<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ENVIRONMENTAL SAFEGUARDS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 4953 87-0429198
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2600 SOUTH LOOP WEST JAMES S. PERCELL
SUITE 445 CHIEF EXECUTIVE OFFICER
HOUSTON, TX 77054 2600 SOUTH LOOP WEST, STE. 445
(713) 641-3838 HOUSTON, TX 77054
(Address, including zip code, and (713) 641-3838
telephone number, including area (Name, address, including zip code,
code, or registrant's principal and telephone number, including area
executive offices and place of business) code, of agent for service of process)
Copy to:
ROBERT D. AXELROD, ESQ.
AXELROD, SMITH & KIRSHBAUM
5300 MEMORIAL DRIVE, SUITE 700
HOUSTON, TX 77007
(713) 961-2221
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per share(*) offering fee
price(*)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 2,220,000 $ 3.53 $ 7,836,600 $ 2,374.73
==========================================================================================================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
Calculated pursuant to Rule 457(g) and based on the average bid and
asked price of the Company's Common Stock on October 22, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=============================================================================
<PAGE> 2
ENVIRONMENTAL SAFEGUARDS, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front Cover and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors . . . . . . . . . . . Prospectus Summary;
Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . Outside Front Cover; Use of Proceeds
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Stockholders . . . . . . . . . . . . . . . . . . . Selling Stockholders; Use of Proceeds
8. Plan of Distribution . . . . . . . . . . . . . . . . . . . Outside Front Cover Page; Risk
Factors; Plan of Distribution
9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . Business-Litigation
10. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . . . . Executive Compensation; Management;
Principal Stockholders; Certain
Relationships and Related Transactions
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . Principal Stockholders
12. Description of Securities . . . . . . . . . . . . . . . . Description of Securities
13. Interest of Named Experts and Counsel . . . . . . . . . . Interests of Certain Persons
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . . . . . . Management
15. Organization Within Last Five Years . . . . . . . . . . . Business
16. Description of Business . . . . . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis
of Financial Condition . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis
of Financial Condition and Results of
Operations
18. Description of Property . . . . . . . . . . . . . . . . . Business
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related
Transactions
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . Risk Factors; Description of
Securities; Shares Eligible for Future
Sale; Price Range of Common Stock
21. Executive Compensation . . . . . . . . . . . . . . . . . . Executive Compensation
22. Financial Statements . . . . . . . . . . . . . . . . . . . Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
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(*) None or Not Applicable
<PAGE> 3
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* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. *
* A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY *
* NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN *
* WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
*******************************************************************************
Subject to completion, dated October 29, 1996
ENVIRONMENTAL SAFEGUARDS, INC.
2,220,000 SHARES OF COMMON STOCK
This Prospectus relates to 2,220,000 shares of common stock, par
value $0.001 per share (the "Common Stock"), of Environmental Safeguards, Inc.
(the "Company") which may be offered and sold from time to time (the
"Stockholder Shares") by certain security holders of the Company (the "Selling
Stockholders"). Of the total number of shares offered hereby, 1,850,000 shares
of Common Stock are issuable to the holders of its $1,110,000 face amount 10%
Convertible Debentures (the "Debentures") issued in June, 1996, pursuant to the
mandatory conversion feature of the Debentures and 370,000 are currently
outstanding shares of the Company's Common Stock owned by a certain security
holder of the Company. The Debentures entitle the holders of the Debentures
to convert the Debentures into Common Stock at a rate of $0.60 per share. See,
Description of Securities. The Selling Stockholders may from time to time sell
all or any portion of the Common Stock in the over-the-counter market, on any
regional or national securities exchange on which the Common Stock is listed or
traded, in negotiated transactions or otherwise, at prices then prevailing or
related to the then current market price or at negotiated prices. The Common
Stock may be sold directly or through broker dealers, or in a distribution by
one or more underwriters on a firm commitment or a best efforts basis. The
Selling Stockholders and any broker-dealer who participates in the distribution
of the Common Stock may be deemed to be Underwriters ("Underwriters") within
the meaning of the Securities Act of 1933, as amended (the "Act"). Any
commission received by any broker-dealer and any profit on resale of Common
Stock purchased by them may be deemed to be underwriting commission under the
Act. The Company will not receive any proceeds from the sale of the Common
Stock offered hereby, but will incur certain expenses in connection with this
Offering. See, Use of Proceeds.
Prior to this Offering, there has been what may be characterized as a
limited public market for the Company's Common Stock. There can be no
assurance that an active trading market will develop for the Common Stock
after this Offering or that, if developed, any such market will be sustained.
The Company's Common Stock is quoted on the National Association of Securities
Dealer's OTC Bulletin Board under the symbol "EVSF". On October 22, 1996, the
last closing bid price of the Company's Common Stock as reported by the
National Association of Securities Dealer's OTC Bulletin Board was $3.44 per
share bid. See, Market Price and Dividend Policy.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS __________, 1996.
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY STATE WHERE SUCH OFFER WOULD BE UNLAWFUL.
TABLE OF CONTENTS
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SECTION PAGE
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Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Price Range of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 32
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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<PAGE> 5
AVAILABLE INFORMATION
The Company is not currently subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of this offering, the Company will become subject to such requirements
and, in accordance therewith, will file periodic reports, proxy materials and
other information with the Securities and Exchange Commission ("Commission").
In addition, the Company will furnish its stockholders with annual reports
containing audited financial statements certified by its independent
accountants and such interim reports containing unaudited financial information
as it may determine to be necessary or desirable. The Company will provide
without charge to each person who receives a copy of this Prospectus, upon
written or oral request, a copy of any information that is incorporated by
reference in this Prospectus (not including exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Such request should be directed to Environmental
Safeguards, Inc., Attn. James S. Percell, 2600 South Loop West, Suite 445,
Houston, Texas 77054
The Company has filed with the Commission a Registration Statement
under the Act with respect to the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
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<PAGE> 6
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
reference to the more detailed information, including exhibits referred to
herein, and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety, and carefully consider the information set out
under the heading "Risk Factors." All dollar amounts in this Prospectus are
stated in U.S. dollars.
THE COMPANY
The Company was incorporated under the laws of the State of Nevada in
December 1985, under the name of Cape Cod Investment Company. In December
1986, the name of the Company was changed to Cape Cod Ventures, Inc. In August
1987, the Company completed an initial public offering of 4,148,000 shares of
Common Stock at a price of $0.001 per share pursuant to the exemption from the
registration requirements of the Securities Act of 1933 provided by Regulation
A. In May 1993, the Company executed an Agreement and Plan of Reorganization
(the "Reorganization Agreement") with National Fuel & Energy, Inc. ("NFE"),
providing for the acquisition of NFE by the Company in exchange for shares of
the Company's Common Stock. In connection with the reorganization, the name of
the Company was changed to Environmental Safeguards, Inc., and NFE became a
wholly-owned subsidiary of the Company. NFE is a Wyoming Corporation.
In January 1995, the Company entered into an agreement with Parker
Drilling Company, a Delaware corporation ("Parker"), granting Parker, among
other things, exclusive marketing rights to the Company's proprietary processes
for on-site remediation services in connection with drill cuttings at oil and
gas drilling sites throughout the United States and in certain foreign
countries. In August 1995, the Company expanded its agreement with Parker by
forming OnSite Technology, L.L.C. ("OnSite"), an Oklahoma limited liability
company. Pursuant to the Operating Agreement for OnSite, as amended, (the
"Operating Agreement") NFE granted to OnSite certain exclusive licenses to use
the technologies included in the Company's indirect thermal desorption units
("ITD Units"), and the proprietary processes for on-site remediation of
hydrocarbon contaminated soil in the United States and in certain foreign
countries. Each ITD Unit, is an easily transportable, state-of-the-art
processing system which produces clean soil from contaminated soil while
reclaiming the hydrocarbons. ITD Units are transported by truck from one
clean-up site to another. Parker agreed to actively market and promote the
services of OnSite including the preparation of brochures and the preparation
and delivery of certain presentations at one or more professional society
meetings in the energy industry and one or more energy industry trade shows.
All expenses associated with such promotional activity and presentations were
paid by Parker until July 31, 1996, and after July 31, 1996, certain expenses
associated with such marketing and promotional activities will be paid by
OnSite. The Company currently conducts substantially all of its business
operations through OnSite.
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<PAGE> 7
The Company is engaged, through the activities of NFE and OnSite, in
the development, production and sale of environmental remediation technologies
and services. To date, the environmental remediation services provided by the
Company have involved the removal of petroleum contaminants from soil using
indirect thermal remediation equipment or enzyme-based bioremediation
processes, and the evaporation of waste water produced from oil and gas
drilling. The Company's customers have been large corporations that have
anticipated the changing regulatory climate with respect to soil and other
environmental contamination and have taken the initiative in removing
contaminants from their properties. The Company currently has two ITD Units.
The primary services offered by the Company involve remediation of
soil contaminated by oil-based drilling mud, fuel spills, leakage at storage
tanks and other sources of hydrocarbon contamination. To remediate the
contaminated soil, the Company utilizes ITD Units consisting of (i) an indirect
thermal desorption unit wherein the hydrocarbon contaminated soil is indirectly
heated, thereby causing the hydrocarbon contamination to vaporize; and (ii) a
condensation process system, which causes the hydrocarbon vapor to condense to
a liquid, or an afterburner or thermal oxidizer which incinerates the
hydrocarbon vapor. The Company's ITD Units are mobile, and thus, contaminated
soil can be remediated on location. The Company fabricated its second ITD Unit
in August 1996, and has contracted for the fabrication of four additional ITD
Units for delivery beginning late in 1996, with the final delivery anticipated
during the first quarter of 1997. The Company formerly provided water
evaporation and bioremediation services utilizing Company equipment and
third-party contractors but the Company has discontinued these services.
The Company and OnSite utilize an independent contractor, Double Eagle
Operations, Inc. ("Double Eagle"), to provide the labor necessary to complete
the Company's contracts. The Company typically submits a bid for a project
based on the costs of moving the equipment to the location, the estimated
charges for labor and fuel, the nature and extent of the contamination, the
type and moisture content of the soil, the estimated processing time and the
desired profit margin. Once a contract has been awarded, the Company moves its
equipment on location and Double Eagle supplies the crew necessary to operate
the equipment and complete the contract. The Company compensates Double Eagle
on an hourly basis for the labor supplied.
Unless otherwise indicated, references to the Company include OnSite
and NFE, the Company's wholly owned subsidiary.
The offices of the Company are located at 2600 South Loop West, Suite
445, Houston, Texas 77054 and its telephone number is (713) 641-3838.
THE OFFERING
This Prospectus relates to the offering by the Selling Stockholders of
an aggregate of 2,220,000 Stockholders Shares, consisting of (i) 1,850,000
shares to be issued by the Company upon the mandatory conversion of the
Debentures into Common Stock at a conversion rate of $0.60 per
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<PAGE> 8
share and (ii) 370,000 shares which are currently outstanding. The
Debentures provide that they will be automatically converted into shares of
Common Stock upon the effective registration by the Company of its securities
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), and has
on file with the Commission an effective Registration Statement which registers
for resale the shares of Common Stock into which the Debentures are
convertible. The Company will issue the shares of Common Stock to the
Debentureholders upon the effective date of the Registration Statement of
which this Prospectus forms a part. See, Selling Stockholders.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of
the two-years ended December 31, 1995 and 1994, have been derived from the
audited financial statements of the Company. The selected consolidated
financial data presented below for the six months ended June 30, 1996 and June
30, 1995 are unaudited, but in management's opinion includes all adjustments
consisting only of normal recurring adjustments necessary to present fairly the
financial data for, and at the end of, such period. See, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Consolidated Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (AUDITED)
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INCOME STATEMENT DATA:
Revenue
Service Revenue $ 0 $ 53,345 $ 53,345 $ 731,311
Income from Investment in
OnSite 46,384 0 63,052 0
Other Income 3,350 0 0 0
---------- ---------- ---------- ----------
TOTAL REVENUES 49,734 53,345 116,397 731,311
Loss from operations (104,768) (984,235) (1,215,613) (677,973)
Loss before income taxes (104,768) (984,235) (1,215,613) (677,973)
Extraordinary item 74,035 0 0 0
Net loss (30,733) (984,235) (1,215,613) (677,973)
Net loss per share before
extraordinary item (0.017) (0.193) (0.26) (0.21)
Net loss per share (0.005) (0.193) (0.26) (0.21)
BALANCE SHEET DATA:
Total assets $1,814,572 $ 105,775 $ 318,090 $ 888,330
Working capital (deficit) 1,089,507 (386,266) (429,544) (434,059)
Total liabilities 1,417,449 470,151 623,932 579,379
Stockholders' equity (deficit) 397,123 (364,376) (305,842) 308,951
</TABLE>
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<PAGE> 9
RISK FACTORS
The Common Stock offered hereby is speculative and involves a high
degree of risk. In addition to the other information set forth in this
Prospectus, each prospective investor should carefully consider the following
risk factors before making an investment decision.
LIMITED OPERATING HISTORY; NO ASSURANCE OF SUCCESSFUL IMPLEMENTATION
OF BUSINESS STRATEGY. The Company conducts its activities through NFE which
was incorporated in 1991. The Company has incurred substantial net losses from
operations throughout its history and is in a development stage. In addition
to those risks specifically inherent in the hazardous and industrial waste
industries, the Company faces all of the risks inherent in the establishment
and growth of a developing business, including, among other things, limited
access to capital, delays in the completion of its business plan in certain
markets and intense competition. There can be no assurance that the Company's
business ultimately will be successful, and, as a result the purchase of the
securities offered hereby must be regarded as the placing of funds at a high
risk in a new or developing venture with all of the unforeseen costs, expenses,
problems, and difficulties to which such ventures are subject.
HISTORY OF SUBSTANTIAL LOSSES. The Company incurred net losses of
$677,973 and $1,215,613 for the fiscal years ended December 31, 1994 and
December 31, 1995, respectively, and a net loss for the six months ended June
30, 1996 of $30,733. In order to attain profitability, the Company must secure
contracts at acceptable processing prices and control costs so as to produce a
positive operating margin. There can be no assurance the Company can do so,
and the failure of the Company to maintain profitability could ultimately
result in the inability of the Company to pay its financial obligations as they
become due, including the Debentures.
At December 31, 1994, and 1995, the Company reported a working capital
deficit of approximately $434,059 and $429,544, respectively. As of June 30,
1996, the Company reported positive working capital of approximately
$1,089,507. Presently existing capital resources may not be sufficient for the
Company to maintain its current and planned operations through the remainder of
fiscal year 1996. The Company has historically funded its operations through a
combination of internally generated cash, short-term borrowing and the issuance
of stock for services or in settlement of corporate obligations, and by issuing
debentures. Until such time as the operating results of the Company improve
sufficiently to fund the Company's operations, the Company must obtain outside
financing to fund the expansion of the business and to meet the obligations of
the Company as they become due. Any additional debt or equity financing may be
dilutive to the interests of the participants in this Offering.
FOREIGN POLITICAL CLIMATE. The Company has entered into a one year
contract with a major global industry participant for the Company's
remediation services. One of the Company's two presently operational
ITD Units is in transit from the United States to the nation of Colombia to
fulfill this contract. Any changes in the political climate of Colombia, or
even a mere unsettling in the current political climate, could have a negative
impact on the Company, up to and
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<PAGE> 10
including the complete loss of the ITD Unit which the Company proposes to
relocate to Colombia. Colombia has had a recent unsettling past involving drug
trafficking, narco-terrorism, domestic terrorism, and alleged political
corruption. While the Company maintains hazard insurance through OnSite to
cover these risks in Colombia, the loss of potential income due to the
interruption of the Company's services could have an adverse effect on the
financial condition of the Company.
INTERNATIONAL TRANSACTIONS. The Company is contemplating taking part
in business operations in the nation of Colombia as described elsewhere herein.
International business transactions might create exposure for the Company to
potential financial concerns in the areas of foreign exchange if the Company is
paid in whole or in part in a foreign currency, routine or extraordinary
foreign government control of the transfer of funds across international
borders, and foreign taxes, tariffs and duties. Any of the foregoing could
adversely impact the Company. The Company is presently finalizing negotiations
regarding payment systems for its proposed operations in Colombia.
ASSET ACQUISITION STRATEGY. The Company, in conjunction with Parker,
has awarded contracts for fabrication of four additional ITD Units. The
delivery of the completed Units will commence in the fourth quarter of 1996
and will be complete in the first quarter of 1997. The Company at present
does not have the financial resources to fund its share of the costs for
fabrication of the four ITD Units, which it estimates to be approximately
$2,000,000. The Company is presently investigating various alternative sources
of funding, including discussions with Parker to finance the costs of the ITD
Units. In addition, the Company is presently offering for sale, pursuant to a
Private Offering, a minimum of 200,000 and a maximum of 2,000,000 shares of
Common Stock at a price of $2.50 per share. The Company intends to use the
proceeds of that offering, if any, to fund the costs of the ITD Units. No
assurance can be given that the Company will be able to obtain adequate
financing from any of these sources. If the Company is unable to obtain
adequate funding, then delivery of the ITD Units could be delayed or canceled.
ONGOING CAPITAL REQUIREMENTS OF ONSITE. The Company's ability to
expand and increase its revenues, assets and income is directly related to its
ability to participate in OnSite with Parker. Further capital must be provided
from the Company's operations, or from the sale of equity securities,
borrowing, or other sources of third party financing in order for the Company
to maintain its existing sharing ratio. There is no assurance that capital
will be available from any of these sources. Further, the sale of equity
securities could dilute the Company's existing stockholders' interest, and
borrowings from third parties could result in assets of the Company being
pledged as collateral and loan terms which would increase its debt service
requirements and could restrict the Company's operations. In addition, the
Company's inability to obtain financing for its share of capital requirements
could result in the renegotiation of the terms of the Operating Agreement for
OnSite which could result in the Company's participation interest being
reduced. Any reduction in the Company's participation interest in OnSite could
adversely impact the revenues and future assets of the Company.
-8-
<PAGE> 11
FABRICATION OF ITD UNITS. The Company uses outside fabricators to
construct the ITD Units. The Company negotiates bids and awards contracts for
fabrication. The Company has proprietary designs and engineering techniques
which it uses for custom fabrication. The fabrication process may subject the
Company to several risks. Deficient fabrication or financial instability of a
fabricator could upset the Company's ability to manufacture the ITD Units on a
timely basis which could result in delays in fulfilling contracts for soil
remediation. Failure to fulfill contracts for remediation could result in the
loss of such contracts or could subject the Company to liability for non-
performance of the contracts.
ECONOMIC CONDITIONS AND RELATED UNCERTAINTIES. Environmental service
companies are affected by economic conditions as well as government policies.
Economic downturns could result in decreased demand for the Company's services.
Potential customers could seek to delay their environmental remediation
programs during such economic downturns. The Company's operations are
dependent upon its ability to market its services. While the Company would
aggressively pursue its marketing efforts, in a time of general or industry
specific decline, such as a decline in the demand for remediation services, the
Company's business activities could be adversely affected.
PRODUCT DEVELOPMENT RISKS. The ITD Units used by the Company have
been operated by the Company or its independent operators only for a limited
period of time and such ITD Units are still being refined, adjusted and
improved. There is no assurance that the Company's ITD Units will perform in
accordance with the Company's expectations over a long period of time or that
there will be demand for the Company's products and services in commercially
justifiable quantities.
The ITD Units, exclusive licenses of the technology included in the
ITD Units, and the proprietary process for on-site remediation have been
transferred to OnSite. Although the Company owns a fifty percent (50%)
interest in OnSite, the success of the Company's investment therein is
partially dependent upon the performance of Parker.
LACK OF PROTECTION OF PROPRIETARY TECHNOLOGY. The U.S. Patent and
Trademark Office has allowed claims to the method for removing and treating
hydrocarbon contaminated drill cuttings and a patent is expected to be issued
at any time. The Company does not hold any patents or other intellectual
property rights with respect to its ITD Units or the processes used by them.
The Company has, however, filed U.S. patent applications for treating
hydrocarbon contaminated soil; for the process and apparatus of separating and
recovering hydrocarbons and water from the ITD Units; and on several novel ITD
Unit mechanical features. The Company cannot state that others will not
independently develop alternative proprietary information for similar types of
processes and apparatus. The Company has not received notice that any of its
apparatus or processes used in regard to the ITD Units infringe upon any U.S.
patent.
GOVERNMENTAL REGULATIONS. The Company renders services in connection
with the remediation and disposal of various wastes. Federal, state and local
laws and regulations have been enacted regulating the handling and disposal of
wastes and creating liability for certain environmental contamination caused by
such waste. Accordingly, the Company is subject to
-9-
<PAGE> 12
potential liability for environmental damage its ITD Units or its operations
may cause, particularly as a result of contamination of water or soil.
Environmental laws regulate, among other things, the transportation, storage,
handling and disposal of waste. Moreover, so-called "toxic tort" litigation
has increased markedly in recent years as persons allegedly injured by chemical
contamination seek recovery for personal injuries or property damage. These
legal developments present a risk of liability should the Company be deemed to
be responsible for contamination or pollution caused or increased by any
evaluation, remediation or cleanup effort conducted by it, or for an accident
which occurs in the course of such remediation or cleanup effort. There can be
no assurance that the Company's policy of establishing and implementing proper
procedures for complying with environmental regulations will be effective at
preventing the Company from incurring a substantial environmental liability.
If the Company were to incur a substantial uninsured liability for
environmental damage, its financial condition could be materially adversely
affected. Furthermore, the Company may from time to time become subject to
governmental enforcement proceedings and resulting fines or other sanctions and
may incur penalties. Such expenditures could be substantial and accordingly
could have a material adverse effect on the Company's financial condition.
The Company presently has the ability to deliver soil remediation
services that meet applicable federal and state standards for the delivery of
its services, and for the level of contaminant removal. The government can,
however, impose new standards. If new regulations were to be imposed, the
Company may not be able to comply in either the delivery of its services, or in
the level of contaminant removed from the soil.
COSTS OF COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Governmental
regulations govern matters such as the disposal of residual chemical wastes,
operating procedures, waste water discharges, fire protection, worker and
community right-to-know, and emergency response plans. Governmental
regulations also apply to the operation of vehicles used by the Company to
transport the ITD Units and the substances such ITD Units collect and
distribute, including licensing requirements for the vehicles and the drivers,
vehicle safety requirements, vehicle weight limitations, and shipment
manifesting. Governmental authorities have the power, under various
circumstances, to enforce compliance, and violators may be subject to civil or
criminal penalties. Private individuals may also have the right to sue to
enforce compliance with certain of the governmental requirements.
Operating permits are generally required by federal and state
environmental agencies for the operation of the Company's ITD Units. Most of
these permits must be renewed periodically and the governmental authorities
involved have the power, under various circumstances, to revoke, modify, or
deny issuance or renewal of these permits.
As a result of the stringent regulations governing the operation of
the Company's ITD Units, operating the ITD Units and conducting business in
compliance with the various applicable regulations requires the Company to
commit significant human and capital resources and results in increased
operating costs. Nonetheless, the Company may from time to time become subject
to governmental enforcement proceedings and resulting fines or other sanctions
and may incur
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<PAGE> 13
penalties. Such expenditures can be substantial and accordingly could have a
material adverse effect on the Company's financial condition.
COMPETITION. There are many companies which currently dispose of
hazardous and industrial wastes and remediate or clean up sites which have been
contaminated, and such companies are continually attempting to develop new and
improved products and services. Other companies utilize competing technologies
and techniques in an attempt to provide more economical or superior remediation
services. Many of the Company's competitors are well established companies
with substantially greater capital resources, larger research and development
staffs and facilities and substantially greater marketing capabilities than the
Company. No assurances can be given that the Company will be able to
successfully compete with such companies or alternative technologies.
TECHNOLOGICAL OBSOLESCENCE. The Company uses a method called indirect
thermal desorption to remediate soil. While the Company believes that this
technology has a long market life, there is no assurance that the Company's
technology will be marketable in the future. Existing or future technologies
of competitors could make the Company's services obsolete and the Company
could suffer a loss of customers and revenue as a result thereof.
OPERATING RISKS AND POSSIBLE INSUFFICIENCY OF INSURANCE. The business
of the Company exposes it to various risks, including claims for damage to
property, injuries to persons, negligence and professional errors or omissions
in the planning or performing of its services and providing of its products,
which claims could be substantial. OnSite, the entity through which operations
are conducted, maintains $1 million of general liability insurance, $1 million
of auto liability insurance and an additional $5 million of excess umbrella
liability coverage on all of its operations. There can be no assurances that
such insurance will continue to be adequate to meet the needs of the Company,
or that the Company will be able to continue to maintain or obtain adequate or
required insurance coverage as its business grows or, if obtainable, purchase
it at reasonable rates. If the Company has difficulty in maintaining or
obtaining such coverage, it could be at a competitive disadvantage with other
companies, it may become exposed to significant uninsured risks and losses,
and/or may be unable to continue certain of its operations. Under the
Company's insurance policies, there are various exclusions that are customary
in the industry. Accordingly, there can be no assurance that liabilities that
may be incurred by the Company will be covered by its insurance or that the
dollar amount of such liabilities which are covered by its insurance will not
exceed the Company's policy limits. A partially or completely uninsured claim,
if successful, could have a material adverse effect on the Company's financial
condition and results of operations.
LACK OF DIVERSIFICATION; RISKS OF INVESTING IN THE INDUSTRY. The
Company operates primarily in the environmental services industry. The current
plan of operation calls for expansion within, but does not anticipate
diversification beyond, this industry. The plan of operation, therefore,
subjects the Company to the economic fluctuations within this industry and
increases the risk associated with its operations. An investment in any aspect
of the environmental services industry is speculative and historically has
involved a high degree of risk. The continued success of the Company will
depend on various factors over which the Company has little or no control.
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<PAGE> 14
DEPENDENCE ON MANAGEMENT. The Company is dependent upon the time,
talent and experience of James S. Percell, its President and Chief Executive
Officer. Although Mr. Percell has a significant equity ownership in the
Company, the Company does not presently have an employment agreement with him.
The Board of Directors of the Company, however, intends to enter into an
employment agreement with Mr. Percell. The loss of the services of Mr.
Percell, for any reason, could have a material adverse effect on the Company.
The Company does not currently maintain key-man life insurance on Mr. Percell
or any other of its employees.
FUTURE NEED FOR ADDITIONAL PERSONNEL. As a result of a recent
restructuring of the management and operations of the Company, the Company has
obtained the services of new personnel to perform certain functions important
to the long-term development of the Company, including accounting, finance and
quality control functions. The Company may hire additional staff with the
special skills and education necessary for important Company functions.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel.
See, Management.
ANTI-TAKEOVER EFFECTS OF ISSUANCE OF PREFERRED STOCK. The Company has
authorized 10,000,000 shares of preferred stock, par value $0.001 per share
("Preferred Stock"), of which 500,000 shares have been designated Series A
Convertible Preferred Stock (the "Series A Preferred"). No shares of Series A
Preferred are currently issued and outstanding. The shares of Series A
Preferred, if issued, would be entitled to preferences over the Common Stock.
The Company's board of directors has authority, without action or consent by
the shareholders, to issue the authorized but unissued shares of Preferred
Stock in one or more series and to determine the voting rights, preferences as
to dividends and liquidation rights, conversion rights, and other rights of any
such series. The shares of Series A Preferred and the other shares of
Preferred Stock, when and if issued could adversely affect the rights of the
holders of Common Stock. For example, such issuance could result in a class of
securities outstanding that would have preferences with respect to voting
rights and dividends and in liquidation over the Common Stock, and could, upon
conversion or otherwise, enjoy all of the rights of holders of Common Stock.
The Board's authority to issue Preferred Stock could discourage potential
takeover attempts and could delay or prevent a change in control of the Company
through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. There are no issued and
outstanding shares of Preferred Stock; there are no agreements or
understandings for the issuance of Preferred Stock, and the Board of Directors
has no present intention to issue Preferred Stock. Previously issued Preferred
Stock has all been exchanged for, or converted into, Common Stock in prior
years. See, Description of Securities.
SHARES ELIGIBLE FOR FUTURE SALE. Possible or actual sales of a
substantial number of shares of Common Stock by the Selling Stockholders in
this Offering could have a negative impact on the market price of the Common
Stock of the Company. Further, the Company does not anticipate engaging an
Underwriter to assist in a distribution of shares of Common Stock on behalf of
the Selling Stockholders who sell shares of Common Stock to be registered in
this Offering. All 2,220,000 shares of Common Stock included in this
Registration Statement become immediately
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<PAGE> 15
transferable. The availability of public trading for such a large number of
shares may have an adverse effect on the trading prices of the Common Stock.
Accordingly, there is no assurance that shareholders will be able to sell the
shares of Common Stock for any particular price.
In addition, of the 6,854,828 shares of the Company's Common Stock
outstanding as of the date of this Prospectus, approximately 3,860,474 shares
are restricted securities as that term is defined in Rule 144 adopted under the
Act ("Restricted Securities"). Rule 144 governs resales of Restricted
Securities for the account of any person, other than an issuer, and restricted
and unrestricted securities for the account of an "affiliate" of the issuer.
Restricted securities generally include any securities acquired directly or
indirectly from an issuer or its affiliates which were not issued or sold in
connection with a public offering registered under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers, and persons directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has
been held for two years from the later of its acquisition from the Company or
an affiliate of the Company. Thereafter, shares of Common Stock may be resold
without registration subject to Rule 144's volume limitation, aggregation,
broker transaction, notice filing requirements, and requirements concerning
publicly available information about the Company ("Applicable Requirements").
Resales by the Company's affiliates of restricted and unrestricted Common Stock
are subject to the Applicable Requirements. The volume limitations provide
that a person, or persons who must aggregate their sales, cannot, within any
three-month period, sell more than the greater of (i) one percent of the then
outstanding shares, or (ii) the average weekly reported trading volume during
the four calendar weeks preceding each such sale. A person who is not deemed
an "affiliate" of the Company and who has beneficially owned shares for at
least three years would be entitled to sell such shares under Rule 144 without
regard to the Applicable Requirements. The Company believes that approximately
845,300 shares of Common Stock have been held for more than three years, and
therefore may be sold by non-affiliates without limitation.
No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market would
likely have a material adverse effect on prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities. See, Shares Eligible for Future Sale.
OUTSTANDING OPTIONS. The Company presently has outstanding options to
purchase 2,860,000 shares of its Common Stock which are exercisable at $0.60
per share and expire on November 2, 2005. In addition, the Company has
outstanding options to purchase 563,542 shares of its Common Stock which are
exercisable at $5.00 per share and expire on November 30, 1998. The option
agreement contains registration rights for shares issuable under the options at
any time after May 31, 1995. The execution of the outstanding options by the
holders thereof may result in the dilution in the interests of the other
stockholders of the Company.
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<PAGE> 16
NO ASSURANCE OF PUBLIC MARKET. There is currently only a limited
market for the Common Stock of the Company. Although the Common Stock is
listed on the over-the-counter market and the National Association of
Securities Dealers OTC Bulletin Board, it is not listed on the NASDAQ system or
other stock exchange. The market for the Company's Common Stock must be
characterized as a limited market due to the relatively limited number of
shares in the public float, the relatively low trading volume and the small
number of brokerage firms acting as market makers. The market for low priced
securities not traded on a national exchange or included in the NASDAQ system
is generally less liquid and more volatile than securities traded on national
exchanges and the NASDAQ markets. Rapid and extreme fluctuations in market
prices are not uncommon. No assurance can be given that the current
over-the-counter market for the Company's Common Stock will continue or that
the prices in such market will be maintained at their present levels. Thus,
even if the shares of Common Stock are registered for resale to the public
under the Act and secondary trading exemptions under state securities laws are
available, there may not be an active market for the shares of Common Stock.
NO CASH DIVIDENDS. The Company has never paid cash dividends on its
Common Stock and the Board of Directors does not anticipate paying cash
dividends in the foreseeable future. It currently intends to retain future
earnings to finance the growth of its business. See, Dividend Policy.
USE OF PROCEEDS
The Company will not receive any proceeds upon the mandatory
conversion of the Debentures into Common Stock or upon the sale of the Common
Stock by the Selling Stockholders. The Company will, however, through the
conversion of the Debentures into shares of Common Stock, extinguish $1,110,000
face value of its existing debt and thereby convert such indebtedness into
stockholder's equity.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter
securities market, and is quoted in the Pink Sheets, which is published by the
National Quotation Bureau, and is also quoted on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. under the symbol "EVSF". The
market for the Company's Common Stock must be characterized as a limited market
due to the limited number of shares in the public float, the relatively small
trading volume, and the small number of brokerage firms acting as market
makers. No assurance can be given that the over-the-counter market, or any
market, for the Company's securities will continue or that the prices in such
market will be maintained at their present levels. The following table sets
forth, for the periods indicated, the high and low closing bid prices for the
Common Stock of the Company as reported
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<PAGE> 17
by the National Quotation Bureau. The bid prices reflect inter-dealer
quotations, do not include retail markups, markdowns or commissions and do not
necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Common Stock Price Range
High Bid Low Bid
<S> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.125 $ 4.50
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.125 $ 4.125
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.625 $ 1.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 0.625
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 0.69
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.25 $ 1.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 0.30
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.09 $ 0.525
1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.00 $ 0.699
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.25 $ 2.25
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.94 $ 2.25
Fourth Quarter (through October 22, 1996) . . . . . . . . . . . . $ 3.44 $ 2.75
</TABLE>
On October 22, 1996, the last bid price for the Common Stock of the Company as
reported on the OTC Bulletin Board was $3.44 per share. On October 22, 1996,
there were approximately 185 stockholders of record of the Common Stock,
including broker-dealers holding shares beneficially owned by their customers.
DIVIDEND POLICY
The Company has never declared a cash dividend on its Common Stock.
The Board of Directors presently intends to retain all earnings for use in the
Company's business, and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The declaration of dividends, if any, in
the future will be subject to the discretion of the Board of Directors, which
may consider such factors as the Company's results of operations, financial
condition, capital needs and acquisition strategy, among others.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1996, and as adjusted to reflect the issuance by the Company of
1,850,000 shares of Common Stock pursuant to the mandatory conversion feature
of the Debentures and to reflect the issuance by the Company of 370,000 shares
subsequent to June 30, 1996. The Company will not realize any proceeds from
the conversion of the Debentures, but the Debentures will be extinguished by
such conversion. The table should be read in conjunction with the Company's
financial statements and notes thereto that are included elsewhere in this
Prospectus. See, Consolidated Financial Statements.
<TABLE>
<CAPTION>
June 30, 1996 Historical
------------- ----------
Unaudited As Adjusted (1)
<S> <C> <C>
Stockholders' Equity:
Common Stock - $.001 par value;
50,000,000 shares authorized
6,305,318 shares issued and
outstanding $ 6,305 $ 8,525
Additional Paid In Capital (2) 3,230,863 4,450,394
Retained earnings (loss) (2,840,045) (2,840,045)
----------- ------------
Total Stockholders' Equity $ 397,123 $ 1,618,874
=========== ============
Total Capitalization $ 397,123 $ 1,618,874
=========== ============
</TABLE>
- ------------------------------
(1) Represents the as adjusted capitalization after giving effect to the
issuance of the Common Stock offered
hereby.
(2) Does not include: (i) 40,179 shares of Common Stock previously
earned by former noteholders which will be issued in January, 1998,
or (ii) 3,423,542 options to purchase Common Stock. See,
Consolidated Financial Statements--Notes 10 and 13; Principal
Stockholders, and Executive Compensation.
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<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of
the two-years ended December 31, 1995 and 1994, have been derived from the
audited financial statements of the Company. The selected consolidated
financial data presented below for the six months ended June 30, 1996 and June
30, 1995 are unaudited, but in management's opinion includes all adjustments
consisting only of normal recurring adjustments necessary to present fairly the
financial data for, and at the end of, such period. See, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Consolidated Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue
Service Revenue $ 0 $ 53,345 $ 53,345 $ 731,311
Income from Investment in
OnSite 46,384 0 63,052 0
Other Income 3,350 0 0 0
---------- ---------- ----------- ----------
TOTAL REVENUES 49,734 53,345 116,397 731,311
Loss from operations (104,768) (984,235) (1,215,613) (677,973)
Loss before income taxes (104,768) (984,235) (1,215,613) (677,973)
Extraordinary item 74,035 0 0 0
Net loss (30,733) (984,235) (1,215,613) (677,973)
Net loss per share before
extraordinary item (0.017) (0.193) (0.26) (0.21)
Net loss per share (0.005) (0.193) (0.26) (0.21)
BALANCE SHEET DATA:
Total assets $1,814,572 $ 105,775 $ 318,090 $ 888,330
Working capital (deficit) 1,089,507 (386,266) (429,544) (434,059)
Total liabilities 1,417,449 470,151 623,932 579,379
Stockholders' equity (deficit) 397,123 (364,376) (305,842) 308,951
</TABLE>
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes, and the
consolidated condensed interim unaudited financial statements included
elsewhere in this Prospectus. See Consolidated Financial Statements.
RESULTS OF OPERATIONS
General
In May 1993, the Company merged with NFE to provide the Company with
an acceptable technology with immediate commercial applications. Subsequent to
the merger the Company began to experience significant growth in revenues
during the remainder of the calendar year 1993 and 1994 based primarily on
contracts with major U.S. companies to provide on- site remediation of
hydrocarbon contaminated soil. The Company utilizes indirect thermal
desorption technology ("ITD") in its remediation process and, accordingly,
remediation units which were developed by the Company are referred to as ITD
Units.
In late 1994, the Company began to experience a decline in new service
contracts. Accordingly, in January 1995, the Company signed a marketing
agreement with Parker which granted Parker exclusive marketing rights to the
Company's proprietary process for on-site remediation of drill cuttings at oil
and gas drilling sites in the U.S. and certain foreign countries. In August
1995, this marketing agreement was expanded through the formation of OnSite,
a 50%-50% venture between the Company and Parker. OnSite was created to
expand the commercial application of the Company's ITD technology and
proprietary processes at a more ambitious pace than the original marketing
agreement encompassed. Presently, all commercial applications of the
Company's technology are delivered through OnSite.
In late 1995, OnSite took delivery of its first ITD Unit. This Unit,
engineered and built by a subsidiary of Parker, has experienced greater
processing speed and less operating downtime than earlier units built by the
Company. In a continuing effort to improve the efficiency of its equipment,
OnSite made significant engineering changes to the specifications used in its
first ITD Unit and in August 1996 took delivery of a second ITD Unit. The
Company believes its second ITD Unit will again produce improvements in both
performance and efficiency over previous units. Based upon the positive
results of tests of its newest ITD Unit, in September 1996, OnSite awarded
contracts for the construction of four additional ITD Units for delivery during
the first quarter of 1997.
Year ended December 31, 1995 compared to the year ended December 31, 1994
In 1995, the Company experienced a $677,966 decrease in its
environmental service revenue as a result of downtime and under performance of
its original ITD Units. This significant decline in service revenue, the
related pressure for improved engineering of its ITD Units and a need for
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<PAGE> 21
working capital prompted management to form OnSite with Parker. During 1995,
OnSite generated net income of $126,104 on revenues of $272,700 in just under
two months of operations. Accordingly, the Company's 50% interest in OnSite
resulted in 1995 income to the Company's account of $63,052.
Operational and general expenses decreased by $344,614 in 1995 due to
a significant decrease in new service contracts and the related reduction in
job payroll. Additionally, in late 1995, with the formation of OnSite, service
revenues and certain related costs were eliminated from the Company's
operations. Depreciation and amortization decreased by $28,840 in 1995 due to
the Company's recognition of a $737,217 provision for reduction in carrying
value of its existing ITD Units and other remediation equipment. This
provision, which eliminated substantially all of the depreciable asset base,
was necessary to reduce obsolete ITD Units and other remediation equipment to
their estimated net realizable value. Finally, as a further expense reduction
in 1995, stock bonuses to key employees were curtailed, resulting in a $414,200
reduction in expenses as compared to 1994.
In 1995, the Company incurred a net loss of $1,215,613 compared to a
net loss of $677,973 in 1994.
Six months ended June 30, 1996 compared to the six months ended June 30, 1995
In late 1995, the Company moved substantially all of its core
operations to OnSite and thereby eliminated service revenue in the Company.
During the six months ended June 30, 1996, the Company realized income from its
investment in OnSite of $46,384, with no similar income reported during the six
months ended June 30, 1995.
Costs and expenses sharply declined by $883,088 in the six months
ended June 30, 1996 as compared to the similar period of 1995. This
significant decline was due primarily to the recognition in 1995 of a $737,217
provision for reduction in carrying value of obsolete ITD Units and other
remediation equipment. The elimination of certain personnel charges as a
result of the formation of OnSite further aided in the reduction of costs.
The Company recorded a $74,035 extraordinary gain from restructuring
and/or eliminating certain aged trade accounts payable during the first six
months of 1996. Management does not expect to experience similar gains in
future periods.
The net loss of $30,733 during the first six months of 1996 represents
a $953,502 improvement over the same period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has operated with limited financial
resources and the Company believes that a lack of such resources has slowed the
commercialization of its ITD technology. The Company has relied almost
exclusively on private offerings of debt and equity securities for its
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<PAGE> 22
financial needs and in June 1996, raised net proceeds of approximately
$1,060,000 in a private offering of convertible debentures. The proceeds from
the convertible debentures are being used to meet working capital requirements
of the Company and to meet obligations for capital expenditures by OnSite.
In September 1996, OnSite awarded contracts for construction of four
additional ITD Units at a price of almost $4,000,000. The Company will be
required, under its joint venture agreement with Parker, to fund 50% of the
obligation arising from the purchase of these units. The Company does not
currently have the resources to meet its obligation and it anticipates that the
obligation will be funded in the first quarter of 1997. The Company expects
that the source of funds to meet this obligation will arise from a private
offering of common stock, possible equity or debt financing from Parker and/or
debt financing from an asset based third party lender.
The Company is currently dependent on the operations of OnSite for its
future growth and success. The Company considers its most important functions
to be developing new environmental technologies, expanding the market for
OnSite's technology and raising capital to meet its obligations for new
equipment in OnSite. OnSite has received a one year contract from a major
international petroleum industry participant who will employ OnSite's second ITD
Unit, in Colombia. The client has indicated that, subject to the ITD Unit's
performance, they will need additional ITD Units in the very near future to
address other soil remediation needs. As demand grows for OnSite's services,
the Company may again be faced with the need to raise additional funds for its
share of the cost of more units.
TRENDS AND UNCERTAINTIES
The Company is receiving a marked increase of inquiries for its
remediation services. The Company believes there is a trend by major petroleum
industry participants to address past hydrocarbon contamination problems and to
prevent current contamination caused during exploration for, and the
production, refining, transportation, storage and distribution of hydrocarbons.
The Company believes that these environmental concerns, related industry trends
and governmental regulations will increase demand for the Company's soil
remediation technology. However, the Company is aware of competing
technologies and companies that offer similar services. Some of the
competitors are well established companies with greater capital resources,
larger research and development staffs and greater marketing capabilities.
The Company believes that OnSite's contract with a major domestic
petroleum industry participant in Wyoming will be completed during the second
quarter of 1997. Subsequent to the completion of the Wyoming contract, the ITD
Unit will be upgraded to match the capabilities of the second ITD Unit to
address remediation needs with a specific Gulf Coast refinery. However, the
Company must help OnSite maintain favorable utilization rates on all ITD Units
in order for the Company to be profitable.
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<PAGE> 23
BUSINESS
The Company, through NFE and OnSite, is engaged in the development,
production and sale of environmental remediation technologies and services. To
date, the environmental remediation services provided by the Company have
involved the removal of petroleum contaminants from soil using indirect thermal
remediation equipment or enzyme-based bioremediation processes, and the
evaporation of waste water produced from oil and gas drilling.
HISTORY
The Company was incorporated under the laws of the State of Nevada in
December 1985, under the name of Cape Cod Investment Company. In December
1986, the name of the Company was changed to Cape Cod Ventures, Inc. In August
1987, the Company completed an initial public offering of 4,148,000 shares of
Common Stock at a price of $.001 per share pursuant to the exemption from the
registration requirements of the Act provided by Regulation A. In May 1993,
the Company entered into an Agreement and Plan of Reorganization with NFE
providing for the acquisition of NFE by the Company in exchange for shares of
the Company's common stock. Pursuant to the terms of the Reorganization
Agreement, the Company effected a 1-for-100 reverse split in its issued and
outstanding shares reducing the number of outstanding shares from 50,000,000 to
500,000. Following effectiveness of the reverse split, the Company acquired
NFE by issuing 3,374,000 shares of the Company's post-split common stock to the
NFE shareholders in exchange for all issued and outstanding shares of NFE. In
connection with the acquisition, the name of the Company was changed from Cape
Cod Ventures, Inc. to Environmental Safeguards, Inc. and NFE became a
wholly-owned subsidiary of the Company.
In January 1995, the Company entered into an agreement with Parker, a
Delaware corporation, granting Parker, among other things, exclusive marketing
rights to the Company's proprietary processes for on-site remediation services
in connection with drill cuttings at oil and gas drilling sites throughout the
United States and in certain foreign countries. In August 1995, the Company
expanded its agreement with Parker by forming OnSite Technology, L.L.C., an
Oklahoma limited liability company. Pursuant to the Operating Agreement for
OnSite, as amended, NFE granted to OnSite certain exclusive licenses to use the
technologies included in the Company's ITD Units, and the proprietary processes
for on-site remediation of hydrocarbon contaminated soil in the United States
and in certain foreign countries. Each ITD Unit is an easily transportable,
state-of-the-art processing system which produces clean soil from contaminated
soil while reclaiming the hydrocarbons. ITD Units are transported by truck
from one clean-up site to another. Parker agreed to actively market and
promote the services of OnSite including the preparation of brochures and the
preparation and delivery of certain presentations at one or more professional
society meetings in the energy industry and one or more energy industry trade
shows. All expenses associated with such promotional activity and
presentations were to be paid by Parker until July 31, 1996, and after July 31,
1996, certain expenses associated with such marketing and promotional
activities will be paid by OnSite. The Company intends to conduct
substantially all of its business operations through OnSite.
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<PAGE> 24
In June 1995, the Company effected a 1-for-10 reverse stock split in
order to improve the market price of the Company's Common Stock. In January
1996, the Company effected a 10-for-1 stock split in order to return the
Company to its prior level of authorized and outstanding shares of Common
Stock. This stock split increased the public float and daily trading volume of
the Company's Common Stock.
BUSINESS ACTIVITIES
Indirect Thermal Soil Remediation. The primary services offered by
the Company involve remediation of soil contaminated by oil-based drilling mud,
fuel spills, leakage at storage tanks, leakage from pipelines, and the
remediation of hydrocarbon contamination at settling ponds, oil and gas
exploration sites, refineries, petrochemical facilities, abandoned production
fields, Department of Defense installations, etc. To date the Company has not
employed its ITD Units to provide remediation services to refineries or similar
entities but has provided services solely with respect to soil remediation
primarily at the site of oil drilling operations, and most of the contracts
performed by the Company involve the processing of contaminated soil through
the Company's indirect thermal remediation equipment. This process is known as
"indirect thermal desorption" because it reverses the contamination process and
causes the soil to discharge the contaminants previously absorbed without
direct contact of the soil to a flame.
The ITD Units are portable pieces of equipment which utilize a
rotating, heat-jacketed trundle to vaporize hydrocarbons from contaminated
soil. An ITD Unit consists of two principal components: (i) an indirect
thermal desorption unit wherein the hydrocarbon contaminated soil is indirectly
heated, thereby causing the hydrocarbon contamination to vaporize; and (ii) a
condensation process system, which causes the hydrocarbon vapor to condense to
a liquid for client reclamation. As an alternative to the condensing system,
the vapor can be passed through an afterburner or thermal oxidizer which
incinerates the hydrocarbon vapors.
The heat exchange system is comprised of a large fabricated steel
shell which houses a rotating trundle. Hot gases pass through the shell and
around the outside surface of the trundle. Hydrocarbon contaminated soil is
loaded into the elevated end of the trundle by a conveyor belt or a front end
loader. As the trundle revolves, the soil is agitated by internal lifts and
oars as it passes through the inside of the trundle by gravity flow and is
heated to temperatures of from 300 degrees to 1200 degrees Fahrenheit. At these
temperatures, the hydrocarbon contaminants in the soil transform into vapors
which are vacuumed out of the heat exchange system into the condensing system,
the afterburner or the thermal oxidizer. The clean soil then drops out of the
discharge door at the low end of the trundle and is passed through an enclosed
conveyor for rehydration before final discharge. Random soil samples are
tested at the end of the process to confirm that the contaminants have been
removed to within the permitted range. The soil is then returned to its
original location or such other location specified by the customer. The
primary costs of operating the Company's ITD Units are the cost of third-party
labor and fuel.
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<PAGE> 25
In some cases, the hydrocarbon vapors removed from the heat exchange
system by vacuum are passed through a fan-cooled condensing system. The
vapors are condensed and recaptured as liquid product in storage tanks and can
then be recycled or disposed, depending on the nature of the contaminant, the
needs of the customer and the specifications required for reuse.
The Company fabricated its second ITD Unit in August 1996, and has
entered into contracts for the fabrication of four additional ITD Units for
delivery beginning in late 1996, with the final delivery anticipated during the
first quarter of 1997. All of the ITD Units are owned by OnSite. The
Company's share of the cost of acquiring the four ITD Units is estimated at
$2,000,000. To meet this obligation, the Company is presently offering for
sale, pursuant to a Private Offering, a minimum of 200,000 and a maximum of
2,000,000 shares of Common Stock at a price of $2.50 per share. The Company
intends to use the proceeds of that offering, if any, to fund the costs of the
ITD Units. In addition, the Company is investigating various alternative
sources of funding, including discussions with Parker to finance the cost of
the ITD Units.
As of December 31, 1995, NFE had successfully completed eight
remediation contracts. On all jobs the ITD Unit successfully removed the
contaminants from the soil. To date, the ITD Units have processed up to 192
tons of contaminated soil in a 24-hour period with a 30% hydrocarbon
saturation. However, the processing capacity varies significantly depending on
the moisture content, degree of contamination, soil type, contamination type,
remediation required and down time for maintenance, modification and repair of
the ITD Units and ancillary equipment. There can be no assurance that the ITD
Units will continue to perform at this level, or that this performance will
continue to be competitive with other technology available in the market.
Recyclying of Hydrocarbon Contaminants. The Company has developed
proprietary processes which are embodied in the condensation process system
trailer, one of the two principal components of the ITD Unit. Within this
component the hydrocarbon contaminant(s) are condensed from the vapor state
created in the dryer unit back into a liquid state via the proprietary
processes and placed into storage for recycling back to the client. This
allows the client to realize actual savings from its ability to re-utilize the
hydrocarbons. This ability to recycle the hydrocarbon contaminant(s) is an
important competitive advantage which the Company believes it possesses as
compared to the bioremediation, direct burn and "dig and haul" remediation
technologies.
Manufacturing. The Company currently has two operational ITD Units
and has ordered fabrication of four additional ITD Units. The ITD Unit which
is currently operating in Lysite, Wyoming was manufactured by Parker
Technology, Inc. ("Partech"), which is a wholly-owned subsidiary of Parker.
The Company is aware there are a number of manufacturing and fabricating
facilities, in addition to Partech, capable of manufacturing ITD Units. The
primary contractors on the second ITD Unit, completed in August, 1996, were
Roberds-Johnson Industries, located in Galena Park, Texas and Stelcon, Inc.,
located in Pasadena, Texas. The Company and OnSite recently awarded contracts
to Roberds-Johnson Industries and Cobrans Corporation as primary contractors
for four additional ITD Units based on cost, delivery date, quality of work and
other
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<PAGE> 26
business considerations. Additional ITD Units may be ordered in the future
subject to the demand for OnSite's remediation services and contract terms
with customers.
The Company and OnSite contract with Double Eagle Operations, Inc., of
Evanston, Wyoming, to provide the labor necessary to complete the Company's
contracts. The Company, through OnSite, typically submits a bid for a project
based on the costs of moving the equipment to the location, the estimated
charges for labor and fuel, the nature and extent of the contamination, the
type and moisture content of the soil, the estimated processing time and the
desired profit margin. Once a contract has been awarded, the Company moves its
equipment on location and Double Eagle supplies the crew necessary to operate
the equipment and complete the contract. The Company compensates Double
Eagle on an hourly basis for the labor supplied.
EXISTING CONTRACTS FOR OPERATIONS
The Company's two ITD Units are currently under contract for
operations. One of the ITD Units is currently operating in Lysite, Wyoming.
The Company presently anticipates that this contract will conclude during the
second quarter of 1997. Subsequent thereto, this ITD Unit will be upgraded to
match the capabilities and performance level of the Company's second ITD Unit
which was completed in August, 1996. This second ITD Unit has recently entered
into a one year contract for operation in Colombia. The ITD Unit is presently
being shipped to Colombia for operations, which it believes will commence in
November, 1996.
ONSITE TECHNOLOGY L.L.C.
Effective August 1, 1995, the Company and Parker formed OnSite
Technology L.L.C ("OnSite"), an Oklahoma Limited Liability Company. OnSite is
the successor to a previous marketing agreement between the Company and Parker
under which Parker was granted the exclusive marketing rights to the Company's
proprietary processes for on-site remediation services in connection with drill
cuttings at oil and gas drilling sites throughout the United States and in
certain foreign countries. Pursuant to the Operating Agreement for OnSite,
the Company granted to OnSite certain exclusive licenses to use the
technologies included in the Company's ITD Units, and the proprietary processes
for on-site remediation of hydrocarbon contaminated soil worldwide. The
Company and Parker each own 50% of the interest in OnSite.
The Company presently conducts substantially all of its business
activities through OnSite. Both the Company and Parker actively market
OnSite's remediation services. OnSite presently has two ITD Units, one of
which is fulfilling a remediation contract in Wyoming for a major domestic
independent oil company. The other ITD Unit is in transit to Colombia to
fulfill a remediation contract for a major international petroleum industry
participant. OnSite has contracted for four additional ITD Units to meet
anticipated demand for its soil remediation services. OnSite expects the
delivery of the four ITD Units to be completed during the first quarter of
1997.
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<PAGE> 27
The OnSite Operating Agreement presently allocates the sharing of
profits and losses of OnSite equally between the Company and Parker. The
Operating Agreement provides that members may be required to make additional
capital contributions from time to time upon the majority vote of its members.
If a member does not make the additional capital contribution, then the member
who does contribute may (i) initiate litigation against the delinquent member
to require the payment of the capital contribution, (ii) make such additional
capital contribution and treat it as a loan to the delinquent member, or (iii)
adjust OnSite's sharing ratios to reflect the additional amount paid by the
contributing member. If the contributing member elects to make the loan, then
the contributing member shall be entitled to all of the distributions to which
the delinquent member would otherwise have been entitled until such time as the
loan is paid in full. If the contributing member elects to have an adjustment
made the delinquent member's sharing ratio would be decreased and the
contributing member's sharing ratio would be increased.
Accordingly, if the Company becomes a delinquent member then its share
of profits and losses in OnSite could be adversely impacted. Such an event
could be repeated over the life of OnSite and might result in a material
decrease in the Company's sharing ratio, which could result in a material
decrease in profits to the Company from OnSites's operations.
The Operating Agreement provides for admission of new members upon a
unanimous vote of current members. No admission of new members is
contemplated at this time by either the Company or Parker.
PRIVATE OFFERING OF THE COMPANY'S COMMON STOCK.
The Company is presently offering for sale a minimum of 200,000 shares and a
maximum of 2,000,000 shares of its Common Stock pursuant to a Private
Placement Offering Memorandum. The offering is being made in reliance upon an
exemption from registration pursuant to Regulation D under the Securities Act
of 1933, as amended (the "Act"). As of the date of this Prospectus no shares
have been subscribed for and it is unknown whether the Company will raise any
funds from the offering.
COMPETITION
There are many companies which currently dispose of hazardous and
industrial wastes and remediate or clean up sites which have been contaminated,
and such companies are continually attempting to develop new and improved
products and services. Other companies utilize competing technologies and
techniques in an attempt to provide more economical or superior remediation
services. Many of the Company's competitors are well established companies
with substantially greater capital resources, larger research and development
staffs and facilities and substantially greater marketing capabilities than the
Company. Therefore, there can be no assurance that the Company will be able to
achieve and maintain a competitive position in the soil remediation industry.
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<PAGE> 28
The Company obtains its contracts through competitive bidding and is
in direct competition with firms providing alternative means of, and utilizing
alternative technologies for, resolving environmental problems. The most
significant competition comes from firms utilizing "dig and haul," direct burn,
and bioremediation technology to remediate soil contamination.
Companies utilizing the dig and haul method generally transport the
contaminated soil to other facilities for processing. The Company believes
that the technology utilized by the Company is competitive with dig and haul
methods because the Company's equipment is mobile, and thus, contaminated soil
can be remediated on location. The waste processing and remediation business
is, to a large extent, dependent upon and constrained by the costs and
regulations associated with transporting such wastes. The Company believes the
dig and haul method will, as a result, become less competitive over time due to
such transportation costs, the costs of replacing the contaminated soil and the
dumping charges at sites approved for the storage of hazardous materials. More
importantly, the Company's remediation process addresses the latent liability
associated with the contamination at the site. The Company is currently
investigating techniques and technology capable of removing heavy metal
contaminants from the soil, but there can be no assurance that the Company will
be able to develop or acquire such technology and skill or that, if obtained,
the Company will be competitive with other alternatives available in the
market.
Companies utilizing direct burn technology use direct heat sources to
incinerate contaminants found in the soil. Because of the closed nature of the
heat transfer system, the ITD Unit can safely handle much higher concentrations
of contaminants than conventional direct burn methods. Conventional direct
burn methods process material with maximum contamination levels of 3% to 4%
while the ITD Unit has processed materials with contamination levels as high as
30%. In addition, the portable nature of the ITD Unit permits it to be located
at the contamination site to process and replace the soil on location, thus
eliminating the need to package, haul and safely dispose of contaminated soil.
ITD Units also permit the customer to recapture certain valuable liquids which
are otherwise incinerated in the direct burn method.
GOVERNMENTAL REGULATIONS-COST OF COMPLIANCE
The Company renders services in connection with the remediation and
disposal of various wastes. Federal, state and local laws and regulations have
been enacted regulating the handling and disposal of wastes and creating
liability for certain environmental contamination caused by such waste.
Accordingly, the Company is subject to potential liability for environmental
damage its ITD Units or its operations may cause, particularly as a result of
contamination of water or soil. Environmental laws regulate, among other
things, the transportation, storage, handling and disposal of waste.
Governmental regulations govern matters such as the disposal of residual
chemical wastes, operating procedures, waste water discharges, fire protection,
worker and community right-to-know, and emergency response plans. Governmental
regulations also apply to the operation of vehicles used by the Company to
transport the ITD Units, including licensing requirements for the vehicles and
the drivers, vehicle safety requirements, vehicle weight limitations, and
shipment manifesting. Moreover, so-called "toxic tort" litigation has
increased markedly in recent years as persons
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<PAGE> 29
allegedly injured by chemical contamination seek recovery for personal injuries
or property damage. These legal developments present a risk of liability
should the Company be deemed to be responsible for contamination or pollution
caused or increased by any evaluation, remediation or cleanup effort conducted
by it, or for an accident which occurs in the course of such remediation or
cleanup effort. There can be no assurance that the Company's policy of
establishing and implementing proper procedures for complying with
environmental regulations will be effective at preventing the Company from
incurring a substantial environmental liability. If the Company were to incur
a substantial uninsured liability for environmental damage, its financial
condition could be materially adversely affected.
The Company presently has the ability to deliver soil remediation
services that meet applicable federal and state standards for the delivery of
its services, and for the level of contaminant removal. The government can,
however, impose new standards. If new regulations were to be imposed, the
Company may not be able to comply in either the delivery of its services, or in
the level of contaminant removal from the soil.
Operating permits are generally required by federal and state
environmental agencies for the operation of the Company's ITD Units. Most of
these permits must be renewed periodically and the governmental authorities
involved have the power, under various circumstances, to revoke, modify, or
deny issuance or renewal of these permits.
LITIGATION
The Company was named as a defendant in 1993 by Goldfield Engineering
and Machine Works ("Goldfield"), styled as Huron, Inc dba Goldfield Engineering
& Machine vs Don Cox, et.al. Cause No. 930400525 in the fourth District Court
of Utah County, Utah. The litigation originally involved claims by Goldfield
that the Company owed additional compensation of approximately $150,000 for ITD
Units constructed which the Company believes did not meet required performance
criteria. The Company filed a counterclaim for $200,000 to obtain damages from
Goldfield. The Company has been advised that Goldfield filed a petition
seeking Chapter 11 Bankruptcy protection in 1994. A Notice of Automatic Stay
was filed in August, 1994, based on the Chapter 11 Petition in In Re Huton, et
al filed in the US Bankruptcy Court for the Central Division of Utah, Case No.
94A-20001. In January, 1995, a Plan of Reorganization was confirmed by the
Bankruptcy Court whereby the Company received nothing and no adversary
pleadings were filed against the Company by Goldfield. The Company believes,
after consultation with counsel, that the risk of material financial exposure
to the Company is remote.
EMPLOYEES
The Company has five full-time employees, all of whom are in
management positions, including corporate and administrative operations. None
of the Company's employees are represented by a union and the Company considers
its employee relations to be good.
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<PAGE> 30
FACILITIES
The Company's principal executive offices are located in leased
facilities in Houston, Texas, consisting of a total of approximately 1,850
square feet. The current monthly rental for these executive offices is $925.
The lease for the executive offices will expire in December, 1996. The Company
believes that its offices are adequate for its present needs and that suitable
space will be available to accommodate its future needs.
POTENTIAL FAVORABLE FUTURE DEVELOPMENTS IN INDUSTRY
The Company believes that one major international oil company is
considering a corporate policy of "zero discharge". In such a scenario,
offshore drill cuttings would be barged to shore and remediated, rather than
being discharged back into the sea untreated. Such a development, if ever
realized, would broaden the market for the Company's services. The Company is
uncertain if such a scenario will ever occur.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of each of the
executive officers and directors of the Company.
Name Position Age
---- -------- ---
James S. Percell Chairman of the Board 53
of Directors, President,
Chief Executive Officer,
Chief Operating Officer
Robin M. Pate Director 69
Michael M. Dunson Chief Financial Officer, 49
Secretary, Treasurer
Bryan Sharp Director 52
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors are
elected and qualified. Officers are elected annually and serve at the
discretion of the Board of Directors. There is no family relationship between
or among any of the directors and executive officers of the Company.
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<PAGE> 31
JAMES S. PERCELL. Mr. Percell serves as Chairman, President and CEO
of the Company and also serves as President of the Company's subsidiary, NFE.
Mr. Percell became a director of the Company and President, Chief Executive
Officer and a director of NFE in November, 1995. Mr. Percell became President
and CEO of the Company in January, 1996. Mr. Percell also serves as President
of Percell & Associates, a project developer of facilities in the hydrocarbon
industry. From 1985-1993, Mr. Percell served as Vice-President of Belmont
Constructors, Inc., a heavy industrial contractor with annual sales of $263
million in 1992 up from $2 million in 1984. From 1982-1984, he served as
President of Capital Services Unlimited, an international supply company for
refining, petrochemical and oilfield compressor stations, modular refineries
and modular oilfield components. From 1977-1980, Mr. Percell served as
President of Percell & Lowder, Inc., an oilfield fabricator of onshore and
offshore facilities, and from 1960-1977, he served as project manager for
various onshore and offshore projects. He received his education at Amarillo
College in Amarillo, Texas.
ROBIN M. PATE. Mr. Pate has been a director of the Company since
November, 1995. Mr. Pate recently retired from the position of Executive
Vice-President of Enterprise Products Company. Mr. Pate joined Enterprise as
Senior Vice-President of operations in 1980. Before joining Enterprise, Mr.
Pate served as President of American Borate Company for three years,
Vice-President of Tenneco Oil for 12 years, and Executive Vice-President of
Houston Reinforced Plastics. Mr. Pate is a registered professional engineer
and is a member of the Texas Professional Engineering Association, Texas Bar
Association and American Bar Association, Gas Processors Association and the
National Petroleum Refiners Association of America. He is on the Board of
Directors of the Gas Processors Association and National Petroleum Refiners
Association of America. Mr. Pate is an active member of St. Christopher's
Episcopal Church as well as a member of the 100 Club and the Museum of Fine
Arts. Mr. Pate has a degree in Chemical Engineering from the University of
Texas in addition to a Doctor of Jurisprudence in Law from the University of
Houston.
BRYAN SHARP. Mr. Sharp has served as a director of the Company since
November, 1995. Mr. Sharp currently serves as Principal-in-Charge and Director
of Espey, Huston & Associates, Inc., an environmental consulting company, and
from 1990-1993, he served as President of EH&A. As President, Mr. Sharp was
responsible to the Board of Directors for the day-to-day operations and
profitability at all EH&A operations. As Principal-in-Charge and Director, Mr.
Sharp continues to be involved in all aspects of EH&A's environmental
consulting practice. Prior to joining EH&A, Mr. Sharp worked as an assistant
and consultant in projects for the Lower Colorado River Authority and Tracor,
Inc., both concerned with ecological surveys preceding major industrial
development (power plants and new town projects). Mr. Sharp has also worked
for North Texas State University, the Department of the Interior, and the
University of Texas.
Mr. Sharp also has extensive teaching and research experience
principally in the fields of genetics and environmental biology. He has taught
courses in embryology, genetics, natural history, ecology and aquatic biology.
His early research was concerned with genetics of alcohol addiction and of
blood serum proteins in vertebrates. In 1968, he began ecological research in
conjunction with the Bureau of Reclamation which was concerned with the effect
of evaporation control upon
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<PAGE> 32
the ecology of reservoirs. More recently, Mr. Sharp has conducted research
concerning the influence of temperature in fish development and of fish
ecology. Mr. Sharp has produced many publications and technical reports,
including a nationally acclaimed study, "Effects of Evaporation Suppression on
Reservoir Ecology" published by the Journal of American Water Works
Association. Mr. Sharp has a B.S. degree in Education from North Texas State
University, a M.S. degree in Biology from North Texas State University and
studied for his Ph.D. in Zoology from the University of Texas at Austin.
MICHAEL M. DUNSON. Mr. Dunson joined the Company in March, 1996, and
serves as its Chief Financial Officer and as Secretary-Treasurer. Mr. Dunson
became a director of the Company in July, 1996. In 1983, Mr. Dunson opened the
Houston office of the New York-based investment banking firm of Copeland,
Wickersham, Wiley & Co., Inc. Mr. Dunson was the managing partner in the
Houston office and concentrated his efforts serving clients, both institutional
and corporate, in the oil field services industry. From 1983 to 1992, Mr.
Dunson owned Bay Industrial Sales, a stocking wholesale distributor of selected
welding supplies to the refining, petrochemical and fabrication industries. In
1989, Mr. Dunson began his own investment banking/consulting firm based in
Houston and continues to serve his original client base. Mr. Dunson has both
Series 7 and 63 securities licenses. Mr. Dunson has both his M.B.A. in Finance
and B.A. in Math from The University of Texas at Austin, Austin, Texas.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION
The Company's Articles of Incorporation (the "Articles") provide, as
permitted by governing Nevada law, that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, with certain exceptions. The Articles
further provide that the Company will indemnify its directors and officers
against expenses and liabilities they incur to defend, settle, or satisfy any
civil litigation or criminal action brought against them on account of their
being or having been Company directors or officers unless, in such action, they
are adjudged to have acted with gross negligence or willful misconduct.
The inclusion of these provisions in the Articles may have the effect
of reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
The Articles provide for the indemnification of its executive officers
and directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by Nevada law. The
Articles include related provisions meant to facilitate the indemnitiees'
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken, and (iii)
the establishment of certain presumptions in favor of an indemnitee.
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Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
Mr. James Percell, became President and Chief Executive Officer of
the Company in January, 1996. During the current fiscal year, Mr. Percell did
not receive any compensation for the services he rendered to the Company. The
Company presently intends to negotiate an employment contract with Mr.
Percell which will provide for compensation to him. Mr. Kevin Baadsgaard
served as President and Chief Executive Officer of the Company during 1995
until he resigned in October, 1995. In November, Mr. Burl Jacks became
President and Chief Executive Officer of the Company. Mr. Jacks did not
receive any compensation for the services he rendered to the Company during
1995. Mr. Jacks was not employed by the Company during 1993 or 1994. No
executive officer of the Company received compensation which exceeded $100,000
during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION COMPENSATION LONG-TERM
------------------- -------------- ALL
RESTRICTED STOCK OTHER
STOCK OPTIONS COMPEN-
NAME & PRINCIPAL POSITION YEAR SALARY(1) BONUS OTHER AWARDS (SHARES) SATION
- ------------------------- ---- --------- ----- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Kevin Baadsgaard
Chief Executive Officer 1995 $ 35,750 -0- -0- -0- -0- -0-
1994 $ 36,914(2) -0- -0- -0- -0- -0-
1993 $ 35,586 -0- -0- -0- -0- -0-
</TABLE>
- ---------------------
(1) Of this amount, $9,250, $9,942 and $9,942 was earned and accrued
during 1995, 1994, and 1993, respectively. In April, 1996, the Company
issued 20,810 shares at $1.40 per share as payment for this earned and
accrued employment compensation.
(2) As additional employee compensation, Mr. Baadsgaard received 239,000
restricted shares of Common Stock of the Company in September, 1994. The
estimated fair market value of the Common Stock was $0.38 per share.
DIRECTOR COMPENSATION
The Company does not currently pay any cash director's fees, but it
pays the expenses, if any, of its directors in attending board meetings. In
November, 1995, the Company issued to each of Messrs. Percell, Pate and Sharp
800,000 options to purchase shares of Common Stock of the
-31-
<PAGE> 34
Company at $0.60 per share. The options are fully vested and may be exercised
at any time until the termination of the option which is as of November 2,
2005.
EMPLOYEE STOCK OPTION PLAN
While the Company has been successful in attracting and retaining
qualified personnel, the Company believes that its future success will depend
in part on its continued ability to attract and retain highly qualified
personnel. The Company pays wages and salaries which it believes are
competitive. The Company also believes that equity ownership is an important
factor in its ability to attract and retain skilled personnel, and the Board of
Directors of the Company is presently evaluating the adoption of an employee
stock option program. While no decision has been made as to the type of stock
option program which may be adopted, it is the intention of the Board of
Directors that a stock option program will be established.
The purpose of the stock option program will be to further the
interest of the Company, its subsidiaries and its stockholders by providing
incentives in the form of stock options to key employees and directors who
contribute materially to the success and profitability of the Company. The
grants will recognize and reward outstanding individual performances and
contributions and will give such persons a proprietary interest in the Company,
thus enhancing their personal interest in the Company's continued success and
progress. This program will also assist the Company and its subsidiaries in
attracting and retaining key employees and directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The current Board of Directors of the Company has adopted a policy
that Company affairs will be conducted in all respects by standards applicable
to publicly-held corporations and that the Company will not enter into any
transactions and/or loans between the Company and its officers, directors and
5% stockholders unless the terms are no less favorable than could be obtained
from independent, third parties and will be approved by a majority of the
independent, disinterested directors of the Company.
-32-
<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus with respect to the beneficial ownership of shares of Common
Stock by (i) each person who owns beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company and (iv) all executive officers and directors of the
Company as a group. Each stockholder has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
Number of Percent
Name Shares Owned of Class
---- ------------ --------
<S> <C> <C>
James S. Percell 991,333(1)(2) 12.9%
2600 South Loop West, #445
Houston, Texas 77054
Robin M. Pate 866,666(1)(2) 11.3%
9723 Truscan
Houston, Texas 77080
Bryan Sharp 800,000(1) 10.5%
3200 Wilcrest, #200
Houston, Texas 77042
Michael M. Dunson ---- ----
2600 South Loop West, #445
Houston, Texas 77054
Burl Jacks 500,000(1)(3) 7.3%
8202 Devlin Pt.
San Antonio, Texas 78240
Kelly Trimble 558,550(2) 8.5%
175 South Main, #1430
Salt Lake City, Utah 84111
All officers and directors
as a Group (4 persons) 2,657,999 28.5%
</TABLE>
- ---------------------------
(1) On November 3, 1995, the Company issued to each of
Messrs. Percell, Pate and Sharp 800,000 options to purchase
shares of Common Stock of the Company at $0.60 per share. In
addition, the Company issued Mr. Jacks 500,000 options to
purchase shares of Common Stock of the Company at $0.60
per share. All of the options are fully vested and may be
exercised at any time until November 2, 2005 and, therefore,
are deemed outstanding.
(2) Messrs. Percell, Pate and Trimble own Debentures
convertible into 33,333, 66,666 and 20,000 shares of Common
Stock respectively. These Debentures may be converted at the
option of the holder at any time and, therefore, are deemed
outstanding.
(3) Mr. Jacks is a former director of the Company.
-33-
<PAGE> 36
PLAN OF DISTRIBUTION
The Selling Stockholders may, from time to time, sell all or a portion
of the Stockholder Shares in transactions ( which may include block
transactions) in the over-the-counter market on any national or regional
securities exchange in which the Common Stock is listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. Resales by the
purchasers of such shares may be made in the same manner.
The Selling Stockholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Stockholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from both the Selling Stockholders and/or the
purchasers for whom such broker-dealers may act as agents or to whom they may
sell as principals (which compensation as to a particular broker-dealer may be
in excess of customary commissions).
If the Company is notified by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of the
Common Stock, the Company would be required to amend the Registration Statement
of which this Prospectus is a part and file a Prospectus Supplement to describe
the agreements between the Selling Stockholder and such broker-dealer relating
to the distribution.
The Selling Stockholders and any broker-dealers participating in the
distribution of the Common Stock covered by this Prospectus may be deemed to be
"underwriters" (within the meaning of Section 2(11) of the Act). Any
commissions received by them, as well as any proceeds from any sales as a
principal by them, may be deemed to be underwriting discounts and commissions
under the Act.
The Company will pay certain costs and expenses incurred in connection
with the registration of the Stockholder Shares under the Act. The Company
will not, however, pay any commissions or any other fees in connection with the
sale of the Common Stock.
There is no assurance that the Selling Stockholders will sell any or
all of the Common Stock.
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder,
the number of shares of Common Stock offered by each Selling Stockholder
(including all shares to be issued upon the conversion of the Debentures),
the number of shares of Common Stock to be owned by each Selling Stockholder if
all shares were to be sold in the offering and the percentage of the Company's
outstanding Common Stock that will be owned by each Selling Stockholder if all
shares are sold in
-34-
<PAGE> 37
the offering. The shares of Common Stock being offered hereby are being
registered to permit public secondary trading and the Selling Stockholders may
offer all or a portion of the shares for resale from time to time.
<TABLE>
<CAPTION>
Shares Shares Shares Owned Percentage
Owned Offered After Offering Owned After
Selling Before For If All Shares Offering If All
Stockholder(1) Offering Sale Sold* Shares Sold*
- -------------- -------- ---- ----- -----------
<S> <C> <C> <C> <C>
James S. Percell (2) 991,333 33,333 958,000 12.5%
Robin M. Pate (3) 866,666 66,666 800,000 10.5%
Washach Textile 18,166 16,666 1,500 0.1%
and Supply,
a Trust
Kelly Trimble (4) 558,550 390,000 168,550 2.5%
Frank J. Gillen 121,260 20,000 101,260 1.5%
Allen Trevino (5) 176,921 16,666 160,255 2.4%
Rodney and Shauna 283,333 83,333 200,000 2.9%
Badger JT-ROS
Lee W. Jackson 293,333 83,333 210,000 3.1%
Banyan Investment 54,210 50,000 4,210 0.1%
Company
Robert D. Axelrod (6) 16,666 16,666 0 0.0%
Robin Allen Pate (7) 416,666 416,666 0 0.0%
James Seamens 166,666 166,666 0 0.0%
L. E. Gunnels 83,333 83,333 0 0.0%
Jerry Lyn McKinney 33,333 33,333 0 0.0%
KGB Family Ltd. 16,666 16,666 0 0.0%
Partnership(8)
Keith Biesinger (9) 33,333 33,333 0 0.0%
Richard S. Cook 16,666 16,666 0 0.0%
James F. Jez 18,333 18,333 0 0.0%
The Diane Davis 83,333 83,333 0 0.0%
1992 Revocable
Trust
R. Bruce Jones 83,333 83,333 0 0.0%
DDS PC Profit
Sharing Trust
Patrick Berna 25,000 25,000 0 0.0%
Rodney K. Rayburn 50,000 50,000 0 0.0%
Mike Shelton 300,000 300,000 0 0.0%
Robert C. Ryan 33,333 33,333 0 0.0%
Roberds-Johnson (10) 83,333 83,333 0 0.0%
Industries
</TABLE>
- -----------------------
-35-
<PAGE> 38
(*) Assumes no sales are effected by the Selling Stockholders during the
offering period other than pursuant to this Registration Statement.
(1) Except as set forth below, no Selling Stockholder has held any
position or office, or has had any material relationship with the
Company or any of its affiliates within the past three years:
(2) James S. Percell is a principal stockholder of the Company, Director
and Chief Executive Officer of the Company.
(3) Robin M. Pate is a member of the Board of Directors of the Company.
(4) Kelly Trimble is a principal stockholder of the Company.
(5) Allen Trevino is a former director of the Company.
(6) Robert D. Axelrod is presently the Company's legal advisor for
securities matters.
(7) Robin Allen Pate is the son of Robin M. Pate, a member of the Board
of Directors of the Company.
(8) Keith Biesinger was formerly the Company's legal advisor.
(9) Roberds-Johnson Industries fabricates ITD Units for the Company, and
is the principal supplier of fabrication services to the Company.
(10) Kathy Carter, President of the Company's Transfer Agent is a
beneficiary of KGB Family Ltd. Partnership.
Each Selling Stockholder represented in connection with their original
acquisition of the Debentures that they were acquiring the Debentures with no
present intention of effecting a distribution of such Debentures or the Common
Stock into which the Debentures may be converted. However, in recognition of
the fact that the Company is registering the shares of Common Stock underlying
the Debentures, Selling Stockholders, even though originally acquiring the
Debentures without a view to distribution of such Common Stock, may be legally
permitted to sell their shares when they deem appropriate. The Company,
however, retained the right to cause a mandatory conversion of the Debentures
at such time as the shares of Common Stock became registered and at such time
as the Company became an Exchange Act reporting company. Pursuant to the
Company's right under the Debentures, the Company has filed with the SEC under
the Act a Registration Statement on Form SB-2, of which this Prospectus forms
a part, with respect to the sale of the shares of Common Stock from time to
time in the over-the-counter market, on any national or regional securities
exchange on which the Common Stock may be listed or traded, or in privately
negotiated transactions and will file the appropriate documents with the SEC to
become an Exchange Act reporting company. See, Plan of Distribution.
-36-
<PAGE> 39
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $0.001 par value, and 10,000,000 shares of preferred
stock $0.001 par value ("Preferred Stock"). As of the date of this Prospectus,
the Company has outstanding 6,854,828 shares of Common Stock and there are no
shares of Preferred Stock outstanding.
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Articles of Incorporation
("Articles") of the Company, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See, Additional
Information.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share with
respect to all matters required by law to be submitted to stockholders of the
Company. The holders of Common Stock have the sole right to vote, except as
otherwise provided by law or by the Articles, including provisions governing
any Preferred Stock. The Common Stock does not have any cumulative voting,
preemptive, subscription or conversion rights. Election of directors and other
general stockholder action requires the affirmative vote of a majority of
shares represented at a meeting in which a quorum is represented. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, upon payment therefor as contemplated herein, validly issued,
fully paid and non-assessable.
Subject to the rights of any outstanding shares of Preferred Stock,
the holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the affairs of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment or provision
for all liabilities and any preferential liquidation rights of any Preferred
Stock then outstanding.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred
Stock, par value $0.001, of which 500,000 shares have been designated as Series
A Convertible Preferred Stock. As of the date hereof, there are no shares of
Preferred Stock issued and outstanding. The Articles provide that the Board of
Directors is authorized, without action by the holders of the Common Stock, to
provide for the issuance of the authorized but unissued shares of Preferred
Stock in one or more series, to establish the number of shares to be included
in each series and to fix the designations, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. This includes, among other things, voting rights,
conversion privileges, dividend rates, redemption rights, sinking fund
provisions and liquidation rights which shall be superior to the Common Stock.
The issuance of one or more series of the Preferred Stock could adversely
affect the voting power of the holders of the Common Stock and could have the
effect of discouraging or making more difficult any attempt by a person or a
group to attain control of the Company. The Company has no present plans to
issue any shares of Preferred Stock.
-37-
<PAGE> 40
Series A Convertible Preferred Stock. If issued, the Series A
Convertible Preferred Stock will be entitled to (i) a preference of $2.50 per
Share upon liquidation, (ii) one vote per Share on all matters to be considered
by the Shareholders, and (iii) equal participation with the Common Stock in any
dividends declared by the Company. The Series A Convertible Preferred Stock is
convertible at the option of the holder into shares of the Company's Common
Stock on a one-for-one basis.
10% CONVERTIBLE DEBENTURES
General. The Company currently has outstanding $1,110,000 principal
face amount of 10% Convertible Debentures due December 31, 2000. The Debentures
are unsecured, subordinated, general obligations of the Company, which bear
interest at the rate of 10% per annum payable semi-annually on December 1 and
June 1 each year to record holders as of November 15 or May 15 immediately
preceding the interest payment date. Principal and interest on the Debentures
is payable at, and the Debentures are convertible at, the office or agency of
the Company. No provision in the Debentures affects the Company's obligation
to pay interest and principal when due.
Conversion Of Debentures Into Common Stock. The Debentures contain
certain conversion rights. The Debentures and any accrued and unpaid interest
automatically and mandatorily convert into Common Stock at the rate of $0.60
per share, subject to adjustment as described below, in the event the Company
effectively registers its securities under the Exchange Act and effectively
registers the shares of Common Stock underlying the Debentures with the SEC.
The Company has filed a Registration Statement of which this Prospectus forms a
part, and which will cause the registration of the shares of Common Stock
underlying the mandatory conversion feature of the Debentures. In addition,
the Company will register its securities under the Exchange Act. The result of
these actions by the Company will be to cause the mandatory conversion of the
Debentures.
A Debenture holder has the voluntary right to convert all or any
portion of the principal amount of the Debentures plus any accrued and unpaid
interest into shares of Common Stock at any time prior to maturity, unless
earlier redeemed or converted, at the conversion price of $0.60 per share,
subject to adjustments as described below. The right to convert the Debentures
terminates at the close of business on the business day prior to the redemption
date for the Debentures unless the Company fails to pay the applicable
redemption price.
In the case of any Debenture which has been voluntarily or mandatorily
converted after a record date, but on or before the next interest payment date,
interest due on such interest payment date is payable on the interest payment
date not withstanding a conversion. The interest will be payable to a holder
in cash on the interest payment date unless, prior to such date, the holder
notifies the Company in writing to convert such interest into shares of Common
Stock at the conversion price of $0.60 per share. No fractional shares will be
issued upon conversion, but, in lieu thereof, an appropriate amount will be
paid in cash by the Company.
The Company may stop or prevent the transfer of Common Stock issuable
upon a conversion for a period not to exceed 60 days if the Company files a
registration statement, or if the Company believes that a holder has material
non-public information.
Adjustment. The Conversion Price is subject to adjustment upon the
occurrence of certain events including: (a) any dividend or other distribution
payable in Common Stock on any class of securities of the Company; (b) any
exercise or conversion by holders of any rights, options, or other
-38-
<PAGE> 41
exercisable securities entitling them to subscribe for or purchase Common Stock
at a price per share resulting in the aggregate consideration for each
additional share of Common Stock being less than the conversion price of the
Debentures; (c) any subdivision, combination, or reclassification of Common
Stock, and (d) any sale of additional shares of Common Stock for cash or other
consideration which is less than the conversion price.
Effect of Reclassification. In the case of any reclassification,
consolidation or merger of the Company, each Debenture outstanding will,
without the consent of the holder, become convertible into only the kind and
amount of securities, cash or property receivable upon such reclassification,
consolidation or merger, into which the Debentures were convertible immediately
prior thereto, giving effect to any adjustment.
The Debentures provide that the Company will not consolidate or merge
unless the Company is the surviving entity or the surviving entity is
incorporated in the United States, or in any state, or the District of
Columbia, and expressly assumes by supplemental agreement all of the
obligations of the Company in connection with the Debentures. Upon such
consolidation or merger, the Company will be released from its obligation
except as to obligations that arise from the transaction. The successor entity
will be substituted for the Company.
Redemption. The Debentures are subject to optional redemption by the
Company upon not less than 30 days notice nor more than 60 days notice at 102%
of principal face amount if redeemed prior to December 1, 1996, and 100% of the
principal face amount if redeemed thereafter, plus accrued interest and unpaid
interest to the redemption date.
If less than all Debentures are redeemed at any one time, a pro rata
selection of Debentures to be redeemed will be made by the Company.
Event of Default. Debenture holders have certain rights upon default
as defined in the Debenture. Prior to any acceleration of maturity under these
rights a majority of holders may waive any default except a default which has
not yet occurred, and except with respect to any Debenture provision that
cannot be changed without consent of the holder. The Debentures are
subordinated to all existing and future indebtedness of the Company. Holders
of senior indebtedness are entitled to receive priority in any distribution
upon dissolution, winding up, total or partial liquidation or reorganization of
the Company, whether involuntary or voluntary, bankruptcy, receivership, or
upon assignment for the benefit of creditors.
No Personal Liability of Shareholders, Directors, or Officers. No
shareholder, director, or officer of the Company has any personal liability
with respect to the Debentures by reason of his or its status as such
shareholder, director, or officer.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Colonial
Stock Transfer Company. Its address is 440 East 400 South, Suite 100, Salt
Lake City, Utah 84111; (801) 355-5740.
-39-
<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
Possible or actual sales of a substantial number of shares of Common
Stock by the Selling Stockholders in this Offering could have a negative impact
on the market price of the Common Stock of the Company. Further, the Company
does not anticipate engaging an Underwriter to assist in a distribution of
shares of Common Stock on behalf of the Selling Stockholders who sell shares of
Common Stock to be registered in this Offering. All 2,220,000 shares of Common
Stock included in this Registration Statement become immediately transferable.
The availability of public trading for such a large number of shares may have
an adverse effect on the trading prices of the Common Stock. Accordingly,
there is no assurance that shareholders will be able to sell the shares of
Common Stock for any particular price.
In addition, of the 6,854,828 shares of the Company's Common Stock
outstanding as of the date of this Prospectus, approximately 3,860,474 shares
are restricted securities as that term is defined in Rule 144 adopted under the
Act ("Restricted Securities"). Rule 144 governs resales of Restricted
Securities for the account of any person, other than an issuer, and restricted
and unrestricted securities for the account of an "affiliate" of the issuer.
Restricted securities generally include any securities acquired directly or
indirectly from an issuer or its affiliates which were not issued or sold in
connection with a public offering registered under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers, and persons directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has
been held for two years from the later of its acquisition from the Company or
an affiliate of the Company. Thereafter, shares of Common Stock may be resold
without registration subject to Rule 144's volume limitation, aggregation,
broker transaction, notice filing requirements, and requirements concerning
publicly available information about the Company ("Applicable Requirements").
Resales by the Company's affiliates of restricted and unrestricted Common Stock
are subject to the Applicable Requirements. The volume limitations provide
that a person, or persons who must aggregate their sales, cannot, within any
three-month period, sell more than the greater of (i) one percent of the then
outstanding shares, or (ii) the average weekly reported trading volume during
the four calendar weeks preceding each such sale. A person who is not deemed
an "affiliate" of the Company and who has beneficially owned shares for at
least three years would be entitled to sell such shares under Rule 144 without
regard to the Applicable Requirements. The Company believes that approximately
845,300 shares of Common Stock have been held for more than three years, and
therefore may be sold by non-affiliates without limitation.
No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market would
likely have a material adverse effect on prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
-40-
<PAGE> 43
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by
the Company will be passed upon for the Company by Axelrod, Smith & Kirshbaum,
an Association of Professional Corporations, Houston, Texas. Robert D.
Axelrod owns $10,000 of Debentures and will receive 16,666 shares of Common
Stock upon the mandatory conversion of the Debentures. Mr. Axelrod presently
owns 6,000 shares of Common Stock of the Company.
EXPERTS
The Consolidated Balance Sheet of the Company as of December 31, 1995
and the related Consolidated Statements of Operations, Stockholders' Equity and
Cash Flow for the year then ended have been audited by Ham, Langston & Brezina,
L.L.P., independent auditors, as set forth in their report, incorporated by
reference herein, in reliance upon such report and the authority of Ham,
Langston & Brezina L.L.P. as experts in accounting and auditing. The
Consolidated Statements of Operations, Stockholders' Equity and Cash
Flow for the year ended December 31, 1994 have been audited by Randy Simpson,
C.P.A., P.C., independent auditor, as set forth in the report, incorporated by
reference herein, in reliance upon such report and the authority of Randy
Simpson, C.P.A., P.C., an expert in accounting and auditing.
-41-
<PAGE> 44
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
---------------
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
F-1
<PAGE> 45
[HAM, LANGSTON & BREZINA, L.L.P. LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Environmental Safeguards, Inc.
We have audited the accompanying consolidated balance sheet of Environmental
Safeguards, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of the Company as of and for the year ended December 31,
1994, before restatement, were audited by another auditor whose report dated
March 11, 1995, expressed an unqualified opinion on those statements.
We also audited the adjustments described in Note 2 that were applied to
restate the 1994 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Environmental Safeguards, Inc. and Subsidiary as of December 31, 1995, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
The Accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 14 to the financial
statements, the Company has suffered recurring losses from operations and as of
December 31, 1995, has a net working capital deficiency and a net equity
deficiency that raise substantial doubt about
F-2
<PAGE> 46
Environmental Safeguards, Inc.
Page 2
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 14. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
/s/ HAM, LANGSTON & BREZINA L.L.P.
Houston, Texas
March 24, 1996, except for Notes 6, 13 and 14,
as to which the date is October 22, 1996
F-3
<PAGE> 47
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995
---------------
<TABLE>
<S> <C>
ASSETS
------
Current assets - cash and cash equivalents $ 194,388
----------
Total current assets 194,388
Property and equipment, net 18,240
Investment in joint venture 105,462
----------
Total assets $ 318,090
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 233,517
Accounts payable 215,116
Accounts payable to joint venture 9,362
Accrued liabilities 165,937
----------
Total current liabilities 623,932
----------
Commitments and contingencies (Notes 1, 4, 6,
11, 13, 14 and 15)
Stockholders' deficit:
Common stock; $.001 par value, 50,000,000 shares
authorized; 5,551,450 shares issued and
outstanding at December 31, 1995, giving
retroactive effect to ten for one stock split
on January 24, 1996 5,551
Unissued common stock 50,000
Additional paid-in capital 2,448,744
Accumulated deficit (2,810,137)
----------
Total stockholders' deficit (305,842)
----------
Total liabilities and stockholders' deficit $ 318,090
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 48
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
---------------
<TABLE>
<CAPTION>
1994
(AS RESTATED
1995 SEE NOTE 2)
----------- -------------
<S> <C> <C>
Income:
Service revenue $ 53,345 $ 731,311
Income from investment in
joint venture 63,052 -
----------- -----------
Total income 116,397 731,311
Costs and expenses:
Operational and general 522,833 867,447
Depreciation and amortization 58,563 87,403
Stock bonus to key employees - 414,200
Interest expense 13,397 25,867
Research and development - 8,536
Provision for reduction in
carrying value of certain
assets 737,217 5,831
----------- -----------
Total costs and expenses 1,332,010 1,409,284
----------- -----------
Net loss $(1,215,613) $ (677,973)
=========== ===========
Weighted average shares
outstanding, giving retro-
active effect to ten for
one stock split on
January 24, 1996 4,709,520 3,203,520
=========== ===========
Net loss per common share $ (0.26) $ (0.21)
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 49
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
---------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994, as previously stated 296,170 $ 296 2,818,074 $2,818
Prior period adjustment to properly record
stock issued as compensation (See Note 2) - - - -
----------- ------ ----------- --------
Balance at January 1, 1994, as restated
(See Note 2) 296,170 296 2,818,074 2,818
Common stock issued in exchange for services at
the estimated fair value of the services
received - - 59,429 59
Common stock issued in repayment of a loan from
a director, based upon original loan proceeds
(See Note 2) - - 75,000 75
Common stock issued for cash at $3.00 per share - - 9,500 10
Common stock issued as compensation to key em-
ployees, at estimated fair value of $0.38 per
share (See Note 2) - - 1,090,000 1,090
Net loss for the year ended December 31, 1994,
as restated (See Note 2) - - - -
----------- ------ ----------- --------
Balances at December 31, 1994, as restated
(See Note 2) 296,170 296 4,052,003 4,052
Common stock issued for cash at $1.00 per share - - 300,000 300
Common stock issued in exchange for services,
at estimated fair value of $1.00 per share - - 10,820 11
Preferred stock converted to common stock on
a three for one basis prior to reverse stock
split (243,949) (244) 731,847 732
Reverse one for ten stock split (46,999) (47) (4,585,214) (4,585)
Common stock issued for cash subsequent to re-
verse one for ten stock split, at $8.00 per
share - - 30,000 30
Common stock for which cash was received but
shares were not issued at year end - - - -
Preferred stock converted to common stock on
a three for one basis subsequent to reverse
stock split (5,222) (5) 15,667 15
Net loss for the year ended December 31, 1995 - - - -
Retroactive effect of ten for one stock split
on January 26, 1996 - - 4,996,327 4,996
----------- ------ ----------- --------
Balances at December 31, 1995 - $ - 5,551,450 $5,551
=========== ====== =========== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 50
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
---------------
<TABLE>
<CAPTION>
RETAINED
UNISSUED ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
-------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994, as previously
stated $ - $ 890,477 $ (438,939) $ 454,652
Prior period adjustment to properly record
stock issued as compensation (See Note 2) - 477,612 (477,612) -
-------- ---------- ----------- ----------
Balance at January 1, 1994, as restated
(See Note 2) - 1,368,089 (916,551) 454,652
Common stock issued in exchange for services
at the estimated fair value of the services
received - 44,513 - 44,572
Common stock issued in repayment of a loan
from a director, based upon original loan
proceeds (See Note 2) - 44,925 - 45,000
Common stock issued for cash at $3.00 per share - 28,490 - 28,500
Common stock issued as compensation to key em-
ployees, at estimated fair value of $0.38 per
share (See Note 2) - 413,110 - 414,200
Net loss for the year ended December 31, 1994,
as restated (See Note 2) - - (677,973) (677,973)
-------- ---------- ----------- ----------
Balances at December 31, 1994, as restated
(See Note 2) - 1,899,127 (1,594,524) 308,951
Common stock issued for cash at $1.00 per share - 299,700 - 300,000
Common stock issued in exchange for services,
at estimated fair value of $1.00 per share - 10,809 - 10,820
Preferred stock converted to common stock on
a three for one basis prior to reverse stock
split - (488) - -
Reverse one for ten stock split - 4,632 - -
Common stock issued for cash subsequent to re-
verse one for ten stock split, at $8.00 per
share - 239,970 - 240,000
Common stock for which cash was received but
shares were not issued at year end 50,000 - - 50,000
Preferred stock converted to common stock on
a three for one basis subsequent to reverse
stock split - (10) - -
Net loss for the year ended December 31, 1995 - - (1,215,613) (1,215,613)
Retroactive effect of ten for one stock split
on January 26, 1996 - (4,996) - -
-------- ---------- ----------- ----------
Balances at December 31, 1995 $ 50,000 $2,448,744 $(2,810,137) $ (305,842)
======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 51
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
---------------
<TABLE>
<CAPTION>
1994
(AS RESTATED
1995 SEE NOTE 2)
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,215,613) $ (677,973)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Common and preferred stock issued in
exchange for services 10,820 458,772
Income from investment in joint venture (63,052) -
Provision for reduction in carrying value
of certain assets 737,217 5,831
Depreciation expense 58,563 80,296
Amortization expense - 7,107
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 41,329 276,885
Increase (decrease) in accounts payable (3,859) (141,916)
Increase in accrued liabilities 66,132 99,805
Increase (decrease) in deferred revenue - (26,500)
----------- ----------
Net cash provided by (used in operating
activities (368,463) 82,307
----------- ----------
Cash flows from investing activities:
Capital expenditures (46,067) (141,027)
Investment in joint venture (33,048) -
----------- ----------
Net cash used in investing activities (79,115) (141,027)
----------- ----------
Cash flows from financing activities:
Proceeds from notes payable 180,004 127,091
Repayment of notes payable (137,649) (45,550)
Proceeds from sale of common stock and unissued
common stock 590,000 28,500
Repayment of long-term debt (69,437) -
----------- ----------
Net cash provided by financing activities 562,918 110,041
----------- ----------
Net increase in cash and cash equivalents 115,340 51,321
Cash and cash equivalents, beginning of year 79,048 27,727
----------- ----------
Cash and cash equivalents, end of year $ 194,388 $ 79,048
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 9,335 $ 25,867
=========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE> 52
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Environmental Safeguards, Inc. ("ESI") was incorporated under the laws of
the state of Nevada on December 30, 1985 as Cape Cod Investment Company.
The Company adopted its present name on May 17, 1993 concurrently with
its reverse acquisition of National Fuel and Energy, Inc. ("NFE"), a
Wyoming corporation. In these financial statements, the Company and its
wholly owned subsidiary, NFE, are collectively referred to as the
"Company".
The Company is engaged in the business of developing, marketing and
providing environmental remediation technologies and services. To date,
the primary service offered by the Company has been the remediation of
soil contaminated by oil based drilling mud, fuel spills, leaking
underground storage tanks and other sources of hydrocarbon contamination.
The Company's primary customers have generally been multinational energy
companies operating in the Western United States; however, the Company is
making efforts to broaden the geographical scope of its operations.
Following is a summary of the Company's significant accounting policies:
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of ESI and
its wholly-owned subsidiary, NFE. All significant intercompany
transactions have been eliminated.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all
short-term investments with an original maturity of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method for financial
reporting purposes and accelerated methods for tax reporting purposes.
The cost and related accumulated depreciation of property and equipment
retired or otherwise disposed of are removed from the accounts and any
gain or loss is currently recognized in the statement of operations.
Maintenance, repairs and minor renewals necessary to maintain property
and equipment in normal operating condition are expensed as incurred.
Renewals and improvements that extend the useful life or increase the
value of an asset are capitalized.
Continued
F-9
<PAGE> 53
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT, CONTINUED
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of. SFAS No. 121 requires that
long-lived assets to be held and used by an entity be reviewed for
impairment whenever events or changes indicate that the net book value of
the asset may not be recoverable. An impairment loss is recognized if
the sum of expected future cash flows from the use of the asset is less
than the net book value of the asset.
INVESTMENT IN JOINT VENTURE
The Company's investment in a joint venture is accounted for using the
equity method.
INCOME TAX
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred income taxes are recorded to reflect
the tax consequences on future years of temporary differences between the
tax basis of assets and liabilities and their financial amounts at
year-end.
The Company files a consolidated corporation federal income tax return as
a C corporation. ESI's S corporation status was terminated upon its
merger with NFE (See Note 4). Prior to the merger, based on an election
by the stockholders, ESI was taxed as a Subchapter S corporation as
provided for in the Internal Revenue Code. As a Subchapter S
corporation, income and deductions of ESI were passed through to and
reported by ESI's individual stockholders and no provision for federal
income taxes was recognized by ESI.
EARNINGS PER COMMON SHARE
The computation of primary earnings per common and common equivalent
share is based on the weighted average number of outstanding common
shares and additional shares assuming the exercise of stock options in
periods where such exercise is dilutive. The inclusion of additional
shares resulting from exercise of stock options, less the number of
treasury shares assumed to be purchased using the average market price of
the Company's common stock, would have been anti-dilutive in all years
presented. Fully diluted earnings per common share are not disclosed
because in all years presented the inclusion of additional shares
assuming the conversion of Series A Convertible Preferred Stock would
have been anti-dilutive.
Continued
F-10
<PAGE> 54
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts presented in the financial statements as of December 31,
1994 have been reclassified to conform to the presentation used in 1995.
2. PRIOR PERIOD ADJUSTMENT
In April 1993, the Company entered into agreements (the "Operating
Agreements") which established outside operators for the Company's soil
reclamation units. The Operating Agreements were made effective
retroactive to 1992 and, upon payment of an appointment fee of $125,000
to $200,000, provided each operator the authority to operate one of the
Company's soil reclamation units for a period which extended from the
effective date of the Operating Agreements to December 31, 2002. The
Company encountered difficulties providing proven reclamation units to
the operators and in September of 1993 entered into agreements which
terminated the Operating Agreements in exchange for common stock.
During the year ended December 31, 1994 the Company issued common and
preferred stock to facilitate the cancellation of the Operating
Agreements and to provide compensation for services performed by certain
key employees. The issuance of such stock was not consistently accounted
for but was generally recorded at par value in the Company's audited
financial statements. Generally accepted accounting principles require
that common or preferred stock issued as consideration for cancellation
of agreements or as compensation, be recorded at the estimated fair value
of the stock issued (or at the fair value of the consideration received
or services provided if such value is more readily determinable).
Management has determined that restricted common stock issued as
compensation for services during the years ended December 31, 1994 had
an estimated fair value of $0.38/share.
Continued
F-11
<PAGE> 55
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
2. PRIOR PERIOD ADJUSTMENT, CONTINUED
The effect of correcting this error in application of generally accepted
accounting principles on the Company's financial statement for the year
ended December 31, 1994 is shown below. There was no resulting impact on
assets, liabilities, working capital or total stockholders' equity
(deficit) at December 31, 1994.
<TABLE>
<S> <C>
Increase to beginning accumulated
deficit $ (477,612)
Increase in net loss (413,110)
Increase in common and preferred
stock and additional paid-in
capital 890,722
----------
$ -
==========
Increase in net loss per common share
giving retroactive effect to ten for
one stock split on January 24, 1996 $ (0.13)
==========
</TABLE>
3. NON-CASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1995 and 1994, the Company engaged in
various non-cash investing and financing activities as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Increased investment in a joint
venture by assuming accounts
payable of the joint venture $ 9,362
Issued 75,000 shares of common
stock to repay a $45,000 note
payable to a director. At
issuance the stock was valued
at $0.60 per share $ 45,000
</TABLE>
Continued
F-12
<PAGE> 56
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
4. CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to concentrations of
credit risk include cash and accounts receivable. The Company maintains
its cash in banks selected based upon management's assessment of the
banks' financial stability. Balances periodically exceed the $100,000
federal depository insurance limit; however, the Company has not
experienced any losses on deposits. Accounts receivable generally arise
from sales of services to multinational energy companies operating in the
United States. Collateral is generally not required for credit granted.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Equipment $ 36,502
Accumulated depreciation (18,262)
--------
$ 18,240
========
</TABLE>
During 1995, management reviewed all equipment for impairment of value
and made the decision to write down and sell for scrap existing units
used in soil remediation. Management's decision was based upon the
development of new units with greater capacity and efficiency which are
being used in the Company's joint venture with Parker Drilling Company
(See Note 6). The $737,217 provision for reduction in carrying value of
certain assets in the accompanying consolidated statement of operations
reflects the impact of management's decision on both property and
equipment and certain other assets.
6. INVESTMENT IN JOINT VENTURE
Effective January 1, 1995, the Company entered into an exclusive
marketing agreement with Parker Drilling Company ("PDC") under which PDC
was appointed as the Company's sole marketing representative for the
services of the Company's soil remediation system and proprietary
processes for use in the reclamation of hydrocarbons from drill cuttings.
The geographical scope of the agreement extended to the continental
United States and Alaska and many countries which have significant
energy-related industries.
Continued
F-13
<PAGE> 57
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
6. INVESTMENT IN JOINT VENTURE, CONTINUED
Effective August 1, 1995, the Company and PDC entered into a joint
venture agreement (the "Agreement") to provide services previously
provided under the exclusive marketing agreement described in the
previous paragraph. Accordingly, Onsite Technology, L.L.C. (the
"Venture") was formed under the Oklahoma Limited Liability Company Act.
Pursuant to the Agreement, as amended, the Company granted to the Venture
certain exclusive licenses to use the technologies included in the
remediation units and the proprietary processes for on location soil
remediation in the United States and in certain foreign countries. PDC
has agreed to actively market and promote the services of the Venture
through specific actions described in the Agreement. Expenses associated
with such promotional activities will be borne by PDC until July 31,
1996. The Company intends to conduct substantially all of its future
business operations, related to its indirect thermal desorption soil
remediation system and proprietary process, through the Venture.
Under the terms of the Agreement the Company and PDC each own a 50%
interest in the assets, liabilities, capital and profits of the Venture.
Each member initially made capital contributions of $1,000 to the Venture
and may be required to make additional capital contributions, if funds
are needed to enable the Venture to conduct its business. The Venture
will continue to operate until January 1, 2025, unless such date is
changed as provided for in the Agreement.
Following is summarized financial information of the Venture as of
December 31, 1995 and for the period from inception, August 1, 1995, to
December 31, 1995:
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
------
Cash $ 16,190
Accounts receivable 259,200
Accounts receivable from Venturers 14,548
Other current assets 500
--------
Total current assets 290,438
Property and equipment, net 692,783
--------
Total assets $983,221
========
</TABLE>
Continued
F-14
<PAGE> 58
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
6. INVESTMENT IN JOINT VENTURE, CONTINUED
<TABLE>
<S> <C>
LIABILITIES AND VENTURERS' CAPITAL
----------------------------------
Accounts payable $ 64,573
Accounts payable to a related party 707,724
--------
Total current liabilities 772,297
Venturers' capital 210,924
--------
Total liabilities and venturers'
capital $983,221
========
STATEMENT OF OPERATIONS
-----------------------
Revenue $272,700
Operating expenses (131,655)
Depreciation (14,941)
--------
Net income $126,104
========
</TABLE>
The accounts payable to a related party represents amounts due to a
subsidiary of PDC that constructed the Venture's first soil reclamation
unit. The Company could be required to make capital contributions to pay
its share of the unit's cost. Additionally, subsequent to year end, the
Venture took delivery of an additional new soil reclamation unit at an
approximate manufactured cost of $950,000. In September 1996 the Venture
awarded contracts for four additional units at a total cost of
approximately $4,000,000. Accordingly, the Company will be required to
make capital contributions to the Venture of approximately $2,000,000,
representing its share of the purchase obligation.
Continued
F-15
<PAGE> 59
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Note payable to a director/stockholder of
the Company, with a stated interest rate
of 9% per year and originally due on
demand. This note was uncollateralized
and subsequent to December 31, 1995, was
repaid through the issuance of common
stock (See Note 13). $ 50,004
Note payable to a former owner of a distri-
butorship bearing interest at 9% per year
with principal and interest payable in
monthly installments of $6,353 through
April, 1996. This note is collateralized
by certain equipment. 26,013
Note payable to a director/stockholder,
with a stated interest rate of 9% per year
and originally payable based upon a per-
centage of equity capital raised
subsequent to August 1994. This note
was uncollateralized and subsequent to
December 31, 1995 was repaid through the
issuance of common stock (See Note 13). 62,500
Notes payable to director/stockholders
bearing interest at 8.75% per year and
due in January 1996. These notes are
uncollateralized and were fully repaid
subsequent to year end. 95,000
--------
Total notes payable and long-term debt $233,517
========
</TABLE>
The weighted average interest rate on short term notes payable was 9% at
December 31, 1995. No interest expense was accrued or paid on the
$50,004 and $62,500 notes shown above. These notes were repaid through
issuance of common stock subsequent to year end (See Note 13) and
represented debt to related parties who elected to waive payment of
accrued interest which would have otherwise totaled approximately $10,000
at December 31, 1995.
Continued
F-16
<PAGE> 60
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 consist of the following:
<TABLE>
<S> <C>
Accrued salaries and wages $163,875
Accrued interest expense 2,062
--------
$165,937
========
</TABLE>
The accrued salaries and wages balances resulted from claims that arose
for wages during the period from January 1, 1993 to December 31, 1995.
This liability was settled through issuance of common stock subsequent to
year-end (See Note 13).
9. INCOME TAX
The composition of deferred tax assets and the related tax effects at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Benefit from carryforward of net
operating losses $793,276
Less valuation allowance (793,276)
--------
Net deferred tax asset $ -
========
</TABLE>
The difference between the income tax benefit in the accompanying
statement of operations and the amount that would result if the U.S.
Federal statutory rate of 34% were applied to pre-tax loss is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- ---------------------
PERCENTAGE PERCENTAGE
OF PRE-TAX OF PRE-TAX
AMOUNT LOSS AMOUNT LOSS
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Benefit for income tax at
federal statutory rate $413,308 34% $230,510 34%
Non deductible compensation
expense - - (144,282) (21%)
Increase in valuation
allowance (413,308) (34%) ( 86,228) (13%)
-------- ----- -------- -----
Total $ - - $ - -
======== ====== ======== =====
</TABLE>
Continued
F-17
<PAGE> 61
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
9. INCOME TAX, CONTINUED
At December 31, 1995, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $2,300,000 of unused
net operating losses available for carryforward to future years. The
benefit from carryforward of such net operating losses will expire in
various years between 2001 and 2010. The benefit from utilization of net
operating loss carryforwards could be subject to limitations if
significant ownership changes occur in the Company.
10. STOCKHOLDERS' EQUITY (DEFICIT)
During the years ended December 31, 1995 and 1994, the Company and its
stockholders made certain significant changes to the Company's equity
accounts and capital structure as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has authorized 500,000 shares of serial preferred stock and
during the year ended December 31, 1993 the Company issued 296,170 shares
of Series A Convertible Preferred stock. Series A Preferred Stock is
noncumulative, has voting rights of one vote per share, and is
convertible to common stock on a share for share basis. All outstanding
shares of Series A preferred stock originally contained a provision by
which they were automatically converted to common stock on December 31,
1995. However, on June 26, 1995 the Company's board of directors adopted
a three for one conversion of all outstanding preferred stock to common
stock.
COMMON STOCK
In June 1995, the Company effected a one for ten reverse stock split
because management believed that such a split would improve the market
price of the Company's common stock.
UNISSUED COMMON STOCK
During 1995 the Company received $50,000 in cash for issuance of stock at
$0.80 per share; however, at December 31, 1995 the stock had not yet been
issued. Accordingly, the cash received has been presented as unissued
common stock in the accompanying balance sheet.
Continued
F-18
<PAGE> 62
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
10. STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
STOCK WARRANTS
In November 1993 the Company granted warrants to purchase a total of
563,542 shares of its common stock at an exercise price of $5.00 per
share. Certain of the warrants include the right to require registration
of the shares acquired upon exercise of the warrants at any time after
May 31, 1995. The warrants expire in November 1998 and at December 31,
1995 no warrants had been exercised.
In connection with certain short term loans from an individual, the
Company issued warrants to purchase 370,000 shares of the Company's common
stock at a price of approximately $0.45 per share.
In November 1995, the Company granted a total of 2,900,000 stock options
to certain officers/directors and a former officer of the Company at an
option price of $0.60 per share.
After giving effect to the one for ten reverse stock split in June 1995
and the retroactive effect of the ten for one stock split in January
1996, following is a summary of outstanding stock warrants and options at
December 31, 1995:
<TABLE>
<CAPTION>
Number of Shares Expiration Date Exercise Price
---------------- --------------- --------------
<S> <C> <C>
563,542 November 1998 $5.00
370,000 September 1996 $0.45
2,900,000 November 2005 $0.60
</TABLE>
11. MAJOR CUSTOMERS
During the year ended December 31, 1995, all of the Company's revenue
came from two customers, each of which accounted for more than 10% of the
Company's revenue. One such customer contracted for services directly
with the Company and the other contracted for services through the
Venture. During the years ended December 31, 1994 substantially all of
the Company's revenue was generated from five customers and each
customer accounted for more than 10% of service revenue.
Continued
F-19
<PAGE> 63
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
12. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, many of the Company's officers
and directors (who are also principal stockholders in the Company) were
actually employed by and compensated through payments to a company which
they control. Total compensation paid or accrued to this affiliate was
$170,638 and $159,260 during the years ended December 31, 1995 and
1994, respectively.
13. SUBSEQUENT EVENTS
In January 1996, the Company agreed to issue 138,690 shares of the
Company's common stock in settlement of certain claims for compensation
by eight former key employees and certain directors ("Employees") for
services performed during the years ended December 31, 1995 and 1994.
The Company also agreed to reimburse the Employees for certain expenses
incurred by them on behalf of the Company during the time of their
employment. The Employees agreed to release any claims they might have
against the Company, including claims for past-due compensation. The
settlement for past services and expenses totaling $163,875 has been
accrued at December 31, 1995.
In January 1996, the Company also agreed to exchange 35,717 and 44,640
shares of its common stock in satisfaction of two promissory notes in the
amounts of $50,004 and $62,500, respectively. Under the terms of the
agreements, the Company will deliver one-half of such common stock
immediately upon closing the transactions and the remaining one-half on
January 10, 1998.
In January 1996, the Company effected a ten for one stock split in order
to return the Company to the level of authorized and outstanding shares
of common stock that existed before the reverse one for ten stock split
in June 1995. The stock split was made because management believed that
such a split would improve the marketability of the Company's common
stock.
In June 1996, the Company completed an offering of convertible debentures
(the "Debentures") which resulted in gross proceeds to the Company
(before issuance cost of $54,749) of $1,110,000. The Debentures bear
interest at 10% per year and are due in semi-annual payments of interest
only through December 31, 2000, at which date the entire principal
balance is due. The holders of the Debentures may convert them to shares
of the Company's common stock at a conversion rate of $0.60 per share at
any time prior to maturity. The Debentures allow for early redemption by
the Company and are subject to mandatory conversion upon the occurrence
of certain events. The conversion rate is subject to adjustment as
described in the Debenture agreement.
Continued
F-20
<PAGE> 64
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
14. LIQUIDITY AND CAPITAL RESOURCES
As shown in the accompanying consolidated balance sheets at December 31,
1995 and 1994, the Company has significant deficits in working capital
and stockholders' equity and has experienced significant recurring losses
from operations. These circumstances and significant purchase
commitments made by the Venture in September 1996 have caused the Company
severe liquidity problems and raise substantial doubt about the Company's
ability to continue as a going concern. Management has taken specific
actions to address the liquidity issues as described below.
o Negotiation of the Venture with PDC (See Note 6) that will
comprise the Company's only business for the near future.
Management believes that the Venture allows the Company to
build needed equipment and creates increased demand for the
Company's services. The commitment of the Company and PDC to
the Venture, until outside sources of capital can be
established, is an important component of the Company's
long-term plans.
o Settlement of existing debts through the issuance of common
stock in order to preserve cash resources. Management was
successful in settling approximately $275,500 of current
liabilities through issuance of common stock subsequent to
year end (See Note 13).
o In June 1996 the Company completed an offering of 10%
convertible debentures, which resulted in net proceeds to the
Company of approximately $1,060,000 (See Note 13).
o In September 1996 the Company began offering for sale,
pursuant to a private offering, a minimum of 200,000 and a
maximum of 2,000,000 shares of common stock at a price of
$2.50 per share. This offering will remain open until no
later than December 31, 1996.
There can be no assurance that the Venture or the private offering of
common stock will be successful or that the Company will achieve
profitability.
The Company's long-term viability as a going concern is dependent upon
the Company obtaining adequate sources of debt or equity funding to meet
current commitments and ultimately achieving profitability.
Continued
F-21
<PAGE> 65
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
---------------
15. LITIGATION
The Company is involved as a defendant in certain litigation filed by an
engineering company (the "Engineering Company") that constructed certain
soil reclamation units for the Company. The litigation originally
involved claims by the Engineering Company that the Company owed
additional compensation of approximately $150,000 for units constructed
which the Company believes did not meet required performance criteria.
The Company filed a counter claim for $200,000 to obtain damages from the
Engineering Company. The Company has been advised that in 1994, the
Engineering Company filed a petition seeking Chapter 11 Bankruptcy
Protection. A Notice of Automatic Stay was filed in August 1994. In
January 1995, the Engineering Company filed a Plan of Reorganization with
the Bankruptcy Court whereby the Company received nothing and no
adversary pleadings were filed against the Company.
F-22
<PAGE> 66
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
---------------
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
F-23
<PAGE> 67
[HAM, LANGSTON & BREZINA, L.L.P. LETTERHEAD]
To the Board of Directors
Environmental Safegaurds, Inc.
The accompanying consolidated condensed interim balance sheet of Enviromental
Safeguards, Inc. as of June 30, 1996 and 1995, and the related consolidated
condensed interim statements of operations and accumulated deficit for the six
months then ended were not audited by us and, accordingly, we do not express an
opinion on them.
October 22, 1996
Houston, Texas
F-24
<PAGE> 68
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS
JUNE 30, 1996
---------------
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $1,166,016
Accounts receivable from joint venture 53,155
----------
Total current assets 1,219,171
Property and equipment, net 14,915
Investment in joint venture 524,812
Debt Issuance Costs 54,749
Other assets, net 925
----------
Total assets $1,814,572
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 129,664
----------
Total current liabilities 129,664
Convertible debentures 1,110,000
Deferred gain 177,785
----------
Total liabilities 1,417,449
----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 50,000,000
shares authorized, 6,305,318 shares
issued and outstanding 6,305
Additional paid-in capital 3,230,863
Accumulated deficit (2,840,045)
----------
Total stockholders' equity 397,123
----------
Total liabilities and stockholders'
equity $1,814,572
==========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
F-25
<PAGE> 69
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
---------------
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
--------- ----------
<S> <C> <C>
Income:
Service revenue - $ 53,345
Income from investment in joint venture 46,384 -
Other income 3,350 -
---------- -----------
Total income 49,724 53,345
Costs and expenses:
Operational and general 147,915 237,450
Depreciation expenses 3,650 54,913
Interest expense 2,927 8,000
Provision for reduction in carrying value
of certain assets - 737,217
---------- -----------
Total costs and expenses 154,492 1,037,580
---------- -----------
Loss before extraordinary gain on elimination
of debt (104,768) (984,235)
Extraordinary gain on elimination of debt, net 74,035 -
---------- -----------
Net loss (30,733) (984,235)
Accumulated deficit at beginning of period (2,809,312) (1,594,524)
---------- -----------
Accumulated deficit at end of period (2,840,045) $(2,578,759)
========== ===========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
F-26
<PAGE> 70
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
---------------
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (30,733) $ (984,235)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary gain on elimination of debt (74,035) -
Common and preferred stock issued in exchange
for services - 10,820
Income from investment in joint venture (46,384) -
Provision for reduction in carrying value
of certain assets - 737,217
Depreciation expense 3,650 54,913
Changes in operating assets and liabilities:
Decrease in accounts receivable - 41,329
Decrease (increase) in accounts receivable
from joint venture (53,155) -
Increase in deposits (925) -
Increase (decrease) in accounts payable 34,077 (86,189)
Increase (decrease) in accrued liabilities (2,062) 64,070
---------- ----------
Net cash provided by (used in) operating
activities (169,567) (162,075)
---------- ----------
Cash flows from investing activities:
Capital expenditures - (46,067)
Investment in joint venture (204,543) -
Proceeds from sale of equipment 1,500 -
---------- ----------
Net cash used in investing activities (203,043) (46,067)
---------- ----------
Cash flows from financing activities:
Repayment of notes payable (95,000) (62,649)
Proceeds from sale of convertible debentures 1,055,251 -
Proceeds from sale of common stock 410,000 300,000
Repayment of long-term debt (26,013) (24,373)
---------- ----------
Net cash provided by financing activities 1,344,238 212,978
---------- ----------
Net increase in cash and cash equivalents 971,628 4,836
Cash and cash equivalents, beginning of period 194,388 79,048
---------- ----------
Cash and cash equivalents, end of period $1,166,016 $ 83,884
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 4,989 $ 11,335
========== ==========
</TABLE>
The accompanying selected notes are an integral
part of these interim financial statements.
F-27
<PAGE> 71
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS
---------------
(UNAUDITED)
1. ORGANIZATION:
Environmental Safeguards, Inc. ("ESI") was incorporated under the laws of
the state of Nevada on December 30, 1985 as Cape Cod Investment Company.
The Company adopted its present name on May 17, 1993 concurrently with
its reverse acquisition of National Fuel and Energy, Inc. ("NFE"), a
Wyoming corporation. In these financial statements, the Company and its
wholly owned subsidiary, NFE, are collectively referred to as the
"Company".
The Company is engaged in the business of developing, marketing and
providing environmental recycling and remediation technologies and
services. To date, the primary service offered by the Company has been
the remediation of soil contaminated by oil based drilling mud, fuel
spills, leaking underground storage tanks and other sources of
hydrocarbon contamination. The Company's primary customers have
generally been multinational energy companies operating in the Western
United States; however, the Company is making efforts to broaden the
geographical scope of its operations to include all of North America and
Latin America.
2. INTERIM FINANCIAL STATEMENTS:
The unaudited consolidated condensed interim financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant
to those rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for
a fair presentation of results of operations have been made to the
interim financial statements. Results of operations for the six-month
periods ended June 30, 1996 and June 30, 1995 are not necessarily
indicative of results of operations for the respective full years.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated condensed interim
financial statements is presented in the Company's audited financial
statements for the years ended December 31, 1995 and 1994. Accordingly,
the Company's audited financial statements should be read in connection
with these financial statements.
Continued
F-28
<PAGE> 72
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS
---------------
(UNAUDITED)
3. CONVERTIBLE DEBENTURES:
In June 1996, the Company completed an offering of convertible debentures
(the "Debentures") which resulted in gross proceeds to the Company
(before issuance cost of $54,749) of $1,110,000. The Debentures bear
interest at 10% per year and are due in semi-annual payments of interest
only through December 31, 2000, at which date the entire principal
balance is due. The holders of the Debentures may convert them to shares
of the Company's common stock at a conversion rate of $0.60 per share at
any time prior to maturity. The Debentures allow for early redemption by
the Company and are subject to mandatory conversion upon the occurrence
of certain events. The conversion rate is subject to adjustment as
described in the Debenture agreement.
4. DEFERRED GAIN:
In July 1996, the Company entered into an amendment to the Agreement (see
Note 6 to the December 31, 1995 audited financial statements) under which
the Company granted the Venture a non-royalty bearing, exclusive, world
wide license (the "License") for manufacture and use of the Company's
indirect thermal desorption soil remediation and hydrocarbon reclamation
system. In exchange for the granting of the License, Parker Drilling
Investment Company made a $177,785 capital contribution to the Venture on
behalf of the Company and the Company recorded a $177,785 gain. Such
gain has been deferred and will be recognized using the straight-line
method over the twenty-nine year term of the License.
5. EXTRAORDINARY GAIN ON ELIMINATION OF DEBT:
During 1996 the Company negotiated with many of its vendors concerning
old outstanding balances. These negotiations resulted in the vendors
forgiving $74,035 of old balances. The gain on forgiveness of accounts
payable is presented as an extraordinary gain in the accompanying
statement of operations and accumulated deficit.
Continued
F-29
<PAGE> 73
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS
---------------
(UNAUDITED)
6. COMMITMENTS:
In September 1996, the Venture awarded contracts for four additional
units at a total cost of approximately $4,000,000. Accordingly, the
Company will be required to make capital contributions to the Venture of
approximately $2,000,000, representing its share of the purchase
obligation.
F-30
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION
The Articles of Incorporation of the Company ("Articles") provide, as
permitted by governing Nevada law, that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, with certain exceptions. These
provisions may discourage stockholders from bringing suit against a director
for breach of fiduciary duty and may reduce the likelihood of derivative
litigation brought by stockholders on behalf of the Company against a director.
The Articles provide that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil litigation or criminal action brought against them on account
of their being or having been Company directors or officers unless, in such
action, they are adjudged to have acted with gross negligence or willful
misconduct.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the forgoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The inclusion of this provision in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
The Articles provide for the indemnification of its executive officers
and directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by the Nevada law. The
Articles include related provisions meant to facilitate the indemnitiees'
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken, and (iii)
the establishment of certain presumptions in favor of an indemnitee.
II-1
<PAGE> 75
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Company.
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . $2,374.73
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . *
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . *
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
- -------------------------
(*) To be filed by amendment
II-2
<PAGE> 76
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period ended September 30, 1996, the Company issued
unregistered securities in transactions summarized below.
The following transactions were effected on reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as
provided in Section 4(2) thereof or, upon exemptions from registration under
the Act as provided in Regulation D thereof. Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated
in, nor did the Company pay any commissions or fees to any underwriter in
connection with any of these transactions.
In February, 1994, the Company issued 25,000 shares of Common Stock and 2,000
shares of Series A Preferred Stock to the Advocacy Group as a payment in kind
for services rendered to the Company. In addition, in February, 1994, the
Company issued 15,000 shares of Common Stock to Double Eagle as payment in kind
for services. The Company issued these securities in reliance on Section 4(2)
of the Act.
In February, 1994, the Company issued 36,511 and 12,100 shares of Common Stock
to Cleo Cox and Duane Herbert, respectively, as repayment of outstanding
loans to the Company. The Company issued these securities in reliance on Section
4(2) of the Act.
In September, 1994, the Company issued 4,036 shares, 560 shares, 1,500 shares
and 53,333 shares of Common Stock to Jeff Hill, Ann Mikat, Denton Crozier and
Allen Trevino, respectively, as payment in kind for services rendered. The
Company issued these securities in reliance on Section 4(2) of the Act.
In September, 1994, the Company issued 75,000 shares of Common Stock to Edwin
Bashaw as repayment of an outstanding loan to the Company. The Company
issued these securities in reliance on Section 4(2) of the Act.
In September, 1994, the Company received $28,500 from Steve Jeune for 9,500
shares of Common Stock of the Company. The Company issued these securities in
reliance on Section 4(2) of the Act.. In September, 1994, the Company issued
1,090,000 shares of Common Stock to approximately 17 of its employees as
payment in kind as compensation for employment services rendered by the
employees to the Company. The Company issued these securities in reliance on
Section 4(2) of the Act.
In January, 1995, the Company issued 1,945 shares of Common Stock to James C.
Mathews as payment in kind for services rendered. The Company issued these
securities in reliance on Section 4(2) of the Act.
II-3
<PAGE> 77
In May, 1995, the Company received $300,000 for the sale of 12% Convertible
Debentures due in May, 1996, to three holders. The Debentures were converted
during 1995 by the holders into 300,000 shares of Common Stock of the Company.
The Company issued these securities in reliance on Regulation D promulgated
under the Act.
In June, 1995, the Company issued 1,475 shares and 7,400 share of Common Stock
to James C. Mathews and Denton Crozier, respectively, as payment in kind for
services rendered. The Company issued these securities in reliance on Section
4(2) of the Act.
In December, 1995, through February, 1996, the Company received $700,000 for
the sale of 875,000 shares of its Common Stock to four holders at $0.80 a
share. The Company issued these securities in reliance on Regulation D
promulgated under the Act.
In April, 1996, the Company issued 17,858 shares and 22,320 shares of Common
Stock to Angels Haven and Allen Trevino, respectively, as repayment of
outstanding loans to the Company. The Company issued these securities in
reliance on Section 4(2) of the Act.
In April, 1996, the Company issued 138,690 shares of Common Stock as a payment
in kind settlement of claims of eight former key employees and certain former
directors of the Company for services rendered. The Company issued these
securities in reliance on Section 4(2) of the Act
In June, 1996, the Company received $1,110,000 for the sale of its 10%
Convertible Debentures due December 31, 2000 from 25 holders. The Company
issued these securities in reliance on Regulation D promulgated under the Act.
In July, 1996, the Company issued 1,255 shares of Common Stock each to Allen
Trevino and Kevin Baadsgaard as payment for services rendered as directors of
the Company. The Company issued these securities in reliance on Section 4(2)
of the Act.
In August, 1996, the Company issued 125,000 shares, 6,000 shares and 6,000
shares of Common Stock to Steve Barber, Ross Roberts and Stockton Engineering
Services, respectively, as payment in kind for services rendered. The Company
issued these securities in reliance on Section 4(2) of the Act.
In August, 1996, the Company received $ 24,000 from Mr. Burl Jacks pursuant to
the exercise of options to purchase 40,000 shares of Common Stock of the
Company. The Company issued these securities in reliance on Section 4(2) of
the Act.
In September, 1996, the Company received $166,500 from Mr. Kelly Trimble
pursuant to the exercise of warrants to purchase 370,000 shares of Common
Stock of the Company. The Company issued these securities in reliance on
Section 4(2) of the Act.
II-4
<PAGE> 78
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
- ----------- -------------------------
<S> <C>
3.1 - Articles of Incorporation of the Company and all amendments thereto.
3.2 - Bylaws of the Company, as amended.
4.1 - See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation, amendments thereto and By-laws
of the Company defining rights of holders of common stock of the Company.
4.2 - Specimen of Common Stock.
4.3 - Form of 10% Convertible Debenture which sets forth certain registration rights.
4.4 - Warrant Certificate of Kelly Trimble containing registration rights.
5.1(*) - Opinion of Axelrod, Smith & Kirshbaum.
10.1 - Operating Agreement of OnSite Technology L.L.C., an Oklahoma Limited Liability Company.
10.2 - Purchase Order for ITD Units with Roberds-Johnson Industries, Inc.
21.1 - Subsidiaries of the Company.
23.1(*)- Consent of Axelrod, Smith & Kirshbaum (included in Exhibit 5.1).
23.2 - Consent of Ham, Langston & Brezina L.L.P.
23.3 - Consent of Randy Simpson, CPA P.C.
24.1 - Power of Attorney with respect to certain signatures in the Registration Statement (contained on signature
page of this Registration Statement).
27.1 - Financial Data Schedule.
</TABLE>
- --------------------------------
(*) To be filed by amendment
II-5
<PAGE> 79
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are
being made, a post-effective amendment to this
registration statement:
i. To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement; and
iii. To include any additional or changed material
information with respect to the plan of
distribution.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) i. That, for the purpose of determining liability
under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part
of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act of 1933
shall be deemed to be part of this registration
statement as of the time it was declared effective.
ii. That, for the purpose of determining liability
under the Securities Act of 1933, each post-
effective amendment that contains a form of
prospectus shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 80
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-7
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, County of Harris, State of Texas, on
October 23, 1996.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ James S. Percell
-------------------------------------
James S. Percell, Director and
Chairman of the Board and Chief
Executive Officer, President and
Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Environmental Safeguards, Inc., and
each of its undersigned officers and directors hereby constitutes and appoints
James S. Percell its true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for his and in his name, place and stead, in
any and all capacities, to sign all or any amendments (including post-effective
amendments) of and supplements to this Registration Statement on Form SB-2 and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, to all intents and purposes and as fully as said Corporation itself
and each said officer or director might or could do in person, hereby ratifying
and confirming all that such attorney-in-fact and agent, or his substitutes,
may lawfully do or cause to be done by virtue hereof.
II-8
<PAGE> 82
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James S. Percell Director and Chairman October 23, 1996
- -------------------- of the Board, Chief
James S. Percell Executive Officer,
Principal Executive
Officer
/s/ Michael M. Dunson Director and Chief October 23, 1996
- --------------------- Financial Officer
Michael M. Dunson
/s/ Bryan Sharp Director October 23, 1996
- ---------------------
Bryan Sharp
/s/ Robin Pate Director October 23, 1996
- ---------------------
Robin Pate
</TABLE>
II-9
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
- ----------- -------------------------
<S> <C>
3.1 - Articles of Incorporation of the Company and all amendments thereto.
3.2 - Bylaws of the Company, as amended.
4.1 - See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation, amendments thereto and By-laws
of the Company defining rights of holders of common stock of the Company.
4.2 - Specimen of Common Stock.
4.3 - Form of 10% Convertible Debenture which sets forth certain registration rights.
4.4 - Warrant Certificate of Kelly Trimble containing registration rights.
5.1(*) - Opinion of Axelrod, Smith & Kirshbaum.
10.1 - Operating Agreement of OnSite Technology L.L.C., an Oklahoma Limited Liability Company.
10.2 - Purchase Order for ITD Units with Roberds-Johnson Industries, Inc.
21.1 - Subsidiaries of the Company.
23.1(*)- Consent of Axelrod, Smith & Kirshbaum (included in Exhibit 5.1).
23.2 - Consent of Ham, Langston & Brezina L.L.P.
23.3 - Consent of Randy Simpson, CPA P.C.
24.1 - Power of Attorney with respect to certain signatures in the Registration Statement (contained on signature
page of this Registration Statement).
27.1 - Financial Data Schedule.
</TABLE>
- --------------------------------
(*) To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CAPE COD INVESTMENT COMPANY
I, the undersigned, being a natural person more than eighteen (18)
years of age, acting as incorporator of the above-named corporation
(hereinafter referred to as the "Corporation") under the provisions of the
Nevada Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such Corporation:
ARTICLE
NAME
The name of the Corporation hereby created shall be:
Cape Cod Investment Company
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized are:
(a) To acquire by purchase or otherwise, own, hold,
lease, rent, mortgage or otherwise, to trade with and deal in real
estate, lands and interests in lands and all other property of every
kind and nature;
(b) To manufacture, use, work, sell and deal in
chemicals, biologicals, pharmaceuticals, electronics and products of
all types owned or hereafter owned by it for manufacturing, using and
vending any device or devices, machine or machines or manufacturing,
working or producing any or all products;
<PAGE> 2
(c) To borrow money and to execute notes and obligations
and security contracts therefor, to lend any of the monies or funds of
the Corporation and to take evidence of indebtedness therefor; and to
negotiate loans; to carry on a general merchantile and merchandise
business and to purchase, sell and deal in such goods, supplies and
merchandise of every kind and nature;
(d) To guarantee the payment of dividends or interest on
any other contract or obligation of any corporation whenever proper or
necessary for the business of the Corporation in the judgment of its
directors;
(e) To do all and everything necessary, suitable,
convenient, or proper for the accomplishment of any of the purposes or
the attainment of any one or more of the objects herein enumerated or
incidental to the powers therein named or which shall at any time
appear conclusive or expedient for the protection or benefit of the
Corporation, with all the powers hereafter conferred by the laws under
which this Corporation is organized; and
(f) To engage in any and all other lawful purposes,
activities and pursuits, whether similar or dissimilar to the
foregoing, and the Corporation shall have all the powers allowed or
permitted by the laws of the state of Nevada.
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60,000,000 shares, consisting of
10,000,000 shares of preferred stock, par value $0.001 per share (hereinafter
the "Preferred Stock"), and 50,000,000 shares of common stock, par value $0.001
per share (hereinafter the "Common Stock"). The Common Stock shall be
non-assessable and shall not have cumulative voting rights.
(a) Preferred Stock. Shares of Preferred Stock may be
issued from time to time in one or more series as may from time to
time be determined by the Board of Directors. Each series shall be
distinctly designated. All shares of any one series of the Preferred
Stock shall be alike in every particular, except that there may be
different dates from which dividends thereon, if any, shall be
cumulative, if made cumulative. The powers, preferences and relative,
participating, optional and other rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
Except as hereinafter
2
<PAGE> 3
provided, the Board of Directors of this corporation is hereby
expressly granted authority to fix, by resolution or resolutions
adopted prior to the issuance of any shares of each particular series
of Preferred Stock, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series,
including but without limiting the generality of the foregoing, the
following:
(i) the distinctive designation of, and the number of
shares of Preferred Stock which shall constitute the series, which
number may be increased (except as otherwise fixed by the Board OF
Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(ii) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the series
shall be paid, the extent of preferences or relations, if any, of such
dividends to the dividends payable on any other class or classes of
stock of this corporation, or on any series of Preferred Stock or of
any other class or classes of stock of this corporation, and whether
such dividends shall be cumulative or non-cumulative.
(iii) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for, shares of
any other class or classes of stock of this corporation, or of any
series of Preferred Stock or of any other class or classes of stock of
this corporation, and the terms and conditions of such conversion or
exchange;
(iv) whether shares of the series shall be subject to
redemption, and the redemption price or prices including, without
limitation, a redemption price or prices payable in shares of the
Common Stock and the time or times at which, and the terms and
conditions upon which, shares of the series may be redeemed;
(v) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up of this corporation;
(vi) the terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the series; and
3
<PAGE> 4
(vii) the voting power, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include the right to more or less than one vote per share
of any or all matters voted upon by the shareholders and the right to
vote, as a series by itself or together with other series of Preferred
Stock as a class, upon such matters, under such circumstances and upon
such conditions as the Board of Directors may fix, including, without
limitation, the right, voting as a series by itself or together with
other series of Preferred Stock or together with all series of
Preferred Stock as a class, to elect one or more directors of this
corporation in the event there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock or
under such other circumstances and upon such condition as the Board
may determine.
(b) Common Stock
(i) after the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with the provisions
of subparagraph (a)(ii) of this Article, if any, shall have been met
and after this corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as
sinking funds or redemption or purchase accounts as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of subparagraph (a)(ii) of this Article) and subject
further to any other conditions which may be fixed in accordance with
the provisions of paragraph (a) of this Article, then, but not
otherwise, the holders of Common Stock shall be entitled to receive
such dividends, if any, as may be declared from time to time by the
board of directors;
(ii) after distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (a) of this
Article), if any, to be distributed to the holders of Preferred Stock
in the event of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up of the corporation, the
holders of the Common Stock shall be entitled to receive all the
remaining assets of this Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in
proportion to the number of shares of the Common Stock held by each;
and
4
<PAGE> 5
(iii) no holder of any of the shares of any class or series
of stock or of options, warrants or other rights to purchase share of
any class or series of stock or of other securities of the Corporation
shall have any pre-emptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of any
class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation or any
class or series, or carrying any right to purchase stock, may be
issued and disposed of pursuant to resolution of the board of
directors to such persons, firms, corporation or association, whether
such holders or others, and upon such terms as may be deemed advisable
by the board of directors in the exercise of its sole discretion.
ARTICLE V
DENIAL OF PRE-EMPTIVE RIGHTS
No holder of any shares of the Corporation, whether now or hereafter
authorized, shall have any pre-emptive or preferential rights to acquire shares
or securities of the Corporation.
ARTICLE VI
PAID IN CAPITAL
The Corporation will not commence business until the consideration of
the value of at least $1,000.00 has been received by it as consideration for
the issuance of the shares.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve or
who have served at any time as directors or officers or who at the request of
the Board of Directors of the Corporation, may serve or any time have served as
directors or officers of another corporation in which the Corporation at such
time owned or may own shares of stock or of which it was or may be a creditor,
and their respective heirs, administrators, successors and assigns, against any
and all expenses, including amounts paid upon judgments, counsel fees and
amounts paid in settlement
5
<PAGE> 6
(before or after suit is commenced), actually and necessarily by such persons
in connection with the defense or settlement of any claim, action, suit or
proceeding in which they, or any of them, are made parties, or a party, or
which may be asserted against them or any of them, by reason of being or having
been directors or officers of the Corporation, or of such other corporation,
except in relation to matters as to which any such director or officer of the
Corporation, or of such other corporation or former director or officer or
person shall be adjudged in any action, suit or proceeding to be liable for his
own negligence or misconduct in the performance of his duty. Such
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, by law, agreement, vote of
shareholder or otherwise.
ARTICLE III
OFFICERS' AND DIRECTORS' CONTRACTS
No contract or other transaction between this Corporation and any
other firm or corporation shall be affected by the fact that a director or
officer of this Corporation has an interest in, or is a director or officer of
this Corporation or any other corporation. Any officer or director,
individually or with others, may be a party to, or may have an interest in, any
transaction of this Corporation or any transaction in which this Corporation is
a party or has an interest. Each person who is now or may become an officer or
director of this Corporation is hereby relieved from liability that he might
otherwise obtain in the event such officer or director contracts with this
Corporation for the benefit of himself or any firm or other corporation in
which he may have an interest, provided such officer or director acts in good
faith.
ARTICLE IX
ADOPTION AND AMENDMENT OF BY-LAWS
The initial By-Laws of the Corporation shall be adopted by its board
of directors. The power to alter or amend or repeal the By-Laws or adopt new
By-Laws shall be vested in the board of directors, but the holders of common
stock of the Corporation may also alter, amend, or repeal the By-Laws or adopt
new By-Laws. The By-Laws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with law or these
Articles of Incorporation.
6
<PAGE> 7
ARTICLE X
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation and
its initial registered agent at such address is:
The Corporation Trust Company of Nevada
One East First Street
Reno, Nevada 89501
ARTICLE XI
DIRECTORS
The Corporation shall not have fewer directors than the number of
shareholders who own an equity interest in the Corporation. At such time as the
Corporation has three (3) or more shareholders, it shall not have less than
three (3) nor more than nine (9) directors. The permissible number of directors
may be increased or decreased from time to time by the board of directors in
accordance with 78.330 of the Nevada Revised Statutes or any amendment or
successor statute. The original board of directors shall be comprised of one
(1) person. The name and address of the person who is to serve as director
until the first annual meeting of shareholders and until his successor is duly
elected and shall qualify is:
Frank D. Bond
526 East 2825 North
Provo, Utah 84601
ARTICLE XII
INCORPORATOR
The name and address of the incorporator is:
Frank D. Bond
526 East 2825 North
Provo, Utah 84601
Dated this 20 day of December, 1985.
/s/ FRANK D. BOND
----------------------------------------
Frank D. Bond
7
<PAGE> 8
STATE OF UTAH )
:ss.
County of Salt Lake )
I, Lark Jackson, a notary public, hereby certify that on the 20th day
of December, 1985, personally appeared before me Frank D. Bond, being by me
first duly sworn, who acknowledged to me that he is the person who signed the
foregoing document as the incorporator and that the statements contained herein
are true.
/s/ LARK JACKSON
------------------------------
My commission expires: NOTARY PUBLIC
8-13-89 Residing in Bountiful, Utah
- ----------------------
8
<PAGE> 9
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CAPE COD INVESTMENT COMPANY
(Changed herein to "Cape Cod Ventures, Inc.")
We the undersigned, as President and Secretary of Cape Cod Investment
Company do hereby certify:
That the Board of Directors of said corporation pursuant to a
unanimous consent executed by all the shareholders in accordance with the
provisions of Section 78.320 of the Nevada Revised Statutes dated March 31,
1987, adopted a resolution to amend the original Articles of Incorporation as
follows:
1. Article I of the Company's Articles of Incorporation is hereby
amended by striking the entire Article I and inserting in lieu thereof
the following:
The name of the corporation is: "Cape Cod Ventures, Inc.".
2. By the execution OF this amendment to the Articles of
Incorporation, the president and secretary of said corporation do
hereby certify that the foregoing amendment to the Articles of
Incorporation was adopted as an amendment to the original Articles of
Incorporation of Cape Cod Investment Company, by the shareholders of
said corporation pursuant to a unanimous consent executed by all of
the shareholders in accordance with the provisions of Section 78.320
of the Nevada Revised Statutes, which provides that a written consent
setting forth the action taken and signed by all the shareholders of
the corporation shall have the same effect as a unanimous vote taken
at a meeting of the shareholders. As of March 31, 1987, there was a
total of 3,000,000 shares of the corporations's common stock issued
and outstanding, of which all 3,000,000 shares voted for the adoption
of this amendment to the Articles of Incorporation. No shares voted
against the adoption of this amendment to the Articles of
Incorporation.
DATED this 2nd day of April, 1987.
CAPE COD VENTURES, INC.
ATTEST:
/s/ MARILYN C. PARRY /s/ FRANK D. BOND
- --------------------------- ------------------------------
Marilyn C. Parry, Secretary Frank D. Bond
<PAGE> 10
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 2nd day of April, 1987, personally appeared before me a Notary
Public, Frank Bond and Marilyn C. Parry, President and Secretary of the
corporation, who acknowledged that they executed the above instrument.
/s/ LARK JACKSON
----------------------------------------
Notary Public
Residing at Bountiful, Utah
My Commission Expires:
8-13-89
- ----------------------
2
<PAGE> 11
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF
CAPE COD VENTURES, INC.
Pursuant to section 78.390 of the Nevada Revised Statutes, Cape Cod
Ventures, Inc., hereinafter referred to as the "Corporation," hereby adopts the
following amendment to its Articles of Incorporation.
1. The Articles of Incorporation of the Corporation are hereby
amended by deleting Article One thereof and substituting the following
therefor:
ARTICLE I
NAME
The name of the Corporation shall be:
Environmental Safeguards, Inc.
2. The Articles of Incorporation of the Corporation are hereby
amended by inserting the following provision as new subsection (c) of Article
IV captioned "CAPITAL STOCK:"
(c) Reverse Split. On the effective date of this
amendment, the Corporation shall effect a reverse split in its issued
and outstanding shares of Common Stock so that the 50,000,000 shares
currently issued and outstanding shall be reverse split, or
consolidated, on a 1-for-100 basis, and stockholders shall receive one
share of the Corporation's Common Stock, par value $0.001 (hereinafter
the "Consolidated Common Stock"), for each 100 shares of Common Stock,
par value $0.001, held by them on the effective date of the reverse
split. No scrip or fractional share will be issued in connection with
the reverse split and any fractional shares will be rounded to the
nearest whole share. All shares returned to the Corporation as a
result of the reverse split will be canceled and returned to the
status of authorized and unissued shares. This amendment shall be
become effective on the date filed with the office of the Nevada
Secretary of State.
3. By execution of this Certificate of Amendment to Articles of
Incorporation of Cape Cod, Inc., the president and secretary of the Corporation
do hereby certify that the
<PAGE> 12
foregoing amendment was duly adopted, authorized and consented to in accordance
with section 78.320 of the Nevada Revised Statutes by the written consent,
dated April 19, 1993, of shareholders holding 33,537,000 shares of the
Corporation's Common Stock, or approximately 67.07% of the 50,000,000 shares
which were issued and outstanding on April 19, 1993, the record date.
DATED the 17th day of May, 1993.
Cape Cod Ventures, Inc.
By /s/ MICHAEL P. BRINTON
-------------------------------------
Michael P. Brinton, President
By /s/ ELISABETH JONES
-------------------------------------
Elisabeth Jones, Secretary
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On this 17th day of May, 1993, personally appeared before me Michael
P. Brinton and Elisabeth Jones, who being by me duly sworn did say that they
are the president and secretary, respectively, of Cape Cod Ventures, Inc., a
Nevada corporation, that they are the persons who executed the foregoing
Certificate of Amendment to Articles of Incorporation on behalf of said
corporation by authority of resolutions of a majority of its shareholders, and
each duly acknowledged to me that said corporation executed the same.
/s/ KATHLEEN G. CARTER
--------------------------
Notary Public
2
<PAGE> 13
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
ENVIRONMENTAL SAFEGUARDS, INC.
We, the undersigned President and Assistant Secretary of Environmental
Safeguards, Inc. do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened
and held on November 3, 1995, adopted resolutions to amend the original
article of incorporation as follows:
Article IV is hereby amended (i) give effect to a 10 for 1 forward split
of the Common Shares; (ii) decrease the post-reverse split authorized
Common Shares to 50,000,000 shares; and (iii) increase the post-forward
split par value of the Common Shares to $0.001 per share, and to read in
full as follows:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60,000,000 shares,
consisting of 10,000,000 shares of preferred stock, par value $0.001
per share (hereinafter the "Preferred Stock"), and 50,000,000 shares
of common stock, par value $0.001 per share (hereinafter "Common
Stock"). The Common Stock shall be nonassessable and shall not have
cumulative voting rights.
(a) Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may from time to time be
determined by the Board of Directors. Each series shall be distinctly
designated. All shares of any one series of the Preferred Stock shall
be alike in every particular, except that there may be different
dates from which dividends thereon, if any, shall be cumulative; if
made cumulative. The powers, preference and relative, participating,
optional and other rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding. Except as hereinafter provided, the Board of Directors
of this corporation is hereby expressly granted authority to fix, by
resolution or resolutions adopted prior to the issuance of any shares
of each particular series of Preferred Stock, the designation,
powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions thereof,
if any, of such series, including but without limiting the generality
of the foregoing, the following:
<PAGE> 14
(i) the distinctive designation of, and the number of
shares of Preferred Stock which shall constitute the series,
which number may be increased (except as otherwise fixed by the
Board of Directors) or decreased (but not below the number of
shares thereof then outstanding) from time to time by action of
the Board of Directors;
(ii) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the
series shall be paid, the extent of preferences or relations, if
any, of such dividends to the dividends payable on any other
class or classes of stock of this corporation, or on any series
of Preferred Stock or of any other class or classes of stock of
this corporation, and whether such dividends shall be cumulative
or noncumulative.
(iii) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for,
shares of any other class or classes of stock of this
corporation, or of any series of Preferred Stock or of any other
class or classes of stock of this corporation, and the terms and
conditions of such conversion or exchange;
(iv) whether shares of the series shall be subject to
redemption, and the redemption price or prices including,
without limitation, a redemption price or prices payable in
shares of the Common Stock and the time or times at which, and
the terms and conditions upon which, shares of the series may be
redeemed;
(v) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up of this corporation;
(vi) the terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the
series, and
(vii) the voting power, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include the right to more or less than one vote per
share of any or all matters voted upon by the shareholders and
the right to vote, as a series by itself or together with other
series of Preferred Stock as a class, upon such matters, under
such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock
as a class, to elect
<PAGE> 15
one or more directors of this corporation in the event there
shall have been a default in the payment of dividends on any one
or more series of Preferred Stock or under such other
circumstances and upon such condition as the Board may
determine.
(b) Common Stock
(i) after the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with the
provisions of subparagraph (a)(ii) of this Article, if any,
shall have been met and after this corporation shall have
complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of
subparagraph (a)(ii) of this Article) and subject further to any
other conditions which may be fixed in accordance with the
provisions of paragraph (a) of this Article, then, but not
otherwise, the holders of Common Stock shall be entitled to
receive such dividends, if any, as may be declared from time to
time by the Board of Directors;
(ii) after distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (a) of
this Article), if any, to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up of the corporation, the holders of the Common Stock
shall be entitled to receive all the remaining assets of this
Corporation, tangible and intangible, of whatever kind available
for distribution to stockholders, ratably in proportion to the
number of shares of the Common Stock held by each; and
(iii) no holder of any of the shares of any class or series
of stock or of options, warrants or other rights to purchase
shares of any class or series of stock or of other securities of
the Corporation shall have any pre-emptive right to purchase or
subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason
of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates or
indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation or any class or
series, or carrying any right to purchase stock of any class or
series, but any such unissued stock, additional authorized issue
of shares of any class or series of stock or securities
convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant
to resolution of the board of directors to
15
<PAGE> 16
such persons, firms, corporation or association, whether such
holders or others, and upon such terms as may be deemed
advisable by the board of directors in the exercise of its sole
discretion.
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation are 555,145 that the said
change(s) and amendment has been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ JAMES S. PERCELL
-------------------------------
JAMES S. PERCELL, President
/s/ BURL JACKS
-------------------------------
BURL JACKS, Assistant Secretary
<PAGE> 17
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On December 27, 1995, personally appeared before me, a Notary Public,
JAMES S. PERCELL, who acknowledged that he executed the above document.
[ILLEGIBLE]
-------------
Notary Public
[Notary Stamp or Seal]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On December 27, 1995, personally appeared before me, a Notary Public, BURL
JACKS, who acknowledged that she executed the above document.
/s/ CECILE A SACKER
---------------------
Notary Public
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
STATE OF NEVADA C 35092
ATT: HANK VANDERKAM
C/O VANDERKAM & SANDER
111 CAROLINE STE 2905
HOUSTON TX 77010
DEAN HELLER, Secretary of State * Capitol Complex * Carson City, Nevada 89710
================================================================================
Date 1/2/96
-------
Corp. No. 8688-85 Check $ 135.00 Check No 1785 Cash $
-------- ----------- ----- ----------
RE: ENVIRONMENTAL SAFEGUARDS, INC.
INCORPORATION: Domestic / / Non Profit / / Foreign / / ____________________
AMENDMENT: Dissolution / / Withdrawal / / Merger / / Other /X/ STOCK SPLIT $75.00
CERTIFICATE: Good Standing (Short) _______ (Long) _______ Misc. ______________
COPIES: ___________ @ $1.00 ____________ @ $.50
CERTIFIED:____________ @ $5.00 ______________ @ $10.00 $10.00
LIST OF OFFICERS: Annual___ Sixty Day___ Non Profit____ Amended____ Late Fee____ EXP.
REINSTATEMENT $50.00
------------------------------------------------------------------ -------
RESOLUTION: Address Change__________ Resident Agent Change _______ _____________ $135.00
EXPEDITE _______________________________________________________________________
OTHER___________________________________________________________________________ DF
CORP-R (Rev.11-94) YELLOW, Customer; PINK, Accounting; BLUE, Department. By_____________
</TABLE>
<PAGE> 1
EXHIBIT 3.2
CAPE COD INVESTMENT COMPANY
BYLAWS
ARTICLE I
OFFICES
Section 1. The principal registered office of the Corporation shall be in
the city of Las Vegas, county of Clark, state of Nevada.
Section 2. The corporation may also have offices at such other places both
within and without the state of Nevada as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders shall be held at the
principal executive office of the corporation or such other place as the board
of directors shall determine. Special meetings of the stockholders may be held
at such time and place within or without the state of Nevada as shall be stated
in the notice of the meeting, or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such place and
time not less than 90 nor more than 180 days after the end of the corporation's
fiscal year as the board of directors shall determine, at which they shall
elect by a plurality vote a board of directors, and transact such other
business as may properly be brought before the meeting.
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
president or a vice-president, or the secretary, or an assistant secretary, or
by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the time
and the place at which it is to be held, which may be mailed, postage prepaid,
to each stockholder of record entitled to vote at such meeting not less than ten
nor more than 60 days before such meeting. If mailed, it shall be directed to a
stockholder at his address as it appears upon the records of the corporation and
<PAGE> 2
upon such mailing of any such notice, the service thereof shall be complete, and
the time of the notice shall begin to run from the date upon which such notice
is deposited in the mail for transmission to such stockholder. Personal delivery
of any such notice to any officer of a corporation or association, or to any
member of a partnership shall constitute delivery of such notice to such
corporation, association, or partnership. In the event of the transfer of stock
after delivery or mailing of the notice of and prior to the holding of the
meeting it shall not be necessary to deliver or mail notice of the meeting to
the transferee.
Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 6. The holders of at least 33-1/3% of stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders or for the transaction
of business except as otherwise provided by statute or by the articles of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted at the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the articles of incorporation a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 8. Every stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the corporation.
Section 9. At any meeting of the stockholders, any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, than that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person
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<PAGE> 3
executing it specifies therein the length of time for which it is to continue in
force, which in no case shall exceed seven years from the date of its revoked
and continues in full force and effect until and instrument revoking it or a
duly executed proxy bearing a later date is filed with the secretary of the
corporation.
Section 10. Any action, except election of directors, which may be taken
by the vote of the stockholders at a meeting, may be taken without a meeting if
authorized by the written consent of stockholders holding at least a majority
of the voting power, incorporation require a greater proportion of voting power
to authorize such action in which case such greater proportion of written
consents shall be required.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be three. The board of directors may increase or decrease the number of
directors by resolution to not less than three. The directors shall be elected
at the annual meeting of the stockholders and except as provided in Section 2
of this Article III, each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies, including those caused by an increase in the number
of directors, may be filled by a majority of the remaining directors though
less than a quorum. When one or more directors shall give notice of his or
their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.
Section 3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the articles of
incorporation or by these Bylaws directed or required to be exercised or done
by the Stockholders.
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the state of Nevada.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a
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<PAGE> 4
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and place as shall from time to time be determined by the
board.
Section 7. Special meetings of the board of directors may be called by the
president or secretary on the written request of two directors. Written notice
of special meetings of the board of directors shall be given to each director
at least five days before the date of the meeting.
Section 8. A majority of the board of directors, at a meeting duly
assembled, shall be necessary to constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the articles of
incorporation. Any action required or permitted to be taken at a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors entitled to vote with respect to the subject matter thereof.
COMMITTEES OF DIRECTORS
Section 9. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may have power to authorized the seal of the corporation to be affixed to
all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 10. The committees shall keep regular minutes of their proceedings
and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
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Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting, whether
of directors or stockholders, consent, either by a writing on the records of
the meeting or filed with the secretary, or by presence at such meeting and
oral consent entered on the minutes, or by taking part in the deliberations at
such meeting without objection, the doings of such meeting shall be as valid as
if a meeting had regularly been called and noticed, and at such meeting any
business may be transacted which is not excepted from the written consent or to
the consideration of which no objection for want of notice is made at the time,
and if any meeting be irregular for want of notice or of such consent, provided
a quorum was present at such meeting, the preceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meetings; and such consent or approval of stockholders may be by
proxy or attorney, but all such proxies and powers of attorney must be in
writing.
Section 3. Whenever any notice whatever is required to be given under the
provisions of the statutes, of the articles of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice president, a secretary, and a
treasurer. Any person may hold two or more offices.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, a vice president, a
secretary, and a treasurer, none of whom need be a member of the board.
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Section 3. The board of directors may appoint additional vice presidents,
and assistant secretaries and assistant treasurers, and such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation by death, resignation, removal, or otherwise shall be filled by the
board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages, and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENT
Section 8. The vice president shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president and
shall perform such other duties as the board of directors may from time to time
prescribe.
THE SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as way be prescribed by the board of
directors or president, under whose supervision he shall be. He shall keep in
safe custody the seal of the corporation and, when authorized by the board of
directors, affix the same to any instrument requiring it and,
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<PAGE> 7
when so affixed, it shall be attested by his signature or by the
signature of the treasurer or an assistant secretary.
THE TREASURER
Section 10. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 11. He shall disburse the funds of the corporation as may be
ordered by the board of directors taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
the regular meetings of the board, or when the board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 12. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement, or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every stockholder shall be entitled to have a certificate,
signed by the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. When the
corporation is authorized to issue shares of more than one class or more than
one series of any class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the corporation
will furnish to any stockholders upon request and without charge, a full or
summary statement of the designations, preferences, and relative,
participating, optional, or other special rights of the various classes of
stock or series thereof and the qualifications, limitations, or restrictions of
such rights, and, if the corporation shall be authorized to issue only special
stock, such certificate shall set forth in full or summarize the rights of the
holders of such stock.
Section 2. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then
a facsimile of the signatures of the
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officers or agents of the corporation may be printed or lithographed
upon such certificate in lieu of the actual signatures. In case any
officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates shall
cease to be such officer or officers of the corporation, whether because of
death, resignation, or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates may
nevertheless be adopted by the corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates, or
whose facsimile signature or signatures shall have been used thereon, had not
ceased to be the officer or officers of such corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The directors may prescribe a period not exceeding 60 days
prior to any meeting of the stockholders during which no transfer of stock on
the books of the corporation may be made, or may fix a day not more than 60
days prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined; and only stockholders of record on such day shall be entitled to
notice or to vote as such meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the state of Nevada.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the articles of incorporation, if any, may be declared by the
board of directors at any regular or special meeting pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers of such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation and of the words "Corporate Seal,
Nevada".
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ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
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CERTIFICATE
The undersigned does hereby certify that he is an officer of Cape Cod
Investment Company, a corporation duly organized and existing under and virtue
of the laws of the state of Nevada; that the above and foregoing Bylaws of said
corporation were duly and regularly adopted as such by the board of directors
of said corporation, on the 2nd day of January, 1986; and that the above and
foregoing Bylaws are now in full force and effect.
DATED this 2nd day of January, 1986.
/s/ FRANK D. BOND
-------------------------------
11
<PAGE> 1
EXHIBIT 4.2
INCORPORATED UNDER THE LAWS OF THE
STATE OF NEVADA
[ENVIRONMENTAL SAFEGUARDS, INC. LOGO]
CUSIP NO. 294069 30 7
ENVIRONMENTAL SAFEGUARDS, INC.
50,000,000 AUTHORIZED SHARES
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF $.001 PAR VALUE OF
ENVIRONMENTAL SAFEGUARDS, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated:
ENVIRONMENTAL SAFEGUARDS, INC.
/s/ ILLEGIBLE [CORPORATE SEAL] /s/ ILLEGIBLE
SECRETARY NEVADA PRESIDENT
COUNTERSIGNED
COLONIAL STOCK TRANSFER
440 EAST 400 SOUTH, # 1
Salt Lake City, Utah 84111
By ______________________________
Authorized Signature
<PAGE> 1
EXHIBIT 4.3
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS DEBENTURE MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR DELIVERY TO ENVIRONMENTAL SAFEGUARDS OF
AN OPINION OF LEGAL COUNSEL SATISFACTORY TO ENVIRONMENTAL SAFEGUARDS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE
SECURITIES LAWS.
CONVERTIBLE DEBENTURE
OF
ENVIRONMENTAL SAFEGUARDS, INC.
________, 1996
FOR VALUE RECEIVED, ENVIRONMENTAL SAFEGUARDS, INC., a Nevada
corporation with its principal office located at 6430 Mayfair, Houston, Texas
77087 (the "Company"), unconditionally promises to pay to _____________________
___________________, or the registered assignee, upon presentation of this
debenture (herein sometimes referred to as the "Debenture" or the "Note") by
the registered holder hereof at the office of the Company, the principal sum of
$ ______________, together with the accrued and unpaid interest thereon and
other sums as hereinafter provided.
1. INTEREST. Interest on the principal amount outstanding
hereunder shall be paid semi-annually at the rate of ten percent (10%) per
annum from the date of issuance on June 1 and December 1 of each year
("Interest Payment Date"), commencing December 1, 1996, to the persons in whose
names such Debentures are registered at the close of business on the May 15 or
November 15 immediately preceding such Interest Payment Date (the "Record
Date"). Interest will be calculated on the basis of a 360-day year consisting
of twelve 30-day months.
Principal and interest on the Debenture will be payable and the
Debenture will be convertible at the office or agency of the Company. At the
option of the Company, payment of interest may be made by wire transfer or
check mailed to the holder of the Debenture (individually a "Holder" and
collectively the "Holders") at the address set forth upon the registry books of
the Company. No service charge will be made on any registration of transfer of
the Debenture, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
<PAGE> 2
2. MATURITY. The principal amount of this Debenture and all
interest accrued thereon but not yet paid shall become immediately due and
payable on the date (the "Maturity Date") on which the first event specified
below occurs:
a. The Company in its sole discretion chooses to redeem all
outstanding Debentures in accordance with Section 4 hereof; or
b. December 31, 2000.
3. PAYMENT. Payment of any sums due to the Holder under the terms
of this Debenture shall be made in United States Dollars by check or wire
transfer at the option of the Company. Payment shall be made to any account or
address designated by the Holder any time prior to any payment due hereunder.
If any payment hereunder would otherwise become due and payable on a day on
which banks are closed or permitted to be closed in Houston, Texas, such
payment shall become due and payable on the next succeeding day on which banks
are open and not permitted to be closed in Houston, Texas ("Business Day").
4. OPTIONAL REDEMPTION. Subject to the subordination provisions
hereinafter contained, the Note will be subject to redemption at the option of
the Company, in whole or in part, at any time and from time to time, upon not
less than 30 nor more than 60 days notice, at 102% of the principal face amount
of the Debenture if redeemed on or before December 1, 1996 and at 100% of the
principal face amount of the Debenture if redeemed after December 1, 1996 plus
any accrued and unpaid interest to the redemption date.
If less than all of the Debentures are to be redeemed at any time,
selection of Debentures for redemption will be made on a pro rata basis. Notice
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Debentures to be redeemed
at its registered address. If any Debenture is to be redeemed in part only, the
notice of redemption that relates to such Debenture shall state the portion of
the principal amount thereof to be redeemed. A new Debenture in the principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder upon cancellation of the original Debenture. After the redemption
date, unless the Company shall default in the payment of the redemption price,
interest will cease to accrue on Debentures or portions thereof called for
redemption.
5. SUBORDINATION. The Company covenants and agrees, and the
Holder and each subsequent registered assignee of this Note by acceptance
hereof likewise covenants and agrees, anything in this Note to the contrary
notwithstanding, that the payment of all indebtedness evidenced by this Note
is, to the extent and manner hereinafter set forth, subordinated in right of
payment to all existing and future Senior Indebtedness (as
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hereinafter defined) of the Company and ranking pari passu with all other past
and future indebtedness of the Company.
For purposes of this Note, the term "Senior Indebtedness" shall mean
and include (i) indebtedness of the Company for money heretofore, now or
hereafter borrowed by the Company (or by any subsidiary of the Company and
guaranteed by the Company) from any bank or banks, savings and loan association
or associations, insurance company or companies or other institutional lender
or lenders, including any modifications, renewals, extensions, increases or
refundings of indebtedness of the kind described in this clause (i), and (ii)
such other indebtedness of the Company or its subsidiaries as to which the
Company, in its sole discretion, expressly subordinates the right of payment
hereof as reflected, by written notation, on such instrument evidencing the
future indebtedness. Each Holder of this Debenture agrees, solely for the
benefit of holders of Senior Indebtedness, that no consent of any Holder of
this Debenture shall be required for any modification, renewal, extension or
refinancing of any Senior Indebtedness or waiver of any guaranty therefor or
any collateral securing payment thereof or any other alteration of the
relationship between the Company and any holder of Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors, (i) the
holders of all Senior Indebtedness of the Company will first be entitled to
receive payment in full, in accordance with the terms of such Senior
Indebtedness, of the principal thereof (and premium, if any) and the interest
due thereon, before the Holders are entitled to receive any payment on account
of the principal and interest on the Debentures and (ii) any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities to which the Holders would be entitled, except for
the subordination provisions contained in the Debenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of Senior Indebtedness of the Company or
their representative to the extent necessary to make payment in full of all
such Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing, upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (other than shares of stock of the Company as reorganized or
readjusted or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment), the payment of which is
subordinate to the payment of all Senior Indebtedness which may at the time be
outstanding and which are provided for by a plan of reorganization or
readjustment which does not alter the rights of the holder(s) of Senior
Indebtedness at the time outstanding and under which such payment or
distribution shall be received by a Holder of this Debenture before all Senior
Indebtedness is paid in full, such payment or distribution shall be paid over
to the holders of such Senior Indebtedness ratably for application to
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<PAGE> 4
the payment of all Senior Indebtedness remaining unpaid until all of such
Senior Indebtedness shall have been paid in full, after giving effect to the
concurrent payment or distribution to the holders of any such Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holder
of this Debenture shall be subrogated to the rights of the holders of all
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until this Debenture shall be
paid in full and none of the payments or distributions to holders of the Senior
Indebtedness to which the Holder of this Debenture would be entitled except for
the provisions of this Section 5 shall, as between the Company, its creditors,
and the Holders of this Debenture, be deemed to be a payment by the Company to
or on account of Senior Indebtedness of the Company. No provision contained in
this Debenture will affect the obligation of the Company, which is absolute and
unconditional, to pay, when due, principal and interest on the Debenture. The
subordination provisions of this Debenture will not prevent the occurrence of
any Default or Event of Default under the Debenture or limit the rights of any
Holder, subject to the two preceding paragraphs, to pursue any other rights or
remedies with respect to the Debenture.
As a result of these subordination provisions, in the event of a
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshalling of assets or liabilities of the
Company and its subsidiaries, Holders of the Debentures may receive ratably
less than other creditors.
Each Holder of this Debenture agrees that each holder of Senior
Indebtedness, whether outstanding at the date of this Debenture or incurred
hereafter, shall have purchased or accepted or will purchase or accept such
Senior Indebtedness in reliance upon the subordination provision contained in
this Debenture.
6. CONVERSION RIGHTS.
(a) The Holder of this Debenture will have the right, at
the Holder's option, to convert any portion of the principal amount
hereof and/or the accrued and unpaid interest hereon, into shares of
Common Stock at any time prior to maturity (unless earlier redeemed)
at the Conversion Price of $0.60 per share (subject to adjustment as
described below). The right to convert A Debenture and the accrued and
unpaid interest thereon called for redemption will terminate at the
close of business on the business day prior to the redemption date for
such Debenture, unless THE Company subsequently fails to pay the
applicable redemption price.
The Holder of this Debenture shall be entitled to convert all
or any portion of the principal face amount of the Debenture plus the
accrued and unpaid interest
4
<PAGE> 5
thereon into shares of Common Stock by (i) giving written notice to
the Company that such Holder elects to convert into Common Stock, (ii)
stating in such written notice the denominations in which such Holder
wishes the certificate or certificates for Common Stock to be issued
and (iii) surrendering this Debenture to the Company. The Company
will, as soon as practicable thereafter, cause to be issued and
delivered to such Holder certificates for the number of full shares of
Common Stock to which such Holder shall be entitled as aforesaid and,
if necessary, a new Debenture representing any unconverted portion of
this Debenture. The Company shall not issue fractional shares of
Common Stock upon conversion, but the number of shares of Common Stock
to be received by any Holder upon conversion shall be rounded down to
the next whole number and the Holder shall be entitled to payment of
the remaining principal amount in cash.
(b) In the event the Company effectively registers its
securities under the Securities Exchange Act of 1934, as amended, and
effectively registers for resale the Common Stock into which the
Debentures are convertible on a Form S-3 or other applicable form,
such actions shall result in the mandatory conversion of the
Debentures and the accrued and unpaid interest thereon, if any, into
shares of the Company's Common Stock at the conversion price of $.60
per share. No fractional shares will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash by the
Company.
In the case of any Debenture which has been mandatorily or
voluntarily converted after any Record Date, but on or before the next
Interest Payment Date, interest, the stated due date of which is on
such Interest Payment Date, shall be payable on such Interest Payment
Date notwithstanding such conversions. The interest shall be paid in
cash on the Interest Payment Date, unless prior thereto the Holder
elects by written notice to the Company to convert such interest into
shares of Common Stock at the conversion price of $0.60 per share.
(c) In case of any reclassification, consolidation or
merger of the Company with or into another entity or any merger of
another entity with or into the Company, or in the case of any sale,
transfer or conveyance of all or substantially all of the assets of
the Company (computed on a consolidated basis), each Debenture then
outstanding will, without the consent of any Holder, become
convertible only into the kind and amount of securities, cash or other
property receivable upon such reclassification, consolidation, merger,
sale, transfer or conveyance by a Holder of the number of shares of
Common Stock into which such Debenture and the accrued and unpaid
interest thereon was convertible immediately prior thereto, after
giving effect to any adjustment event.
7. CONVERSION RATE ADJUSTMENT OF DEBENTURES. The Conversion Rate
of the Debentures shall be subject to adjustment from time to time as follows:
5
<PAGE> 6
a. If and whenever the Company shall issue any
additional shares of Common Stock, otherwise than by way of
subdivision or combination of shares ("Additional Stock"), then
successively upon each such issuance the Conversion Price shall be
immediately (except as provided below) adjusted in accordance with the
following formula: Sixty Cents multiplied by the quotient resulting
from dividing the aggregate consideration, determined in accordance
with this Section 7, received by the Company for its shares of Common
Stock then outstanding by the product of sixty cents ($0.60)
multiplied by the number of shares of Common Stock outstanding after
any such issuance; provided, however, that the issuance of 138,690
shares of the Company's Common Stock in exchange for the services of
certain directors and former key employees of the Company and the
issuance of 80,357 shares of Common Stock in satisfaction of certain
promissory notes of the Company pursuant to certain Release and
Settlement Agreements executed in February 1996, shall not be an
issuance of Additional Stock for purposes of this Section 7 and
shall not result in any adjustment to the Conversion Price. The
resulting quotient, adjusted to the nearest .001, shall thereafter be
the Conversion Price until further adjusted as herein provided;
provided, however, that no such adjustment shall be made if the
aforesaid quotient shall be greater than $0.60.
For the purposes of this Section 7, the Company shall be
deemed to have received as consideration for the shares of its Common
Stock outstanding at the time of making any computation hereunder the
sum of Three Million Four Hundred Sixty-Two Thousand Two Hundred
Ninety-Eight and Twenty Hundredths Dollars ($3,462,298.20) plus any
additional consideration received by the Company for its shares of
Additional Stock plus Sixty Cents ($0.60) for each share of Common
Stock hereafter issued which does not constitute Additional Stock.
b. For the purposes of any adjustment of the Conversion
Price pursuant to this Section 7, the following provisions shall be
applicable:
(i) In case the Company shall at any time issue
any Additional Stock for cash, the consideration received by
the Company therefor shall be deemed to be the amount of cash
received by the Company for such Additional Stock before
deducting therefrom the amount of any commission, discount or
other expenses which may have been paid or incurred by the
Company for any underwriting of, or otherwise in connection
with, the issuance or sale of such Additional Stock.
(ii) In case of the issuance of Additional Stock
in payment or satisfaction of any dividend on any class of
stock of the Company other than Common Stock, the amount of
the consideration received by the Company for such Additional
Stock shall be deemed to be the amount of the obligation in
respect of dividends that shall be discharged by the issuance
6
<PAGE> 7
of such Additional Stock. In case of the issuance of
Additional Stock as a dividend on the Common Stock, the
Additional Stock shall be deemed to have been issued without
consideration.
(iii) In case of the issuance of Additional Stock
for a consideration other than cash (and other than shares of
stock or other securities of the Company) or a consideration
part of which shall be other than cash (and other than shares
of stock or other securities of the Company), the amount of
such consideration other than cash received by the Company
therefor shall be deemed to be the market value of the shares
of Additional Stock on the date the issuance thereof is
authorized by the Board of Directors of the Company less the
cash received, if any. For the purposes of this subsection
(iii) and subsection (iv) below, the term "market value" shall
mean the mean between the bid and asked quotations for the
Company's Common Stock at the close of trading on the
over-the-counter bulletin board on such date.
(iv) In the case of the issuance of Additional
Stock in exchange for outstanding shares of stock of any other
class, or for other securities, of the Company, the amount of
the consideration received by the Company for such Additional
Stock shall be deemed to be the market value, determined as
provided in subsection (iii) above, of the shares of
Additional Stock so issued.
(v) In the case of the issuance of Additional
Stock upon the conversion of any obligations of the Company
that shall be convertible into Common Stock, the amount of the
consideration received by the Company for such Additional
Stock shall be deemed to be the principal amount of such
obligations so converted into such Additional Stock plus the
amount of cash, if any, required to be paid to the Company in
connection with the conversion of such obligations other than
by way of adjustment of interest.
(vi) In the case of the issuance of Additional
Stock upon the exercise or conversion of any security of the
Company that shall be convertible into Common Stock, the
amount of the consideration received by the Company for such
Additional Stock shall be deemed to be the amount of the
consideration received by the Company for the security so
exercised or converted plus the amount of cash, if any,
required to be paid to the Company in connection with the
exercise or conversion of such security other than by way of
adjustment of dividends. For the purpose of this subsection,
the amount of the consideration received by the Company for
the shares so exercised or converted shall be computed in like
manner to that provided in subsections (i) through (v) above
as appropriate.
7
<PAGE> 8
(vii) Any adjustments in the Conversion Price
required to be made in accordance with the provisions hereof
by reason of the issuance of Additional Stock upon the
exercise or conversion of convertible obligations or any
exercisable or convertible security shall be made only (1) as
of the close of business on March 31, June 30, September 30
and December 31 in each calendar year, in respect of the
shares of Additional Stock issued upon such exercise or
conversion during the quarterly period ending on that day, and
(2) as of the close of business on the day upon which the
right to exercise or convert such obligations or securities
shall expire, in respect of the shares of Additional Stock so
issued between the close of business on the preceding March
31, June 30, September 30 or December 31, as the case may be,
and the close of business on the day on which such right of
conversion shall expire.
(viii) Neither the purchase or other acquisition by
the Company of any Common Stock nor the sale or other
disposition by the Company of any Common Stock at any time
theretofore purchased or otherwise acquired by it shall effect
any adjustment of the Conversion Price or be taken into
account in computing any subsequent adjustment of the
Conversion Price. Shares of Common Stock at any time held in
the treasury of the Company shall not be deemed to be
outstanding at that time for the purposes hereof.
c. In case the shares of Common Stock issuable upon
conversion of the Debentures at any time outstanding shall be
subdivided into a greater or combined into a lesser number of shares
of Common Stock (whether with or without par value), the Conversion
Price shall be decreased in the case of subdivision or increased in
the case of a combination to an amount which shall bear the same
relation to the Conversion Price in effect immediately prior to such
subdivision or combination as the total number of shares of Common
Stock outstanding immediately prior to such subdivision or combination
shall bear to the total number of shares of Common Stock outstanding
immediately after such subdivision or combination.
d. The Company shall not be required, except as
hereinafter provided, to make any adjustment of the Conversion Price
in any case in which the amount by which such Conversion Price would
be decreased in accordance with the foregoing provisions would be less
than one-tenth of one cent.
8. EVENTS OF DEFAULTS AND REMEDIES. The following are deemed to
be an event of default ("Event of Default") hereunder: (i) the failure by the
Company to pay any installment of interest on the Debenture as and when due and
payable and the continuance of any such failure for 30 days, (ii) the failure
by the Company to pay all or any part of the principal on the Debenture when
and as the same become due and payable at maturity, by acceleration or
otherwise, (iii) the failure of the Company to perform any
8
<PAGE> 9
conversion of Debentures required under the Debenture and the continuance of
any such failure for 30 days, (iv) the failure by the Company to observe or
perform any other covenant or agreement contained in the Debenture and the
continuance of such failure for a period of 30 days after the written notice is
given to the Company by the Holders, (v) the assignment by the Company for the
benefit of creditors, or an application by the Company to any tribunal for the
appointment of a trustee or receiver of a substantial part of the assets of the
Company, or the commencement of any proceedings relating to the Company under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debts,
dissolution or other liquidation law of any jurisdiction; or the filing of such
application, or the commencement of any such proceedings against the Company
and an indication of consent by the Company to such proceedings, or the
appointment of such trustee or receiver, or an adjudication of the Company
bankrupt or insolvent, or approval of the petition in any such proceedings, and
such order remains in effect for 60 days; or (vi) a default in the payment of
principal or interest when due which extends beyond any stated period of grace
applicable thereto or an acceleration for any other reason of maturity of any
indebtedness for borrowed money of the Company with an aggregate principal
amount in excess of $100,000 and (vii) final unsatisfied judgments not covered
by insurance aggregating in excess of $100,000, at any one time rendered.
against the Company and not stayed, bonded or discharged within 75 days.
If an Event of Default occurs and is continuing (other than an Event
of Default specified in clause (v) above with respect to the Company), then in
every such case, unless the principal of all of the Debentures shall have
already become due and payable, the Holders of 25% in aggregate principal
amount of the Debentures then outstanding, by notice in writing to the Company
(an "Acceleration Notice"), may declare all principal and accrued and unpaid
interest thereon to be due and payable immediately. If an event of Default
specified in clause (v) above occurs with respect to the Company, all principal
and accrued and unpaid interest thereon will be immediately due and payable on
all outstanding Debentures without any declaration or other act on the part of
the Holders. The Holders of no less than a majority in aggregate principal
amount of Debentures generally are authorized to rescind such acceleration if
all existing Events of Default, other than the non-payment of the principal and
interest on the Debentures which have become due solely by such acceleration,
have been cured or waived.
Prior to the declaration of acceleration of the maturity of the
Debentures, the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may waive on behalf of all of the Holders
any default, except a default in the payment of principal or interest on any
Debenture not yet cured, or a default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of the
affected Debentures.
9. LIMITATION ON MERGER, SALE OR CONSOLIDATION. The Company may
not, directly or indirectly, consolidate with or merge into another person or
sell, lease, convey or transfer all or substantially all of its assets
(computed on a consolidated basis),
9
<PAGE> 10
whether in a single transaction or a series of related transactions, to another
person or group of affiliated persons, unless either (a) in the case of a
merger or consolidation, the Company is the surviving entity or (b) the
resulting, surviving or transferee entity is a corporation or limited liability
company organized under the laws of the United States, any state thereof or the
District of Columbia and expressly assumes by supplemental agreement all of the
obligations of the Company in connection with the Debentures.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the
foregoing, the successor corporation or limited liability company formed by
such consolidation or into which the Company is merged or to which such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of the Company under the Debenture with the same effect
as if such successor corporation or limited liability company had been named
therein as the Company, and the Company will be released from its obligations
under the Debentures, except as to any obligations that arise from or as a
result of such transaction.
10. NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICER, DIRECTORS. No
recourse shall be had for the payment of the principal or the interest on this
Debenture, or for any claim based thereon, or otherwise in respect thereof, or
based on or in respect of any Debenture supplemental thereto, against any
incorporator, stockholder, officer, or director (past, present, or future) of
the Company, whether by virtue of any constitution, statute, or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such
liability being by the acceptance hereof, and as part of the consideration for
the.issue hereof, expressly waived and released.
11. GOVERNING LAW: CONSENT TO JURISDICTION. THIS DEBENTURE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
12. AMENDMENT AND WAIVER. Any waiver or amendment hereto shall be
in writing signed by the Holder. No failure on the part of the Holder to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other rights. The remedies herein provided are cumulative and not
exclusive of any other remedies provided by law.
13. ASSIGNMENT.
(a) The registered Debenture Holder agrees upon transfer
of this Debenture, to give written notice to the Company of such
transfer. Such notice shall describe the manner and circumstances of
the transfer in detail so as to enable the Company to provide such
information as may be required of the Company by the Securities and
Exchange Commission and the relevant state
10
<PAGE> 11
securities divisions. The transferee of this Debenture shall be bound
by the provisions of this Debenture. The register of the transfer of
this Debenture shall occur upon the delivery of this Debenture,
endorsed by the registered Holder or his duly authorized attorney,
signature guaranteed, to the Company or its transfer agent. Each
Debenture instrument issued upon the transfer of this Debenture shall
have the restrictive legend contained herein conspicuously imprinted
on it.
(b) In the event the Company successfully effects
registration of the Common Stock into which this Debenture is
convertible, the Company may stop or prevent the transfer of such
Common Stock for a period not to exceed 60 days in the event the
Company files a registration statement for the sale of its
securities, and for an indefinite period of time if the Company, in
its sole discretion, believes that such security holder has material
non-public information.
14. ENTIRE AGREEMENT; HEADINGS. This Debenture constitutes the
entire agreement between the Holder and the Company pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
representations and understandings, written or oral, of such parties. The
headings are for reference purposes only and shall not be used in construing or
interpreting this Debenture.
All notices to the Company shall be sent to its principal place of
business as it appears on the face of this Debenture.
Witness the facsimile seal of the Company and the facsimile signature
of its duly authorized officers.
ENVIRONMENTAL SAFEGUARDS, INC.
ATTEST:
-------------------------------
James S. Percell
- -------------------------------- President and Chief Executive Officer
- --------------------------------
Secretary
11
<PAGE> 1
EXHIBIT 4.4
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THE WARRANTS PRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1993, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
EXERCISABLE ON OR BEFORE
5:00 P.M. (MOUNTAIN TIME), SEPTEMBER 24, 1996
No. W-1
WARRANT CERTIFICATE
This Warrant Certificate certifies that Kelly Trimble, or his
registered assigns, is the registered holder of 37,000 Warrants to purchase at
any time from September 25, 1995 until 5:00 p.m. (Mountain Time) on
September 24, 1996 ("Expiration Date"), up to 37,000 fully-paid and
non-assessable shares of Common Stock, $0.001 par value ("Common Stock") of
Environmental Safeguards, Inc., a Nevada corporation (the "Company"), at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of the mean between the closing bid and asked price of the company's
Common Stock on September 22, 1995 upon surrender of this Warrant Certificate
and payment of the Exercise Price shall be made by certified or official bank
check payable to the order of the Company and by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:00 p.m. (Mountain Time), on the
Expiration Date, at which time all warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
Upon the occurrence of any stock split, reverse split, forward split or
recapitalization the Exercise Price and/or the number of the Company's Common
Stock issuable thereupon may, subject to certain conditions, be adjusted. In
such event, the Company will, at the request of the holder, use a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
of shares of Common Stock issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificate
shall not in any way change, alter, or otherwise impair, the rights of the
holder Selling Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate
shall be issued, subject to the limitations provided herein, without any charge
except for any tax or other governmental charge imposed in connection with
such transfer.
<PAGE> 2
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof, a new
Warrant Certificate representing such numbers of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be effected by any notice to the
contrary.
In the event of the exercise of any, or all, of the Warrants, the
holder of the Company's Common Stock received from the exercise of these
Warrant shall be entitled to "piggy-back" registration rights should the
Company file and complete a registration of its shares while the shares of
Common Stock received from the exercise of those Warrants are still restricted
as to transfer.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of September 25, 1995.
ENVIRONMENTAL SAFEGUARDS, INC.
By: [ILLEGIBLE]
--------------------------
Its: President and Chief
Executive Officer
ATTESTED:
By: [ILLEGIBLE]
--------------------------
Secretary
<PAGE> 1
EXHIBIT 10.1
OPERATING AGREEMENT
OF
ONSITE TECHNOLOGY L.L.C.
AN OKLAHOMA LIMITED LIABILITY COMPANY
(MANAGER MANAGED)
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
1.1 ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ADDITIONAL MEMBER . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 ADMISSION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 1
1.4 AFFILIATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 ARTICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 ASSIGNEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 BUSINESS DAY . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 CAPITAL ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 CAPITAL CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 2
1.10 CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 COMPANY PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 CONTRIBUTING MEMBERS . . . . . . . . . . . . . . . . . . . . . . 2
1.15 DEFAULT INTEREST RATE . . . . . . . . . . . . . . . . . . . . . 2
1.16 DELINQUENT MEMBER . . . . . . . . . . . . . . . . . . . . . . . 2
1.17 DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18 DISPOSITION (DISPOSE) . . . . . . . . . . . . . . . . . . . . . 2
1.19 DISSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.20 ENERGY INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . 2
1.21 INITIAL CAPITAL CONTRIBUTION . . . . . . . . . . . . . . . . . . 3
1.22 INITIAL MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23 MAJORITY OF THE MANAGERS . . . . . . . . . . . . . . . . . . . . 3
1.24 MAJORITY OF THE MEMBERS . . . . . . . . . . . . . . . . . . . . 3
1.25 MANAGEMENT RIGHT . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26 MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27 MEMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28 MEMBERSHIP INTEREST . . . . . . . . . . . . . . . . . . . . . . 3
1.29 MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.30 NET LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.31 NET PROFITS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 OPERATING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 4
1.34 ORGANIZATION EXPENSES . . . . . . . . . . . . . . . . . . . . . 4
1.35 PERMITTED TRANSFEREE . . . . . . . . . . . . . . . . . . . . . . 4
1.36 PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.37 PROCEEDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.38 PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.39 REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.40 SHARING RATIO . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.41 SUBSTITUTE MEMBER . . . . . . . . . . . . . . . . . . . . . . . 5
1.42 TAXABLE YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.43 TAXING JURISDICTION . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2
FORMATION
2.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT . . . . . . . . . 5
2.3 NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 REGISTERED AGENT AND OFFICE . . . . . . . . . . . . . . . . . . 6
2.7 PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3
NATURE OF BUSINESS AND PROPRIETARY RIGHTS
3.1 COMPANY PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 RESPONSIBILITIES OF PARKER . . . . . . . . . . . . . . . . . . . 7
3.4 INVENTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 4
ACCOUNTING AND RECORDS
4.1 RECORDS TO BE MAINTAINED . . . . . . . . . . . . . . . . . . . . 9
4.2 REPORTS TO MEMBERS . . . . . . . . . . . . . . . . . . . . . . 10
4.3 AUDIT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 10
4.4 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5
MEMBERS AND MANAGERS
ARTICLE 6
RIGHTS AND DUTIES OF MEMBERS
6.1 MANAGEMENT RIGHTS . . . . . . . . . . . . . . . . . . . . . . 11
6.2 LIABILITY OF MEMBERS . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
6.3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 11
6.4 CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . 12
6.5 NO RETURN OF CAPITAL CONTRIBUTION . . . . . . . . . . . . . . 12
6.6 MEETINGS OF MEMBERS . . . . . . . . . . . . . . . . . . . . . 12
6.7 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE . . . . . . 13
ARTICLE 7
MANAGERS
7.1 MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 TERM OF MANAGER . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 AUTHORITY OF MANAGERS TO BIND THE COMPANY . . . . . . . . . . 14
7.4 RESTRICTIONS ON POWERS OF THE MANAGERS . . . . . . . . . . . . 15
7.5 COMPENSATION OF MANAGER . . . . . . . . . . . . . . . . . . . 16
7.6 MANAGERS' STANDARD OF CARE . . . . . . . . . . . . . . . . . . 16
7.7 PRINCIPAL MANAGER AND TITLES . . . . . . . . . . . . . . . . . 17
7.8 MEETINGS OF MANAGERS . . . . . . . . . . . . . . . . . . . . . 17
7.9 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE . . . . . . 18
7.10 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 8
CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 18
8.2 ADDITIONAL COMMITMENTS . . . . . . . . . . . . . . . . . . . . 18
8.3 ENFORCEMENT OF COMMITMENTS . . . . . . . . . . . . . . . . . . 19
8.4 MAINTENANCE OF CAPITAL ACCOUNTS . . . . . . . . . . . . . . . 19
8.5 DISTRIBUTION OF ASSETS . . . . . . . . . . . . . . . . . . . . 20
8.6 SALE OR EXCHANGE OF INTEREST . . . . . . . . . . . . . . . . . 20
8.7 COMPLIANCE WITH SECTION 704(b) OF THE CODE . . . . . . . . . . 20
ARTICLE 9
ALLOCATIONS AND DISTRIBUTIONS
9.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES FROM OPERATIONS . . 20
9.2 INTERIM DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 21
9.3 LIMITATIONS ON DISTRIBUTIONS . . . . . . . . . . . . . . . . . 21
ARTICLE 10
TAXES
10.1 ELECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.2 TAXES OF TAXING JURISDICTIONS . . . . . . . . . . . . . . . . 21
10.3 TAX MATTERS PARTNER . . . . . . . . . . . . . . . . . . . . . 21
10.4 ACCRUAL METHOD OF ACCOUNTING . . . . . . . . . . . . . . . . . 22
</TABLE>
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ARTICLE II
DISPOSITION OF MEMBERSHIP INTERESTS
<TABLE>
<S> <C> <C>
11.1 DISPOSITION . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 DISPOSITIONS NOT IN COMPLIANCE WITH THIS ARTICLE VOID . . . . 22
11.3 RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 12
DISSOCIATION OF A MEMBER
12.1 DISSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.2 RIGHTS UPON DISSOCIATION OF A MEMBER . . . . . . . . . . . . . 24
ARTICLE 13
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS
13.1 RIGHTS OF ASSIGNEES . . . . . . . . . . . . . . . . . . . . . 25
13.2 ADMISSION OF SUBSTITUTE MEMBERS . . . . . . . . . . . . . . . 25
13.3 ADMISSION OF ADDITIONAL MEMBERS . . . . . . . . . . . . . . . 25
ARTICLE 14
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2 EFFECT OR DISSOLUTION . . . . . . . . . . . . . . . . . . . . 26
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION . . . . . . . . . . . . 26
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION . . . . . . . . . 27
ARTICLE 15
INDEMNIFICATION
15.1 RIGHT TO INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 27
15.2 ADVANCEMENT OR EXPENSES . . . . . . . . . . . . . . . . . . . 28
15.3 NON-EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . 28
15.4 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 16
AMENDMENT
16.1 OPERATING AGREEMENT MAY BE MODIFIED . . . . . . . . . . . . . 28
16.2 AMENDMENT OR MODIFICATION OF OPERATING AGREEMENT . . . . . . . 28
</TABLE>
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ARTICLE 17
MISCELLANEOUS PROVISIONS
<TABLE>
<S> <C> <C>
17.1 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 28
17.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES . . . . . . . . . 28
17.3 RIGHTS OR CREDITORS AND THIRD PARTIES UNDER OPERATING
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 29
17.5 MULTIPLE COUNTERPARTS . . . . . . . . . . . . . . . . . . . . 29
17.6 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17.7 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
EXHIBIT A
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OPERATING AGREEMENT
THE INTERESTS IN ONSITE TECHNOLOGY L.L.C. HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE RESOLD OR
TRANSFERRED BY THE MEMBER WITHOUT APPROPRIATE REGISTRATION OR THE AVAILABILITY
OF AN EXEMPTION FROM SUCH REQUIREMENTS.
This Operating Agreement of OnSite Technology L.L.C., an Oklahoma
limited liability company organized pursuant to the Act, is entered into and
shall be effective as of the Effective Date, by and among the Company and the
Persons executing this Agreement as Members.
ARTICLE 1
DEFINITIONS
For purposes of this Operating Agreement, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:
1.1 ACT - The Oklahoma Limited Liability Company Act and any
successor statute, as amended from time to time.
1.2 ADDITIONAL MEMBER - A Member other than an Initial Member or a
Substitute Member who has acquired a Membership Interest from the Company.
1.3 ADMISSION AGREEMENT - The Agreement between an Additional
Member and the Company contemplated in section 13.3.
1.4 AFFILIATE - Any Person directly or indirectly controlling,
controlled or under direct or indirect common control with another Person. For
purposes of this definition, the term "control" when used with respect to any
Person means the possession, directly or indirectly, of power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting stock or by contract or otherwise. For purposes
of this Operating Agreement, the Company shall not be deemed an Affiliate of
any Member.
1.5 ARTICLES - The Articles of Organization of the Company as
properly adopted and amended from time to time by the Members and filed with
the Secretary of State of the State of Oklahoma.
1.6 ASSIGNEE - A Person to whom a Membership Interest has been
transferred but who has not been admitted as a Substitute Member.
<PAGE> 8
1.7 BUSINESS DAY - Any day other than Saturday, Sunday or any
legal holiday observed by the State of Oklahoma.
1.8 CAPITAL ACCOUNT - The account maintained for a Member or
Assignee determined in accordance with Article 8.
1.9 CAPITAL CONTRIBUTION - Any contribution of Property, services
or the obligation to contribute Property or services made by or on behalf of a
Member or Assignee.
1.10 CODE - The Internal Revenue Code of 1986 and any successor
statute as amended from time to time.
1.11 COMMITMENT - The Capital Contributions that a Member,
Additional Member or Assignee is obligated to make.
1.12 COMPANY - OnSite Technology L.L.C., a limited liability
company formed under the laws of the State of Oklahoma, and any successor
limited liability company.
1.13 COMPANY PROPERTY - Any Property owned by the Company.
1.14 CONTRIBUTING MEMBERS - Those members making contributions as a
result of the failure of a Delinquent Member to make the contributions required
by and described in Article 8.
1.15 DEFAULT INTEREST RATE - The lesser of (i) the maximum legal
rate permitted by applicable law or (ii) the then-current prime rate quoted by
the largest commercial bank in the jurisdiction of the Principal Office, plus
three percent.
1.16 DELINQUENT MEMBER - A Member or Assignee who has failed to
meet the Commitment of that Member or Assignee.
1.17 DISTRIBUTION - A transfer of Property to a Member on account
of a Membership Interest.
1.18 DISPOSITION (DISPOSE) - Any sale, assignment, transfer,
exchange, mortgage, pledge, grant, hypothecation, or other transfer, absolute
or as security or encumbrance (including dispositions by operation of law).
1.19 DISSOCIATION - Any action which causes A Person to cease to be
Member as described in Article 12 hereof.
1.20 ENERGY INDUSTRY - The industry of exploration, drilling,
production, refining, transportation and storage of natural gas, natural gas
products, petroleum and petroleum products.
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1.21 INITIAL CAPITAL CONTRIBUTION - The Capital Contribution agreed
to be made by the Initial Members as described in Article 8.
1.22 INITIAL MEMBERS - Those Persons identified in Article 5 who
have executed the Operating Agreement.
1.23 MAJORITY OF THE MANAGERS - A majority by number of all of the
Managers.
1.24 MAJORITY OF THE MEMBERS - Members having Sharing Ratios in
excess of one half of the Sharing Ratios of all the Members entitled to vote
on, consent to, or approve a particular matter. Assignees shall not be
considered Members entitled to vote for the purpose of determining a Majority.
In the case of a Member who has Disposed of that Member's entire Membership
Interest to an Assignee, but who has not ceased to be a Member as provided
below, the Sharing Ratio of such Assignee shall be considered in determining a
Majority of the Members and such Member's vote or consent shall be determined
by such Sharing Ratio.
1.25 MANAGEMENT RIGHT - The right of a Member to participate in the
management of the Company, including the rights to information and to consent
or approve actions of the Company. The rights and authority of a Manager that
is also a Member that exceed those of a Member who is not a Manager are not
considered Management Rights for purposes of the Operating Agreement.
1.26 MANAGER - Any Person named in the Operating Agreement as an
initial Manager of the Company and any Person hereafter appointed as a Manager
of the Company as provided in the Operating Agreement, but this does not
include any Person who has ceased to be a Manager of the Company.
1.27 MEMBER - An Initial Member, Substituted Member or Additional
Member, including, unless the context expressly indicates to the contrary, a
Member-Manager or Assignee.
1.28 MEMBERSHIP INTEREST - The rights of a Member or, in the case
of an Assignee, the rights of the assigning Member in Distributions
(liquidating or otherwise) and allocations of the profits, losses, gains,
deductions, and credits of the Company.
1.29 MONEY - Cash or other legal tender of the United States, or
any obligation that is immediately reducible to legal tender without delay or
discount. Money shall be considered to have a fair market value equal to its
face amount.
1.30 NET LOSSES - The losses and deductions of the Company
determined in accordance with generally accepted accounting principles
consistently applied from year to year employed under the method of accounting
adopted by the Company and as reported separately or in the aggregate, as
appropriate, on the tax return of the Company filed for
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federal income tax purposes.
1.31 NET PROFITS - The income and gains of the Company determined in
accordance with generally accepted accounting principles consistently applied
from year to year employed under the method of accounting adopted by the
Company and as reported separately or in the aggregate, as appropriate, on the
tax return of the Company filed for federal income tax purposes.
1.32 NOTICE - Notice shall be in writing. For the purposes of this
Operating Agreement Notice to the Company shall be considered given when mailed
by certified mail return receipt requested postage prepaid, by overnight
delivery service, or by facsimile addressed to any Manager in care of the
Company at the address or facsimile number of the Principal Office or at such
other addresses and facsimile numbers as a Majority of the Managers may
designate in writing. For purposes of this Operating Agreement notice to a
Member shall be considered given when mailed by certified mail return receipt
requested postage prepaid, by overnight delivery or by facsimile addressed to
the Member at the address or facsimile number reflected in the Operating
Agreement, or at such other address or facsimile number designated in writing
by the Member.
1.33 OPERATING AGREEMENT - This Operating Agreement including all
amendments adopted in accordance with the Operating Agreement and the Act.
1.34 ORGANIZATION EXPENSES - Those expenses incurred in the
organization of the Company excluding the costs of preparation of the Operating
Agreement and Articles.
1.35 PERMITTED TRANSFEREE - Any member of the Member's Immediate
Family, or a corporation, partnership (general or limited), joint venture,
limited liability company, unincorporated association or other business entity
permitted by law controlled by such Member or by members of the Member's
Immediate Family.
1.36 PERSON - An individual, a general partnership, a limited
liability company, a trust, an estate, a corporation or any other legal or
commercial entity permitted to be a member of a limited liability company under
the laws of the State of Oklahoma.
1.37 PROCEEDING - Any administrative, judicial, or other adversary
proceeding, including, without limitation, litigation, arbitration,
administrative adjudication, mediation, and appeal or review of any of the
foregoing.
1.38 PROPERTY - Any property, real or personal, tangible or
intangible, including Money and any legal or equitable interest in such
property, but excluding services and promises to perform services in the
future.
1.39 REGULATIONS - Except where the context indicates otherwise,
the permanent and temporary regulations of the Department of the Treasury under
the Code as such
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regulations may be lawfully changed from time to time.
1.40 SHARING RATIO - With respect to the Initial Members, the
percentage of ownership interest in the Company of each member shall be fifty
percent (50%), as adjusted from time to time pursuant to section 8.3. With
respect to an Assignee or Substitute Member, the Sharing Ratio shall be the
percentage ownership interest in the Company which was purchased from an
assigning or selling Member, so long as said Member is current as to all of its
Commitments.
1.41 SUBSTITUTE MEMBER - An Assignee who has been admitted to all
of the rights of membership pursuant to the Operating Agreement.
1.42 TAXABLE YEAR - The tax. able year of the Company as determined
pursuant to Section 706 of the Code shall be the calendar year.
1.43 TAXING JURISDICTION - Any state, local, or foreign government
that collects tax, interest or penalties, however designated, on any Member's
share of the income or gain attributable to the Company.
ARTICLE 2
FORMATION
2.1 ORGANIZATION - The Members hereby organize the Company as an
Oklahoma limited liability company pursuant to the provisions of the Act.
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT - For and in
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Members executing the Operating Agreement hereby agree to the
terms and conditions of the Operating Agreement, as it may from time to time be
amended according to its terms. It is the express intention of the Members that
the Operating Agreement shall be the sole source of agreement of the parties,
and, except to the extent a provision of the Operating Agreement expressly
incorporates federal income tax rules by reference to sections of the Code or
Regulations or is expressly prohibited or ineffective under the Act, the
Operating Agreement shall govern, even when inconsistent with, or different
than, the provisions of the Act or any other law or rule. To the extent any
provision of the Operating Agreement is prohibited or ineffective under the
Act, the Operating Agreement shall be considered amended to the smallest degree
possible in order to make the Operating Agreement effective under the Act. In
the event the Act is subsequently amended or interpreted in such a way to make
any provision of the Operating Agreement that was formerly invalid valid, such
provision shall be considered to be valid from the effective date of such
interpretation or amendment. The Members hereby agree that each Member shall be
entitled to rely on the provisions of this Operating Agreement, and no Member
shall be liable to the Company or to any Member for any action or refusal to
act taken in good faith reliance on the terms of this Operating
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Agreement. The Members and the Company hereby agree that the duties and
obligations imposed on the Members of The Company as such shall be those set
forth in this Operating Agreement, which is intended to govern the relationship
among the Company and the Members, notwithstanding any provision of the Act or
common law to the contrary. This Operating Agreement shall in all respects
supersede and replace the Memorandum of Understanding effective January 1, 1995
between National Fuels & Energy, Inc. and Parker Drilling Company.
2.3 NAME - The name of the Company is OnSite Technology L.L.C. and
all business of tile Company shall be conducted under that name or under any
other name, but in any case, only to the extent permitted by applicable law.
2.4 EFFECTIVE DATE - The Operating Agreement shall become
effective upon the full execution of this Operating Agreement.
2.5 TERM - The Company shall be dissolved and its affairs wound up
in accordance with the Act and the Operating Agreement on January 1, 2025
unless the term shall be extended by amendment to the Operating Agreement and
the Articles, or unless the Company shall be sooner dissolved and its affairs
wound up in accordance with the Act or the Operating Agreement.
2.6 REGISTERED AGENT AND OFFICE - The registered agent for the
service of process and the registered office shall be that Person and location
reflected in the Articles as filed in the office of the Secretary of State of
the State of Oklahoma. The Managers may, from time to time, change the
registered agent or office through appropriate filings with the Secretary of
State of the State of Oklahoma. In the event the registered agent ceases to act
as such for any reason or the registered office shall change, the Managers
shall promptly designate a replacement registered agent or file a notice of
change of address as the case may be. If the Managers shall fail to designate a
replacement registered agent or change of address of the registered office, any
Member may designate a replacement registered agent or file a notice of change
of address.
2.7 PRINCIPAL OFFICE - The Principal Office of the Company in
Oklahoma shall be located at 8 East Third Street, Tulsa, Oklahoma 74103. The
Company may also maintain offices at such other place or places the Majority of
the Managers deem advisable.
ARTICLE 3
NATURE OF BUSINESS AND PROPRIETARY RIGHTS
3.1 COMPANY PURPOSES - The purposes of the Company are to provide
environmental remediation, reclamation, testing and other associated services
pursuant to the license granted in Section 3.2 hereof and in such other areas
as a Majority of the Members may agree to from time to time and to engage in
any other business or activity that now or hereafter may be necessary,
incidental, proper, advisable or convenient to
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accomplish the foregoing purposes (including, without limitation, obtaining
financing therefore) and that are not forbidden by the law of the jurisdiction
in which the Company engages in that business.
3.2 LICENSE - National Fuels & Energy, Inc. ("NFE") does hereby
grant to the Company, for the purpose of this Operating Agreement, a
non-royalty bearing license to manufacture and have manufactured, to use and
have used and to practice and have practiced NFE's Soil Remediation System(s),
associated proprietary processes, equipment, patents and future inventions and
improvements thereto for use in the reclamation of hydrocarbons as follows:
(a) Exclusive at drill sites in the Energy Industry in the
continental United States and Alaska.
(b) Nonexclusive in the Energy Industry in the continental
United States and Alaska.
(c) Exclusive in the Energy Industry in the countries listed
on Exhibit A hereto.
(d) Nonexclusive in all industries in the countries listed on
Exhibit A hereto.
Except as specifically provided in the following paragraph and Section
14.2(d) of the Operating Agreement, the license granted hereunder is
nontransferable and the Company shall have no right to grant any sublicenses.
The term of this license shall be the later of the Term of this
Operating Agreement or the useful life of any indirect thermal desorption units
("Units") owned by the Company at the time of dissolution of the Company.
Notwithstanding the foregoing, upon dissolution and winding up of the Company,
this license may be assigned and/or sublicensed to any Member which receives a
Unit as part of a Distribution from the Company or any other Person that
purchases a Unit as part of the winding up of the affairs of the Company. The
grantee of such assignment or sublicense shall have no further right to
transfer or sublicense the license. To the extent necessary to carry out the
business of the Company, the Company may assign or sublicense the license to
its Affiliates.
3.3 RESPONSIBILITIES OF PARKER - From the effective date of this
Operating Agreement for a period of 365 calendar days, Parker Drilling
Investment Company ("Parker") and, where applicable, its Affiliates, at their
sole cost and expense shall actively market and promote the services of NFE's
Soil Remediation System and proprietary processes in the industries and
countries covered by the license of Section 3.2. Specifically Parker, with
technical support from NFE, shall prepare a brochure, at Parker's expense,
promoting the services of NFE's Soil Remediation System and proprietary
processes. The
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brochure shall be distributed to all customers of Parker and to other potential
customers in Energy Industries, both domestic and international. The initial
mailing list for the brochure shall be mutually agreed upon by Parker and NFE.
Parker shall provide sufficient brochures for its offices to reply to customer
requests. Parker and NFE shall hold a one to two day long training session for
marketing and contract representatives of Parker to educate them about NFE's
Soil Remediation System and proprietary processes (marketing and contract
representatives working outside of the continental United States may be trained
by videotape). Parker, with technical support from NFE, shall make at least one
presentation regarding NFE's Soil Remediation System and proprietary processes
to a professional society in the Energy Industry. Parker, with technical
support from NFE, shall use its best efforts to make a presentation regarding
NFE's Soil Remediation System and proprietary processes at Parker's Drilling
Manager's Retreat. Parker shall present NFE's Soil Remediation System and
proprietary processes at one Energy Industry trade show. After the expiration
of the 365 calendar day period all marketing shall be performed by agents and
representatives of the Company and paid for by the Company, or as otherwise
agreed to by a Majority of the Managers. The Company will not have to pay for
the continuing marketing, after the 365 days, of the Parker employees charged
by Parker with marketing Parker's drilling expertise/technology around the
world who will continue to market the Company's expertise/technology around the
world. The Company will not have to pay for the continuing marketing of the NFE
employees charged by NFE with marketing NFE's expertise/technology around the
world, who will continue to market the Company's expertise/technology around
the world.
3.4 INVENTIONS - The parties agree that any inventions (either
patentable or nonpatentable), software, patentable work or copyrightable work
(collectively "inventions") which (i) improve, modify, or alter NFE's Soil
Remediation System as in existence on the execution date of this Operating
Agreement and/or (ii) which deliver soil to or remove soil from the system (this
shall not include Parker's or its Affiliates' drilling rigs) made by Parker
and/or NFE, either singly or jointly, under this Operating Agreement shall be
the Property of the Company, Parker and NFE, with each having the right to use
such invention, software or work for their own purposes, subject to the terms
of this Operating Agreement. Each invention shall be identified in writing with
copies to the Company, Parker and NFE. The cost of filing and pursuing any
joint patents shall be paid by the Company.
During the term of this Operating Agreement and for two (2) years
after, neither Parker nor NFE shall sell, license, assign, sublicense or
otherwise dispose of any interest in an invention made pursuant to this
section, without first offering such interest in the invention to the other
Member of this Operating Agreement on the same terms and conditions that such
invention is offered to the third party. The Member to whom such invention is
offered shall have fourteen (14) days from its receipt of written notice
containing the terms being offered to the third party, in which to exercise its
right of first refusal.
During the term of this Operating Agreement, or as a result of the
joint efforts by
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both the Members or their Affiliates since the signing of the Memorandum of
Understanding effective January 1, 1995 between National Fuels & Energy, Inc.
and Parker Drilling Company through the execution of this Operating Agreement,
neither Parker nor NFE shall apply for a patent for any of the NFE equipment or
processes or related equipment or processes without the express written consent
of the other party.
For purposes of this section an invention, software, patentable work
or copyrightable work is made under this Operating Agreement if it is either
conceived or reduced to practice during work under the Operating Agreement. For
purposes of this section "inventions" shall mean any discovery, concept, or
idea, whether or not patentable, made during the term of and while performing
work under this Operating Agreement including but not limited to processes,
methods, software, formulas and techniques, improvements thereof, and know-how
relating thereto.
ARTICLE 4
ACCOUNTING AND RECORDS
4.1 RECORDS TO BE MAINTAINED - The Managers shall maintain the
following records at the Principal Office and at each Member's office:
(a) A current list of the full name and last known
business address of each Member, former Member, holder of a Membership
Interest, and Manager;
(b) A copy of the Articles and all amendments thereto;
(c) Copies of the Company's federal, foreign, state and
local income tax returns and reports and financial statements, for the
three most recent years or if such returns and statements were not
prepared for any reason, copies of the information and statements
provided to, or which should have been provided to, The Members to
enable them to prepare their federal, state and local tax returns for
such period;
(d) Copies of the Operating Agreement including all amendments
thereto and copies of any operating agreements no longer in effect;
and
(e) If not set forth in this Operating Agreement, a
writing or other data compilation from which information can be
obtained through retrieval devices into reasonably usable form setting
forth the following:
(1) The amount of Money and a statement of the
agreed value of the other Property or services contributed by
each Member and which each Member has agreed to contribute and
the times at which or events upon the happening of which any
additional contributions agreed to be made by each Member are
to be made;
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(2) The events upon the happening of which the
Company is to be dissolved and its affairs wound up; and
(3) Any other information prepared pursuant to a
requirement in the Operating Agreement.
4.2 REPORTS TO MEMBERS:
(a) The Managers shall provide a balance sheet, a cash
flow statement and an income statement at least annually to the
Members and shall also provide such other reports as the Members may
request from time to time.
(b) The Company, through its Managers, shall provide all
Members and Assignees with those information returns required by the
Code and the laws of any state.
4.3 AUDIT OF THE COMPANY:
(a) The Managers shall develop a formal audit plan of the
Company. The Members may, by vote of a Majority of the Members, have
an independent audit of the books and records of the Company
undertaken. The results of such audit(s) shall be available to all
Members.
(b) Any Member, at its own cost and at a reasonable time
during normal business hours, may, on its own or through an agent,
inspect, copy and/or audit the books and records of the Company. The
frequency of such audits shall be reasonable. In the event that audits
of the Company by Members become unduly burdensome, the Members may,
by vote of the Majority of the Members, restrict the right of each
Member to audit the books and records of the Company and substitute an
annual independent audit of the Company in place of each Member's
right to audit.
4.4 FISCAL YEAR - The fiscal year of the Company shall be from
January 1 to December 31.
ARTICLE 5
MEMBERS AND MANAGERS
The names and addresses of the Initial Members of the Company are (1)
National Fuel & Energy, Inc., 1190 No. Springcreek Place, Suite A, Springville,
Utah 84663, FAX:(801) 489-3691 and (2) Parker Drilling Investment Company, 8
East Third Street, Tulsa, Oklahoma, FAX (918) 631-1253. The Initial Managers
appointed by Parker Drilling Investment Company are James Davis and Tim
Heinritz. The Initial Managers appointed by National Fuel & Energy, Inc. are
Leif Erickson and Waide Mitchell. The initial
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representative of Parker Drilling Investment Company is Robert L. Parker, Jr.
The initial representative of National Fuel & Energy, Inc. is Leif Erickson.
The representatives named by each Member shall represent and vote the interests
of that Member. Any notices sent to a Member pursuant to this Operating
Agreement shall be addressed to the Member's representative. A Member may
change its representative by giving written notice to the other Members and the
Managers.
ARTICLE 6
RIGHTS AND DUTIES OF MEMBERS
6.1 MANAGEMENT RIGHTS - Except as provided in 6.4 below, all
Members who have not Dissociated shall be entitled to vote on any matter
submitted to a vote of the Members.
6.2 LIABILITY OF MEMBERS - No Member shall be liable as such for
the liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or
management of its business or affairs under the Operating Agreement or the Act
shall not be grounds for imposing personal liability on the Members for
liabilities of the Company.
6.3 REPRESENTATIONS AND WARRANTIES - Each Member hereby represents
and warrants to the Company and each other Member that:
(a) if that Member is a corporation, it is duly
organized, validly existing, and in good standing under the law of the
state of its incorporation and is duly qualified and in good standing
as a foreign corporation in the jurisdiction of its principal place of
business (if not incorporated therein) and that it has full
organizational power to execute and agree to the Operating Agreement
and to perform its obligations hereunder and all necessary actions by
the board of directors and/or shareholders necessary for the due
authorization, execution, delivery and performance of this Operating
Agreement have been duly taken;
(d) the Member has duly executed and delivered this
Operating Agreement;
(e) that the Member's authorization, execution, delivery,
and performance of this Operating Agreement do not conflict with any
other agreement or arrangement to which that Member is a party or by
which it is bound;
(f) THAT THE MEMBER IS ACQUIRING ITS INTEREST IN THE
COMPANY FOR THE MEMBER'S OWN ACCOUNT AS AN INVESTMENT AND WITHOUT AN
INTENT TO DISTRIBUTE THE INTEREST; AND
(g) THE MEMBER ACKNOWLEDGES THAT THE INTERESTS HAVE
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NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE RESOLD OR TRANSFERRED BY THE MEMBER
WITHOUT APPROPRIATE REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION
FROM SUCH REQUIREMENTS.
6.4 CONFLICTS OF INTEREST
(a) Parker specifically acknowledges that NFE is in the
Soil Remediation Business as its primary business using its own and
other technologies. Parker specifically acknowledges that NFE intends
to continue to pursue the soil remediation business outside the areas
defined in section 3.2 above, which are set aside for the Company
under this Operating Agreement and that NFE at times and at its sole
discretion may use the services of the NFE employees also named as
representatives and Managers of the Company in these endeavors. Parker
specifically acknowledges that the pursuit and accomplishment of this
Soil Remediation Business is not a conflict of interest with this
Operating Agreement.
(b) All business opportunities brought to the Company by
the efforts of the Company, its Members, Managers, employees or agents
shall be evaluated by the Managers and a decisions shall be made to
pursue or not to pursue the opportunity. Should the decision of the
Managers be to not pursue the opportunity, NFE shall have the right to
pursue the opportunity on its own outside the Company and the Members
acknowledge that this is not and will not be a "conflict of interest"
under this Operating Agreement.
(c) A Member (or the Member' Affiliates) or a Manager
does not violate a duty or obligation to the Company merely because
the Member's or Manager's conduct furthers said Member's or Manager's
own interest. A Member or Manager may lend money to and transact other
business with the Company. The rights and obligations of a Member or
Manager who lends money to or transacts business with the Company are
the same as those of a person who is not a Member or Manager, subject
to other applicable law. No transaction with the Company shall be
voidable solely because a Member or Manager has a direct or indirect
interest in the transaction if the transaction is fair to the Company
and a Majority of the Members not having a conflict, knowing the
material facts of the transaction and the Member's or Manager's
interest, authorize, approve, or ratify the transaction.
6.5 NO RETURN OF CAPITAL CONTRIBUTION - Absent, the written
consent of all the Members, no Member shall have any right to the withdrawal or
return of any part of the Member's Capital Contribution to the Company.
6.6 MEETINGS OF MEMBERS
(a) Unless otherwise provided in this Operating Agreement, all
decisions
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to be made by the Members shall be by vote of the Majority of the
Members.
(b) All meetings of the Members shall be held at the
principal place of business of the Company or at such other place as
shall be specified or fixed in The notices or waivers thereof;
provided that any or all Members may participate in any such meeting
by means of conference telephone or similar communications equipment
pursuant to this Operating Agreement.
(c) An annual meeting of the Members for the transaction
of such other business as may properly come before the meeting, shall
be held at such place, on such date and at such time as the Managers
shall fix and set forth in the Notice of meeting.
(d) Special meetings of the Members for any proper
purpose or purposes may be called at any time by a Majority of the
Managers or by any Member. Only business within the purpose or
purposes described in the Notice (or waiver thereof) may be conducted
at a special meeting of the Members.
6.7 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE
(a) Any action required or permitted to be taken at any
annual or special meeting of Members may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action taken shall be signed by all of the
Members entitled to vote on the action. Every written consent shall
bear the signature and date of signature of each Member. The record
date for determining Members entitled to sign a written consent shall
be the date of first signature by any Member.
(b) Members may participate in and hold a meeting by
means of conference telephone or similar communications equipment by
means of which all Persons participating in the meeting can hear each
other and participation in such meeting shall constitute attendance
and presence at such meeting.
ARTICLE 7
MANAGERS
7.1 MANAGERS - The ordinary and usual decisions concerning the
business affairs of the Company shall be made by the Managers, who may also be
Members. There shall be four initial Managers, who are named in Article 5 of
this Operating Agreement. The number of Managers may be changed by a vote of
the Majority of the Members. Managers need not be Members or residents of the
State of Oklahoma. Each Member shall be entitled to appoint two Managers of the
Company. Any Manager may be replaced at any time by the Member that appointed
him. Any Manager may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein, or
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if no time be specified, at the time of its receipt by the Company. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
7.2 TERM OF MANAGER- No Manager Shall have any contractual right
to such position. Each Manager shall serve until the earliest of:
(a) The Dissociation of such Manager, if also a Member;
(b) The resignation of such Manager; or
(c) Removal of the Manager by the appointing Member
7.3 AUTHORITY OF MANAGERS TO BIND THE COMPANY - Only the Managers
and agents of the Company authorized by the Managers shall have the authority
to bind the Company. No Member who is not either a Manager or otherwise
authorized as an agent shall take any action to bind the Company, and each
Member shall indemnify the Company for any costs or damages incurred by the
Company as a result of the unauthorized action of such Member. Subject to the
restrictions contained in this Operating Agreement (particularly those in
section 7.4 below) and the.Act, each Manager has the power, on behalf of the
Company, to do all things necessary, appropriate or convenient to carry out the
business and affairs of the Company, including, without limitation:
(a) The institution, prosecution and defense of any
Proceeding in the Company's name;
(b) The purchase, receipt, lease, or other acquisition,
ownership, holding, improvement, use and other dealing with, Property,
wherever located;
(c) The entering into, making and performance of
contracts, agreements, guaranties, and other undertakings binding the
Company; the incurring of liabilities; borrowing money, issuance of
notes, bonds, and other obligations; and the securing of any of its
obligations by mortgage or pledge of any of its Property or income;
(d) The conduct of the Company's business, the
establishment of Company offices, and the exercise of the powers of
the Company within or without the State of Oklahoma;
(e) The appointment of employees and agents of the
Company, the determination of their duties and the establishment of
their compensation;
(f) The making of donations to the public welfare or for
religious, charitable, scientific, literary or educational purposes;
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(g) The making of legal payments or donations, or any
other legal act that furthers the business and affairs of the Company;
(h) The payment of compensation, or additional
compensation to any Member or Employees on account of services
previously rendered to the Company, whether or not an agreement to pay
such compensation was made before such services were rendered;
(i) The collection of sums due the company;
(j) To the extent funds are available, the payment of
debts and obligations of the Company;
(k) The obtaining of insurance of the Company;
(l) The selection, removal and change of authority and
responsibility of lawyers, accountants and other consultants;
(m) The selection and use of a Company seal.
7.4 RESTRICTIONS ON POWERS OR THE MANAGERS - Notwithstanding the
provisions of section 7.3, the Managers may not do or cause the Company to do
any of the following without complying with this Operating Agreement and/or the
Act:
(a) Sell, lease, exchange or otherwise Dispose of (other
than by way of a pledge, mortgage or deed of trust) all or
substantially all of the Company's Property (with or without good
will), other than in the usual and regular course of the Company's
business without the approval of a Majority of the Members;
(b) Be a party to a merger or consolidation without the
approval of a Majority of the Members;
(c) Amend or restate the Articles without the approval of
the Majority of the Members;
(d) Make or authorize any Distributions of Company Money
and/or other Property without the approval of a Majority of the
Members;
(e) Participate in partnership agreements, joint
ventures, or other associations of any kind with any Person or
Persons without the approval of a Majority of the Members;
(f) Indemnify Members or any other Person (except
contractual indemnifications made in the ordinary course of business)
without the approval of a
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Majority of the Members;
(g) Enter into any contract, agreement or similar
arrangement valued in excess of $10,000 without the approval of a
Majority of the Managers;
(h) Make any expenditure in excess of $10,000 without the
approval of a Majority of the Managers;
(i) Sell, convey, mortgage, pledge, lease, exchange, or
otherwise Dispose of Company Property with value in excess of $10,000
without the approval of the Majority of the Managers;
(j) Lend money, invest and reinvest the Company's funds,
or receive or hold Property as security for repayment without the
approval of the Majority of the Managers;
(k) Pay pensions, establish pension plans, pension
trusts, profit sharing plans, and benefit and incentive plans for all
or any of the current Employees and agents of the Company without the
approval of the Majority of the Managers;
(l) Designate individuals with authority to open and/or
maintain bank and investment accounts and arrangements, draw checks
and other orders for the payment of money, or sign or give
instructions with respect to those accounts and arrangements without
the approval of a Majority of the Managers; or
(m) Borrow Money or commit the credit of the Company for
Company activities and make voluntary prepayments or extensions of
debt without the approval of the Majority of the Managers.
7.5 COMPENSATION OF MANAGER - Each Manager may be entitled to
compensation, in an amount to be determined from time to time by the
affirmative vote of a Majority of the Members.
7.6 MANAGERS' STANDARD OF CARE - A Manager's duty of care in the
discharge of the Manager's duties to the Company and the Member shall be to act
in good faith with the care an ordinary person in a like position would
exercise under similar circumstances and in a manner he reasonably believes to
be in the best interests of the Company. In discharging his duties, a Manager
shall be fully protected in relying in good faith upon the records required to
be maintained under Article 4 and upon such information, opinions, reports or
statements by any of the Members, or agents, or by any other Person, as to
matters the Manager reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Company, including information, opinions, reports
or statements as to the value and amount of the assets, liabilities, profits or
losses of the Company or any other facts pertinent to the
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existence and amount of assets from which distributions to Members might
properly be paid.
7.7 PRINCIPAL MANAGER AND TITLES - The Managers may from time to
time, by vote of the Majority of the Managers, name one of the Managers as the
Principal Manager of the Company and delegate to the Principal Manager such
authority and duties as the Majority of the Managers may deem advisable. The
Managers may, from time to time, by majority vote, designate one or more
Managers to be officers of the Company and assign titles to the officers.
Officers must be Managers of the Company. Any officer so designated shall have
such authority and perform such duties as the Managers may from time to time
delegate to said officer. The designation of a title that is the same or
similar to a title authorized by the Oklahoma General Corporation Act shall not
be a delegation of such authority and duties normally associated with that
office under the Oklahoma General Corporation Act, without a specific
authorization by the Majority of the Managers.
7.8 MEETINGS OR MANAGERS
(a) All decisions to be made by the Managers shall be by
vote of the Majority of the Managers.
(b) All meetings of the Managers shall be held at the
principal place of business of the Company or at such other place as
shall be specified or fixed in the Notices or waivers thereof;
provided that any or all Managers may participate in any such meeting
by means of conference telephone or similar communications equipment
pursuant to this Operating Agreement.
(c) An annual meeting of the Managers for the transaction
of such business as may properly come before the meeting, shall be
held at such place, on such date and at such time as the Managers
shall fix and set forth in the Notice of meeting. Regular meetings of
the Managers shall be held at such times and places as shall be
designated from time to time by the Majority of the Managers. Notice
of such regular meetings shall not be required.
(d) Special meetings of the Managers may be called at any
time by any Manager on at least twenty-four (24) hours Notice (which
shall include Notice by phone) to each other Manager. Such Notice need
not state the purpose or purposes of, or the business to be transacted
at, such meeting, except as may be otherwise provided for by the Act.
(e) The Managers at their discretion may submit any act
or contract for approval or ratification at any annual meeting of the
Members, or at any special meeting of the Members called for that
purpose and any act or contract that shall be approved or be ratified
by the Majority of the Members shall be valid and binding on the
Company.
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7.9 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE
(a) Any action required or permitted to be taken at any
annual or special meeting of Managers may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action taken shall be signed by all of
the Managers entitled to vote on the action. Every written consent
shall bear the signature and date of signature of each Manager. The
date for determining Managers entitled to sign a written consent shall
be the date of first signature by any Manager.
(b) Managers may participate in and hold a meeting by
means of conference telephone or similar communications equipment by
means of which all Persons participating in the meeting can hear each
other and participation in such meeting shall constitute attendance
and presence at such meeting.
7.10 PROXIES - A Manager may vote either in person or by proxy
executed in writing by the Manager. A telegram, telex, cablegram or similar
transmission by the Manager or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the Manager shall be treated as
an original document for purposes of this section. Proxies for use at any
meeting shall be filed with the Managers, before or at the time of the meeting
or execution of written consent, as the case may be. No proxy shall be valid
after twelve (12) months from the date of its execution unless otherwise
provided in the proxy. A proxy shall be revocable.
ARTICLE 8
CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS - Each Initial Member shall make an
Initial Capital Contribution of one thousand dollars ($1,000). The Capital
Contributions shall be made upon the effective date of this Operating
Agreement. No interest shall accrue on any Capital Contribution and no Member
shall have the right to withdraw or be repaid any Capital Contribution except
as provided in the Operating Agreement. Each Additional Member shall make the
Initial Capital Contribution described in its Admission Agreement. The value of
the Additional Member's Initial Capital Contribution and the time for making
such contribution shall be set forth in the Admission Agreement.
8.2 ADDITIONAL COMMITMENTS - In addition to the Initial
Capital Contributions and Commitments, a Majority of the Members may determine
from time to time that additional Capital Contributions are needed to enable
the Company to conduct its business. Upon the vote of a Majority of the
Members, the additional Capital Contributions shall become Commitments of the
Members in proportion to their Sharing Ratios. Upon the making of such a
determination by the Members, the Managers shall give Notice to all Members in
writing at least ten Business Days prior to the date on which such contribution
is due. Such Notice shall set forth the amount of additional contribution
needed, the purpose for which
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the contribution is needed, and the date by which the Members should
contribute.
8.3 ENFORCEMENT OF COMMITMENTS - In the event any Member becomes a
Delinquent Member and fails to perform the Delinquent Member's Commitment, the
Managers shall give the Delinquent Member a Notice of the failure to meet the
Commitment. If the Delinquent Member fails to perform the Commitment (including
any costs associated with the failure to perform the Commitment and interest on
such obligation at the Default Interest Rate) within ten Business Days of the
giving of Notice, the Managers may take such action, including but not limited
to enforcing the Commitment in the court of appropriate jurisdiction in the
state in which the Principal Office is located or the state of the Delinquent
Member's address as reflected in the Operating Agreement. Each Member expressly
agrees to the jurisdiction of such courts but only for the enforcement of
Commitments. The Members who are not delinquent may elect to contribute the
delinquent portion of the Commitment in proportion to such Members' Sharing
Ratios. The Contributing Members, at their sole option (with said option to be
determined by each of the Contributing Members at the time the Commitment is
agreed to), shall be entitled to:
(a) Treat the amounts contributed pursuant to this section
as a loan from the Contributing Members bearing interest at the
Default Interest Rate secured by the Delinquent Member's interest in
the Company. Until they are fully repaid the Contributing Members
shall be entitled to all Distributions to which the Delinquent Member
would have been entitled; or
(b) Have the Sharing Ratios adjusted to reflect the amounts
paid in by the Contributing Members. Each Contributing Member's
Sharing Ratio shall be increased by adding to it a Sharing Ratio
adjustment (expressed as a percentage) the numerator of which is the
amount of the delinquent contribution made by such Member and the
denominator is the total of all Capital Accounts after giving effect
to all contributions and Commitments, including any delinquent
commitments. The Delinquent Member's Sharing Ratio shall be decreased
by subtracting from it all Sharing Ratio adjustments made to
Contributing Members' Sharing Ratios.
Notwithstanding the foregoing, no Commitment or other obligation to make an
additional contribution may be enforced by a creditor of the Company or other
Person other than the Company unless the Member expressly consents to such
enforcement or to the assignment of the obligation to such creditor.
8.4 MAINTENANCE OF CAPITAL ACCOUNTS - The Company shall establish
and maintain Capital Accounts for each Member and Assignee. Each Member's
Capital Account shall be increased by (1) the amount of any Money actually
contributed by the Member to the capital of the Company, (2) the fair market
value of any Property contributed, as determined by the Company and the
contributing Member at arm's length at the time of contribution (net of
liabilities assumed by the Company or subject to which the company takes such
Property, within the meaning of Section 752 of the Code), and (3) the Member's
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share of Net Profits and of any separately allocated items of income or gain
except adjustments provided by the Code pursuant to Section 704(c) and the
Regulations thereunder, to prevent the shifting of tax consequences among
partners with respect to precontribution gain or loss (including any gain and
income from unrealized income with respect to accounts receivable allocated to
the Member to reflect the difference between the book value and tax basis of
assets contributed by the Member). Each Member's Capital Account shall be
decreased by (1) the amount of any Money distributed to the Member by the
Company, (2) the fair market value of any Property distributed to the Member,
as determined by the Company and said Member at arm's length at the time of
Distribution (net of liabilities of the Company assumed by the Member or
subject to which the Member takes such Property within the meaning of Section
752 of the Code), and (3) the Member's share of Net Losses and of any
separately allocated items of deduction or loss (including any loss or
deduction allocated to the Member to reflect the difference between the book
value and tax basis of assets contributed by the Member).
8.5 DISTRIBUTION OF ASSETS - If the Company at any time
distributes any of its assets in-kind to any Member, the Capital Account of
each Member shall be adjusted to account for each Member's allocable share (as
determined under Article 9 below) of the Net Profits or Net Losses that would
have been realized by the Company had it sold the assets that were distributed
at their respective fair market values immediately prior to their distribution.
8.6 SALE OR EXCHANGE OF INTEREST - In the event of a sale or
exchange of some or all of a Member's interest in the Company, the Capital
Account of the transferring Member shall become the Capital Account of the
Assignee, to the extent it relates to the portion of the interest transferred.
8.7 COMPLIANCE WITH SECTION 704(B) OF THE CODE - The provisions of
this Article 8 as they relate to the maintenance of Capital Accounts are
intended, and shall be construed, and, if necessary, modified to cause the
allocations of profits, losses, income, gain and credit pursuant to Article 9
to have substantial economic effect under the Regulations promulgated under
Section 704(b) of the Code, in light of the distributions made pursuant to
Articles 9 and 14 and the Capital Contributions made pursuant to this Article
8. Notwithstanding anything herein to the contrary, this Operating Agreement
shall not be construed as creating a deficit restoration obligation or
otherwise personally obligate any Member to make a Capital Contribution in
excess of the Initial Contribution or any additional Commitments duly
authorized under Section 8.2.
ARTICLE 9
ALLOCATIONS AND DISTRIBUTIONS
9.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES FROM OPERATIONS -
Except as may be required by section 704(c) of the Code net profits, net
losses, and other items of income, gain, loss, deduction and credit shall be
apportioned among the Members in proportion to their Sharing Ratios.
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9.2 INTERIM DISTRIBUTIONS - From time to time, the Majority of the
Members may determine in their reasonable judgment to what extent, if any, the
Company's Money on hand exceeds the current and anticipated needs, including,
without limitation, needs for operating expenses, debt service, capital
expenditures, acquisitions, reserves, and Mandatory Distributions, if any. To
the extent such excess exists, at the direction of the Members the Managers may
make Distributions to the Members in accordance with their Sharing Ratios. Such
Distributions shall be in Money or Property (which need not be distributed
proportionately) or partly in both, as determined by the Members.
9.3 LIMITATIONS ON DISTRIBUTIONS - No Distribution shall be
declared and paid unless, after the Distribution is made (a) the assets of the
Company are in excess of all liabilities of the Company, except liabilities to
Members on account of their Capital Accounts and liabilities to Members holding
preferential rights upon Dissolution and (b) the Company would be able to pay
its debts as they become due in the ordinary course of business.
ARTICLE 10
TAXES
10.1 ELECTIONS - The Managers may make any tax elections for the
Company allowed under the Code or the tax laws of any state or other
jurisdiction having taxing jurisdiction over the Company.
10.2 TAXES OF TAXING JURISDICTIONS - To the extent that the laws of
any Taxing Jurisdiction require, each Member and Assignee (or such Members as
may be required by the Taxing Jurisdiction) will submit an agreement indicating
that the Member will make timely income tax payments to the Taxing Jurisdiction
and that the Member accepts personal jurisdiction of the Taxing Jurisdiction
with regard to the collection of income taxes attributable to the Member's
income, and interest, and penalties assessed on such income. If the Member
fails to provide such agreement, the Company may withhold and pay over to such
Taxing Jurisdiction the amount of tax, penalty and interest determined under
the laws of the Taxing Jurisdiction with respect to such income. Any such
payments with respect to the income of a Member shall be treated as a
distribution for purposes of Article 9.
The Managers may, where permitted by the rules of any Taxing
Jurisdiction, file a composite, combined or aggregate tax return reflecting the
income of the Company and pay the tax, interest and penalties of some or all of
the Members on such income to the Taxing Jurisdiction, in which case the
Company shall inform the Members of the amount of such tax, interest and
penalties so paid.
10.3 TAX MATTERS PARTNER - Parker Drilling Investment Company is
designated as the tax matters partner of the Company pursuant to Section 623
1(a)(7) of the Code. The tax matters partner shall take such action as may be
necessary to cause each other Member to become a notice partner within the
meaning of Section 6223 of the Code. Any Member who
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is designated tax matter partner may not take any action contemplated by
sections 6222 through 6232 of the Code without the consent of the Majority of
the Managers.
10.4 ACCRUAL METHOD OF ACCOUNTING - The records of the Company
shall be maintained on an accrual method of accounting.
ARTICLE II
DISPOSITION OF MEMBERSHIP INTERESTS
11.1 DISPOSITION - Subject to the provisions of section 11.3 below,
any Member or Assignee may dispose of all or a portion of the Member's or
Assignee's Membership Interest upon compliance with this Section 11.1. No
Membership Interest shall be Disposed of:
(a) unless the transfer of such interest is agreed to by a
Majority of the Members;
(b) if such disposition, alone or when combined with
other transactions, would result in a termination of the Company
within the meaning of Section 708 of the Code;
(c) without an opinion of counsel, provided by the Member
seeking to transfer its interest, satisfactory to the non-transferring
Members that such Disposition is subject to an effective registration
under, or exempt from the registration requirements of, the applicable
state and federal securities laws;
(d) without an opinion of counsel, provided by the Member
seeking to transfer its interest, satisfactory to the non-transferring
Members that such Disposition would not affect the qualification of
the Company as a limited liability company under the Act;
(e) without an opinion of counsel, provided by the Member
seeking to transfer its interest, satisfactory to the non-transferring
Members that such Disposition would not affect the classification of
the Company as a partnership for federal income tax purposes; and
(f) unless and until the Company receives from the
Assignee the information and agreements that the Managers may
reasonably require, including but not limited to, the granting of a
right of first refusal consistent with section 11.3 below, any
taxpayer identification number and any agreement that may be required
by any Taxing Jurisdiction.
11.2 DISPOSITIONS NOT IN COMPLIANCE OR WITH THIS ARTICLE VOID. Any
attempted Disposition of a Membership Interest, or any part thereof, not in
compliance with Section 11.1 shall be, and is declared to be, null and void.
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11.3 RIGHT OF FIRST REFUSAL - The Members (and any Assignees)
hereby grant unto each other (or their Affiliates) a right of first refusal
(which may be exercised at any time within sixty (60) days after receipt of
Notice of a proposed sale and of the price, terms and conditions of sale and
the identity of the proposed purchaser) to purchase a selling Member's
Membership Interest on the same terms, conditions and considerations upon which
the selling Member plans to sell its Membership Interest to a good faith third
party prospective purchaser in proportion to the Sharing Ratios (determined at
the time Notice is sent) of the non-selling Members. If one or more of the
non-selling Members elects not to exercise its right hereunder, the remaining
non-selling Members shall have the right to exercise such right of first
refusal in proportion to their Sharing Ratios. No right of first refusal shall
apply to any sale or transfer of any Membership Interest to a related Person,
as described in Section 1.752-4(b) of the Regulations or to another Member.
ARTICLE 12
DISSOCIATION OF A MEMBER
12.1 DISSOCIATION - A Person shall cease to be a Member upon the
happening of any of the following events:
(a) the resignation of the Member;
(b) the Member makes an assignment for the benefit of
creditors; files a voluntary petition in bankruptcy; is adjudicated as
bankrupt or insolvent; files a petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation; files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature; or seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Member or of
all or any substantial part of its properties;
(c) after one hundred and twenty (120) days from the
commencement of any proceeding against the Member seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law or regulation,
the proceeding has not been dismissed, or if within ninety (90) days
after the appointment without its consent or acquiescence of a
trustee, receiver or liquidator of the member or of all or any
substantial part of its properties, the appointment is not vacated or
stayed or within ninety (90) days after the expiration of any stay,
the appointment is not vacated;
(d) in the case of a Member who is a natural person, the
death of the Member or the entry of an order by a court of competent
jurisdiction adjudicating The Member incompetent to manage the
Member's person or his estate;
(e) in the case of a Member who is acting as a Member by
virtue of being
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a trustee of a trust, the termination of the trust (but not merely the
substitution of new trustee);
(f) in the case of a Member that is a separate limited
liability corporation, the dissolution and commencement of winding up
of the separate limited company;
(g) in the case of a Member that is a corporation, the
filing of a certificate of dissolution, or its equivalent, for the
corporation or the revocation of its charter and the lapse of ninety
(90) days after notice to the corporation of revocation without a
reinstatement of its charter; or
(h) in the case of an estate, the distribution by the
fiduciary of the estate's entire interest in the Company.
12.2 RIGHTS UPON DISSOCIATION OF A MEMBER
(a) The Dissociation of a Member shall not entitle said
Member to receive the fair market value of the Member's interest in
the Company as permitted under Section 2027 of the Act.
(b) Upon the occurrence of an event of Dissociation as
defined in section 12.1, after which the Company is continued, the
Members which are not dissociated may elect, within thirty (30) days
of the decision to continue the Company, to purchase the Membership
Interest in the Company of the Member who was dissociated, upon such
terms and conditions as the Members which are not dissociated and the
Member who was dissociated (or its legal representative) may agree. In
the event that no such agreement can be reached, all or part of the
Members which have not dissociated shall have an option, to be
exercised within ninety (90) days after the occurrence of the event of
Dissociation, to purchase the Membership Interest of the Member who
was dissociated for a Money purchase price equal to the value of the
Capital Account of the dissociated Member as of the end of the
calendar month preceding the occurrence of the event of Dissociation,
adjusted as if all Company Property was sold at fair market value and
all liabilities of the Company were paid and the Company was
liquidated in accordance with Article 14. The right to purchase shall
be exercised in proportion to the Sharing Ratios of the Members which
have not dissociated. If one or more of the Members which have not
dissociated elects not to exercise its right hereunder, the other
Members may exercise such right in proportion to their Sharing Ratios.
The rights under this section shall be exercised by giving Notice to
the dissociated Member or its legal representative.
(c) In the event that Parker voluntarily resigns from the
Company prior to January 1, 1997, Parker agrees that it shall not use,
market, sell or sell the services
24
<PAGE> 31
of NFE's Soil Remediation System and proprietary processes for a
period five (5) years from such resignation.
ARTICLE 13
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS
13.1 RIGHTS OF ASSIGNEES. Subject to Article 11, a Member may
assign its Membership Interest in the Company without the consent of the other
Members. A Member may not assign its Management Right without the consent of
all of the other Members. The Assignee of a Membership Interest shall have no
Management Rights, no right to participate in the business and affairs of the
Company and no right to become a Member. The Assignee shall only be entitled to
receive the Distributions and return of capital, and to be allocated the Net
Profits and Net Losses attributable to the Membership Interest.
13.2 ADMISSION OF SUBSTITUTE MEMBERS - Upon the vote of all of the
non-assigning Members, an Assignee of a Membership Interest may be admitted as
a Substitute Member and admitted to all the rights of the Member who initially
assigned the Membership Interest. The non-assigning Members may grant or
withhold the approval of such admission for any reason in their sole and
absolute discretion. If so admitted, the Substitute Member shall have all the
rights and powers and shall be subject to all the restrictions and liabilities
(including all terms of the Operating Agreement) of the Member originally
owning the Membership Interest. Further, at the sole discretion of the
non-assigning Members, the Substitute Member shall be required to make all of
the warranties and representations required of a Member under the Operating
Agreement. The admission of a Substitute Member, without more, shall not
release the Member originally assigning the Membership Interest from any
liability to the Company that may have existed prior to the approval.
13.3 ADMISSION OF ADDITIONAL MEMBERS - The Members, by unanimous
vote, may permit the admission of Additional Members and determine the Capital
Contributions of such Members. Additional Members may be required to enter into
an Admission Agreement with the Company setting forth the terms of the
admission to membership, the Capital Contribution to be made by the Additional
Member and the agreed value of any property to be contributed to the Company by
the Additional Member.
ARTICLE 14
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION - The Company shall be dissolved and its affairs
wound up, upon the first to occur of the following events:
(a) the expiration of the Term;
(b) the unanimous written consent of all of the Members;
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<PAGE> 32
(c) the Dissociation of any Member unless the business of the
Company is continued with the consent of all of the remaining Members,
and there is more than one remaining Member:
14.2 EFFECT OF DISSOLUTION - Upon dissolution, the Company shall
cease carrying on business and the Managers shall wind up the Company's
business. The Company shall not be terminated, but shall continue in existence
until the winding up of the affairs of the Company is completed and a
Certificate of Dissolution has be issued by the Secretary of State of the State
of Oklahoma.
(a) The Managers will prepare an accounting with respect
to all Company accounts and the Capital Account of each Member and
Assignee and with respect to the Company's assets and liabilities and
its operations from the date of the last previous financial statements
and/or tax return of the Company to the date of Dissolution.
(b) Except as limited in subsection 14.2(c) below, to the
extent required to pay debts or make an orderly distribution of
assets, the Managers, at their discretion, may sell any Property of
the Company for Money.
(c) Except as necessary to pay the debts of the Company,
the intellectual property (which shall include, patents, copyrights,
trademarks, technology and other similar rights and/or personal
property) of the Company, excluding the intellectual property
initially brought to this Operating Agreement and licensed to the
Company as indicated in Section 3.2, and subject to the rights defined
in Section 3.4, shall not be sold. Upon Dissolution, the Members shall
negotiate an equitable division of the Company's intellectual property
as defined and conditioned in the aforementioned Section 3.2 and
Section 3.4.
(d) Any Member or other Person which receives or
purchases a Unit as part of the Distribution of assets on dissolution
of the Company shall also be receive a sublicense of the license
described in Section 3.2. The sublicense shall be granted by the
Company prior to Dissolution and shall survive the Dissolution of the
Company. Such sublicense shall be nontransferable and without the
right to grant further sublicenses. The sublicense shall terminate at
the end of the useful life of the Unit received as part of the
Distribution of assets on dissolution of the Company.
14.3 DISTRIBUTION OR ASSETS ON DISSOLUTION - Upon the winding up of
the Company, the Company Property shall be distributed:
(a) to creditors, including Members who are creditors, to
the extent permitted by law, in satisfaction of Company Liabilities;
(b) to Members in accordance with positive Capital
Account balances
26
<PAGE> 33
taking into account all Capital Account adjustments for the Company's
taxable year in which the liquidation occurs. Liquidation proceeds
shall be paid within sixty (60) days of the end of the Company's
taxable year or, if later, within ninety (90) days after the date of
liquidation. Such distributions shall be in Money or Property (which
need not be distributed proportionately) or partly in both, as
determined by the Managers.
14.4 WINDING UP AND CERTIFICATE OR DISSOLUTION - The winding up of
the Company shall be completed when all debts, liabilities, and obligations of
the company have been paid and discharged or reasonably adequate provision
therefor has been made, and all of the remaining Property and assets of the
Company have been distributed to the Members. Upon the completion of winding up
of the Company, a certificate of dissolution shall be delivered to the
Secretary of State for filing. The certificate of dissolution shall set forth
the information required by the Act.
ARTICLE 15
INDEMNIFICATION
15.1 RIGHT to INDEMNIFICATION - To the maximum extent permitted by
law, the Company shall indemnify and hold harmless all Members and Managers,
their respective Affiliates, and the employees and agents of the Company (each
an "Indemnified Party") from and against any and all losses, claims, demands,
costs, damages, liabilities, expenses (including reasonable attorneys' fees),
judgments, fines, settlements, penalties and other expenses actually and
reasonably incurred by an Indemnified Party in connection with any and all
claims, demands, actions, suits or Proceedings, whether civil, criminal,
administrative or investigative in which the Indemnified Party may be involved
or threatened to be involved, as a party or otherwise, arising out of or
incidental to the business of the Company or by reason of the fact that the
Indemnified Party is or was a Member, Manager, agent, employee or an Affiliate
of a Member. Provided, however, the Indemnified Party shall only be entitled to
indemnification if (a) the Indemnified Party's conduct did not constitute
willful misconduct or gross negligence; (b) the action is not based on breach
of this Operating Agreement; (c) the Indemnified Party acted in good faith and
in a manner such Person reasonably believed to be in or not opposed to the best
interests of the Company and within the Indemnified Party's authority; (d) the
conduct of the Indemnified Party was not a conflict of interest as defined by
section 6.4 of the Operating Agreement; and (e) with respect to a criminal
action or proceeding, the Indemnified Party had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, in and of itself, create a presumption or otherwise
constitute evidence that the Indemnified Party acted in a manner which would
void this indemnification right. The indemnification rights and obligations of
this section shall apply in the event of the negligence, either sole or
concurrent, active or passive, of the Indemnified Party, if not otherwise
prohibited or voided by this section.
27
<PAGE> 34
15.2 ADVANCEMENT OR EXPENSES - Expenses incurred by an Indemnified
Party in defending any claim, demand, action, suit or Proceeding pursuant to
section 15.1 may, from time to time, be advanced by the Company upon a vote of
a Majority of the Members, prior to final disposition of such claim, demand,
action, suit or Proceeding upon receipt by the Company of an undertaking by or
on.behalf of the Indemnified Party to repay such amount if it shall ultimately
be determined that such party is not entitled to be indemnified as authorized
in section 15.1.
15.3 NON-EXCLUSIVITY - The indemnification provided by section 15.1
shall be in addition to any other rights to which an Indemnified Party may be
entitled under any agreement, vote of the Members, as a matter of law or
equity, or otherwise and shall inure to the benefit of the successors,
assignees, heirs, personal representatives and administrators of the
Indemnified Party.
15.4 INSURANCE - The Company may, but shall not be obligated to,
purchase and maintain reasonable and customary insurance, at the Company's
expense, on behalf of the Company and any Indemnified Party against any
liability that may be asserted against or expense that may be incurred by an
Indemnified Party in connection with the business of the Company regardless of
whether the Company would have the power to indemnify such Indemnified Party
against such liability under the provisions of this Operating Agreement or the
Act.
ARTICLE 16
AMENDMENT
16.1 OPERATING AGREEMENT MAY BE MODIFIED - The Operating Agreement
may be modified as provided in this Article 16 (as the same may, from time to
time be amended). No Member or Manager shall have any vested rights in the
Operating Agreement which may not be modified through an amendment to the
Operating Agreement.
16.2 AMENDMENT OR MODIFICATION OF OPERATING AGREEMENT - The
Operating Agreement may be amended or modified from time to time only by a
written instrument adopted and executed by all of the Members.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 ENTIRE AGREEMENT - The Operating Agreement represents the
entire agreement among all the Members and between the Members and the Company.
17.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES - The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under either the Oklahoma Uniform Partnership Act nor the Oklahoma
Uniform Limited Partnership Act. The Members do not intended be partners one to
another, or partners as
28
<PAGE> 35
to any third party. To the extent any Member, by word or action, represents to
another person that any other Member is a partner or that the Company is a
partnership, the Member making such wrongful representation shall be liable to
any other Member who incurs personal liability by reason of such wrongful
representation.
17.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER OPERATING
AGREEMENT - The Operating Agreement is entered into among the Company and the
Members for the exclusive benefit of the Company, its Members, and their
successors and assignees. The Operating Agreement is expressly not intended
for the benefit of any creditor of the Company or any other Person. Except and
only to the extent provided by applicable statute, no such creditor or third
party shall have any rights under the Operating Agreement, Admission Agreement
or any agreement between the Company and any Member with respect to any Capital
Contribution or otherwise.
17.4 GOVERNING LAW - This Contract shall be construed, governed
interpreted, enforced and litigated, and the relations between the parties
determined in accordance with the laws of the State of Oklahoma.
17.5 MULTIPLE COUNTERPARTS - This Operating Agreement may be
executed in several counterparts, each of which shall be an original, and all
of which, when taken together, shall constitute but one and the same agreement.
17.6 NO WAIVER - No Waiver by any party of any default by any other
party in the performance of any provision, condition or requirement herein
shall be deemed to be a waiver of, or in any manner release the other party
from, performance of any other provision, condition or requirement herein, nor
deemed to be a waiver of, or in any manner release the other party from, future
performance of the same provision, condition or requirement; nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right or any like right accruing to it
thereafter.
17.7 SEVERABILITY - in the event any provision of this Operating
Agreement should be deemed inconsistent with or contrary to any federal, state
or municipal law, rule or regulation, said provision shall be deemed modified
to the least extent necessary to be valid or, if not possible, deleted and this
Operating Agreement shall continue in full force and effect without affecting
the enforceability of the remaining provisions, duties and liabilities set
forth herein.
SPACE INTENTIONALLY LEFT BLANK
29
<PAGE> 36
IN WITNESS WHEREOF, we have hereunto set our hand and seals on the
date set forth beside out names.
INITIAL MEMBERS:
NATIONAL FUELS AND ENERGY, INC.
/s/ LEIF ERICKSON
- --------------------------
Name: Leif Erickson
Title:President
Date: August 1, 1995
PARKER DRILLING INVESTMENT COMPANY
/s/ THOMAS L. WINGERTER
- -----------------------------
Name: Thomas L. Wingerter
Title:President
Date: August 1, 1995
30
<PAGE> 37
CORPORATE ACKNOWLEDGMENT
THE STATE OF UTAH )
)
COUNTY OF UTAH )
BEFORE ME, the undersigned authority, on this day personally appeared
Leif Erickson, known to me to be the person whose name is subscribed to the
foregoing instrument, as President of National Fuels and Energy, Inc., a
corporation, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed in the capacity stated, and as the act and
deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 1st day of August, 1995.
/s/ WAYNE M. ROWLEY
------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF UTAH
(LS.)
My Commission Expires:
6-23-99
- ---------
CORPORATE ACKNOWLEDGMENT
THE STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
BEFORE ME, THE undersigned authority, on this day personally appeared Thomas L
Wingerter known to me to be the person whose name is subscribed to the
foregoing instrument, as President of Parker Drilling Investment Company, a
corporation, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity stated, and as the act and
deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 1st day of August, 1995.
/s/ GLENDA J. PARKER
------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF OKLAHOMA
(L.S.)
- --------------
My Commission Expires:
9-9-97
- ------------
31
<PAGE> 38
EXHIBIT A
Argentina
China
Columbia
Indonesia
Kazakhstan
New Zealand
Pakistan
Papua New Guinea
Peru
Philippines
Russia
32
<PAGE> 39
FIRST AMENDMENT TO THE
OPERATING AGREEMENT OF ONSITE TECHNOLOGY L.L.C.
(An Oklahoma Limited Liability Company)
This First Amendment to the Operating Agreement of OnSite Technology
L.L.C., an Oklahoma limited liability company is entered into this 31st day of
January, 1996 by and among the Company and the Persons executing this Amendment
as Members.
WHEREAS the Company and the Members entered into the Operating
Agreement effective August 1, 1995; and
WHEREAS the Company and the Members desire to amend the Operating
Agreement; and
WHEREAS the parties have to date each contributed substantial cash,
property and/or services to and for the benefit of the Company; and
WHEREAS the parties have to date contributed equally to the Capital
Accounts of the Company with each Member hereto having a 50% Sharing Ratio and
owning 50% of the total of all Capital Accounts of the Company; and
WHEREAS no Member is currently a Delinquent Member; and
WHEREAS upon full execution of this document and the making of the
contributions reflected on Exhibit A hereto each Member will have a 50% Sharing
Ratio and own 50% of the total of all Capital Accounts of the Company; and
WHEREAS upon full execution of this document there will be no further
monetary obligations owed by the Members with respect to the manufacture of the
Company's first remediation unit, except the additional capital contributions
to the Company described in Exhibit A hereto; and
WHEREAS it is the intent of the Members, except as may otherwise be
provided in the Operating Agreement, as amended, that all costs or expenditures
incurred in the manufacture, use, and practice of NFE's Soil Remediation
System(s) including, but not limited to, the Company's second remediation unit
being manufactured, shall be borne by the Company, and any costs and
expenditures incurred by a Member on the Company's behalf shall be reimbursed
by the Company (this shall not include the costs of development of any
intellectual property or invention that is solely owned by one Member);
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants and premises herein contained, the parties hereto agree as follows:
1
<PAGE> 40
I.
The following paragraph shall be added at the end of section 3.1:
"The Members agree that during the Term of the Operating Agreement, the Company
will use its best efforts to manufacture and market indirect thermal
descorption units utilizing NFE's Soil Remediation System(s) and will exert its
best efforts to create a world-wide demand for the units and the Company's
services and to increase and extend its business in the manufacture, use and
marketing of indirect thermal descorption units utilizing NFE's Soil
Remediation System(s)."
II.
Section 3.2 and Exhibit A are deleted in their entireties, and replaced with
the following:
3.2 LICENSE - National Fuel & Energy, Inc. ("NFE") does hereby
grant to the Company, for the purpose of this Operating Agreement, a
non-royalty bearing, exclusive, world-wide license to manufacture and have
manufactured, to use and have used and to practice and have practiced NFE's
Soil Remediation System(s) using indirect thermal descorption, associated
proprietary processes, equipment, patents and future inventions and
improvements thereto for use in the reclamation of hydrocarbons (hereinafter
referred to sometimes as "NFE's Soil Remediation System(s)"). NFE does not
retain the right to practice the licensed technology while it is a Member of
the Company. The Company shall have the right to grant sublicenses as it deems
necessary and/or beneficial. Except as specifically provided in Section 14.2(d)
of this Operating Agreement, the license granted hereunder may not be assigned
without the consent of NFE. Except as may otherwise be provided herein
(specifically, but not limited to, Section 14.2(d)), the term of the license to
NFE's Soil Remediation System(s) granted herein shall end at the end of the
Term of the Operating Agreement. Upon completion of the winding up of the
affairs of the Company and the issuance of a Certificate of Dissolution by the
Secretary of State of the State of Oklahoma, the license granted herein shall
be modified, terminated or extended per the terms of section 14.2(d) of this
Agreement.
Notwithstanding anything that may be contained in this Operating
Agreement to the contrary, it is understood and agreed that if for any reason
whatsoever NFE ceases to be a Member of the Company, whether by Dissociation
or otherwise, NFE shall have the right to manufacture and have manufactured, to
use and have used and to practice and have practiced NFE's Soil Remediation
System(s), as licensed pursuant to this Section 3.2, and no Member or the
Company shall take any action to attempt to interfere with such right of NFE in
the foregoing described circumstances."
2
<PAGE> 41
III.
The following paragraph shall be added at the end of section 3.3:
"For so long as the Members agree, Parker shall provide reasonable
administrative services in die following areas: purchasing, expediting,
transportation, safety, insurance, investment banking and finance and support
and contacts, tax support, and legal (no litigation services provided). The
obligation of Parker to provide such reasonable administrative services shall
not require Parker to hire additional personnel or pay for outside consultants
or incur significant out-of-pocket costs payable to unaffiliated companies."
IV.
Section 3.4 shall be deleted in its entirety and replaced with the following:
"3.4 INVENTIONS - The parties agree that any inventions (either patentable
or non-patentable), software, patentable work or copyrightable work
(collectively "inventions") which (i) improve, modify, or alter NFE's Soil
Remediation System as in existence on the execution date of this Operating
Agreement and/or (ii) which deliver soil to or remove soil from the system
(this shall not include Parker's or its Affiliates' drilling rigs) made by
Parker and/or NFE, either singly or jointly, under this Operating Agreement
shall be the property of NFE, the Company and Parker, jointly. Each invention
shall be identified in writing with copies to the Company, Parker and NFE. The
cost of filing and pursuing any joint patents shall be paid by the Company. The
owner(s) of any invention made hereunder shall grant to the Company a license
equal in scope to the license granted under Section 3.2 hereunder and shall
further grant such licenses as required by Section 14.2(d) hereunder. Except as
otherwise provided in this Section 3.4, all inventions of NFE, shall remain the
property of NFE, including but not limited to NFE's Soil Remediation System and
any other inventions licensed hereunder to the Company by NFE. Except as
otherwise provided in this Section 3.4, all inventions of Parker, shall remain
the property of Parker.
During the term of this Agreement, no party shall assign, sell or
transfer its interest in any invention without the express written consent of
the other Members.
For purposes of this section and section 14.2 an invention, software,
patentable work or copyrightable work is made under this Operating Agreement if
it is either conceived or reduced to practice during work under the Operating
Agreement. For purposes of this section "inventions" shall mean any discovery,
concept, or idea, whether or not patentable, made during the term of and while
performing work under this Operating Agreement including but not limited to
processes, methods, software, formulas and techniques, improvements thereof,
and know-how relating thereto."
3
<PAGE> 42
V.
Section 6.4 shall be deleted in its entirety and replaced with the following:
"6.4 CONFLICTS OF INTEREST
(a) No Member shall engage in the soil remediation business using
indirect thermal description without the express written permission of all
other Members. Parker specifically acknowledges that NFE intends to continue to
pursue the soil remediation business other than by use of indirect thermal
desorption and that NFE at times and at its sole discretion may use the
services of the NFE employees also named as representatives and Managers of the
Company in these endeavors. Parker specifically acknowledges that the pursuit
and accomplishment of this soil remediation business is not a conflict of
interest with this Operating Agreement. NFE shall have the right to pursue on
its own outside the Company any and all business opportunities that are brought
to the Company by the efforts of the Company, its Members, Managers, employees,
agents or otherwise, provided that (i) such business opportunities do not
involve indirect thermal description and (ii) a decision has been made by the
Managers of the Company not to pursue the opportunity. Parker shall have the
right to pursue on its own outside the Company any and all business
opportunities that are brought to the Company by the efforts of the Company,
its Members, Managers, employees, agents or otherwise, provided that (i) such
business opportunities do not involve indirect thermal description and (ii) a
decision has been made by the Managers of the Company not to pursue the
opportunity.
(b) A Member (or the Member's Affiliates) or a Manager does not
violate a duty or obligation to the Company merely because the Member's or
Manager's conduct furthers said Member's or Manager's own interest. A Member or
Manager may lend money to and transact other business with the Company. The
rights and obligations of a Member or Manager who lends money to or transacts
business with the Company are the same as those of a person who is not a Member
or Manager, subject to other applicable law. No transaction with the Company
shall be voidable solely because a Member or Manager has a direct or indirect
interest in the transaction if the transaction is fair to the Company and a
Majority of the Members not having a conflict, knowing the material facts of
the transaction and the Member's or Manager's interest, authorize, approve, or
ratify the transaction."
VI.
Section 6.6(c) is deleted in its entirety. Section 6.60(d) is renumbered
6.6(c).
VII.
Section 8.2 is deleted in its entirety- and replaced with the following:
4
<PAGE> 43
"8.2 ADDITIONAL COMMITMENTS - For the purpose of financing the
Company's first remediation unit, the parties -agree to make further Capital
Contributions as noted on Exhibit A hereto, if they have not already done so.
In addition to the Initial Capital Contributions and Commitments and the
further Capital Contributions noted on Exhibit A, a Majority of the Members may
determine from time to time that additional Capital Contributions are needed to
enable the Company to conduct its business. Upon the vote of a Majority of the
Members, the additional Capital Contributions shall become Commitments of the
Members in proportion to their Sharing Ratios. Upon the making of such a
determination by the Members, the Managers shall give Notice to all Members in
writing at least ten Business Days prior to the date on which such contribution
is due. Such Notice shall set forth the amount of additional contribution
needed, the purpose for which die contribution is needed, and the date by which
the Members should contribute."
VIII.
Subsection 14.2(c) is deleted in its entirety and replaced with the following:
"(c) Except as necessary to pay the debts of the Company, the
intellectual property (which shall include patents, copyrights, trademarks,
technology and other similar rights and or personal property) of the Company
shall not be sold. Upon Dissolution, the Members shall negotiate an equitable
division of the Company's intellectual property."
IX.
Subsection 14.2(d) is deleted in its entirety and replaced with the following:
"(d) Upon Dissolution of the Company the license granted in Section
3.2 shall become nonexclusive and nontransferable, with no right to grant
sublicenses, and shall be assigned to each Member for so long as said Member
owns an indirect thermal desorption unit formerly owned by the Company. Such
license shall only be applicable to the use of the unit(s) received upon
liquidation of the Company. Members will grant any cross licenses necessary for
the use of said units. Further, any Member, except those Members which caused
the Dissolution by an act of Dissociation, shall be entitled to receive from
NFE or its successor in interest, a royalty bearing, nonexclusive,
nontransferable license, with no right to grant sublicenses, of identical scope
to the license granted in Section 3.2 hereof on commercially reasonable terms.
Upon Dissolution of the Company, each Member shall have the right to use any
invention in which it owns a joint interest pursuant to Section 3.4 without
payment of a license fee or royalty due to any other joint owner of such
invention. Upon dissolution any joint owner shall have the right to assign,
sell or transfer its interest in such inventions and to grant licenses and
sublicenses; in such inventions upon commercially reasonable terms. Any
royalties or license fees due under any such licenses and/or sublicenses shall
be shared pro rata between the joint owners of such licensed or sublicensed
inventions. The right of any joint owner to assign or transfer
5
<PAGE> 44
its interest in any invention shall be subject to a right of first refusal held
by any other joint owners of such invention. The joint owners of any inventions
hereby grant unto each other a right of first refusal (which may be exercised
at any time within thirty (30) days after receipt of Notice of a proposed sale,
assignment or transfer of any invention and of the price, terms and conditions
of sale and the identity of the proposed purchaser, assignee or transferee) to
purchase a selling joint owner's interest in any invention on the same terms,
conditions and considerations upon which the selling joint owner plans to sell
its interest in any invention to a good faith third party prospective
purchaser. If one or more of the non-selling joint owners of any invention
elects not to exercise its right hereunder, the remaining non-selling joint
owners shall have the right to exercise such right of first refusal pro rata.
No right of first refusal shall apply to any sale or transfer to a related
Person, as described in Section 1.752-4(b) of the Regulations or to another
joint owner of such invention. This subsection shall survive the termination
of this Operating Agreement.
X
The following paragraph shall be added as a new Section 17.8:
"17.8 FURTHER ASSURANCES - The Members hereby agree that from time
to time as and when reasonably requested by a Member or the Company, any Member
so requested shall execute and deliver, or cause to be executed and delivered,
such documents and instruments, including, but not limited to, bills of sale,
and shall take, or cause to be taken, such further or other action as may be
reasonably necessary to effectuate the intent of this Operating Agreement, as
amended, and to transfer, assign and deliver to the Company, or to the other
Member, as the case may be, or their permitted assigns, any personal, real,
intellectual or other property rights or interests belonging to the Company or
such Member, or their permitted assigns, and to consummate and to effect the
other transactions expressly required to be performed by Members hereunder.
Without limiting the intent of the foregoing sentence, the Members shall
execute and deliver, or cause to be executed and delivered, free and clear of
all liens and encumbrances, a bill(s) of sale granting, selling, quitclaiming
and conveying to the Company all of the Members' rights, title and interests in
and to the Company's first remediation unit."
XI
The following PARAGRAPH shall be added as a new Section 17.9:
"17.9 CONFIDENTIALITY - The Members anticipate that under this
Operating Agreement it may be necessary for one Member to transfer or disclose
to another or the Company information of a proprietary, technical or
confidential business nature. Confidential information, which may include
formulae, processes, trade secrets and know-how, to the extent possible, will be
clearly identified by the disclosing Member as
6
<PAGE> 45
proprietary at the time of disclosure and is hereinafter called "Proprietary
Information." Proprietary Information communicated by either Member may be
either technical or business in nature. Each Member agrees that it will use
the same reasonable efforts to protect Proprietary Information as are used to
protect its own proprietary or confidential information. The limitations on
reproduction or disclosure of Proprietary Information shall not apply to, and
neither Member shall be liable for reproduction or disclosure of Proprietary
Information with respect to which any of the following conditions exist: (i)
If, prior to the receipt thereof under this Operating Agreement, it has been
developed independently by the Member receiving it provided such development is
not due to a breach of this Operating Agreement or any other agreement, or has
been lawfully received from other sources, provided such other source did not
receive it due to a breach of this Operating Agreement or any other agreement;
(ii) If, subsequent to the receipt thereof under this Operating Agreement, it
is published by the Member furnishing it or is disclosed by the Member
furnishing it to others without restriction; or it has been lawfully obtained
by the Member receiving it from other sources, provided such other source did
not receive it due to a breach of this or any other Agreement; or if
Proprietary Information otherwise comes within the public knowledge or becomes
generally known to the public; or (iii) If any part of Proprietary Information
has been or hereafter shall be disclosed in a United States patent issued to
the Member furnishing Proprietary Information hereunder, after the issuance of
said patent, the limitations on Proprietary Information as are disclosed in the
patent shall be only that afforded by United States patent laws."
XII
The following paragraph shall be added as a new Section 17.10:
"17.10 PATENT INFRINGEMENT - JOINT ACTION - The Members will promptly
advise each other in writing of any infringements by third parties relating to
patent rights or other proprietary rights claimed by the Member or the Company
and any claims raised against either of them based on asserted infringements of
such rights by third parties. Any Member or the Company shall have the right to
institute action for infringement of any patent required to be licensed to the
Company or Member pursuant to this Operating Agreement. It is agreed that in
any such suit (i) the Members mutually agree to institute such suit; (ii) the
suit shall be instituted in the names of the Members possessing or entitled to
the license and the owner of the patent; and (iii) the expense of such suit or
suits shall be borne by the Company, provided there has been no Dissociation of
a Member or dissolution of the Company. In the event there has been the
Dissociation of a Member or the dissolution of the Company the cost of any suit
shall be shared equally by the plaintiffs; and the recoveries, if any, whether
by judgment, award, decree, or settlement, will be shared in the same
proportion. In the event the parties do not mutually agree to institute any
such action, either Member hereto can institute the action and join the other
as a party plaintiff in the suit if so required by law; the Member so
instituting the action will pay the entire cost of the litigation and will be
entitled to retain the entire amount of
7
<PAGE> 46
the recoveries, if any, by way of judgment, award, decree or settlement
resulting therefrom."
Except as modified and amended hereby, all terms of the Operating
Agreement are hereby ratified and confirmed.
IN WITNESS WHEREOF, we have hereunto set our hand and seals on the
date set forth beside out names.
ONSITE TECHNOLOGY L.L.C.
/s/ JAMES S. PERCELL
- --------------------------
Name: JAMES S. PERCELL
Title: President
Date: July 10, 1996
MEMBERS:
NATIONAL FUEL & ENERGY, INC.
/s/ JAMES S. PERCELL
- --------------------------
Name: James Percell
Title: President
Date: July 10, 1996
PARKER DRILLING INVESTMENT COMPANY
/s/ THOMAS L. WINGERTER
- ----------------------------
Name: Thomas L. Wingerter
Title: President
Date: July 11, 1996
8
<PAGE> 47
ACKNOWLEDGMENT
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
JAMES S. PERCELL known to me to be the person whose name is subscribed to the
foregoing instrument, as President of Onsite Technology L.L.C., a limited
liability company, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed in the capacity stated, and as the
act and deed of said limited liability company.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 10th day of July, 1996.
/s/ SANDRA VEGA
-------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
(L.S.)
My Commission Expires:
11-9-97
- ---------------
CORPORATE ACKNOWLEDGMENT
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
James Percell known to me to be the person whose name is subscribed to the
foregoing instrument, as President of National Fuel & Energy, Inc., a
corporation, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed in the capacity stated, and as the act and
deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 10th day of July, 1996.
/s/ SANDRA VEGA
-------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
(L.S.)
My Commission Expires:
11-9-97
- ---------------
9
<PAGE> 48
CORPORATE ACKNOWLEDGMENT
THE STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
BEFORE ME, the undersigned authority, on this day personally appeared Thomas L.
Wingerter known to me to be the person whose name is subscribed to the
foregoing instrument, as President of Parker Drilling Investment Company, a
corporation, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity stated, and as the act and
deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11th day of July, 1996.
/s/ LINDA CONN
--------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF OKLAHOMA
(L.S.)
- -------------
My Commission Expires:
7/18/98
- ----------------
10
<PAGE> 49
EXHIBIT A
Additional Capital Contribution
Parker Drilling Investment Company - $533,353.58 ($355,569.05 shall be credited
to Parker's capital account. $177,784.53 shall be credited to NFE's capital
account in consideration of the exclusive worldwide license granted in this
First Amendment to the Operating Agreement.) (Has already been made)
National Fuel & Energy, Inc. - $177,784.52 (Has already been made).
Upon full execution of this First Amendment to the Operating Agreement of
OnSite Technology L.L.C. and the making of the contributions reflected on this
Exhibit A each Member will have a 50% sharing Ratio and own 50% of the total of
all Capital Accounts of the Company.
11
<PAGE> 1
EXHIBIT 10.2
<TABLE>
<S> <C> <C>
ONSITE TECHNOLOGY L.L.C.
6430 Mayfair P.O. No: 6001
Houston, TX 77087 Date: 29 Aug 96
Phone: 713-641-3838 Fax: 713-641-0756 Vendor No:
SELLER: Roberds-Johnson Industries, Inc. Ship to: Hold for Pick-Up
210 Magnolia
Galena Park, TX 77547
ATTN: Mr. William A. Monteleone, Jr.
JOB NAME: SRU Units BUYER'S CONTACT: Connel Shelton/Rob Peck
JOB NO: 152 PHONE: 713-496-7378
FAX: 713-496-3320
=================================================================================================
SHIP VIA F.O.B. TERMS
- -------------------------------------------------------------------------------------------------
[ ] BEST WAY [ X ] SELLER'S FACILITY [ ] C.O.D.
[ X ] BUYER'S TRUCK [ ] BUYER'S SITE [ ] NET 30 DAYS
[ ] SEE BELOW [ ] SEE BELOW [ X ] SEE BELOW
=================================================================================================
FREIGHT SALES TAX DELIVERY DATE
- -------------------------------------------------------------------------------------------------
[ ] INCLUDED [ ] TAXABLE 11/18/96 (but see note below)
[ X ] EXCLUDED [ X ] NON-TAXABLE [ X ] EX-WORKS
[ ] PREPAY AND ADD [ ] ON-SITE
=================================================================================================
</TABLE>
IF DELIVERY CANNOT BE MADE BY SPECIFIED DELIVERY DATE, SELLER MUST NOTIFY
COMPANY IMMEDIATELY, AND COMPANY RESERVES THE RIGHT TO CANCEL THIS ORDER IN
WHOLE OR IN PART.
<TABLE>
<CAPTION>
===============================================================================================================================
ITEM QUANTITY DESCRIPTION UNIT PRICE AMOUNT
===============================================================================================================================
<S> <C> <C>
1 4 Indirect Thermal Desorption Unit complete with two each 460,000.00 $1,840,000.00
combination natural gas/*2 fuel oil burners, feed auger system,
variable speed AC drum drive, mechanical seal system,
all mounted on a 55' X 9'-6" wide X 13'-6" three axle trailer.
The units are to be duplicates (including modifications) of the
unit previously furnished on PO No. 96-134-01, dtd 1/29/96.
Trailer running lights and wiring are included. Electrical
motor power and burner control wiring is excluded.
Reference: Roberds-Johnson Quote EX-96-08-282A
dated August 28, 1996.
TERMS: Monthly Progress Payments, net 30 (10% retention until
job satisfactorily completed.)
Changes due to drawing corrections or revisions will be done
on a mutually-agreed lump sum price or on a time and material basis
according to the attached Rate Sheet
NOTE: This purchase order confirms verbal award by Tom Stockton to
Mr. Billy Warriner on August 29, 1996.
NOTE: Deliver 1st unit on 11/18/96, balance on 12/27/96.
Attachments: 1. Drawing List
2. Rate Sheet dated 31 January 1995
===============================================================================================================================
AUTHORIZED PURCHASE ORDER
BY: /s/ R. H. PECK TOTAL: 1,840,000.00
===============================================================================================================================
APPROVED DATE:
BY: /s/ JAMES D. PERCELL 9/6/96
===============================================================================================================================
ACCEPTED BY: DATE: 9/20/96
TITLE: /s/ [ILLEGIBLE] Copy must be returned to buyer -
===============================================================================================================================
This purchase order is subject to the attached Terms and Conditions dated 29 January 1996.
===============================================================================================================================
</TABLE>
<PAGE> 2
January 29, 1996 Version
TERMS AND CONDITIONS
This Purchase Order is issued on the following terms and conditions:
1. TITLE AND RISK OF LOSS OR DAMAGE. If the goods are standard items
manufactured or sold by SELLER, title shall pass to BUYER immediately upon
identification to the Agreement. If the goods are to be made for this order,
title to all goods covered by this Purchase Order and to all materials,
inventory, work in process, design data, and other documentation and all
contract rights related to such goods, shall vest in. BUYER immediately upon
identification to this Order, subject only to BUYER's obligations to pay the
price and perform all other obligations hereunder. Irrespective of vesting of
title, SELLER shall bear all risk of loss AND shall insure or self-insure all
goods of BUYER in its care, custody or control until delivered in good
condition in accordance with the shipping provisions. SELLER warrants title and
that good title free of claims or encumbrances is vested in BUYER.
2. INVOICING AND PAYMENT SELLER shall issue invoices at the completion of
each month or fraction of a month's work on or about the fifth (5TH) day of
the following month. BUYER shall pay all undisputed charges within thirty (30)
days after the date of invoice. Interest will be charged on all overdue amounts
at the rate of twelve percent (12%) per annum or, if less, the maximum
interest rate allowed by the laws of the State of Texas.
3. COMPLIANCE WITH LAWS Each party hereto agrees to comply with all
material laws, rules and regulations of any state, federal or local
governmental authority which are now or may become applicable to that party's
operations covered by or arising out of the performance of this Agreement.
4. INDEMNITY SELLER shall release BUYER of any liability for, and shall
protect, defend and indemnity buyer, its officers, directors, employees and
joint owners from and against all claims, demands, and causes of action of
every kind and character, without limit and without regard to the cause or
causes thereof or the negligence or any party or parties, arising in connection
herewith in favor of SELLER's employees or SELLER's subcontractors or their
employees, or SELLER's invitees on account of bodily injury, death or damage to
property. SELLER's indemnity under this paragraph shall be without regard to
and without any right to contribution from any insurance maintained by BUYER.
BUYER shall release SELLER of any liability for, and shall protect, defend and
indemnify SELLER, its officers, directors, employees and joint owners from and
against all claims, demands, and causes of action of every kind and character,
without limit and without regard to the cause or causes thereof or the
negligence of any party or parties, arising in connection herewith in favor of
BUYER's employees or BUYER's contractors or their employees, or BUYER's
invitees on account of bodily injury, death or damage to property. BUYER's
indemnity under this paragraph shall be without regard to and without any right
to contribution from any insurance maintained by SELLER. If it is judicially
determined that the monetary limits of the indemnities voluntarily assumed this
paragraph exceed the maximum limits permitted under applicable law, it is
agreed that said indemnities shall automatically be amended to conform to the
maximum monetary limits permitted under such law.
5. AUDIT If any payment provided for hereunder is made on the basis of
SELLER's costs, BUYER shall have the right to audit SELLER's books and records
relating to such costs. SELLER agrees to retain such books and records
available to BUYER for a period of three (3) years from the date such costs
were incurred and to make such books and records available at any reasonable
time or times within said period.
<PAGE> 3
6. ASSIGNMENT This Agreement shall be binding on the heirs and assigns of
the parties. Provided, neither party may assign this Agreement without the prior
written consent of the other, which consent will not be unreasonably withheld.
7. DELAY The goods are required for use on a project requiring careful
coordination of time of delivery of the goods with other work on the project.
The delivery date shown herein is of critical importance to avoidance of
substantial loss on the project. IN THE EVENT OF DELAY, OR ANTICIPATED DELAY
from any cause, including force majeure, SELLER shall immediately notify BUYER
in writing of the delay or anticipated delay and will undertake to shorten or
make up the delay by all reasonable means. If such delay is from causes beyond
(the reasonable control of SELLER, the reasonable cost of overcoming delays or
advancing deliveries shall be paid by BUYER, to the extent such costs are
attributable to action authorized by BUYER in advance. BUYER may direct such
action to proceed subject to determination of price adjustment after
deliveries, in accordance with the provisions for changes.
8. WARRANTY SELLER warrants all goods to be as described and specified
herein, or in conformity with the sample, if any, and to be free of defects in
materials and workmanship for a period of one year after being placed in
service. If SELLER has performed any engineering or design work with respect to
the goods, SELLER warrants that such work was properly accomplished, and to
that extent, that the goods are suitable for the purpose for which intended. If
SELLER has participated in the selection of the goods for the purpose for
which they are intended to be used, SELLER warrants that the goods are suitable
for such purpose as described to SELLER by BUYER. SELLER warrants that the
goods will perform as represented and are merchantable except to the extent
that specifications supplied by BUYER prevent merchantability. SELLER further
warrants the goods as provided in any special warranty provisions contained
in the Purchase Order. SELLER agrees to promptly repair or replace, without
costs to BUYER, any article, material or workmanship not conforming to the
applicable warranty which is found to be non-conforming during the warranty
period. Otherwise SELLER shall not be liable for loss of use, loss of profit or
other consequential damages resulting from breach of these warranties.
9. REJECTION There shall be no substitutes or shipment of more or less
than the quantity specified without prior written approval of BUYER. If goods
received do not conform to those ordered, or if more or less than the quantity
ordered are shipped, BUYER may reject such shipment in whole or in part and
require SELLER to pick up and remove such rejected goods at SELLER's expense
within ten (10) days after notice.
10. SHIPPING Goods shall be shipped by carriers and routes as instructed
by BUYER. SELLER agrees to pay for all packing, loading and draying unless
otherwise agreed in writing. Invoices and bills of lading showing full routing,
car number and other customary data should be dated and mailed at the time of
shipment. Invoices bearing transportation charges must show weight and rate.
11. CHANGES AND AMENDMENTS Changes may be made by BUYER in the character
or quantity of goods to be furnished hereunder by Change Order in writing
signed by the same authority executing this Purchase Order. The price shall be
equitably adjusted for any such change, at the unit prices set forth herein if
the change is in quantity, or by agreement if the character of the goods or
other terms are changed so as to increase or decrease the cost to
<PAGE> 4
SELLER. If no agreement is reached as to the amount of the price, the price
shall be equitably adjusted to reflect the increased or decreased cost to
SELLER with reasonable allocation of overhead and profit. SELLER shall submit
to BUYER satisfactory evidence from which adjustments base on cost can be
determined. This Agreement may be modified only by a written instrument duly
executed by an authorized representative of SELLER and BUYER.
12. INSPECTION, EXPEDITING DOCUMENTS BUYER shall have the right to inspect
and expedite the goods in process of manufacture, in storage, in transit and
upon delivery to assure compliance with all terms, conditions, specifications
and drawings, if any. BUYER will be supplied as needed, with data, drawings,
specifications, test results, quality documentation, schedules and other
documents and information in accordance with the vendor data requirements
list.
13. CANCELLATION This Purchase Order is subject to cancellation at the
option of the BUYER only. When the Agreement is canceled for the convenience of
BUYER, SELLER shall be paid: (1) the unit price for each item of goods properly
finished and accepted prior to cancellation or completion of performance by
SELLER, plus (2) the cost of goods in the process of manufacture which are
identified to and being manufactured especially for this order, plus (3) the
unit price for finished goods, plus (4) the cost of unused materials purchased
for the Agreement, plus (5) other direct costs, plus (6) reasonable overhead
and profit allocable to work in process (but in no event shall the total
amount payable exceed the contract price) less (7) any payments previously
made. In the event of default, bankruptcy, insolvency or failure or inability
of SELLER to perform, BUYER agrees to pay SELLER the unit price of each item of
goods properly furnished and accepted prior to cancellation or completion of
performance by SELLER, plus the salvage value of work in process and materials
identified to the order (but in no event shall the amount payable exceed the
contract price), less the cost to BUYER of completion or procurement of
substitute conforming goods and less any payments previously made. With respect
to goods and materials identified to the contract and in inventory or completed
or in process of manufacture, BUYER shall have the right, at its option, to
remove all or a portion of said goods from the premises of SELLER, upon BUYER's
payment or promise to pay the amount herein provided. SELLER shall not be
entitled to anticipated profit for goods or services not furnished or
performed.
14. NO WAIVER No waiver by any party to this Agreement shall operate as a
waiver of any future default, whether of a like or different character or
nature, nor shall any failure to exercise any right hereunder be considered as
a waiver of any such right in the future.
15. SEVERABILITY If any part of this Agreement is held to be invalid under
the applicable laws of any jurisdiction, such part shall be severed and such
action shall not invalidate the remaining provisions.
16. FORCE MAJEURE The obligations of the parties hereunder, except the
obligation to pay money, shall be suspended to the extent the Parties are
hindered or prevented from complying with them due to any cause beyond the
Parties' control, including, but not limited to, provisions of law or
governmental regulations, accident, explosion, fire, windstorm, flood or other
casualty, strike, lockout or other labor difficulty, riot, war, insurrection,
shortage of or inability to secure labor, raw materials or transportation
facilities.
17. ENFORCEMENT This Agreement shall be subject to, and regulated by, the
laws of
<PAGE> 5
the State of Texas, and construed in accordance with such laws.
18. ENTIRE AGREEMENT The Parties agree that this Agreement constitutes the
entire agreement between the Parties with respect to the subject matter hereof.
The Parties further agree that any terms and conditions of any quotation,
invoice, master service agreement or other instrument Issued by SELLER
generally or in connection with this Agreement which are in addition to or
inconsistent with the terms and conditions of this Agreement shall not be
binding on BUYER and shall not apply to this Agreement.
<PAGE> 1
EXHIBIT 21.1
EXH. 21.1 subsidiaries
National Fuel & Energy, Inc., ("NFE") a Wyoming Corporation, a wholly
subsidiary.
OnSite Technology, L.L.C., ("OnSite") an Oklahoma limited liability company, a
50% owned joint venture with Parker Drilling Company.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report, which includes an explanatory paragraph regarding the Company's ability
to continue as a going concern, dated March 24, 1996, except for Notes 6, 13
and 14 as to which the date is October 22, 1996, on our audit of the financial
statements of Environmental Safeguards, Inc. for the year ended December 31,
1995. We also consent to the reference to our firm under the caption
"Experts".
/s/ HAM, LANGSTON & BREZINA L.L.P.
Houston, Texas
October 29, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Accountant
I consent to the inclusion, by reference, in this registration
statement on Form SB-2 of my report dated March 11, 1995 on my audit of the
financial statements of Environmental Safeguards, Inc. for the year ended
December 31, 1994. I also consent to the reference to my firm under the caption
"Experts".
/s/ RANDY SIMPSON, CPA PC
- -----------------------------------
Sandy, Utah
October 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 194,388 1,166,016
<SECURITIES> 0 0
<RECEIVABLES> 0 53,155
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 194,388 1,219,171
<PP&E> 36,502 36,502
<DEPRECIATION> (18,262) (21,587)
<TOTAL-ASSETS> 318,090 1,814,572
<CURRENT-LIABILITIES> 623,932 129,664
<BONDS> 233,517 1,110,000
0 0
0 0
<COMMON> 5,551 6,305
<OTHER-SE> (311,393) 390,818
<TOTAL-LIABILITY-AND-EQUITY> 318,090 1,814,572
<SALES> 0 0
<TOTAL-REVENUES> 116,397 49,724
<CGS> 0 0
<TOTAL-COSTS> 581,396 151,565
<OTHER-EXPENSES> 737,217 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,397 2,927
<INCOME-PRETAX> (1,215,613) (104,768)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,215,613) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 74,035
<CHANGES> 0 0
<NET-INCOME> (1,215,613) (30,733)
<EPS-PRIMARY> (0.26) (.005)
<EPS-DILUTED> (0.26) (.005)
</TABLE>
