UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities and Exchange Act of 1934
March 10, 2005
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Date of Report
ENVIROKARE TECH INC
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
000-26095 88-0412549
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(Commission File Number (IRS Employer Identification No.)
5850 T.G. Lee Blvd, Suite 535, Orlando, Florida 89120
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(address of Principal Executive Offices)(Zip Code)
(407) 856-8882
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed since last Report)
Section 1 - Registrant's Business Operations
Item 1.01 Entry into a Material Definitive Agreement.
On March the 3, 2005, the Company through it wholly owned subsidiary
Envirokare Composite Corp. ("ECC") executed a Limited Liability Company
Agreement with NOVA Chemicals, Inc.("NOVA) creating a Joint Venture Company, LRM
Industries, LLC ("LRM") a Delaware limited liability company for the purpose of
commercializing the Company's Thermoplastic Flowforming technology including but
not limited to the manufacture, marketing, sales and/or licensing of the
technology.
LRM is owned one half each by ECC and NOVA and is capitalized as follows:
1.1 Contribution of Envirokare. ECC shall make no Contributions to the Company,
initially, and need not make any additional Contributions unless, in its
sole discretion, it decides to do so, subject to approval. ECC is selling
certain assets to the Company pursuant to the Asset Purchase Agreement and
ECC shall be paid the amounts specified below as consideration for such
transfer.
1.2 Contributions of NOVA. NOVA has made and shall make Contributions to the
Company as follows:
On the date of this Agreement, NOVA will contribute five million dollars
($5,000,000.00) to the Company (the "NOVA Investment").
(a) In addition to the NOVA Investment, NOVA will also contribute one million
dollars ($1,000,000.00) in services to the Company, pursuant to the NOVA
Service Agreement, an exhibit to the Limited Liability Company Agreement.
(b) In no event will NOVA be required to make any additional Contributions to
the Company, unless, in its sole discretion, it decides to make such
additional contributions, subject to approvals as required of LLC.
(c) The Members by unanimous consent may also approve from time to time the
payment by the Members, in proportion to their respective proportionate
interests or otherwise, of further Contributions for any purpose deemed
appropriate by the Members.
1.3 Return of Capital. Except as provided in the Limited Liability Company
Agreement, no Member shall have the right to demand or receive the return
of any Contributions to the Company.
1.4 No Interest on Contributions. Except as otherwise expressly provided
herein, no Member shall receive any interest on its Contributions to the
Company.
1.5 Liability Limited to Contributions. The liability of each Member shall be
limited to its Contributions. Except as provided in the Limited Liability
Company Agreement and in the NOVA Service Agreement, neither of the Members
shall have any further personal liability to make any Contributions to the
Company or with respect to any liability or obligation of the Company.
1.6 Advances Not Contributions. If either Member advances funds to the Company,
other than as a contribution to capital pursuant to this Article, the
amount of such advance shall not be deemed a Contribution. The amount of
any such advance shall be a debt due from the Company to such Member and
shall be repaid upon demand to such Member with interest at a rate agreed
to by the Board of Managers and the Member making such advance.
1.7 Capital Accounts. An individual capital account (the "Capital Account")
shall be maintained by the Company for each Member as provided in the Tax
Annex.
1.8 No Deficit Restoration. No Member shall have any obligation to restore a
deficit balance in its Capital Account.
In addition to and as part of the Limited Liability Company Agreement ECC
entered into a lease agreement providing for the lease of the plant property in
Mims, Florida to LRM for a period of two years with an option to renew for an
additional two years. Lease payments payable to ECC equal $84,000 per year for
the first two years and $91,200 per year for the two year renewal period. In
addition the property is subject to a cellular tower lease providing for
additional payments to ECC as successor to TCD of $12,000 per year.
Section 2 - Financial Information
Item 2.01 Completion of Acquisition or Disposition of Assets
On March 3, 2005, the Company completed a merger of Thermoplastic Composite
Designs, Inc. ("TCD"), a Florida corporation into ECC, its wholly owned
subsidiary resulting in the acquisition of TCD assets including real property,
plant, equipment and Intellectual property in exchange for cash and notes as
outlined below.
The "Merger Consideration" equaled the sum of (i) fifteen million dollars
($15,000,000) (the "Fixed Merger Consideration") and (ii) the aggregate amounts
payable in accordance with Section (h): (the "Contingent Merger Consideration").
(a) At the Closing, ECC shall paid the Shareholders $2,500,000.
(b) The balance of the Merger Consideration shall be paid to the TCD
Shareholders in eight (8) annual installments following the Closing with
the first such payment due on or prior to January 31, 2006 and the last
such payment due on or prior to January 31, 2013 (and such payments shall
be deemed to be distributed to the Shareholders of TCD in complete
liquidation), with each annual payment to be equal to 2.5% of the
"Consolidated EBIDTA" of LRM for each calendar year, commencing with the
calendar year ending December 31, 2005, up to a maximum aggregate of
$12,500,000 for all payments under this subsection (b).
(c) "Consolidated EBIDTA" for the purposes of this paragraph 2.01 means: with
respect to any fiscal period, LRM's and its subsidiaries' consolidated net
earnings, if any, as determined before deduction for interest expense,
taxes, depreciation and amortization for such period, as determined in
accordance with generally accepted accounting principles as in effect from
time to time in the United States, consistently applied ("GAAP") .
(d) In the event that 2.5% of the Consolidated EBIDTA of LRM during the first
four years after the Closing Date (ending on December 31, 2008) is less
than an aggregate of $2,000,000, ECC shall pay to the Shareholders any
amount by which $2,000,000 exceeds 2.5% of the aggregate Consolidated
EBIDTA of LRM during this period within 31 days after the end of the fourth
year.
(e) In the event that 2.5% of the Consolidated EBIDTA of LRM during the years
five six and seven after the Closing Date (ending on December 31, 2011)
total less than an aggregate of $3,000,000, ECC shall pay to the
Shareholders any amount by which $3,000,000 exceeds 2.5% of the aggregate
Consolidated EBIDTA of LRM during the period, within 31 days after the end
of the seventh year.
(f) At the end of the eighth year (ending December 31, 2012), in the event that
the TCD Shareholders have not been paid $15,000,000 by virtue of the
payments set forth in Section 2.01 (a), (b), (d) and (e), ECC shall pay on
or prior to January 31, 2013, any amount by which $15,000,000 exceeds all
monies paid to the Shareholders to date under Section 2.01(a), (b), (d) and
(e) so that the total payments made aggregate $15,000,000. In the event
that a cash payment is due the Shareholders pursuant to this paragraph, any
TCD Shareholder may elect to receive this payment in four equal annual
payments beginning at the end of the eighth year set out above. Unpaid but
due balances will carry interest equal to LIBOR plus one percent but not to
the extent a Shareholder elects a deferral under the provisions of the
prior sentence.
(g) The assurance of any such payments to be made pursuant to this Section is
provided only by ECC and guaranteed by LRM and Parent as set forth below.
The Parties acknowledge that no such assurance is being provided by NOVA or
any of NOVA's affiliates or subsidiaries other than ECC, LRM and Parent.
(h) Ongoing Payments. As additional Merger Consideration (the "Contingent
Merger Consideration"), beginning January 1, 2013, the Shareholders shall
be entitled to receive from ECC payments annually equal to their pro rata
share of 1% of the Net Income of LRM payable to the extent of and at the
time of distribution of such Net Income to ECC or 90 days after the end of
each year, whichever is sooner; provided, however, that such obligation
will cease if a majority of the equity in, or assets of, LRM are sold to an
unaffiliated third-party of LRM, whether by merger, consolidation, exchange
of interest or otherwise, excluding, however, any disposition by lease,
license or any other similar transaction; further provided, that in
connection with any such transaction, if such transaction is a sale of
assets or equity by LRM, ECC will make a payment to the TCD Shareholders
equal to 1% of the net proceeds of such transaction, or if such transaction
takes the form of a sale by the Members of interests in LRM, ECC will make
a payment to the TCD Shareholders equal to 1% of the aggregate net proceeds
realized by all Members of LRM in such sale. In addition, in the event the
ECC or any of its Affiliates (as defined below in 2.04) at any time sells
any part of its interests in LRM in a transaction other than those
described above, then ECC shall pay to the TCD Shareholders an amount equal
to 1% of the gross proceeds of any such sale. "Net Income" means, with
respect to any fiscal period, the consolidated net income of LRM and its
subsidiaries for such period, as determined in accordance with GAAP.
(i) Evidence of Obligation to Pay Guaranty; Security. ECC's obligation to pay
the balance of the Fixed Merger Consideration is evidenced by a promissory
note in favor of the Shareholders (the "Promissory Note"). The obligations
of ECC to pay the Fixed Merger Consideration are secured by a lien and
first interests in and to all of the assets acquired by LRM from ECC (the
"TCD Assets") pursuant to that certain asset purchase agreement, such
security interest evidenced by a security agreement executed and delivered
by LRM in favor of the Shareholders.
The obligations of ECC to pay the Fixed Merger Consideration and the Contingent
Merger Consideration are guaranteed by LRM and the Company, to be evidenced by
guaranties to be executed and delivered by the Company and LRM.
As part of the transaction described in Item 1.01 above, ECC sold to LRM
under an Asset Purchase Agreement, equipment and other personal property located
in Mims, Florida and Intellectual Property acquired in the Merger transaction
described in this paragraph Item 2.01. Other than real estate owned and leased
to LRM these assets were substantially all of the assets of ECC sold to LRM as
part of the transaction in which it acquired a 50% interest in the LRM, the
joint venture company.
Intellectual property included:
The intellectual property owned by TCD includes and said invention is described
and contained in patents and patent applications owned by TCD including:
a. United States Patent Application 08/993,516 filed December 18, 1997;
Abandoned
b. United States Patent 6,719,551 issued April 13, 2004, Inventor Dale E. Polk
Jr.; application no. 10/ 104394 filed March 25, 2002.
c. United States Patent Application 10/293,005, filed November 13, 2002,
Notice of Allowance issued May 13, 2004 , published as US20030232176.
d. United States Patent Application 10/885 , 329, filed July 6, 2004, Notice
of Allowance issued October 20, 2004 , published as US2004-0241386
e. United State Patent Application 10/815,310, filed March 31, 2004 ,
published as US2004-0253429
f. United States Patent Application 10/885,218, filed July 6, 2004, published
as 2004-0253430
g. PCT Application No. PCT/US03/035935, filed November 12, 2003, published as
WO2004/043686
h. Thai Application No. 082055, filed April 29, 2003, published as Publication
No. 64319
i. Together with the entire right title and interest in and to said invention
and in and to said applications and all patents that which may be granted
therefore, and all divisions, reissues, substitutions, continuations,
continuations-in-part and extensions thereof.
j. Together with the trade names "Thermoplastic Composite Designs",
"Thermoplastic Flowforming" and the trade mark "TPF".
k. And, together with any and all other inventions, trade secrets, trade
marks, trade names and other intellectual property of any kind owned by TCD
at the time of closing.
In addition, as part of the Merger Agreement, Dale Polk, Jr. entered into a
five (5) year consulting agreement with LRM whereby he will be paid $100,000 per
year in exchange for 1120 hours per year of consulting.
Section 3 - Securities and Trading Markets
Item 3.02 Unregistered Sales of Equity Securities
On March 3, 2005, the Company issued to Dale Polk, Jr., Options to purchase
up to 800,000 shares of the Company's common stock at a price of $0.94 per share
for and during a period of three years from the date of issue. Before the merger
described in Item 2.01 Dale Polk, Jr. was a 50% owner of TCD. He is now a
consultant to LRM under a five year agreement. In addition,
On March 3, 2005, the Company issued to Donald Polk, (an employee of TCD
before the merger and now an employee of LRM), Options to purchase up to 250,000
shares of the Company's common stock at a price of $0.94 per share for and
during a period of three years from the date of issue. In addition,
On March 3, 2005, the Company issued to Leslie Polk, (an employee of TCD
before the merger and now an employee of LRM), Options to purchase up to 250,000
shares of the Company's common stock at a price of $0.94 per share for and
during a period of three years from the date of issue.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
Financial Statements of the business acquired along with Pro forma
financial information as required by paragraphs (a) and (b) of this Item will be
provided with 71 days after the date of this report by amendment hereto.
(c) Exhibits:
(2) Limited Liability Company Agreement of LRM Industries, LLC dated as of
February 18, 2005 with Exhibits.
(2) Plan of Agreement and Merger between Thermoplastic Composite Designs,
Inc. and Envirokare Composite Corp., dated March 3, 2005.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 10, 2005 Envirokare Tech Inc
/s/ George Kazantzis
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George Kazantzis, COO