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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Mark One
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X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
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ACT OF 1934.
For the fiscal year ended December 31, 2000.
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number 0-26433
ENVIRO-CLEAN OF AMERICA, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0386415
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1023 Morales Street
San Antonio, Texas 78207
(Address of Principal Executive Offices, including ZIP Code)
(210) 227-9161
(Issuer's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
Check whether the issuer (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 Issuer 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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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained,
to the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ___
State the issuer's revenues for its most recent fiscal year: $9,157,225.
As of March 23, 2001, the aggregate market value of the Common Stock of the
Registrant held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked prices of such common
equity. (See definition of affiliate in Rule 12b-2 of the Exchange Act) was
approximately $4,078,140 (for purposes of calculating this amount, only
directors, officers, and beneficial owners of 5% or more of the capital stock of
the Registrant have been deemed affiliates).
The number of shares of the Common Stock of the Registrant outstanding as
of March 23, 2001 was 6,786,752.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders to be held on May 18, 2001, are incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes ______ No X
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ENVIRO-CLEAN OF AMERICA, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
INDEX
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<S> <C>
PART I.................................................................................... 2
ITEM 1. DESCRIPTION OF BUSINESS...................................................... 2
ITEM 2. DESCRIPTION OF PROPERTY...................................................... 6
ITEM 3. LEGAL PROCEEDINGS............................................................ 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................... 6
PART II................................................................................... 7
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................... 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.................... 8
ITEM 7. FINANCIAL STATEMENTS......................................................... 15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE......................................................... 15
PART III.................................................................................. 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............................ 16
ITEM 10. EXECUTIVE COMPENSATION....................................................... 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................................. 16
</TABLE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
Formation and Acquisitions
Enviro-Clean of America, Inc. (the "Company") was incorporated under Nevada
law on December 9, 1997 for the purposes of engaging in the marketing and
distribution of sanitary supplies and related paper products. In, January 1999,
the Company completed the acquisitions of Kandel & Son, Inc. ("Kandel & Son"), a
New York-based sanitary supply distribution company and NISSCO/Sunline, Inc., a
Florida-based marketing group ("NISSCO"). The assets of NISSCO were subsequently
disposed of on September 29, 2000 (See Business Development - Dispositions).
Kandel & Son distributes approximately 1,000 janitorial and sanitary products to
customers in the New York metropolitan area. Prior to the acquisitions, Richard
Kandel, who is the Chairman of the Board and Chief Executive Officer of the
Company, was also the President and sole stockholder of Kandel & Son.
In August 1999, the Company acquired Cleaning Ideas Corp. and its wholly
owned subsidiary, Sanivac, Inc., which does business under its own name, as well
as under the trade name "Davis Manufacturing Company" (collectively, "CIC"). CIC
is a San Antonio, Texas based manufacturer and distributor of cleaning supplies,
with a particular focus on chemical-based products. CIC has been in business for
over 70 years and gives the Company a geographic presence in the Southwestern
United States. Under the Davis Manufacturing name, CIC manufactures over 300
products for distribution. CIC operates 9 retail cleaning supplies stores that
sell products bearing the "Cleaning Ideas" private label brand name. The retail
stores focus on selling industrial quality products to consumers and small
businesses. Prior to its acquisition, Randall K. Davis, President and Director
of the Company, and his parents owned CIC.
Also in August 1999, the Company acquired Superior Chemical & Supply, Inc.
("Superior"), a Bowling Green, Kentucky-based distributor of cleaning supplies.
Prior to the acquisition of Superior, Stephen Haynes, who remains as the
President of Superior, was the sole stockholder of Superior. Superior operates
three locations within the state of Kentucky and distributes over 1,000 product
items to approximately 300 customers statewide.
In December 1999, the Company completed the acquisition of June Supply-San
Antonio, Inc., ("June Supply"), a Texas janitorial supply distributor. The
assets of June Supply were subsequently disposed of on December 22, 2000 (See
Business Development - Dispositions).
2
Dispositions
On September 29, 2000 the Company completed the sale of the assets of
NISSCO to ebuyexpress.com, L.L.C. at a sales price of $100,000. The Company's
Board of Directors (the "Board") authorized the disposition of NISSCO after a
large core group of members indicated they would be leaving the NISSCO
membership and creating a separate competing buying group. The sale of the
assets of NISSCO resulted in a net loss on the disposal of the subsidiary of
approximately $1.9 million (see Management's Discussion and Analysis of
Financial Condition and Result of Operation). NISSCO was dissolved on December
28, 2000.
On December 22, 2000, the Company completed the sale of the assets of June
Supply to York Supply Limited, ("York") at a sales price of $1,400,000. The
Board authorized the final disposition of June Supply subsequent to its decision
to discontinue the consolidation and acquisition strategy and after experiencing
disappointing revenues by June Supply for the fiscal year 2000. (See Business
Development - Change of Course). The sale of the assets of June Supply resulted
in a net loss on the disposal of the subsidiary of approximately $2.1 million
(see Management's Discussion and Analysis of Financial Condition and Result of
Operation). June Supply was dissolved on December 28, 2000.
York is a Texas limited partnership whose general partner is York Supply
Management Company, Inc., a Texas corporation ("York Supply Corp"). Alan
Stafford, former President of June Supply after the Company acquired June Supply
and one of the two shareholders of June Supply prior to the acquisition, is the
sole limited partner of York, holding a 99% stake in the partnership. Mr.
Stafford is also the sole shareholder, director and officer of York Supply Corp.
Both York and York Supply Corp were formed for the purpose of completing the
acquisition of the assets of June Supply and have no prior history of
operations.
Change of Course
Also in December 2000, the Board unanimously agreed to discontinue the
acquisition and consolidation of janitorial supply companies as a result of
changes in the marketplace. Some of the reasons for the Board's decision to
discontinue the strategy were:
. a limited number of available companies that meet the Company's
acquisition criteria,
. inflated acquisition pricing on the few suitable available targets,
and
. inadequate investment interest under the acquisition and consolidation
strategy as applied to the janitorial supply market.
In order to facilitate a new direction for the Company, the Board formed a
special Mergers and Acquisition Committee (the "M&A Committee") to explore
strategic alternatives available in the marketplace with the goal of enhancing
shareholder value. The Company will continue to hold and operate CIC, Kandel and
Son, and Superior (collectively, these companies are sometimes referred to as
the "Subsidiaries"), while the M&A Committee identifies business combination
alternatives, including, but not limited to, potential divestitures,
dispositions, acquisitions, mergers and strategic alliances. In addition, on
February 9, 2001, the Company engaged the services of Harter Financial, Inc. to
provide consulting and advisory services in regard to strategic alternatives.
(See Management's Discussion and Analysis of Financial Condition and Results of
Operation - Risk Factors)
Business of Issuer
Although the Company is actively seeking strategic alternatives, the
Company continues to operate as a holding company, the principal assets of which
are all the issued and outstanding capital stock of the Subsidiaries. Through
the Subsidiaries, the Company engages in the manufacturing, purchasing,
marketing and distribution of janitorial and sanitary supplies and related paper
products. Although the Company has discontinued its consolidation and
acquisition strategy and will not acquire additional janitorial supply
companies, its present plan is to continue to operate its remaining Subsidiaries
in the same manner it has in the past.
The Market for the Company's Products
3
The market for sanitary/janitorial supplies and services in the United
States is substantial. According to the International Sanitary Supply
Association's most recent survey in 1997, the sanitary/janitorial distribution
industry had $16.7 billion in sales. Specifically, the survey cited the
following breakdown of the leading product groups by total sales:
. Paper and Plastics, at approximately $6.6 billion in total sales,
. Chemical Products (cleaners, degreasers, etc.), at approximately $6.1
billion in total sales, and
. Janitorial Supplies and Accessories, at approximately $1.9 billion in
sales.
According to the same survey, the following customers were cited as the
leading purchasers of the industry products:
. Industrial and Manufacturing Companies, at approximately $3.6 billion
in aggregate purchases.
. Commercial Property Owners, at approximately $2 billion in aggregate
purchases,
. Educational Institutions, at approximately $2 billion in aggregate
purchases,
. Health Care Companies, at approximately $1.6 billion in aggregate
purchases.
Additional market opportunity exists with respect to sales to
restaurants/clubs, retail establishments, residential properties, government,
recreational facilities, transportation companies, hotels/motels, and religious
facilities.
The Company's Products, Sales and Marketing
Kandel & Son distributes approximately 1,000 janitorial/sanitary products
to customers in the New York City metropolitan area, where it has been in
business for 49 years. CIC is a San Antonio- based regional manufacturer,
distributor and retail vendor of cleaning supplies to customers located within
Southern Texas. Superior operates three distribution centers within the State
of Kentucky from which it distributes cleaning products. The Company has not
integrated the operations of the Subsidiaries, nor does the Company intend to do
so in the foreseeable future, as they operate in different geographic markets.
In the aggregate, the multiple combined businesses of the Company
distribute over 1,200 products to over 1,000 customers directly in New York,
Texas and Kentucky. The Company competes principally on the basis of price and
value-added services such as next-day delivery, training, customer support and
technological innovation in distribution.
Products distributed by the Subsidiaries are generally shipped by truck or
other common carriers to local distributors who keep an inventory of the most
popular products. Less commonly ordered products can be shipped via UPS or
other delivery service for next day delivery or by the same common carriers for
less time-sensitive deliveries. Products ordered by customers over the Internet
will be shipped to such customers directly by the Company's master distributors,
which maintain regional distribution centers across the United States. The
Company conducts its businesses with the master distributors through customary
purchase orders.
The Company purchases products, through master distributors, from a wide
variety of manufacturers. Master distributor refers to a large distributor with
national or regional distribution capabilities. Master distributors the Company
uses include Bunzl/Papercraft, TEC Products, Inc., La Gass Bros., Inc. and Sweet
Paper Company. The Company believes that virtually all of its products are
4
available from multiple sources and the loss of one or even several sources
would not have a material adverse effect on the Company's business. Further, the
Company does not have any ongoing or long-term contractual obligations with any
local or master distributors. Similarly, the Company sells to over 1,000
customers, none of which accounts for more than 3% of the Company's sales on an
annual basis. Accordingly, the Company is not overly dependent on any one or
few customers.
Competition
The market for janitorial/sanitary supplies has only a few large, well-
capitalized competitors and consists of a large number of small companies
servicing local and regional markets. The larger suppliers in the industry
include:
. Unisource Worldwide
. W.W. Grainger
. Corporate Express
. ResourceNet International
. Waxie Sanitary Supply
Most of these corporations have multiple divisions, with one of those being
in the sanitary/janitorial supply industry. The Company is not a significant
competitor in the industry in terms of annual sales, and its market share is
negligible.
Trademarks and Research and Development
The Company has no trademarks, patents or other licenses that are material
to the conduct of its business, nor has there been any material research and
development expenses.
Employees
The Company, through the Subsidiaries, currently employs approximately
sixty-five (65) full-time employees. Approximately four of the Company's drivers
and warehousemen are members of various collective bargaining units, with
contracts extending to September 1, 2001. The Company has not experienced any
work stoppages and believes its relationships with its employees are
satisfactory.
Governmental Regulations
There are a number of government agencies that set standards and
regulations on the use and handling of chemical products and for sanitary
conditions. Included in these agencies are the Occupational Safety and Health
Administration (OSHA) which regulates chemicals related to occupational safety,
the Environmental Protection Agency (EPA) chartered to protect land, air, and
water, and the Consumer Product Safety Commission (CPSC) which regulates use and
labeling of chemicals and products. These agencies issue rulings that directly
affect the practices and purchases of the sanitary/janitorial supplier's
customers.
Maintenance and distribution of many of the Company's products are subject
to extensive regulation at the federal, state and local levels. In particular,
the Company is subject to regulations involving storage of hazardous materials
promulgated by the Federal Environmental Protection Agency and the Occupational
Safety and Health Act. As such, the Company's business is dependent upon
continued compliance with governmental regulations regarding the operations of
the Company's facilities. The Company believes that it is in substantial
compliance with all such regulations that are applicable to its business.
However, failure to maintain and demonstrate compliance with all such
regulations could
5
result in the preclusion of handling certain product lines, result in mandated
clean up expenditures, and could have a material adverse effect on the business
and prospects of the Company.
The costs to the Company of complying with environmental regulations are
not material.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at 1023 Morales Street, San
Antonio, TX 78207, where the CIC offices are located. At this time the Company
does not pay rent at this location, as CIC is the lessee for the premises.
Kandel & Son currently leases its property from unrelated parties and CIC and
Superior lease their facilities from their former owners. Management of the
Company believes that the rental rates for each of these facilities is at least
as favorable as market terms. Combined rent expense for Kandel & Son, CIC and
Superior is estimated to be approximately $360,000 for the next 12 months.
The Company does not invest in real estate, other than as incident to its
business.
ITEM 3. LEGAL PROCEEDINGS.
On March 13, 2000, the Company entered into a stock Purchase Agreement (the
"Agreement"), between the Company and ZERO.NET, Inc., a Delaware corporation
("ZERO"), in which the Company sold 1,000,000 shares of b2bstores.com, Inc.
("b2b") common stock to ZERO at $7.00 per share. The gross proceeds on the sale
of the b2b stock were $7,000,000 less a brokerage commission of $250,000. On
January 29, 2001, the Company received a letter from outside counsel of ZERO
(the "Letter"), which stated that ZERO desired to rescind the Agreement,
claiming there was a material failure of consideration for the purchase of the
b2b stock by ZERO. In response to the letter, the Company has denied any right
of rescission by ZERO and, on February 6, 2001, filed a petition for declaratory
judgment in State District Court of Bexar County, Texas. The Company has
petitioned the Court for a declaration that the Agreement remains in effect and
is binding on the parties and that the purported rescission of the Agreement by
ZERO is ineffective and invalid. There has been no further contact between the
Company and ZERO since the Company's original receipt of the Letter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the stockholders during the
fourth quarter of the fiscal year ended December 31, 2000.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is traded on the NASD OTC Bulletin Board under
the symbol "EVCL." Although the Company began trading on the OTC Bulletin Board
on May 21, 1998, the Company was de-listed for a short period from November 18,
1999 to April 23, 2000 for failure to comply with amended NASD Rules 6530 and
6540. During that time, the Company's stock was traded in the "pink sheets"
published by the National Quotations Bureau, L.L.C. On April 24, 2000, the
Company again was approved for quotation on the OTC Bulletin Board and has been
traded there since that time. There is currently a limited trading market for
the Company's Common Stock. The following chart lists the high and low closing
bid prices for the shares of the Company's Common Stock for each quarter within
the last two years as reported by the National Quotation Bureau, L.L.C. These
prices are between dealers and do not include retail markups, markdowns or other
fees and commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
1999 High Low
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<S> <C> <C>
January 1 - March 31 $5.625 $3.500
April 1 - June 30 $5.000 $3.250
July 1 - September 30 $6.250 $5.000
October 1 - December 31 $7.250 $1.500
2000 High Low
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January 1 - March 31 $7.000 $0.125
April 1 -June 30 $6.125 $2.000
July 1- September 30 $4.250 $2.000
October 1 - December 31 $3.000 $1.125
</TABLE>
On March 23, 2001, the closing price of the Company's Common Stock was
$1.0625.
Holders
There were 250 record holders of the Company's Common Stock as of March 23,
2001, after broker inquiry.
Dividends
The Company has paid no dividends on its Common Stock to date, nor does it
anticipate doing so in the foreseeable future. Any future determination to pay
dividends will be at the discretion of the Board of Directors and will be
dependent upon there being sufficient capital and surplus as required by the
Statutes, the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
There can be no assurance that the Company will ever choose to declare such a
dividend or that if it did that such funds would be legally available for
payment of such dividends.
7
Recent Sales of Unregistered Securities
On September 14, 2000, the Company began a new private placement of a
minimum of 320,000 and maximum of 2,000,000 shares of Common Stock at $1.25 per
share. On November 27, 2000, the Company sold an aggregate of 416,600 shares of
Common Stock to approximately 14 accredited investors for aggregate proceeds to
the Company of $520,750 in reliance upon the exemption from registration
provided by Rule 506 of Regulation D. The Company closed the offering on
February 28, 2001, but sold no additional equity in the offering. The proceeds
from this offering will be used to provide working capital.
The sale of securities in this transaction was made pursuant to
subscription agreements and investor questionnaire containing representations
and warranties, and eliciting information intended to enable the Company to
establish the facts and circumstances entitling the Company to rely upon the
exemptions from the registration requirements of the Securities Act under Rule
506 of Regulation D. In addition, the Rule 506 offering did not involve general
solicitation or advertising and all of the certificates issued bear a
restrictive legend as described in the subscription agreements.
Additional Isuance of Unregistered Securities from Previous Sale
On December 29, 2000, the Company issued 113,935 shares of its Common
Stock to each of Michael Rose and Alan Stafford in connection with the Company's
acquisition of June Supply in December 1999. Under the terms of the stock
purchase agreement to acquire June Supply, the Company was to issue additional
shares to the sold shareholders of June Supply prior to the acquisition, Messrs.
Rose and Stafford, if the closing bid price on the Company's Common Stock did
not attain or exceed an average of $5.00 per share for the twenty trading day
period preceding December 16, 2000. According to the research department of
NASDAQ Stock Market, Inc., the average closing bid price for that twenty-day
period was $1.525. In order to fulfill the terms of the Agreement, the Company
was obligated to issue an additional 227,870 shares of its Common Stock to
Messrs. Rose and Stafford.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of the federal securities laws. Actual results and
the timing of certain events could differ materially from those projected in the
forward-looking statements due to a number of factors contained elsewhere
herein. This commentary should be read in conjunction with our financial
statements that appear in this report.
General
In December 2000, the Board voted to discontinue it's current business plan
of acquisition and consolidation of janitorial supply companies. The Board is
currently exploring strategic alternatives outside the janitorial industry which
could include a variety of business combinations, including, but not limited to,
divestitures, dispositions, acquisitions, mergers and strategic alliances. The
Company has form the M&A Committee and engaged the services of Harter Financial,
Inc. to facilitate the search for an acceptable strategic alternative. In the
interim, the Company intends to continue to operate the Subsidiaries.
The Company has obtained much of the capital needed for 2001 through the
private sale in March of 2000 of 1,000,000 of its shares in b2bstores.com, Inc.
(currently known as IVAX Diagnostics, Inc.) for $7.00 per share, which netted
$6,750,000 in proceeds. These net proceeds were utilized in liquidating
8
some of the long-term debt, enabling the Company to drastically reduce the cost
related to that debt and help in running a more profitable company.
In January 2000, the Company began a private placement of a minimum of
137,500 units at $8.00 per unit, each unit consisting of 2 shares of common
stock and 1 common stock purchase warrant. On February 29, 2000, at the final
closing of the offering, the Company sold an aggregate of 122,500 units to
approximately 18 accredited investors for aggregate proceeds of $980,000.
Although the proceeds were originally raised to fund additional acquisitions and
to provide working capital, that portion targeted to fund additional
acquisitions was eventually used in the reduction of long-term debt.
In May 2000, the Company began a private placement of a minimum of 285,000
and a maximum of 1,000,000 shares of common stock at $3.00 per share. The
offering was conducted mainly to reduce the Company debt by offering those
investors who held 12.75% subordinated promissory notes, the opportunity to use
such notes and accrued interest as consideration in the offering. Additionally,
shares were offered for cash consideration in order for the Company to
subsequently prepay the outstanding notes in cash if the investor chose not to
participate in the offering.
In September 2000, the Company began a new private placement of a minimum
of 320,000 and a maximum of 2,000,000 shares of common stock at $1.25 per share.
On November 27, 2000 the Company sold an aggregate of 416,600 shares to
approximately 14 accredited investors for aggregate proceeds of $520,750. The
offering closed on February 28, 2001 and no additional shares were sold.
The aforementioned transactions should satisfy the Company's cash
requirements for the next twelve months, including working capital and expenses
that may be associated with the search for a strategic alternative.
The Company has no material research and development expenditures and does
not anticipate that it will have any such expenditures in the next twelve
months, nor does the Company anticipate any additions to plant and equipment.
Results of Operations
Results of operations for the year ended December 31, 2000 and 1999:
The net sales increased $4,825,053 for the year ended December 31, 2000
("2000") as compared to the year ended December 31, 1999 ("1999") from
$4,332,172 to $9,157,225. This increase is attributable to the operations of
four acquired companies being consolidated with the Company in 2000 for a full
fiscal year. Cleaning Ideas and Superior were acquired in August 1999.
The gross profit percentage decreased from 48% for 1999 to 40% for 2000.
This decrease is mostly attributable to the increased competition in the
industry as well as more sales relating to "drop" shipments by the Company where
merchandise inventory is never touched by the Company, rather shipments directly
made through outside truckers and warehouses. As less overhead is necessary for
these sales, a lower price is charged and therefore a lower gross profit.
The operating expenses increased from $3,058,855 for 1999 to $5,527,780 for
2000, approximately 81%. The majority of this increase is attributable to the
inclusion of Cleaning Ideas and Superior for a full fiscal year in 2000.
9
The Company had net income in 2000 of $552,792, or $.09 per share, as
compared to a net loss of $1,131,125, or ($.26) per share in 1999.
Liquidity and Capital Resources
The Company has funded its requirements for working capital and reduction
of long-term debt through the Subsidiary revenues, a series of equity private
placements and the private sale of 1,000,000 of its shares in b2bstores.com,
Inc. (currently known as IVAX Diagnostics, Inc.). During the year ended December
31, 2000, the Company issued a total of 953,495 shares of common stock for
$2,397,225. In addition, the Company received net proceeds of $1,500,000 on the
sale of the net assets of NISSCO and June Supply. The Company's only significant
use of cash was the purchase of 500,000 shares of treasury stock for $1,000,000
and an investment in Equip2move.com, Inc. ("equip2move") of $1,075,000.
For the year ended December 31, 2000, the Company's cash flows from
operations was negative $1,468,262 as a result of net income of $552,792 and
adjustments to arrive at cash provided by operating activities of depreciation
and amortization of $1,113,735, an increase in allowance for doubtful accounts
of $60,909, stock issued for consideration of work performed of $48,000, stock
options issued for consideration of professional fees of $178,750, an increase
in accounts payable of $312,829, a decrease in inventory of $31,163, a loss on
equity investment of $94,826, a loss on sale of subsidiaries of $4,010,440,
offset by an increase in accounts receivable of $119,883, an increase in prepaid
expenses of $1,905, a gain on sale of investment of $6,747,000 and an increase
in prepaid income taxes $1,002,918.
The Company experienced an aggregate net loss of approximately $4.0 million
on the disposal of two of its subsidiaries, NISSCO and June Supply. The sale of
assets of NISSCO resulted in a net loss of approximately $1.9 million, while the
sale of the assets of June Supply resulted in a net loss of approximately $2.1
million. Although the losses on these dispositions were significant, the Company
believes that the dispositions were necessary in light of the particular
circumstances surrounding the businesses of each of these subsidiaries. With the
loss of considerable membership support at NISSCO, the Company determined that
the capital expenditures needed to attempt to maintain profitability at NISSCO
and the uncertainty of success in continuing operations were more substantial
that the losses incurred upon the sale of the NISSCO assets. The operating
performance of June Supply during fiscal year 2000 did not meet Company
expectations and the Company believed that the cancellation of significant
supply accounts made June Supply unprofitable to continue operating as part of
the Company. In addition, the Board's decision to begin a search for a strategic
alternative outside of the industry helped to influence the Company's decision
to dispose of the assets of June Supply.
The Company expects its capital requirements to remain the same for 2001 as
it continues to explore strategic alternatives, although certain strategic
alternatives could result in increased expenses for legal, printing, accounting
and other services associated with the search process. The Company's future
liquidity and capital funding requirements will depend on the extent to which
the Company is successful in implementing a new direction.
Commitments and Contingencies
(See Note 5 of Notes to the Consolidated Financial Statements for a
description of our future minimum lease commitments.)
In connection with the Company's current investment in equip2move, the
Company is obligated to provide equip2move with additional financing of $1.25
million by or before February 1, 2001. As of March 29, 2001, the Company has not
provided equip2move with the additional financing and is negotiating with
equip2move to relieve the obligation.
Certain agreements relating to acquisitions provide for purchase price
adjustments and other future contingent payments based on the financial
performance of the acquired companies. The Company will continue to accrue
additional amounts related to such contingent payments if and when it is
determinable that the applicable financial performance targets will be met. The
aggregate of these contingent payments, if performance targets are met, would
not significantly impact the Company's financial position or results of
operations.
The Company's business is subject to a variety of risks, including the
risks described below. The risks and uncertainties described below are not the
only ones facing the Company. Additional risks and uncertainties not known to
the Company or that the Company currently deems immaterial may also have a
material adverse effect on the Company. If any of the following risks actually
occur, the Company's business, financial condition and results of operations
could be materially and adversely affected.
Risk Associated with On-going Operations
Limited Operating History
The Company and the businesses the Company has acquired and maintained
since January 1999 have been operating as separate entities with a certain
degree of operating autonomy. To more efficiently manage the enterprise on a
profitable basis, the Company would need to institute certain necessary common
systems and procedures. To facilitate common management, the Company would need
to integrate the computer, accounting, and financial reporting systems, and
certain of the operational, administrative, banking, and insurance procedures of
the businesses the Company has acquired. However, the Company presently has not
integrated these systems and cannot be certain that it will be able to
successfully institute these common systems and procedures in the future. In
addition, the Company cannot be certain that its management group will be able
to successfully manage the businesses the
10
Company has acquired. Further, the Company cannot be certain that the management
team will be able to successfully manage the businesses it has acquired as a
combined entity.
The Company has a limited operating history as a combined entity upon which
to evaluate the performance and prospects of the Company. There can be no
assurance that the combined entities will operate profitably, that management of
the Company will be successful in developing a strategic alternative or that a
chosen strategic alternative will be successful. There can be no assurance that
the Company will generate sufficient revenues to meet its expenses or to achieve
or maintain profitability.
Substantial Leverage and the Ability to Service Debt
The Company is highly leveraged, with substantial debt service in addition
to its ongoing operating expenses. The Company's level of indebtedness will have
several important effects on its future operations and could have important
consequences to holders of the Company's Common Stock, including, without
limitation, (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest and principal on its indebtedness,
(ii) the Company's leveraged position will substantially increase its
vulnerability to adverse changes in general economic, industry and competitive
conditions, and (iii) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent on the
Company's future performance, which will be subject to general economic,
industry and competitive conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
If the Company is not able to generate sufficient cash flow from operations in
the future to service its debt, it may be required, among other things, to seek
additional financing in the debt or equity markets, to refinance or restructure
all or a portion of its indebtedness or to sell selected assets. There can be
no assurance that any such measures would be sufficient to enable the Company to
service its debt, or that any of these measures could be effected on
satisfactory terms, if at all.
A portion of the Company's outstanding debt includes a portion of the
remaining principal outstanding under a promissory note in the original
principal amount of $900,000 dated August 1, 1999, between the Company and
Charles H. Davis, father of Randall K. Davis, President and a Director of the
Company, executed by the Company in connection with the acquisition of CIC (the
"Davis Note"). Repayment of the Davis Note is secured by a security interest in
all accounts receivable, inventory, accounts or proceeds resulting from
dispositions of accounts receivable and inventory of CIC (the "Non-Stock
Collateral"), and all the capital stock of CIC (the "Stock Collateral").
Pursuant to a Pledge and Security Agreement dated as of August 1, 1999, in the
event of a default in any payment on the Davis Note, and the expiration of any
cure periods under the Davis Note, Charles H. Davis and Randall K. Davis may
execute upon the Non-Stock Collateral, and/or elect to repurchase CIC by
canceling the Davis Note (thereby discharging the balance of the unpaid
principal and interest of the Davis Note) and delivering to the Company the
balance of the Series D Convertible Preferred Stock (the "Series D Stock") and
shares of the Company's Common Stock received upon conversion of the Series D
Stock still held by Charles H. Davis and Randall K. Davis. On March 16, 2000,
all of the Series D Stock held by Charles H. Davis and Randall K. Davis was
redeemed by the Company for cash. Therefore, if Charles H. Davis and Randall K.
Davis elect to repurchase CIC under a default scenario, the effect could be that
all amounts paid by the Company to Randall K. Davis and Charles H. Davis,
including the $400,000 paid in respect of the assumed debt, the $500,000 paid in
cash, any amounts of principal and interest paid in respect of the Davis Note
and the redemption price of $1,600,000 plus $29,071.04 in interest paid in cash
for the redemption of the Series D Shares would be forfeited and the ownership
of CIC would revert to Charles H. Davis and Randall K. Davis.
11
In connection with the acquisition of Superior, the Company executed a
secured promissory note in the original principal amount of $1,200,000 dated
August 13, 1999, between the Company and Stephen Haynes, payable in 12 equal
quarterly principal payments of $100,000, bearing interest at a rate of 8% per
annum, and maturing on August 13, 2002 (the "Haynes Note"). Repayment of the
Haynes Note is secured by a security interest in all accounts receivable,
inventory, accounts or proceeds resulting from dispositions of accounts
receivable and inventory of Superior. Pursuant to a Security Agreement dated as
of August 1, 1999, between the Company and Stephen Haynes in the event of a
default in any payment on the Haynes Note, and the expiration of any cure
periods under the Haynes Note, Mr. Haynes may execute upon the collateral and
cause the noncompetition provisions contained in his employment agreement with
Superior to become void.
Operating Losses
From its incorporation on December 9, 1997, through the present, the
Company has incurred significant operating losses. Such deficits reflect the
cost of developmental and other start-up activities, including the development
and integration of the consolidation process, as well as the requirement of
recording significant depreciation and amortization of newly purchased assets on
the books of the Company. The Company also anticipates that it will continue to
incur net operating losses for the foreseeable future. If the Company continues
to experience operating losses, more capital will be needed to continue
operations. If such capital is even available to the Company, the additional
needed capital would likely either increase the Company's debt burden or have a
dilutive effect on the Company's equity. This could have a material adverse
effect on the Company.
Competition
The sanitary and janitorial supplies market is highly competitive and is
served by numerous small, owner-operated private companies, public companies and
several large regional and national companies. In addition, relatively few
barriers prevent entry into the industry. As a result, any organization that
has adequate financial resources and access to a minimum of technical cleaning
expertise may become a competitor of the Company. Competition in the industry
depends on a number of factors, including price. Certain of the Company's
competitors may have lower overhead cost structures and may, therefore, be able
to provide their products and services at lower rates than the Company can
provide such products and services. Many of these competitors have long-
standing operations and long-standing relationships with large customers such as
hospitals and governmental agencies. There can be no assurance that the
Company's competitors will not be able to use their competitive advantages in
competing in price, offering more extensive lines of products or more favorable
payment terms or otherwise, resulting in material adverse effects on the
business of the Company. In addition, some of the Company's competitors are
larger and have greater resources than are available to the Company. The
Company cannot be certain that its competitors will not develop the expertise,
experience, and resources to provide products and services that are superior in
both price and quality to the products and services of the Company. Similarly,
the Company cannot be certain that it will be able to maintain or enhance its
competitive position in the market.
Government Regulation
Maintenance and distribution of many of the Company's products are
subject to extensive regulation at the federal, state, and local levels. In
particular, the Company is subject to regulations involving storage of hazardous
materials promulgated by the Federal Environmental Protection Agency and the
Occupational Safety and Health Act. As such, the Company's business is
dependent upon continued compliance with governmental regulations regarding the
operations of the Company's facilities. The Company believes that it is in
substantial compliance with all such regulations that are applicable to its
business. However, failure to maintain and demonstrate compliance with all such
regulations could result in the preclusion of handling certain product lines and
in mandated clean up expenditures.
12
Potential Exposure to Environmental Liabilities
The operations of the Company are subject to various environmental laws
and regulations, including those dealing with the handling and disposal of waste
products. As part of the cleaning and janitorial supplies manufacturing
process, one or more of the operating Subsidiaries may store and use some raw
materials that are deemed to be hazardous materials and are closely regulated.
As a result of past and future operations, the Company may be required to incur
environmental remediation costs and other clean-up expenses. In addition, the
Company cannot be certain that it will be able to identify or be indemnified for
all potential liabilities relating to any acquired business.
There can be no assurance that the aggregate amount of any environmental
liabilities that might be asserted against the Company or any or all of its
operating Subsidiaries, in any such proceeding will not be material.
The Company cannot predict the types of environmental laws or regulations
that may from time to time be enacted in the future by federal, state, or local
governments, how existing or future laws or regulations will be interpreted or
enforced, or what types of environmental conditions may be found to exist at its
facilities. The enactment of more stringent laws or regulations or a more
strict interpretation of existing laws and regulations may require additional
expenditures by the Company, some of which could be material.
Product Liability and Insurance
The business of the Company involves substantial product liability risks
associated with the handling, storing, and usage of cleaning products. While
the Company believes its practices and procedures provide safeguards that comply
with industry standards, it is not possible to eliminate all risks in this
regard. The Company maintains product liability insurance in amounts it
believes are usual and customary for a business of its size in its industry,
though there can be no assurance that in the event of a finding of liability on
the part of the Company for use of its products, that the amount of recovery
would not be substantially in excess of the limits under the Company's insurance
policies. If the Company were to incur product liability in excess of its
insurance limits, it would have a material adverse impact on the Company's
business and prospects.
Dependence on Key Personnel; Need For Additional Personnel
The success of the Company is substantially dependent on the performance
of its senior management and key employees, as well as its Board of Directors.
The Company has entered into employment agreements with its Chairman and Chief
Executive Officer, Richard Kandel, and its President and a Director, Randall K.
Davis, upon terms and conditions the Company believes are reasonable and
customary for companies its size in its industry. The loss of key personnel or
the inability to hire and retain qualified executives and other employees could
have a material adverse effect on the business, financial condition, and results
of operations of the Company. The Company has allowed a $3 million "key man"
term life insurance policy on Richard Kandel to expire and has no current plans
to renew the policy or extend coverage to any other personnel.
Potential Risks of Low Priced Stocks
Historically, the price per share of the Company's Common Stock on the
NASD OTC Bulletin Board has been below $5.00 per share with minimal trading.
Accordingly, the Common Stock is within the definition of "penny stock," as
contained in certain rules and regulations of the SEC. Under those
13
regulations, any broker-dealer seeking to effect a transaction in a penny stock
not otherwise exempt from the rules must first deliver to the potential customer
a standardized risk disclosure document in a form required by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salespersons in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. This information must be given to the customer orally or in writing
before the transaction and in writing before or with delivery of the customer's
confirmation of the transaction. Under the penny stock rules, the broker-dealer
must make a special determination of the suitability of the suggested investment
for the individual customer and must receive the customer's written consent to
the transaction. The effect of these rules is to limit the trading market and
adversely effect the liquidity of the Common Stock.
Holding Company Structure
The Company is a holding company, the principal assets of which consist
of the capital stock of its Subsidiaries. The Company presently conducts no
business on its own independent of the Subsidiaries. Accordingly, the Company
is dependent on the earnings and cash flows of the Subsidiaries for dividends
and distributions to meet its expenses and to pay any cash dividends or
distributions to holders of the Preferred Stock and holders of the Common Stock
(if and when they are authorized by the Board of Directors). The cash flows
generated by CIC are separated from those of the Company and the Company is
severely limited to the purposes to which such cash flow may be placed.
According to the terms of a pledge and security agreement entered into by and
between the Company and Charles H. Davis, father of Randall K. Davis, the
Company's President and one of its Directors, CIC may not, among other things,
disperse or dividend out of CIC any amounts of money or assets other than in the
ordinary course of business of CIC. Risk related to cash flow of the Company,
as well as the Company's dependence upon the Subsidiaries for earnings, is
lessened to some extent by the access of the Company to capital markets for
investment capital to support its expenses and fuel the growth of the operating
businesses, though there can be no assurance that the Company will be successful
in completing financing activities or that such capital will be available.
Failure of the Subsidiaries to generate operating profits and positive cash flow
would have a material adverse effect on the financial condition of the Company.
No Cumulative Voting; Control by Existing Stockholders (Management Control)
Holders of the Company's Common Stock are not entitled to accumulate their
votes for the election of directors or otherwise. Accordingly, the holders of a
majority of the Common Stock present at a meeting of stockholders will be able
to elect all of the directors of the Company and the minority stockholders will
not be able to elect a representative to the Company's Board of Directors. Since
the Board of Directors elects officers and effectively controls the day to day
operations through control of the Company management, current management is
effectively able to control the outcome of all matters submitted to the
Company's stockholders for approval, including extraordinary transitions such as
mergers or sale of all or substantially all the assets of the Company.
As of March 23, 2001, the Company's executive officers and directors and
its affiliates beneficially own approximately 3,658,328 shares of Common Stock
on a fully diluted basis, which includes beneficially held derivative
securities, representing approximately 48.6% of the aggregate shares of Common
Stock and, if acting in concert, are able to exert significant control over the
affairs of the Company and the outcome of any matter submitted to a vote of
stockholders.
Risk Associated with Change of Direction
14
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 a 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 its Subsidiaries. The sale of the Subsidiaries is a possible
requirement particularly if the chosen strategic partner is likely to change the
business direction of the Company or combine an existing, unrelated business
with the Company. If the disposal of the Subsidiaries does become a provision in
an agreement, then, depending on market conditions, availability of willing
purchasers, and other market conditions, it is possible that the Company could
be forced to sell the Subsidiaries at a price significantly lower than the price
paid by the Company during the acquisition of the Subsidiaries in order to
complete the transaction. Therefore, although the Company would aggressively
seek a favorable sale of the Subsidiaries, there is a chance that the Company
could suffer overall losses on any dispositions of the Subsidiaries. In
addition, other assets, such as certain investments by the Company, may also
need to be disposed of in order to accommodate a business combination or other
strategic alternative. If that requirement is a part of an agreement, the
Company may be forced to sell these assets at a price significantly lower than
the price paid by the Company in order to complete the transaction.
ITEM 7. FINANCIAL STATEMENTS
Exhibit 99(i), "Enviro-Clean of America, Inc. and Subsidiaries
Consolidated Financial Statements" is incorporated herein by this reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information concerning the Company's directors and officers required
by Item 9 is incorporated by reference to the information set forth in the
Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders, expected to be filed within 120 days of the Company's fiscal year
end.
ITEM 10. EXECUTIVE COMPENSATION.
The information concerning the compensation of the Company's executives
required by Item 10 is incorporated by reference to the information set forth in
the Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders, expected to be filed within 120 days of the Company's fiscal year
end.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial
owners and management required by Item 11 is incorporated by reference to the
information set forth in the Company's Definitive Proxy Statement for the 2001
Annual Meeting of Stockholders, expected to be filed within 120 days of the
Company's fiscal year end.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions
required by Item 12 is incorporated by reference to the information set forth in
the Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders, expected to be filed within 120 days of the Company's fiscal year
end.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following is a list of exhibits filed as part of this Form 10-KSB.
Where so indicated, exhibits that were previously filed are incorporated by
reference.
Exhibit No. Description
- ----------- ------------------------------------------------------------------
2(i) Stock Purchase Agreement among Enviro-Clean of America,
Inc., Enviroacq I Co. and Kandel & Son dated as of January
1, 1999 (Incorporated by reference to the Company's Form 10-
SB filed with the SEC on June 18, 1999).
16
2(ii) Stock Purchase Agreement among Enviro-Clean of America, Inc.
Enviroacq II Co. and NISSCO/Sunline, Inc. dated as of
January 1, 1999 (Incorporated by reference to the Company's
Form 10-SB filed with the SEC on June 18, 1999).
2(iii) Agreement & Plan of Merger among Enviro-Clean of America,
Inc., Cleaning Ideas, Inc., Cleaning Ideas Corp., Charles
Davis, Carolyn Davis and Randall Davis dated as of August 1,
1999 (Incorporated by reference to the Company's Report on
Form 8-K filed with the SEC on September 3, 1999).
2(iv) Stock Purchase Agreement among Enviro-Clean of America,
Inc., SCS Acquisition Corp., Superior Chemical & Supply,
Inc. and Stephen Hayes (Incorporated by reference to the
Company's Report on Form 8-K filed with the SEC on September
3, 1999).
2(v) Stock Purchase Agreement among Enviro-Clean of America, Inc.
, June Supply Corp., June Supply-San Antonio, Inc. and
Michael Rose and Alan Stafford dated as of August 31, 1999
(Incorporated by reference to the Company's Report on
Form 8-K filed with the SEC on November 10, 1999).
2(vi) Asset Purchase Agreement, by and between ebuyxpress.com
L.L.C., NISSCO/Sunline, Inc. and Enviro-Clean of America,
Inc., 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(vii) Asset Purchase Agreement, by and between York Supply, Ltd.,
June Supply Corp., and Enviro-Clean of America, Inc.
(Incorporated by reference to the Company's Report on
Form 8-K filed with the SEC on December 28, 2000).
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) By-Laws of the Company (Incorporated by reference to the
Company's Form 10-SB filed with the SEC on June 18, 1999).
3(iii) 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).
3(iv) 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).
3(v) 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).
3(vi) 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).
17
3(vii) 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(i) Form of 12.75% Subordinate Note (Incorporated by reference
to the Company's Report on Form 10-SB/A filed with the SEC
on October 22, 1999).
4(ii) 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).
4(iii) 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(iv) 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).
10(i) Amended and Restated Employment Agreement between Richard
Kandel and Enviro-Clean of America, Inc. *
10(ii) Amended and Restated Employment Agreement between Randall K.
Davis and Enviro-Clean of America, Inc. *
10(iii) Enviro-Clean of America, Inc. 2000 Stock Incentive Plan
(incorporated by reference to the exhibits of the Company's
Proxy Statement on Form DEF 14A, filed April 28, 2000).
10(iv) Registration Rights Agreement between the Company and
purchasers of Units of 2 shares of common stock and 1
warrant in the Company's January 2000 offering. *
10(v) Registration Rights Agreement between the Company and
purchasers of Common Stock in the Company's June 2000
offering. *
10(vi) Registration Rights Agreement between the Company and
purchasers of Common Stock in the Company's September 2000
offering. *
10(vii) Registration rights Agreement between the Company and
purchasers of Series B Stock and 1000 common stock
warrants - December 1999. (Incorporation by reference to the
Company's Amendment No. 2 to Form 10-SB filed with the
Commission on December 16, 1999.)
99(i) Enviro-Clean of America, Inc. and Subsidiaries Consolidated
Financial Statements for the Fiscal Years Ended December 31,
2000 and 1999 and Independent Auditors Report. *
_______________________________
* Filed Herewith.
(b) Reports on Form 8-K:
(1) The Company filed an 8-K on October 13, 2000, to report the sale
and disposition of NISSCO/Sunline, Inc., a wholly owned subsidiary of the
Company, to ebuyxpress.com L.L.C. under Item 2 of the Form 8-K.
18
(2) The Company filed an 8-K on November 27, 2000, to report the
Company's plan to repurchase the Company's Common Stock over the following year.
(3) The Company filed an 8-K/A on December 12, 2000 which amended the
8-K that the Company had filed on October 13, 2000 to report the disposition of
NISSCO/Sunline, Inc. under Item 2. The following financial statements were filed
on the Form 8-K/A:
(i) Enviro-Clean of America, Inc. & Subsidiaries Condensed
Consolidated Balance Sheet As Of September 30, 2000 (Unaudited)
And December 31, 1999 (Audited).
(ii) Enviro-Clean of America, Inc. & Subsidiaries Condensed
Consolidated Statement Of Operations For The Nine Months Ended
September 30, 2000 And 1999 (Unaudited).
(iii) Notes To The Condensed Consolidated Financial Statements.
(4) The Company filed an 8-K on December 28, 2000, to report the sale
and disposition of the assets of June Supply Corporation, a wholly-owned
subsidiary of the Company, to York Supply Limited, and to report the decision by
the Board of Director's to discontinue the acquisition and consolidation of
janitorial supply companies.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Enviro-Clean of America, Inc. has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Antonio, State of Texas, on March 30, 2001.
ENVIRO-CLEAN OF AMERICA, INC.
By /s/ Richard Kandel
--------------------------------------
Richard Kandel, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities indicated
and on March 30, 2001.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard Kandel
- --------------------------------------- Chairman of the Board and Chief Executive
Richard Kandel Officer
/s/ Randall K. Davis
- --------------------------------------- President and Director
Randall K. Davis
/s/ Steven Etra
- --------------------------------------- Secretary, Treasurer and Director
Steven Etra
/s/ Gary Granoff
- --------------------------------------- Director
Gary Granoff
/s/ Melvin Schreiber
- --------------------------------------- Director
Melvin Schreiber
/s/ Jan Pasternack
- --------------------------------------- Chief Financial Officer
Jan Pasternack
</TABLE>
20
Exhibit No. Description
- ----------- -------------------------------------------------------------------
2(i) Stock Purchase Agreement among Enviro-Clean of America, Inc.,
Enviroacq I Co. and Kandel & Son dated as of January 1, 1999
(Incorporated by reference to the Company's Form 10-SB filed with
the SEC on June 18, 1999).
2(ii) Stock Purchase Agreement among Enviro-Clean of America, Inc.
Enviroacq II Co. and NISSCO/Sunline, Inc. dated as of January 1,
1999 (Incorporated by reference to the Company's Form 10-SB filed
with the SEC on June 18, 1999).
2(iii) Agreement & Plan of Merger among Enviro-Clean of America, Inc.,
Cleaning Ideas, Inc., Cleaning Ideas Corp., Charles Davis,
Carolyn Davis and Randall Davis dated as of August 1, 1999
(Incorporated by reference to the Company's Report on Form 8-K
filed with the SEC on September 3, 1999).
2(iv) Stock Purchase Agreement among Enviro-Clean of America, Inc., SCS
Acquisition Corp., Superior Chemical & Supply, Inc. and Stephen
Hayes (Incorporated by reference to the Company's Report on Form
8-K filed with the SEC on September 3, 1999).
2(v) Stock Purchase Agreement among Enviro-Clean of America, Inc. ,
June Supply Corp., June Supply-San Antonio, Inc. and Michael Rose
and Alan Stafford dated as of August 31, 1999 (Incorporated by
reference to the Company's Report on Form 8-K filed with the SEC
on November 10, 1999).
2(vi) Asset Purchase Agreement, by and between ebuyxpress.com L.L.C.,
NISSCO/Sunline, Inc. and Enviro-Clean of America, Inc., 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(vii) Asset Purchase Agreement, by and between York Supply, Ltd., June
Supply Corp., and Enviro-Clean of America, Inc. (Incorporated by
reference to the Company's Report on Form 8-K filed with the SEC
on December 28, 2000).
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) By-Laws of the Company (Incorporated by reference to the
Company's Form 10-SB filed with the SEC on June 18, 1999).
3(iii) 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).
3(iv) 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).
3(v) 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).
3(vi) 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).
3(vii) 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(i) Form of 12.75% Subordinate Note (Incorporated by reference to the
Company's Report on Form 10-SB/A filed with the SEC on October
22, 1999).
4(ii) 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).
4(iii) 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(iv) 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).
10(i) Amended and Restated Employment Agreement between Richard Kandel
and Enviro-Clean of America, Inc. *
10(ii) Amended and Restated Employment Agreement between Randall K.
Davis and Enviro-Clean of America, Inc. *
10(iii) Enviro-Clean of America, Inc. 2000 Stock Incentive Plan
(incorporated by reference to the exhibits of the Company's Proxy
Statement on Form DEF 14A, filed April 28, 2000).
10(iv) Registration Rights Agreement between the Company and purchasers
of Units of 2 shares of common stock and 1 warrant in the
Company's January 2000 offering. *
10(v) Registration Rights Agreement between the Company and purchasers
of Common Stock in the Company's June 2000 offering. *
10(vi) Registration Rights Agreement between the Company and purchasers
of Common Stock in the Company's September 2000 offering. *
10(vii) Registration rights Agreement between the Company and purchasers
of Series B Stock and 1000 common stock warrants - December 1999.
(Incorporation by reference to the Company's Amendment No. 2 to
Form 10-SB filed with the Commission on December 16, 1999.)
99(i) Enviro-Clean of America, Inc. and Subsidiaries Consolidated
Financial Statements for the Fiscal Years Ended December 31, 2000
and 1999 and Independent Auditors Report. *
_______________________________
* Filed Herewith.
Exhibit 10(i)
-------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is being
executed as of December 1, 2000 (the "Effective Date"), between Enviro-Clean of
America, Inc., a Nevada corporation (the "Company") and Richard Kandel, an
individual (the "Executive").
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated October, 1999 (the "Original Agreement"); and
WHEREAS, the Company and the Executive desire to amend and restate the
Original Agreement and this Amended and Restated Employment Agreement will
supercede the Original Agreement and upon the execution hereof shall represent
the sole employment agreement between the Company and Executive;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Tile; Capacity: Commencing on the Effective Date, the
--------------
Company shall employ Executive as its Chief Executive Officer ("CEO"). All of
Executive's powers and authority in any capacity shall at all times be subject
to the direction and control of the Company's Board of Directors.
1.2 Duties: The Board may assign to Executive such management
------
and supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as CEO. The
Company and Executive acknowledge that Executive's primary functions and duties
as CEO shall be the general supervision of the creation, expansion and operation
of the Company and its subsidiaries and divisions. Commencing on the Effective
Date and through the term of this Agreement, Executive also shall be nominated
for election as a director of the Company and, if so elected by the stockholders
of the Company, Executive shall be obligated to serve as a director.
1.3 Terms of Employment: Executive accepts such employment and
-------------------
agrees to devote his business time, energy and attention to the performance of
his duties hereunder beginning on the Effective Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (i) require any substantial services on his
part in the operation of the affairs of the companies in which such investments
are made, (ii) interfere with the performance of Executive's duties hereunder or
(iii) violate the provisions of paragraph 5.4 hereof.
2. Compensation and Benefits.
2.1 Signing Bonus: Upon the Execution of this Agreement,
-------------
Executive shall be paid a lump sum, cash bonus of $100,000. This signing bonus
is being paid in order to entice Executive to agree to and enter into this
Agreement, including, but not limited to, the provisions in Section 5.4.
2.2 Annual Salary: The Company shall compensate the Executive
-------------
for services rendered by the Executive hereunder at the per annum rate of (i)
One Hundred Thousand Dollars ($100,000) from the Effective Date through the year
ending December 31, 2001, and (ii) Two Hundred Fifty Thousand dollars ($250,000)
from January 1, 2002 through the end of the Full Term Date, as defined in
Paragraph 3.1 below.
2.3 In addition to the compensation provided in Section 2.2
above, the Company agrees to pay Executive a bonus payment during the calendar
year 2001 in the amount of $100,000 upon the occurrence of any one of the
following events:
(a) a "Change in Control" of the Company, as defined in
paragraph 3.6.
(b) the Company listing of its shares of stock on NASDAQ, a
comparable inter-dealer automated quotation system or a recognized exchange; or
(c) the completion of any secondary offering by the Company.
2.4 Insurance: Commencing on the Effective Date, Executive shall
---------
be entitled to such medical, life, disability and other benefits as are
generally afforded to other senior executives of the Company, subject to
applicable waiting periods and other conditions.
2.5 Vacation: Executive shall be entitled to three weeks of
--------
vacation in each calendar year and to a reasonable number of other days off for
religious and personal reasons.
2.6 Reimbursement of Expenses: Commencing on the Effective Date,
-------------------------
the Company will pay or reimburse Executive for all transportation, hotel and
other expenses reasonably incurred by Executive on business trips and for all
other ordinary and reasonable out-of-pocket expenses actually incurred by him in
the conduct of the business of the Company against itemized vouchers submitted
with respect to any such expenses and approved in accordance with customary
procedures.
2.7 Automobile Expense: Executive shall maintain a suitable
------------------
automobile for business use. The Company shall reimburse Executive for the cost
of leasing such automobile and for all other costs associated with the use of
the vehicle, including insurance costs, repairs and maintenance (such lease and
all other costs not to exceed $1500.00 per month in the aggregate). These
reimbursements shall be considered taxable income to Executive except to the
extent that it is documented to have been used by him for business purposes.
The Company shall also have the option of directly leasing such vehicle for the
Executive.
2
3. Term and Termination.
3.1 Term: The term of Executive's employment shall commence on the
----
Effective Date and shall continue through the fifth anniversary of the Effective
Date (the "Full Term Date"), unless sooner terminated as herein provided. The
Employment Period shall automatically renew for one year unless prior to the end
of the five-year term, or any renewal periods, either the Company or the
Executive provides notice to the other party to this Agreement of its intention
not to exceed the Employment Period beyond the then current five-year term or
one-year renewal term, as the case may be. Any notice given pursuant to this
Section shall be provided in accordance with the terms of Section 6.1 hereof and
shall be provided not later than 90 days prior to the end of such five-year term
or one-year renewal period, as the case may be.
3.2 Death: Executive's employment hereunder shall terminate on
-----
the date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through twelve (12) months after the date of Executive's
death, (ii) all earned and previously approved but unpaid bonuses, (iii) all
valid expense reimbursements through the date of the termination of this
Agreement, and (iv) all accrued but unused vacation pay.
3.3 Disability: The Company, by notice to Executive, may
----------
terminate Executive's employment hereunder if Executive shall fail because of
illness or incapacity to render, for six consecutive months, services of the
character contemplated by this Agreement. Notwithstanding such termination, the
Company shall pay to Executive (i) the base salary due Executive pursuant to
paragraph 2.1 hereof through the date of such notice, less any amount Executive
receives for such period from any Company-sponsored or Company-paid source of
insurance, disability compensation or government program, (ii) all earned and
previously approved but unpaid bonuses, (iii) all valid expense reimbursements
through the date of the termination of this Agreement, and (iv) all accrued but
unused vacation pay.
3.4 Termination for Cause: The Company, by notice to Executive,
---------------------
may terminate Executive's employment hereunder for cause. As used herein,
"Cause" shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status as CEO, or the refusal or failure by Executive to perform a
material part of Executive's duties hereunder; (b) the commission by Executive
of a material breach of any of the provisions of this Agreement; (c) fraud or
dishonest action by Executive in his relations with the Company or any of its
subsidiaries or affiliates, or with any customer or business contact of the
Company or any of its subsidiaries or affiliates ("dishonest" for these purposes
shall mean Executive's knowingly or recklessly making of a material misstatement
or omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
--------
however, that a repeated breach after notice and cure of any provision of
- -------
clauses (a) or
3
(b) above involving the same or substantially similar actions or conduct, shall
be grounds for termination for "Cause" without any additional notice from the
Company.
3.5 Resignation as Director: If Executive's employment hereunder
-----------------------
is terminated for any reason, then Executive shall, at the Company's request,
resign as a director of the Company and all of its subsidiaries, effective upon
the occurrence of such termination.
3.6 Termination by Executive for Good Reason: The Executive, by
----------------------------------------
notice to the Company, may terminate Executive's employment hereunder if a "Good
Reason" exists. For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following circumstances without the Executive's prior
consent (either written or demonstrated through his affirmative vote as a member
of the Board of Directors or any of the following): (a) a substantial and
material adverse change in the nature of Executive's title, duties or
responsibilities with the Company that represents a demotion from his title,
duties or responsibilities as in effect immediately prior to such change; (b)
the commission by the Company of a material breach of any of the provisions of
this Agreement, (c) the relocation of Executive by the Company to any location
other than Hicksville, New York, whether temporary or permanent, without the
prior written consent of Executive, and (d) a "Change of Control" of the
Company, as defined below.
Notwithstanding the foregoing, no Good Reason shall be deemed to exist
with respect to the Company's acts described in clauses (a) or (b) above, unless
the Executive shall have given written notice to the Company specifying the Good
Reason with reasonable particularity and, within thirty calendar days after such
notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for Good Reason without any additional notice from the Executive.
For purposes of this Agreement, a "Change in Control" of the Company
shall mean any of the following: (1) the merger, consolidation or sale of
substantially all of the assets of the Company, (2) if any "person" (as such
term is used in Section 13(d) and 14(d) of the Exchange Act), other than any
"person" who on the date hereof is a director or officer of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of representing 15% or more of the
combined voting power of the Company's then outstanding securities, or (2)
during any period of two consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the election of
each director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
3.7 Severance Payment: In the event that Executive terminates
-----------------
his employment hereunder for "Good Reason," pursuant to the provisions of
paragraph 3.6, or the Company terminates his employment hereunder without
"Cause," as defined in paragraph 3.4, the Company shall make a lump sum payment
to Executive (or in the case of his death, the legal representative of
Executive's estate or such other person or persons as Executive shall have
4
designated by written notice to the Company), equal to the then present value of
all payments required under Section 2 hereof through the then remaining term of
this Agreement (the "Severance Payment"); provided, however, that if the
-------- -------
remaining term of this Agreement is less than twelve (12) months, then the
Severance Payment shall be equal to the then present value of all payments
required under Section 2 hereof through a twelve (12) month period. In addition,
there shall be no obligation of Executive to mitigate his damages and seek
employment following the termination of Executive's employment in order to
receive the Severance Payment hereunder.
4. Executive Indemnity
The Company agrees to indemnify Executive and hold Executive harmless
against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
- -------- -------
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Confidential Information: Executive acknowledges that:
------------------------
(a) As a result of Executive's employment with the Company,
he has obtained and will obtain secret and confidential information concerning
the business of the Company and its subsidiaries and affiliates (referred to
collectively in Sections 5 and 6 as the "Company"), including, without
limitation, financial information, designs and other proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
5
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the term of this Agreement or thereafter,
Executive should enter a business competitive with the Company, or divulge
Confidential Information, or breach his obligations under Section 6.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Non-disclosure of Confidential Information: Executive agrees
------------------------------------------
that he will not at any time, either during the term of this Agreement or
thereafter, divulge to any person or entity any Confidential Information
obtained or learned by him as a result of his role as consultant to or
employment with the Company, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Return of Company Property: Upon termination of his
--------------------------
employment with the Company, Executive will promptly deliver to the Company all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the business of the Company and
all property associated therewith, which he may then possess or have under his
control; provided, however, that Executive shall be entitled to retain copies of
such documents reasonably necessary to document his financial relationship (both
past and future) with the Company.
5.4 Non-competition: During the period commencing on the date
---------------
hereof and ending on the Non-Competition Termination Date (as hereafter
defined), Executive, without the prior written permission of the Company, shall
not, anywhere in the world, (i) be employed by, or render any services to, any
person, firm or corporation engaged in any business which is directly in
competition with the Company in the janitorial and sanitation supply
distribution business ("Competitive Business"); (ii) engage in any Competitive
Business for his or its own account; (iii) be associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; (iv) employ or retain, or have or cause
any other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
this provision shall not preclude Executive from investing his personal assets
in the
6
securities of any corporation or other business entity which is engaged in a
Competitive Business if such ownership is in compliance with the requirements
set forth in the last sentence of Section 1.3 hereof, such securities are traded
on a national stock exchange or in the over-the-counter market and if such
investment does not result in his beneficially owning, at any time, more than 1%
of the publicly-traded equity securities of such Competitive Business.
The "Non-Competition Termination Date" shall be the sixth anniversary
of the Effective Date; provided, however, that if this Agreement is terminated
-------- -------
for "Good Reason" by Executive or the Company without "Cause," the Non-
Competition Termination Date shall be the earlier of the one-year anniversary of
such termination and the fifth anniversary of the Effective Date.
5.5 Remedies: If Executive commits a breach, or threatens to
--------
commit a breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company
shall have the right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2, 5.4
or 6, and Executive hereby agrees to account for and pay over such damages to
the Company.
Each of the rights and remedies enumerated in this Section
5.5 shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 Modification by Tribunal: If any provision of Sections 5.2
------------------------
or 5.4 is held to be unenforceable because of the scope, duration or area of its
applicability, the tribunal making such determination shall have the power to
modify such scope, duration, or area, or all of them, and such provision or
provisions shall then be applicable in such modified form.
5.7 Survival: The provisions of this paragraph 5 shall survive
--------
the termination of this Agreement for any reason.
6. Miscellaneous Provisions.
7
6.1 Notice: All notices and other communications given or made
------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
If to Executive:
Richard Kandel
211 Park Avenue
Hicksville, New York 11801
If to the Company:
Enviro-Clean of America, Inc.
1023 Morales
San Antonio, Texas, 78207
Attn: Randall K. Davis, President
With a copy to (which shall not serve as notice):
Akin, Gump, Strauss, Hauer & Feld L.L.P.
300 Convent
San Antonio, Texas 78205
Attn: William Alberts, Esq.
6.2 Entire Agreement: This Agreement sets forth the entire
----------------
agreement of the parties relating to the employment of Executive and is intended
to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement may be waived or changed except by a writing by the
party against whom such waiver or change is sought to be enforced. The failure
of any party to require performance of any provision hereof or thereof shall in
no manner affect the right at a later time to enforce such provision.
6.3 Governing Law and Jurisdiction: This Agreement shall be
------------------------------
governed by and construed under the law of the State of Texas, disregarding any
principles of conflicts of law that would otherwise provide for the application
of the substantive law of another jurisdiction. Each of the parties (i) agrees
that any legal suit, action or proceeding arising out of or relating to this
Agreement shall be instituted exclusively in any local, state or federal court
sitting in San Antonio, Texas, (ii) waives any objection to the venue of any
such suit, action or proceeding and the right to assert that such forum is not a
convenient forum, and (iii) irrevocably consents to the jurisdiction of any
state or federal court sitting in San Antonio, Texas, in any such suit, action
or proceeding. Each of the parties further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in any state or federal court sitting in San Antonio, Texas, and
agrees that service of process upon it mailed by certified mail
8
to its address shall be deemed in every respect effective service of process
upon it in any such suit, action or proceeding.
6.4 Successors and Assigns: This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of the Company. This
Agreement shall not be assignable by Executive, but shall inure to the benefit
of and be binding upon Executive's heirs and legal representatives.
6.5 Severability: Should any provision of this Agreement become
------------
legally unenforceable, no other provision of this Agreement shall be affected,
and this Agreement shall continue as if the Agreement had been executed absent
the unenforceable provision.
6.6 Continuing Board Attendance: If, during the term hereof,
---------------------------
Executive is nominated to serve as a director of the Company but fails to be
elected, he shall nonetheless be invited to attend each meeting of the Board of
Directors of the Company through the remainder of the term hereof.
Remainder of this page intentionally left blank.
9
Signature Page to Employment Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ Randall K. Davis
----------------------------------
Randall K. Davis, President
RICHARD KANDEL
/s/ Richard Kandel
-------------------------------------
10
Exhibit 10(ii)
--------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is being
executed as of December 1, 2000 (the "Effective Date"), between Enviro-Clean of
America, Inc., a Nevada corporation (the "Company") and Randall K. Davis, an
individual (the "Executive").
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated October, 1999 (the "Original Agreement"); and
WHEREAS, Cleaning Ideas Corporation, a wholly-owned subsidiary of the
Company, and Executive are parties to an Employment Agreement dated August 1,
1999 (the "Subsidiary Agreement"); and
WHEREAS, the Company and the Executive desire to amend and restate the
Original Agreement as well as replace the Subsidiary Agreement, and this Amended
and Restated Employment Agreement will supercede the Original Agreement and the
Subsidiary Agreement and upon the execution hereof shall represent the sole
employment agreement between the Company and/or any of the Company subsidiaries
and Executive;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Tile; Capacity: Commencing on the Effective Date, the
--------------
Company shall employ Executive as its President. All of Executive's powers and
authority in any capacity shall at all times be subject to the direction and
control of the Company's Board of Directors.
1.2 Duties: The Board may assign to Executive such management
------
and supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as
President. The Company and Executive acknowledge that Executive's primary
functions and duties as President shall be the general supervision of the
creation, expansion and operation of the Company and its subsidiaries and
divisions. Commencing on the Effective Date and through the term of this
Agreement, Executive also shall be nominated for election as a director of the
Company and, if so elected by the stockholders of the Company, Executive shall
be obligated to serve as a director.
1.3 Terms of Employment: Executive accepts such employment and
-------------------
agrees to devote his business time, energy and attention to the performance of
his duties hereunder beginning on the Effective Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (i) require any substantial services on his
part in the operation of the affairs of the companies in which such investments
are
made, (ii) interfere with the performance of Executive's duties hereunder or
(iii) violate the provisions of paragraph 5.4 hereof.
2. Compensation and Benefits.
2.1 Signing Bonus: Upon the Execution of this Agreement,
-------------
Executive shall be paid a lump sum, cash bonus of $100,000. This signing bonus
is being paid in order to entice Executive to agree to and enter into this
Agreement, including, but not limited to, the provisions in Section 5.4.
2.2 Annual Salary: The Company shall compensate the Executive
-------------
for services rendered by the Executive hereunder at the per annum rate of (i)
Two Hundred Thousand Dollars ($200,000) from the Effective Date through the year
ending December 31, 2001, and (ii) Two Hundred and Fifty Thousand Dollars
($250,000) from January 1, 2002 through the end of the Full Term Date, as
defined in Paragraph 3.1 below.
2.3 Insurance: Commencing on the Effective Date, Executive shall
---------
be entitled to such medical, life, disability and other benefits as are
generally afforded to other senior executives of the Company, subject to
applicable waiting periods and other conditions.
2.4 Vacation: Executive shall be entitled to three weeks of
--------
vacation in each calendar year and to a reasonable number of other days off for
religious and personal reasons.
2.5 Reimbursement of Expenses: Commencing on the Effective Date,
-------------------------
the Company will pay or reimburse Executive for all transportation, hotel and
other expenses reasonably incurred by Executive on business trips and for all
other ordinary and reasonable out-of-pocket expenses actually incurred by him in
the conduct of the business of the Company against itemized vouchers submitted
with respect to any such expenses and approved in accordance with customary
procedures.
2.6 Automobile Expense: Executive shall maintain a suitable
------------------
automobile for business use. The Company shall reimburse Executive for the cost
of leasing such automobile and for all other costs associated with the use of
the vehicle, including insurance costs, repairs and maintenance (such lease and
all other costs not to exceed $1500.00 per month in the aggregate). These
reimbursements shall be considered taxable income to Executive except to the
extent that it is documented to have been used by him for business purposes.
The Company shall also have the option of directly leasing such vehicle for the
Executive.
3. Term and Termination.
3.1 Term: The term of Executive's employment shall commence on the
----
Effective Date and shall continue through the fifth anniversary of the Effective
Date (the "Full Term Date"), unless sooner terminated as herein provided. The
Employment Period shall automatically renew for one year unless prior to the end
of the five-year term, or any renewal periods, either the Company or the
Executive provides notice to the other party to this Agreement of its intention
not to exceed the Employment Period beyond the then current five-year term or
one-year renewal term, as the case may be. Any notice given pursuant to this
Section shall be
2
provided in accordance with the terms of Section 6.1 hereof and shall be
provided not later than 90 days prior to the end of such five-year term or one-
year renewal period, as the case may be.
3.2 Death: Executive's employment hereunder shall terminate on
-----
the date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.2 hereof through twelve months after the date of Executive's
death, (ii) all earned and previously approved but unpaid bonuses, (iii) all
valid expense reimbursements through the date of the termination of this
Agreement, and (iv) all accrued but unused vacation pay.
3.3 Disability: The Company, by notice to Executive, may
----------
terminate Executive's employment hereunder if Executive shall fail because of
illness or incapacity to render, for six consecutive months, services of the
character contemplated by this Agreement. Notwithstanding such termination, the
Company shall pay to Executive (i) the base salary due Executive pursuant to
paragraph 2.2 hereof through the date of such notice, less any amount Executive
receives for such period from any Company-sponsored or Company-paid source of
insurance, disability compensation or government program, (ii) all earned and
previously approved but unpaid bonuses, (iii) all valid expense reimbursements
through the date of the termination of this Agreement, and (iv) all accrued but
unused vacation pay.
3.4 Termination for Cause: The Company, by notice to Executive,
---------------------
may terminate Executive's employment hereunder for cause. As used herein,
"Cause" shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status as President, or the refusal or failure by Executive to perform
a material part of Executive's duties hereunder; (b) the commission by Executive
of a material breach of any of the provisions of this Agreement; (c) fraud or
dishonest action by Executive in his relations with the Company or any of its
subsidiaries or affiliates, or with any customer or business contact of the
Company or any of its subsidiaries or affiliates ("dishonest" for these purposes
shall mean Executive's knowingly or recklessly making of a material misstatement
or omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
--------
however, that a repeated breach after notice and cure of any provision of
- -------
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 Resignation as Director: If Executive's employment hereunder
-----------------------
is terminated for any reason, then Executive shall, at the Company's request,
resign as a director of the Company and all of its subsidiaries, effective upon
the occurrence of such termination.
3.6 Termination by Executive for Good Reason: The Executive, by
-----------------------------------------
notice to the Company, may terminate Executive's employment hereunder if a "Good
Reason" exists. For
3
purposes of this Agreement, "Good Reason" shall mean the occurrence of any of
the following circumstances without the Executive's prior consent (either
written or demonstrated through his affirmative vote as a member of the Board of
Directors or any of the following): (a) a substantial and material adverse
change in the nature of Executive's title, duties or responsibilities with the
Company that represents a demotion from his title, duties or responsibilities as
in effect immediately prior to such change; (b) the commission by the Company of
a material breach of any of the provisions of this Agreement, (c) the relocation
of Executive by the Company to any location other than San Antonio, Texas,
whether temporary or permanent, without the prior written consent of Executive,
and (d) a "Change of Control" of the Company, as defined below.
Notwithstanding the foregoing, no Good Reason shall be deemed to exist
with respect to the Company's acts described in clauses (a) or (b) above, unless
the Executive shall have given written notice to the Company specifying the Good
Reason with reasonable particularity and, within thirty calendar days after such
notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for Good Reason without any additional notice from the Executive.
For purposes of this Agreement, a "Change in Control" of the Company
shall mean any of the following: (1) the merger, consolidation or sale of
substantially all of the assets of the Company, (2) if any "person" (as such
term is used in Section 13(d) and 14(d) of the Exchange Act), other than any
"person" who on the date hereof is a director or officer of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of representing 15% or more of the
combined voting power of the Company's then outstanding securities, or (2)
during any period of two consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the election of
each director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
3.7 Severance Payment: In the event that Executive terminates
-----------------
his employment hereunder for "Good Reason," pursuant to the provisions of
paragraph 3.6, or the Company terminates his employment hereunder without
"Cause," as defined in paragraph 3.4, the Company shall make a lump sum payment
to Executive (or in the case of his death, the legal representative of
Executive's estate or such other person or persons as Executive shall have
designated by written notice to the Company), equal to the then present value of
all payments required under Section 2 hereof through the then remaining term of
this Agreement (the "Severance Payment"); provided, however, that if the
-------- -------
remaining term of this Agreement is less than twelve (12) months, then the
Severance Payment shall be equal to the then present value of all payments
required under Section 2 hereof through a twelve month period. In addition,
there shall be no obligation of Executive to mitigate his damages and seek
employment following the termination of Executive's employment in order to
receive the Severance Payment hereunder.
4
4. Executive Indemnity
The Company agrees to indemnify Executive and hold Executive harmless
against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
-------- -------
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Confidential Information: Executive acknowledges that:
------------------------
(a) As a result of Executive's employment with the Company,
he has obtained and will obtain secret and confidential information concerning
the business of the Company and its subsidiaries and affiliates (referred to
collectively in Sections 5 and 6 as the "Company"), including, without
limitation, financial information, designs and other proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the term of this Agreement or thereafter,
Executive should enter a business competitive with the Company, or divulge
Confidential Information, or breach his obligations under Section 6.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5
5.2 Non-disclosure of Confidential Information: Executive agrees
------------------------------------------
that he will not at any time, either during the term of this Agreement or
thereafter, divulge to any person or entity any Confidential Information
obtained or learned by him as a result of his role as consultant to or
employment with the Company, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Return of Company Property: Upon termination of his
--------------------------
employment with the Company, Executive will promptly deliver to the Company all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the business of the Company and
all property associated therewith, which he may then possess or have under his
control; provided, however, that Executive shall be entitled to retain copies of
such documents reasonably necessary to document his financial relationship (both
past and future) with the Company.
5.4 Non-competition: During the period commencing on the date
---------------
hereof and ending on the Non-Competition Termination Date (as hereafter
defined), Executive, without the prior written permission of the Company, shall
not, anywhere in the world, (i) be employed by, or render any services to, any
person, firm or corporation engaged in any business which is directly in
competition with the Company in the business of janitorial and sanitation supply
distribution ("Competitive Business"); (ii) engage in any Competitive Business
for his or its own account; (iii) be associated with or interested in any
Competitive Business as an individual, partner, shareholder, creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor or in any
other relationship or capacity; (iv) employ or retain, or have or cause any
other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
this provision shall not preclude Executive from investing his personal assets
in the securities of any corporation or other business entity which is engaged
in a Competitive Business if such ownership is in compliance with the
requirements set forth in the last sentence of Section 1.3 hereof, such
securities are traded on a national stock exchange or in the over-the-counter
market and if such investment does not result in his beneficially owning, at any
time, more than 1% of the publicly-traded equity securities of such Competitive
Business.
The "Non-Competition Termination Date" shall be the sixth anniversary
of the Effective Date; provided, however, that if this Agreement is terminated
-------- -------
for "Good Reason" by
6
Executive or the Company without "Cause," the Non-Competition Termination Date
shall be the earlier of the one-year anniversary of such termination and the
fifth anniversary of the Effective Date.
5.5 Remedies: If Executive commits a breach, or threatens to
--------
commit a breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company
shall have the right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2, 5.4
or 6, and Executive hereby agrees to account for and pay over such damages to
the Company.
Each of the rights and remedies enumerated in this Section
5.5 shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 Modification by Tribunal: If any provision of Sections 5.2
------------------------
or 5.4 is held to be unenforceable because of the scope, duration or area of its
applicability, the tribunal making such determination shall have the power to
modify such scope, duration, or area, or all of them, and such provision or
provisions shall then be applicable in such modified form.
5.7 Survival: The provisions of this paragraph 5 shall survive
--------
the termination of this Agreement for any reason.
6. Miscellaneous Provisions.
6.1 Notice: All notices and other communications given or made
------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
If to Executive:
7
Randall K. Davis
2 Corby Lane
San Antonio, Texas 78218
If to the Company:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Richard Kandel
With a copy to (which shall not serve as notice):
Akin, Gump, Strauss, Hauer & Feld L.L.P.
300 Convent
San Antonio, Texas 78205
Attn: William Alberts, Esq.
6.2 Entire Agreement: This Agreement sets forth the entire
----------------
agreement of the parties relating to the employment of Executive and is intended
to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement may be waived or changed except by a writing by the
party against whom such waiver or change is sought to be enforced. The failure
of any party to require performance of any provision hereof or thereof shall in
no manner affect the right at a later time to enforce such provision.
6.3 Governing Law and Jurisdiction: This Agreement shall be
------------------------------
governed by and construed under the law of the State of Texas, disregarding any
principles of conflicts of law that would otherwise provide for the application
of the substantive law of another jurisdiction. Each of the parties (i) agrees
that any legal suit, action or proceeding arising out of or relating to this
Agreement shall be instituted exclusively in any local, state or federal court
sitting in San Antonio, Texas, (ii) waives any objection to the venue of any
such suit, action or proceeding and the right to assert that such forum is not a
convenient forum, and (iii) irrevocably consents to the jurisdiction of any
state or federal court sitting in San Antonio, Texas, in any such suit, action
or proceeding. Each of the parties further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in any state or federal court sitting in San Antonio, Texas, and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
6.4 Successors and Assigns: This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of the Company. This
Agreement shall not be assignable by Executive, but shall inure to the benefit
of and be binding upon Executive's heirs and legal representatives.
8
6.5 Severability: Should any provision of this Agreement become
------------
legally unenforceable, no other provision of this Agreement shall be affected,
and this Agreement shall continue as if the Agreement had been executed absent
the unenforceable provision.
6.6 Continuing Board Attendance: If, during the term hereof,
---------------------------
Executive is nominated to serve as a director of the Company but fails to be
elected, he shall nonetheless be invited to attend each meeting of the Board of
Directors of the Company through the remainder of the term hereof.
Remainder of this page intentionally left blank.
9
Signature Page to Employment Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ Richard Kandel
-------------------------------------
Richard Kandel, Chairman of the Board
RANDALL K. DAVIS
/s/ Randall K. Davis
-----------------------------------------
10
Exhibit 10(iv)
--------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of January __, 2000
by and among Enviro-Clean of America, Inc., a Nevada corporation (the
"Company"), and the new investors who execute a counterpart of this Agreement
(the "Investors"):
WHEREAS, effective as of the date hereof, the Company is entering into an
offering of units ("Offering"), each unit containing two (2) shares of Common
Stock (the "Unit Shares") and one (1) Common Stock Purchase Warrant
("Warrant(s)") (collectively, the "Units"); and
WHEREAS, pursuant to the terms of the Offering, it is a condition of the
obligations of the Investors and the Company that they enter into a registration
rights agreement providing for certain rights to the Investors relative to the
registration of Unit Shares and certain shares of Common Stock (the "Warrant
Shares") reserved for issuance upon exercise of the Warrants:
NOW, THEREFORE, the parties hereto in consideration of the mutual promises
contained herein and intending to be legally bound do hereby agree as follows:
AGREEMENT
1. Definitions
In addition to the terms defined elsewhere in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Common Stock" shall mean the common stock, $.001 par value, of the Company, and
any stock into which such common shares may hereafter be changed.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Holder" shall mean any person owning or having the right to acquire Registrable
Securities who is a party to this Agreement as of the date hereof or who may be
added as a party pursuang to the terms of this Agreement, and any person holding
Registrable Securities to whom the rights under this Agreement have been
transferred in accordance with Section 12 hereof.
"Initiating Holders" shall mean Holders who in the aggregate are Holders of
greater than 50% of the Registrable Securities.
1
"Registrable Securities" means (i) the Unit Shares; (ii) the Warrant Shares; and
(iii) any Common Stock of the Company issued or issuable in respect of the Unit
Shares or the Warrant Shares; provided, however, that shares of Common Stock
shall only be treated as Registrable Securities if and so long as they are not,
or have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold or permitted
to be sold, in the opinion of counsel to the Company, in a single transaction
exempt from the registration and prospectus delivery requirements of the Act so
that all transfer restrictions and restrictive legends with respect thereto are
or may be removed upon the consummation of such sale.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the Securities and Exchange
Commission (the "Commission") a registration statement in compliance with the
Act, and the declaration or ordering of the effectiveness of such registration
statement.
"Registration Expenses" shall mean all expenses, except Selling Expenses
incurred by the Company in complying with Sections 2 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company) and the reasonable fees and
disbursements of one counsel for all Holders in the event of one exercise of a
requested registration provided for in Section 2 hereof.
"Selling Expenses" shall mean all underwriting discounts, selling commissions
and stock transfer taxes applicable to the securities registered by the Holders
and, except as set forth in the definition of Registration Expenses, all fees
and disbursements of counsel for any Holder.
2. Demand Registration
(a) Request for Registration. In case the Company shall receive from
-------------------------
Initiating Holders a written request that the Company effect a registration
under the Act with respect to not less than 25% of the Registrable Securities
(as adjusted for recapitalizations, stock splits, stock dividends and the like
("Recapitalizations")), the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by the Company within 20 days after receipt of such written notice
from the Company;
2
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance
pursuant to this Section 2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Act;
(B) Prior to the one year anniversary of the issuance of Unit
Shares and Warrants;
(C) During the period starting with the date sixty days prior to
the Company's estimated date of filing of, and ending on the date six
months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect
to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) After the Company has effected one such registrations
pursuant to this subparagraph 2(a), and such registrations have been
declared or ordered effective; or
(E) If the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith
judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, in which case
the Company's obligation to use its best efforts to register, qualify
or comply under this Section 2 shall be deferred for a period not to
exceed 120 days from the date of receipt of the written request from
the Initiating Holders.
Subject to the foregoing clauses (A) through (E), the Company
shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to this Section 2
-------------
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given pursuant to Section 2(a)(i).
In such event, the right of any Holder to registration pursuant to this Section
2 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 2, and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested shall be
limited as provided herein.
3
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with managing underwriter(s) selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 2, if
the managing underwriter(s) advise(s) the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders participating and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason
of the underwriters' marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares. The Company may include
shares of Common Stock held by shareholders other than Holders in a registration
statement pursuant to this Section 2 to the extent that the amount of
Registrable Securities otherwise includible in such registration statement would
not thereby be diminished.
If any Holder disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration, and such Registrable Securities shall
not be transferred in a public distribution prior to 90 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
3. Expenses of Registration
All Registration Expenses incurred in connection with one registration
pursuant to Section 2 shall be borne by the Company. Unless otherwise stated,
all Selling Expenses relating to securities registered on behalf of the Holders
and all other Registration Expenses shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
4. Registration Procedures
In the case of each registration, qualification or compliance effected by the
Company pursuant to this Agreement, the Company will keep each Holder advised in
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one
hundred twenty (120) days, and prepare and file with the Commission such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective for at least one hundred twenty (120) days, provided that no such
registration
4
shall constitute a shelf registration under Rule 415 promulgated by the
Commission under the Act;
(b) Enter into a written underwriting agreement in customary form and
substance reasonably satisfactory to the Company, the Holders and the
managing underwriter or underwriters of the public offering of such
securities, if the offering is to be underwritten in whole or in part;
(c) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number
of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably
request in order to facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as such participating Holders may reasonably
request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction where
it is not so qualified;
(e) Notify the Holders (or if they have appointed an attorney-in-
fact, such attorney-in-fact) participating in such registration, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a
part of such registration statement has been filed;
(f) Notify such Holders or their attorney-in-fact promptly of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) Prepare and file with the Commission promptly upon the request of
any such Holders, any amendments or supplements to such registration
statement or prospectus which, in the reasonable opinion of counsel for
such Holders, is required under the Act or the rules and regulations
thereunder in connection with the distribution of the Registrable
Securities by such Holders;
(h) Prepare and promptly file with the Commission, and promptly
notify such Holders or their attorney-in-fact of the filing of, such
amendment or supplement to such registration statement or prospectus as may
be necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under
the Act, any event has occurred as the result of which any such prospectus
or any other prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances in which
they were made;
(i) In case any of such Holders or any underwriter for any such
Holders is required to deliver a prospectus at a time when the prospectus
then in effect may no longer be used under the Act, prepare promptly upon
request such amendment or
5
amendments to such registration statement and such prospectuses as may be
necessary to permit compliance with the requirements of the Act;
(j) Advise such Holders or their attorney-in-fact, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such stop order should be
issued; and
(k) At the request of any such Holder, furnish on the effective date
of the registration statement and, if such registration includes an
underwritten public offering, at the closing provided for in the
underwriting agreement, (i) an opinion, dated each such date, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the Holder or Holders making
such request, covering such matters with respect to the registration
statement, the prospectus and each amendment or supplement thereto,
proceedings under state and federal securities laws, other matters relating
to the Company, the securities being registered and the offer and sale of
such securities as are customarily the subject of opinions of issuer's
counsel provided to underwriters in underwritten public offerings, and (ii)
to the extent the Company's accounting firm is willing to do so, a letter
dated each such date, from the independent public accountants of the
Company, addressed to the underwriters, if any, and to the Holder or
Holders making such request, stating that they are independent public
accountants within the meaning of the Act and that in the opinion of such
accountants the financial statements and other financial data of the
Company included in the registration statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Act, and additionally covering
such other financial matters, including information as to the period ending
not more than five (5) business days prior to the date of such letter with
respect to the registration statement and prospectus, as the underwriters
or such requesting Holder or Holders may reasonably request.
5. Information by Holder
The Holder or Holders of Registrable Securities included in any registration
shall furnish the Company such information regarding such Holder or Holders, the
Registrable Securities held by them and the distribution proposed by such Holder
or Holders as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
6. Indemnification
(a) The Company will indemnify each Holder, each of its officers, directors and
partners, and each person controlling such Holder within the meaning of Section
15 of the Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and
6
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Act, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the Act
or any rule or regulation promulgated under the Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited to an amount equal to the public offering price
of the shares sold by such Holder, unless such liability arises out of or is
based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this Section 9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall
7
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or separate and different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
7. Transfer of Registration Rights
The rights to cause the Company to register securities granted to the Investor
under Sections 2, 3 and 4 may be assigned to a transferee or assignee reasonably
acceptable to the Company in connection with any transfer or assignment of
Registrable Securities by the Investor provided that: (i) such transfer may
otherwise be effected in accordance with applicable securities laws, and (ii)
such assignee or transferee acquires at least 25% of the Registrable Securities
of the transferor (appropriately adjusted for Recapitalizations).
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner of the Investor, without
compliance with item (ii) above, provided written notice thereof is promptly
given to the Company.
8. Standoff Agreement
Notwithstanding any other provision of this Agreement, each Holder agrees that,
upon request of the Company or the underwriters managing an underwritten
offering of the Company's securities, such Holder will not sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed one hundred and eighty (180) days)
from the effective date of such registration as may be requested by the
underwriters; provided that the officers and directors of the Company who own
stock of the Company and all holders of at least five percent of the Company's
then outstanding voting securities also agree to such restrictions. To enforce
this covenant, the Company may impose stock-transfer instructions with respect
to common stock held by the Investor until the end of such period.
9. Delay of Registration
No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any registration of the Company as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
8
10. Termination of Registration Rights
The registration rights granted under Sections 2, 3 and 4 of this Agreement
shall terminate as to all Holders on the fifth anniversary of the effective date
of the Company's first registered public offering of its stock (the "Fifth
Anniversary"); provided, however, such termination shall be postponed until the
later of (i) that number of days following such Fifth Anniversary equal to the
number of days, if any, between the date of such first public offering and the
Fifth Anniversary that the Common Stock of the Company is not traded on a
national stock exchange or the Nasdaq National Market (or any successor
organization) and (ii) if as of the Fifth Anniversary, the Company is not so
traded, then, one year following such date as the Company first resumes trading
on a national stock exchange or the Nasdaq National Market (or any successor
organization).
11. Miscellaneous
(a) Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may only be amended, modified and supplemented by written agreement of
a majority of the Series B Stock and Warrant holders and the Company.
(b) Waiver of Compliance. Any failure of the Investors or the Company
--------------------
to comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing by the Investors or the Company, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as waiver of, or estoppel with respect
to, any subsequent or other failure.
(c) Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
If to the Company, to: Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11801-1408
Attn: Richard Kandel, Chairman/CEO
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:) Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent, Suite 1500
San Antonio, Texas 78205
Attn: Alan Schoenbaum
Phone: (210) 281-7000
Fax: (210) 224-2035
If to the Investors, to the address and facsimile number of each
Investor as set forth on Exhibit A of this Registration Rights
Agreement, or to such
9
other person or address as the Investor shall furnish to the
Company in writing.
(d) Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that the Company may assign its rights and
its obligations under this Agreement to any successor to the business of the
Company.
(e) Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to its conflicts of law doctrine.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) Headings. The headings used in this Agreement are inserted for
--------
convenience only and shall not constitute a part hereof or affect in any way the
meaning or interpretation of this Agreement.
(h) Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by
reason of this Agreement.
(i) Severability. Should any provision of this Agreement be held by a
------------
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding, upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
10
IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed
and delivered as of the day and year first above written.
(Signature Page Follows)
11
[COMPANY SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
ENVIRO-CLEAN OF AMERICA, INC.
BY:_________________________________
Randall K. Davis,
President
[INVESTORS SIGNATURE PAGES FOLLOW]
[INVESTOR SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
THE INVESTORS:
_____________________________________________________
Name of Investor if Entity or Signature if Individual
By:__________________________________________________
Title:_______________________________________________
_____________________________________________________
Please type or print name
Exhibit 10(v)
-------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of ___________, 2000 (this
"Agreement"), by and among Enviro-Clean of America, Inc., a Nevada corporation
(the "Issuer"), and the new investors who execute a counterpart of this
Agreement (the "Investors") and will participate in the offering (the
"Offering") of shares of Common Stock (the "Offered Shares") pursuant to the
Private Placement Memorandum dated May 30, 2000:
WHEREAS, the Issuer is entering into the Offering and desires to extend
certain registration rights for the Offered Shares to the Investors who will
participate in the Offering:
NOW, THEREFORE, the parties hereto in consideration of the mutual promises
contained herein and intending to be legally bound do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, shall have the
-----------
following respective meanings:
"Commission" means the Securities and Exchange Commission or any successor
governmental body or agency.
"Common Stock" means the Common Stock, par value $0.001 per share, of the
Issuer.
"Disadvantageous Condition" has the meaning ascribed thereto in Section 2.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means the Investors and any direct or indirect transferee of the
Investors who shall agree to be bound by the terms of this Agreement.
"Person" or "person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Registrable Securities" means the Offered Shares; provided, however, that
Registrable Securities shall not include any shares of Common Stock (i) the sale
of which has been registered pursuant to the Securities Act and which shares
have been sold pursuant to such registration or (ii) which have been sold
pursuant to Rule 144 of the Commission under the Securities Act.
"Registration Expenses" means any and all expenses incident to performance of
or compliance with any registration of securities pursuant to Article 2,
including, without limitation,
1
(i) all registration and filing fees, (ii) all fees and expenses associated with
filings required to be made with the NASD, as may be required by the rules and
regulations of the NASD, (iii) fees and expenses of compliance with securities
or "blue sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualifications of the Registrable Shares), (iv)
rating agency fees, (v) printing expenses (including expenses of printing
certificates for the Registrable Shares in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by a holder of Registrable Shares), (vi) messenger and
delivery expenses, (vii) the Issuer's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (viii) the fees and expenses incurred in connection
with any listing of the Registrable Shares, (ix) fees and expenses of counsel
for the Issuer and its independent certified public accountants (including the
expenses of any special audit or "cold comfort" letters required by or incident
to such performance), (x) Securities Act liability insurance (if the Issuer
elects to obtain such insurance), (xi) the fees and expenses of any special
experts retained by the Issuer in connection with such registration, (xii) the
fees and expenses of other persons retained by the Issuer and (xiii) reasonable
fees and expenses of one firm of counsel for the Selling Holders (which shall be
selected by the Holders of a majority of the Registrable Securities being
included in any particular registration statement).
"Required Shelf Registration" has the meaning ascribed thereto in Section 2.1.
"Rule 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect) promulgated under
the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Affiliates" has the meaning ascribed thereto in Section 2.6.
"Selling Holder" means any Holder who sells Registrable Securities pursuant to
a public offering registered hereunder.
"Shelf Registration" means the registration under the Securities Act of a Rule
415 Offering.
"Shelf Registration Statement" means a registration statement intended to
effect a Shelf Registration.
"Shelf Termination Date" has the meaning ascribed thereto in Section 2.1(c).
Section 1.2 Internal References. Unless the context indicates otherwise,
-------------------
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
2
ARTICLE 2
REGISTRATION RIGHTS
Section 2.1 Shelf Registration on Form S-3. At any time after the date that
------------------------------
is six months from the date hereof, if requested by a Holder or Holders holding
a majority in interest of the Registrable Securities, as soon as practicable
(but in any event not more than 15 days) after such request, the Issuer shall
prepare and file with the Commission a Shelf Registration Statement on Form S-3
that shall include all Registrable Securities (the "Required Shelf
Registration"); provided, however, that the Issuer will not be required to file
such Required Shelf Registration pursuant to this Agreement if Issuer is not
eligible to register securities on Form S-3 at the time a request for such
registration is made pursuant to this Section 2.1. The Issuer shall use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective as soon as practicable after such request; provided, however,
that the Issuer shall have no obligation to cause such Shelf Registration
Statement to be declared effective on a date that is prior to the nine months of
this Agreement. Notwithstanding anything else contained in this Agreement, the
Issuer shall only be obligated to keep such Shelf Registration Statement
effective until the earliest of:
(a) (i) 12 months after the date such Shelf Registration Statement has
been declared effective, provided that such 12-month period shall be extended
by (1) the length of any period during which the Issuer delays in maintaining
the Shelf Registration Statement current pursuant to Section 2.2, (2) the
length of any period (in which such Shelf Registration Statement is required
to be effective hereunder) during which such Shelf Registration Statement is
not maintained effective, and (3) such number of days that equals the number
of days elapsing from (x) the date the written notice contemplated by Section
2.4(d) below is given by the Issuer to (y) the date on which the Issuer
delivers to the Holders of Registrable Securities the supplement or amendment
contemplated by Section 2.4(d) below;
(b) such time as all Registrable Securities have been sold or disposed of
thereunder or sold, transferred or otherwise disposed of to a Person that is
not a Holder; and
(c) such time as all securities owned by the Holders have ceased to be
Registrable Securities (the earliest of (a), (b) and (c) being the "Shelf
Termination Date").
Section 2.2 Certain Delay Rights. Notwithstanding any other provision of this
--------------------
Agreement to the contrary, if at any time while the Required Shelf Registration
is effective the Issuer provides written notice to each Holder that in the good
faith and reasonable judgment of the Board of Directors of the Issuer it would
be materially disadvantageous to the Issuer (because the sale of Registrable
Securities covered by such registration statement or the disclosure of
information therein or in any related prospectus or prospectus supplement would
materially interfere with any acquisition, financing or other material event or
transaction in connection with which a registration of securities under the
Securities Act for the account of the Issuer is then intended or the public
disclosure of which at the time would be materially prejudicial to the
3
Issuer (a "Disadvantageous Condition")) for sales of Registrable Securities
thereunder to then be permitted, and setting forth the general reasons for such
judgment, the Issuer may refrain from maintaining current the prospectus
contained in the Shelf Registration Statement until such Disadvantageous
Condition no longer exists (notice of which the Issuer shall promptly deliver in
writing to each Holder). With respect to each Holder, upon the receipt by such
Holder of any such notice of a Disadvantageous Condition , such Holder shall
forthwith discontinue use of the prospectus and any prospectus supplement under
such registration statement and shall suspend sales of Registrable Securities
until such Disadvantageous Condition no longer exists and, as applicable, if so
directed by the Issuer by notice as aforesaid, such Holder will deliver to the
Issuer all copies, other than permanent filed copies then in such Holder's
possession, of the prospectus and prospectus supplements then covering such
Registrable Securities at the time of receipt of such notice as aforesaid.
Section 2.3 Expenses. Except as provided herein, the Issuer shall pay all
--------
Registration Expenses with respect to each registration hereunder, whether or
not any registration statement becomes effective. Notwithstanding the foregoing,
(i) each Holder and the Issuer shall be responsible for its own internal
administrative and similar costs, which shall not constitute Registration
Expenses, (ii) each Holder shall be responsible for the legal fees and expenses
of its own counsel (except as provided in the definition of Registration
Expenses) and (iii) each Holder shall be responsible for all underwriting
discounts and commissions, selling or placement agent or broker fees and
commissions, and transfer taxes, if any, in connection with the sale of
securities by such Holder.
Section 2.4 Registration and Qualification. If and whenever the Issuer is
------------------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in this Agreement, the Issuer shall as promptly as
practicable:
(a) prepare, file and cause to become effective a registration statement
under the Securities Act relating to the Registrable Securities to be offered
in accordance with the intended method of disposition thereof;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities until the Shelf Termination Date;
(c) furnish to the Holders of Registrable Securities (i) such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), (ii) such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and (iii) such documents incorporated by reference in such
registration statement or prospectus, as the Holders of Registrable Securities
may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such Holder (it being understood that, subject to
the requirements of the Securities Act and applicable state securities laws,
the Issuer consents
4
to the use of the prospectus and any amendment or supplement thereto by each
Holder of Registrable Securities in connection with the offering and sale of
the Registrable Shares covered by the registration statement of which such
prospectus, amendment or supplement is a part);
(d) promptly notify each Selling Holder in writing (i) at any time when a
prospectus relating to a registration pursuant to this Agreement is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) of any request by the Commission or any other
regulatory body having jurisdiction for any additional information or
amendment or supplement to any registration statement or other document
relating to such offering, and in either such case, at the request of any
Selling Holder, promptly prepare and furnish to each Selling Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading;
(e) cause all such Registrable Securities covered by such registration to
be listed on each securities exchange and included for quotation on each
automated interdealer quotation system on which the Common Stock is then
listed or included for quotation;
(f) provide a CUSIP number for the Registrable Shares included in any
registration statement not later than the effective date of such registration
statement;
(g) cooperate with each Selling Holder participating in the disposition
of Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD;
(h) during the period when a prospectus is required to be delivered under
the Securities Act, promptly file all documents required to be filed with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(i) prepare and file with the Commission promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Issuer, are required in connection with the distribution of
the Registrable Securities;
(j) advise each Selling Holder, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of any registration statement or the initiation
or threatening of any proceeding for such purpose and promptly use its
commercially reasonable efforts to
5
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued; and
(k) furnish for delivery in connection with the closing of any offering
of Registrable Securities pursuant to a registration effected pursuant to this
Agreement unlegended certificates representing ownership of the Registrable
Securities being sold in such denominations as shall be requested by the
Selling Holders.
Section 2.6 Indemnification.
---------------
(a) The Issuer agrees to indemnify and reimburse, to the fullest extent
permitted by law, each Selling Holder, and each of its employees, advisors,
agents, representatives, partners, officers, and directors and each Person who
controls such seller of Registrable Securities (within the meaning of the
Securities Act or the Exchange Act) and any agent or investment advisor
thereof (collectively, the "Seller Affiliates") against any and all losses,
claims, damages, liabilities, and expenses, joint or several (including,
without limitation, reasonable attorneys' fees and disbursements except as
limited by Section 2.6(c) below) based upon, arising out of, related to or
resulting from any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus, or preliminary prospectus
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are made in
reliance upon and in strict conformity with information furnished in writing
to the Issuer by such Selling Holder or any Seller Affiliate for use therein
or arise from such Selling Holder's or any Seller Affiliate's failure to
deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Issuer has furnished such Selling Holder or
Seller Affiliate with a sufficient number of copies of the same. The
reimbursements required by this Section 2.6(a) will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(b) In connection with any registration statement in which a Selling
Holder is participating, each such Selling Holder will furnish to the Issuer
in writing such information and affidavits as the Issuer reasonably requests
for use in connection with any such registration statement or prospectus and,
to the fullest extent permitted by law, each such Selling Holder will
indemnify the Issuer and its directors and officers and each Person who
controls the Issuer (within the meaning of the Securities Act or the Exchange
Act) against any and all losses, claims, damages, liabilities, and expenses
(including, without limitation, reasonable attorneys' fees and disbursements
except as limited by Section 2.6(c) below) resulting from: (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, prospectus, or any preliminary prospectus or any
amendment thereof or supplement thereto, or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission is
contained in any information or affidavit so furnished in writing by such
Selling Holder or any of its Seller Affiliates
6
specifically for inclusion in the registration statement; or (ii) such Selling
Holder's or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Issuer has furnished such Selling Holder or Seller Affiliate with a
sufficient number of copies of the same; provided, that the obligation to
indemnify will be several, not joint and several, among such Selling Holders,
and the liability of each such Selling Holder will be in proportion to, and
provided further that such liability will be limited to, the net amount
received by such Selling Holder from the sale of Registrable Securities
pursuant to such registration statement; provided, however, that such Selling
Holder shall not be liable in any such case to the extent that, prior to the
filing of any such registration statement or prospectus or amendment thereof
or supplement thereto, such Selling Holder has furnished in writing to the
Issuer information expressly for use in such registration statement or
prospectus or any amendment thereof or supplement thereto which corrected or
made not misleading information previously furnished to the Issuer.
(c) Any Person entitled to indemnification hereunder will give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided that the failure to give such notice shall not
limit the rights of such Person except to the extent such failure prejudiced
the indemnifying party) and permit such indemnifying party to assume the
defense of such claim; provided, however, that any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such Person unless (i) the indemnifying
party has agreed to pay such fees or expenses, (ii) the indemnifying party
shall have failed to assume the defense of such claim or (iii) in the
reasonable opinion of counsel to such indemnified party, a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim. If such defense is not assumed by the indemnifying
party as permitted hereunder, the indemnifying party will not be subject to
any liability for any settlement made by the indemnified party without its
consent (but such consent will not be unreasonably withheld or delayed). If
such defense is assumed by the indemnifying party pursuant to the provisions
hereof, such indemnifying party shall not settle or otherwise compromise the
applicable claim unless (A) such settlement or compromise contains a full and
unconditional release of the indemnified party or (B) the indemnified party
otherwise consents in writing. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to pay
the reasonable fees and disbursements of such additional counsel or counsels.
(d) Each party hereto agrees that, if for any reason the indemnification
provisions contemplated by Section 2.6(a) or Section 2.6(b) are unavailable to
or insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party
7
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, liabilities, or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party in connection with the
actions which resulted in the losses, claims, damages, liabilities or expenses
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this
Section 2.6(d) were determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in this Section 2.6(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities, or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or, except as provided in
Section 2.6(c) above, defending any such action or claim. Notwithstanding the
provisions of this Section 2.6(d), no Holder shall be required to contribute
an amount greater than the dollar amount by which the net proceeds received by
such Holder with respect to the sale of any Registrable Securities exceeds the
amount of damages which such Holder has otherwise been required to pay by
reason of such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations in this Section 2.6(d)
to contribute shall be several in proportion to the amount of Registrable
Securities registered by them and not joint.
If indemnification is available under this Section 2.6, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 2.6(a) and Section 2.6(b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 2.6(d) subject, in the case of the Holders, to
the limited dollar amounts set forth in Section 2.6(b).
The indemnification and contribution provided for under this Agreement
shall be in addition to any liability which any party may otherwise have to
any other party and shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, or controlling Person of such indemnified party and will survive the
transfer of the Common Stock and the termination of this Agreement.
ARTICLE 3
MISCELLANEOUS
8
Section 3.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
Section 3.2 Successors and Assigns. Whether or not an express assignment has
----------------------
been made pursuant to the provisions of this Agreement, provisions of this
Agreement that are for the Holders' benefit as the holders of any Common Stock
are, except as otherwise expressly provided herein, also for the benefit of, and
enforceable by, all subsequent holders of such Common Stock, except as otherwise
expressly provided herein. This Agreement shall be binding upon the Issuer, each
Holder, and, except as otherwise expressly provided herein, their respective
heirs, devisees, successors and assigns.
Section 3.3 Duplicate Originals. All parties may sign any number of copies of
-------------------
this Agreement. Each signed copy shall be an original, but all of them together
shall represent the same agreement.
Section 3.4 Amendments, Waivers, Etc. This Agreement may not be amended,
------------------------
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the Issuer and
Holders representing a majority of the Registrable Securities then held by all
Holders.
Section 3.5 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
If to the Company, to: Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11801-1408
Attn: Richard Kandel, Chairman/CEO
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:) Akin, Gump, Strauss, Hauer & Feld,L.L.P.
300 Convent, Suite 1500
San Antonio, Texas 78205
Attn: Alan Schoenbaum
Phone: (210) 281-7000
Fax: (210) 224-2035
If to the Investors, to the address and facsimile number of each Investor
as set forth on Exhibit A of this Registration Rights Agreement, or to such
other person or address as the Investor shall furnish to the Company in
writing.
Section 3.6 Severability. Whenever possible, each provision or portion of any
------------
provision of this Agreement will be interpreted in such manner as to be
effective and valid under
9
applicable law, but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or portion of any provision
in such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
Section 3.7 No Waiver. The failure of any party hereto to exercise any right,
---------
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
Section 3.8 No Third Party Beneficiaries. Except as expressly provided in
----------------------------
Section 2.6; this Agreement is not intended to be for the benefit of, and shall
not be enforceable by, any Person who or which is not a party hereto; provided,
that, this Agreement is also intended to be for the benefit of and is
enforceable by each Holder.
Section 3.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
Section 3.10 Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 3.11 Counterparts. This Agreement may be executed in counterpart,
------------
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed
and delivered as of the day and year first above written.
(Signature Page Follows)
10
[COMPANY SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
ENVIRO-CLEAN OF AMERICA, INC.
BY:_________________________________
Randall K. Davis,
President
[INVESTORS SIGNATURE PAGES FOLLOW]
11
[INVESTOR SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
THE INVESTORS
_____________________________________________________
Name of Investor if Entity or Signature if Individual
By:__________________________________________________
Title:_______________________________________________
_____________________________________________________
Please type or print name
12
Exhibit 10(vi)
--------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of ___________, 2000 (this
"Agreement"), by and among Enviro-Clean of America, Inc., a Nevada corporation
(the "Issuer"), and the new investors who execute a counterpart of this
Agreement (the "Investors") and will participate in the offering (the
"Offering") of shares of Common Stock (the "Offered Shares") pursuant to the
Private Placement Memorandum dated September 14, 2000:
WHEREAS, the Issuer is entering into the Offering and desires to extend
certain registration rights for the Offered Shares to the Investors who will
participate in the Offering:
NOW, THEREFORE, the parties hereto in consideration of the mutual promises
contained herein and intending to be legally bound do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, shall have the
-----------
following respective meanings:
"Commission" means the Securities and Exchange Commission or any successor
governmental body or agency.
"Common Stock" means the Common Stock, par value $0.001 per share, of the
Issuer.
"Disadvantageous Condition" has the meaning ascribed thereto in Section 2.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means the Investors and any direct or indirect transferee of the
Investors who shall agree to be bound by the terms of this Agreement.
"Person" or "person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Registrable Securities" means the Offered Shares; provided, however, that
Registrable Securities shall not include any shares of Common Stock (i) the sale
of which has been registered pursuant to the Securities Act and which shares
have been sold pursuant to such registration or (ii) which have been sold
pursuant to Rule 144 of the Commission under the Securities Act.
"Registration Expenses" means any and all expenses incident to performance of
or compliance with any registration of securities pursuant to Article 2,
including, without limitation,
1
(i) all registration and filing fees, (ii) all fees and expenses associated with
filings required to be made with the NASD, as may be required by the rules and
regulations of the NASD, (iii) fees and expenses of compliance with securities
or "blue sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualifications of the Registrable Shares), (iv)
rating agency fees, (v) printing expenses (including expenses of printing
certificates for the Registrable Shares in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by a holder of Registrable Shares), (vi) messenger and
delivery expenses, (vii) the Issuer's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (viii) the fees and expenses incurred in connection
with any listing of the Registrable Shares, (ix) fees and expenses of counsel
for the Issuer and its independent certified public accountants (including the
expenses of any special audit or "cold comfort" letters required by or incident
to such performance), (x) Securities Act liability insurance (if the Issuer
elects to obtain such insurance), (xi) the fees and expenses of any special
experts retained by the Issuer in connection with such registration, (xii) the
fees and expenses of other persons retained by the Issuer and (xiii) reasonable
fees and expenses of one firm of counsel for the Selling Holders (which shall be
selected by the Holders of a majority of the Registrable Securities being
included in any particular registration statement).
"Required Shelf Registration" has the meaning ascribed thereto in Section 2.1.
"Rule 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect) promulgated under
the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Affiliates" has the meaning ascribed thereto in Section 2.6.
"Selling Holder" means any Holder who sells Registrable Securities pursuant to
a public offering registered hereunder.
"Shelf Registration" means the registration under the Securities Act of a Rule
415 Offering.
"Shelf Registration Statement" means a registration statement intended to effect
a Shelf Registration.
"Shelf Termination Date" has the meaning ascribed thereto in Section 2.1(c).
Section 1.2 Internal References. Unless the context indicates otherwise,
-------------------
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
2
ARTICLE 2
REGISTRATION RIGHTS
Section 2.1 Shelf Registration on Form S-3. At any time after the date that
------------------------------
is six months from the date hereof, if requested by a Holder or Holders holding
a majority in interest of the Registrable Securities, as soon as practicable
(but in any event not more than 15 days) after such request, the Issuer shall
prepare and file with the Commission a Shelf Registration Statement on Form S-3
that shall include all Registrable Securities (the "Required Shelf
Registration"); provided, however, that the Issuer will not be required to file
such Required Shelf Registration pursuant to this Agreement if Issuer is not
eligible to register securities on Form S-3 at the time a request for such
registration is made pursuant to this Section 2.1. The Issuer shall use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective as soon as practicable after such request; provided, however,
that the Issuer shall have no obligation to cause such Shelf Registration
Statement to be declared effective on a date that is prior to the nine months of
this Agreement. Notwithstanding anything else contained in this Agreement, the
Issuer shall only be obligated to keep such Shelf Registration Statement
effective until the earliest of:
(a) (i) 12 months after the date such Shelf Registration Statement has
been declared effective, provided that such 12-month period shall be extended
by (1) the length of any period during which the Issuer delays in maintaining
the Shelf Registration Statement current pursuant to Section 2.2, (2) the
length of any period (in which such Shelf Registration Statement is required
to be effective hereunder) during which such Shelf Registration Statement is
not maintained effective, and (3) such number of days that equals the number
of days elapsing from (x) the date the written notice contemplated by Section
2.4(d) below is given by the Issuer to (y) the date on which the Issuer
delivers to the Holders of Registrable Securities the supplement or amendment
contemplated by Section 2.4(d) below;
(b) such time as all Registrable Securities have been sold or disposed
of thereunder or sold, transferred or otherwise disposed of to a Person that
is not a Holder; and
(c) such time as all securities owned by the Holders have ceased to be
Registrable Securities (the earliest of (a), (b) and (c) being the "Shelf
Termination Date").
Section 2.2 Certain Delay Rights. Notwithstanding any other provision of this
--------------------
Agreement to the contrary, if at any time while the Required Shelf Registration
is effective the Issuer provides written notice to each Holder that in the good
faith and reasonable judgment of the Board of Directors of the Issuer it would
be materially disadvantageous to the Issuer (because the sale of Registrable
Securities covered by such registration statement or the disclosure of
information therein or in any related prospectus or prospectus supplement would
materially interfere with any acquisition, financing or other material event or
transaction in connection with which a registration of securities under the
Securities Act for the account of the Issuer is then intended or the public
disclosure of which at the time would be materially prejudicial to the
3
Issuer (a "Disadvantageous Condition")) for sales of Registrable Securities
thereunder to then be permitted, and setting forth the general reasons for such
judgment, the Issuer may refrain from maintaining current the prospectus
contained in the Shelf Registration Statement until such Disadvantageous
Condition no longer exists (notice of which the Issuer shall promptly deliver in
writing to each Holder). With respect to each Holder, upon the receipt by such
Holder of any such notice of a Disadvantageous Condition, such Holder shall
forthwith discontinue use of the prospectus and any prospectus supplement under
such registration statement and shall suspend sales of Registrable Securities
until such Disadvantageous Condition no longer exists and, as applicable, if so
directed by the Issuer by notice as aforesaid, such Holder will deliver to the
Issuer all copies, other than permanent filed copies then in such Holder's
possession, of the prospectus and prospectus supplements then covering such
Registrable Securities at the time of receipt of such notice as aforesaid.
Section 2.3 Expenses. Except as provided herein, the Issuer shall pay all
--------
Registration Expenses with respect to each registration hereunder, whether or
not any registration statement becomes effective. Notwithstanding the foregoing,
(i) each Holder and the Issuer shall be responsible for its own internal
administrative and similar costs, which shall not constitute Registration
Expenses, (ii) each Holder shall be responsible for the legal fees and expenses
of its own counsel (except as provided in the definition of Registration
Expenses) and (iii) each Holder shall be responsible for all underwriting
discounts and commissions, selling or placement agent or broker fees and
commissions, and transfer taxes, if any, in connection with the sale of
securities by such Holder.
Section 2.4 Registration and Qualification. If and whenever the Issuer is
------------------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in this Agreement, the Issuer shall as promptly as
practicable:
(a) prepare, file and cause to become effective a registration
statement under the Securities Act relating to the Registrable Securities to
be offered in accordance with the intended method of disposition thereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities until the Shelf Termination
Date;
(c) furnish to the Holders of Registrable Securities (i) such number
of conformed copies of such registration statement and of each such amendment
and supplement thereto (in each case including all exhibits), (ii) such number
of copies of the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and (iii) such documents incorporated by reference in such
registration statement or prospectus, as the Holders of Registrable Securities
may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such Holder (it being understood that, subject to
the requirements of the Securities Act and applicable state securities laws,
the Issuer consents
4
to the use of the prospectus and any amendment or supplement thereto by each
Holder of Registrable Securities in connection with the offering and sale of
the Registrable Shares covered by the registration statement of which such
prospectus, amendment or supplement is a part);
(d) promptly notify each Selling Holder in writing (i) at any time
when a prospectus relating to a registration pursuant to this Agreement is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) of any request by the Commission or any
other regulatory body having jurisdiction for any additional information or
amendment or supplement to any registration statement or other document
relating to such offering, and in either such case, at the request of any
Selling Holder, promptly prepare and furnish to each Selling Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading;
(e) cause all such Registrable Securities covered by such registration
to be listed on each securities exchange and included for quotation on each
automated interdealer quotation system on which the Common Stock is then
listed or included for quotation;
(f) provide a CUSIP number for the Registrable Shares included in any
registration statement not later than the effective date of such registration
statement;
(g) cooperate with each Selling Holder participating in the
disposition of Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD;
(h) during the period when a prospectus is required to be delivered
under the Securities Act, promptly file all documents required to be filed
with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act;
(i) prepare and file with the Commission promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Issuer, are required in connection with the distribution of
the Registrable Securities;
(j) advise each Selling Holder, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of any registration statement or the
initiation or threatening of any proceeding for such purpose and promptly use
its commercially reasonable efforts to
5
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued; and
(k) furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration effected
pursuant to this Agreement unlegended certificates representing ownership of
the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders.
Section 2.6 Indemnification.
---------------
(a) The Issuer agrees to indemnify and reimburse, to the fullest
extent permitted by law, each Selling Holder, and each of its employees,
advisors, agents, representatives, partners, officers, and directors and each
Person who controls such seller of Registrable Securities (within the meaning
of the Securities Act or the Exchange Act) and any agent or investment advisor
thereof (collectively, the "Seller Affiliates") against any and all losses,
claims, damages, liabilities, and expenses, joint or several (including,
without limitation, reasonable attorneys' fees and disbursements except as
limited by Section 2.6(c) below) based upon, arising out of, related to or
resulting from any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus, or preliminary prospectus
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are made in
reliance upon and in strict conformity with information furnished in writing
to the Issuer by such Selling Holder or any Seller Affiliate for use therein
or arise from such Selling Holder's or any Seller Affiliate's failure to
deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Issuer has furnished such Selling Holder or
Seller Affiliate with a sufficient number of copies of the same. The
reimbursements required by this Section 2.6(a) will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(b) In connection with any registration statement in which a Selling
Holder is participating, each such Selling Holder will furnish to the Issuer
in writing such information and affidavits as the Issuer reasonably requests
for use in connection with any such registration statement or prospectus and,
to the fullest extent permitted by law, each such Selling Holder will
indemnify the Issuer and its directors and officers and each Person who
controls the Issuer (within the meaning of the Securities Act or the Exchange
Act) against any and all losses, claims, damages, liabilities, and expenses
(including, without limitation, reasonable attorneys' fees and disbursements
except as limited by Section 2.6(c) below) resulting from: (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, prospectus, or any preliminary prospectus or any
amendment thereof or supplement thereto, or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission is
contained in any information or affidavit so furnished in writing by such
Selling Holder or any of its Seller Affiliates
6
specifically for inclusion in the registration statement; or (ii) such Selling
Holder's or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Issuer has furnished such Selling Holder or Seller Affiliate with a
sufficient number of copies of the same; provided, that the obligation to
indemnify will be several, not joint and several, among such Selling Holders,
and the liability of each such Selling Holder will be in proportion to, and
provided further that such liability will be limited to, the net amount
received by such Selling Holder from the sale of Registrable Securities
pursuant to such registration statement; provided, however, that such Selling
Holder shall not be liable in any such case to the extent that, prior to the
filing of any such registration statement or prospectus or amendment thereof
or supplement thereto, such Selling Holder has furnished in writing to the
Issuer information expressly for use in such registration statement or
prospectus or any amendment thereof or supplement thereto which corrected or
made not misleading information previously furnished to the Issuer.
(c) Any Person entitled to indemnification hereunder will give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided that the failure to give such notice shall not
limit the rights of such Person except to the extent such failure prejudiced
the indemnifying party) and permit such indemnifying party to assume the
defense of such claim; provided, however, that any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such Person unless (i) the indemnifying
party has agreed to pay such fees or expenses, (ii) the indemnifying party
shall have failed to assume the defense of such claim or (iii) in the
reasonable opinion of counsel to such indemnified party, a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim. If such defense is not assumed by the indemnifying
party as permitted hereunder, the indemnifying party will not be subject to
any liability for any settlement made by the indemnified party without its
consent (but such consent will not be unreasonably withheld or delayed). If
such defense is assumed by the indemnifying party pursuant to the provisions
hereof, such indemnifying party shall not settle or otherwise compromise the
applicable claim unless (A) such settlement or compromise contains a full and
unconditional release of the indemnified party or (B) the indemnified party
otherwise consents in writing. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to pay
the reasonable fees and disbursements of such additional counsel or counsels.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 2.6(a) or Section 2.6(b)
are unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages, liabilities, or expenses (or actions
in respect thereof) referred to therein, then each indemnifying party
7
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, liabilities, or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party in connection with the
actions which resulted in the losses, claims, damages, liabilities or expenses
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this
Section 2.6(d) were determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in this Section 2.6(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities, or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or, except as provided in
Section 2.6(c) above, defending any such action or claim. Notwithstanding the
provisions of this Section 2.6(d), no Holder shall be required to contribute
an amount greater than the dollar amount by which the net proceeds received by
such Holder with respect to the sale of any Registrable Securities exceeds the
amount of damages which such Holder has otherwise been required to pay by
reason of such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations in this Section 2.6(d)
to contribute shall be several in proportion to the amount of Registrable
Securities registered by them and not joint.
If indemnification is available under this Section 2.6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 2.6(a) and Section 2.6(b) without regard to the relative
fault of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 2.6(d) subject, in the case of the
Holders, to the limited dollar amounts set forth in Section 2.6(b).
The indemnification and contribution provided for under this Agreement
shall be in addition to any liability which any party may otherwise have to
any other party and shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, or controlling Person of such indemnified party and will survive the
transfer of the Common Stock and the termination of this Agreement.
8
ARTICLE 3
MISCELLANEOUS
Section 3.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
Section 3.2 Successors and Assigns. Whether or not an express assignment has
----------------------
been made pursuant to the provisions of this Agreement, provisions of this
Agreement that are for the Holders' benefit as the holders of any Common Stock
are, except as otherwise expressly provided herein, also for the benefit of, and
enforceable by, all subsequent holders of such Common Stock, except as otherwise
expressly provided herein. This Agreement shall be binding upon the Issuer, each
Holder, and, except as otherwise expressly provided herein, their respective
heirs, devisees, successors and assigns.
Section 3.3 Duplicate Originals. All parties may sign any number of copies of
-------------------
this Agreement. Each signed copy shall be an original, but all of them together
shall represent the same agreement.
Section 3.4 Amendments, Waivers, Etc. This Agreement may not be amended,
------------------------
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the Issuer and
Holders representing a majority of the Registrable Securities then held by all
Holders.
Section 3.5 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
If to the Company, to: Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11801-1408
Attn: Richard Kandel, Chairman/CEO
Phone: (516) 931-4455
Fax: (516) 931-3530
(with a copy to:) Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent, Suite 1500
San Antonio, Texas 78205
Attn: Alan Schoenbaum
Phone: (210) 281-7000
Fax: (210) 224-2035
If to the Investors, to the address and facsimile number of each
Investor as set forth on Exhibit A of this Registration Rights Agreement, or
to such other person or address as the Investor shall furnish to the Company
in writing.
9
Section 3.6 Severability. Whenever possible, each provision or portion of
------------
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 3.7 No Waiver. The failure of any party hereto to exercise any
---------
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
Section 3.8 No Third Party Beneficiaries. Except as expressly provided in
----------------------------
Section 2.6; this Agreement is not intended to be for the benefit of, and shall
not be enforceable by, any Person who or which is not a party hereto; provided,
that, this Agreement is also intended to be for the benefit of and is
enforceable by each Holder.
Section 3.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
Section 3.10 Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 3.11 Counterparts. This Agreement may be executed in counterpart,
------------
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed
and delivered as of the day and year first above written.
(Signature Page Follows)
10
[COMPANY SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
ENVIRO-CLEAN OF AMERICA, INC.
BY:_________________________________
Randall K. Davis,
President
[INVESTORS SIGNATURE PAGES FOLLOW]
11
[INVESTOR SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT]
THE INVESTORS:
_____________________________________________________
Name of Investor if Entity or Signature if Individual
By:__________________________________________________
Title: ______________________________________________
_____________________________________________________
Please type or print name
12
Exhibit 99(i)
-------------
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Independent Auditor's Report F-1
Consolidated Financial Statements:
Balance Sheet F-2
Statement of Operations F-3
Statement of Changes in Stockholders' Equity F-4-5
Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-18
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Enviro-Clean of America, Inc.
We have audited the accompanying consolidated balance sheet of Enviro-Clean of
America, Inc. & Subsidiaries as of December 31, 2000 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enviro-Clean of America, Inc. &
Subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
/s/ GOLDSTEIN GOLUB KESSLER LLP
New York, New York
February 23, 2001
F-1
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 2000
- ----------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Current Assets:
Cash $ 2,619,731
Accounts receivable, net of allowance for doubtful accounts of $82,291 744,829
Inventory 763,161
Marketable securities-available for sale 1,395,000
Prepaid expenses and other current assets 59,007
Prepaid income taxes 1,008,338
- ----------------------------------------------------------------------------------------------
Total current assets 6,590,066
Fixed Assets - less accumulated depreciation and amortization of $875,454 226,951
Deferred Income Tax Asset, net of valuation allowance of $114,000 -
Equity investment 980,384
Goodwill 3,674,179
- ----------------------------------------------------------------------------------------------
Total Assets $11,471,580
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 930,511
Notes payable - related parties 775,000
Current maturities of long-term debt 32,416
- ----------------------------------------------------------------------------------------------
Total current liabilities 1,737,927
Long-term Liabilities:
Notes payable - related parties - subordinated 1,474,522
Notes payable - related parties 333,334
Long-term debt, less current maturities 54,937
- ----------------------------------------------------------------------------------------------
Total liabilities 3,600,720
- ----------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $.001 par value; authorized 20,000,000 shares,
issued 7,271,752; outstanding 6,771,752 shares 7,273
Less: Treasury stock-500,000 shares at cost (1,000,000)
Additional paid-in capital 11,559,043
Accumulated other comprehensive income 1,392,210
Accumulated deficit (4,422,666)
Common stock to be issued 160,000
- ----------------------------------------------------------------------------------------------
Stockholders' equity 7,695,860
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $11,471,580
==============================================================================================
</TABLE>
See Notes to Consolidated Financial statements
F-2
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 9,157,225 $ 4,332,172
Cost of sales 5,500,451 2,242,527
- -------------------------------------------------------------------------------------------
Gross profit 3,656,774 2,089,645
- -------------------------------------------------------------------------------------------
Operating expenses:
Salaries 2,248,871 948,793
Professional fees 597,268 635,728
Depreciation and amortization 72,908 64,157
Amortization of goodwill 813,748 540,556
Marketing 24,061 68,477
Rent 427,607 193,758
Interest 674,908 492,216
Other 1,343,317 607,386
- -------------------------------------------------------------------------------------------
Total operating expenses 6,202,688 3,551,071
- -------------------------------------------------------------------------------------------
Operating loss (2,545,914) (1,461,426)
- -------------------------------------------------------------------------------------------
Other income 6,861,517 -
- -------------------------------------------------------------------------------------------
Income (loss) before income tax (benefit) expense 4,315,603 (1,461,426)
Income tax benefit - (76,835)
- -------------------------------------------------------------------------------------------
Net income (loss) from continuing operations 4,315,603 (1,384,591)
- -------------------------------------------------------------------------------------------
Income from operations of discontinued subsidiaries 247,629 253,466
Loss on disposal of subsidiaries (4,010,440) -
- -------------------------------------------------------------------------------------------
Net income (loss) from discontinued operations (3,762,811) 253,466
- -------------------------------------------------------------------------------------------
Net income 552,792 (1,131,125)
- -------------------------------------------------------------------------------------------
Preferred stock dividends (123,296) (192,462)
- -------------------------------------------------------------------------------------------
Net income (loss) attributable to common stockholders $ 429,496 $ (1,323,587)
===========================================================================================
Income (loss) per common share continuing operations $ 0.71 $ (0.37)
===========================================================================================
Income (loss) per common share from discontinued $ (0.64) $ 0.06
===========================================================================================
Income (loss) per common share - basic and diluted $ 0.07 $ (0.31)
===========================================================================================
Weighted-average number of common shares outstanding 5,878,750 4,271,764
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common
Number Number Treasury Stock to
of Shares Amount of Shares Amount Stock Be Issued
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 3,690,000 3,690
Issuance of common stock for cash
at $2.50 per share 386,000 386
Issuance of warrants
Issuance of preferred stock for cash
at $100.00 per share 25,590 $2,559,000
Issuance of preferred stock in connection
with acquisition 820,000 4,100,000
Net loss of Kandel for the three months
ended December 31, 1998
Distribution to stockholder
Common stock issued in connection with
acquisition of NISSCO/Sunline, Inc. 250,000 250
Common stock issued in connection with
acquisition of June Supply-San Antonio, Inc. 100,000 100
Common stock issued in consideration of
professional fees 25,000 25
Common stock to be issued at $2.50 per share $1,875,000
Common stock to be issued at $4.00 per share in
connection with acquisition of Superior 200,000
Preferred stock dividends
Net loss
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 845,590 $6,659,000 4,451,000 $4,451 -0- $2,075,000
=============================================================================================================================
Issuance of common stock for cash
at $4.00 per share 245,000 245
Issuance of common stock in connection with
conversion of Series B preferred stock (20,790) (2,079,000) 426,195 426
Issuance of common stock in connection with
the conversion of subordinated notes payable 453,987 454
Issuance of common stock for cash
at $3.00 per share 281,500 282
Issuance of common stock for cash
at $1.25 per share 416,600 417
<CAPTION>
Additional Accumulated
Paid-in other comprehensive Accumulated Stockholders'
Capital income Deficit Equity
<S> <C> <C> <C> <C>
Balance at January 1, 1999 879,325 (734,351) 148,664
Issuance of common stock for cash
at $2.50 per share 964,614 965,000
Issuance of warrants 678,672 678,672
Issuance of preferred stock for cash
at $100.00 per share 2,559,000
Issuance of preferred stock in connection
with acquisition 4,100,000
Net loss of Kandel for the three months
ended December 31, 1998
(27,170) (27,170)
Distribution to stockholder (2,767,054) (2,767,054)
Common stock issued in connection with
acquisition of NISSCO/Sunline, Inc. 624,750 625,000
Common stock issued in connection with
acquisition of June Supply-San Antonio, Inc. 499,900 500,000
Common stock issued in consideration of
professional fees 124,975 125,000
Common stock to be issued at $2.50 per share 1,875,000
Common stock to be issued at $4.00 per share in
connection with acquisition of Superior 200,000
Preferred stock dividends (192,462) (192,462)
Net loss (1,131,125) (1,131,125)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $3,772,236 -0- $(4,852,162) $ 7,658,525
=============================================================================================================================
Issuance of common stock for cash
at $4.00 per share 979,755 980,000
Issuance of common stock in connection with
conversion of Series B preferred stock 2,130,549 51,975
Issuance of common stock in connection with
the conversion of subordinated notes payable 1,171,200 1,171,654
Issuance of common stock for cash
at $3.00 per share 844,218 844,500
Issuance of common stock for cash
at $1.25 per share 520,333 520,750
</TABLE>
See Notes to Consolidated Financial Statements
F-4
ENVIR0-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
=============================================================================================================================
Preferred Stock Common Stock Common
Number Number Treasury Stock to
of Shares Amount of Shares Amount Stock Be Issued
<S> <C> <C> <C> <C> <C> <C>
Common stock issued in connection with
acquisition of Nissco/Sunline, Inc. 750,000 750 (1,875,000)
Common stock issued in connection with
acquistion of June Supply-San Antonio, Inc 227,870 228
Common stock issued in connection with
acquisition of Superior Chemical & Supply, Inc 10,000 10 (40,000)
Common stock issued to employees in
consideration of services 9,600 10
Common stock options issued in
consideration of professional fees
Treasury stock purchased at $2.00 per share (1,000,000)
Redemption of Series A preferred stock (500,000) (2,500,000)
Redemption of Series B preferred stock (4,800) (480,000)
Redemption of Series D preferred stock (320,000) (1,600,000)
Preferred stock dividends
Unrealized market gain-securities
Net income
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 -0- $ -0- 7,271,752 $ 7,273 $(1,000,000) $ 160,000
=============================================================================================================================
<CAPTION>
=============================================================================================================================
Additional Accumulated
Paid-in other comprehensive Accumulated Stockholders'
Capital income Deficit Equity
<S> <C> <C> <C> <C>
Common stock issued in connection with
acquisition of Nissco/Sunline, Inc. 1,874,250
Common stock issued in connection with
acquistion of June Supply-San Antonio, Inc (228)
Common stock issued in connection with
acquisition of Superior Chemical & Supply, Inc 39,900
Common stock issued to employees in
consideration of services 47,990 48,000
Common stock options issued in
consideration of professional fees 178,750 178,750
Treasury stock purchased at $2.00 per share (1,000,000)
Redemption of Series A preferred stock (2,500,000)
Redemption of Series B preferred stock (480,000)
Redemption of Series D preferred stock (1,600,000)
Preferred stock dividends (123,296) (123,296)
Unrealized market gain-securities 1,392,210 1,392,210
Net income 552,792 552,792
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 11,559,043 $ 1,392,210 $(4,422,666) $ 7,695,860
==========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statement.
F-5
ENVIRO-CLEAN OF AMERICA, INC & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
=====================================================================================================================
Year ended December 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 552,792 $ (1,131,125)
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income or (loss) to net cash used in
operating activities:
Depreciation and amortization 114,827 69,157
Amortization of goodwill 813,748 540,556
Non-cash interest expense 185,160 139,797
Shares issued for services - 125,000
Stock options issued for services 178,750 -
Shares issued as employee compensation 48,000 -
Increase in allowance for doubtful accounts 60,909 107,343
Gain on sale of investment ($6,747,000) -
Loss on sale of subsidiaries 4,010,440 -
Loss on equity investment 94,826 -
Changes in assets and liabilities net of effects of dispositions:
(Increase) decrease in accounts receivable (119,883) 315,719
(Increase) decrease in prepaid expenses and other current assets (1,905) 36,707
Increase in prepaid income taxes (1,002,918) (5,420)
Decrease in inventory 31,163 22,608
Increase (decrease) in accounts payable and accrued expenses 312,829 (318,831)
- ----------------------------------------------------------------------------------------------------------------------
Total Adjustments (2,021,054) 1,032,636
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,468,262) (98,489)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of subsidiaries (362,200) (2,173,028)
Equity investments (1,075,000) -
(Increase) decrease in notes receivable 835,992 (807,672)
Purchase of property and equipment - net (47,630) (43,599)
Net proceeds on sale of investment 6,750,000 -
Net proceeds on sale of subsidiaries 1,500,000 -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 7,601,162 (3,024,299)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,397,225 965,000
Proceeds from issuance of preferred stock - 2,559,000
Repayment of notes payable - related parties and other (1,951,696) (1,192,932)
Proceeds from notes payable - related parties- subordinated - 3,000,000
Preferred stock redeemed (4,580,000) -
Purchase of treasury stock (1,000,000) -
Dividends paid (212,176) (102,270)
Distribution - (294,224)
Repayment of line of credit - (98,918)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,346,647) 4,835,656
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash 786,253 1,712,868
Cash at beginning of year 1,833,478 120,610
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,619,731 $ 1,833,478
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 769,457 $ 3,190
======================================================================================================================
Income taxes $ 1,031,193 $ 297,067
======================================================================================================================
Supplemental schedule of finance activities:
Conversion of subordinated debt-related parties $ 1,362,000 $ -
======================================================================================================================
Fixed asset financing obligations incurred $ 74,043 $ -
======================================================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
F-6
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
1. PRINCIPAL BUSINESS The accompanying consolidated financial
ACTIVITY AND SUMMARY statements include the accounts Of Enviro-Clean
OF SIGNIFICANT of America, Inc and it's Subsidiaries
ACCOUNTING POLICIES: (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.
The Company considers all highly liquid instruments
purchased with a maturity of three months or less
to be cash equivalents.
The Company recognizes revenue when products are
shipped.
The Company maintains cash in bank deposit accounts
which, at times, may exceed federally insured
limits. The Company has not experienced any losses
in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.
Merchandise inventories are valued at the lower of
cost or market. Cost is determined using the first-
in, first-out and average cost methods.
Inventory is comprised of the following:
Raw materials $ 32,900
Work in process 59,200
Finished goods 671,061
-------
$ 763,161
-------
Property and equipment are recorded at cost.
Depreciation and amortization of property and
equipment is provided for by the straight-line
method over the estimated useful lives of the
respective assets. Leasehold improvements are
amortized over the shorter of the economic life of
the improvement or the lease term.
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
December 31, 2000, totals $1,313. Preferred stock
dividends declared for the year ended December 31,
2000 totals $123,296. As of January 1, 2001, all
dividends declared through December 31, 2000, have
been paid in full.
The estimated fair values of the notes payable
approximate their carrying amounts based on terms
of the instruments and rates currently available to
the Company for similar loans.
F-7
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
Basic net income per common share is based on the
weighted-average number of shares outstanding
during the period while diluted net income per
common share considers the diluted effect of stock
options and warrants reflected under the treasury
stock method. Both basic net income per share and
diluted net income per share are the same since the
Company's outstanding warrants and common stock to
be issued have not been included in the calculation
because their effect would have been antidilutive.
Goodwill aggregating $3,674,179 at December 31,
2000, arising from business acquisitions accounted
for under the purchase method is being amortized
over 10 years using the straight-line method.
Accumulated amortization amounted to $606,418 at
December 31, 2000.
Management does not believe that any recently
issued, but not yet effective, accounting
standards, if currently adopted, would have a
material effect on the accompanying financial
statements.
2. ACQUISITIONS AND On January 1, 1999, the Company and Kandel & Son,
DISPOSITIONS: Inc. ("Kandel"), a New York-based sanitary supply
distribution company agreed to merge. The Company
paid $1,350,000 in cash and exchanged 500,000
shares of Series A Preferred Stock for all of the
outstanding common stock of Kandel. Kandel's sole
stockholder, Richard Kandel, received $684,404 of
the $1,350,000 cash payment and the $665,596
remaining balance was used to pay the obligations
of Kandel. This acquisition has been accounted for
at historical cost in a manner similar to a pooling
of interests since Mr. Kandel was the majority
stockholder of the Company at the time of the
acquisition. As such, the excess of cost over book
value of net assets acquired of approximately
$3,377,000 was deemed a distribution to Richard
Kandel.
On January 1, 1999, the Company entered into an
agreement to purchase all of the stock of
NISSCO/Sunline, Inc.("NISSCO"), a Florida-based
company engaged in group marketing of
sanitary/janitorial supplies. The aggregate
purchase price for this acquisition is $3,000,000,
consisting of $500,000 in cash and 1,000,000 shares
of the Company's common stock. The common stock
will be issued to the seller in installments as
defined in the agreement. This acquisition was
treated as a purchase for accounting purposes, with
the purchase price allocated based on fair value of
assets acquired and liabilities assumed.
The excess of the fair value of the net assets
acquired over the purchase price, aggregating
$2,977,213 has been calculated as follows:
Purchase price $3,000,000
----------------------------------------------
Cash $ 17,259
Accounts receivable 507,331
Property and equipment 57,487
Other assets 2,001
Accounts payable (419,670)
Loans payable (141,621)
F-8
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
-----------------------------------------------
Net assets acquired 22,787
-----------------------------------------------
Excess of cost over fair value
of net assets acquired (goodwill) $2,977,213
===============================================
The seller received 250,000 shares on January 15,
1999 and will receive 250,000 shares on January 15,
2000, and 500,000 shares on January 15, 2001. All
shares have been valued at $2.50 per share, the
fair market value of the Company's common stock on
January 1, 1999. If on January 15, 2001, the
Company's average bid price per share for the 10
days preceding January 15, 2001 is not at least
$5.00 per share, the Company shall issue additional
shares of common stock to the seller such that the
aggregate value of the shares issued on January 15,
2001 shall be $2,500,000.
On August 1, 1999, the Company entered into an
agreement to purchase all of the stock of Cleaning
Ideas, Inc. & Subsidiary ("Cleaning Ideas"), a
Texas-based manufacturer and distributor of
cleaning supplies. The aggregate purchase price for
this acquisition was $3,000,000, consisting of
$500,000 in cash, $900,000 in promissory notes and
320,000 shares of Series D Preferred Stock for all
of the outstanding stock of Cleaning Ideas. The
estimated fair market value of the Company's common
stock on the acquisition date was approximately
$5.50 per share. Because of a lack of trading
volume or tradability, a discount of approximately
8% was taken into account when valuing the stock
issued relating to the acquisition. A lower
discount was used for this acquisition than was
used for the acquisition of Superior Chemical &
Supply, Inc. ("Superior") consummated on the same
date because of the higher value placed on the
preferred stock as a result of the preferred stock
dividends issued in this transaction. This
acquisition was accounted for as a purchase. During
March 2000, the Series D Preferred Stock was
redeemed and all unpaid dividends accrued were paid
in full.
The excess of the fair value of the net assets
acquired over the purchase price, aggregating
$2,770,990, has been calculated as follows:
Purchase price $3,000,000
-----------------------------------------------
Cash 238,190
Accounts receivable 248,544
Inventory 395,482
Property and equipment 72,853
Other assets 27,561
Accounts payable (353,620)
Loans payable (400,000)
-----------------------------------------------
Net assets acquired 229,010
-----------------------------------------------
Excess of cost over fair value
of net assets acquired (goodwill) $2,770,990
===============================================
The operations of Cleaning Ideas are included in
the consolidated financial statements from August
1, 1999, the date of acquisition.
F-9
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
On August 1, 1999, the Company entered into an
agreement to purchase all of the stock of Superior,
a Kentucky-based distributor of cleaning supplies.
The aggregate purchase price for the acquisition
was $1,800,000, consisting of $400,000 in cash,
$1,200,000 in promissory notes and 50,000 shares of
the Company's common stock valued at $4.00 per
share. The estimated fair market value of the
Company's common stock on the acquisition date was
approximately $5.50 per share. Because of the lack
of trading volume or tradability, a discount of
approximately 25% was taken into account when
valuing common stock to be issued relating to the
acquisition. The common stock will be issued to the
seller in installments, as defined in the
agreement. The acquisition was accounted for as a
purchase.
The excess of the fair value of the net assets
acquired over the purchase price, aggregating
$1,509,607, has been calculated as follows:
Purchase price $1,800,000
-----------------------------------------------
Cash 8,098
Accounts receivable 198,270
Inventory 192,821
Property and equipment 36,141
Accounts payable (127,488)
Loans payable (17,449)
-----------------------------------------------
Net assets acquired 290,393
-----------------------------------------------
Excess of cost over fair value
of net assets acquired (goodwill) $1,509,607
===============================================
The operations of Superior are included in the
consolidated financial statements from August 1,
1999, the effective date of the acquisition.
The seller will receive 10,000 shares within 90
days of the end of each fiscal year ending December
31, provided Superior's target amount is met each
year. The target amount is pretax earnings of
Superior amounting to $250,000 per annum prorated
for the period ended December 31, 1999, and
increased by 5% for each year under the agreement.
If the target amount is not met in any year, the
number of shares to be delivered from escrow shall
be equal to the product of 10,000 multiplied by a
fraction, the numerator of which shall be the
Superior's pretax earnings for such year and the
denominator of which shall be the target amount for
such year. In the event that Superior does not meet
the target amount in any year, and Superior exceeds
the target amount in the year, Superior may apply
an amount equal to the extent by which the
Superior's pretax earnings exceed the target amount
for such year, to the prior year's target amount
and cause a proportionate amount of the escrowed
shares that were withheld the prior year to be
released to the stockholders. In no event shall the
aggregate number of shares issued in respect of any
two-year period exceed 20,000.
Effective September 1, 1999 the Company entered
into an agreement to purchase all of the stock of
June Supply-San Antonio, Inc. & Subsidiary
("June"), a Texas-based janitorial and maintenance
supply wholesale distributor. The aggregate
purchase price for this acquisition is $3,939,951,
consisting of $2,264,951 in cash, $1,175,000 in
promissory notes, and 100,000 shares of the
Company's common stock, valued at $5.00 per share.
The estimated fair market value of the
F-10
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
Company's common stock on the last week of trading
before the acquisition date was approximately $6.50
per share. Because of the lack of trading volume or
tradability, a discount of approximately 23% was
taken into account when valuing the common stock to
be issued relating to the acquisition. This
acquisition was accounted for as a purchase.
The excess of the fair value of the net assets
acquired over the purchase price, aggregating
$1,934,318, has been calculated as follows:
Purchase price $3,939,951
-----------------------------------------------
Cash 728,376
Accounts receivable 837,396
Inventory 998,627
Property and equipment 123,942
Other assets 14,548
Accounts payable (676,891)
Loans payable (20,365)
-----------------------------------------------
Net assets acquired 2,005,633
-----------------------------------------------
Excess of cost over fair value
of net assets acquired (goodwill) $1,934,318
===============================================
On December 28, 2000, the Company issued an
additional 227,870 shares of its common stock to
the sellers of June pursuant to the original
purchase agreement.
The following pro forma information assumes that
all acquisitions occurred on January 1, 1999:
ENVIRO-CLEAN
of America, Inc. and
Subsidiaries
Net Sales $ 10,811,676
--------------------------------------------------
Net Loss (1,427,621)
--------------------------------------------------
Loss per share (0.33)
--------------------------------------------------
Shares used in computing
earnings per common share -
Basic loss per share 4,321,764
--------------------------------------------------
On August 15, 2000, the Company entered into an
agreement to sell all of the net assets of
Nissco/Sunline, Inc. ("Nissco"), it's Florida-based
subsidiary engaged in group marketing of
sanitary/janitorial supplies. The aggregate selling
price of these assets was $100,000. Nissco has been
dissolved as of December 28, 2000.
The loss on disposal of this subsidiary aggregating
$1,956,328 has been calculated as follows:
Selling price $ 100,000
--------------------------------------------------
Property and equipment 33,447
Excess of cost over fair value of
F-11
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
assets originally acquired (goodwill) 2,022,881
--------------------------------------------------
Net assets upon disposal 2,056,328
--------------------------------------------------
Net loss on disposal of subsidiary $1,956,328
==================================================
The operations of Nissco have been segregated from
the consolidated income from continuing operations.
On November 30, 2000, the Company entered into an
agreement to sell all of the assets of June Supply
Corp. ("June"), it's Texas-based janitorial and
maintenance supply wholesale distributor. The
aggregate selling price of these assets was
$1,400,000. June has been dissolved as of December
28, 2000.
The loss on disposal of this subsidiary aggregating
$2,054,112 has been calculated as follows:
Selling price $1,400,000
--------------------------------------------------
Cash 66,159
Accounts receivable 808,342
Inventory 1,024,285
Property and equipment 125,648
Accounts payable (403,220)
Loans payable (18,770)
--------------------------------------------------
Net assets sold 1,602,444
Excess of cost over fair value of net
assets originally acquired (goodwill) 1,851,668
--------------------------------------------------
Net assets upon disposal $3,454,112
--------------------------------------------------
Net loss on disposal of subsidiary $2,054,112
==================================================
The operations of June have been segregated from
the consolidated income from continuing operations.
Sales of the disposed Subsidiaries through the date
of disposal were $5,915,816 and $2,949,236 in 1999.
<TABLE>
<S> <C>
3. FIXED ASSETS: Fixed assets are comprised of the following:
Estimated
Useful Life
--------------------------------------------------------------------------------
Furniture, fixtures and equipment $ 492,901 5 years
Leasehold improvements 151,164 5 years
Transportation and delivery equipment 354,190 5 years
Computer hardware 104,150 3 years
--------------------------------------------------------------------------------
1,102,405
Less accumulated depreciation and amortization 875,454
--------------------------------------------------------------------------------
$ 226,951
================================================================================
</TABLE>
F-12
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
<TABLE>
<S> <C>
4. ACCOUNTS PAYABLE AND The following are included in accounts payable and accrued expenses at December 31, 2000:
ACCRUED EXPENSES:
Accounts payable $801,426
Interest 75,081
Dividends an preferred stock 1,313
Other accrued expenses 52,691
--------------------------------------------------------------------------------
$930,511
================================================================================
5. COMMITMENTS AND The Company leases office, warehouse, store space, other facilities and equipment
CONTINGENCIES: under noncancelable operating leases expiring through January 31, 2007.
Future minimum lease payments under these leases
at December 31, 1999 are as follows:
Year ending December 31,
2001 376,500
2002 358,500
2003 347,700
2004 225,900
2005 67,200
Thereafter 3,000
--------------------------------------------------------------------------------
$1,378,800
================================================================================
Certain leases contain escalation clauses relating to operating expenses and real
estate taxes.
6. INCOME TAXES: The provision for income taxes differs from the amount computed using the federal
statutory rate of 34% as a result of the following:
Year ended December 31, 2000 1999
---- ----
Taxes at the federal statutory rate $ 146,000 $(385,000)
Taxes computed at a rate below the federal
statutory rate - 88,165
Utilization of net operating loss carryforward (146,000) -
Valuation allowance - 220,000
--------------------------------------------------------------------------------
$ 0 $( 76,835)
================================================================================
The components of deferred income taxes resulting from the differences in the bases
of assets and liabilities for income tax and financial reporting purposes, and other
items are as follows:
</TABLE>
F-13
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
<TABLE>
<S> <C>
Current
------------
Allowance for doubtful accounts $ 12,000
Net operating loss carryforwards 102,000
Valuation allowance (114,000)
------------
$ -0-
============
As of December 31, 2000, the Company had net operating loss carryforwards available
to offset future taxable income of approximately $680,000 which will expire through
2019. Between December 1997 and December 1999, the Company completed offerings of
securities. Under Section 382 of the Internal Revenue Code (the "Code"), these
activities effect an ownership change and thus may severely limit, on an annual basis,
the Company's ability to utilize its net operating loss carryforwards
7. NOTES PAYABLE - Notes payable - related parties consists of the following:
RELATED PARTIES:
On June 1, 1999, the Company received $3,000,000 in exchange for 300 units. Each unit
is comprised of a $10,000 face value note. The notes are due April 1, 2002 and pay
interest in arrears quarterly on the face amount at a rate of 12.75% per annum. Issued
along with each unit were warrants to purchase 2,400 shares of common stock (720,000
shares in aggregate) of the Company.
The warrants are exercisable at any time after November 27, 1999, through June 1, 2003
at an exercise price of $4.25 per share. The Company has discounted the carrying value
of the notes by the fair value of the warrants on the date of issue. The discount is
being amortized as additional interest over the term of the notes. As of June 30, 2000,
a total of $1,362,000 of debt principal was converted into 453,987 common shares of the
Company and $39 cash in lieu of fractional shares. $1,474,522
In August of 1999, a secured promissory note of $900,000 was issued pursuant to the
acquisition of Cleaning Ideas. The note is payable over two years in eight equal
quarterly installments of $112,500 plus interest at 8-3/4% per annum, secured by the
assets of Cleaning Ideas. 375,000
In August of 1999, a promissory note of $1,200,000 was issued pursuant to the
acquisition of Superior. The note is payable over 3 years in 12 equal quarterly
installments of $100,000 plus interest at 8% per annum, secured by the accounts
receivable and inventory of Superior. 733,334
Notes payable-other 87,353
-------------------------------------------------------------------------------------------------------
2,670,209
Less current maturities 807,416
-------------------------------------------------------------------------------------------------------
$1,862,793
=======================================================================================================
During the year ended December 31, 2000, all interest expense, $674,908, was from
related parties debt.
</TABLE>
F-14
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
8. STOCKHOLDERS' EQUITY: In January 1999, the Company issued 70,000 shares
of common stock for an aggregate price of $175,000.
In March 1999, the Company issued 100,000 shares of
common stock for an aggregate price of $250,000.
In April 1999, the Company issued 50,000 shares of
common stock for an aggregate price of $125,000.
In May 1999, the Company issued 100,000 shares of
common stock for an aggregate price of $250,000.
In June 1999, the Company issued 50,000 shares of
common stock for an aggregate price of $125,000.
In July 1999, the Company issued 16,000 shares of
common stock for an aggregate price of $40,000.
In July 1999, the Company issued 25,000 shares of
common stock to Harrington, Ocko & Monk, LLP,
outside counsel to the Company, at a price of $5.00
per share in consideration for legal services
rendered.
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 May 2000, the Company issued 9,600 shares of
common stock to its employees at a price of $5.00
in consideration for work performed.
In June 2000, the Company began a program to
convert it's subordinated notes payable. Under the
program, the notes could be converted into common
shares. 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 June 2000, the Company issued 281,500 shares of
common stock for an aggregate price of $844,500.
In October 2000, the Company began a new private
placement of a minimum of 320,000 and a maximum of
2,000,000 shares of common stock at $1.25 per
share. The Company closed the private placement
during February 2001. The stock is restricted
securities as defined under Rule 144 promulgated by
the Commission under the Securities Act (Rule 144).
Accordingly, purchasers of the common stock may
only resell or otherwise transfer the common stock,
or any dividend thereon, pursuant to an effective
registration statement, or an exemption from
registration, including a sale in compliance with
Rule 144 which, among other restrictions, imposes a
holding period of at least one year before public
F-15
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
resales of securities may be made. On November 27,
2000, the Company sold an aggregate of 416,600
shares to approximately 14 accredited investors for
aggregate proceeds to the Company of $520,750. The
Company will use the proceeds from this offering
for working capital purposes.
Effective August 15, 2000, Thomas Haines, head of
Nissco/Sunline, Inc., then a wholly owned
Subsidiary, retired. At that time the Company
redeemed 500,000 shares of his stock in the Company
for a total of $1,000,000.
9. PREFERRED STOCK: Effective on September 30, 1999, the Company
entered into an agreement with Richard Kandel,
Chairman, Chief Executive Officer and Treasurer of
the Company, pursuant to which Mr. Kandel, as sole
holder of the Series A Stock, consented to the
amendment of the Certificate of Designation for the
Series A Stock to remove the ability of the holder
of the Series A Stock to put the Series A Stock to
the Company at any date after January 15, 2001 and
to increase the conversion price of the Series A
Stock from $2.50 to $5.00. On April 1, 2000, with
Board approval, 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.
On March 16, 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.
In October 1999, The Company authorized the
issuance of up to 80,000 shares of Series B
Cumulative Convertible Preferred Stock (the Series
B Stock). The Series B Stock has a stated value of
$100 and bears a dividend at a rate of 10% per
annum. The Series B Stock is convertible into
common stock at a conversion price of $5.00.
The Company sold an aggregate of 255.9 units, each
unit consisting of 100 shares of Series B Stock and
1000 common stock purchase warrants exercisable at
$5.00, to approximately 60 accredited investors for
an aggregate amount of $2,559,000. The Company
closed the private placement as of December 31,
1999.
During March 2000, the Company began a program to
convert all of its Series B Preferred Stock. Under
the program, the stockholders could either convert
their shares plus accrued dividends into common
shares or redeem them for cash. On April 1, 2000, a
total of $480,000 was redeemed for cash and the
balance of $2,079,000 was converted into 426,195
common shares.
10. RELATED PARTY On June 29, 1999, the Company and Messrs. Kandel,
TRANSACTIONs: Davis and Etra have invested in b2bstores.com, Inc.
("b2b"), a California-based company which designs
Internet-based electronic commerce programs. b2b
has assisted the Company to develop the Company's
eCommerce website. Mr. Kandel, the Chairman and
Chief Executive Officer of the Company, serves as
Chairman of the Board of b2b.
The Company's initial investment of $6,000 in b2b,
represented approximately 55% of the outstanding
common stock of b2b. Subsequently, others have
F-16
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
invested in b2b lowering the Company's direct
interest to approximately 49% of the outstanding
common stock at December 31, 1999. Richard Kandel,
the Company's principal stockholder owns additional
shares of b2b, such that he has effective control
of both companies. The Company has accounted for
its direct investment in b2b on the equity method
of accounting. Shares of stock sold to outsiders
have been recorded as a capital contribution to the
Company.
During the year ended December 31, 1999, the board
of directors of the Company authorized a loan to
b2b not to exceed $1,000,000, accruing interest at
a rate of 8% per annum, due January 31, 2000. B2b
had an IPO during February 2000 and immediately
repaid all amounts due including all interest
accrued to the Company. At December 31, 2000 there
are no amounts owed to the Company by b2b.
On February 15, 2000, b2b completed an initial
public offering which diluted the percentage of the
Company's holdings in b2b to 24.9%.
In March 2000, the Company sold 1,000,000 shares of
b2b, representing one-half of the Company's
investment, in a private transaction, netting
$6,750,000 in proceeds to the Company, and reducing
the percentage of the Company's holdings in b2b to
12.5%.
On July 28, 2000, the Company has invested in
Equip2move.com, Inc ("Equip2move"), a New York-
based company which hosts auctions on the Internet.
Mr. Kandel, the chairman and chief executive
officer of the Company, serves on the board of
directors of Equip2move.
The Company's investment of $1,075,000 represents
30% of the outstanding common stock of Equip2move
and 100% of outstanding shares of Series A
Convertible Preferred Stock. The preferred stock is
convertible into common stock at the rate of 1 to1.
Each preferred share has a warrant attached to
purchase one share of common stock at $1.00 per
share. As part of the stockholders agreement, the
Company has committed to additional financing, if
required, of up to $1,250,000 by February 1, 2001.
Although the Company did not forward the $1,250,000
as requested, they are currently in discussions
with Equip2move regarding the raising of additional
capital. The Company has accounted for its direct
investment in Equip2move on the equity method of
accounting.
11. SUBSEQUENT EVENTS: On March 13, 2000, the Company entered into a stock
Purchase Agreement (the "Agreement"), between the
Company and ZERO.NET, Inc., a Delaware corporation
("ZERO"), in which the Company sold 1,000,000
shares of b2bstores.com, Inc. ("b2b") common stock
to ZERO at $7.00 per share. The gross proceeds on
the sale of the b2b stock were $7,000,000 less a
brokerage commission of $250,000. On January 29,
2001, the Company received a letter from outside
counsel of ZERO (the "Letter"), which stated that
ZERO desired to
F-17
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
rescind the Agreement, claiming there was a
material failure of consideration for the purchase
of the b2b stock by ZERO. In response to the
letter, the Company has denied any right of
rescission by ZERO and has filed petition for
declaratory judgement in State District Court of
Bexar County, Texas. The Company has petitioned the
Court for a declaration that the Agreement remains
in effect and is binding on the parties and that
the purported rescission of the Agreement by ZERO
is ineffective and invalid. There has been no
further contact between the Company and ZERO since
the Company's original receipt of the Letter.
F-18