporated under the laws of the State of Idaho under the
name "Exsorbet Industries, Inc." as well as any successor corporation.
"Shareholder Rights Agreement"means an Agreement by and between
American Physicians Service Group, Inc. and Exsorbet Industries, Inc. dated
September 30, 1996 and entitled "Shareholder Rights Agreement."
"Stock Put Agreement"means an Agreement by and between American
Physicians Service Group, Inc. and Exsorbet Industries, Inc. dated September
30, 1996, and entitled "Stock Put Agreement."
2. Purchase and Sale of 1,200,000 Shares of Common Stock.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, and further subject to the terms of the Stock Put Agreement and
Shareholder Rights Agreement, Buyer agrees to, and does hereby, purchase from
Seller One Million Two Hundred Thousand (1,200,000) shares of common (capital)
stock of Exsorbet Industries, Inc. at the price of Two Dollars and Seventy-Five
Cents ($2.75) per share.
(b) Delivery of Share Certificate. Buyer acknowledges receipt of a
certificate evidencing 1,200,000 shares of common stock of Exsorbet Industries,
Inc., such certificate being issued in the name of "American Physicians Service
Group, Inc."
(c) Payment. Seller acknowledges receipt of Three Million Three
Hundred Thousand U.S. Dollars ($3,300,000) from Buyer as payment in full for
the shares of stock specified above. Such sum is being delivered by wire
transfer to a banking account directed by Seller.
3. Stock Registration. Unless and until registered, all of the
shares of stock issued by Exsorbet Industries, Inc. pursuant to this Agreement
may not be sold or transferred unless and until registered or pursuant to a
valid exemption from registration. All stock certificates issued pursuant
<PAGE> 2
to this Agreement shall bear a restrictive legend in substantially the
following form:
"No sale, offer to sell, or transfer of the shares represented by this
certificate shall be made unless a registration statement under the
Federal Securities Act of 1933, as amended, with respect to such
shares is then in effect or an exemption from the registration
requirements of said act is then in fact applicable to said shares."
4. Representations of Exsorbet. Seller represents and warrants
the following facts to be true as of the time of execution of this Agreement:
(a) Exsorbet Industries, Inc. is a corporation duly organized and
existing under the laws of the State of Idaho, and is in good standing
within the State of Idaho;
(b) Seller has full corporate power and authority to perform its
obligations hereunder;
(c) Neither the execution and the delivery of this Agreement, nor
the consummation of the transaction contemplated hereby, will violate
any corporate by-laws, corporate charter, court orders, injunctions,
decrees, or rulings;
(d) There is only one class of stock of Exsorbet Industries, Inc.,
being the common or capital stock of such corporation. There is only
series of such stock. There are no series or classes of stock with
any preferred or preferential rights;
(e) The stock of Exsorbet Industries, Inc. trades on the Nasdaq
Stock Market, Inc. SmallCap Market under the symbol "EXSO;" and
(f) The shareholders of Exsorbet Industries, Inc. have been
requested to approve a proposed merger of such corporation into
Consolidated Eco-Systems, Inc., a Delaware corporation. If such
merger is approved, the Delaware corporation would be the surviving
corporation. Consolidated Eco-Systems, Inc. is, or when organized
will be, a wholly-owned subsidiary of Exsorbet Industries, Inc. In
the event that the proposed merger is approved, Exsorbet Industries,
Inc. binds and obligates itself to insure, and warrants, that
Consolidated Eco-Systems, Inc. would be bound by each and every term
of this Agreement.
5. Representations and Understandings of American Physicians
Service Group, Inc. Buyer understands that the shares of stock issued pursuant
to this Agreement have not been, and will not by the terms of this Agreement
be, registered under the Securities Act, or under any state securities laws,
and are being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering. The terms of this
paragraph may be modified or amended by other Agreements existing between the
parties.
2
<PAGE> 3
Buyer represents that:
(i) it is acquiring the shares of common stock of Exsorbet
Industries, Inc. solely for its own account for investment purposes,
and not with a view to the distribution thereof;
(ii) it is a sophisticated investor with knowledge and experience in
business and financial matters;
(iii) it has received certain information concerning the Buyer and has
had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding the
stock of the Seller, provided however that the terms hereof shall be
subject to a 60 day Stock Put Agreement during which time Buyer shall
be afforded the right to conduct full due diligence inquiry of Seller,
to the extent desired;
(iv) it is able to bear the economic risk and lack of liquidity
inherent in holding the stock of Seller;
(v) it is an Accredited Investor, as defined by Regulation D
promulgated pursuant to the Securities Act of 1933, as amended; and
(vi) it has full corporate power and authority to enter into this
Agreement and to consummate the transaction contemplated hereunder.
6. Subsidiary Disclosure. Exsorbet Industries, Inc. has provided
information concerning its operating structure and specifically including a
list of its subsidiary corporations. Exsorbet represents and warrants that
such information is complete and accurate. A list of subsidiary corporations
is attached hereto, marked as Exhibit "A" and incorporated herein by reference.
7. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
8. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and the Sellers; provided, however, that Buyer
may assign this Agreement and its rights hereunder to any subsidiary or
affiliate of Buyer, and Buyer may transfer or convey its rights in any shares
of stock of the Seller and the Seller may merge with that certain Delaware
corporation known as Consolidated Eco-Systems, Inc., provided that such
corporation agrees to be completely bound by all terms of all contracts in
existence between the parties.
3
<PAGE> 4
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
10. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
three business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Copy to: Charles E. Chunn, Jr., 1401
South Waldron Road, Suite
201, Fort Smith, AR 72903.
If to the Buyer: Copy to: Duane K. Boyd, Jr., 1301
Capital of Texas Highway,
Suite C-300, Austin, TX
78746-6550.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Texas.
13. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
14. Severability. Any term or provision of this Agreement that is
invalid or unenforceable
4
<PAGE> 5
in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
EXSORBET INDUSTRIES, INC.,
an Idaho corporation
"SELLER"
By: /s/ James Connors
Title: Executive Vice-President
AMERICAN PHYSICIAN SERVICE GROUP, INC.
a Texas corporation
"BUYER"
By: Duane Boyd, Jr.
Title: President
5
<PAGE> 6
EXHIBIT "A"
EXSORBET INDUSTRIES, INC.
REVENUE GENERATING SUBSIDIARY CORPORATIONS
Consolidated Environmental Services, Inc., an Arkansas corporation;
Cierra, Inc., an Arkansas corporation.;
Larco Environmental Services, Inc., a Louisiana corporation.;
KR Industrial Service of Alabama, Inc., an Alabama corporation at
present;
Exsorbet Technical Services, Inc., an Arkansas corporation, d/b/a
SpilTech Services, Inc.; and
Eco-Acquisition, Inc., an Arkansas corporation (this company will be
changing its name to Eco-Systems, Inc.).
This list does not include non-revenue generating subsidiaries of
Exsorbet Industries, Inc.
6
<PAGE> 1
EXHIBIT 10.9
STOCK PUT AGREEMENT
THIS STOCK PUT AGREEMENT (this "Agreement") is made as of the 30th day
of September, 1996 (the "Effective Date"), by and between Exsorbet Industries,
Inc., an Idaho corporation ("Exsorbet") and American Physicians Service Group,
Inc., a Texas corporation ("APS").
RECITALS:
WHEREAS, APS has purchased 1,200,000 shares of the common stock of
Exsorbet; and
WHEREAS, Exsorbet desires to allow APS to cause Exsorbet, at APS' option
for a period of sixty (60) days, to purchase APS' holdings of Exsorbet stock;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Shares Subject to this Agreement. The shares subject to this
Agreement are up to 1,200,000 shares of the outstanding common stock of
Exsorbet held by APS, including any increases, decreases or substitutions
therefor which occur after the date hereof as a result of any change (through
recapitalization, merger, consolidation, stock dividend, stock split,
combination,
<PAGE> 2
reverse stock split or exchange of shares or otherwise) in the character or
amount of such shares prior to the exercise by APS of its rights hereunder.
2. Option to Sell. Exsorbet irrevocably and unconditionally grants
to APS the right, privilege and option to sell to Exsorbet and Exsorbet hereby
irrevocably and unconditionally agrees to purchase, the Shares, for the price
and on the terms provided herein. This option can be exercised by APS notifying
Exsorbet in writing of the intent to exercise the option, in which case
Exsorbet will have ten (10) days to complete the purchase as required herein.
In the event the parties cannot agree on a time and place for a closing of the
purchase, the closing will occur at the offices of APS in Austin, Texas, at
1:00 p.m. Austin time on the tenth day after APS has given notice of exercise
to Exsorbet.
3. Purchase Price and Payment. The total purchase price to be paid
by Exsorbet for all the Shares is $3,300,000, or $2.75 per share for purchase
of a portion of the Shares. The total purchase price shall be paid at closing
in cash or certified funds or by execution and delivery by Exsorbet of a
promissory note (the "Note") payable to the order of APS in the original
principal amount of the purchase price in the form of Exhibit-A hereto. In the
event Exsorbet elects to pay for the Shares by execution and delivery of the
Note, APS shall be entitled to retain a first-lien, perfected security interest
in and to the Shares (in addition to whatever other collateral may be used to
secure Exsorbet's obligations hereunder as contemplated in Section 5 below) and
APS shall be entitled to retain possession of the certificates evidencing the
Shares to perfect such security interest. In the event the purchase price is
paid in cash or certified funds, or upon payment in full of the Note and
2
<PAGE> 3
all interest due thereon, APS shall deliver to Exsorbet all certificates
representing the Shares sold, duly endorsed to Exsorbet.
4. Assignment. This option and the rights granted under this
Agreement may be transferred or assigned by APS to any affiliate or subsidiary
of APS. Otherwise, the rights and obligations of the parties under this
Agreement may not be assigned or transferred without the express prior written
consent of the other party.
5. Obligations of Exsorbet Secured. The obligations of Exsorbet
under and pursuant to this Agreement shall be secured by that certain
Assignment and Security Agreement of even date herewith pursuant to which
Exsorbet grants a security interest in certain collateral to APS to secure
Exsorbet's obligations under this Agreement. In addition, the obligations of
Exsorbet under and pursuant to this Agreement are further guaranteed by the
payment and performance guarantees of each of Exsorbet's subsidiaries.
6. Insufficient Surplus. In connection with the purchase of any
Shares by Exsorbet pursuant to this Agreement, if the surplus of Exsorbet shall
prove to be insufficient under then existing laws to allow Exsorbet to purchase
all the Shares which APS then elects to sell to Exsorbet, Exsorbet shall,
within sixty (60) days of receipt of APS's written notice of intent to exercise
their option to sell Shares hereunder, take such action, execute such
instruments, and otherwise do whatever may be necessary to increase its surplus
to an amount sufficient to authorize the purchase of such Shares, including but
not limited to, one or more of the following:
3
<PAGE> 4
(a) a recapitalization of Exsorbet so as to reduce its capital
and increase its surplus;
(b) a reappraisal of the assets of Exsorbet including
goodwill, if any, to reflect the market value of such
assets on the books of Exsorbet in the event such value
exceeds the book value thereof, so as to increase such
surplus; or
(c) any and all other means or procedures as permitted by law.
7. Notices. All notices required to be given hereunder shall be
deemed to be duly given by personally delivering such notice or by mailing it
certified mail to all parties hereto at the following address:
Exsorbet: Exsorbet Industries, Inc.
1401 South Waldron, Suite 201
Fort Smith, Arkansas 72903
Attn: Charles E. Chunn, Jr.
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746-6550
Attn: President
The foregoing addresses may be changed by providing written notice of
such change of address by certified mail to the other parties to this
Agreement.
8. Exercise of Option. This option shall be exercisable at any time
or times until sixty (60) days after the Effective Date. Upon expiration of
this time period, if APS has not exercised
4
<PAGE> 5
its rights hereunder, Exsorbet shall pay APS $60,000 within five (5) days after
the expiration of such sixty (60) day period.
9. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, and their respective successors and
permitted assigns. Exsorbet may not assign this Agreement or any of its rights
or obligations hereunder without the prior express written consent of APS.
10. Governing Law. This Agreement shall be interpreted under the
laws of the State of Texas, and all obligations created hereunder are
performable in Travis County, Texas.
11. Further Assurances. All parties hereto agree to perform any
further acts and to execute and deliver any further documents which may be
reasonably necessary or convenient to carry out the provisions of this
Agreement.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this agreement in
multiple counterparts in Austin, Texas on the day and year first above written.
EXSORBET: EXSORBET INDUSTRIES, INC.
By: /s/ James Connors
----------------------------------
Printed Name: James Connors
------------------------
Title: Executive Vice President
-------------------------------
APS: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
----------------------------------
Printed Name: Duane K. Boyd, Jr.
------------------------
Title: President
-------------------------------
6
<PAGE> 7
PROMISSORY NOTE
Austin, Texas _______________________, 1996
FOR VALUE RECEIVED, the undersigned, EXSORBET INDUSTRIES, INC., an Idaho
corporation, ("Maker") promises to pay to the order of AMERICAN PHYSICIANS
SERVICE GROUP, INC., a Texas corporation ("Payee"), at 1301 Capital of Texas
Hwy., Suite C-300, Austin, Texas, 78746 ("Payee's Address"), the principal
amount of Three Million Three Hundred Thousand and 00/100 Dollars
($3,300,000.00) (the "Principal Amount"), or such less amount as may be
outstanding from time to time, together with interest on the unpaid balance of
such amount as provided herein, in lawful money of the United States of
America, in accordance with all the terms, conditions, and covenants of this
Note and the Transaction Documents identified below.
1. PAYMENT. The principal balance of this Note and all accrued and
unpaid interest is payable on or before October 1, 1997 (the "Maturity Date").
2. TRANSACTION DOCUMENTS AND COLLATERAL. This Note is executed and
delivered by Maker pursuant to the terms of the Stock Put Agreement dated
September 30, 1996, executed by and between among Maker and Payee (the "Stock
Put Agreement"), and this Note evidences Maker's indebtedness owing by Maker to
Payee under the terms of such Stock Put Agreement. This Note is secured by,
inter alia, the following: the Assignment and Security Agreement dated
September 30, 1996, executed by Maker as debtor and Payee as Secured Party (the
"Assignment"). This Note, the Stock Put Agreement, the Assignment, and all
other documents evidencing, securing, governing, guaranteeing, and/or
pertaining to this Note, including but not limited to those documents described
above, are sometimes collectively referred to as the "Transaction Documents".
Payee and any subsequent owner or holder of this Note is entitled to the
benefits and security provided in the Transaction Documents.
3. INTEREST PROVISIONS.
(a) Rate. The principal balance of this Note from time to
time remaining unpaid prior to maturity shall bear interest at a fixed rate per
annum equal to fifteen and 75/100 percent (15.75%) (the "Note Rate"), but never
greater than the "Maximum Lawful Rate", as that term is defined in this Note.
(b) Maximum Lawful Interest. The term "Maximum Lawful Rate"
means the maximum rate of interest, and the term "Maximum Lawful Amount" means
the maximum amount of interest that are permissible under applicable state or
federal law for the type of loan evidenced by this Note and the other
Transaction Documents. If Article 1.04 of the Texas Credit Code is applicable
to this Note, and applicable state or federal law does not permit a higher
interest rate, the "Indicated (Weekly) Ceiling" (as defined as Article
1.04(a)(1) of the Texas Credit Code) shall be the Interest Rate Ceiling
applicable to this Note and shall be the basis for determining the Maximum
Lawful Rate in effect from time to time during the term of this Note, unless a
different Interest Rate Ceiling is designated on the first page of this Note.
If applicable state or federal law allows a higher interest rate or federal law
preempts the state law limiting the rate of interest, then the foregoing
Interest Rate Ceiling shall not be applicable to this Note. If the Maximum
Lawful Rate is increased by statute or other governmental action subsequent to
the date of this Note, then the new Maximum Lawful Rate shall be applicable to
this Note from the effective date thereof, unless otherwise prohibited by
applicable law.
EXHIBIT "A"
PROMISSORY NOTE Page 1 of 5 Exsorbet Industries, Inc.
<PAGE> 8
(c) Spreading of Interest. Because of the possibility of
irregular periodic balances of principal and premature payment, the total
interest that will accrue under this Note cannot be determined in advance.
Payee does not intend to contract for, charge, or receive more than the Maximum
Lawful Rate or Maximum Lawful Amount permitted by applicable state or federal
law, and to prevent such an occurrence Payee and Maker agree that all amounts
of interest, whenever contracted for, charged, or received by Payee, with
respect to the loan of money evidenced by this Note, shall be spread, prorated,
or allocated over the full period of time this Note is unpaid, including the
period of any renewal or extension of this Note. If demand for payment of this
Note is made by Payee prior to the full stated term, the total amount of
interest contracted for, charged, or received to the time of such demand shall
be spread, prorated, or allocated along with any interest thereafter accruing
over the full period of time that this Note thereafter remains unpaid for the
purpose of determining if such interest exceeds the Maximum Lawful Amount.
(d) Excess Interest. At maturity (whether by acceleration or
otherwise) or on earlier final payment of this Note, Payee shall compute the
total amount of interest that has been contracted for, charged, or received by
Payee or payable by Maker under this Note and compare such amount to the
Maximum Lawful Amount that could have been contracted for, charged, or received
by Payee. If such computation reflects that the total amount of interest that
has been contracted for, charged, or received by Payee or payable by Maker
exceeds the Maximum Lawful Amount, then Payee shall apply such excess to the
reduction of the principal balance and not to the payment of interest; or if
such excess interest exceeds the unpaid principal balance, such excess shall be
refunded to Maker. This provision concerning the crediting or refund or excess
interest shall control and take precedence over all other agreements between
Maker and Payee so that under no circumstances shall the total interest
contracted for, charged, or received by Payee exceed the Maximum Lawful Amount.
(e) Interest After Default. At Payee's option, the unpaid
principal balance shall bear interest after maturity (whether by acceleration
or otherwise) at the "Default Interest Rate." The Default Interest Rate shall
be, at Payee's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate
is established by applicable law; or (ii) the Note Rate plus five (5)
percentage points, if no Maximum Lawful Rate is established by applicable law;
or (iii) eighteen percent (18%) per annum; or (iv) such lesser rate of interest
as Payee in its sole discretion may choose to charge; but never more than the
Maximum Lawful Rate or at a rate that would cause the total interest contracted
for, charged, or received by Payee to exceed the Maximum Lawful Amount.
(f) Daily Computation of Interest. To the extent permitted by
applicable law, Payee at its option may either (i) calculate the per diem
interest rate or amount based on the actual number of days in the year (365 or
366, as the case may be), and charge that per diem interest rate or amount each
day, or (ii) calculate the per diem interest rate or amount as if each year has
only 360 days, and charge that per diem interest rate or amount each day for
the actual number of days of the year (365 or 366 as the case may be). If this
Note calls for monthly payments, Payee at its option may determine the payment
amount based on the assumption that each year has only 360 days and each month
has 30 days. In no event shall Payee compute the interest in a manner that
would cause Payee to contract for, charge, or receive interest that would
exceed the Maximum Lawful Rate or the Maximum Lawful Amount.
EXHIBIT "A"
PROMISSORY NOTE Page 2 of 5 Exsorbet Industries, Inc.
<PAGE> 9
4. DEFAULT PROVISIONS.
(a) Events of Default and Acceleration of Maturity. Maker
agrees that an event of default shall exist under this Note and the other
Transaction Documents if: (i) Maker defaults in the payment of any installment
of principal, interest, or any other sum required to be paid under the terms of
this Note or any of the Transaction Documents; or (ii) there is a default in
the performance of any covenant, condition, or agreement contained in this Note
or any of the Transaction Documents, or an event of default or default
otherwise occurs or exists under any of the other Transaction Documents; or
(iii) the bankruptcy or insolvency of, the assignment for the benefit of
creditors by, or the appointment of a receiver for any of the property of, or
the liquidation, termination, dissolution or death or legal incapacity of, any
party liable for the payment of this Note, whether as maker, endorser,
guarantor, surety or otherwise. Maker agrees that if an event of default
occurs, Payee may, without notice or demand, except as otherwise required by
statute or otherwise specifically provided in this Note or any of the other
Transaction Documents, accelerate the maturity of this Note and declare the
entire unpaid principal balance and all accrued interest at once due and
payable, foreclose all liens and security interests securing this Note, and
exercise all other rights and remedies Payee may have under this Note and the
other Transaction Documents, including any one or more of the foregoing
remedies.
(b) WAIVER BY MAKER. MAKER AND ALL OTHER PARTIES LIABLE FOR
THIS NOTE WAIVE DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST, NOTICE OF PROTEST, GRACE, NOTICE OF DISHONOR,
NOTICE OF INTENT TO ACCELERATE MATURITY, NOTICE OF ACCELERATION OF MATURITY,
AND DILIGENCE IN COLLECTION. EACH MAKER, SURETY, ENDORSER, AND GUARANTOR OF
THIS NOTE WAIVES AND AGREES TO ONE OR MORE EXTENSIONS FOR ANY PERIOD OR PERIODS
OF TIME, AND ANY PARTIAL PAYMENTS, BEFORE OR AFTER MATURITY, WITHOUT PREJUDICE
TO THE HOLDER OF THIS NOTE. EACH MAKER, SURETY, ENDORSER, AND GUARANTOR WAIVES
NOTICE OF ANY AND ALL RENEWALS, EXTENSIONS, REARRANGEMENTS, AND MODIFICATIONS
OF THIS NOTE.
(c) Non-Waiver by Payee. Any previous extension of time,
forbearance, failure to pursue some remedy, acceptance of late payments, or
acceptance of partial payment by Payee, before or after maturity, does not
constitute a waiver by Payee of its subsequent right to strictly enforce the
collection of this Note according to its terms.
(d) Remedies. Payee shall not be required to first file suit,
exhaust all remedies, or enforce its rights against any security in order to
enforce payment of this Note. The rights, remedies, and recourses of Payee, as
provided in this Note and in any of the other Transaction Documents, shall be
cumulative and concurrent and may be pursued separately, successively or
together as often as occasion therefore shall arise, at the sole discretion of
Payee.
(e) Joint and Several Liability. Each Maker who signs this
Note, and all of the other parties liable for the payment of this Note, such as
guarantors, endorsers, and sureties, are jointly and severally liable for the
payment of this Note.
(f) Attorney's Fees. If Payee requires the services of an
attorney to enforce the payment of this Note or the performance of the other
Transaction Documents, or if this Note is collected through any lawsuit,
probate, bankruptcy, or other judicial proceeding, Maker agrees to pay Payee an
amount equal to its reasonable attorney's fees and other collection costs.
This provision shall be limited by any applicable statutory restrictions
relating to the collection of attorney's fees.
EXHIBIT "A"
PROMISSORY NOTE Page 3 of 5 Exsorbet Industries, Inc.
<PAGE> 10
5. MISCELLANEOUS PROVISIONS.
(a) Subsequent Holder. All references to Payee in this Note
shall also refer to any subsequent owner or holder of this Note by transfer,
assignment, endorsement, or otherwise.
(b) Transfer. Maker acknowledges and agrees that Payee may
transfer this Note or partial interests in the Note to one or more transferees
or participants. Maker authorizes Payee to disseminate any information it has
pertaining to the indebtedness evidenced by this Note, including, without
limitation, credit information on Maker and any guarantor of this Note, to any
such transferee or participant or prospective transferee or participant.
(c) Other Parties Liable. All promises, waivers, agreements,
and conditions applicable to Maker shall likewise be applicable to and binding
upon any other parties primarily or secondarily liable for the payment of this
Note, including all guarantors, endorsers, and sureties.
(d) Payment in U.S. Dollars. All payments and prepayments of
principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of Bank
indicated above, or such other place as the holder of this Note shall designate
in writing to Maker. The books and records of Bank shall be prima facie
evidence of all outstanding principal of and accrued and unpaid interest on
this Note.
(e) Payment on Business Days. The term "Business Day" shall
mean any day other than a Saturday, Sunday or any other day on which national
banking associations are authorized to be closed. If any payment of principal
of or interest on this Note shall become due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day and any
such extension of time shall be included in computing interest in connection
with such payment.
(d) Successors and Assigns. The provisions of this Note shall
be binding upon and for the benefit of the successors, assigns, heirs,
executors, and administrators of Payee and Maker.
(e) No Duty or Special Relationship. Maker acknowledges that
Payee has no duty of good faith to Maker, and Maker acknowledges that no
fiduciary, trust, or other special relationship exists between Payee and Maker.
If Payee and Maker are now engaged in or in the future engage in other business
transactions, such other business transactions are independent of this Note and
the indebtedness evidenced hereby and of the promises and covenants made by
Maker in this Note, and vice versa.
(f) Modifications. Any modifications agreed to by Payee
relating to the release of liability of any of the parties primarily or
secondarily liable for the payment of this Note, or relating to the release,
substitution, or subordination of all or part of the security for this Note,
shall in no way constitute a release of liability with respect to the other
parties or security not covered by such modification.
(g) Entire Agreement. Maker warrants and represents that the
Transaction Documents constitute the entire agreement between Maker and Payee
with respect to the indebtedness evidenced by this Note and agrees that no
modification, amendment, or additional
EXHIBIT "A"
PROMISSORY NOTE Page 4 of 5 Exsorbet Industries, Inc.
<PAGE> 11
agreement with respect to such indebtedness will be valid and enforceable
unless made in writing signed by both Maker and Payee.
(h) Maker's Address for Notice. All notices required to be
sent by Payee to Maker shall be sent by U.S. Mail, postage prepaid, to Maker's
Address stated next to Maker's signature below, until Payee shall receive
written notification from Maker of a new address for notice.
(i) Payee's Address for Payment. All sums payable by Maker to
Payee shall be paid at Payee's Address stated on the first page of this Note,
or at such other address as Payee shall designate from time to time.
(j) Chapter 15 Not Applicable. It is understood that Chapter
15 of the Texas Credit Code relating to certain revolving credit loan accounts
and tri-party accounts is not applicable to this Note.
(k) APPLICABLE LAW. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE
UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS IN TEXAS.
EXECUTED this _________ day of ___________________, 1996.
MAKER:
EXSORBET INDUSTRIES, INC.
(an Idaho corporation)
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EXHIBIT "A"
PROMISSORY NOTE Page 5 of 5 Exsorbet Industries, Inc.
<PAGE> 1
EXHIBIT 10.10
SHAREHOLDER RIGHTS AGREEMENT
This Shareholder Agreement (this "Agreement") is made and entered into
the 30th day of September, 1996 (the "Effective Date"), by and between Exsorbet
Industries, Inc., an Idaho corporation ("Exsorbet") and American Physicians
Service Group, Inc., a Texas corporation ("APS").
R E C I T A L S
WHEREAS, APS has purchased 1,200,000 shares of Exsorbet common stock and
has entered into a Stock Put Agreement (the "Stock Put") pursuant to which APS
may cause Exsorbet to repurchase such common stock; and
WHEREAS, the obligations of Exsorbet under the Stock Put will be secured
by a first lien security interest in all the capital stock of the Exsorbet
subsidiary which acquires 7-7, Inc., an Ohio corporation, by merger, and will
be further secured by the payment and performance guarantees of all
subsidiaries of Exsorbet (all such guarantees, together with the security
agreement and other documents entered into from time to time by or for the
benefit of APS in connection with securing the obligations of Exsorbet under
the Stock Put are hereinafter collectively referred to as the "Security
Documents"); and
<PAGE> 2
WHEREAS, APS has received a warrant (the "Warrant") to acquire 300,000
shares of the common stock of Exsorbet and has further received options (the
"Options") from certain stockholders of Exsorbet pursuant to which APS is
entitled to purchase, in the aggregate, an additional 1,700,000 shares of the
common stock of Exsorbet; and
WHEREAS, the parties hereto desire for APS to have certain registration
rights with regard to the 1,200,000 shares of common stock of Exsorbet
purchased by APS, and such additional Exsorbet common stock as may be acquired
by APS pursuant to the exercise of the Warrant and/or the Options, and to agree
on certain other matters concerning the governance of their affairs, on the
terms and conditions contained herein.
NOW, THEREFORE, for and in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Registration Rights.
(a) APS shall have the registration rights set forth herein
with respect to (i) the 1,200,000 shares of Exsorbet common stock purchased by
APS in connection with which this Agreement was entered into, and (ii) any
shares of the common stock of Exsorbet which APS acquires upon exercise of
rights granted pursuant to the Warrant, the Options or this Agreement, and
(iii) all stock (and rights related thereto) received with respect to any stock
described in (i) and/or (ii) by virtue of any stock dividends, stock splits,
mergers, consolidations, reclassifications or similar
2
<PAGE> 3
transactions or occurrences. The stock of Exsorbet owned by APS which is
subject to the registration rights provided in this Agreement is hereinafter
referred to as the "Registerable Stock." To exercise its registration rights,
APS must deliver to Exsorbet a written request (the "Request") requesting that
Exsorbet effect the registration under the Securities Act of 1933, as amended
(the "Securities Act"), and the registration and/or qualification under
applicable state securities laws (the "State Laws") of all or a specified
portion of the Registerable Stock, and specifying the intended method of
methods of disposition thereof, the jurisdictions in which such offering will
be made and whether such requested registration is to be an underwritten
offering.
(b) Exsorbet will use its best efforts to effect the
registration under the Securities Act and the registration and/or qualification
under the State Laws of the Registerable Stock, to the extent required to
permit the disposition thereof in accordance with the methods and in the
jurisdictions set forth in the Request; provided that Exsorbet may include in
such registration statement securities of Exsorbet ("Other Registerable
Securities") to be offered and sold by or on behalf of Exsorbet or any other
security holder of Exsorbet who possesses a right to have such securities
included in such registration statement and who timely exercises such right in
connection with the registration hereunder; provided that whenever Exsorbet
shall effect a registration pursuant to this Agreement in connection with an
underwritten offering, if (A) any underwriter representing APS in such offering
advises APS in writing that, in its opinion, the inclusion of Other
Registerable Securities would adversely affect such offering and (B) APS shall
not have consented in writing to the inclusion of such Other Registerable
Securities, then no securities other than shares of Registerable Stock shall be
included among the securities covered by such registration. A registration
requested pursuant to this Agreement shall be deemed to have been effected (i)
if and
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<PAGE> 4
when a registration statement filed with the Securities and Exchange Commission
(the "Commission") relating to the Registerable Stock has been declared
effective by the Commission or otherwise has become effective and registration
and/or qualification under all applicable State Laws has been completed;
provided that a registration requested pursuant to this Agreement shall not be
deemed to have been effected if after such registration has become effective,
such registration statement is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court due to reasons that are not the fault of APS and/or are not based on any
act or omission of APS, or (ii) if Exsorbet has commenced preparation of such a
registration statement under the Securities Act and such registration and/or
qualification under the State Laws and such registration statement does not
become effective or such registration and/or qualification is not completed in
either case by reason of the unreasonable refusal to proceed or lack of
reasonable cooperation of APS, Exsorbet shall be deemed to have effected a
registration under this Agreement and shall have no further obligation pursuant
hereto. If a requested registration pursuant to this Agreement involves an
underwritten offering, the underwriter(s) thereof shall be selected or approved
by APS. Notwithstanding the foregoing, APS agrees that for a period of one (1)
year after the Effective Date, APS will not request Exsorbet (except for
requests pursuant to subsection (f) below) to register more than 1,000,000
shares of Registerable Stock and that if APS requests the registration of any
excess Registerable Stock during the one (1) year period, then Exsorbet will
have sole discretion as to whether to allow APS to include in the registration
any additional Registerable Stock over such 1,000,000 share maximum. However,
if APS requests a registration in the one (1) year period after the Effective
Date and Exsorbet declines to allow APS to include all of the shares of
Registerable Stock owned by APS in such registration, then Exsorbet
4
<PAGE> 5
will cause all remaining shares of Registerable Stock owned by APS at the
conclusion of the one (1) year period to be fully registered and freely
tradeable within thirty (30) days after the expiration of the one (1) year
period after the Effective Date. Except for multiple registrations required by
the foregoing provisions, or as a result of registrations pursuant to
subsection (f) below, Exsorbet will not be required to effect more than one (1)
registration pursuant to this Agreement. Furthermore, in the event APS acquires
at least 1,000,000 shares of registered and freely tradeable Exsorbet common
stock within the sixty (60) day period immediately following the Effective
Date, then APS will not request Exsorbet to register (other than a registration
pursuant to subsection (f) below) any Registerable Stock before the expiration
of one (1) year after the Effective Date.
(c) Except as otherwise prohibited by applicable law, Exsorbet
will pay all fees and expenses incurred by Exsorbet in connection with the
registration of the Registerable Stock; except for any underwriting
commissions, transfer taxes, and fees and expenses of counsel for APS, if any,
attributable to the sale of the Registerable Stock, all of which shall be borne
by APS.
(d) If Exsorbet is required to use its best efforts to effect
a registration of the Registerable Stock under this Agreement, Exsorbet shall:
(i) promptly prepare and use its best efforts to file
with the Commission (but in no event more than thirty (30) days after receipt
of the Request from APS) a registration statement, on such appropriate
registration form of the Commission as shall permit the disposition of the
Registerable Stock and any Other Registerable Securities in accordance with the
intended method(s) of distribution specified in the Request for such
registration and use its best efforts thereafter to cause such registration
statement to become effective within thirty (30) days after filing;
5
<PAGE> 6
(ii) prepare and file as soon as reasonably practicable
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and such prospectus current and
to comply with the provisions of the Securities Act with respect to the
disposition of the Registerable Stock until the earliest of (A) such time as
all of the Registerable Stock has been disposed of in accordance with the
intended methods of disposition by APS, or (B) the expiration of the three (3)
year period that shall commence on the filing of the registration statement
pursuant to subparagraph (i) above;
(iii) furnish to APS such number of copies of preliminary
prospectuses and prospectuses included in such registration statement and each
amendment and supplement thereto as APS may reasonably request in order to
facilitate the disposition of the Registerable Stock;
(iv) use its best efforts to register or qualify the
Registerable Stock under the State Laws within thirty (30) days after the
filing of the registration statement with the Commission and to keep such
registration or qualification in effect for so long as the registration
statement filed with the Commission remains in effect as provided in (ii),
above, provided that Exsorbet shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
in which it would not otherwise be obligated to be so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general service
of process in any such jurisdiction, or to qualify as a dealer in securities;
(v) notify APS, at any time when a prospectus is
required to be delivered by APS under the Securities Act, upon discovery by
Exsorbet that the prospectus included in such registration statement, as then
in effect, or filed with the Commission pursuant to Rule 424(b),
6
<PAGE> 7
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, whereupon APS shall
suspend any offers or sales of Registerable Stock until such time as such
prospectus, as amended or supplemented from time to time, shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing; and
(vi) furnish, at the request of APS, on the date that
such shares are delivered to the underwriter or underwriters for sale in
connection with a registration pursuant to this Agreement, if such shares of
Registerable Stock are being sold through underwriters, (i) an opinion, dated
such date, of the counsel representing Exsorbet for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and (ii) a
letter dated such date, from the independent certified public accountants of
Exsorbet, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters.
(e) APS shall cooperate fully with Exsorbet in connection with
effecting a registration pursuant to this Agreement, including but not limited
to furnishing such information as Exsorbet may from time to time reasonably
request and as shall be required by law or by the Commission in connection with
such registration. In connection with the preparation and filing of any
registration statement under the Securities Act pursuant to this Agreement,
Exsorbet will give APS, APS' underwriters, if any, and APS' counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them
7
<PAGE> 8
reasonable access to its books and records and such opportunities to discuss
the business of Exsorbet with its officers and the independent public
accountants who have certified its financial statements as shall be reasonably
necessary to conduct a reasonable investigation within the meaning of the
Securities Act.
(f) If Exsorbet at any time (including, without limitation, at
any time during the one (1) year period after the Effective Date) proposes to
register any of its securities for sale to the public for its own account
and/or for the account of any other person, under the Securities Act (other
than by a registration on Form S-4, S-8 or any successor similar forms or any
other Commission form of limited applicability which would not permit such
additional registration), and if at such time APS has, or has the right to
acquire, any stock of Exsorbet that could qualify as Registerable Stock,
Exsorbet will, at least sixty (60) days prior to filing the registration
statement, give written notice to APS of its intention to do so and, subject to
the provisions hereof, permit APS to include in such registration their
Registerable Stock. Any such registration shall be at Exsorbet's expense,
except for underwriter's discounts or commissions or broker's commissions, if
any, attributable to such Registerable Stock and except for any other expenses
which APS elects to incur in connection therewith or is otherwise required to
bear pursuant to this Agreement. To exercise its rights pursuant to this
subsection, APS must deliver a Request to Exsorbet in accordance with the
provisions of Section 1(a), and Exsorbet will use its best efforts to effect
the registration under the Securities Act of all Registerable Stock which
Exsorbet has been so requested to register; provided that if, any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, Exsorbet shall determine for any reason not to register or to
delay registration of such securities, Exsorbet may, at its election, give
8
<PAGE> 9
written notice of such determination to APS and, thereupon, (i) in the case of
a determination not to register, shall be relieved of its obligation to
register any Registerable Stock in connection with such registration, and (ii)
in the case of a determination to delay registering shall be permitted to delay
registering any Registerable Stock being registered pursuant to this subsection
for the same period as the delay in registering such other securities.
If a registration pursuant to this subsection involves an underwritten
offering of the securities so being registered for sale for the account of
Exsorbet, to be distributed by or through one or more underwriters, whether or
not the Registerable Stock so requested to be registered for sale is also to be
included in such underwritten offering, and the managing underwriter of such
underwritten offering informs Exsorbet in writing of its belief that the number
of securities requested to be included in such registration exceeds the number
which can be sold in (or during) the time of such offering, then Exsorbet may
include in such offering all securities proposed by Exsorbet to be sold for its
own account; and Exsorbet shall only be required to use its best efforts to
include Registerable Stock in such registration on a pro rata basis (based on
the number of shares of securities held by all persons who have a contractual
right to have their securities included in the proposed registration and who
make a written request for inclusion of their shares in the proposed
registration) to the extent possible such that the total number of securities
to be included does not exceed the level recommended by the managing
underwriter. The obligations of Exsorbet described in subparagraphs (iii) and
(v) of Section 1(d) shall apply to any registration under this Section 1(f)
which includes Registerable Stock. Furthermore, the provision in Section 1(b)
that Exsorbet shall not be required
9
<PAGE> 10
to effect a registration prior to the expiration of one (1) year after the
Effective Date, shall not apply to any registration pursuant to this Section
1(f).
(g) In connection with any registration or qualification of
the Registerable Stock under this Agreement: (i) Exsorbet shall indemnify and
hold harmless APS and each underwriter thereof, including but not limited to
each person, if any, who controls APS or such underwriter within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities and expenses (including but not limited to reasonable expenses
incurred in investigation, preparing and defending against any claim) to which
such APS, underwriters or controlling persons may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise, insofar as the same arise out of or are based upon or are
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (as amended or
supplemented if Exsorbet shall have furnished any amendments or supplements
thereto) furnished pursuant to this Agreement or insofar as the same arise out
of or are based upon or are caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or insofar as the same arise out of or are
based upon any violation by Exsorbet of the Securities Act or the Exchange Act
or any rule or regulation thereunder; except that the foregoing indemnity
obligations shall not apply insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon or are caused by any
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished in writing by or on behalf of APS or any such
underwriter or control person, or arise out of or are based upon any violation
of the Securities Act, Exchange Act or any rule or regulation thereunder by APS
or any such underwriter or control person,
10
<PAGE> 11
and (ii) APS shall indemnify Exsorbet, its affiliates and their respective
officers, directors and control persons against all such losses, claims,
damages, liabilities and expenses (including but not limited to reasonable
expenses incurred in investigating, preparing and defending against any claim)
insofar as the same arise out of or are based upon or are caused by any such
untrue statement or alleged untrue statement or any such omission or alleged
omission based upon information furnished in writing by or on behalf of APS or
any such underwriter or control person or arise out of or are based upon any
violation of the Securities Act, Exchange Act or any rule or regulation
thereunder by APS or any such underwriter or control person; provided, however,
that the liability of APS hereunder shall be limited to the lesser of (i) the
net proceeds, if any, received by APS upon sale of the Registerable Stock
pursuant to any registration effected hereunder, or (ii) the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of shares of Registerable Stock sold by APS
under such registration statement bears to the total public offering price of
all securities sold thereunder.
Promptly upon receipt by a party indemnified under this Agreement
of notice of the commencement of any action against such indemnified party with
respect to which indemnity or reimbursement may be sought against any
indemnifying party under this Agreement, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party otherwise than under this
Agreement unless such failure shall materially adversely affect the defense of
such action. In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
11
<PAGE> 12
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable expenses incurred in investigating, preparing and defending against
any claim) shall be paid by the indemnified party unless (a) the indemnifying
party agrees to pay the same, (b) the indemnifying party fails to assume the
defense of such action with counsel reasonably satisfactory to the indemnified
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party), or (c) the
named parties to any such action (including any impleaded parties) have been
advised by such counsel that representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party). In the event that either of the circumstances described in
clauses (b) and (c) of the immediately preceding sentence shall occur, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defense and otherwise to participate in the defense of any
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred. No indemnifying party shall be liable for any settlement
entered into without its consent.
(h) With a view to making available the benefits of certain
rules and regulations of the Commission which may permit the sale of the shares
of Registerable Stock to the public without registration, Exsorbet agrees to
(i) make and keep, at all times, public information available
12
<PAGE> 13
as those terms are understood and defined in Rule 144 under the Securities Act,
(ii) use its diligent best efforts to file with the Commission in a timely
manner all reports and other documents required of Exsorbet under the
Securities Act and the Securities Exchange Act of 1934, as amended, at any time
after it has become subject to such reporting requirements, and (iii) furnish
to APS, upon request, a written statement as to Exsorbet's compliance with the
reporting requirements of Rule 144 and a copy of the most recent annual and
quarterly report of Exsorbet, and such other reports and documents so filed as
APS may reasonably request in availing itself of any rule or regulation of the
Commission allowing it to sell any such securities without registration.
2. Representations and Warranties. Exsorbet represents and warrants
to APS as follows:
(a) Exsorbet is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Idaho and has
full corporate power and authority to carry on its business as now conducted
and to enter into and perform this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by Exsorbet and constitutes the
valid and binding obligation of Exsorbet enforceable against it in accordance
with its terms.
(b) The 1,200,000 initial shares of Exsorbet common stock
purchased by APS, and any other common stock of Exsorbet issued to APS by
Exsorbet pursuant to the Warrant or this Agreement, when issued, will have been
duly and validly authorized and issued, will be fully paid and nonassessable
and will not have been issued in violation of the preemptive rights of any
person or applicable federal or state securities laws.
(c) There is only one class of common stock of Exsorbet
outstanding and such stock trades on the Nasdaq Stock Market, Inc. SmallCap
Market under the symbol "EXSO."
13
<PAGE> 14
(d) Exsorbet has made available to APS copies of Exsorbet's
annual report on Form 10-K for the year ended December 31, 1995, and its
quarterly reports on Form 10-Q (or Form 10-Q/A where applicable) for the
quarters ended March 31, 1996 and June 30, 1996, (collectively, the "Periodic
Reports"), in the form filed with the Commission pursuant to the requirements
of the Exchange Act. At the time of filing, the Periodic Reports were
appropriately responsive to the requirements of the Exchange Act, were complete
and proper in form and did not contain an untrue statement of a fact or omit to
state a fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Since June 30, 1996, and through the date of this Agreement, no
event has occurred as a consequence of which Exsorbet would be required to
file, on or before the date of this Agreement, a current report on Form 8-K
pursuant to the requirements of the Exchange Act.
3. Other Agreements.
(a) Exsorbet agrees to reimburse APS for APS' legal fees up to
$10,000, plus travel and other out-of-pocket expenses incurred by legal counsel
for APS in connection with the transactions contemplated by this Agreement, the
Warrant and the Options and in connection with the loan evidenced by the
Security Documents. Such amount shall be payable upon execution of this
Agreement.
(b) APS agrees to hold 1,000,000 of the shares of common stock
of Exsorbet initially purchased by APS for at least one (1) year after the
Effective Date; except that APS may sell such shares prior to such time (i)
pursuant to the Stock Put, and/or (ii) pursuant to a registration of such
shares as contemplated by this Agreement. Furthermore, in the event APS
desires to sell
14
<PAGE> 15
more than 20,000 shares of Exsorbet common stock for cash on any particular day
(other then pursuant to a registration statement in effect with respect
thereto), then APS will give Exsorbet five (5) days advance written notice of
such intention, specifying the price, or other pricing methodology, and any
other terms and conditions of such sale, and Exsorbet shall be entitled, during
such five (5) day period to elect to purchase such stock from APS on the same
terms and conditions, provided such purchase by Exsorbet must be concluded
within three (3) days of exercising the election; provided the restriction
contained in this sentence shall not apply to APS unless all Exsorbet
shareholders owning five percent (5%) or more of Exsorbet common stock agree to
be bound in writing by the same restrictions.
(c) Exsorbet agrees to cause one (1) individual designated by
APS to be appointed to Exsorbet's Board of Directors promptly after the
October, 1996 Exsorbet shareholder meeting, and to nominate and use its best
efforts to cause the Exsorbet shareholders to elect and thereafter maintain a
designee of APS as an Exsorbet Board member for the period designated below.
In the event APS acquires fifty percent (50%) of the aggregate shares of
Exsorbet common stock APS is entitled to purchase under the Warrant and Options
pursuant to exercise of the Warrant and/or any of the Options, then APS shall
be entitled to designate a second individual to serve on the Board of Directors
of Exsorbet, and Exsorbet agrees to cause such person to be promptly appointed
to its Board of Directors and to nominate and use its best efforts to cause the
Exsorbet shareholders to elect and thereafter maintain such second designee in
place for the period specified below. Once APS has the right to designate a
second Exsorbet Board member, in the event the size of the Exsorbet Board of
Directors is increased or otherwise becomes larger then ten directors, then APS
shall be entitled to designate a third individual to serve on the Board of
Directors of Exsorbet, and
15
<PAGE> 16
Exsorbet shall cause such person to be promptly appointed and shall nominate
and use its best efforts to cause the Exsorbet shareholders to elect and
thereafter maintain a third APS designee on the Board of Directors for the
period stated below. The foregoing provisions related to the designation by
APS of individuals to serve on the Board of Directors of Exsorbet shall remain
in place until APS (together with its subsidiaries and affiliates) owns less
than five percent (5%) of the issued and outstanding common stock of Exsorbet,
and thereafter in the event APS exercises its rights under the Stock Put until
APS has been paid in full all amounts due APS upon sale of the stock to
Exsorbet pursuant to the Stock Put. All APS designees to the Board of
Directors of Exsorbet may be changed from time to time by written notice of APS
to Exsorbet. Exsorbet agrees to cause such new designees to be elected to its
Board of Directors promptly upon receipt of such notice. Each individual
designated by APS to serve on the Board of Directors of Exsorbet shall be the
beneficiary of at least $3 million of director and officer insurance coverage
maintained by Exsorbet (subject to reasonable deductibles, which deductibles
shall be paid by Exsorbet) and otherwise reasonably acceptable to APS.
Exsorbet further agrees that, as long as APS has the right to designate any
Exsorbet directors, Exsorbet will take such steps as may be necessary to cause
its articles of incorporation and bylaws to contain indemnity provisions in
favor of such directors to the maximum extent allowed by applicable law.
(d) Exsorbet agrees to consult with APS concerning the form of
any and all press releases related to the transactions contemplated by the
purchase of the 1,200,000 shares of Exsorbet common stock, this Agreement, the
exercise of the Stock Put, the Warrant and/or any of the Options, and the
acquisition of 7-7, Inc., and to obtain the approval of APS prior to the
dissemination thereof, which approval shall not be unreasonably withheld.
16
<PAGE> 17
(e) In the event that, at any time during a period of three
(3) years after the Effective Date, Exsorbet proposes to engage in any
transaction that involves the issuance of additional Exsorbet equity
securities, options or other rights to acquire Exsorbet equity securities, or
rights convertible into any Exsorbet equity securities, or proposes to engage
in any other non-equity related transaction that involves amounts in excess of
$100,000 (all the foregoing are collectively referred to as "Target
Transactions"), in which any person or entity who owns five percent (5%) or
more of Exsorbet's outstanding common stock ("Major Shareholders") is to be a
participant, or has the right to participate, APS shall have a right of first
refusal to participate in any such transaction on the same basis and terms as
the applicable Major Shareholder(s). Exsorbet agrees to give APS sixty (60)
days advance written notice of any proposed Target Transaction, including a
full description of the terms and conditions thereof, and to make available
such information as APS shall reasonably request in connection with reaching a
decision as to whether to exercise APS' right of first refusal. To exercise
its right of first refusal, APS must notify Exsorbet in writing prior to the
expiration of such sixty (60) day period and, if it exercises such right, shall
be entitled to participate in the Target Transaction on the same terms and
conditions as the applicable Major Shareholder(s). In the event there are
substantial modifications to the proposed terms of any such Target Transaction
during such sixty (60) day period, APS shall be entitled to a new notice and
sixty (60) day period in which to determine to exercise its right of first
refusal. Furthermore, Exsorbet agrees to cause all Exsorbet shareholders who
are also directors of Exsorbet, as of the Effective Date, or thereafter, to
execute and deliver to APS an agreement in form and substance acceptable to
APS, to vote their shares in favor of the election of APS designees to the
Exsorbet Board of Directors as contemplated in subsection (c) above.
17
<PAGE> 18
(f) In the event any shareholder defaults under any of the
Options and APS is unable, within thirty (30) days of such default (without
recourse to litigation), to acquire the Exsorbet common stock subject to any of
such Options, then Exsorbet will sell to APS such number of shares of Exsorbet
common stock, at the exercise price stated in the applicable Option, as APS
would have been able to purchase under the Options in default.
(g) For a period of sixty (60) days after the Effective Date,
APS shall be entitled to full access to the books, records and management of
Exsorbet and its subsidiaries, during reasonable business hours, to afford APS
a full opportunity to perform a due diligence review with regard to the
business, financial and legal affairs of Exsorbet.
(h) APS acknowledges and agrees that Exsorbet has disclosed to
APS that Exsorbet is considering a merger into a Delaware corporation, whereby
the Delaware corporation will be the surviving corporation, and which would
result in the change of the name Exsorbet to "Consolidated Eco-Systems, Inc."
For all purposes of this Agreement the term "Exsorbet" shall refer to such
surviving successor corporation in the event that such merger and/or name
change is consummated, and all terms and provisions of this Agreement,
including all terms providing for receipt of Exsorbet common stock and other
terms and conditions shall apply with regard to such proposed merger. APS
shall be entitled to cause the surviving corporation after any such merger to
re-execute documents evidencing the Stock Put, any or all of the Security
Documents, the Warrant and this Agreement in the name of the successor
corporation, but otherwise to be identical in terms to the terms of the
original agreements.
(i) In the event APS purchases any Exsorbet common stock
during the sixty (60) day period immediately following the Effective Date,
other than the initial 1,200,000 shares
18
<PAGE> 19
purchased as described in the recitals hereto and other than any purchases
through exercise of the Warrant or any of the Options, at a per share price of
$2.75 or less ("Other Purchased Stock"), then APS will not exercise its right
to purchase, under the Options, the number of shares equal to the number of
shares of Other Purchased Stock it acquired during such sixty (60) day period.
The foregoing shall not in any way limit APS' ability to exercise all of its
rights under and pursuant to the Warrant.
4. Remedies. This Agreement may be enforced at either law or in
equity, including, but not limited to, injunctive relief. In case any one or
more of the provisions of this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, any other provision hereof in
this Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein. Such invalid, illegal or
unenforceable provisions shall be given effect to the maximum extent then
permitted by law. Exsorbet shall be deemed to be in default under this
Agreement if there is a default (which is not cured after any required notices
of default and opportunity to cure) under the Warrant or any of the Security
Documents.
5. Governing Law and Venue. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of Texas
(except the laws of that jurisdiction that would render such choice of law
ineffective). Venue for any action relating to this Agreement shall be proper
only in Texas.
19
<PAGE> 20
6. Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
7. Inurement. This Agreement shall be binding upon the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns. This Agreement shall not be assignable by any party hereto
without the express written consent of the other party hereto in each instance;
provided that upon written notice to Exsorbet, APS may assign its rights and
obligations under this Agreement to any affiliate or subsidiary of APS.
8. Reservation of Shares. Exsorbet shall at all times until the
expiration of the rights provided under the Warrant and the Options, reserve
for issuance and delivery the number of shares of Exsorbet common stock as
shall be required for issuance and delivery pursuant to the Warrant and this
Agreement.
9. Notices. Any notices required or permitted to be given under
this Agreement shall be given in writing and shall be deemed received (a) when
personally delivered to the relevant party at its address as set forth below or
(b) if sent by mail, on the third day following the date when deposited in the
United States mail, certified or registered mail, postage pre-paid to the
relevant party at its address indicated below:
APS: American Physicians Service Group, Inc.
1301 Capital of Texas Highway, Suite C-300
20
<PAGE> 21
Austin, Texas 78746-6550
Attn: President
Exsorbet: Exsorbet Industries, Inc.
1401 South Waldron, Suite 201
Fort Smith, Arkansas 72903
Attn: Charles E. Chunn, Jr.
Each party may change its address for purposes of this Agreement by proper
notice to the other party.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EXSORBET: EXSORBET INDUSTRIES, INC.
By: /s/ James Connors
----------------------------------
Printed Name: James Connors
------------------------
Title: Executive Vice President
-------------------------------
APS: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Duane K. Boyd, Jr.
----------------------------------
Printed Name: Duane K. Boyd, Jr.
------------------------
Title: President
-------------------------------
22
<PAGE> 1
EXHIBIT 10.11
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES
ACT"). THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION UNDER THE SECURITIES ACT OR SUCH OFFER, SALE OR TRANSFER IS EXEMPT
FROM SUCH REGISTRATION.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: September 30, 1996
Warrants
to Purchase 300,000 Shares
of Common Stock, $0.001 Par Value Per Share
EXSORBET INDUSTRIES, INC., an Idaho corporation (the "Company"), hereby
certifies that American Physician Service Group, Inc., its successors and
assign (collectively, the "Holder"), for value received, is entitled to
purchase from the Company at any time commencing on October 1, 1996 and ending
on December 5, 1996 up to 300,000 shares (the "Shares") of the Company's common
stock, par value $0.001 per share (the "Common Stock"), at a price of $2.75 per
share (the "Exercise Price").
1. Exercise of Warrants. Upon presentation and surrender of this
Common Stock Purchase Warrant Certificate ("Warrant Certificate" or "this
Certificate") during the Exercise Period, with the attached Purchase Form duly
executed, at the administrative office of the Company at 1401 South Waldron
Road, Suite 201, Fort Smith, Arkansas 72903, together with a check payable to
the Company in the amount of the Exercise Price multiplied by the number of
Shares being purchased, the Company will cause its Transfer Agent to deliver to
the holder hereof, certificates of Common Stock which in the aggregate
represent the number of Shares being purchased. All or less than all of the
Warrants represented by this Certificate may be exercised and, in case of the
exercise of less than all, the Company, upon surrender hereof, will deliver to
the holder a new Warrant Certificate representing the number of shares which
have not been exercised.
2. Exercise Period. The right to acquire shares of the Company
pursuant to this Warrant Certificate shall commence on October 1, 1996 and
terminate upon December 5, 1996 (the "Exercise Period"). After December 5,
1996, this Warrant Certificate shall become null and void with respect to any
remaining shares which could have been, but were not, acquired by the Holder
hereof during the Exercise Period.
3. Rights and Obligations of Holders of this Certificate. (a) The
Holder of this Certificate shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law
<PAGE> 2
or in equity; provided, however, that in the event any certificate representing
shares of Common Stock or other securities is issued to the holder hereof upon
exercise of some or all of the Warrants, such holder shall, for all purposes,
be deemed to have become the holder of record of such Common Stock on the date
on which this Certificate, together with a duly executed Purchase Form, was
surrendered and payment of the aggregate Exercise Price was made, irrespective
of the date of delivery of such share certificate.
(b) In case the Company shall (i) pay a dividend in Common Stock or make
a distribution in Common Stock, (ii) subdivide its outstanding Common Stock
into a greater number of shares, or (iii) combine its outstanding Common Stock
into a smaller number of shares (including a recapitalization in connection
with a consolidation or merger in which the Company is the continuing
corporation), then the Exercise Price on the record date of such division or
the effective date of such action shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding immediately after
such event and the number of shares of Common Stock for which this Warrant
Certificate may be exercised immediately before such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which is the
Exercise Price immediately after such event.
(c) In case of any consolidation or merger of the Company with or into
another corporation (other than any consolidation or merger in which the
Company is the continuing corporation and which does not result in any
increase, decrease, or other reclassification of the outstanding shares of
Common Stock) or the conversion of such outstanding shares of Common Stock into
shares or other stock or other securities or property, or the sale or transfer
of the property of the Company as an entirety or substantially as an entirety,
there shall be deliverable upon exercise of the Warrant Certificate (in lieu of
the number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock which would otherwise have been deliverable upon the
exercise of this Warrant Certificate would have been entitled upon such action
if this Warrant Certificate had been exercised immediately prior to such
action.
4. Common Stock. (a) The Company covenants and agrees that all shares
of Common Stock issuable upon exercise of this Warrant Certificate will, upon
delivery, be duly and validly authorized and issued, fully-paid and non-
assessable.
(b) The Company covenants and agrees that it will at all times prior to
expiration of this Warrant Certificate reserve and keep available an authorized
number of shares of its Common Stock and other applicable securities sufficient
to permit the exercise in full of all outstanding options, warrants and rights,
including the Warrants.
5. Issuance of Certificates. As soon as possible after full or partial
exercise of this Warrant, but in any event no more than five (5) business days,
the Company, at its expense, will cause to be
<PAGE> 3
issued in the name of the and delivered to the holder of this warrant, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock to which that holder shall be entitled on such exercise.
No Fractional shares will be issued on exercise of this Warrant. If on any
exercise of this Warrant, a fractional share results, the Company will pay the
cash value of that fractional share, calculated on the basis of the Exercise
Price. All such certificates shall bear a restrictive legend to the effect
that the Shares represented by such certificate have not been registered under
the Securities Act of 1933, as amended, and the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold face language appearing on
Page 1 of this Warrant Certificate.
6. Disposition of Warrants or Shares. The holder of this Warrant
Certificate, each transferee hereof and any holder and transferee of any
Shares, by his or its acceptance thereof, agrees that no public distribution of
Warrants or Shares will be made in violation of the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act").
7. Notices. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered mail, return receipt requested, postage prepaid, or by U.S. express
mail service or private overnight courier service such as Federal Express. Any
such notice shall be deemed to have been given (a) on the business day
immediately subsequent to mailing, if sent by U.S. express mail service or
private overnight courier service, or (b) five (5) business days following the
mailing thereof, if mailed by certified or registered mail, postage prepaid,
return receipt requested, and all such notices shall be sent to the following
addresses (or to such other address or addresses as a party may have advised
the other in the manner provided in this Section):
If to the Company:
Charles E. Chunn, Jr.
1401 South Waldron Road, Suite 201
Fort Smith, AR 72903
If to the Holder:
Duane K. Boyd, Jr.
1301 Capital of Texas Highway
Suite C-300
Austin, TX 78746.
8. Governing Law. This Warrant Certificate and all rights and
obligations hereunder shall be deemed to be made under and governed by the laws
of the State of Texas without giving effect to the conflicts of laws
provisions.
<PAGE> 4
9. Successors and Assigns. This Warrant Certificate shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
10. Headings. The headings of various sections of this Warrant
Certificate have been inserted for reference only and shall not be a part of
this Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile, by one of its officers thereunto
duly authorized.
EXSORBET INDUSTRIES, INC.
Date: September 30, 1996 By: /s/ James Connors
--------------------------------
Executive Vice-President
<PAGE> 5
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby irrevocably elects to exercise
____________ of the Warrants represented by this Common Stock Warrant
Certificate, and to purchase the shares of Common Stock issuable upon the
exercise of such Warrants and requests that certificates for securities be
issued in the name of:
------------------------------------------------------------------
(Please type or print name and address)
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
(Social Security or tax identification number)
and delivered to
---------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please type or print name and address)
and, if such number of Warrants shall not be all the Warrants evidenced by this
Common Stock Warrant Certificate, that a new Common Stock Warrant Certificate
for the balance of such Warrants be registered in the name of, and delivered
to, the Holder at the address stated below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_______________ by check or money order payable in United States currency to
the order of Exsorbet Industries, Inc., or its successor.
American Physicians Service Group, Inc.
Dated: By:
-------------------- -----------------------------------
Name:
Title:
-----------------------------------
(Address)
-------------------------------------
-------------------------------------
(Social Security or tax identification number)
<PAGE> 1
EXHIBIT 10.12
CONTINGENT WARRANT AGREEMENT
This Contingent Warrant Agreement (this "Agreement") is executed and
delivered by Exsorbet Industries, Inc. an Idaho Corporation for the benefit of
American Physicians Service Group, Inc., a Texas corporation ("APS").
RECITALS
WHEREAS, Exsorbet and APS are engaging in certain transactions
pursuant to which, among other things, certain shareholders of Exsorbet are to
execute and deliver option agreements to APS authorizing APS to purchase
certain shares of Exsorbet common stock (the "Option Agreements"); and
WHEREAS, Exsorbet has agreed that, in the event of any default under
any of the Option Agreements, Exsorbet will sell the corresponding number of
shares of Exsorbet common stock to APS as necessary to allow APS to purchase
the same number of shares as would have been the case had there not been a
default under the applicable Option Agreements; and
WHEREAS, certain of the stockholders who were to execute and deliver
Option Agreements to APS at the closing of the transactions contemplated above
(the "Closing") have not done so, resulting in APS receiving total share
purchase rights which are 400,000 shares less than originally bargained for,
and Exsorbet has agreed to execute and deliver this Agreement to APS whereby
Exsorbet will either cause such additional Option Agreements to be executed and
delivered to APS or will sell the corresponding number of shares to APS.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Exsorbet hereby agrees as follows:
1. Exsorbet will use its best efforts to cause one or more of its
shareholders to execute and deliver, on or before October 30, 1996, option
agreements (the "Additional Options") to APS allowing APS to purchase, in the
aggregate, 400,000 shares of Exsorbet common stock at a purchase price of $2.75
per share. The Additional Options shall be exercisable at any time prior to
the expiration of sixty (60) days from the date executed and delivered to APS,
in substance and form acceptable to APS and shall otherwise be in the same form
as the Option Agreements delivered at the Closing. The 400,000 shares subject
to the Additional Options shall be in addition to the shares covered by the
Option Agreements delivered at the Closing.
2. In the event Exsorbet is unsuccessful, on or before October
30, 1996, in causing the execution and delivery to APS of all the Additional
Options, then Exsorbet will execute and deliver to APS a warrant to purchase,
for $2.75 per share, the number of shares of Exsorbet common stock as
determined by subtracting the number of shares purchasable by APS under any
Additional
<PAGE> 2
Options that were obtained and delivered to APS by October 30, 1996 from the
400,000 share total. Such additional warrant shall be exercisable at any time
prior to the expiration of sixty (60) days from the date executed and delivered
to APS, and shall otherwise be identical in form to that certain Common Stock
Purchase Warrant Certificate dated September 30, 1996, pursuant to which
Exsorbet granted APS the right to purchase up to 300,000 shares of Exsorbet
common stock (the "Original Warrant').
3. The 400,000 share total referred to in paragraphs 1 and 2
above, and the corresponding $2.75 per share purchase price, shall be subject
to the same automatic adjustments as provided for in the Original Warrant.
4. This Agreement shall be construed and enforced in accordance
with the laws of the State of Texas. Exsorbet acknowledges and agrees that its
delivery of this Agreement and its performance of its obligations hereunder are
a material inducement to APS agreeing to consummate the transactions at the
Closing.
IN WITNESS WHEREOF, Exsorbet has executed and delivered this
Agreement, intending to be legally bound thereby, on September 30, 1996.
EXSORBET INDUSTRIES, INC.
By: /s/ James Connors
Printed Name: James Connors
-----------------------------
Title: Executive Vice President
-------------------------------------
<PAGE> 1
EXHIBIT 10.13
AGREEMENT OF EXSORBET INDUSTRIES, INC.
Exsorbet Industries, Inc. hereby indicates that it has no legal basis
to object to the option agreement between those stockholders identified in
Exhibit "A" attached hereto and American Physicians Service Group, Inc.
Therefore, Exsorbet Industries, Inc. agrees that it has no basis to fail to
consent to the terms of such option agreement.
As such, Exsorbet Industries, Inc. indicates that it will be lawfully
bound to comply with the provisions of the option agreement, in all
particulars, and specifically including sections 4, 5, 6, 7, and 8.
Exsorbet Industries, Inc., therefore, indicates that it will comply
with the provisions of the option agreement and the direction of those persons
indicated on Exhibit "A," as are necessary for such persons to comply with the
individual agreements existing between such persons and American Physicians
Service Group, Inc.
The provisions of this Agreement shall be enforceable against Exsorbet
Industries, Inc. Upon failure of Exsorbet Industries, Inc. to comply in all
particulars with the provisions of this Agreement, this Agreement shall be
enforceable by specific performance, injunctive relief, or otherwise. Exsorbet
Industries, Inc. consents to the exclusive jurisdiction of the Courts in Travis
County, Texas for enforcement of any of the provisions of this Agreement.
Exsorbet Industries, Inc. has further indicated to American Physicians
Service Group, Inc., and hereby represents and warrants, that in the event of
election of the option to acquire the shares specified in such option
agreements and following failure of delivery of the shares within 60 days after
November 30, 1996, that Exsorbet Industries, Inc. will take such steps to
insure that the number of shares not previously delivered are delivered to
American Physicians Service Group, Inc., at the same cost, without regard to
whether such shares should come from an individual shareholder or be issued by
Exsorbet Industries, Inc.
This Agreement shall be construed in accordance with the laws and
statutes of the State of Texas.
EXSORBET INDUSTRIES, INC.
By: /s/ James Connors
Title: Vice-President
Executed on this 30th day of September, 1996.
<PAGE> 1
EXHIBIT 10.14
OPTION AGREEMENT
THIS AGREEMENT is made and entered into on this 30th day of September,
1996, by and between American Physicians Service Group, Inc. ("APS"), a
Delaware corporation, and _____________, an individual ("Stockholder").
IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. Identification of Exsorbet Industries, Inc. Exsorbet
Industries, Inc. is an Idaho corporation, having its principal place of
business in Jackson, Mississippi. The only class of common stock of Exsorbet
Industries, Inc. trades on the Nasdaq Stock Market, Inc. SmallCap Market under
the symbol "EXSO." As used herein, the term "Exsorbet" shall refer to Exsorbet
Industries, Inc. and its successors.
2. Disclosures. Stockholder has disclosed to APS that Exsorbet,
through its Board of Directors, has proposed merger into a Delaware
corporation, whereby the Delaware corporation would be the surviving
corporation, and changing the name of Exsorbet to Consolidated Eco-Systems,
Inc. The term "Exsorbet" shall refer to such surviving or successor
corporation in the event that such merger and/or name change is approved.
3. Representations. Stockholder has made no representations to
APS concerning the financial condition of Exsorbet and its subsidiaries.
Stockholder has made no representations or warranties concerning the future
value of Exsorbet stock, future earnings of Exsorbet, or any other
representations concerning Exsorbet, except as are identified herein.
4. Stock Ownership. Stockholder is the owner of _______ shares
of common stock of Exsorbet, such shares having been issued pursuant to Rule
144 of the United States Securities and Exchange Commission ("Rule 144"). Such
shares of common stock are subject to the provisions of Rule 144 and all
applicable state and federal securities regulations and statutes. Stockholder
will not transfer or assign any of such stock until expiration of this option
agreement.
5. Option Agreements. Stockholder possesses a present right to
acquire _______ shares of common stock of Exsorbet pursuant to an option
agreement or agreements, copies of which are attached hereto. Stockholder will
not transfer, extinguish or assign any of such options or rights thereunder
until expiration of this option agreement.
6. Option Grant to APS. For a period of sixty days after
September 30, 1996, Stockholder grants to APS an exclusive right to acquire
_______ shares of common stock of Exsorbet, representing a portion of those
shares identified in paragraph 4, above. The acquisition price shall be $2.75
per share.
7. Additional Option Grant to APS. For a period of sixty days
after September 30, 1996, Stockholder grants to APS an exclusive right to
acquire _____ shares of common stock of
<PAGE> 2
Exsorbet, by exercising such portion of the options identified in paragraph 5,
above as necessary to acquire such number of shares. The acquisition price
shall be $2.75 per share.
8. Exercising of Stock Options. Stockholder warrants and
covenants with APS that he will, upon exercising of the option specified in
paragraph 6 or 7, above, exercise the option agreements with Exsorbet,
acquiring the number of shares being ultimately transferrable to APS. Such
option exercise shall occur within two business days of notification by APS
that it is exercising the option specified herein.
9. APS Agreements. APS: (A) understands that the Exsorbet stock
has not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering; (B) is acquiring the Exsorbet stock for its own account for
investment purposes, and not with a view to the distribution thereof; (C) is a
sophisticated investor with knowledge and experience in business and financial
matters, (D) has received or will receive certain information concerning
Exsorbet and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Exsorbet stock; (E) is able to bear the economic risk and lack of liquidity
inherent in holding the Exsorbet stock; and (F) is an Accredited Investor, as
defined in Regulation D promulgated pursuant to the Securities Act of 1933, as
amended.
10. Paragraph Headings. Paragraph Headings, being the underlined
portion at the beginning of each section, are intended for assistance only and
shall not alter, modify, amend, or change the meanings of the written
paragraphs.
11. Construction. This Agreement shall be liberally construed in
favor of granting an exclusive option upon the terms specified herein. In
furtherance thereof, this Agreement shall be construed in accordance with the
laws and statutes of the State of Texas, being the principal place of business
of APS.
12. Advice to Seek Legal Counsel. Stockholder has sought and
obtained the advice of counsel prior to entering this Agreement or has been
strongly advised to obtain legal counsel concerning the advisability of
entering this Agreement. In entering this Agreement, Stockholder is not
relying upon any statements, representations, or opinions of: (a) any attorneys
or counsel for or of Exsorbet or APS; (b) any representatives, agents,
officers, employees, or directors of Exsorbet Industries, Inc., its
subsidiaries, or APS; or (c) any person other than his retained legal attorney.
13. Notices. Notices to Stockholder shall be delivered to:
_________________________.
Notices to APS shall be delivered to: Duane Boyd, Jr., 1301 Capital of
Texas Highway, Suite C-300, Austin, TX 78746.
All notices shall be delivered by certified mail with a return receipt
requested, by overnight courier, or by facsimile. All notices shall be
complete upon delivery.
<PAGE> 3
14. Cooperation. Stockholder agrees to fully cooperate with APS
in the event that APS elects to exercise any rights under this Agreement.
Stockholder shall take no action which would obstruct the ability of APS to
exercise its rights under this Agreement.
15. Procedure for Exercising Option. APS may exercise its rights
under this Agreement by giving written notice to the Shareholder in the manner
specified in paragraph 13, above. Such written notice shall be in any
reasonable form sufficient to notify Stockholder of the exercising of the
option. Full payment shall be due upon the delivery of any or all shares from
Stockholder to APS. Upon exercising of any options, Stockholder shall arrange
for: (i) delivery of existing shares, if any, to APS within five business days;
(ii) exercising of any stock options with Exsorbet within two business days;
and (iii) delivery of stock certificates obtained upon exercise of stock
options within two business days of receipt of such stock certificates.
16. Severability. In the event that any section or paragraph
contained herein shall be invalid, unlawful, or unenforceable, the remainder
shall be severable, valid, and effective as if such invalid, unlawful, or
unenforceable section or paragraph were not contained herein.
17. Consideration. In consideration of the Agreements contained
herein, APS is providing the sum of One Hundred Dollars ($100.00) to
Stockholder. Stockholder accepts such amount as full and complete
consideration for this Agreement.
18. Complete Agreement. This Agreement is the full and complete
agreement between the parties. There are no agreements or understandings
between the parties which are not contained herein.
19. Adjustments in Option. In the event that the common stock of
Exsorbet is changed into or exchanged for a different number or kind of shares
of Exsorbet or other securities by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the option granted to APS herein shall be subject to an appropriate
and equitable adjustment in the number and kind of shares as to which the
option, or portions thereof then unexercised, shall be exercisable, to the end
that after such event the proportionate interest of APS shall be maintained as
before the occurrence of such event. Such adjustment in the option shall be
made without change in the total price applicable to the unexercised portion of
the option.
20. APS Party Appointed Attorney-in-Fact. Stockholder hereby
irrevocably appoints APS as attorney-in-fact of Stockholder (such power of
attorney being coupled with an interest), with full authority in the place and
stead of Stockholder and in the name of Stockholder, APS or otherwise, from
time to time on APS' discretion and upon the occurrence of any default by
Stockholder of any of Stockholder's obligations hereunder, to take any action
and to execute any instrument which APS may deem necessary or advisable to
accomplish the purposes of this Agreement, including without limitation to
assign and transfer the stock which is the subject of this Agreement to APS, or
any part thereof, absolutely and to execute and deliver endorsements,
assignments, conveyances, bills of sale and other instruments with power to
substitute one or more persons or corporation with like power.
<PAGE> 4
21. Binding Effect. This Option Agreement shall inure to the
benefit of, and be binding upon the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns. Stockholder may
not assign its rights or obligations hereunder without the prior express
written consent of APS in each instance.
IN WITNESS WHEREOF, the parties have executed this Agreement upon the
day and year first above written.
------------------------------
Stockholder
<PAGE> 1
EXHIBIT 10.15
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT (this "Agreement") is made and
entered into as of the 30th day of September, 1996, by and between American
Physicians Service Group, Inc., a Texas corporation ("Secured Party") and
Exsorbet Industries, Inc., an Idaho corporation ("Debtor").
RECITALS:
A. Debtor has sold 1,200,000 shares of common stock of Debtor
(the "EXSO Stock") to Secured Party for the sum of $3,300,000.
B. Such sale is subject to the terms, condition and covenants of
the Stock Put Agreement of even date herewith, executed by Debtor and Secured
Party. Under the terms of the Stock Put Agreement, Debtor may be required to
repurchase the EXSO Stock from Secured Party at the price set forth therein
(the "Repurchase Price"), as more fully set forth in the Stock Put Agreement.
C. Debtor's obligation to pay the Repurchase Price may be
satisfied by Debtor's execution of a promissory note in the maximum principal
amount of $3,300,000, and payable to the order of Secured Party (the "Note");
D. Debtor intends to use the proceeds received by Debtor from
Secured Party's purchase of the EXSO stock to acquire 707, Inc., an Ohio
corporation ("Ohio 7-7"). Such acquisition shall be accomplished by the merger
of Ohio 7- 7 with 7-7 Merger, Inc., an Arkansas corporation ("7-7 Merger"),
after which 7-7 Merger shall be the surviving corporation. Such acquisition
and merger is being closed simultaneously herewith pursuant to the Plan of
Agreement and Merger (the "Merger Agreement") dated August 5, 1996, executed by
and among Debtor, Ohio 7-7, 7-7 Merger, and the Shareholders named therein.
E. Secured Party has requested that Debtor pledge the Collateral
(as defined below) to secure (i) Debtor's obligations and liabilities under the
Stock Put Agreement, including without limitation Debtor's obligation to pay to
Secured Party the Repurchase Price, (ii) the Note, if executed, and (ii)
Debtor's performance of the covenants more fully set forth herein.
F. Reference is hereby made to Schedule I, attached hereto and
incorporated herein by reference, for certain defined terms used in this
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which Debtor acknowledges, Debtor
and Secured Party agree as follows:
<PAGE> 2
ARTICLE I
COLLATERAL AND SECURED OBLIGATIONS
1.1 Grant of Security Interest. Debtor hereby assigns, transfers,
and pledges to Secured Party, and Debtor hereby grants to Secured Party a
security interest in, the following described collateral (collectively, the
"Collateral"):
(a) Shares. All issued and outstanding shares of common
stock of 7-7 Merger and of Ohio 7-7, including without limitation those shares
evidenced by the certifies described in Schedule II attached hereto and
incorporated herein, and any replacements, substitutions, or exchanges of such
certificates; and any additional shares of common stock of 7-7 Merger or Ohio
7-7 subsequently delivered to Secured Party as described in Section 4.8 below
(the above described stock is sometimes collectively referred to as the
"Shares"); and any options, rescission rights, registration rights, conversion
rights, subscription rights, contractual or quasi-contractual rights, warrants,
redemption rights, redemption proceeds, calls, preemptive rights and all other
rights and benefits pertaining to the Shares;
(b) Merger Agreement. All of Debtor's rights, title,
interests, and benefits now existing or hereafter arising under the Merger
Agreement and under or pursuant to any other documents, agreements, or other
instruments executed in connection with the Merger Agreement, the transaction
evidenced thereby, or the closing thereunder;
(c) Accounts. All accounts and rights now or hereafter
attributable to any of the Collateral described in (a) or (b) above, and all
rights of Debtor now or hereafter arising under any agreement with 7-7 Merger
pertaining to the Collateral described in (a) above, including without
limitation all distributions, proceeds, fees, dividends, preferences, payments
or other benefits of whatever nature which Debtor are now or may hereafter
become entitled to receive with respect to any Collateral described in (a)
above; and
(d) Additional Property. "Collateral" shall also include
the following property (collectively, the "Additional Property") which Debtor
becomes entitled to receive or shall receive in connection with any other
Collateral: (i) any stock certificate, including without limitation, any
certificate representing a stock dividend or any certificate in connection with
any recapitalization, reclassification, merger, consolidation, conversion, sale
of assets, combination of shares, stock split or spin-off; (ii) any option,
warrant, subscription or right, whether as an addition to or in substitution of
any other Collateral; (iii) any dividends or distributions of any kind
whatsoever, whether distributable in cash, stock or other property; (iv) any
interest, premium or principal payments; and (v) any conversion or redemption
proceeds.
(e) Proceeds. All proceeds (cash and non-cash) arising
out of the sale, exchange, collection or other disposition of all or any
portion of the Collateral described in (a), (b), (c), or (d) above, including
without limitation proceeds in the form of stock, accounts, chattel paper,
instruments, documents, goods, inventory and equipment.
2
<PAGE> 3
The foregoing notwithstanding, until the occurrence of an Event of Default (as
hereinafter defined), Debtor shall be entitled to all cash dividends and all
interest paid on the Collateral free of the security interest created under
this Agreement.
The security interest in the Collateral hereby granted by Debtor to Secured
Party may sometimes be referred to in this Agreement as the "Security
Interest."
1.2 Obligations. This Agreement and the Security Interest shall
secure full and punctual payment and performance of the following indebtedness,
duties and obligations (the "Obligations");
(a) All covenants, obligations, and liabilities of Debtor
to Secured Party under the Stock Put Agreement, including without limitation
Debtor's obligation to repurchase the EXSO Stock and to pay to Secured Party
the Repurchase Price as provided in the Stock Put Agreement;
(b) All principal, interest, fees and other amounts
payable to the Secured Party pursuant to the Note, if and when executed and
delivered pursuant to the Stock Put Agreement, including all future advances,
extensions, renewals, modifications, increases, or substitutions thereof;
(c) All liabilities and obligations of Debtor to Secured
Party under and pursuant to this Agreement; and
(d) (i) all indebtedness, obligations and liabilities of
Debtor to Secured Party of any kind or character, now existing or hereafter
arising, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, arising from,
connected with, or related to the Stock Put Agreement, the Note, or any other
document, agreement, or instrument executed in connection therewith, (ii) all
accrued but unpaid interest on any of the indebtedness described in (i) above,
(iii) all obligations of Debtor to Secured Party under any documents
evidencing, security, governing and/or pertaining to all or any part of the
indebtedness described in (i) and (ii) above, (iv) all costs and expenses
incurred by Secured Party in connection with the collection and administration
of all or any part of the indebtedness and obligations described in (i), (ii)
and (iii) above or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness and obligations,
including without limitation all reasonable attorneys' fees, and (v) all
renewals, extensions, modifications and rearrangements of the indebtedness and
obligations described in (i), (ii), (iii) and (iv) above.
(e) All sums expended or advanced by Secured Party
pursuant to any term or provision of this Agreement (i) to collect and/or
enforce the Obligations, (ii) to maintain, protect and preserve the Collateral,
and (iii) all other sums now or hereafter loaned or advanced by Secured Party
to Debtor, or expended by Secured Party for the account of Debtor or otherwise
owing by Debtor to Secured Party, in respect to the Obligations.
1.3 Voting Rights. As long as no Event of Default shall have
occurred hereunder, any voting rights incident to any stock or other securities
pledged as Collateral may be exercised by
3
<PAGE> 4
Debtor; provided, however, that Debtor will not exercise, or cause to be
exercised, any such voting rights, without the prior written consent of Secured
Party, if the direct or indirect effect of such vote will result in an Event of
Default hereunder.
ARTICLE II
DEBTOR'S REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO COLLATERAL
Debtor hereby represents and warrants to Secured Party as follows:
2.1 Ownership of Collateral. Debtor has good and marketable title
to the Collateral free and clear of any liens, security interests, shareholders
agreement, calls, charge, or encumbrance, except for this Security Interest.
No financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office, except as may
have been filed in favor of Secured Party relating to this Agreement.
2.2 Power & Authority. Debtor has the lawful right, power, and
authority to grant the Security Interest in the Collateral. This Agreement,
together with all filings and other actions necessary or desirable to perfect
and protect such security interest, which have been duly taken, create a valid
and perfected first priority security interest in the Collateral securing the
payment and performance of the Obligations.
2.3 No Agreements. The Shares are not subject to any right of
redemption by 7-7 Merger or any call or put options, voting trust, proxy,
shareholders agreement, right of first refusal or any provision of the articles
of incorporation or bylaws of 7-7 Merger or any other document or agreement
which would in any way impair or adversely affect this Security Interest or the
rights of Secured Party under this Agreement.
2.4 Location. Debtor's principal place of business is located at
1401 South Waldron Road, Suite 201, Fort Smith, Arkansas, 72903, and Debtor's
chief executive office is located in Jackson, Hinds County, Mississippi. The
office where the records concerning the Collateral are kept is located at
Debtor's principal place of business.
2.5 Solvency of Debtor. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement, (i)
Debtor is and will be solvent, (ii) the fair saleable value of Debtor's assets
exceeds and will continue to exceed Debtor's liabilities (both fixed and
contingent), (iii) Debtor is paying and will continue to be able to pay its
debts as they mature, and (iv) if Debtor is not an individual, Debtor has and
will have sufficient capital to carry on Debtor's businesses and all businesses
in which Debtor is about to engage.
2.6 Securities. Any certificates evidencing securities pledged as
Collateral are valid and genuine and have not been altered. All securities
pledged as Collateral have been duly authorized
4
<PAGE> 5
and validly issued, are fully paid and non-assessable, and were not issued in
violation of the preemptive rights of any party or of any agreement by which
Debtor or the issuer thereof is bound. No restrictions or conditions exist
with respect to the transfer or voting of any securities pledged as Collateral,
except as has been disclosed to Secured Party in writing. To the best of
Debtor's knowledge, no issuer of such securities (other than securities of a
class which are publicly traded) has any outstanding stock rights, rights to
subscribe, options, warrants or convertible securities outstanding or any other
rights outstanding entitling any party to have issued to such party capital
stock of such issuer, except as has been disclosed to Secured Party in writing.
2.7 Ownership of Shares. Debtor is, as of the date hereof, the
legal and beneficial owner of the Shares, and Debtor has paid the full purchase
price or other consideration for the Shares on the date hereof.
2.8 Shares Issued and Paid. All of the Shares are validly issued
and outstanding shares of capital stock of 7-7 Merger and are fully paid and
nonassessable.
ARTICLE III
DEBTOR'S OTHER REPRESENTATIONS AND WARRANTIES
3.1 Good Standing - Debtor. Debtor is a duly formed Arkansas
corporation, duly organized and in good standing under the laws of Arkansas,
qualified to do business in and in good standing in each state or country in
which such qualification is necessary for the conduct of its business, and has
the power to own its property and to carry on its business in each jurisdiction
in which Debtor operates.
3.2 Good Standing - Subsidiaries. Each Subsidiary (as more fully
described below) is a duly formed corporation under the laws of the state of
its incorporation, duly organized and in good standing under the laws of the
state of its incorporation, qualified to do business in and in good standing in
each state or country in which such qualification is necessary for the conduct
of its business, and has the power to own its property and to carry on its
business in each jurisdiction in which it operates. As of the date hereof, the
Subsidiaries constitute all the subsidiaries of Debtor.
3.3 Authority and Compliance. Debtor and each Subsidiary has full
power and authority to enter into this Agreement. Debtor has full power and
authority to execute the Stock Put Agreement and all other documents related to
the transaction evidenced and governed by this Agreement and the Stock Put
Agreement (collectively, the "Transaction Documents"), all of which has been
duly authorized by all proper and necessary corporate action. Each Subsidiary
has full power and authority to execute this Agreement and to execute and
deliver its respective guaranty of the Obligations, all of which has been duly
authorized by all proper and necessary corporate action. No further consent or
approval of any public authority is required as a condition to the validity of
this Agreement, the Stock Put Agreement, or any other Transaction Documents.
Debtor and each Subsidiary is in compliance with all Laws to which it is
subject.
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<PAGE> 6
3.4 Binding Agreement. This Agreement and the Stock Put Agreement
constitute, and the Note when issued and delivered pursuant to the Stock Put
Agreement will constitute, valid and legally binding obligations of Debtor in
accordance with their terms, subject to the applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally.
3.5 Litigation. There are no proceedings pending or, to the
knowledge of Debtor or any Subsidiary, threatened before any court or
administrative agency which will or may have a material adverse effect on the
financial condition or operations of Debtor or any Subsidiary or upon Debtor's
or any Subsidiary's ability to perform its obligations under this Agreement,
the Stock Put Agreement, or any other Transaction Document, except as disclosed
to Secured Party in writing prior to the date of this Agreement.
3.6 No Conflicting Agreements. There are no charter, bylaw or
stock provisions of Debtor and no provisions of any existing agreement,
mortgage, indenture or contract binding on Debtor or affecting its property,
which would conflict with or in any way prevent the execution, delivery, or
carrying out of the terms of this Agreement, the Stock Put Agreement, and the
other Transaction Documents. There are not charter, bylaw or stock provisions
of any Subsidiary and no provisions of any existing agreement, mortgage,
indenture or contract binding on any Subsidiary or affecting its property,
which would conflict with or in any way prevent the execution, delivery, or
carrying out of the terms of this Agreement and each such Subsidiary's Guaranty
Agreement.
3.7 Ownership of Assets. Debtor has good title to the Collateral,
and the Collateral is owned free and clear of liens, charges, claims, security
interests, and other encumbrances. Debtor will at all times maintain its
tangible property, real and personal, in good order and repair taking into
consideration reasonable wear and tear.
3.8 Taxes. Debtor and each Subsidiary has filed all tax returns
required to be filed and has paid taxes shows thereon to be due, including
interest and penalties, except such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided. The charges,
accruals, and reserves on the books of Debtor or the Subsidiary in respect of
any taxes or other governmental charges are, in the opinion of Debtor and such
Subsidiary, adequate.
3.9 Financial Statements. The books and records of Debtor
properly reflect Debtor's financial condition, and the financial statements of
Debtor submitted to Secured Party properly reflect Debtor's financial condition
as of such date and were prepared in accordance with generally accepted
accounting principles, consistently applied.
3.10 ERISA Plan. No "Reportable Event" or "Prohibited Transaction"
(as those terms are defined by ERISA) has occurred with respect to any employee
benefit plan of Debtor or any Subsidiary which is subject to ERISA. Neither
Debtor not any Subsidiary has incurred any material accumulated unfunded
deficiency within the meaning of ERISA, and neither Debtor nor any Subsidiary
has incurred any material liability to the Pension Benefit Guaranty Corporation
6
<PAGE> 7
established under ERISA (or any successor thereto under ERISA) in connection
with any such benefit plan.
ARTICLE IV
DEBTOR'S COVENANTS WITH RESPECT TO COLLATERAL
Debtor covenants and agrees that from the date hereof and until the
payment and performance in full of the Obligations unless Secured Party
otherwise consents in writing:
4.1 Delivery of Instruments and/or Certificates.
Contemporaneously herewith, Debtor covenants and agrees to deliver to Secured
Party any certificates, documents, or instruments representing or evidencing
the Collateral, with Debtor's endorsement thereof and/or accompanied by
property instruments of transfer and assignment duly executed in blank with, if
requested by Secured Party, signatures guaranteed by a member or member
organization in good standing of an authorized Securities Transfer Agents
Medallion Program, all in form and substance satisfactory to Secured Party.
4.2 Further Assurances. Debtor will contemporaneously with the
executed hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all further
action necessary or appropriate or that Secured Party may request in order (i)
to perfect and protect the security interest created or purported to be created
hereby and the first priority of such security interest, (ii) to enable Secured
Party to exercise and enforce its rights and remedies hereunder in respect of
the Collateral, and (iii) to otherwise effect the purposes of this Agreement,
including without limitation: (A) executing and filing any financing or
continuation statements, or any amendments thereto; (B) obtaining written
confirmation from the issuer of any securities pledged as Collateral of the
pledge of such securities, in form and substance satisfactory to Secured Party;
(C) cooperating with Secured Party in registering the pledge of any securities
pledged as Collateral with the issuer of such securities; (D) delivering notice
of Secured Party's security interest in any securities pledged as Collateral to
any securities or financial intermediary, clearing corporation or other party
required by Secured Party, in form and substance satisfactory to Secured Party;
and (E) obtaining written confirmation of the pledge of any securities
constituting Collateral from any securities or financing intermediary, clearing
corporation or other party required by Secured Party, in form and substance
satisfactory to Secured Party. If all or any part of the Collateral is
securities issued by an agency or department of the United States, Debtor
covenants and agrees, at Secured Party's request, to cooperate in registering
such securities in Secured Party's name or with Secured Party's account
maintained with a Federal Reserve Bank.
4.3 Additional Property. All Additional Property received by
Debtor shall be received in trust for the benefit of Secured Party. All
Additional Property and all certificates or other written instruments or
documents evidencing and/or representing the Additional Property that is
received by Debtor, together with such instruments of transfer as Secured Party
may request, shall immediately be delivered to or deposited with Secured Party
and held by Secured Party as Collateral under the term of this Agreement. If
the Additional Property received by Debtor shall be shares of
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stock or other securities, such shares of stock or other securities shall be
duly endorsed in blank or accompanied by proper instruments of transfer and
assignment duly executed in blank with, if requested by Secured Party,
signatures guaranteed by a member or member organization in good standing of an
authorized Securities Transfer Agents Medallion Program, all in form and
substance satisfactory to Secured Party. Secured Party shall be deemed to have
possession of any Collateral in transit to Secured Party or its agent.
4.4 Sale, Transfer. Debtor will not sell, transfer, mortgage, or
otherwise encumber any Collateral in any manner without Secured Party's prior
written consent, and any such sale, mortgage, transfer, or encumbrance shall
not be construed to be a waiver of this provision in respect to any subsequent
proposed sale, mortgage, transfer or encumbrance.
4.5 Liens. Neither Debtor nor any person acting on Debtor's
behalf has, or shall have any right, power, or authority to and shall not
create, incur, or permit to be placed or imposed, or continued upon the
Collateral, any lien of any type or nature whatsoever, other than the liens in
favor of Secured Party.
4.6 Matters or Occurrences Affecting Collateral or this Agreement.
Debtor will promptly notify Secured Party of any and all matters or occurrences
that may have a material adverse effect on the status or value of the
Collateral or this Agreement, including without limitation the occurrence of an
Event of Default, or an event which, with giving of notice or lapse of time, or
both, would constitute an Event of Default.
4.7 Agreements Pertaining to Collateral. Debtor will not enter
into any type of contract or agreement pertaining to any of the Collateral or
in any way transfer any voting rights pertaining to the Collateral to any
person.
4.8 Delivery of Additional Shares. In the event that 7-7 Merger
declares a stock split or stock dividend, the Debtor shall deliver to Secured
Party all certificates evidencing shares of 7-7 Merger that are attributable to
the Shares, within three (3) days of receipt of such certificates, along with
such endorsements or stock powers at the Secured Party may request.
4.9 Change of Name. Debtor shall not change its name (or any
assumed name or other name under which Debtor does business) unless at least
thirty (30) days prior to the effective date of any such name changes, Debtor
gives Secured Party written notice of such intended name change and the new
name. Debtor shall execute all such documents and agreements (including
without limitation security agreements, financing statements, and amendments to
financing statements) as Secured Party may reasonably request in connection
with any such name change.
4.11 Dilution of Ownership. As to any securities pledged as
Collateral, Debtor will not consent to or approve of the issuance of (i) any
additional shares of any class of securities of such issuer (unless immediately
upon issuance all such additional securities are pledged and delivered to
Secured Party pursuant to the terms hereof), (ii) any instrument convertible
voluntarily by the holder
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thereof or automatically upon the occurrence or non-occurrence of any event or
condition into, or exchangeable for, any such securities, or (iii) any
warrants, options, contracts or other commitments entitling any third party to
purchase or otherwise acquire any such securities.
4.12 Restrictions on Securities. Debtor will not enter into any
agreement creating, or otherwise permit to exist, any restriction upon the
transfer, voting or control of any securities pledge as Collateral, except as
consented to in writing by Secured Party.
ARTICLE V
DEBTOR'S AFFIRMATIVE COVENANTS
Until payment and performance of all Obligations, Debtor covenants and
agrees as follows:
5.1 Financial Statements. Debtor and each Subsidiary shall
maintain a system of accounting reasonably satisfactory to Secured Party and in
accordance with generally accepted accounting principles consistently applied,
and will permit Secured Party's officers or authorized representatives to visit
and inspect Debtor's and Subsidiary's books of account and other records at
such reasonable times and as often as Secured Party may desire during office
hours and after reasonable notice to Debtor and the applicable Subsidiary, and
will pay the reasonable fees and disbursements of any accountants or other
agents of Secured Party selected by Secured Party for the foregoing purposes.
Unless written notice of another location is given to Secured Party, Debtor's
books and records will be located at Debtor's address set forth above. Debtor
and each Subsidiary further agree that Debtor and the Subsidiaries will
promptly provide Secured Party with such additional information, reports or
statements respecting their business operations and financial condition as
Secured Party may reasonably request from time to time. Debtor shall deliver
to Lender, concurrently with filing same, all annual, periodic, and other
filings made by Debtor with the Securities and Exchange Commission.
5.2 Insurance. Debtor and each Subsidiary shall maintain
insurance with responsible insurance companies on such of its properties, in
such amounts and against such risks as is customarily maintained by similar
businesses operating in the same vicinity, specifically to include a policy of
fire and extended coverage insurance covering all assets, and liability
insurance, all to be with such companies and in such amounts satisfactory to
Secured Party and to contain a mortgage clause naming Secured Party as its
interest may appear. Evidence of such insurance will be supplied to Secured
Party.
5.3 Existence and Compliance. Debtor and each Subsidiary shall
maintain its corporate existence in good standing and comply with all Laws
applicable to it or to any of its property, business operations and
transactions. Debtor and each Subsidiary shall qualify as a foreign
corporation in all jurisdictions wherein any property now or hereafter owned or
any business now or hereafter transacted by Debtor or such Subsidiary makes
such qualifications necessary.
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5.4 Adverse Conditions or Events. Debtor and the Subsidiaries
shall promptly advise Secured Party in writing of any litigation filed against
Debtor or any Subsidiary and of any condition, event or act which comes to its
attention that would or might have a material adverse effect on Debtor's or any
Subsidiary's financial condition or on Debtor's ability to perform the
Obligations or any Subsidiary's ability to perform under its guaranty agreement
executed in favor of Secured Party with respect to the Obligations, including
without limitation any Environmental Condition that might have such a material
adverse effect the financial condition of Debtor or any Subsidiary, any
Reportable Event, or any event that could be the basis for institution of
proceedings by the Pension Benefit Guaranty Corporation to terminate a plan
subject to ERISA.
5.5 Taxes. Debtor and each Subsidiary shall pay all taxes as they
become due and payable.
5.6 Maintenance. Debtor and each Subsidiary shall maintain all of
its tangible property in good condition and repair, reasonable wear and tear
excepted, and make all necessary replacements thereof, and preserve and
maintain all licenses, privileges, franchises, certificates and the like
necessary for the operation of their respective business.
5.7 Environmental. Debtor and each Subsidiary shall promptly give
Secured Party written notice of any investigation, claim, demand, lawsuit or
other action by any governmental or regulatory agency or private party
involving any property owned or leased by Debtor or any Subsidiary and any
Hazardous Substance or Environmental Law of which Debtor or any Subsidiary has
knowledge. If Debtor or any Subsidiary learns, or is notified by any
governmental or regulatory authority, that any removal or other remediation of
any Hazardous Substance affecting any property owned by Debtor or any
Subsidiary is necessary, Debtor or such Subsidiary shall promptly take all
necessary remedial actions in accordance with Environmental Law.
5.8 Subsidiaries. Subsidiary means (a) Consolidated Environmental
Services, Inc., an Arkansas corporation, (b) Cierra, Inc., an Arkansas
corporation; (c) Larco Environmental Services, Inc., a Louisiana corporation;
(d) KR Industrial Service of Alabama, Inc., an Alabama corporation; (e)
Exsorbet Technical Services, Inc., an Arkansas corporation d/b/a SpilTech
Services, Inc.; (f) Eco-Systems, Inc., an Arkansas corporation; and (g) 7-7
Merger, Inc., an Arkansas corporation. Each Subsidiary has executed a Guaranty
Agreement in favor of Secured Party guaranteeing, inter alia, the Obligations.
Debtor and Secured Party contemplate that, from time to time, additional
subsidiaries, either directly or indirectly wholly-owned by Debtor, may be
formed. Upon such formation, each such new subsidiary shall sign a Guaranty
Agreement in the form substantially the same as those executed in connection
herewith. Each such new subsidiary shall be deemed a "Subsidiary" as defined
in and used in this Agreement and shall be subject to the terms, conditions,
and covenants of this Agreement.
5.9 Consummation of Merger. Debtor covenants and agrees that the
merger transaction as set forth in the Merger Agreement shall be consummated
and finalized and all requisite
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documents, certificates, and articles shall be filed with appropriate public
authorities within ten (10) days after the effective date of this Agreement.
ARTICLE VI
NEGATIVE COVENANTS
Until payment and performance of all Obligations, Debtor covenants and
agrees that Debtor and each of its Subsidiaries will not, without the prior
written consent of Secured Party:
6.1 Transfer of Assets. Enter into any merger or consolidation,
or sell, lease, assign or otherwise dispose of or transfer any assets except in
the normal course of its business. Notwithstanding the foregoing, Secured
Party acknowledges that Debtor has disclosed to Secured Party that Debtor
intends to merge into a Delaware corporation, whereby such Delaware corporation
will be the surviving corporation and to change the name of Debtor to
Consolidated Eco-Systems, Inc. Such merger and name change shall be permitted
hereunder provided that (i) the surviving corporation expressly assumes all
covenants, agreements, obligations, and liabilities under this Agreement and
all other Transaction Documents to which Debtor is a party, and (ii) the
surviving corporation executes such additional documents, agreements, and
instruments as Secured Party deems necessary, including without limitation
execution of replacement Transaction Documents, and amendments to UCC financing
statements.
6.2 Change in Ownership or Structure. Dissolve or liquidate;
become a party to any merger or consolidation; reorganize as a professional
corporation; acquire by purchase, lease or otherwise all or substantially all
of the assets or capital stock of any corporation or other entity; or sell,
transfer, lease, or otherwise dispose of all or any substantial part of its
property or assets or business.
6.3 Liens. Knowingly grant, suffer, or permit liens on or
security interests in Debtor's or such Subsidiary's assets, or fail to promptly
pay all lawful claims, whether for labor, materials, or otherwise, except for
purchase money security interests arising in the ordinary course of business.
6.4 Loans. Make any loans, advances or investments to or in any
joint venture, corporation or other entity, except for the purchase of U.S.
Government obligations or the purchase of Federally-insured certificates of
deposit.
6.5 Borrowings. Create, incur, assume, or become liable in any
manner for any indebtedness (for borrowed money, deferred payment for the
purpose of assets, lease payments, as surety or guarantor of the debt of
another, or otherwise) other than to Secured Party without Secured Party's
prior written consent, except trade debts incurred in the ordinary course of
business.
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ARTICLE VII
DEFAULT AND REMEDIES
7.1 Events of Default. An Event of Default (herein so called)
shall exist if any one or more of the following events shall occur:
(a) The failure of Debtor to timely pay any amount of
principal under and/or interest on the Note, or any other amounts due under the
Note;
(b) Debtor's breach of a covenant in this Agreement or
any other failure to perform its obligations under this Agreement;
(c) Any representation or warranty made in this Agreement
shall be false or materially misleading, as determined in the reasonable
discretion of Secured Party;
(d) The occurrence of an Event of Default or any other
Transaction Document;
(e) If Debtor or any other party obligated to pay any
portion of the Obligations: (i) becomes insolvent, or makes a transfer in fraud
of creditors, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due; (ii) generally is
not paying its debts as such debts become due; (iii) has a receiver, trustee or
custodian appointed for, or take possession of, all or substantially all of the
assets of such party or any of the Collateral, either in a proceeding brought
by such party or in a proceeding brought against such party and such
appointment is not discharged or such possession is not terminated with sixty
(60) days after the effective date thereof or such party consents to or
acquiesces in such appointment or possession; (iv) files a petition for relief
under the United States Bankruptcy Code or any other present or future federal
or state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "Applicable Bankruptcy Law") or an involuntary
petition for relief is filed against such party under any Applicable Bankruptcy
Law and such involuntary petition is not dismissed within sixty (60) days after
the filing thereof, or an order for relief naming such party is entered under
any Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged within a
period of sixty (60) days any attachment, sequestration or similar writ levied
upon any property of such party; or (vi) fails to pay within thirty (30) days
any final money judgment against such party; or
(f) The issuer of any securities constituting Collateral
files a petition for relief under any Applicable Bankruptcy Law, an involuntary
petition for relief is filed against any such issuer under any Applicable
Bankruptcy Law and such involuntary petition is not dismissed within thirty
(30) days after the filing thereof, or an order for relief naming any such
issue is entered under any Applicable Bankruptcy Law.
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7.2 Secured Party's Remedies. Upon the occurrence of an Event of
Default:
(a) Secured Party may declare the Obligations in whole or
part immediately due and may enforce payment and performance of the same and
exercise any rights under the Texas UCC, rights and remedies of Secured Party
under this Agreement, or otherwise.
(b) Secured Party may, at Secured Party's option and at
the expense of Debtor, either in Secured Party's own right or in the name of
Debtor and in the same manner and to the same extent that Debtor might
reasonably so act if this Agreement had not been made: (i) do all things
requisite, convenient, or necessary to enforce the performance and observance
of all rights, remedies and privileges of Debtor arising from the Collateral,
or any party thereof, including without limitation compromising, waiving,
excusing, or in any manner releasing or discharging any obligation of any party
to or arising from the Collateral; (ii) take possession of the books, papers,
chattel paper, documents of title, and accounts or Debtor, wherever located,
relating to the Collateral; (iii) sue or otherwise collect and receive money
attributable to the Collateral; and (iv) exercise any other lawfully available
powers or remedies, and do all other things which Secured Party deems
requisite, convenient or necessary or which the Secured Party deems proper to
protect the Security Interest.
(c) Secured Party may foreclose this Agreement in the
manner now or hereafter provided or permitted by law and may upon such
reasonable notification prior thereto as may be required by applicable law
(debtor hereby agreeing that ten days' notice is commercially reasonable),
sell, assign, transfer, or otherwise dispose of the Collateral at public or
private sale, in whole or in part, and Secured Party may, in its own name or as
Debtor's attorney-in-fact effectively assign and transfer the Collateral, or
any part thereof, absolutely, and execute and deliver all necessary
assignments, conveyances, bills of sale, and other instruments with power to
substitute one or more persons or corporations with like power. Any such
foreclosure sale, assignment, transfer, or other disposition shall, to the
extent permitted by law, be a perpetual bar, both at law and in equity, against
Debtor and all persons and corporations lawfully claiming by or through or
under Debtor. Any such foreclosure sale may be adjourned from time to time.
Upon any sale, Secured Party may bid for and purchase the Collateral, or any
part thereof, and upon compliance with the terms of sale may hold, retain,
possess and dispose of the Collateral, in its absolute right without further
accountability. Secured Party shall have the right to be credited on the
amount of its bid a corresponding amount of the Obligations as of the date of
such sale.
(d) If, in the opinion of Secured Party, there is any
question that a public sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party (i) may offer and sell
securities privately to purchasers who will agree to take them for investment
purposes and not with a view to distribution and who will agree to imposition
of restrictive legends on the certificates representing the security, or (ii)
may sell such securities in an intrastate offering under Section 3(a)(11) of
the Securities Act of 1933, and no sale so made in good faith by Secured Party
shall be deemed to be not "commercially reasonable" because so made.
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(e) Not in limitation of any other provision of this
Agreement, Secured Party shall have all rights and remedies of a secured party
under the Texas UCC.
7.3 Application of Proceeds. Secured Party may apply the proceeds
of any foreclosure sale hereunder or from any other permitted disposition of
the Collateral or any part thereof as follows: (a) first, to the payment of
all reasonable costs and expenses of any foreclosure and collection hereunder
and all proceedings in connection therewith, including reasonable attorneys'
fees, (b) then, to the reimbursement of Secured Party for all disbursements
made by Secured Party for taxes, assessments or liens superior to the Security
Interest and which Secured Party shall deem expedient to pay, (c) then, to the
reimbursement of Secured Party of any other disbursements made by Secured Party
in accordance with the terms hereof, (d) then, to or among the amounts of fees,
interest and principal then owing and unpaid in respect of the Obligations, in
such priority as Secured Party may determine in its discretion; and (e) the
remainder of such proceeds, if any, shall be paid to Debtor. If such proceeds
shall be insufficient to discharge the entire Obligations, Secured Party shall
have any other available legal recourse against Debtor and all other persons
obligated under, or for the performance of, the Stock Put Agreement, or on the
Note if issued, for the deficiency, together with interest thereon at fifteen
percent (15%) per annum.
7.4 Enforcement of Obligations. Nothing in this Agreement or in
any other agreement shall affect or impair the unconditional and absolute right
of the Secured Party to enforce the Obligations as and when the same shall
become due in accordance with the terms of the Note.
7.5 Voting Rights. Upon the occurrence of an Event of Default,
Debtor will not exercise any voting rights with respect to securities pledged
as Collateral. Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact (such power of attorney being coupled with an interest) and
proxy to exercise any voting rights with respect to Debtor's securities pledged
as Collateral upon the occurrence of an Event of Default.
7.6 Dividend Rights and Interest Payments. Upon the occurrence of
an Event of Default:
(a) all rights of Debtor to receive and retain the dividends and
interest payments which it would otherwise be authorized to receive and retain
pursuant to any provision of this Agreement shall automatically cease, and all
such rights shall thereupon become vested with Secured Party which shall
thereafter have the sole right to receive, hold and apply as Collateral such
dividends and interest payments; and
(b) all dividend and interest payments which are received by
Debtor contrary to the provisions of clause (i) of this Subsection shall be
received in trust for the benefit of Secured Party, shall be segregated from
other funds of Debtor, and shall be forthwith paid over to Secured Party in the
exact form received (properly endorsed or assigned if requested by Secured
Party), to be held by Secured Party as Collateral.
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ARTICLE VIII
RIGHTS OF SECURED PARTY
8.1 Subrogation. Upon the occurrence of an Event of Default,
Secured Party, at its election, may subrogate to all of the interest, rights
and remedies of the Debtor, in respect to any of the Collateral or agreements
pertaining thereto.
8.2 Secured Party Appointed Attorney-in-Fact. Debtor hereby
appoints Secured Party as attorney-in-fact of Debtor, with full authority in
the place and stead of Debtor and in the name of Debtor, Secured Party or
otherwise, from time to time on Secured Party's discretion and upon the
occurrence of an Event of Default, to take any action and to execute any
instrument which Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation: (a) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral (b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a) of this
Section 8.2; (c) to file any claims or take any action or institute any
proceeding which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party against any of the Collateral; and (d) to assign and Offer the
Collateral, or any part thereof, absolutely and to execute and deliver
endorsements, assignments, conveyances, bills of sale and other instruments
with power to substitute one or more persons or corporation with like power.
8.3 Performance of Secured Party. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause the
performance of, such agreement, and the reasonable expenses of Secured Party
incurred in connection therewith shall be payable by Debtor under Section 8.8.
In no event, however, shall Secured Party have any obligation or duties
whatsoever to perform any covenant or agreement of Debtor contained herein, and
any such performance by Secured Party shall be wholly discretionary with
Secured Party.
8.4 Duties of Secured Party. The powers conferred upon Secured
Party hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for money
actually received by it hereunder, Secured Party shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.
Without limiting the generality of the foregoing, Secured Party shall not have
any obligation, duty or responsibility to do any of the following: (a)
ascertain any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to the Collateral or informing Debtor with respect to
any such matters, (b) fix, preserve or exercise any right, privilege or option
(whether conversion, redemption or otherwise) with respect to the Collateral
unless (i) Debtor makes written demand to Secured Parry to do so, (ii) such
written demand is received by Secured Party in sufficient time to permit
Secured Party to take the action demanded in the ordinary course of its
business, and (iii) Debtor provides additional collateral, acceptable to
Secured Party in its sole discretion; (c) collect any amounts payable in
respect of the Collateral (Secured Party being liable to
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account to Debtor only for what Secured Party may actually receive or collect
thereon), (d) sell all or any portion of the Collateral to avoid market loss;
(e) sell all or any portion of the Collateral unless and until (i) Debtor makes
written demand upon Secured Party to sell the Collateral, and (ii) Debtor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Debtor.
8.5 No Liability of Secured Party. Neither the acceptance of this
Agreement by Secured Party, nor the exercise of any rights hereunder by Secured
Party, shall be construed in any way as an assumption by Secured Party of any
obligations, responsibilities, or duties of Debtor arising in connection with
the Collateral assigned hereunder or otherwise bind Secured Party to the
performance of any obligations respecting the Collateral, it being expressly
understood that Secured Party shall not be obligated to perform, observe, or
discharge any obligation, responsibility, duty, or liability of Debtor in
respect of any of the Collateral, including without limitation appearing in or
defending any action, expending any money or incurring any expense in
connection therewith.
8.6 Right of Secured Party to Defend Action Affecting Security.
Secured Party may, at the expense of Debtor, appear in and defend any action or
proceeding at law or in equity purporting to affect Secured Party's Security
Interest under this Agreement.
8.7 Right of Secured Party to Prevent or Remedy Default. If
Debtor shall fail to perform any of the covenants, conditions and agreements
required to be performed and observed by Debtor under the Note, or any other
instruments secured hereby, or in respect of the Collateral (subject to any
applicable default cure period), Secured Party (a) may but shall not be
obligated to take any action Secured Party deems necessary or desirable to
prevent or remedy any such default by Debtor or otherwise to protect the
Security Interest, and (b) shall have the absolute and immediate right to take
possession of the Collateral or any part thereof (to the extent Secured Party
has not previously taken possession) to such extent and as often as the Secured
Party, in its sole discretion, deems necessary or desirable in order to prevent
or to cure any such default by Debtor, or otherwise to protect the security of
this Agreement. Secured Party may advance or expend such sums of money for the
account of Debtor as Secured Party in its sole discretion deems necessary for
any such purpose.
8.8 Secured Party's Expenses. All reasonable advances, costs,
expenses, charges and attorneys' fees which Secured Party may make, pay or
incur under any provision of this Agreement for the protection of its security
or for the enforcement of any of its rights hereunder, or in foreclosure
proceedings commenced and subsequently abandoned, or in any dispute or
litigation in which Secured Party or the holder of any of the Obligations may
become involved by reason of or arising out of the Note, or the Collateral
shall be a part of the Obligations and shall be paid by Debtor to Secured
Party, upon demand, and shall bear interest until paid at the rate otherwise
chargeable on the Note, but not to exceed the maximum rate of interest
permitted by applicable law, from the date of such payment until repaid by
Debtor.
8.9. Convertible Collateral. Secured Party may present for
conversion any Collateral which is convertible into any other instrument or
investment security or a combination thereof with cash, but
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Secured Party shall not have any duty to present for conversion any Collateral
unless it shall have received from Debtor detailed written instructions to that
effect at a time reasonably far in advance of the final conversion date to make
such conversion possible.
8.10 Secured Party's Right of Set-Off. Upon the happening of any
event entitling Secured Party to pursue any remedy provided herein, or if
Secured Party shall be served with garnishment process in which Debtor shall be
named as defendant, whether or not Debtor shall be in default hereunder at the
time, Secured Party may, but shall not be required to, set-off any indebtedness
owing by Secured Party to Debtor against any of the Obligations without first
resorting to the security hereunder and without prejudice to any other rights
or remedies of Secured Party or its Security Interest.
8.11 Remedies. No right or remedy herein reserved to Secured Party
is intended to be exclusive of any other right or remedy, but each and every
such remedy shall be cumulative, not in lieu of, but in addition to any other
rights or remedies given under this Agreement and all other security documents.
Any and all of Secured Party's rights and remedies may be exercised from time
to time and as often as such exercise as deemed necessary or desirable by
Secured Party.
8.12 Dividends. Upon the occurrence of an Event of Default,
Secured Party shall be entitled to any cash dividends, fees, receipts, payments
or other disbursements attributable in any way to the Collateral. Debtor shall
take all actions necessary to cause the payor of such disbursements to make
such disbursements directly to Secured Party on account of Debtor. Such
amounts, when received by Debtor, will be applied to the outstanding balance on
the Note.
8.13 Debtor's Waivers. Debtor waives notice of the creation,
advance, increase, existence, extension, or renewal of, and of any indulgence
with respect to, the Obligations; waives notice of intent to accelerate, notice
of acceleration, notice of intent to demand, presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Obligations
outstanding at any time, notice of any change in financial condition of any
person liable for the Obligations or any part thereof, notice of any Event of
Default, and all other notices respecting the Obligations; and agrees that
maturity of the Obligations and any part thereof may be accelerated, extended,
or renewed one or more times by Secured Party in its discretion, without notice
to Debtor.
8.14 Other Parties and Other Collateral. No renewal or extension
of or any other indulgence with respect to the Obligations or any part thereof,
no release of any security, no release of any person (including any maker,
endorser, guarantor, or surety) liable on the Obligations, no delay in
enforcement of payment, and no delay or admission or lack of diligence or care
in exercising any right or power with respect to the Obligations or any
security therefor or guaranty thereof or under this Agreement shall in other
manner impair or affect the rights of Secured Party under the law, under this
Agreement, or under any other agreement pertaining to the other security for
the Obligations, before foreclosing upon the Collateral for the purpose of
paying the Obligations. Debtor waives any right to the benefit of or to
require or control application of any other security or proceeds thereof, and
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Debtor agrees that Secured Party shall have no duty or obligation to Debtor to
apply to the Obligations any such other security or proceeds thereof.
ARTICLE IX
MISCELLANEOUS
9.1 Terms Commercially Reasonable. The terms of this Agreement shall
be deemed commercially reasonable within the meaning of the Texas UCC.
9.2 Notices. Any notices or demands required or permitted to be
given hereunder shall be deemed sufficiently given if in writing and personally
delivered or mailed (with all postage and charges prepaid), addressed to
Secured Party or to Debtor their respective addresses set forth below, or at
such other address as the above parties may from time to time designate by
written notice to the other given in accordance with this Section 9.2. Any
such notice, if personally delivered or transmitted by telex or telegram, shall
be deemed to have been given on the date so delivered or transmitted or, if
mailed, be deemed to have been given on the day after such notice is placed in
the United States mail in accordance with this Section 9.2.
Secured Party: 1301 Capital of Texas Hwy, Suite 300
Austin, Travis County, Texas 78746
Attn: Mr. Duane K. Boyd, Jr.
with copy to: Timothy L. LaFrey, Esq.
Small, Craig & Werkenthin, P.C.
100 Congress Avenue, Suite 1100
Austin, Texas 78701-4099
Debtor: 1401 South Waldron, Suite 201
Fort Smith, Arkansas 72903
9.3 Parties Bound. Secured Party's rights under this Agreement
and the Security Interest shall inure to the benefits of its successors and
assigns, and in the event of any assignment or transfer of any of the
Obligations or the Collateral, Secured Party thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned
or transferred, but Secured Party shall retain all rights and powers hereby
given with respect to any of the Obligations or Collateral not so assigned or
transferred. All representations, warranties, and agreements of Debtor if more
than one are joint and several, and all shall be binding upon the personal
representatives, heirs, successors, and assigns of Debtor.
9.4 Waiver. No delay of Secured Party in exercising any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or
the exercise of any other power or right. No waiver by Secured Party of any
right hereunder of any default by Debtors shall be binding upon Secured Party
unless in writing, and no
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failure by Secured Party to exercise any power or right hereunder or waiver of
any default by Debtor shall operate as a waiver of any other or further
exercise of such right or power of any further default.
9.5 Agreement Continuing. This Agreement shall constitute a
continuing agreement, applying to all future as well as existing transactions,
whether or not of the character contemplated at the date of this Agreement, and
if all transactions between Secured Party and Debtor shall be closed at any
time, shall be equally applicable to any new transactions thereafter.
Provisions of this Agreement, unless by their terms exclusive, shall be in
addition to other agreements between the parties.
9.6 Definitions. Unless the context indicated otherwise,
definitions in the Texas Business and Commerce Code Section 1.1 et seq.
("Texas UCC") apply to words and phrases in this Agreement; if Texas UCC
definitions conflict, Chapter 9 definitions apply.
9.7 Miscellaneous. In this Agreement, whenever the context so
requires, the neuter gender includes the masculine and feminine, and the
singular number includes the plural and vice versa. The headings of paragraphs
herein are inserted only for convenience and shall in no way define, describe
or limit the scope of intent of any provisions of this Agreement. No change,
amendment, modification, cancellation, or discharge of any provision of this
Agreement shall be valid unless consented to in writing by Secured Party.
9.8 Assignment of Secured Party's Interest. Secured Party shall
have the right to assign all or any portion of its rights in this Agreement to
any subsequent holder or holders of the Note.
9.9. Applicable Laws. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
9.10 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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EXECUTED this 30 day of September, 1996.
DEBTOR:
EXSORBET INDUSTRIES, INC.
(an Idaho corporation)
By: /s/ James C. Conners, Jr.
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SECURED PARTY:
AMERICAN PHYSICIANS SERVICE GROUP, INC.
(a Texas corporation)
By: /s/ Duane Boyd
-----------------------------------
Name: Duane Boyd
---------------------------------
Title: Senior VP
--------------------------------
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Schedule I
To Assignment and Security Agreement
"Environmental Laws" means all Laws that relate to health, safety or
environmental protection, including without limitation the (i) Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the hazardous and
Solid Waste Amendments of 1984; (ii) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986; (iii) the Toxic Substances Control Act; (iv)
the Americans with Disabilities Act of 1990, and (iv) the Clean Air Act; all as
amended from time to time and including all regulations promulgated pursuant to
any one or more of them.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, together with all rules and regulations issued pursuant thereto and
all rulings or interpretations adopted by any Governmental Entity thereunder.
"Governmental Entity" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency, or other
governmental authority having jurisdiction over Debtor, any Subsidiary, or any
of its or their respective businesses, operations, assets, or properties.
"Hazardous Material" means those substances defined as toxic or
hazardous substances by or under any Environmental Laws.
"Laws" shall mean all applicable laws, ordinances, statutes. orders,
regulations, judgments, writs, or decrees of any Governmental Entity.
"Subsidiary" means (a) Consolidated Environmental Services, Inc., an
Arkansas corporation, (b) Cierra, Inc., an Arkansas corporation; (c) Larco
Environmental Services, Inc., a Louisiana corporation; (d) KR Industrial
Service of Alabama, Inc., an Alabama corporation; (e) Exsorbet Technical
Services, Inc., an Arkansas corporation, d/b/a SpilTech Services, Inc.; (f)
Eco-Systems, Inc., a Mississippi corporation; and (g) 7-7 Merger, Inc., a
Delaware corporation.
<PAGE> 22
Schedule II
[To be Completed]
<PAGE> 1
EXHIBIT 23.1
Independent Auditor's Consent
The Board of Directors of
Exsorbet Industries, Inc.
We consent to incorporation by reference in the Registration Statement on Form
S-3 (File No. 333-3369) of our reports dated January 8, 1996 and January 5,
1995, relating to the balance sheets of 7-7, Inc. as of November 30, 1995 and
November 30, 1994, and the related statements of income, shareholders' equity,
and cash flows, and related notes for the years then ended.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, LTD.
Cleveland, Ohio
October 15, 1996
<PAGE> 1
EXHIBIT 99.1
EXSORBET INDUSTRIES, INC.
4294 LAKELAND DRIVE, SUITE 200
JACKSON, MS 39208
PHONE (601) 936-6633
Contact: Exsorbet Industries, Inc.
Dr. Ed Schrader
President
(601) 974-1342
Charles E. Chunn, Jr.
Executive Vice President, CFO
(501) 452-1987
Ed Penick, Jr.
Vice President
(501) 664-7745
FOR IMMEDIATE RELEASE
EXSORBET INDUSTRIES, INC. ANNOUNCES ACQUISITION OF
7-7, INC SPECIALIZED ENVIRONMENTAL SERVICES
Jackson, MS--Monday, September 30, 1996--Exsorbet Industries, Inc.
(NASDAQ: Small Cap: EXSO) today announced the acquisition of 7-7, Inc.
Specialized Environmental Services. The company was acquired through a
combination of cash and Exsorbet common stock for all of the outstanding shares
of 7-7, Inc. The deal is structured around an "earn out" arrangement according
to 7-7's future profitability.
7-7, Inc. will be treated as a purchase by Exsorbet. For the fiscal
year ending 11-30-95, 7-7, Inc. reported approximately $18 million in gross
sales. Through the first nine months of 1996, revenues were in excess of $10
million. Total assets for the company as of August 31, 1996 were $9,230,000.
Current estimated backlog of contracts for 7-7, Inc. exceeds $12 million. 7-7,
Inc. had a net loss of $1.1 Million for the first nine months of the current
fiscal year due to the start up cost associated with its Liquiefication Process
plant. This loss is not expected to recur as the plant becomes fully
operational. 7-7, Inc. employs 160 people.
Founded in 1978, 7-7, Inc. is located in Wooster, Ohio. The company
offers a wide range of environmental services including remediation, emergency
response, barge cleaning, industrial maintenance and hazardous waste recycling.
The firm has developed a Liquiefication Process that recycles into a commercial
product hazardous coal tar and petroleum tar sludges. The Liquiefication
Process has broad applications for the steel industry, petroleum and chemical
refineries, utility power plants, wood treatment facilities, and EPA Superfund
sites.
<PAGE> 2
Through this process, tar waste sludges are transformed (either on
site or off site) into viable feedstocks, such as high-BTU fuel stock and
various grades of coal chemical feedstocks. Currently, 7-7 has three
Liquiefication units, one of which is a permanent facility located in Cleveland
with a capacity of up to 300 tons per day and two are mobile units with
capacities of 100 to 150 tons each per day. These mobile units are used on
specific projects.
7-7, Inc. has recently entered into an agreement to utilize its
technology in international opportunities. 7-7 has signed a joint venture with
CEVA International to begin a project next month for the treatment of tar
sludges in Hungary. The Hungarian project is projected to process
approximately 40,000 tons of sludge for a total amount of approximately $6
million through 1997.
Dr. Ed Schrader, President and CEO of Exsorbet Industries, said, "we
are very pleased with the acquisition of 7-7. The potential for growth through
expanding emergency response and industrial services into the Ohio River Valley
offers us great opportunities. In addition, the patented Liquiefication
Process, a highly technical process, provides significant savings for clients
by reducing the cost of disposal over traditional methods such as landfills or
incinerators. Also, to the benefit of our clients, it relieves the waste
generator, remediation firm, and end user of the continuing liability
associated with hazardous waste disposal."
The key management personnel of 7-7 will remain with employment
contracts and continue to operate the company. In addition, they will be
instrumental in developing the interaction with existing Exsorbet subsidiaries.
7-7's emergency response division, which operates primarily in the Ohio River
Valley, will benefit from networking with Larco, an Exsorbet subsidiary which
is a leading emergency response responder in the Gulf Coast area, by extending
the emergency response coverage of Exsorbet from the Gulf Coast to the Great
Lakes. Likewise, 7-7's field remediation services will coordinate their
activities with CESI, an Exsorbet subsidiary that provides comprehensive
environmental remediation services.
Cal Lowe, II, President of 7-7 commented "we are looking forward to
the new and expanded opportunities our company will be able to offer with our
merger with Exsorbet. We can assist each other in building what I believe will
be a world class environmental firm with outstanding leadership in emergency
response, industrial services and the liquiefication of coal tar sludges."
Exsorbet Industries, Inc. is a full service environmental company
specializing in state-of-the-art technical solutions for problems in site
remediation, dewatering and pond solidification, hazardous waste cleanup
material and service, bioremediation, environmental engineering and project
management, industrial maintenance services, and twenty- four hour emergency
response services.
Subsidiaries of Exsorbet Industries, Inc. include Eco-Systems;
Exsorbet Technical/SpilTech Services, Inc.; Consolidated Environmental
Services, Inc.; Cierra, Inc.; LARCO Environmental Services, Inc.; and K. R.
Industrial Service of Alabama, Inc. Offices are located in Jackson, MS; Fort
Smith and Little Rock, AR; Mobile, Birmingham, and Double Springs, AL; Baton
Rouge, Sulphur (Lake Charles), LA; Kansas City, MO; Tulsa, OK; Knoxville, TN;
Dallas, Bridge City, Euless, and Houston, TX.
