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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark one)
X
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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 0-26433
TITANIUM HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0386415
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1023 Morales
San Antonio, Texas 78207
(Address of principal executive offices)
(210) 293-1232
(Issuer's telephone number, including area code)
Enviro-Clean of America, Inc.
(Former name, if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date: The total number of shares of
Common Stock, par value $0.001 per share, outstanding as of November 6, 2001 was
5,578,210.
Transitional Small Business Disclosure Format (check one) Yes No X
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TITANIUM HOLDINGS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30,2001 (Unaudited)
and December 31, 2000 (Audited)..................................................... 2
Condensed Consolidated Statements of Income of Operations for the three and nine
months ended September 30, 2001 and 2000 (Unaudited)................................ 3
Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 2001 and 2000 (Unaudited)....................................................... 4
Notes to the Condensed Consolidated Financial Statements (Unaudited)................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 12
Item 2. Changes in Securities................................................................ 12
Item 3. Defaults Upon Senior Securities...................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................................. 12
Item 5. Other Information and Subsequent Events.............................................. 12
Item 6. Exhibits and Reports on Form 8-K..................................................... 12
SIGNATURES..................................................................................... 13
INDEX TO EXHIBITS.............................................................................. 14
</TABLE>
1
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TITANIUM HOLDINGS GROUP, INC. AND SUBSIDIARY
FORMERLY: ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
2001 2000
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(unaudited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 838,112 $ 2,618,297
Accounts receivable, net of allowance for doubtful acounts of $63,418................... 232,278 221,233
Inventory............................................................................... 380,097 424,411
Marketable securities-available for sale................................................ 2,685,825 1,395,000
Prepaid expenses and other current assets............................................... 40,264 36,490
Prepaid income taxes.................................................................... - 1,004,438
Assets relating to discontinued operations............................................ - 1,044,487
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Total current assets................................................................ 4,176,576 6,744,356
Marketable securities-available for sale (restricted)..................................... 1,552,500 -
Fixed assets-less accumulated depreciation and amortization of $690,334 and $670,774...... 99,371 72,661
Deferred income tax asset, net of valuation allowance of $114,000......................... - -
Equity investment......................................................................... 768,272 980,384
Notes receivable.......................................................................... 1,100,000 -
Goodwill.................................................................................. 2,170,608 3,674,179
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TOTAL ASSETS.......................................................................... $ 9,867,327 $ 11,471,580
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LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses................................................... $ 425,509 $ 603,304
Notes payable-related parties........................................................... - 775,000
Current maturities of long-term debt.................................................... 17,061 7,128
Liabilities relating to discontinued operations......................................... - 388,019
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Total current liabilities........................................................... 442,570 1,773,451
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Long-term liabilities
Notes payable - secured................................................................. 1,445,000 -
Notes payable - related parties-subordinated............................................ - 1,474,522
Notes payable-related parties........................................................... - 333,334
Long-term debt, less current maturities................................................. 38,202 19,413
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Total liabilities................................................................. 1,925,772 3,600,720
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Commitments
Redeemable preferred stock-$.001 par value; authorized 5,000,000 shares
70,000 shares of convertible stock designated as Series E stock-
$2.50 stated value; issued and outstanding 70,000 shares............................... 175,000 175,000
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Stockholders' equity
Common stock-$.001 par value; authorized 20,000,000 shares;
issued 5,578,210 and 7,271,752; outstanding 5,572,810 and 6,771,752.................... 5,580 7,273
Less: Treasury stock-5,400 and 500,000 shares at cost................................... (6,294) (1,000,000)
Additional paid-in capital.............................................................. 10,119,894 11,559,043
Accumulated other comprehensive income.................................................. 2,771,540 1,392,210
Accumulated deficit..................................................................... (5,124,165) (4,422,666)
Common stock to be issued............................................................... - 160,000
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Total stockholders' equity.............................................................. 7,766,555 7,695,860
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $ 9,867,327 $ 11,471,580
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
TITANIUM HOLDINGS GROUP, INC. AND SUBSIDIARY
FORMERLY: ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Sales.......................................... $1,051,020 $ 1,415,379 $ 3,367,562 $ 4,066,649
Cost of sales...................................... 592,945 1,024,488 1,935,435 2,498,620
---------- ------------ ----------- -----------
Gross profit................................. 458,075 390,891 1,432,127 1,568,029
---------- ------------ ----------- -----------
Operating expenses:
Salaries.................................... 285,555 337,432 892,622 990,935
Professional fees........................... 75,696 114,117 314,819 319,330
Depreciation and amortization............... 6,778 7,256 19,560 27,063
Amortization of goodwill.................... 69,275 222,304 283,140 666,910
Marketing................................... 16,469 2,903 21,590 22,600
Rent........................................ 85,191 84,963 255,761 259,939
Interest.................................... 62,170 132,392 277,255 546,842
Other....................................... 121,252 228,802 297,514 612,578
---------- ------------ ----------- -----------
Total operating expenses........................... 722,386 1,130,169 2,362,261 3,446,197
---------- ------------ ----------- -----------
Operating loss..................................... (264,311) (739,278) (930,134) (1,878,168)
Other income (expense)............................. 39,662 48,620 (123,849) 6,891,937
---------- ------------ ----------- -----------
Income (loss) before income tax expense............ (224,649) (690,658) (1,053,983) 5,013,769
Income tax expense (benefit)...................... - (829,064) 16,330 805,926
---------- ------------ ----------- -----------
Net income (loss) from continuing operations....... (224,649) 138,406 (1,070,313) 4,207,843
---------- ------------ ----------- -----------
Income from operations of discontinued
subsidiaries.................................... - 139,429 164,551 882,436
Income (loss) from disposal of subsidiaries........ - (2,342,029) 208,200 (2,389,649)
---------- ------------ ----------- -----------
Net income (loss) from discontinued operations..... - (2,202,600) 372,751 (1,507,213)
---------- ------------ ----------- -----------
Net income (loss).................................. (224,649) (2,064,194) (697,562) 2,700,630
Preferred stock dividends.......................... (1,313) (1,312) (3,938) (121,983)
---------- ------------ ----------- -----------
Net income (loss) attributable to common
stockholders.................................... $ (225,962) $ (2,065,506) $ (701,500) $ 2,578,647
========== ============ =========== ===========
Income (loss) per share from continuing
operations...................................... $(0.04) $0.02 $(0.17) $0.73
========== ============ =========== ===========
Income (loss) per share from discontinued
operations...................................... $ - $(0.34) $0.06 $(0.28)
========== ============ =========== ===========
Income (loss) per share-basic and diluted.......... $(0.04) $(0.32) $(0.11) $0.45
========== ============ =========== ===========
Weighted average number of shares outstanding...... 5,577,692 6,357,682 6,336,447 5,727,902
========== ============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
TITANIUM HOLDINGS GROUP, INC. AND SUBSIDIARY
FORMERLY: ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
<TABLE>
<CAPTION>
2001 2000
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)....................................................... $ (697,562) $ 2,700,630
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Adjustments to reconcile net income or (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 38,136 94,427
Amortization of goodwill......................................... 283,140 666,910
Non-cash interest expense........................................ 87,192 152,463
Gain on sale of investment....................................... - (6,747,000)
(Gain) loss on sale of subsidiaries.............................. (208,200) 2,389,649
Shares returned for legal services............................... (46,875) -
Loss on equity investment........................................ 212,112 -
Net change in net assets of discontinued operations.............. (94,130)
Changes in assets and liabilities net of effects of dispositions:
Increase in accounts receivable.................................. (11,045) (279,891)
(Increase) decrease in prepaid expenses and taxes................ 1,000,664 (251,512)
(Increase) decrease in inventories............................... 44,314 (254,860)
Decrease in accounts payable and accrued expenses................ (177,788) (50,140)
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Total adjustments...................................................... 1,127,520 (4,279,954)
----------- -----------
Net cash provided by (used in) operating activities.................... 429,958 (1,579,324)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable.......................................... - (188,704)
(Purchase) disposal of property and equipment-net..................... (46,268) 12,993
Investment in promissory notes receivable............................. (1,100,000) -
Investment in marketable securities................................... - (1,000,000)
Net proceeds on sale of investment.................................... - 6,750,000
Net proceeds on sale of subsidiaries.................................. 533,334 -
----------- -----------
Net cash provided by (used in) investing activities................... (612,934) 5,574,289
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock............................. - 1,876,475
Repayment of notes payable-related parties and other................... (2,717,612) (865,987)
Net proceeds from issuance of secured notes............................ 1,445,000 -
Preferred stock redeemed............................................... - (4,580,000)
Purchase of treasury stock............................................. (320,659) (1,000,000)
Dividends paid......................................................... (3,938) (121,983)
----------- -----------
Net cash used in financing activities.................................. (1,597,209) (4,691,495)
----------- -----------
NET DECREASE IN CASH....................................................... (1,780,185) (696,530)
CASH - BEGINNING........................................................... 2,618,297 1,833,478
----------- -----------
CASH - ENDING.............................................................. $ 838,112 $ 1,136,948
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SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 265,144 $ 473,757
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Income taxes......................................................... $ 23,430 $ 1,031,193
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fixed asset financing obligations incurred............................... $ 4,150 $ 74,043
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
TITANIUM HOLDINGS GROUP, INC. AND SUBSIDIARY
FORMERLY: ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
1. General
The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements, related footnotes and
discussions contained in the Company's Annual Report filed with Form 10-KSB for
the year ended December 31, 2000. The financial information contained herein is
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included. All adjustments
are of a normal recurring nature.
The results of operations for the three months and nine months ended
September 30, 2001 and 2000, are not necessarily indicative of the results to be
expected for the full year.
2. Principal Business Activity and Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Titanium Holdings Group, Inc. and its Subsidiary (collectively the "Company").
All significant intercompany balances and transactions have been eliminated in
consolidation.
The principal business activity of the Company is manufacturing and the
wholesale distribution of sanitary maintenance supplies and paper products.
Property and equipment are recorded at cost. Depreciation is provided for
by the straight-line method over the estimated useful lives of the property and
equipment.
Inventories consisting of raw materials, work in process and finished goods
are valued at the lower of cost or market. Cost is determined using the first-
in, first-out method.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from these estimates.
At each balance sheet date, the Company evaluates the period of
amortization of intangible assets. The factors used in evaluating the period of
amortization include: (i) current operating results, (ii) projected future
operating results, and (iii) any other material factors that effect the
continuity of the business.
Preferred stock dividends in arrears, which represent dividends declared,
but unpaid at September 30, 2001 totals $1,313. Preferred stock dividends
declared for nine months totals $3,938. As of October 1, 2001, all dividends
declared through September 30, 2001 have been paid in full.
Earnings (loss) per share ("EPS") is computed by dividing net income or
loss by the weighted-average number of common shares outstanding for the period.
Both basic and diluted net income (loss) per share are the same, because the
effect of the Company's outstanding warrants and options is anti-dilutive.
5
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141)
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142.)
SFAS No. 141 addresses financial accounting and reporting for business
combinations. This statement requires the purchase method of accounting to be
used for all business combinations, and prohibits the pooling-of-interests
method of accounting. This statement is effective for all business combinations
initiated after June 30, 2001 and supercedes APB Opinion No. 16, "Business
Combinations" as well as FASB Statement of Financial Accounting Standards No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
SFAS No. 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in financial statements
upon their acquisition. This statement requires goodwill to be periodically
reviewed for impairment rather than amortized, beginning on January 1, 2002.
SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets".
The Company is assessing the impact of adopting these standards on the
consolidated financial statements.
3. Acquisitions and Dispositions
Effective June 29, 2001, the Company sold all of the outstanding capital
stock of Kandel & Son, Inc., its New York-based wholly-owned subsidiary engaged
in the wholesale distribution of sanitary supplies, to Richard Kandel, the
Company's Chairman of the Board and Chief Executive Officer. The stock was sold
in exchange for 300,000 shares of IVAX Diagnostics, Inc common stock, par value
$.01, 1,000,000 shares of Titanium Holdings Group, Inc. common stock, par value
$.001, and the release of any obligation by the Company under Mr. Kandel's
employment agreement, dated December 1, 2000. As part of the transaction, Mr.
Kandel resigned as the Chairman of the Board and the Chief Executive Officer of
the Company.
The income from disposal of this subsidiary aggregating $1,154,540 has been
calculated as follows:
Selling price $1,464,000
Equity in assets sold 309,460
----------
Net income from disposal of subsidiary $1,154,540
----------
The operations of Kandel have been segregated from the consolidated income from
continuing operations.
Effective June 29, 2001, the Company sold all of the net assets of
Superior Chemical & Supply, Inc., its Kentucky-based wholly-owned subsidiary
engaged in the distribution of cleaning supplies. The aggregate selling price of
these assets was $533,334.
6
The loss on disposal of this subsidiary aggregating $946,340 has been
calculated as follows:
Selling price $ 533,334
----------
Cash 4,092
Accounts receivable 258,586
Inventory 235,113
Property and equipment 48,460
Accounts payable (97,173)
Loans payable (26,519)
----------
Net assets sold 422,559
Excess of cost over fair value of assets
originally acquired (goodwill) 1,057,115
----------
Net assets upon disposal 1,479,674
----------
Net loss on disposal of subsidiary $ 946,340
----------
The operations of Superior have been segregated from the consolidated income
from continuing operations.
4. Investment in Affiliate
In 1999 and 2000, the Company and certain directors of the Company invested
in b2bstores.com, Inc., formerly a California based company which designed
Internet-based electronic commerce programs. During the three months ended March
31, 2000, b2bstores.com, Inc. repaid working capital loans from the Company
totaling $1,399,836 plus interest equal to 8% per annum. Subsequently, in March
2000, the Company sold one-half of its investment, or 1,000,000 shares of
b2bstores.com, Inc. common stock, for net proceeds of $6,750,000 through a
private sale to ZERO.NET, Inc., a Delaware company.
On March 14, 2001, b2bstores.com, Inc. completed a merger with IVAX
Diagnostics, Inc., in which IVAX Diagnostics, Inc. merged with and into
b2bstores.com, Inc. In the merger, b2bstores.com, Inc. issued 20,000,000 shares
of common stock as merger consideration, changed its name to IVAX Diagnostics,
Inc., and commenced trading on the American Stock Exchange under the symbol
"IVD." Because of the dilutive effect on the Company's equity holdings, the
Company is no longer considered to be an affiliate of IVAX Diagnostics, Inc.
During the quarter ended March 31, 2000, the Company and the sellers of
June Supply Corporation ("June Supply"), adjusted the original purchase price of
June Supply, thereby reducing both the notes payable to the sellers and the
corresponding goodwill by $300,000 during the first quarter of 2000. The Company
subsequently disposed of June Supply.
5. Other Investments
On May 31, 2000, the Company purchased a 30% equity stake in
Equip2move.com, Inc. ("Equip2move"), a New York-based start-up company which
hosts auctions on the Internet. In July of 2000 the Company provided a working
capital loan of $1,000,000 to Equip2move, which was ultimately converted into
1,000,000 shares of Equip2move's Series A Preferred Stock and a warrant to
purchase 1,000,000 shares of Equip2move common stock at an exercise price of
$1.00 (the "Warrant"). The Company's investment of $1,075,000 represented
approximately 35% of the total equity of Equip2move as of May 31, 2001. As part
of a stockholders agreement, the Company committed to provide additional
financing of $1,250,000 by February 1, 2001. The Company did not deliver the
additional proceeds by the scheduled deadline and began negotiations to relieve
the financing obligation.
7
The negotiations ended as of June 29, 2001, when the Company and Equip2move
agreed to a settlement to the relieve the Company of certain obligations owed to
Equip2move including; (i) complete and total relief of the remaining obligation
to produce $1,250,000 in additional financing for Equip2move by February 1,
2001, and (ii) termination of any remaining obligation by the Company to pay not
less than $150,000 and not more than $250,000 for the creation, design and
implementation of the Equip2move website through June 30, 2001. In exchange for
the relief of the future obligations, the Company reduced its equity in
Equip2move from its position of approximately 35% to 19.9%. This reduction was
completed through the Company's return of 2,607,675 shares of Series B common
stock of Equip2move and the Warrant. The Company holds 1,217,325 shares of
Series B common stock and 1,000,000 shares of Series A Preferred Stock as of
September 30, 2001.
On June 25, 2001, the Board authorized the investment of $1,000,000 in a
private placement offering by Excalibur I, L.L.C. ("Excalibur"), in which
Excalibur offered a minimum of $1,000,000 in promissory notes. Excalibur is in
the business of acquiring and servicing charged-off debt portfolios. A managing
member of Excalibur is also a director of Titanium.
6. Stockholders' Equity
In January 2000, the Company began a new private placement of a maximum of
137,500 Units at $8.00 per unit, each consisting of two shares of Common Stock
and one common stock purchase warrant. The warrants have an exercise price of
$4.25 and are exercisable for a three-year period, which began upon issuance. On
February 29, 2000, the Company sold an aggregate of 122,500 units to
approximately 18 accredited investors for aggregate proceeds to the Company of
$980,000. The Company closed the private placement on February 29, 2000.
In June 2000, the Company began a private offering targeted at the holders
of its 12.75% subordinated convertible notes (the "Noteholders"), in which the
Noteholders were offered the opportunity to convert their notes into shares of
Common Stock at a conversion price of $3.00 per share of Common Stock. As of
June 30, 2000, a total of $1,362,000 of debt was converted into 453,987 common
shares and $39 cash in lieu of fractional shares. In connection with the same
offering of Common Stock, an additional 281,500 shares of Common Stock were sold
for aggregate cash proceeds of $844,500.
During January 2001, a shareholder returned 25,000 shares of the Company's
Common Stock which was originally issued in consideration for services
performed, as part of a negotiated settlement.
During March 2001, the Company retired 829 shares of issued but unearned
Common Stock, representing shares that could no longer be earned pursuant to
the Superior Chemical & Supply, Inc. acquisition agreement.
From January through September 2001, the Company bought back 175,369 of its
common shares for an amount aggregating $320,659, pursuant to its Stock
Repurchase Program, which was authorized by the Company's Board of Directors on
November 22, 2000.
7. Preferred Stock
In March, 2000, the Company redeemed all of its outstanding shares of
Series D Preferred Stock for a total of $1,600,000 plus unpaid accrued dividends
of $29,071.04 and initiated an offering in which the holders of the Series B
Cumulative Convertible Preferred Stock (the "Series B Stock"), were offered the
opportunity to convert or redeem their Series B Stock, plus accrued and unpaid
dividends.
8
As of April 1, 2000, 20,700 shares of the Series B Stock, plus accrued and
unpaid dividends were converted into 426,195 shares of Common Stock and the
remaining 4,800 outstanding shares of Series B Stock plus accrued and unpaid
dividends which were not converted, were redeemed for an aggregate of $492,000.
The conversion price for the Series B Stock was $5.00 per share of the Common
Stock and the redemption price was $100.00 per share of the Series B Stock. In
addition, on April 1, 2000, all of the outstanding shares of the Series A
Preferred Stock, were redeemed for a total of $2,500,000, plus unpaid accrued
dividends of $25,000.
8. Notes Payable
In August and September 2001, the Company redeemed all of its outstanding
12.75% subordinated notes totaling $1,638,000. The notes were originated in May
1999 and were due to mature in May 2002.
In September 2001, the Company began a new private placement of a minimum
of $500,000 and a maximum of $2,000,000 of promissory notes (the "Note
Offering"). The Company intends to close the private placement during October
2001. The notes are three-year, 9.75% notes and are secured by certain shares of
common stock of IVAX Diagnostics, Inc. (the "Diagnostics Shares") held by the
Company. Pursuant to the terms of the Note Offering, the Company is required to
escrow Diagnostics Shares with an aggregate fair market value equal to 125% of
the total aggregate face value of the outstanding notes. The amount of
outstanding notes and value of the Diagnostics shares are reviewed periodically
by the escrow agent, at which time the escrowed shares are adjusted accordingly.
As of September 30, 2001, the proceeds received through the Note Offering
aggregated $1,445,000, while 450,000 Diagnostics Shares were escrowed.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-QSB and the other filings with the Securities and
Exchange Commission made by the Company from time to time. The discussion of
the Company's liquidity, capital resources and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effect of any changes to the Company's operations. Accordingly,
actual results could differ materially from those projected in the forward-
looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the financial statements
contained elsewhere in the report.
General
In December 2000, the Board voted to discontinue its current business plan
of acquisition and consolidation of janitorial supply companies. Since that
time, the Board has been, and continues to, explore strategic alternatives
outside of the janitorial industry. These alternatives could include a variety
of business combinations, including, but not limited to, acquisitions, mergers,
strategic alliances divestitures and dispositions. The Company has formed a
Mergers and Acquisitions Committee and engaged the services of Harter Financial,
Inc. to facilitate the search for an acceptable strategic alternative.
Additionally, the Company will explore alternative business plans which may be
incorporated into its current structure. In the interim, the Company intends to
continue to operate its remaining operating subsidiary, Cleaning Ideas
Corporation ("Cleaning Ideas"), monitor its equity investments and passively
invest in business opportunities at the Board's discretion.
9
Prior to the Board's decision to discontinue its consolidation strategy in
the janitorial industry, the Company's business model focused on acquiring
janitorial distribution companies which met the Board's defined criteria. Since
the implementation of the strategy in January 1999 until its discontinuance in
December 2000, the Company had acquired five operating subsidiaries in the
janitorial industry, including Kandel & Son, Inc. ("Kandel & Son"),
NISSCO/Sunline, Inc. ("NISSCO"), Cleaning Ideas, Superior Chemical & Supply,
Inc. ("Superior") and June Supply, Inc. ("June Supply") and had completed
substantial equity investments in two companies, b2bstores.com, Inc. (now known
as IVAX Diagnostics, Inc.) and equip2move.com Corporation. Subsequently, the
Company has disposed of four of its operating subsidiaries, including the
disposals of; (i) the sale of the assets of NISSCO on September 29, 2000, (ii)
the sale of the assets of June Supply on December 22, 2000, (iii) the sale of
all of the capital stock of Kandel & Son as of June 29, 2001, and (iv) the sale
of the assets of Superior Chemical & Supply, Inc., as of June 29, 2001.
Results of Operations
Results of operations for the nine-month period ended September 30, 2001
and 2000:
The net sales decreased $699,087 for the nine-month period ended September
30, 2001 ("2001") as compared to the nine-month period ended September 30, 2000
("2000") from $4,066,649 to $3,367,562. The gross profit percentage increased
from 39% for 2000 to 43% for 2001. The decrease in sales is mostly attributable
to the emergence of much stronger competition in 2001 as well as lower sales
through the use of "drop-shipments". The increase in gross profit percentage is
as a result of the decrease in "drop-shipments", which yield a much lower gross
profit.
Operating expenses decreased from $3,446,197 for 2000 to $2,362,261 for
2001, approximately 31%. The majority of this decrease, approximately
$1,084,000, was due to the liquidation of debt, thereby reducing related
interest expense accordingly. Additionally, amortization of goodwill was
recorded on acquisitions of approximately $283,000 during 2001 and $667,000
during 2000. This reduction is due to the disposal of four subsidiaries
subsequent to June 30, 2000.
The Company had a net loss in 2001 of $697,562, as compared to net income
of $2,700,630, in 2000. The discrepancy is mainly due to the Company's gain on
the sale of an investment holding in March 2000.
Liquidity and Capital Resources
For the nine-month period ended September 30, 2001, the Company's cash
flows from operations was positive $429,958, as a result of a net loss of
$697,562 and adjustments to arrive at cash provided by operating activities of
depreciation and amortization and non-cash interest of $408,468, a decrease in
inventory of $44,314, a decrease in prepaid expenses and other current assets of
$1,000,664, a loss on an equity investment of $212,112, offset by a gain on sale
of subsidiaries of $208,200, shares returned for legal services of $46,875, a
net change in net assets of discontinued operations of $94,130, an increase in
accounts receivable of $11,045 and a decrease in accounts payable and accrued
expenses of $177,788.
The Company has no material research and development expenditures nor does
it anticipate that it will have any such expenditures in the next twelve months.
Other than the possible disbursement for increased expenses for legal,
printing, accounting and other services associated with the search for a
strategic alternative, the Company does not expect its capital requirements to
increase in any substantive amount during the calendar year 2001. The Company's
future liquidity and capital funding requirements will depend on the extent to
which the Company is successful in determining and implementing a new direction
for the Company. The Company expects that
10
capital requirements for calendar year 2001 will be met with the proceeds from
the sale of an investment holding in March 2000, the proceeds from previous
private placement offerings, the income earned from an investment in a
promissory note and the continued operating revenues from the Company's
subsidiaries.
Risk Associated with Change of Direction
No Assurance of Success of a Strategic Alternative.
The Board has determined that it is in the best interest of its
shareholders to discontinue the consolidation and acquisition strategy in the
sanitation and janitorial supply industry. Since the Company's formation, the
sanitation and janitorial supply industry is the only industry that management
of the Company has been involved in operating. There can be no assurance that
current management will be successful in locating a strategic alternative or
that such an alternative would benefit the Company or shareholder value. In
addition, if the Company were to begin operating in a different industry, there
could be no assurance that current management could operate in another industry
successfully or retain management that would successfully run the Company in
that industry.
Significant Charges and Expenses in a Business Combination
Although there is currently no specific business combination or alternative
that the Company has negotiated, business combinations and alternatives of the
type that the Company is seeking often involve significant charges and expenses
to conduct. These expenses include investment banking expenses, finders fees,
severance payments, legal and accounting fees, printing expenses, travel costs,
and other related charges. In addition, the Company could also incur additional
unanticipated expenses in connection with a business combination.
Possible Sale of Company Assets in a Business Combination
If the Company identifies and authorizes the negotiation of a business
combination or other strategic alternative in the future, the Company may, as
part of an executed agreement, be required to sell certain of its assets,
including, but not limited to, its operating subsidiary and certain Company
investments. This type of asset sale is a possible requirement, particularly if
a chosen strategic partner is likely to change the business direction of the
Company or combine an existing, unrelated business with the Company. If the
asset disposal does become a provision in an agreement, then, depending on
market valuations, availability of willing purchasers, and other market
conditions, it is possible that the Company could be forced to sell assets at a
price significantly lower than the price paid by the Company during acquisition,
in order to complete a transaction. Therefore, although the Company would weigh
the cost of the risk of loss and aggressively seek a favorable sale of any
assets, there is a chance that the Company could suffer overall losses on
various asset dispositions in this situation.
11
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no new legal proceedings to report in the third
quarter of 2001, and there have been no material developments in the information
reported in the Company's quarterly report on Form 10-QSB for the period ending
March 31, 2001.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
A special meeting of shareholders of the Company was held on August
31, 2001. At the special meeting, the Company's shareholders approved a motion
to amend the Company's Articles of Incorporation in order to change the name of
the Company from "Enviro-Clean of America, Inc." to "Titanium Holdings Group,
Inc." The motion to amend the Articles of Incorporation was the only item of
business addressed at the special meeting. The result of the voting at the
shareholders' special meeting held on August 31, 2001 was as follows:
Proposal
(To Amend the Articles of Incorporation to Change Company Name to "Titanium
Holdings Group, Inc.")
For Against Abstain
3,547,705 - -
ITEM 5. Other Information and Subsequent Events
In September 2001, the Company began a new private placement of a
minimum of $500,000 and a maximum of $2,000,000 of promissory notes. The notes
are three-year, 9.75% notes and are secured by Diagnostics Shares held by the
Company. Pursuant to the terms of the Note Offering, the Company is required to
escrow Diagnostics Shares with an aggregate fair market value equal to 125% of
the total aggregate face value of the outstanding notes. The amount of
outstanding notes and value of the Diagnostics Shares are reviewed quarterly by
the escrow agent, at which time the Company must provide additional Diagnostics
Shares for escrow, if needed, or take possession of Diagnostics Shares, if there
is a surplus in escrow. The Note Offering was closed on October 31, 2001 with
the gross proceeds received by the Company through the Note Offering of an
aggregate of $1,595,000, while an aggregate of 550,000 Diagnostics Shares were
held in escrow.
On October 31, 2001, the Company discontinued its Stock Repurchase
Program.
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
12
The exhibits, as listed on the Exhibit Index on page 14, are
hereby incorporated by reference.
(b) Reports on Form 8-K:
The Company filed an 8-K on July 20, 2001, to report the sale of
the assets of Superior Chemical and Supply, Inc., a wholly-owned
subsidiary of the Company, and the sale of Kandel and Son, Inc.,
a wholly-owned subsidiary of the Company, under Item 2 of the
Form 8-K. In addition, the Company announced the Board's approval
of a change of the Company's corporate name and changes in the
membership of the Board.
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, as
amended, the Issuer has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
November 9, 2001
Titanium Holdings Group, Inc.
By: /s/ Randall K. Davis
-----------------------------------------
Randall K. Davis, Chief Executive Officer
By: /s/ Jan Pasternack
-----------------------------------------
Jan Pasternack, Chief Financial Officer
13
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2(i) Asset Purchase Agreement, by and between ebuyxpress.com L.L.C.,
NISSCO/Sunline, Inc. and Company, dated September 29, 2000
(Incorporated by reference to the Company's Report on Form 8-K
filed with the SEC on October 13, 2000).
2(ii) Asset Purchase Agreement, by and between York Supply, Ltd., June
Supply Corp., and Company, dated December 22, 2000 (Incorporated
by reference to the Company's Report on Form 8-K filed with the
SEC on December 28, 2000).
2(iii) Asset Purchase Agreement, by and between Superior One Source,
Inc., Superior Chemical & Supply, Inc., and Company, dated June
29, 2001. (Incorporated by reference to the Company's Report on
Form 8-K filed with the SEC on July 20, 2001).
2(iv) Stock Purchase Agreement between Richard Kandel, Kandel & Son,
Inc. and Company, dated June 29, 2001. (Incorporated by reference
to the Company's Report on Form 8-K filed with the SEC on July
20, 2001).
3(i) Articles of Incorporation of the Company (Incorporated by
reference to the Company's Form 10-SB filed with the SEC on June
18, 1999).
3(ii) Bylaws of the Company (Incorporated by reference to the Company's
Form 10-SB filed with the SEC on June 18, 1999).
4(i) Certificate of Designation for the Company's Series A Stock
(Incorporated by reference to the Company's Form 10-SB filed with
the SEC on June 18, 1999).
4(ii) Certificate of Designation for the Company's Series E Stock
(Incorporated by reference to the Company's Form 10-SB filed with
the SEC on June 18, 1999).
4(iii) Certificate of Designation for the Company's Series D Preferred
Stock (Incorporated by reference to the Company's Report on Form
8-K filed with the SEC on September 3, 1999).
4(iv) Certificate of Amendment to the Certificate of Designation for
the Company's Series A Stock (Incorporated by reference to the
Company's Report on Form 10-SB/A filed with the SEC on October
22, 1999).
4(v) Certificate of Designation for the Company's Series B Stock.
(Incorporated by reference to the Company's Report on Form 10-
SB/A filed with the SEC on December 16, 1999).
4(vi) Form of 12 3/4% Subordinate Note (Incorporated by reference to
the Company's Report on Form 10-SB/A filed with the SEC on
October 22, 1999).
4(vii) Form of the Warrant Certificate - June 1999 (Incorporated by
reference to the Company's Report on Form 10-SB/A filed with the
SEC on October 22, 1999).
14
4(viii) Form of the Warrant Certificate - December 1999 (Incorporated by
reference to the Company's Report on Form 10-QSB filed with the
SEC on June 15, 2000).
4(ix) Form of the Warrant Certificate - February 2000 (Incorporated by
reference to the Company's Report on Form 10-QSB filed with the
SEC on June 15, 2000).
4(x) + Form of three-year 9 3/4% Secured Promissory Note.
4(xi) + Pledge and Security Agreement by and between Company and Secured
Parties, dated October 31, 2001.
10(i) + Escrow Agreement by and between Company, Agent, and Escrow Agent,
dated October 31, 2001.
10(ii) + Form of Agency Agreement by and between Company, Principal and
Agent
_______________________________
+ Filed herewith.
15
Exhibit 4(x)
------------
THREE-YEAR 9 3/4% SECURED PROMISSORY NOTE
THIS PROMISSORY NOTE HAS BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 ("ACT"), OR THE SECURITIES LAWS OF ANY STATE, PURSUANT TO APPLICABLE
EXEMPTIONS FROM SUCH REGISTRATION. SUCH NOTE HAS BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS CONTAINED HEREIN AND IN THE
SUBSCRIPTION AGREEMENT USED IN CONNECTION WITH THE ISSUANCE OF THIS NOTE, AND
PURSUANT TO EITHER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR THE RECEIPT BY THE ISSUER HEREOF OF AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT THAT SUCH TRANSFER
DOES NOT REQUIRE REGISTRATION UNDER ANY APPLICABLE LAWS.
$[_______] San Antonio, Texas Date: _________, 2001
ENVIRO-CLEAN OF AMERICA, INC. ("Maker"), whose address is stated below, for
value received, without grace, in the manner, on the dates and in the amounts
herein stipulated, promises to pay to the order of [___________] ("Payee" or
"Holder") at Payee's address, or such other place as the Payee of this Note may
hereafter designate in writing, the sum of [_______] DOLLARS ($[_______]), in
lawful money of the United States of America, at the interest rate herein
specified.
1. Definitions.
(a) Agent shall mean the Agent for the holder of this Note under the
Security Agreement, and any successor thereto.
(b) Due Date shall mean, as to the payment of interest on this Note, the
last day of each calendar month following the date hereof, and, as for
the principal and any unpaid interest, the Maturity Date.
(c) Maturity Date shall mean the last business day of the month 36 months
from the date hereof.
(d) Note shall mean this promissory note and any deferrals, renewals,
extensions, replacements, refinancings and refundings of, or
amendments, modifications or supplements hereof.
1
(e) Person shall mean any corporation, individual, partnership (limited or
general), limited liability company, governmental body or other
entity.
(f) Security Agreement shall mean the Security Agreement, dated October
31, 2001, executed by Maker in favor of an Agent and Attorney-in-Fact
for Payee and other holders of other notes of Maker similar to this
Note, on the personal property described therein, together with all
proceeds and products thereof.
(g) Security Instrument shall mean any security agreement or other
security instruments or documents relating hereto or executed in
connection herewith.
2. Interest Rate. The unpaid principal balance outstanding hereunder shall
bear simple interest from and after the date hereof until maturity at 9 3/4% per
annum.
3. Principal and Interest Payments. This Note shall be due and payable as
follows:
(a) Accrued but unpaid interest on the outstanding principal balance of
this Note shall be due on the last day of each calendar month
following the date hereof and on the Maturity Date (as defined above)
and payable within ten days after the amount becomes due.
(b) The unpaid principal balance of this Note plus accrued but unpaid
interest thereon shall be due on the Maturity Date and payable in full
within ten days after the Maturity Date.
4. Time, Place and Method of Payment. All payments made under this Note shall
be made to the holder hereof no later than 5:00 p.m., San Antonio, Texas time,
ten (10) days after the Due Date. Any payment received by the holder after such
time, shall be considered for all purposes (including the calculation of
interest) as having been made on the next succeeding day that the holder is open
for business. If any payment of principal or interest shall become payable on a
legal holiday, such payment shall be payable on the next succeeding business day
and such extension of time shall be included in computing interest due with
respect to such payment. A check, draft, money order, or other instrument given
in payment for any payment or prepayment made hereunder may be accepted by the
holder hereof and handled for collection in the customary manner, but the same
shall not constitute payment hereunder or diminish any rights of the holder
except to the extent that actual cash proceeds of such instrument are
unconditionally and irrevocably received by the holder.
5. Past Due Rate. All past due principal and interest on this Note shall bear
interest from the maturity date thereof until the date of payment at 15% per
annum. Interest on this Note shall be computed on the basis of a 365-day year
for the actual number of days elapsed.
6. Prepayment at the Maker's Option. Maker may prepay the principal of this
Note, in full or in part, at any time following the date that is two (2) years
from the Issue Date without any prepayment premium or fee and anytime after the
Issue Date, but prior to the date that is two (2) years from the Issue Date,
with a prepayment premium of 1% of the principal amount of the
2
Note. Interest accrued but unpaid with respect to any amount prepaid shall be
due and payable on the date of any such prepayment.
7. Demand of Prepayment by Payee.
(a) Payee may demand prepayment of the principal and the accrued and
unpaid interest of this Note, in full or in part, at any time
following the Issue Date with a written notice to the Company of the
Payee's demand for prepayment; provided, however, that, upon the
demand for prepayment, the payment of interest may be made by the
Maker pursuant to the Section 4 of this Note.
(b) The Payee's demand of prepayment right may be exercised by the Holder
by the surrender at the principal office of the Maker of this Note (or
of any replacement Note issued hereunder) with a written notice to
demand prepayment. Prepayment shall be deemed to have been effected on
the date when such delivery of the demand of prepayment notice is
actually made or, if earlier, at the expiration of three (3) calendar
days after being sent to the Company by the Holder by registered or
certified mail, return receipt requested, with postage thereon fully
prepaid. Within thirty days of receipt of the notice of demand for
prepayment, the Maker shall issue and deliver to or upon the written
order of the Holder, a check or wire transfer for the total amount due
as may be determined in accordance with the above provisions to which
the Holder is entitled.
8. Events of Default. It is expressly agreed and understood that time is of
the essence concerning this Note, and that;
(a) if default shall be made in any payment of principal or interest on
this Note as the same shall become due and payable and such default is
not cured within 30 days thereafter;
(b) if there is a default in any of the terms, covenants, agreements,
conditions or provisions set forth in any agreement, instrument or
document given to secure this Note or executed in connection with this
Note, including but not limited to the Security Agreement, and such
default is not cured within 30 days after notice thereof by the holder
hereof to Maker;
(c) should Maker, endorser, surety, guarantor or other Person hereafter
primarily liable upon or for the payment of all or any part of this
Note (each such Person being hereinafter referred to as an "Other
Liable Party"), become insolvent or commit an act of bankruptcy or
make an assignment for the benefit of creditors or authorize the
filing of a voluntary petition in bankruptcy or should a receiver of
any of the property of Maker or any Other Liable Party be appointed;
(d) should involuntary bankruptcy be filed against either Maker or any
Other Liable Party;
3
(e) if a writ or order of attachment or garnishment shall be issued or
made against any property of the Maker or any Other Liable Party; or
(f) if Maker or any Other Liable Party shall be dissolved, wound up,
liquidated or otherwise;
then in any such event (each an "Event of Default"), subject to this Section 8,
the holder hereof may, at its option, declare the entirety of the outstanding
principal of this Note, together with all accrued but unpaid interest hereon,
immediately due and payable, without notice, protest, demand, presentment,
notice of intent to accelerate or notice of acceleration, all of which are
hereby expressly and specifically waived by Maker and any Other Liable Parties.
9. Change Of Control.
(a) In the event that a Change of Control (as hereinafter defined) (the
date of such occurrence being the "Change of Control Date") occurs, the Company
must, within ten (10) Business Days following the Change of Control Date, send a
notice to the Holder that a Change of Control has occurred and the Holder may
then exercise his rights to demand prepayment as described in Section 7 of this
Note.
(b) As used in this "Change of Control" section, "Change of Control"
means:
(i) any Person (including any syndicate or group deemed to be a
"Person" under Section 13(d)(30 of the Exchange Act), other
than the Company, any Subsidiary of the Company or any
current or future employee or director benefit plan of the
Company or any Subsidiary of the Company or any entity
holding capital stock of the Company for or pursuant to the
terms of such plan, or an underwriter engaged in a firm
commitment underwriting in connection with a public offering
of capital stock of the Company, is or becomes the
beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition transaction or series
of transactions of shares of Common Stock of the Company
entitling such Person to exercise 50% or more of the total
voting power of all shares of Common Stock of the Company
entitled to vote generally in the election of directors;
(ii) the Company sells or transfers all or substantially all of
the assets of the Company to another Person;
(iii) there occurs any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger (a)
which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common
Stock, (b) which is effected solely to change the
jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of Common Stock,
or (c) a transaction in which
4
the shareholders of the Company immediately prior to such
transaction owned, directly or indirectly, immediately
following such transaction, at least a majority of the
combined voting power of the outstanding voting stock of the
Company resulting from the transaction, such stock to be
owned by such shareholders in substantially the same
proportion as their ownership of the voting stock of the
Company immediately prior to such transaction);
(iv) a change in the Board of Directors of the Company in which
the individuals who constituted the Board of Directors of
the Company at the beginning of the 24-month period
immediately preceding such change (together with any other
director whose election by the Board of Directors of the
Company or whose nomination for election by the shareholders
of the Company was approved by a vote of at least a majority
of the directors then in office either who were directors at
the beginning of such period or whose election or nomination
for election was previously so approved) cease for any
reason to constitute a majority of the directors then in
office; or
(v) the Common Stock of the Company is the subject of a "Rule
13e-3 transaction" as defined under the Exchange Act of
1934, as amended.
10. Severability. The invalidity, or unenforceability in particular
circumstances, of any provision of this Note shall not extend beyond such
provision or such circumstances and no other provision of this Note shall be
affected thereby.
11. Usury Prevention. It is the intention of Maker and Payee to conform
strictly to applicable usury laws. Accordingly, notwithstanding any provision
to the contrary in this Note, or in any Security Instrument, the aggregate of
all interest and any other charges or consideration constituting interest under
applicable usury law that is taken, reserved, contracted for, charged or
received under this Note, or under any of the Security Instruments, or otherwise
in connection with this loan transaction shall under no circumstances exceed the
maximum amount of interest allowed by the usury law applicable to this loan
transaction. If any excess interest charge or consideration in such respect is
taken, reserved, contracted for, charged, received or provided for, or shall be
adjudicated to be so taken, reserved, contracted for, charged, received or
provided for, in this Note or in any of the Security Instruments, whether by the
terms of this Note or the Security Instruments or because the maturity of the
indebtedness evidenced by this Note is accelerated for any reason, or in the
event of any required or permitted prepayment, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker nor
Maker's heirs, executors, administrators, legal representatives, successors or
assigns or any Other Liable Party shall be obligated to pay the amount of such
interest to the extent that it is in excess of the legal limit for interest
rates, (c) any excess shall be deemed a mistake and cancelled automatically and,
if theretofore paid, shall be credited on this Note by the holder hereof (or if
this Note shall have been paid in full, refunded to Maker) and (d) the effective
rate of interest shall be automatically subject to reduction to the maximum
interest rate allowed by law as the law may now or hereafter be construed by
courts of appropriate jurisdiction. Without limiting
5
the foregoing, all calculations of the rate of interest taken, reserved,
contracted for, charged, received or provided for under this Note or the
Security Instruments which are made for the purpose of determining whether the
interest rate exceeds the legal limit for interest rates, shall be made, to the
extent allowed by law, by amortizing, prorating, allocating and spreading in
equal parts during the period of the full stated term of the loan evidenced
hereby, all interest at any time taken, reserved, contracted for, charged,
received or provided for under this Note or the Security Instruments.
12. Security Agreement. The payment of this Note is secured by the Security
Agreement.
MAKER:
ENVIRO-CLEAN OF AMERICA, INC.
1023 Morales Street
San Antonio, Texas 78207
By:
-----------------------------------------
Randall K. Davis, Chief Executive Officer
6
Exhibit 4(xi)
-------------
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT is made and entered into effective as of
October 31, 2001, by Enviro-Clean of America, Inc., a Nevada corporation, the
principal place of business of which is located at 1023 Morales Street, San
Antonio, Texas 78207 ("Debtor"), in favor of Randall K. Davis, an individual,
who has been appointed Agent and Attorney-In-Fact for certain purchasers of the
Debtor's promissory notes and whose principal place of business is located at
1023 Morales Street, San Antonio, Texas 78207 ("Secured Party").
Recitals
WHEREAS, Debtor holds title to certain shares of common stock, par
value $0.01 (the "Common Stock"), of IVAX Diagnostics, Inc., a Delaware
Corporation (the "Company");
WHEREAS, from time to time before, on and after the effective date of
this Security Agreement, Debtor will issue promissory notes to private
investors (all such notes, whenever created or issued being referred to
herein as the "Investor Notes") in a private offering pursuant to that
certain private placement memorandum dated August 23, 2001 (the
"Offering");
WHEREAS, Debtor has agreed to grant a security interest in certain
shares of Common Stock of the Company in favor of the private investors in
order to secure the payment of all Investor Notes whenever issued; and
WHEREAS, Secured Party has been appointed by the private investors to
act as their sole Agent and Attorney-in-Fact in all matters pertaining to
the security interest in the Collateral pursuant to that certain agency
agreement among the holders of the Investor Notes, Secured Party as agent
for the holders of the Investor Notes, and Debtor (the "Agency Agreement").
This Agreement, the Agency Agreement, the Investor Notes, the Escrow
Agreement (as defined below) and all other documents and instruments
executed in connection herewith or therewith, are collectively referred to
as the "Offering Documents."
NOW, THEREFORE, in consideration of the purchase of the Investor Notes by
the private investors, the premises and the agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Debtor and Secured Party hereby agree as follows:
1. Pledge of Stock and Creation of Security Interest. To secure the timely
payment and performance of the Secured Obligations (as defined below), Debtor
hereby collaterally assigns and pledges to Secured Party, and grants to Secured
Party a security interest in, all the right, title and interest of Debtor, now
owned or hereafter acquired, in, to and under the
1
collateral described in Section 2 herein below, and the proceeds thereof (the
"Collateral"). The Collateral shall be held in escrow pursuant to the terms of
an Escrow Agreement between Debtor, Secured Party and the Escrow Agent named
therein (the "Escrow Agent") of even date herewith (the "Escrow Agreement")
until such time as all amounts due under the Offering Documents have been paid
in full.
2. Collateral. The Collateral shall consist of unencumbered shares of
Common Stock of the Company held by Debtor and set aside for escrow, which
number of shares shall be no less than an amount with a Fair Market Value (as
defined below) equal to or greater than 125% of the aggregate total of the face
value of the outstanding Investor Notes (the "Outstanding Note Amount"). The
amount of Common Stock escrowed as Collateral under this Agreement shall be
automatically adjusted by the Escrow Agent on a quarterly basis during the term
of the Investor Notes, on January 1, April 1, July 1 and October 1 (the "Value
Review Dates"), pursuant to the Escrow Agreement. Within three (3) days of any
Value Review Date, if the Fair Market Value of the escrowed Common Stock is in
excess of 125% of the Outstanding Note Amount (the "Excess Amount"), the Company
may request from the Escrow Agent, and the Escrow Agent must deliver to the
Company if so requested, any shares of Common Stock whose total value does not
exceed the Excess Amount. Within three (3) days of any Value Review Date, if the
Fair Market Value of the escrowed Common Stock is less than 125% of the
Outstanding Note Amount (the "Deficit Amount") the Company must deliver to the
Escrow Agent, within three (3) business days, additional shares of Common Stock
of the Company, equal to or more than the Deficit Amount. If, following the date
hereof, there occurs any stock dividend, stock split, recapitalization or other
change affecting the Common Stock of the Company as a class effected without
receipt of consideration, any new, substituted or additional securities or other
property that is by reason of such transaction distributed with respect to
Common Stock of the Company that comprises the Collateral shall be immediately
delivered by Debtor to Secured Party to be held as Collateral, until adjusted on
a Value Review Date. If, following the date hereof, there occurs any dividend,
distribution, merger, consolidation, share exchange or reorganization affecting
the Common Stock of the Company, then any new, substituted or additional
securities or other property (including money paid as a regular cash dividend)
that is by reason of such transaction distributed with respect to the Collateral
shall be immediately delivered by Debtor to Secured Party to be held as
Collateral, until adjusted on a Value Review Date. In the event any cash is
deposited as part of the Collateral pursuant hereto, the parties will make
appropriate amendments to this Agreement to include investment provisions and
controls for such cash.
The "Fair Market Value" per share of Common Stock of the Company shall be
equal to the average of the closing price per share of Common Stock of the
Company as reported by The American Stock Exchange or such other securities
exchange, market or quotation system on which Common Stock of the Company is
then listed for trading or quoted on each of the ten (10) trading days prior to
the date of purchase.
The Debtor shall deliver the Collateral to Secured Party by delivering the
Collateral, together with stock powers executed in blank, to Randall K. Davis as
Escrow Agent, 1023 Morales Street, San Antonio, Texas 78207, or to such other
person or address as shall be designated by the Holders of the Investor Notes
pursuant to the Escrow Agreement.
2
3. Secured Obligations of Debtor. The Collateral secures and shall
hereafter secure (i) the Payment by Debtor to Secured Party of all indebtedness
now or hereafter owed pursuant to the Offering Documents to Secured Party by
Debtor, including, without limitation, the loan made to Debtor pursuant to the
Investor Notes, together with any interest thereon and extensions, modifications
and renewals thereof, (ii) the payment by Debtor, or reimbursement to Secured
Party, of all fees, costs or expenses to be paid, incurred or borne by Debtor
pursuant to any of the Offering Documents, and (iii) the performance by Debtor
of all other obligations and the discharge of all other liabilities to Secured
Party of every kind and character, direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising under this Agreement or
any of the other Offering Documents (the foregoing are collectively referred to
as the "Secured Obligations"). All payments and performance shall be in
accordance with the terms of the Offering Documents. Debtor shall reimburse
Secured Party on demand for any and all amounts expended by Secured Party in
accordance with, or in the enforcement (judicially or otherwise) or exercise of
its rights under, the terms of this Agreement, including attorneys' fees, which
amounts are included in the Secured Obligations secured hereunder.
4. Debtor's Representations and Warranties.
Debtor represents and warrants that:
(a) Debtor is (or to the extent that this Agreement states that the
Collateral is to be acquired after the date hereof, will be) the sole
owner of the Collateral; upon delivery of the Collateral to Secured
Party the security interest hereunder in the Collateral will be a
first, prior and perfected security interest; there are no security
interests, liens or encumbrances, or adverse claims of title to,
community property interests in, or any other interest whatsoever in,
the Collateral or any portion thereof except that created by this
Agreement; and no financing statement, mortgage or deed of trust
covering the Collateral or any portion thereof exists or is on file in
any public office; and
(b) Debtor has the full power and authority to pledge, transfer and assign
the Collateral to Secured Party, and such pledge, transfer and
assignment to Secured Party will not violate any federal or state law,
rule or regulation, including without limitation federal or state
securities laws; and
(c) No part of the Collateral is subject to a risk of forfeiture or
vesting provisions applicable to Debtor pursuant to the terms of the
instrument pursuant to which Debtor acquired the Collateral; and
(d) Neither the execution and delivery of this Agreement by Debtor nor the
consummation of the transactions herein contemplated nor the
fulfillment of the terms hereof will result in a breach of any of the
terms or provisions of, or constitute a default under, or constitute an
event which with notice or lapse of time or both will result in a
breach of or constitute a default under, any material agreement,
indenture, mortgage, deed of trust, equipment lease or other instrument
to which Debtor is a party, or conflict with any law, order, rule or
regulation applicable to Debtor of any
3
court or any federal or state government, regulatory body or
administrative agency, or any other governmental body having
jurisdiction over Debtor or Debtor's properties.
(e) Debtor is a corporation duly organized, legally existing and in good
standing under the laws of the state of Nevada.
5. Covenants of Debtor.
Debtor covenants that:
(a) Debtor will defend the Collateral against all claims and demands of
all third parties at any time claiming the same or any interest
therein;
(b) Debtor will, promptly upon request by Secured Party, procure or
execute and deliver any document, give any notices, execute and file
any financing statements, mortgages or other documents, all in form and
substance satisfactory to Secured Party, mark any chattel paper,
deliver any chattel paper or instruments to Secured Party and take any
other actions which are necessary or, in the judgment of Secured Party,
desirable to perfect or continue the perfection and first priority of
Secured Party's security interest in the Collateral, to protect the
Collateral against the rights, claims, or interests of third persons or
to effect the purposes of this Agreement, and will pay all costs
incurred in connection therewith;
(c) Debtor will not, without the prior written consent of Secured Party,
in any way hypothecate or create or permit to exist any lien, security
interest or encumbrance on or other interest in the Collateral except
that created by this Agreement, nor will Debtor sell, transfer, assign,
exchange or otherwise dispose of the Collateral or any option with
respect thereto. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation
of these provisions, the security interest of Secured Party shall
continue in such Collateral or part thereof notwithstanding such sale,
transfer, assignment, exchange or other disposition, and Debtor will
hold the proceeds thereof in a separate account for Secured Party's
benefit. Debtor will, at Secured Party's request, transfer such
proceeds to Secured Party in kind;
(d) Debtor will pay and discharge all taxes, assessments and governmental
charges or levies against the Collateral prior to delinquency thereof
and will keep the Collateral free of all unpaid charges whatsoever; and
(e) Secured Party shall have the right to make any payments and do any
other acts Secured Party may deem necessary to protect its security
interest in the Collateral, including, without limitation, the rights
to pay, purchase, contest or compromise any encumbrance, charge or lien
which in the judgment of Secured Party appears to be prior to or
superior to the security interest granted hereunder, and appear in and
defend any action or proceeding purporting to affect its security
interest in and/or the value of the Collateral, and in exercising any
such powers or authority, the right to pay all expenses incurred in
connection therewith, including attorneys' fees. Debtor hereby
4
agrees to reimburse Secured Party for all payments made and expenses
incurred, which amounts shall be secured under this Agreement, and
agrees it shall be bound by any payment made or act taken by Secured
Party hereunder. Secured Party shall have no obligation to make any of
the foregoing payments or perform any of the foregoing acts.
6. Defaults and Remedies. Upon the occurrence and during the continuation
of an Event of Default (as described and defined in the Investor Notes), Secured
Party may, at its option, without notice to or demand upon Debtor, do any one or
more of the following:
(a) Declare all advances made by Secured Party to Debtor under the Note
and all other Secured Obligations to be immediately due and payable,
whereupon all unpaid principal and interest on all advances and other
Secured Obligations shall become and be immediately due and payable;
(b) Exercise any or all of the rights and remedies provided for by the
applicable Uniform Commercial Code, specifically including, without
limitation, the right to recover the attorneys' fees and other expenses
incurred by Secured Party in the enforcement of this Agreement or in
connection with Debtor's redemption of the Collateral;
(c) Sell all or any portion of the Collateral in any commercially
reasonable manner in any one or more public or private sales, at the
sole discretion of Secured Party, or proceed by an action or actions at
law or in equity to recover the Secured Obligations. Debtor agrees that
any sale of all or any portion of the Collateral in the public market,
in compliance with applicable federal and state securities laws and
regulations, shall be conclusively presumed to be commercially
reasonable. Secured Party shall also have the right and option to
purchase all or any portion of the Collateral from Debtor at a price
equal to the Fair Market Value of such Collateral. Any consideration
owed to Debtor for any such purchase shall be first offset against the
Secured Obligations, with any excess consideration to be paid in cash
to Debtor; and
(d) Enforce one or more remedies hereunder, successively or concurrently,
and such action shall not operate to estop or prevent Secured Party
from pursuing any other or further remedy which it may have, and any
repossession or retaking or sale of the Collateral pursuant to the
terms hereof shall not operate to release Debtor until full and final
payment of any deficiency has been made in cash. Debtor shall reimburse
Secured Party upon demand for, or Secured Party may apply any proceeds
of Collateral to, the costs and expenses (including attorneys' fees,
transfer taxes and any other charges) incurred by Secured Party in
connection with any sale, disposition or retention of any Collateral
hereunder.
7. Miscellaneous Provisions.
(a) Notices. Any and all notices required by this Agreement shall be
delivered or sent in the manner and to the addresses set forth in the
Agency Agreement.
5
(b) Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
(c) Governing Law. This Agreement shall be construed in accordance with
and all disputes hereunder shall be governed by the internal laws of
the State of Texas without regard to principles of conflicts of laws.
(d) No Waiver; Amendments. No delay in enforcing or failure to enforce any
right under this Agreement by Secured Party shall constitute a waiver
by Secured Party of such right. No waiver by Secured Party of any
default hereunder shall be effective unless in writing, nor shall any
waiver operate as a waiver of any other default or of the same default
on a future occasion. This Agreement or any provision hereof may be
changed, waived or terminated only by a statement in writing signed by
the party against which such change, waiver or termination is sought to
be enforced.
(e) Time of the Essence. Time is of the essence of each provision of this
Agreement of which time is an element.
(f) Binding Agreement. All rights of Secured Party hereunder shall inure
to the benefit of its successors and assigns. Debtor shall not assign
any of its interest under this Agreement without the prior written
consent of Secured Party. Any purported assignment inconsistent with
this provision shall, at the option of Secured Party, be null and void.
(g) Entire Agreement. This Agreement, together with the Note and any other
agreement executed in connection herewith, is intended by the parties
as a final expression of their agreement and is intended as a complete
and exclusive statement of the terms and conditions thereof.
(h) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or to seek damages for a breach of any
provision hereof, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(i) Severability. If any provision of this Agreement should be found to be
invalid or unenforceable, all of the other provisions shall nonetheless
remain in full force and effect to the maximum extent permitted by law.
(j) Survival of Provisions. All representations, warranties and covenants
of Debtor contained herein shall survive the execution and delivery of
this Agreement, and shall terminate only upon the full and final
payment and performance by Debtor of the Secured Obligations.
(k) Setoff. Secured Party shall have the right, at any time, to set off
any indebtedness or obligation of Debtor under the Investor Notes
against any indebtedness or obligation
6
of Secured Party, without notice to or demand upon Debtor and whether
or not any such indebtedness or obligations are liquidated or mature at
the time of such offset. Secured Party's right of offset hereunder
shall be in addition to and not in limitation of any other rights or
remedies which may exist in favor of Secured Party.
(l) Power of Attorney. Debtor hereby appoints and constitutes Secured
Party as Debtor's attorney-in-fact, effective upon the occurrence of
and during the continuation of an Event of Default (as defined in the
Note), for purposes of (i) collecting accounts or proceeds of any
Collateral, (ii) conveying any item of Collateral to any purchaser
thereof, and (iii) making any payments or taking any acts under Section
5(e) hereof. Secured Party's authority hereunder shall include, without
limitation, the authority to endorse and negotiate, for Secured Party's
own account, any checks or instruments in the name of Debtor, to
execute any receipt for any certificate of ownership or any document,
to transfer title to any item of Collateral, and to take any other
actions necessary or incident to the powers granted to Secured Party in
this Agreement. This power of attorney is coupled with an interest and
is irrevocable by Debtor until full and final payment of all of the
Secured Obligations.
(m) Authority of Secured Party. Secured Party shall have and be entitled
to exercise all powers hereunder which are specifically delegated to
Secured Party by the terms hereof, together with such powers as are
reasonably incident thereto. Secured Party may perform any of its
duties hereunder or in connection with the Collateral by or through
agents or employees and shall be entitled to retain counsel and to act
in reliance upon the advice of counsel concerning all such matters.
Neither Secured Party nor any director, officer, employee, attorney or
agent of Secured Party shall be liable to Debtor for any action taken
or omitted to be taken by it or them hereunder, except for its or their
own willful misconduct; nor shall Secured Party be responsible for the
validity, effectiveness or sufficiency hereof or of any document or
security furnished pursuant hereto. Secured Party and they shall be
entitled to rely on any communication, instrument or document believed
by it or them to be genuine and correct and to have been signed or sent
by the proper person or persons. Debtor agrees to indemnify and hold
harmless Secured Party and/or any such other person from and against
any and all costs, expenses (including attorneys' fees), claims or
liability incurred by Secured Party or such person hereunder, unless
such claim or liability shall be due to willful misconduct on the part
of Secured Party or such person.
(n) Statute of Limitations. Debtor hereby waives the right to plead any
statute of limitations as a defense to any obligation hereunder or any
of the Secured Obligations to the full extent permitted by law.
(o) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same agreement.
(p) Termination of the Agreement. This Agreement shall terminate upon full
and final payment and performance of all of the Secured Obligations. At
such time, Secured
7
Party shall reassign and redeliver to Debtor all of the Collateral
hereunder which has not been sold, disposed of, retained or applied by
Secured Party in accordance with the terms hereof. Such reassignment
and redelivery shall be without warranty by or recourse to Secured
Party (provided that such Collateral shall not be transferred or
encumbered by Secured Party except as permitted under the Investor
Notes) and shall be at the sole expense of Debtor.
[Signature Page to Follow]
8
[Signature Page To Security Agreement]
IN WITNESS HEREOF, a duly authorized and acting officer of Debtor has
executed this instrument in the name and on behalf of Debtor as of the date
first above written.
DEBTOR:
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ Randall K. Davis
---------------------------------------
Randall K. Davis, President
SECURED PARTY:
/s/ Randall K. Davis
---------------------------------------
Randall K. Davis, Agent and Attorney-In-Fact
9
Exhibit 10(i)
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of October 31, 2001, by and
among Enviro-Clean of America, Inc., a Nevada corporation, the principal place
of business of which is located at 1023 Morales Street, San Antonio, Texas 78207
("Company"), Randall K. Davis, an individual, who has been appointed Agent and
Attorney-In-Fact for certain purchasers of the Company's promissory notes and
whose principal place of business is located at 1023 Morales Street, San
Antonio, Texas 78207 ("Agent") and Randall K. Davis as the escrow agent (the
"Escrow Agent"):
Recitals
WHEREAS, the Company holds title to certain shares of common stock, par
value $0.01 (the "Common Stock"), of IVAX Diagnostics, Inc., a Delaware
Corporation ("Diagnostics");
WHEREAS, from time to time before, on and after the effective date of this
Agreement, the Company will issue promissory notes to private investors
(all such notes, whenever created or issued being referred to herein as the
"Notes") in a private offering (the "Offering") pursuant to that certain
private placement memorandum dated August 23, 2001 (the "Memorandum");
WHEREAS, the Company has agreed to grant a security interest in certain
shares of Common Stock of Diagnostics (the "Diagnostics Shares") in favor
of the private investors in order to secure the payment of all Notes
whenever issued pursuant to that certain security agreement of even date
with this Agreement among the Agent and the Company (the "Security
Agreement") and Agent has been appointed by the private investors to act as
their sole Agent and Attorney-in-Fact in all matters pertaining to the
security interest in the Collateral pursuant to that certain agency
agreement among the holders of the Investor Notes, Secured Party as agent
for the holders of the Notes, and Debtor (the "Agency Agreement"); and
WHEREAS, the Company has agreed to deliver the Diagnostics Shares to the
holders of the Notes (the "Holders") to ensure perfection of the security
interest by delivering the Diagnostics Shares and appropriate stock powers
(the "Stock Powers") to an escrow agent to hold for the benefit of the
Holders. This Agreement, the Agency Agreement, the Notes, the Security
Agreement and all other documents and instruments executed in connection
herewith or therewith, are collectively referred to as the "Offering
Documents."
NOW, THEREFORE, in consideration of the purchase of the Notes by the
private investors, the premises and the agreements herein contained, and other
good and valuable
1
consideration, the receipt and sufficiency of which is hereby acknowledged,
Company, Agent and Escrow Agent hereby agree as follows:
1. Delivery of Diagnostics Shares.
Upon the Final Closing of the Offering (as defined in the Memorandum), the
Company shall deliver to the Escrow Agent a number of Diagnostics Shares with an
aggregate Fair Market Value (as defined below) equal to 125% of the total
aggregate face value of the Notes purchased pursuant to the Offering. In
addition, the Company shall deliver to the Escrow Agent appropriate Stock Powers
in favor of the Holders. The delivery of the Diagnostics Shares and Stock Power
to the Escrow Agent is intended by the Parties to be a delivery of the
Diagnostics Shares to the Holders and is intended to give the Holders full
control of the delivered Diagnostics Shares, in order to perfect a security
interest as described in the Texas Business and Commerce Code.
The "Fair Market Value" per share of Common Stock of the Diagnostics Shares
shall be equal to the average of the closing price per share of Common Stock of
Diagnostics as reported by The American Stock Exchange or such other securities
exchange, market or quotation system on which Common Stock of Diagnostics is
then listed for trading or quoted on each of the ten (10) trading days prior to
the date hereof or each Value Review Date (herein defined) as the case may be.
2. Terms of Escrow.
(a) The Escrow Agent shall hold the delivered Diagnostics Shares in
escrow pending notice from the Agent directing the Escrow Agent to release the
Diagnostics Shares and Stock Power to the Company, subject to the adjustments
described below. The Company shall deliver written notice of the total amount of
Notes outstanding (the "Outstanding Note Amount") to the Agent, at least five
(5) days prior to each of the Value Review Dates, as defined in this Section 2.
On January 1, April 1, July 1, and October 1 of every year during the term of
the Notes, so long as any Notes remain outstanding (the "Value Review Dates"),
the Escrow Agent shall calculate the number of Diagnostics Shares which Fair
Market Value would equal 125% of the Outstanding Note Amount on such dates. The
Agent shall then give notice on that day, by phone, electronic mail, facsimile
or any other delivery method, to the Escrow Agent and the Company (each such
notice being referred to herein as an "Agent Notice"). Each Agent Notice shall
specify (1) the Fair Market Value per share of the Diagnostics Shares and (2)
the number of Diagnostics Shares with a Fair Market Value that is 125% of the
Outstanding Note Amount, (3) the number and Fair Market Value of Diagnostics
Shares currently held by the Escrow Agent for purposes of this Agreement, (4) if
the Fair Market Value of the Diagnostics Shares held by the Escrow Agent exceeds
125% of the Outstanding Note Amount (the "Excess Amount"), the total Excess
Amount and the number of Diagnostics Shares with a Fair Market Value equal to
the Excess Amount (the "Excess Shares"), and (5) if the Fair Market Value of the
Diagnostics Shares held by the Escrow Agent is less than the Outstanding Note
Amount ("Deficit Amount"), then the total Deficit Amount and the number of
Diagnostics Shares with a Fair Market Value equal to the Deficit Amount (the
"Deficit Shares"). The Escrow Agent shall
2
be entitled to rely completely on the Agent Notice and shall be under no duty
whatsoever to make any calculations regarding any of the calculations made
therein.
(b) Upon receipt of an Agent Notice by the Company in which there is
an Excess Amount, the Company may request that the Escrow Agent deliver all or
any portion of the Excess Shares to the Company by sending a written notice of
request to be delivered to the Escrow Agent ("Company Request") within three (3)
days of a Value Review Date. Upon receipt of a Company Request, the Escrow Agent
must, as soon as practicable, deliver to the Company the requested Diagnostics
Shares and any documents necessary to relinquish any rights by the Holders in
the Excess Shares and the Agent shall execute any such documents on behalf of
the Holders.
(c) Upon receipt of an Agent Notice by the Company in which there is a
Deficit Amount, the Company must, within three (3) days of a Value Review Date,
deliver to the Escrow Agent the total number of Deficit Shares, rounded up to
the nearest whole number.
(d) In the event that any dispute relates to a claim by the Company
that it (i) is entitled to receive a greater number of Excess Shares or (ii) is
required to deliver a lesser number of Deficit Shares than is set forth in the
Agent Notice, the Escrow Agent may release or receive any such undisputed number
of Diagnostics Shares as is specified in the relevant Agent Notice in reliance
upon such Agent Notice.
3. Duties and Obligations of the Escrow Agent.
(a) The parties hereto agree that the duties and obligations of the
Escrow Agent are only such as are herein specifically provided and no other. The
Escrow Agent's duties are as a depository only and the Escrow Agent shall incur
no liability whatsoever, except as a direct result of its willful misconduct or
gross negligence in performance of its duties hereunder. The Escrow Agent shall
have no liability whatsoever for the failure of the Agent or the Company to
perform any of their respective obligations hereunder, under the Offering
Documents or otherwise.
(b) The Escrow Agent may consult with counsel of its choice, if it so
chooses, and shall not be liable for any action taken, suffered or omitted by it
in accordance with the advice of such counsel.
(c) The parties acknowledge that the Escrow Agent shall not be bound
in any way by the terms of any other agreement to which the Agent and the
Company are parties, whether or not it has knowledge thereof, except as may be
required in Escrow Agent's role as a party of any such document, and the Escrow
Agent shall not in any way be required to determine whether or not any other
agreement has been complied with by the Agent or the Company, or any other party
thereto. The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, rescission or supersession of this Agreement unless
the same shall be in writing and signed jointly by the Agent and the Company,
and agreed to in writing by the Escrow Agent.
(d) Whenever the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions, claims or demands which, in its
opinion, are in conflict
3
with any of the provisions of this Agreement, it shall be entitled to refrain
from taking any action, other than to keep safely all property held in escrow,
until it shall be directed otherwise in writing by the Agent or by a final
judgment of a court of competent jurisdiction.
(e) The Escrow Agent shall be fully protected in relying upon any
written notice, demand, certificate or document which it, in good faith,
believes to be genuine, including without limitation any Agent Notice. The
Escrow Agent shall not be responsible for the sufficiency or accuracy of the
form, execution, validity or genuineness of documents or securities now or
hereafter deposited hereunder, or of any endorsement thereon, or for any lack of
endorsement thereon, or for any description therein; nor shall the Escrow Agent
be responsible or liable in any respect on account of identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any such document, security or endorsement.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of any funds,
securities or documents held in escrow pursuant to this Agreement.
(g) The Escrow Agent may at any time resign and be discharged from
this escrow obligations hereby created by giving sixty (60) days prior written
notice of such resignation by mailing notice thereof to the Company and to the
Agent, and such resignation shall take effect upon the appointment of, and
acceptance of such appointment by, a successor Escrow Agent, such successor
Escrow Agent to be appointed by the Holders in the manner hereinafter provided.
The Escrow Agent may be removed after thirty (30) days' written notice by
Holders holding more than 50% of the aggregate principal amount of Notes then
outstanding by filing with the Agent and with the Company evidence of the action
in that regard taken by the Holders. If at any time the Escrow Agent (i) shall
resign or shall be removed or (ii) shall become incapable of acting, or shall be
adjudged as bankrupt or insolvent, or a receiver of the Escrow Agent or of its
property shall be appointed, or any public officer shall take charge or control
of the Escrow Agent or of this property or affairs for the purpose or
rehabilitation, conservation or liquidation, then a vacancy shall be deemed to
exist in the office of the Escrow Agent, and a successor Escrow Agent may be
appointed by Holders holding more than 50% of the aggregate principal amount of
Notes then outstanding by filing with the successor Escrow Agent, the Company
and the retiring Escrow Agent evidence of the action. If no successor Escrow
Agent shall have been appointed pursuant to the foregoing provisions of this
paragraph, and accepted appointment in accordance with this Agreement, Holders
holding more than 50% of the aggregate principal amount of Notes then
outstanding or the retiring Escrow Agent may apply to any court of competent
jurisdiction to appoint a successor Escrow Agent. Said court may thereupon after
such notice, if any, as the court may deem proper and prescribe, appoint a
successor Escrow Agent. Any resignation or removal of the Escrow Agent under
this Agreement and any appointment of a successor Escrow Agent pursuant to this
Agreement shall become effective upon acceptance of appointment by the successor
Escrow Agent. Any successor Escrow Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor Escrow Agent, and also to the Holders
and the Company an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Escrow Agent shall
become effective and such successor Escrow Agent, without any further act, deed
or
4
conveyance, shall become fully vested with all the properties, rights, powers,
trusts, duties and obligations of its predecessor hereunder, with like effect as
if originally named as Escrow Agent herein.
(h) This Agreement shall not create any fiduciary duty on the Escrow
Agent's part to the Agent or the Company. The Company acknowledges that the
Escrow Agent also will acts as Agent in connection with the Offering. The
Company expressly consents to the Escrow Agent's role as Agent and Attorney-in-
Fact of the Holders.
(i) Upon the performance of this Agreement, the Escrow Agent shall be
deemed released and discharged of any further obligations hereunder.
4. Escrow Fees.
There shall be no fee paid to the Escrow Agent for serving under this
Escrow Agreement. However, the Company shall reimburse the Escrow Agent for any
expenses incurred by the Escrow Agent in connection with its services under this
Escrow Agreement. Reimbursement of such expenses shall be due immediately upon
receipt of the Company of an invoice from the Escrow Agent specifying the nature
and amount of such expenses.
5. Indemnification.
(a) To the extent that the Agent and the Escrow Agent are different
parties during this Agreement, the Agent hereby indemnifies and holds free and
harmless Escrow Agent from any and all losses, damages, taxes, liabilities or
expenses (including but not limited to reasonable attorney's fees, and amounts
paid in settlement) resulting from claims asserted by the Company against Escrow
Agent with respect to the performance of any of the provisions of this
Agreement; provided that the Escrow Agent shall not be entitled to any indemnity
for any losses, damages, taxes, liabilities or expenses that directly result
from its willful misconduct or gross negligence.
(b) The Company hereby indemnifies and holds free and harmless Escrow
Agent from any and all losses, damages, taxes, liabilities or expenses
(including but not limited to reasonable attorney's fees, and amount paid in
settlement) resulting from claims asserted by the Agent, if the Agent is a
different party than the Escrow Agent, against Escrow Agent with respect to the
performance of any of the provisions of this Agreement; provided that the Escrow
Agent shall not be entitled to any indemnity for any losses, damages, taxes,
liabilities or expenses that directly result from its willful misconduct or
gross negligence.
(c) The Agent and the Company, jointly and severally, hereby indemnify
and hold the Escrow Agent harmless from and against any and all losses, damages,
taxes, liabilities and expenses that may be incurred by the Escrow Agent,
arising out of or in connection with its acceptance of appointment as the Escrow
Agent hereunder and/or the performance of its duties pursuant to this Agreement
by any party other than as described in Sections 5(a) and (b), including, but
not limited to, all legal costs and expenses of the Escrow Agent incurred
defending itself against any claim or liability in connection with its
performance hereunder;
5
provided that the Escrow Agent shall not be entitled to any indemnity for any
losses, damages, taxes, liabilities or expenses that directly result from its
willful misconduct or gross negligence.
6. Miscellaneous.
(a) All notices, requests, demands and other communications hereunder
shall be in writing, unless otherwise indicated herein, and shall be deemed to
have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent
by telecopier, upon receipt of proof of sending thereof, (iii) is sent by
Express Mail, Federal Express or other express delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, upon receipt or
refusal or failure to accept receipt, in each case if delivered to the following
addresses:
(i) If to the Agent or Escrow Agent, to:
Randall K. Davis
1023 Morales Street
San Antonio, Texas 78207
Tel.: (210) 227-9161
Fax: (210) 224-2169
(ii) If to the Company, to:
Enviro-Clean of America, Inc.
1023 Morales Street
San Antonio, Texas 78207
Tel.: (210) 227-9161
Fax: (210) 224-2169
Attention: Randall K. Davis, Chief Executive Officer
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in accordance with
the laws of the State of Texas. All parties hereto consent to submit any dispute
hereunder to Courts located within the State of Texas.
(c) This Agreement may be executed in two or more counterparts, all of
which when taken together shall considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
[Signature Page to Follow]
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[Signature Page to the Escrow Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed the day and year first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ Randall K. Davis
-------------------------------------------
Randall K. Davis, Chief Executive Officer
THE AGENT AND ESCROW AGENT:
/s/ Randall K. Davis
-------------------------------------------
Randall K. Davis
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Exhibit 10(ii)
--------------
AGENCY AGREEMENT
----------------
This AGENCY AGREEMENT (this "Agreement"), dated as of October 31, 2001, is
by and between the Principals (as defined below), and Randall K. Davis, an
individual, as their Agent and Attorney-in-Fact ("Agent"), and Enviro-Clean of
America, Inc., a Nevada corporation (the "Company").
R E C I T A L S
- - - - - - - -
WHEREAS, the Principals and Agent wish to enter into an agreement with
respect to the subject matter hereof;
NOW, THEREFORE, in consideration of the above and the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties hereto,
the Principals and Agent hereby agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Certain Acknowledgements and Understandings. The parties hereto
-------------------------------------------
acknowledge and agree as follows:
(a) The Principals hereunder ("Principals") are the holders of certain
promissory notes ("Investor Notes") issued to them from time to time by the
Company. To secure the payment of the Investor Notes, the Company has agreed to
grant a security interest in certain shares of common stock, par value $0.01, of
IVAX Diagnostics, Inc., a Delaware Corporation, under a pledge and security
agreement ("Security Agreement") for the benefit of the Principals as holders of
the Investor Notes, with Agent to act as the representative of the Principals
under such Security Agreement.
(b) The Principals desire and agree that the Agent act as the Principals'
Agent and Attorney-in-Fact for purposes of exercising their rights and remedies
under the Security Agreement as provided in this Agency Agreement.
(c) Agent understands the purpose of such appointment and accepts the
appointment as the Principals' Agent and Attorney-in-Fact on the terms and
conditions of this Agency Agreement.
2. Agency.
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(a) Subject to the terms hereof, Agent is hereby authorized to exercise the
rights of the "Secured Party" under the Security Agreement as the representative
of and on behalf of the Principals as holders of the Investor Notes, including
renewals of such notes, and to act in
a reasonable and prudent manner and to take such steps as are reasonable and
appropriate in connection therewith using the same degree of care and skill that
Agent would use in the conduct of his own affairs under the same or similar
circumstances.
(b) If an event of default occurs under the Investor Notes ("Default") and
is continuing, the Agent may declare the principal and interest of the Investor
Notes to be due and payable immediately by written notice to the Company. In
such cases, the Agent shall have the right to pursue foreclosure on the property
securing repayment of the Investor Notes and exercise any other available
remedies. Upon foreclosure on the property securing repayment of the Investor
Notes, proceeds realized by the Agent remaining after payment and reimbursement
of the expenses of foreclosure shall be paid to the Principals in the proportion
that the principal amount of Investor Notes held by each Principal bears to all
the outstanding Investor Notes and without preference or priority.
(c) Prior to a Default, and after the curing or waiving of a Default which
may have occurred, the Agent shall perform such duties and only such duties as
are set forth in this Agency Agreement and the Security Agreement, and no
implied covenants or obligations shall be read into this Agency Agreement
against the Agent. If any Default has occurred and is continuing, the Agent
shall exercise such rights and powers vested in it by this Agency Agreement and
use the same degree of care and skill in their exercise as it would exercise or
use in the conduct of its own affairs. Notwithstanding any provision in this
Agency Agreement to the contrary, the Agent shall not be liable for any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Investor Note holders as herein provided or for exercising any
power conferred upon the Agent under this Agency Agreement.
(d) No provision of this Agreement shall be applied to require the Agent to
advance, expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have grounds for believing that repayment of
such funds or adequate indemnity against such advance, expenditure, risk or
liability is not reasonably assured to it by either the Company or the
Principals.
(e) The Agent may consult with legal counsel concerning its duties under
this Agreement and the written advice of such counsel shall be full and complete
authorization and protection for any action taken, suffered or omitted by the
Agent in good faith and in reliance upon such advice. The Agent may execute any
of its powers or perform any of its duties hereunder either directly or by or
through agents or attorneys of the Agent and the Agent shall not be responsible
for any misconduct or negligence on the part of any agent or attorney appointed
by it with due care.
(f) Although Agent is serving hereunder for no personal compensation, the
Company agrees to reimburse the Agent upon request for all reasonable expenses
and disbursements incurred or made in properly performing under this Agency
Agreement the Company also agrees to indemnify the Agent for, and to hold it
harmless against, any loss, liability, claim or expense incurred without fraud,
gross negligence or willful misconduct by the Agent, arising out of or in
connection with the acceptance or administration of this agency,
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including without limitation, the costs and expenses of defending against any
such loss, liability, claim or expense. The liability of the Company concerning
the foregoing provision will survive the satisfaction and discharge of this
Agreement. If the Company shall fail to make any payment required by this
paragraph, the Agent shall have a lien therefor secondary to that of the
Investor Notes on all property or funds held or collected by the Company except
funds held in trust for the benefit of the Principals.
(g) Prior to a Default and after the curing or waiving of all Defaults
which may have occurred, and in the absence of fraud, gross negligence or
willful misconduct on the part of the Agent, the Agent may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Agent and conforming to
the requirements of this Agreement; provided, however, that in the case of
certificates or opinions required by this Agreement to be furnished to the
Agent, the Agent shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(h) Whenever it is required that the Agent shall take any action upon the
happening of a specified event or upon the fulfillment of any condition or upon
the request of the Company or of the Principals, the Agent shall have full power
to give any and all notices and to do any and all acts and things incidental to
such action.
(i) The Agent may rely and shall be protected in acting or refraining from
acting in reliance upon any resolution, certificate, opinion, notice, request,
consent, order, appraisal, report, bond, debenture or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties. Although the Agent shall not be bound to make any
investigation into facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document, the Agent, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Agent shall determine to make such further inquiry or
investigation, it will be entitled to examine the books, records and premises of
the Company, personally or by agent or attorney.
(j) Subject to other provisions of this Agreement, all monies received by
the Agent shall, until used or applied as herein provided, be held in trust for
the purposes for which they were paid, but need not be segregated from other
funds except to the extent required by law.
(k) In the event any question or dispute arises with respect to the proper
interpretation of this Agreement or the duties of the Agent hereunder or the
rights of the Principals or the Company, the Agent shall not be required to act
and shall not be held liable for refusal to act until the interpleader for such
purpose by final judgment rendered by a court of competent jurisdiction, binding
on all parties interested in the matter, or settled by a written document in
form and substance satisfactory to the Agent and executed by the Principals and
the Company. At the option of the Agent, it may additionally require for such
purpose, but shall not be obligated to require, an executed copy of such written
settlement by all other parties that may have an interest in the settlement.
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3. Agent as Attorney-in-Fact. In connection with the agreement of the
-------------------------
Principals to appoint the Agent to act in the name place and stead of the
Principals as provided above, the Principals hereby irrevocably designate and
appoint Agent to act on behalf of the Principals as their attorney-in-fact in
exercising its authority under this Agreement and in exercising rights and
remedies of Secured Party under the Security Agreement. Agent is hereby
irrevocably constituted and appointed as the true and lawful attorney-in-fact
with full power of attorney and authority in the name, place and stead of the
Principals to take action and to execute, acknowledge, deliver, file and record
all such documents in exercising Agent's authority as aforesaid. The
appointment of Agent as attorney-in-fact shall be deemed to be a power coupled
with an interest and shall survive the bankruptcy, death or incompetency of any
one or more of the Principals, hereby giving such power for the transfer or
assignment of any of their interests covered hereby.
4. Certain Limitations on Principals. No Principal shall have any right
---------------------------------
to institute any suit, action or proceeding in equity or at law with respect to
the Investor Notes or the property securing repayment of the Investor Notes,
unless (i) such Principal shall have previously given to the Agent written
notice; (ii) Principals holding more than 50% in aggregate principal amount of
Investor Notes then outstanding shall have made written request to the Agent to
institute such action, suit or proceeding in its own name as Agent, and the
Agent shall have declined to take such action or shall have failed to do so
within 30 days thereafter and no direction inconsistent with such request shall
have been given to the Agent during such 30-day period by Principals holding
more than 50% in aggregate principal amount of the outstanding Investor Notes;
and (iii) in the event that the Agent is entitled under the provisions of this
Agreement to security and indemnity against the costs, expenses and liabilities
to be incurred, such security and indemnity shall have been granted to the
Agent. The parties to this Agreement understand and intend that no one or more
of the Principals shall have any right in any manner whatsoever by his or their
action to enforce any right hereunder except in the manner herein provided, and
that all proceedings at law or in equity shall be instituted, had and maintained
in the manner herein provided and for the ratable and equal benefit of all
holders of outstanding Investor Notes. Notwithstanding any other provision of
this Agreement, the right of any Principal to receive payment as provided by the
Investor Notes shall not be impaired or affected without the consent of such
Principal.
5. Replacement of the Agent.
------------------------
(a) The Agent may at any time resign and be discharged of the agency hereby
created by giving sixty (60) days prior written notice of such resignation by
mailing notice thereof to the Company and to all Principals as the names and
addresses of such Principals appear upon the registry books of the Company, and
such resignation shall take effect upon the appointment of, and acceptance of
such appointment by, a successor agent, such successor agent to be appointed by
the Principals in the manner hereinafter provided.
(b) The Agent may be removed after thirty (30) days' written notice by
Principals holding more than 50% of the aggregate principal amount of Investor
Notes then outstanding by filing with the Agent and with the Company evidence of
the action in that regard taken by the Principals.
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(c) If at any time the Agent (i) shall resign or shall be removed or (ii)
shall become incapable of acting, or shall be adjudged as bankrupt or insolvent,
or a receiver of the Agent or of its property shall be appointed, or any public
officer shall take charge or control of the Agent or of this property or affairs
for the purpose or rehabilitation, conservation or liquidation, then a vacancy
shall be deemed to exist in the office of the Agent, and a successor Agent may
be appointed by Principals holding a majority in aggregate principal amount of
Investor Notes then outstanding by filing with the successor agent, the Company
and the retiring agent evidence of the action.
(d) If no successor agent shall have been appointed pursuant to the
foregoing provisions of this paragraph, and accepted appointment in accordance
with this Agreement, Principals holding more than 50% of the aggregate principal
amount of Investor Notes then outstanding or the retiring agent may apply to any
court of competent jurisdiction to appoint a successor agent. Said court may
thereupon after such notice, if any, as the court may deem proper and prescribe,
appoint a successor agent.
(e) Any resignation or removal of the Agent under this Agreement and any
appointment of a successor agent pursuant to this Agreement shall become
effective upon acceptance of appointment by the successor agent. Any successor
agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor agent, and also to the Principals and the Company an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor agent shall become effective and such successor agent,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, powers, trusts, duties and obligations of its
predecessor in agency hereunder, with like effect as if originally named as
agent herein; but the agent ceasing to act shall nevertheless, on the written
request of the Company or of the successor agent, or of Principals holding more
than 50% in aggregate principal amount of Investor Notes then outstanding,
execute, acknowledge and deliver such instruments and do such other things as
may be reasonably be required for more fully and certainly vesting and
confirming in such successor agent all such rights, powers, trusts, duties and
obligations of the predecessor agent and the agent ceasing to act shall also,
upon request pay over, assign and deliver to the successor agent any money or
other property which may then be in its possession as such agent may request.
Should any instrument from the Company be required by the new agent for more
fully and certainly vesting in and confirming to such new agent such properties,
rights, powers, trust, duties and obligations, any and all such instruments
shall, on request, be executed, acknowledged and delivered by the Company.
6. Actions by the Principals.
-------------------------
(a) Whenever this Agreement provides that Principals holding a specified
percentage in aggregate principal amount of the Investor Notes may take any
action (including the making of any demand or request, the giving of any
direction, notice, consent or waiver or the taking of any other action), the
fact that the holders of such specified percentage have joined therein may be
evidenced (i) by any instrument or any number of instruments of similar tenor
executed by holders of the Investor Notes in person or by agent or proxy
appointed in writing; (ii) by the record of the holders of Investor Notes voting
in favor thereof at any meeting of
5
holders of the Investor Notes duly called and held; or (iii) by a combination of
such instruments and any such record of such a meeting of holders of the
Investor Notes.
(b) At any time prior to (but not after) the evidencing to the Agent of the
taking of any action by the holders of the percentage in aggregate principal
amount of the Investor Notes specified in this Agreement in connection with such
action, any holder of an Investor Note which is shown by the evidence to be
included among the Investor Notes the holders of which have consented to such
action may, by filing written notice with the Agent at its principal office and
upon proof of his status as a holder, revoke such action so far as concerns such
Investor Note. Except as aforesaid, any such action taken by the holder of any
Investor Note shall be conclusive and binding upon such holder and upon all
future holders and owners of such Investor Note and of any Investor Note issued
in exchange therefor or in substitution thereof, irrespective of whether or not
any notation in regard thereto is made upon such Investor Note or such other
Investor Notes. Any action taken by the holders of the percentage in aggregate
principal amount of the Investor Notes specified in this Agreement in connection
with such action, shall be conclusively binding upon the Company, the Agent and
all holders of the Investor Notes.
(c) Prior to due presentment for registration of transfer of any Investor
Note, the Company and the Agent may treat the person in whose name any Investor
Note is registered on the books of the Company as the owner of such Investor
Note for all purposes, and neither the Company nor the Agent shall be affected
by any notice to the contrary.
7. Term. This Agreement shall continue in full force and effect for the
----
terms of the Investor Notes and shall be terminated upon the final payment of
all principal and interest due upon the all Investor Notes and full release of
the security for the Investor Notes or upon thirty (30) days' notice by the
Principals to Agent after a vote and concurrence or written consent by the
holders of a majority of the aggregate principal amount of the Investor Notes
then outstanding. However, the Agent shall have the right to terminate this
Agreement for any reason by giving sixty (60) days' notice to the Company and to
the Principals. As between the Principals, this Agreement shall be deemed
coupled with an interest and may not be terminated except as expressly provided
herein. If Agent is unable to distribute all funds it receives from the Company
to the Principals after reasonable attempts to do so for a period of one hundred
fifty (50) days, Agent shall return such undistributed funds to the Company.
8. Amendments. This Agreement may be amended without the consent of the
----------
Principals to cure any ambiguity, defect or inconsistency or to make any change
that does not adversely affect the rights of any Principals. All other
amendments to this Agreement shall not be made without the prior consent of
Principals holding more than 65% of the aggregate principal amount of the
Investor Notes then outstanding. In no event, however, may amendments that
change the amount, time or form of payment called for by the Investor Notes or
make any other change that adversely affects the rights of any Principal be made
without the prior written consent of each Principal affected.
9. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Texas.
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10. Notices. All notices shall be in writing and shall be personally
-------
delivered or mailed, postage prepaid, addressed as follows:
If to the Principals: At the address stated by the Principal in the
Subscription Agreement to which this
Agreement is attached.
If to the Company: 1023 Morales Street
San Antonio, Texas 78207
If to the Agent: Randall K. Davis
1023 Morales Street
San Antonio, Texas 78207
Notices shall be deemed given on the third day after the post-mark date of
mailing the notice.
11. Third-Party Beneficiary. This Agreement is expressly for the
-----------------------
benefit of the Principals and of all other beneficiaries under the Security
Agreement or other instruments securing repayment of the Investor Notes.
12. Binding Upon the Company. By executing this Agreement, the
------------------------
Company agrees that the terms and conditions hereof shall be binding upon the
Company.
[Signature Page to Follow]
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[Signature Page to the Agency Agreement]
EXECUTED effective the date set forth above.
PRINCIPAL: AGENT:
--------------------------- -----------------------------
(Print Name) Randall K. Davis
(Executed by Principal by signing
of combined Signature Page under
Subscription Agreement)
ENVIRO-CLEAN OF AMERICA, INC.
By:
-----------------------------
Randall K. Davis, President
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