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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number 0-25970
EXSORBET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
IDAHO 82-0464589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4294 LAKELAND DRIVE, SUITE 200
FLOWOOD, MISSISSIPPI 39208
(Address of principal executive offices)
Registrant's telephone number, including area code: (601) 936-6633
6007 S. 29TH STREET
FORT SMITH, ARKANSAS 72903
(Former address if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of June 13, 1996, 8,895,193 shares of the registrant's common stock, $.001
par value ("Common Stock"), were outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C> <C>
PART I
------
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II
-------
2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS.
EXSORBET INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31, March 31
1996 1995 1995
------------- --------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . $ 138,475 $ 778,048 $ 1,340,366
Accounts receivable - trade, net of allowances 5,192,687 3,792,385 2,266,152
Inventories - raw materials . . . . . . . . . 220,548 249,214 706,286
- finished product . . . . . . . . 548,095 235,029 296,743
Prepaid and other . . . . . . . . . . . . . . 1,184,009 291,750 187,173
------------- --------------- -------------
Total Current Assets . . . . . . . . . . . . . . . . . 7,283,814 5,346,426 4,796,720
------------- --------------- -------------
Other Assets
Intangible assets, net . . . . . . . . . . . . 5,030,884 5,220,702 4,419,329
Other assets . . . . . . . . . . . . . . . . . 151,227 183,730 730,549
------------- --------------- -------------
Total Other Assets . . . . . . . . . . . . . . . . . . 5,182,111 5,404,432 5,149,878
------------- --------------- -------------
Property, Plant and Equipment, net . . . . . . . . . . 6,548,242 6,046,863 5,047,698
------------- --------------- -------------
Total Assets . . . . . . . . . . . . . . . . . . . . . $ 19,014,167 $ 16,797,721 $ 14,994,296
------------- --------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
3
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31, March 31
1996 1995 1995
------------- --------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Liabilities
Accounts payable - trade . . . . . . . . . . . . $ 1,765,436 $ 1,146,097 $ 977,052
Notes payable and current maturities of long- 402,428 1,309,157 778,914
term debt . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . 920,186 561,368 242,788
------------- -------------- ------------
Total Current Liabilities . . . . . . . . . . . . . . . . 3,088,050 3,016,622 1,998,754
------------- -------------- ------------
Long-term debt, less current maturities . . . . . . . . . 3,210,219 1,756,980 1,482,240
------------- -------------- ------------
Deferred income taxes . . . . . . . . . . . . . . . . . . 549,087 329,087 -
------------- -------------- ------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . 6,847,356 5,102,689 3,480,994
------------- -------------- ------------
Minority Interest . . . . . . . . . . . . . . . . . . . . - 36,574 84,254
------------- -------------- ------------
Stockholders' Equity
Common Stock . . . . . . . . . . . . . . . . . . 8,885 8,885 8,841
Additional paid-in capital . . . . . . . . . . . 11,465,188 11,465,188 11,231,231
Retained earnings (deficit) . . . . . . . . . . 692,738 184,385 188,976
------------- --------------- ------------
Total Stockholders' Equity . . . . . . . . . . . . . . . 12,166,811 11,658,458 11,429,048
------------- -------------- ------------
Total Liabilities and Stockholders' Equity . . . . . . . $ 19,014,167 $ 16,797,721 $ 14,994,296
============= ============== ============
</TABLE>
See notes to condensed consolidated financial statements.
4
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EXSORBET INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
----------- ----------
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,135,955 3,147,969
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,331,197 1,861,020
----------- ----------
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804,758 1,286,949
----------- ----------
Costs and Expenses:
Marketing Expense . . . . . . . . . . . . . . . . . . . . . . . 300,621 212,444
General and Administrative . . . . . . . . . . . . . . . . . . . 783,650 496,196
----------- ----------
Total Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,084,271 708,640
----------- ----------
Income from Operations . . . . . . . . . . . . . . . . . . . . . . . . . 720,487 578,309
Other Income (Expense), Net . . . . . . . . . . . . . . . . . . . . . . . (42,682) (34,668)
----------- ----------
Income before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 677,805 543,641
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 169,452 143,093
----------- ----------
Net Income before Minority Interest . . . . . . . . . . . . . . . . . . . 508,353 400,548
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 40,615
----------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508,353 359,933
=========== ==========
Net Income per Common Share . . . . . . . . . . . . . . . . . . . . . . . .06 .04
=========== ==========
Average Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . 8,768,075 8,218,743
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
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EXSORBET INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
----------- ----------
<S> <C> <C>
Net Cash (Used) Provided by Operating Activities: . . . . . . . . . . . . $ (600,548) $(215,647)
------------ -----------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment . . . . . . . . . . . (581,717) (365,075)
Change in other assets . . . . . . . . . . . . . . . . . . . . . (3,818) (602,742)
------------ -----------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . (585,535) (967,817)
------------ -----------
Cash Flows from Financing Activities:
Issuance of common stock . . . . . . . . . . . . . . . . . . . . -- 460
Additional capital paid in . . . . . . . . . . . . . . . . . . -- 2,203,748
Net proceeds from (repayment of) notes payable and long-term debt 546,510 128,384
------------ -----------
Net Cash Provided by Financing Activities . . . . . . . . . . . 546,510 2,332,592
------------ -----------
(Decrease) Increase in Cash . . . . . . . . . . . . . . . . . . . . . . . (639,573) 1,149,128
Cash - Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . 778,048 191,238
------------ -----------
Cash - End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,475 $ 1,340,366
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996. For further
information, refer to the Company's consolidated financial statements
and footnotes thereto included in the Company's Form 10-K/A for the
year ended December 31, 1995.
2. Subsequent Event
Subsequent to March 31, 1996, the Company sold $5,000,000 face amount
of debentures. The debentures bear interest at 7.5% per annum,
payable quarterly, until conversion. The debentures are convertible
into Common Stock of the Company. One-half of the principal amount is
convertible forty-five days after closing. The other half is
convertible after seventy-five days. Any remaining unconverted
debentures mature in two years and are automatically converted into
Common Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following analysis and discussion highlights significant factors
affecting the Company's financial condition and results of operations for the
quarter ended March 31, 1996. For a more complete understanding of the
following discussion, reference should be made to the Company's Consolidated
Financial Statements and the related notes thereto presented above.
Results of Operations
Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995
Sales. For the three months ended March 31, 1996 and 1995, sales were
$4,135,955 and $3,417,969, respectively. The increase in sales was due
primarily to sales of the products and services offered by Consolidated
Environmental Services, Inc. and Eco-Systems, Inc. to the customers of the
Company's other subsidiaries. Consolidated Environmental Services, Inc. and
Eco-Systems, Inc. were acquired by the Company on September 27, 1995 and
December 28, 1995, respectively.
Cost of Sales. For the three months ended March 31, 1996 and 1995,
the cost of sales were $2,331,197 and $1,861,020, respectively, or 56.4% as a
percentage of sales as compared to 59.1%, respectively. The cost of sales as a
percentage of sales decreased as management gained better control of the cost
factors associated with producing the Company's products and providing
services.
Total Operating Expenses. For the three months ended March 31, 1996
and 1995, total operating expenses were $1,084,271 and $708,640, respectively.
The increase resulted from an increase in marketing and general administration
expenses.
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Net Income. For the three months ended March 31, 1996 and 1995, net
income was $508,354 and $359,933, respectively. For the three months ended
March 31, 1996 and 1995, net income per share was approximately $.06 and $.04,
respectively.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 1996, total current assets were $7,283,814, reflecting an
increase over the March 31, 1995 level of $4,796,720. Total current
liabilities increased over the same periods from $1,998,754 on March 31, 1995
to $3,088,050 on March 31, 1996. This resulted in a current ratio of 2.36 and
2.40, respectively. At December 31, 1995, total current assets were $5,346,426
and total current liabilities at March 31, 1996 and 1995 were $3,016,622. This
resulted in a current ratio of 1.77 on December 31, 1995, as compared to 2.36
on March 31, 1996.
During the first quarter of 1996, the Company began several large
projects, which increased accounts receivables and prepaid expenses. The
Company also incurred approximately $1,462,000 of long term debt in order to
finance the acquisition of equipment related to these projects.
Cash decreased from $1,340,366 on March 31, 1995 to $778,048 and
$138,475 on December 31, 1995 and March 31, 1996, respectively. The decrease
resulted from the Company's increased payroll obligations, the payoff of
liabilities classified as Notes Payable and the prepayment of expenses related
to the projects described above.
Working capital needs generally have been met from cash generated from
operations with short term borrowings used on occasions and, more recently,
through the issuance of convertible debentures. Between May 8 and May 14,
1996, the Company issued $5,000,000 principal amount of debentures that are
convertible into the Company's Common Stock as described below. While the
Company has not relied significantly on short term borrowings to meet its
capital requirements, the Company does experience periodic cash flow needs
common to the industry. Management believes that the Company's existing
working capital and available credit lines are sufficient to meet the Company's
current operating capital needs.
Between May 8 and May 14, 1996, the Company issued $5,000,000 of 7
1/2% convertible debentures due two years from the date of issue (the
"Debentures") in a transaction exempt from the registration requirements of the
Securities Act of 1933. The Company is obligated to pay interest on the unpaid
principal amount of the Debentures at the rate of 7 1/2% per year, payable
quarterly in arrears until the principal is paid in full or has been converted
into Common Stock. Any accrued interest on the date of conversion, minus any
required withholding, shall be added to the principal amount to be converted.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months. Payment of the principal on the Debentures will be due two years from
the date of issuance of the Debentures and may be made, at the option of the
Company, either (i) in United States Dollars, or (ii) through automatic
conversion as provided below. One-half of the Debentures are convertible at
any time 45 days, and the remainder, at any time 75 days, after the purchase of
the Debentures and before the due date; provided, however, that, to the extent
that any Debentures remain outstanding on the second anniversary of the
purchase thereof, such Debentures will automatically convert into shares of
Common Stock on such date. The Debentures are convertible into shares of
Common Stock at 80% of the Current Market Price (as defined below) of the
Common Stock on the date of conversion; provided, however, that in no event
shall the conversion price be less than 50% of the Current Market Price of the
Common Stock on the date of the closing of a holder's purchase of a Debenture
nor greater than the Current Market Price of the Common Stock on the date of
the closing of a holder's purchase of a Debenture. "Current Market Price" per
share of Common Stock on any date is the average of the quoted bid prices of
the Common Stock for five consecutive trading days ending on the trading day
before the date in question. The quoted bid price shall mean (i) the closing
bid prices thereof on any such trading date, as reported by Bloomberg, L.P., or
(ii) in the event the Common Stock is not reported on such system, the fair
market value of the Common Stock as determined by the Board of Directors of the
Company in its good faith judgment.
The Company has used approximately $750,000 of the proceeds from the
sale of the Debentures to retire short- term debt and used approximately
another $1,500,000 as working capital. The Company anticipates using
approximately $2,000,000 to consummate the Possible Acquisitions, as defined
below.
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Under certain limited circumstances, upon conversion of the Debentures
into Common Stock and upon demand of such holders, the Company is obligated to
file a registration statement within thirty days to register such Common Stock
for sale.
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PART II
ITEM 2. CHANGES IN SECURITIES.
On May 9, 1996 the Company filed an amendment (the "Amendment") to its
Articles of Incorporation that eliminated its shareholders' preemptive right to
acquire unissued or treasury shares or securities convertible into such shares
or carrying a right to subscribe to or acquire shares. The Amendment is filed
as Exhibit 3.2 to this Form 10-Q/A-1, which is incorporated herein by
reference.
ITEM 5. OTHER INFORMATION.
FLOYD LELAND OGLE'S RESIGNATION
On February 22, 1996, Floyd Leland Ogle resigned as President of the
Company. Pursuant to an agreement with the Nasdaq Stock Market, Inc., Mr. Ogle
was required to divest himself of all of his shares of Common Stock in excess
of five percent of the outstanding capital stock of the Company on February 26,
1996. On or about February 29, 1996, Mr. Ogle and First Commercial Trust Co.,
N.A. of Little Rock, Arkansas (the "Trustee") entered into a trust agreement
(the "Agreement") forming the Floyd Leland Ogle Trust (the "Trust"). Pursuant
to the Agreement, Mr. Ogle placed 1,458,100 shares of Common Stock of the
Company, and an option to acquire and additional 50,000 shares of Common Stock
into the Trust, for the benefit of Mr. Ogle's wife, Terie Elson Ogle. The
Trust is required to use its best efforts to sell all of the shares of Common
Stock it holds within two years from the date of the agreement with the Nasdaq
Stock Market, Inc.
The Trust is required to indemnify the Trustee against any claims or
losses. Additionally, the Company has agreed to indemnify the Trustee in the
event of any losses by the Trust should the Trust's assets be depleted or
should the Trust become insolvent. Further, pursuant to an agreement with the
Trust, on May 8, 1996, the Company filed a registration statement on Form S-3
registering the resale of shares of Common Stock by the Trust. Exsorbet
Industries, Inc. agreed to advance the costs and expenses incurred in the
filing of the registration statement, with such expenses to be reimbursed by
the Trust.
As a result of Mr. Ogle's resignation, the Board of Directors of the
Company (the "Board") appointed Dr. Edward Schrader to fill Mr. Ogle's
unexpired term as a director. The other members of the Board are Charles E.
Chunn, Jr., who is the Chairman of the Board, and Sam Sexton III. The Board
also appointed Dr. Schrader to serve as President of the Company. Charles E.
Chunn, Jr. is serving as Vice-President and Treasurer, and Sam Sexton III is
serving as Secretary.
POSSIBLE ACQUISITIONS
The Company has entered into letters of intent to purchase the
businesses operated by Chem-Bio Laboratories, Inc., a Mississippi corporation
("Chem-Bio"), Asbestos Abatement Systems, Inc., a Mississippi corporation,
("AAI"), Environmetrics, Inc., a Mississippi corporation ("EMI"), Larco
Environmental Services, Inc., a Louisiana corporation ("Larco") and KR
Industrial Services of Alabama, an Alabama corporation ("KR") (collectively the
"Possible Acquisitions"). The consummation of each of the possible
acquisitions is subject to many conditions, including a full and satisfactory
due diligence review of each of the companies and the negotiation of terms and
conditions of a legally binding definitive acquisition agreement. The Company
does not view any of these Possible Acquisitions as probable within the meaning
of Regulation S-X.
The financial information in respect of the Possible Acquisitions
contained in this section was provided by the sellers of the companies
described above in connection with the letters of intent and such financial
information may not have been prepared in accordance with generally accepted
accounting principles and as such, is subject to revisions based on information
obtained by the Company in the event any such Possible Acquisitions are
consummated. There can be no assurance that any of the Possible Acqisitions
will ever be consummated or, if consummated, that the financial information
presented herein in respect of such companies acquired in the Possible
Acquisitions will reflect the financial information after the date such
acquisitions are consummated.
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Environmetrics, Inc.
The Company has entered into a letter of intent, dated April 24, 1996,
that provides for the acquisition of all of the outstanding stock of EMI in
exchange for an unspecified amount of the Company's Common Stock that is still
subject to negotiation. The Company intends to account for the transaction
according to the purchase method of accounting.
EMI is an environmental testing laboratory that performs chemical
analysis testing for organic and inorganic contaminants in water, soil,
hazardous waste samples, and other materials. EMI also performs oil testing,
consisting of quality testing, dissolved gas analysis and polychlorinated
biphenol analysis, for the transformer industry. EMI also provides analytical
services to the chemical and environmental industries, environmental
remediation companies, consulting engineers, utility companies, and state,
local and the Federal governments.
EMI had total assets of $1,093,148 and total liabilities of $932,431
as of the year ended December 31, 1995. EMI had total revenues of $2,857,558
for the fiscal year ended December 31, 1995. In the event this acquisition is
consummated, the Company believes it will be required to fund EMI $300,000 of
additional working capital to fund its current business operations.
Asbestos Abatement Systems, Inc. and Chem-Bio Laboratories, Inc.
The Company has entered into a letter of intent, dated May 2, 1996, and though
further negotiations, has agreed to acquire all the outstanding stock of
Chem-Bio and AAI for $1,000,000 in cash. The Company intends to account for
this transaction using the purchase method of accounting.
Chem-Bio is a commercial analytical laboratory. AAI is a containment,
treatment and environmental remediation company operating in Mississippi,
Alabama, Louisiana and Texas. AAI specializes in heavy metal, asbestos and
hazardous waste treatment and disposal.
Chem-Bio had total assets of $287,086 and total liabilities of
$273,939 as of the year ended December 31, 1995. Chem-Bio also had total
revenues of $757,401 for the year ended December 31, 1995. AAI had total
assets of $358,740 and total liabilities of $247,984 as of the year ended
December 31, 1995. AAI also had total revenue of $1,718,843 for the year ended
December 31, 1995.
Larco Environmental Services, Inc.
The Company has entered into a letter of intent, dated May 20, 1996
that provides for the acquisition of all of the outstanding stock of Larco in
exchange for 1,733,332 shares of the Company's Common Stock in a transaction,
which the Company believes will be accounted for according to the pooling of
interests method of accounting, and the acquisition of certain personal assets
of Larco's shareholders, consisting of fixed assets and real estate, that are
used by Larco in its business for an additional cash payment of $365,000.
Larco is an emergency response and industrial services company that
operates in the central costal and inland region of the Gulf of Mexico. Larco
engages in oil spill and hazardous material response, spill mitigation and
clean up. Larco also provides industrial services, including storage tank
cleaning, waste and sludge removal and refurbishment of chemical and
hydrocarbon storage tanks, to the oil refining, petrochemical, manufacturing
and transportation industries.
Larco has approximately $5,339,544 in total assets and $3,128,020
total liabilities as of the year ended July 31, 1995. Larco had sales of
$5,893,073 for the year ended July 31, 1995.
The 1,733,332 shares of Common Stock to be received by Larco's
shareholders will be "restricted securities" as defined in Rule 144 ("Rule
144") of the Securities Act of 1933, as amended (the "Act"). Rule 144
restricts the transfer of "restricted securities" for up to three years from
the date of purchase. Such restriction on transfer can be removed by the
filing of a registration statement under the Act to register such shares for
resale. The letter of intent contains certain registration rights.
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Additionally, the letter of intent provides that Larco's shareholders
give the Company's current Board of Directors an irrevocable proxy to vote the
shares of the Company's Common Stock to be received in exchange for the
outstanding stock of Larco for a period of two years after the closing of this
transaction.
The letter of intent provides that the Company will indemnify Larco's
shareholders for all disclosed debts and known contingent liabilities and all
unknown contingent liabilities of Larco.
KR Industrial Services of Alabama
The Company has entered into a letter of intent, dated June 10, 1996,
that provides for the acquisition for all the outstanding stock of KR for
$2,120,000 to be paid in shares of the Company's Common Stock in a transaction
that the Company believes will be accounted for according to the pooling of
interests method of accounting. The stock received by the sellers of KR will
be "restricted securities" as described above.
KR is an industrial services company that operates in the inland
region of the Gulf of Mexico. KR provides industrial services, such as
hydroblasting, internal plant spill cleanup, storage tank cleaning, sludge
pumping, industrial vacuum services and equipment steam cleaning services to
utility, chemical and manufacturing companies.
KR had approximately $2,453,741 in total assets and $1,822,487 in
total liabilities as of the six-month period ended May 31, 1996. KR had total
revenues of $2,534,763 for the six month period ended May 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
* 3.1 Articles of Incorporation of Exsorbet Industries,
Inc., dated March 14, 1930, as amended November 2,
1981, February 19, 1988, March 9, 1988, August 5,
1988 and December 20, 1993 (filed as Exhibit 3.1 to
Form 10-QSB dated June 30, 1995).
3.2 Articles of Amendment to the Articles of
Incorporation of Exsorbet Industries, Inc. dated May
9, 1996 (filed herewith).
* 3.3 By-Laws of Exsorbet Industries, Inc. (filed as Exhibit 3.2 to
Form 10-QSB dated June 30, 1995).
* 4.1 Form of Certificate of Exsorbet Industries, Inc.
Common Stock, $.001 par value (filed as Exhibit 3 to
Form 10-SB filed May 1, 1995).
10.1 Form of Offshore Convertible Securities Subscription
Agreement (filed herewith).
10.2 Form of Debenture (filed herewith).
10.3 Letter of Intent, dated April 24, 1996, by and between Exsorbet
Industries, Inc. and Environmetrics, Inc. (filed herewith).
10.4 Letter of Intent, dated May 2, 1996, by and between
Exsorbet Industries, Inc. and T.J. and Linda
Culpepper (filed herewith).
</TABLE>
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<TABLE>
<S> <C>
10.5 Letter of Intent, dated May 20, 1996, by and between
Exsorbet Industries, Inc. and Larry and Marilyn
Woodcock (filed herewith).
</TABLE>
23.1 Consent of Cooper Shuffield & Company
- ---------------------
* Incorporated by Reference
(b) Reports on Form 8-K
None
13
<PAGE> 14
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 thereunto duly authorized.
EXSORBET INDUSTRIES, INC.
By: /s/ CHARLES CHUNN, JR.
------------------------------------
CHARLES CHUNN, JR.
Chairman of the Board, Chief
Financial Officer, Vice President,
Treasurer and Director
(Principal Executive Officer,
Principal Financial Officer
and Principal Accounting Officer)
Date: June 14, 1996
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.2 Articles of Amendment to the Articles of Incorporation of
Exsorbet Industries, Inc. dated May 9, 1996.
10.1 Form of Offshore Convertible Securities Subscription
Agreement.
10.2 Form of Debenture.
10.3 Letter of Intent, dated April 24, 1996 by and between
Exsorbet Industries, Inc. and Environmetries, Inc.
10.4 Letter of Intent, dated May 2, 1996 by and between Exsorbet
Industries, Inc. and T.J. and Linda Culpepper.
10.5 Letter of Intent, dated May 20, 1996 by and between Exsorbet
Industries, Inc. and Larry and Marilyn Woodcock.
23.1 Consent of Cooper, Shuffield & Company
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
<PAGE> 2
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
EXSORBET INDUSTRIES, INC.
Pursuant to the provisions of Section 30-1-61 of the Idaho Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is EXSORBET INDUSTRIES, INC.
SECOND: The following amendments of the Articles of Incorporation are
adopted by the Shareholders of the corporation.
ARTICLE VII.
No holder of any shares of capital stock of the corporation, whether
now or hereafter authorized, shall, as such holder, have any
preemptive right to acquire unissued or treasury shares or securities
convertible into such shares or carrying a right to subscribe to or
acquire shares.
THIRD: The amendment to the Articles of Incorporation was adopted by
the shareholders of the corporation on the 2nd day of June, 1994.
FOURTH: The number of shares of the corporation outstanding at the
time of such adoption was 7,381,653. The number of shares entitled to vote on
such amendment was 7,381,663. The designation and number of shares of the
corporation are all of one class designated as capital stock.
FIFTH: The number of shares voted for the amendment was 5,278,950 and
the number of shares voted against such amendment was 149.
EXECUTED by the undersigned in duplicate originals at Fort Smith,
Arkansas on this 8th day of May, 1996.
/s/ CHARLES CHUNN, JR. Vice-President
/s/ SAM SEXTON III Secretary
<PAGE> 1
EXHIBIT 10.1
FORM OF OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT
<PAGE> 2
OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
EXSORBET INDUSTRIES, INC./[BUYER]
THIS OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
(hereinafter the "Agreement") has been executed by the undersigned in
connection with the sale of certain convertible debentures (hereinafter the
"Debentures"), convertible into shares of common stock, par value $0.001 per
share (hereinafter the "Shares") of Exsorbet Industries, Inc. (EXSO), 6007
South 29th Street, Fort Smith, Arkansas, a corporation organized under the laws
of Idaho (hereinafter "SELLER") to [Buyer], located at [address ], a
corporation organized under the laws of [____________________] (hereinafter
"BUYER"). SELLER and BUYER (hereinafter collectively the "parties") each
hereby represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) BUYER hereby subscribes for One Hundred Fifty Thousand Dollars
($150,000) U.S. principal amount of Debentures, convertible into Shares in
accordance with the terms set forth in the form of Debenture attached as
Exhibit A to this Agreement.
(ii) BUYER shall pay the purchase price by delivering same day
funds in United States Dollars to an escrow agent or as otherwise agreed
between the parties, to be delivered to the order of SELLER upon delivery of
the Debentures.
(iii) This Agreement has been executed in connection with an
offering (the "Offering") by SELLER of Debentures pursuant to Regulation S
("Regulation S") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). BUYER will be notified of the date of the completion of the
Offering.
2. BUYER'S REPRESENTATIONS AND COVENANTS
BUYER represents and warrants to SELLER as follows:
(i) BUYER is not a "U.S. Person" as defined by Rule 902 of
Regulation S, was not organized under the laws of any U.S. jurisdiction, and
was not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
BUYER was outside the United States;
(iii) No offer to purchase the Debentures was made in the United
States and Buyer is not aware of any "direct selling efforts" as defined by
Rule 902 of Regulation S by any person in respect of the Debentures;
(iv) BUYER is either (a) purchasing the Debentures for its own
account for investment purposes and not with a view towards distribution, or
(b) acting as agent for a principal that has made the representations contained
in Exhibit B hereto;
(v) All subsequent offers and sales of the Debentures or the
Shares will be made (a) outside the United States in compliance with Rule 903
or Rule 904 of Regulation S, (b) pursuant to registration of the Debentures or
the Shares under the Securities Act, or (c) pursuant to an exemption from such
registration. BUYER understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and acknowledges
that there can be no assurance that it will be able to rely on such exemption.
In any case, BUYER will not resell the
<PAGE> 3
Offshore Convertible Securities
Subscription Agreement: Exsorbet Industries, Inc./[Buyer] [date]
Page 2
Debentures or the Shares to U.S. Persons or within the United States until
after the end of the forty (40) day period commencing on the date of completion
of the Offering (the "Restricted Period");
(vi) BUYER has no existing short position with respect to the
common stock of SELLER and agrees not to enter into any short sales or other
hedging transactions with respect to the common stock of SELLER at any time
after the execution of this Agreement by BUYER and prior to the expiration of
the Restricted Period. BUYER further agrees that, at all times after the
execution of this Agreement by BUYER and prior to the expiration of the
Restricted Period, it will keep its purchase of the Debentures or the Shares
confidential, except as required by law and except as necessary in the ordinary
course of BUYER'S business;
(vii) BUYER understands that the Debentures are being offered and
sold to it in reliance on specific provisions of federal and state securities
laws and that SELLER is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
BUYER set forth herein in order to determine the applicability of such
provisions. Accordingly, BUYER agrees to notify SELLER of any events which
would cause the representations and warranties of BUYER to be untrue or
breached at any time after the execution of this Agreement by BUYER and prior
to the expiration of the Restricted Period;
(viii) Any offering documents received by BUYER include statements to
the effect that neither the Debentures nor the Shares have been registered
under the Securities Act and such securities may not be offered or sold in the
United States or to U.S. Persons during the Restricted Period;
(ix) BUYER, in making the decision to purchase the Debentures
subscribed for, has relied upon independent investigations made by it and has
not relied on any information or representations made by third parties;
(x) In the event of resale of the Debentures or the Shares during
the Restricted Period, BUYER shall provide a written confirmation or other
written notice to any distributor, dealer, or person receiving a selling
concession, fee, or other remuneration in respect of the Debentures or the
Shares stating that such purchaser is subject to the same restrictions on
offers and sales that apply to the undersigned, and shall require that any such
purchaser shall provide such written confirmation or other notice upon resale
during the Restricted Period;
(xi) BUYER has not taken any action that would cause SELLER to be
subject to any claim for commission or other fee or remuneration by any broker,
finder, or other person and BUYER hereby indemnifies SELLER against any such
claim caused by the actions of BUYER or any of its employees or agents; and
(xii) BUYER'S purchase of the Shares pursuant to this Agreement is
not part of a plan or scheme to evade the registration provisions of the
Securities Act.
3. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
SELLER represents, warrants an covenants to BUYER as follows:
(i) SELLER has been duly incorporated and is validly existing and
in good standing under the laws of its jurisdiction of incorporation. SELLER
is a "Domestic Issuer" and a "Reporting Issuer," as such terms are as defined
by Rule 902 of Regulation S. SELLER has registered its common stock pursuant
to Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is in full compliance with all reporting requirements of
<PAGE> 4
Offshore Convertible Securities
Subscription Agreement: Exsorbet Industries, Inc./[Buyer] [date]
Page 3
either Section 13(a) or 15(d) of the Exchange Act, and SELLER'S common stock
trades on The Nasdaq Small Cap Market;
(ii) SELLER has furnished BUYER with an Offering Memorandum dated
[_____] (the "Offering Memorandum"). Offering Memorandum does not include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements in the Offering Memorandum, in light
of the circumstances under which they were made, not misleading.
(iii) SELLER has not offered the Debentures or the Shares to any
person in the United States, any identifiable group of U.S. citizens abroad, or
to any U.S. Person;
(iv) At the time the buy order was originated, SELLER reasonably
believed BUYER was outside the United States and was not a U.S. Person;
(v) SELLER and/or its agents reasonably believe that the sale of
Debentures has not been prearranged with a buyer in the United States;
(vi) SELLER has not conducted any "directed selling efforts" with
respect to the Debentures or the Shares;
(vii) The Debentures or Shares when issued and delivered will be
duly and validly authorized and issued, and with respect to the Shares,
fully-paid and nonassessable and will not subject the holders thereof to
personal liability by reason of being such holders. There are no preemptive
rights of any shareholder of SELLER with respect to the Debentures or the
Shares;
(viii) This Agreement has been duly authorized, validly executed and
delivered on behalf of SELLER and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(ix) The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures or the Shares and the
transactions contemplated by this Agreement do not and will not conflict with
or result in a breach by SELLER of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or bylaws of SELLER,
or any indenture, mortgage, deed of trust or other material agreement or
instrument to which SELLER is a party or by which it or any of its properties
or assets are bound, or any existing applicable decree, judgment or order of
any court, Federal or State regulatory body, administrative agency or other
governmental body having jurisdiction over SELLER or any of its properties or
assets;
(x) No authorization, approval or consent of any governmental body
is legally required for the issuance and sale of the Debentures or the Shares
as contemplated by this Agreement;
(xi) SELLER will issue one or more Debentures in the name of BUYER
in such denominations to be specified by BUYER prior to closing. Upon
conversion of the Debentures, SELLER will issue one or more certificates
representing the Shares in the name of BUYER without a restrictive legend and
in such denominations to be specified by BUYER prior to conversion. SELLER
further warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period, have
been given to the transfer agent and also warrants that the Debentures and the
Shares shall otherwise be freely transferable by the Buyer on the books and
records of SELLER subject to compliance with Federal and State securities laws.
SELLER will notify the transfer agent of the date of completion of the Offering
and of the date of expiration of the Restricted Period. Nothing in this
section shall affect
<PAGE> 5
Offshore Convertible Securities
Subscription Agreement: Exsorbet Industries, Inc./[Buyer] [date]
Page 4
in any way BUYER'S obligations and agreement to comply with all applicable
securities laws upon resale of the Debentures and Shares;
(xii) SELLER has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of BUYER to resell
the Debentures or the Shares in accordance with applicable securities laws and
this Agreement;
(xiii) SELLER will comply with all applicable securities laws and
regulations with respect to the sale of the Debentures or the Shares, including
but not limited to the filing of all reports required to be filed in connection
therewith with the Securities and Exchange Commission or any stock exchange or
Nasdaq or any other regulatory authority; and
(xiv) SELLER agrees that it will not issue a press release or other
communications to the public containing BUYER'S name or other identifying
information without BUYER'S written consent.
4. REGISTRATION. If upon conversion of the Debentures effected by BUYER
pursuant to the terms of this Agreement and the Form of Debenture following the
expiration of the Restricted Period, SELLER fails to issue certificates for
Shares issuable upon such conversion to BUYER bearing no restrictive legend for
any reason other than SELLER'S reasonable good faith belief that the
representations and warranties made by BUYER in this Agreement were untrue when
made, then SELLER shall be required, at the request of BUYER and at SELLER'S
expense, to effect the registration of the Shares issuable upon conversion of
the Debentures under the Securities Act and relevant Blue Sky laws as promptly
as is practicable. SELLER and BUYER shall cooperate in good faith in
connection with the furnishing of information required for such registration
and the taking of such other actions as may be legally or commercially
necessary in order to effect such registration. SELLER shall file a
registration statement within 30 days of BUYER'S demand therefor and shall use
its best efforts to cause such registration statement to become effective as
soon as practicable thereafter and in any event within 90 days of the date of
the initial filing thereof. Such best efforts shall include, but not be
limited to, promptly responding to all comments received from the staff of the
Securities and Exchange Commission ("SEC") and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the SEC. Once declared effective by the SEC, SELLER
shall cause such registration statement to remain effective until the earlier
of (i) the sale by BUYER of all Shares registered or (ii) where there are no
further volume restrictions pursuant to Rule 144 under the Securities Act, or
(iii) Two (2) years. In the event that SELLER has not effected the
registration of the Shares issuable upon the conversion of the Debentures under
the Act and relevant Blue Sky Laws within ninety (90) days after the date of
filing of the registration statement, SELLER shall pay to BUYER by wire
transfer, as liquidated damages for such failure and not as a penalty, an
amount in cash equal to the lesser of (i) $100,000 and (ii) 5% of the amount of
the Debenture. Such payment shall be made to BUYER immediately upon expiration
of the 90-day period referenced in the preceding sentence if the registration
of the Shares is not effected by such date; provided, however, that the payment
of such liquidated damages shall not relieve SELLER from its obligations to
register the Shares pursuant to this Section 4.
5. CLOSING. Debentures shall be delivered to BUYER and the funds
therefor shall be delivered to SELLER on [close date], 1996 or at such time to
be mutually agreed.
6. CONDITIONS TO CLOSING
(i) BUYER understands that SELLER'S obligation to sell the
Debentures is conditioned upon delivery into escrow or otherwise as agreed
between BUYER and SELLER by BUYER of the amount set forth in Section 1 hereof.
<PAGE> 6
Offshore Convertible Securities
Subscription Agreement: Exsorbet Industries, Inc./[Buyer] [date]
Page 5
(ii) SELLER understands that BUYER'S obligation to purchase the
Debentures is conditioned upon delivery of the Debentures as described herein,
and provision of an opinion of counsel confirming the matters set out in
Section 3(i), (vii), (viii), (ix), and (x) above.
<PAGE> 7
Offshore Convertible Securities
Subscription Agreement: Exsorbet Industries, Inc./[Buyer] [date]
Page 6
7. MISCELLANEOUS.
(i) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Facsimile signatures of
this Agreement shall be binding on all parties hereto. All terms used herein
that are defined in Regulation S under the Securities Act shall have the
meanings set forth therein.
(ii) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Official Signatory of BUYER :
[ BUYER ]
[_________________________]
[_________________________]
Official Signatory of SELLER:
EXSORBET INDUSTRIES, INC.
Charles E. Chunn, Jr.,
Executive Vice President and
Chief Financial Officer
<PAGE> 8
EXHIBIT B
In connection with the Offshore Convertible Securities Subscription Agreement
between Exsorbet Industries, Inc, an Idaho corporation ("Seller"), and [Buyer],
dated [ _______, 1996] ( the "Agreement"), the undersigned represents and
warrants as follows:
(i) The undersigned is not a U.S. Person as defined by Rule 902 of
Regulation S, was not organized under the laws of any U.S. jurisdiction, and
was not formed for the purpose of investing in securities not registered under
the Securities Act of 1933, as amended (the "Securities Act");
(ii) At the time the buy order for the Debentures (as such term is
defined in the Agreement) was originated, the undersigned was outside the
United States;
(iii) No offer to purchase the Debentures was made in the United
States;
(iv) The undersigned is purchasing the Debentures for its own
account for investment purposes and not with a view towards distribution;
(v) All subsequent offers and sales of the Debentures or the
Shares will be made (a) outside the United States in compliance with Rule 903
or Rule 904 of Regulation S, (b) pursuant to registration of the Debentures or
the Shares under the Securities Act or (c) pursuant to an exemption from such
registration. The undersigned understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and acknowledges
that there can be no assurance that it will be able to rely on such exemption.
In any case, the Debentures or the Shares will not be resold to U.S. Persons or
within the United States until after the end of the "Restricted Period" (as
such term is defined in the Agreement);
(vi) The undersigned has no existing short position with respect to
the common stock of Seller and agrees not to enter into any short sales or
other hedging transactions with respect to the common stock of Seller at any
time after the execution of this Agreement by the undersigned and prior to the
expiration of the Restricted Period. The undersigned further agrees that, at
all times after the execution of these representations by the undersigned and
prior to the expiration of the Restricted Period, it will keep its purchase of
the Debentures or the Shares confidential, except as required by law and except
as necessary in the ordinary course of the undersigned's business;
(vii) The undersigned understands that the Debentures are being
offered and sold to it in reliance on specific provisions of federal and state
securities laws and that Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings set
forth herein in order to determine the applicability of such provisions.
Accordingly, the undersigned agrees to notify Seller of any events which would
cause the representations and warranties of the undersigned to be untrue or
breached at any time after the execution of these representations by the
undersigned and prior to the expiration of the Restricted Period;
(viii) Any offering documents received by the undersigned include
statements to the effect that neither the Debentures nor the Shares have been
registered under the Securities Act and may not be offered or sold in the
United States or to U.S. Persons during the Restricted Period;
(ix) The undersigned, in making the decision to purchase the
Debentures subscribed for, has relied upon independent investigations made by
it and has not relied on any information or representations made by third
parties;
(x) In the event of resale of the Debentures or the Shares during
the Restricted Period, the undersigned shall provide a written confirmation or
other written notice to any distributor, dealer or person receiving a selling
concession, fee or other remuneration in respect of the Debentures or the
Shares stating that such purchaser is subject
<PAGE> 9
Exhibit B Page 2
to the same restrictions on offers and sales that apply to the undersigned, and
shall require that any such purchaser shall provide such written confirmation
or other notice upon resale during the Restricted Period;
(xi) The undersigned has not taken any action that would cause
Seller to be subject to any claim for commission or other fee or remuneration
by any broker, finder or other person and hereby indemnifies Seller against any
such claim caused by the actions of the undersigned or any of its employees or
agents; and; and
(xii) The undersigned's purchase of the Shares pursuant to the
Agreement is not part of a plan or scheme to evade the registration provisions
of the Securities Act.
<PAGE> 10
SCHEDULE TO EXHIBIT 10.1
The Offshore Convertible Securities Subscription Agreements between
Exsorbet Industries, Inc. and the persons listed below are omitted because they
are substantially identical in all material respects to Exhibit 10.1. Set
forth below and attached to this schedule are the material differences between
the omitted contracts and the form of contract filed as Exhibit 10.1, which
correspond to the bracketed language in such form. Please note, the names of
the investors are confidential.
<TABLE>
<CAPTION>
NAME DATE AMOUNT CLOSING
---- ---- ------ -------
<S> <C> <C> <C>
Investor 1 May 9, 1996 300,000 May 14, 1996
Investor 2 May 8, 1996 200,000 May 13, 1996
Investor 3 May 8, 1996 200,000 May 14, 1996
Investor 4 May 3, 1996 300,000 May 9, 1996
Investor 5 May 3, 1996 300,000 May 9, 1996
Investor 6 May 3, 1996 300,000 May 9, 1996
Investor 7 May 3, 1996 1,250,000 May 9, 1996
Investor 8 May 3, 1996 2,000,000 May 9, 1996
Investor 9 May 3, 1996 150,000 May 9, 1996
</TABLE>
<PAGE> 1
EXHIBIT 10.2
FORM OF DEBENTURE
<PAGE> 2
EXHIBIT 10.2
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH
TERMS ARE DEFINED IN REGULATION S UNDER THE 1933 ACT), FOR A PERIOD OF FORTY
(40) DAYS AFTER COMPLETION OF THE OFFERING PURSUANT TO WHICH THESE DEBENTURES
WERE ISSUED, AND THEREAFTER MAY ONLY BE OFFERED OR SOLD PURSUANT TO
REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
7-1/2% CONVERTIBLE DEBENTURE DUE [two years from the date of Debenture], 1998
$_________ May ___, 1996
Number ______
FOR VALUE RECEIVED, Exsorbet Industries, Inc., an Idaho corporation
(the "Company"), hereby promises to pay to ________________________________, or
registered assigns (the "Holder") on May ____, 1998 (the "Maturity Date"), the
principal amount of __________________________________), and to pay interest on
the principal amount hereof, in such amounts, at such times and on such terms
and conditions as are specified herein. Repayment of the unconverted principal
amount of this Debenture (this "Debenture") shall be made on the Maturity Date
in the manner set forth in Article 2.
ARTICLE 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (this "Debenture") at the rate of Seven and One-Half Percent (7-1/2%)
per year, payable quarterly in arrears until the principal hereof is paid in
full or has been converted. Interest on this Debenture shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from date of issuance. Interest shall be computed on the basis of a
360-day year of 12 30- day months.
ARTICLE 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall
pay the principal of and interest on this Debenture in United States dollars.
However, the Company may pay principal and interest by a check payable in such
money. The Company may draw a check for the payment of interest to the order
of the Holder of this Note and mail it to the Holder's address as shown on the
Register (as defined in Section 7.2 below). Interest and principal payments
shall be subject to withholding under applicable United States Federal Internal
Revenue Service Regulations.
<PAGE> 3
7-1/2 Convertible Debenture
Page 2
ARTICLE 3. Conversion
SECTION 3.1. Conversion Privilege
(a) Subject to the terms described herein, the Holder of this
Debenture shall have the right, at its option, to convert it into shares of
common stock, par value $0.001 per share, of the Company ("Common Stock") at
any time which is before the close of business on the Maturity Date, except as
set forth in Section 3.1(c) below. The number of shares of Common Stock
issuable upon the conversion of this Debenture is determined by dividing the
principal amount hereof to be converted plus all accrued interest thereon minus
any required withholding by the conversion price in effect on the conversion
date (as defined in paragraph (b) of this Section 3.1 below) and rounding the
result to the nearest 1/100th of a share. On conversion, no payment of or
adjustment (other than as provided in the previous sentence) for accrued
interest shall be made whether or not such conversion occurs before, on or
after an interest payment date.
(b) The conversion price is the current market price (as defined
in Section 3.7(a) below) of the Common Stock on the conversion date less Twenty
Percent (20%); provided, however, except as set forth in this Section 3.1(b),
in no event shall the conversion price be less than 50% below the current
market price (as defined below) of the Common Stock on the date of the closing
of Holder's purchase of this Debenture (the "Closing") nor greater than the
current market price of the Common Stock on the date of Closing. In the event
the conversion price is less than the minimum conversion price as described in
the previous sentence, the Holder of this Debenture shall be entitled to
convert this Debenture at the current market price less a Five (5%)
administrative fee.
(c) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $10,000 or a whole
multiple of $10,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture also apply to the conversion of a portion of
it. All accrued interest on this Debenture shall be added to the amount
converted if less than all of the principal amount of this Debenture is
converted and shall be deemed to be paid and discharged thereby. Up to
one-half of the original principal amount of this Debenture may be converted
into Common Stock after Forty-Five (45) days from Closing and all of the
original principal amount of this Debenture may be converted into Common Stock
after Seventy-Five (75) days from Closing.
(d) In the event any Debentures remain outstanding on the second
anniversary of the date hereof, the unconverted portion of such Debentures will
automatically be converted into shares of Common Stock on such date in the
manner set forth in this Section 3.1.
<PAGE> 4
7-1/2 Convertible Debenture
Page 3
SECTION 3.2. Conversion Procedure. To convert this Debenture into
Common Stock, the Holder must (a) complete and sign the Notice of Conversion
attached hereto, (b) surrender the Debenture to the Company, (c) furnish
appropriate endorsements and transfer documents if so requested by the Company
and (d) subject to Section 3.4 pay any transfer or similar tax if required by
the Company. The date upon which all of the foregoing requirements are
satisfied is the conversion date. Within five business days thereafter, the
Company shall deliver a certificate for the number of full shares of Common
Stock issuable upon the conversion and a check for any fraction of a share.
The person in whose name the certificate of Common Stock is to be registered
shall be treated as a shareholder of record on and after the conversion date.
No payment or adjustment shall be made for accrued interest on a converted
Debenture whether the conversion date is on, at or after an interest payment
date. If one person converts more than one Debenture at the same time, the
number of full shares issuable upon the conversion shall be based on the total
principal amount of Debentures converted. Upon surrender of a Debenture that
is to be converted in part, the Company shall issue to the Holder a new
Debenture equal in principal amount to the unconverted portion of the Debenture
surrendered.
SECTION 3.3. Fractional Shares. The Company shall not issue a
fractional share of Common Stock upon the conversion of this Debenture.
Instead, the Company shall pay in lieu of any fractional share the cash value
thereof at the then current market price of the Common Stock as determined
under Section 3.7 below.
SECTION 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion of this Debenture imposed by the United
States of America. However, the Holder shall pay any such tax which is due
because the shares are issued in a name other than its name.
SECTION 3.5. Company to Reserve Stock. The Company shall reserve out
of its authorized but unissued Common Stock or Common Stock held in treasury
enough shares of Common Stock to permit the conversion of this Debenture. All
shares of Common Stock which may be issued upon the conversion hereof shall be
fully paid and nonassessable.
SECTION 3.6. Restrictions on Transfer. This Debenture and the Common
Stock issuable upon the conversion hereof have not been registered under the
Securities Act of 1933 (the "Act") and have been sold pursuant to Regulation S
under the Act ("Regulation S"). The Debentures may not be transferred or
resold in the United States, or to a U.S. Person, or to or for the account or
benefit of a U.S. Person (as defined in Regulation S) for a period of Forty
(40) days from the date hereof and thereafter may only be offered or sold
pursuant to registration under or an exemption from the Act.
<PAGE> 5
7-1/2 Convertible Debenture
Page 4
SECTION 3.7. Current Market Price.
(a) In Sections 3.1 and 3.3, the current market price per share of
Common Stock on any date is the average of the quoted bid prices of the Common
Stock for five consecutive trading days ending on the trading day before the
date in question.
(b) As used in this Section 3.7, the term quoted bid price shall
mean (i) the closing bid prices thereof on any such trading date, as reported
by The Nasdaq Small Cap Market, or (ii) in the event the Common Stock is not
reported on such system, the fair market value of the Common Stock as
determined by the Board of Directors of the Company in its good faith judgment.
SECTION 3.8. Mergers, Etc. If the Company merges or consolidates
with another corporation or sells or transfers all or substantially all of its
assets to another person and the holders of the Common Stock are entitled to
receive stock, securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or transfer, the
Company and any such successor, purchaser or transferee shall amend this
Debenture to provide that it may thereafter be converted on the terms and
subject to the conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger, consolidation, sale or
transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer.
ARTICLE 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes the
obligations of the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations of
the Company shall terminate upon such assumption.
ARTICLE 5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is
sent to shareholders.
<PAGE> 6
7-1/2 Convertible Debenture
Page 5
ARTICLE 6. Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if (a)
the Company does not make the payment of the principal of this Debenture when
the same becomes due and payable at maturity, upon redemption or otherwise, (b)
the Company does not make a payment of interest when such interest becomes due
and payable and such default continues for a period of 5 days thereafter, (c)
the Company fails to issue shares of Common Stock upon conversion, (d) the
Company fails to comply with any of its other agreements in this Debenture and
such failure continues for the period of thirty (30) days and after the notice
specified below, (e) the Company pursuant to or within the meaning of any
Bankruptcy Law (as hereinafter defined): (i) commences a voluntary case; (ii)
consents to the entry of an order for relief against it in an involuntary case;
(iii) consents to the appointment of a Custodian (as hereinafter defined) of it
or for all or substantially all of its property; (iv) makes a general
assignment for the benefit of its creditors; or (v) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is
for relief against the Company in an involuntary case; (B) appoints a Custodian
of the Company or for all or substantially all of its property or (C) orders
the liquidation of the Company, and the order or decree remains unstayed and in
effect for 60 days. As used in this Section 6.1, the term "Bankruptcy Law"
means Title 11 of the United States Code or any similar federal or state law
for the relief of debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law. A default
under clause (d) above is not an Event of Default until the holders of at least
25% of the aggregate principal amount of the Debentures notify the Company of
such default and the Company does not cure it within 5 days after the receipt
of such notice, which must specify the default, demand that it be remedied and
state that it is a "Notice of Default."
SECTION 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
principal of and accrued interest on this Debenture to be due and payable.
Upon such declaration, the principal and interest hereof shall be due and
payable immediately.
ARTICLE 7. Registered Debentures
SECTION 7.1. Series. This Debenture is one of a numbered series of
Debentures having an aggregate principal amount of not more than $500,000 which
are identical except as to the principal amount and date of issuance thereof
and as to any restriction on the transfer thereof in order to comply with the
Securities Act of 1933 and the regulations of the Securities and Exchange
Commission promulgated thereunder. Such Debentures are referred to herein
collectively as the "Debentures".
<PAGE> 7
7-1/2 Convertible Debenture
Page 6
SECTION 7.2. Record Ownership. The Company shall maintain a register
of the holders of the Debentures (the "Register") showing their names and
addresses and the serial numbers and principal amounts of Debentures issued to
or transferred of record by them from time to time. The Register may be
maintained in electronic, magnetic or other computerized form. The Company may
treat the person named as the Holder of this Debenture in the Register as the
sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.
SECTION 7.3. Registration of Transfer. Transfers of this Debenture
may be registered on the books of the Company maintained for such purpose
pursuant to Section 7.2 above (i.e., the Register). Transfers shall be
registered when this Debenture is presented to the Company with a request to
register the transfer hereof and the Debenture is duly endorsed by the
appropriate person, reasonable assurances are given that the endorsements are
genuine and effective, and the Company has received evidence satisfactory to it
that such transfer is rightful and in compliance with all applicable laws,
including tax laws and state and federal securities laws. When this Debenture
is presented for transfer and duly transferred hereunder, it shall be canceled
and a new Debenture showing the name of the transferee as the record holder
thereof shall be issued in lieu hereof. When this Debenture is presented to
the Company with a reasonable request to exchange it for an equal principal
amount of Debentures of other denominations, the Company shall make such
exchange and shall cancel this Debenture and issue in lieu thereof Debentures
having a total principal amount equal to this Debenture in the denominations
requested by the Holder. The Company may charge a reasonable fee for any
registration of transfer or exchange other than one occasioned by a notice of
redemption or the conversion hereof.
SECTION 7.4. Worn and Lost Debentures. If this Debenture becomes
worn, defaced or mutilated but is still substantially intact and recognizable,
the Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has
been lost, destroyed or wrongfully taken, the Company shall issue a new
Debenture in place of the original Debenture if the Holder so requests by
written notice to the Company actually received by the Company before it is
notified that the Debenture has been acquired by a bona fide purchaser and the
Holder has delivered to the Company an indemnity bond in such amount and issued
by such surety as the Company deems satisfactory together with an affidavit of
the Holder setting forth the facts concerning such loss, destruction or
wrongful taking and such other information in such form with such proof or
verification as the Company may request.
ARTICLE 8. Notices
<PAGE> 8
7-1/2 Convertible Debenture
Page 7
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices. The time when such notice is sent shall be
the time of the giving of the notice.
ARTICLE 9. Time
Where this Debenture authorizes or requires the payment of money or
the performance of a condition or obligation on a Saturday or Sunday or a
public holiday, or authorizes or requires the payment of money or the
performance of a condition or obligation within, before or after a period of
time computed from a certain date, and such period of time ends on a Saturday
or a Sunday or a public holiday, such payment may be made or condition or
obligation performed on the next succeeding business day, and if the period
ends at a specified hour, such payment may be made or condition performed, at
or before the same hour of such next succeeding business day, with the same
force and effect as if made or performed in accordance with the terms of this
Debenture. Where time is extended by virtue of the provisions of this Article
9, such extended time shall not be included in the computation of interest.
ARTICLE 10. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal of or interest on
any Debenture.
ARTICLE 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof.
Wherever, in this Debenture, a determination of the Company is required or
allowed, such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it shall be
conclusive and binding upon the Company and the Holder of this Debenture.
<PAGE> 9
7-1/2 Convertible Debenture
Page 8
ARTICLE 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of New York applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of New York.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
EXSORBET INDUSTRIES, INC.
Charles E. Chunn, Jr.,
President
By_____________________________________
Name__________________________________
Title___________________________________
<PAGE> 10
7-1/2 Convertible Debenture
Page 9
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Debenture]
The undersigned, the Holder of this Debenture, hereby irrevocably
elects to exercise the right to convert it into common stock, par value $___
per share, of [Issuer] as follows:
<TABLE>
<S> <C> <C>
[Complete if less than Dollars ($ )*
-----------------------------------------------------------------------
all of principal amount ($10,000 or integral multiples of $10,000)
is to be converted]
[Signature must be
--------------------------------------------------------------------------
guaranteed if registered (Name of Holder of shares if different than
holder of stock differs from registered Holder of Debenture)
registered Holder of
Debenture]
--------------------------------------------------------------------------
(Address of Holder if different than address of
registered Holder of Debenture)
--------------------------------------------------------------------------
(Social Security or EIN of Holder of shares if
different than Holder of Debenture)
</TABLE>
*If the principal amount of the Debenture to be converted is less than
the entire principal amount thereof, a new Debenture for the balance
of the principal amount shall be returned to the Holder of the
Debenture.
<TABLE>
<S> <C> <C>
Date: ____________________ Sign: _____________________________________
(Signature must conform in all respects
to name of Holder shown on face of this
Debenture)
</TABLE>
Signature Guaranteed:
<PAGE> 11
7-1/2 Convertible Debenture
Page 10
Assignment of Note
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($ )
________________________________________________________________________________
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued interest
hereon.
<TABLE>
<S> <C>
Date: ________________ Sign: ______________________________________________
(Signature must conform in all respects to
name of Holder shown on face of Debenture)
Signature Guaranteed:
</TABLE>
<PAGE> 1
EXHIBIT 10.3
LETTER OF INTENT BY AND BETWEEN EXSORBET INDUSTRIES, INC.
AND ENVIRONMETRICS, INC.
<PAGE> 2
April 24, 1996
Letter of Intent
This letter is to evidence the intention of Exsorbet Industries, Inc.
to acquire or to attempt to acquire all of the issued and outstanding shares of
stock of Environmetrics, Inc., a Missouri corporation, based upon a stock
exchange, in a form to be agreed with the shareholders of Environmetrics, Inc.
Environmetrics will carry on business as usual until the stock
exchange has been completed. Should all of the outstanding stock of
Environmetrics, Inc. be acquired by Exsorbet Industries, Inc., then all normal
liabilities and indebtedness as were incurred in the normal course of business
will be assumed. It is currently believed that Environmetrics has a cash need
between $250,000 and $300,000 and Exsorbet does not view this amount as
excessive.
The exchange of stock will be accomplished and the transaction closed
by June 15, 1996 or earlier if all documents are prepared and accepted and due
diligence completed.
To the extent required by the laws and statutes of each corporation's
respective state of incorporation or corporate by-laws or articles of
incorporation, shareholder approval of each corporation may be required to
effectuate these transactions. To such extent, such approval shall be a
contingency to the effectiveness of this letter of intent.
/s/ EUGENE SCHEIDE
---------------------------------
Dr. Eugene Scheide
Agent for Environmetrics, Inc.
/s/ MARIO VAENBERG
---------------------------------
Mario Vaenberg
Agent for Environmetrics, Inc.
/s/ ED SCHRADER
---------------------------------
Dr. Ed Schrader
Agent for Exsorbet Industries, Inc.
<PAGE> 1
EXHIBIT 10.4
LETTER OF INTENT BY AND BETWEEN EXSORBET INDUSTRIES, INC.
AND T.J. AND LINDA CULPEPPER
<PAGE> 2
[EXSORBET LETTERHEAD]
May 2, 1996
INTENTION TO ACQUIRE STOCK
This letter will evidence the intention of Exsorbet Industries, Inc.,
an Idaho corporation, to acquire from T. J. Culpepper and Linda Culpepper all
of the outstanding stock and assets of Asbestos Abatement, Inc., a Mississippi
corporation, in exchange for common stock of Exsorbet Industries, Inc. to be
"valued" at $1,000,000, as defined below and on the terms and conditions
specified below. This letter will further evidence the intention of Exsorbet
Industries, Inc., an Idaho corporation, to acquire from T. J. Culpepper all of
the outstanding stock and assets of T. J. Culpepper in Chem-Bio Laboratories,
Inc., a Mississippi corporation, in exchange for common stock of Exsorbet
Industries, Inc. to be "valued" at $1,400,000 as defined below and on the terms
and conditions specified below.
RESTRICTED STOCK
All stock exchanged or provided by Exsorbet Industries, Inc., as part
of the consideration for this agreement, will be restricted pursuant to
Regulation 144 of the United States Securities and Exchange Commission. Such
shares may not be sold, transferred, hypothecated, encumbered, assigned, or
conveyed until after the expiration of two years from the date of issuance of
such shares by the stock transfer agent of Exsorbet Industries, Inc. The shares
of stock shall bear an appropriate restrictive legend specifying such
restrictions, and the restrictions pursuant to Regulation 144. Such legend may
specify that the stock is acquired for investment purposes only and contain
such other legend as is reasonably required by Exsorbet Industries, Inc. or its
transfer agent. Such shares of stock shall not be registered and may not be
sold, even after the expiration of two years, without an opinion of counsel
that such shares of stock may be sold under an exemption to registration. All
stock issued to employee which is restricted stock shall be subject to the
requirements of Regulation 144 and all statutes, rules, and regulations of the
state in which sale of the stock may occur and of the United States.
STOCK VALUATION
The value of the restricted stock shall be determined by taking the
average closing bid price on the common stock of Exsorbet Industries, Inc., as
reported by Bloomberg, L.P., for the five business day period immediately
preceding the date on which the transfer agent of Exsorbet Industries, Inc. is
instructed to issue the stock certificates, or in the event the common stock is
not reported on such system, the fair market value of the common stock as
determined by the Board of Directors of Exsorbet Industries, Inc. in its good
faith judgment.
<PAGE> 3
CHEM-BIO ACQUISITION
The stock of Exsorbet Industries, Inc. exchanged for all of the
outstanding common stock of Chem-Bio Laboratories, Inc. will be provided as
follows:
(a) stock "valued" at $400,000 shall be issued on the date of
closing of the agreement between the parties;
(b) stock "valued" at $500,000 shall be issued one year after the
date of closing; and
(c) stock "valued" at $500,000 shall be issued two years after
the date of closing.
The "value" of the stock shall be determined on the date of its issuance, as
specified in the immediately preceding paragraph. However, the value of the
stock issued one year or more following the closing of the agreement between
the parties shall be reduced by ten percent (10%), and an additional amount of
stock valued at $50,000 shall be issued one year after the date of closing,
with an additional amount of stock valued at $50,000 to be issued two years
after the date of closing. To the extent that this provision may create taxable
liability for T. J. and/or Linda Culpepper, they may, at their sole option and
election, waive such condition. The parties will work together to arrive at
such terms as will most likely ensure that the Chem-Bio transfer is a
non-taxable transaction pursuant to Section 368 of the Internal Revenue Code.
CULPEPPER LOAN
At the time of closing, Exsorbet Industries, Inc. shall loan to
T. J. Culpepper the sum of One Million Dollars ($1,000,000.00). The loan shall
be fully collateralized by the shares of Exsorbet Industries, Inc. common stock
received at closing. T. J. Culpepper shall execute a demand note for One
Million Dollars ($1,000,000) payable to the order of Exsorbet Industries, Inc.,
at closing, contemporaneously with the exchange of the sum of One Million
Dollars ($1,000,000.00). It is specifically agreed and understood that Exsorbet
will not make any demand for repayment of the loan unless and until
T. J. Culpepper effects a sale of any portion of the common stock to be paid to
T. J. Culpepper as consideration for this transaction. The amount of any single
demand for repayment to T. J. Culpepper shall be limited to the amount
representing the fair market value of any stock sold, transferred,
hypothecated, or conveyed. However, future demands on the note may be made at
any time that T. J. Culpepper, or his heirs or assignees, effect a sale of any
portion of the common stock received on the date of closing, on the same terms
and conditions as specified in this paragraph. T. J. Culpepper will waive the
statute of limitations as a defense, in light of state statutes limiting
the time period for enforceability of a demand note, even in the absence of a
demand for payment or default. At the option and election of T. J. Culpepper
and with the consent of Exsorbet Industries, Inc. Board of Directors, the stock
transferred at closing may be returned to Exsorbet Industries, Inc. at any
<PAGE> 4
time more than three years after closing, in full satisfaction of the
$1,000,000 obligation of T. J. Culpepper to Exsorbet Industries, Inc. The
parties will work together to arrive at such terms as ensure that this
transaction constitutes a pooling of interests.
EMPLOYMENT CONTRACTS
Exsorbet will execute employment contracts with T. J. and Linda
Culpepper whereby Linda Culpepper will be employed for a period of one year at
a salary of $42,000 per year. T. J. Culpepper will be employed for a period
of four years at a salary of $115,000 per year. Both will be eligible for
performance bonuses to be determined by Exsorbet's Board of Directors,
depending upon revenue generated from their efforts. Both will be eligible to
participate in all benefit plans offered to similarly situated employees. Both
will be entitled to reimbursement for any authorized expenses incurred in their
employment. T. J. Culpepper will be entitled to reimbursement for auto and
travel expenses incurred in his employment. Their duties will be determined by
Exsorbet's President, but it is understood that T. J. Culpepper will be involved
in sales and marketing and Linda Culpepper will act as an administrative
official. Both will be eligible to participate in the employee incentive plan,
as is determined by the Compensation Committee of Exsorbet. The number of
shares of stock options available, if any, is left solely to the discretion
of the Compensation Committee, subject to appropriate rules established for the
committee to act.
CORPORATE LIABILITIES
At the time of closing, all liabilities of Asbestos Abatement Systems,
Inc. and Chem-Bio Laboratories, Inc. will be current. Prior to closing, any
transactions not in the normal course of business or any new contracts or
obligations exceeding $5,000 will be submitted to Exsorbet's president for
approval. Exsorbet is relying upon the accuracy of the financial statements and
disclosures made by the Culpeppers in entering this letter of intent.
CORPORATE ASSETS EXCLUDED
It is understood that the real estate on which Asbestos Abatement
Systems, Inc. and Chem-Bio Laboratories, Inc. have their headquarters is not an
asset of either corporation. Exsorbet Industries, Inc. shall be entitled to
lease the premises on a long term basis on terms that are at least as favorable
as those currently in effect.
<PAGE> 5
OPERATIONS PRIOR TO CLOSING
The business will be carried on as usual and both parties agree to
closing no later than May 30, 1996, or earlier if all contractual documents and
arrangements are prepared, available, and acceptable to the parties.
/s/ T.J. CULPEPPER
______________________________________
T.J. Culpepper
/s/ LINDA CULPEPPER
______________________________________
Linda Culpepper
/s/ ED SCHRADER
______________________________________
Dr. Ed Schrader
President of Exsorbet Industries, Inc.
<PAGE> 1
EXHIBIT 10.5
LETTER OF INTENT BY AND BETWEEN EXSORBET INDUSTRIES, INC.
AND LARRY AND MARILYN WOODCOCK
<PAGE> 2
[EXSORBET LETTERHEAD]
May 20, 1996
INTENTION TO ACQUIRE STOCK
This letter will evidence the intention of Exsorbet Industries, Inc.
("Exsorbet"), an Idaho corporation, to acquire from Larry Woodcock and Marilyn
Woodcock ("the Woodcocks"), husband and wife, all of the outstanding stock and
assets of Larco Environmental Services, Inc. ("Larco"), a Louisiana
corporation, upon the terms and conditions stated below. The Woodcocks further
evidence their intention to sell all of the outstanding stock of all classes
and all assets of Larco to Exsorbet.
STOCK OF LARCO
Larry Woodcock and Marilyn Woodcock warrant that they are the sole and
exclusive owners of all of the outstanding stock of any and all classes of
Larco. The Woodcocks have disclosed to Exsorbet that many of the assets of
Larco are security for debts of Larco which were incurred in the normal course
of the operation of Larco. These debts are debts which will be satisfied by
Exsorbet. It is further acknowledged that Larco owns all of the outstanding
stock of Larco Environmental Services of Baton Rouge, Inc. and Larco
Environmental Services of Texas, Inc. Larco will attempt to cause the
dissolution of such corporations prior to closing, with all assets being
transferred to Larco. In the event that it is impractical to effectuate such
transfer, then it is agreed and understood that Exsorbet may cause such
corporations to be dissolved, with a transfer of all assets to Larco.
STATUS OF LARCO
Larco and the Woodcocks warrant and represent that Larco is a
corporation organized and existing under the laws of the State of Louisiana,
that the corporation is in good standing, and that the corporate charter has
not been revoked, suspended, or terminated. They have further disclosed that
Larco is not in arrears in the payment of any income or other tax liability for
any years ending on or before July 31, 1994, except that the IRS has claimed
that Larco has a nominal income tax liability of approximately $30,000 for the
fiscal year or years ending July 31, 1992 and/or July 31, 1993, in a recent tax
audit, which matter is currently the subject of an appeal. No other material
income tax liability is known to exist.
AUTHORITY AND APPROVAL
All signatories to this agreement warrant that they have authority from
their respective boards of directors to execute this letter of intent. To the
extent that shareholder approval of Exsorbet Industries, Inc. may be required
prior to closing, this letter of intent shall be contingent upon obtaining such
shareholder approval.
<PAGE> 3
Letter of Intent
Page 2
May 20, 1996
RELIANCE UPON FINANCIAL INFORMATION
The Woodcocks understand and agree that Exsorbet has relied upon
Exsorbet's belief regarding the financial condition of Larco in entering this
letter of intent. Both parties understand that Exsorbet and the Woodcocks will
be required to perform due diligence work concerning the respective financial
conditions of Larco and Exsorbet. Both parties agree to cooperate with the
other in connection with providing such information and documentation as is
necessary to adequately perform such due diligence work.
POOLING OF INTERESTS
Legal counsel and accountants for the parties, and each of the parties
to this agreement, shall work together to assure that the transaction
contemplated by this letter of intent qualifies as a pooling of interests as
such term is commonly used in the accounting industry.
STOCK EXCHANGE
As an additional consideration for the transaction, the Woodcocks shall
be provided with restricted shares, as defined below, of the common (capital)
stock of Exsorbet Industries, Inc. according to the schedule specified in this
paragraph. Within a reasonable time after closing, not to exceed ten (10) days,
the Company will provide the Woodcocks with certificates representing 1,733,332
shares of restricted common (capital) stock of Exsorbet.
RESTRICTED STOCK
All stock exchanged or provided by Exsorbet Industries, Inc., as part
of the consideration for this agreement, will be restricted pursuant to
Regulation 144 of the United States Securities and Exchange Commission. The
general restriction on transfer of the stock under such regulation is for a
period of two years after the stock is issued.
STOCK VALUATION
Exsorbet, its directors, officers, agents, attorneys, and employees
have made no representations or warranties as to what the value of the stock
to be issued to the Woodcocks pursuant to this agreement shall be at the time
of issuance.
<PAGE> 4
Letter of Intent
Page 3
May 20, 1996
PROXY
The Woodcocks shall provide the current board of directors of Exsorbet
Industries, Inc. with an irrevocable proxy for a period of two years with
respect to the voting rights of their shares of stock. The board of directors,
as a group, will vote the shares of stock in accordance with the best interest
of the corporation as determined by a majority vote of the board of directors.
The other members of the board of directors have agreed to take the same action.
DIRECTOR NOMINATION
Exsorbet will, through its board of directors, nominate Larry Woodcock
to a position as a director on the board of directors of Exsorbet at the first
shareholder's meeting after Exsorbet is able to increase the number of positions
on its board of directors. Exsorbet will, no later than fifteen (15) days after
the execution of this letter, begin attempts to increase the number of
directors on its board of directors.
STOCK REGISTRATION
Exsorbet shall pay the expenses of registration, and provide such
information and cooperation as is requested, to register one-third of the
shares of stock obtained by the Woodcocks pursuant to the transaction within a
reasonable time after closing. Exsorbet shall cause the process for providing
information for registration to begin within thirty (30) days after closing.
Such registration shall be with the United States Securities & Exchange
Commission.
Exsorbet shall pay the expenses of registration, and provide such
information and cooperation as is requested, to register an additional
one-third of the shares of stock obtained by the Woodcocks pursuant to the
transaction one year after the closing date. Such registration shall be with
the United States Securities & Exchange Commission.
At the end of two years, the two year restrictive legend on sale
pursuant to Regulation 144 shall be removed or shall no longer be effective.
Therefore, no further registration of the stock at the end of two years shall
be required to effectuate a sale of the remaining shares stock at such time.
Provided however, that such sale shall otherwise comply with all requirements
of the laws and statutes of the United States and of the state where such sale
of stock shall occur.
<PAGE> 5
Letter of Intent
Page 4
May 20, 1996
EMPLOYMENT CONTRACTS
Exsorbet will, contemporaneously with the closing of the transaction or
within a reasonable time thereafter, execute employment contracts for a five
year time period with the following individuals:
(a) Damon Woodcock,(1) vice-president of emergency response, salary
to be negotiated;
(b) Keith Smith, vice-president of industrial services, salary to
be negotiated;
(c) Marilyn Woodcock, executive vice president, salary to be
negotiated; and
(d) Larry Woodcock, president of Larco, Inc., salary and other
terms to be negotiated in good faith between the parties to
achieve all objectives of the parties.
It is specifically understood that the execution of an employment agreement by
Larry Woodcock upon mutually acceptable terms shall be a condition precedent
to closing.
TAX LIABILITY
The parties will work together, through accountants and attorneys, to
insure that the total tax liability of the Woodcocks is as small as is possible.
PERSONAL ASSETS
The Woodcocks have fixed assets and real estate used by Larco that will
be valued at $365,000.00 at closing. The parties agree that a full description
of such fixed assets and real estate is impractical at this point. A specific
list shall be provided by the Woodcocks as soon as is reasonably practical
after the execution of this letter of intent. The Woodcocks shall transfer and
convey free, clear, and unencumbered title to all such real estate and assets
at closing. The Woodcocks shall be paid the additional sum of $365,000.00 for
such real estate and fixed assets.
- --------------------
(1)It is specifically noted that the term "the Woodcocks" as used in
this letter of intent does not include Damon Woodcock.
<PAGE> 6
Letter of Intent
Page 5
May 20, 1996
DEBT PAYMENT AND MUTUAL RELEASES
It is understood that Larco has $750,000 in short term debt obligations
and additional long term debt obligations of approximately $1,750,000. The long
term obligations include obligations for future equipment lease payments. A
full and complete list of such debts will be provided by the Woodcocks within a
reasonable time after execution of this letter of intent. Exsorbet shall cause
such debt to be satisfied in a timely fashion. The short term debt shall be
satisfied in a timely fashion which is satisfactory to the Woodcocks.
At closing, Exsorbet will indemnify and hold harmless Larco and the
Woodcocks for the debt it is assuming. Such debt includes: (a) the debt
obligations of Larco specified in this section; and (b) any other debt or
contingent liability of Larco disclosed prior to closing and for which Exsorbet
subsequently agrees to become responsible (it being the parties general intent
that Exsorbet shall be responsible for all such debts or liabilities except the
"Rymel case" as described below); and (c) any contingent debt not known to the
Woodcocks or Larco. Exsorbet will further indemnify and hold harmless Larco and
the Woodcocks for:
(a) any and all future obligations of Larco which are entirely incurred
after closing; and
(b) any liability, debt, and obligations of Exsorbet or any of its
subsidiaries incurred prior to closing for which the Woodcocks
could ultimately become liable or responsible.
At closing, the Woodcocks shall indemnify and hold harmless Exsorbet
for any material debts and obligations known to Larco or the Woodcocks, or
which should be known by Larco or the Woodcocks through the use of reasonable
accounting procedures, and which were not disclosed prior to closing. The
Woodcocks agreement to indemnify Exsorbet for contingent liabilities shall be
limited to material contingent liabilities actually known by the Woodcocks and
not disclosed and further to indemnify Exsorbet in the defense of the case of
Theodore Rymel, et al v. Larco Environmental Services, Inc., a case pending in
the United States District Court for the Western District of Louisiana. Such
case is a patent related case. It is agreed and understood that the liability
of the Woodcocks, if any, in regard to such indemnification shall arise solely
after all insurance limits of the Woodcocks are exhausted. The provisions of
this letter and of the ultimate agreement between the parties shall not be
construed as relieving any insurance company of liability from defending the
Woodcocks in such litigation or from being responsible for any judgment
ultimately obtained.
<PAGE> 7
Letter of Intent
Page 6
May 20, 1996
Prior to closing, the Woodcocks shall provide a list of any material
liabilities, as described below, known to the Woodcocks, that Larco might incur
at a future time due to prior actions of, or attributable to, Larco. The list
shall include any such material contingent liabilities and material contingent
obligations of Larco or for which Larco could ultimately become liability, such
as being a co-signatory or guarantor of any loan agreements. The list shall
further include any pending or threatened litigation and any and all written or
oral claims made against Larco or the Woodcocks, in their capacity as officers,
directors, or shareholders of Larco. The Woodcocks shall indemnify and hold
harmless Exsorbet for any such material contingent liabilities or material
contingent obligations known by the Woodcocks, or either of them, prior to
closing and which are not disclosed prior to the closing.
INSURANCE
At closing, Exsorbet agrees to make application for officers liability
coverage insuring the Woodcocks against any liability that they might incur as
an officer of Larco or of Exsorbet, on such terms and conditions, and
containing the same limits of liability and deductible amounts, as Exsorbet
provides to its other officers at closing. Exsorbet specifically discloses that
it is in the process of obtaining such insurance coverage at the present time
and no such insurance policy is presently in effect. However, it is believed
that such coverage will be in force prior to the agreed closing date between
the parties.
OPERATIONS PRIOR TO CLOSING
The business of Larco will be carried on as usual and both parties
agree to use their best efforts to close no later than June 15, 1996, or
earlier if all contractual documents and arrangements are prepared, available,
and acceptable to the parties.
CONFIDENTIALITY
All parties agree to keep all matters learned concerning operations of
the other party, trade secrets, customer or client lists, operating documents,
and any other information learned prior to closing completely confidential. The
provisions of this paragraph shall have no effect upon information known about
another party prior to closing, information which is public information at the
time of closing, or information disclosed by the other party after execution of
this letter of intent. Furthermore, the provisions of this paragraph shall not
prevent Exsorbet for making a news release concerning the signing of this
letter of intent or otherwise from complying with mandatory disclosure
requirements imposed by the laws and/or regulations of the United States
<PAGE> 8
Letter of Intent
Page 7
May 20, 1996
of America, the United States Securities and Exchange Commission, the State of
Arkansas, the Arkansas Securities Department, the States of Louisiana and
Idaho, and any administrative or regulatory body thereof, or of any other state.
CONSTRUCTION
This letter of intent and the agreement between the parties shall be
construed and interpreted in accordance with the laws and statutes of the State
of Louisiana. This letter of intent acts as an obligation of both parties to
negotiate in good faith toward a final agreement to be executed on or before
June 15, 1996.
LARCO, INC.
a Louisiana corporation
By: /s/ LARRY WOODCOCK
-------------------------------
President
/s/ LARRY WOODCOCK
-----------------------------------
Larry Woodcock
as an individual
/s/ MARILYN WOODCOCK
-----------------------------------
Marilyn Woodcock
as an individual
EXSORBET INDUSTRIES, INC.
an Idaho corporation
By: /s/ ED SCHRADER
-------------------------------
Dr. Ed Schrader
President
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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