<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY ___, 1997
REGISTRATION NO. 333-15025
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ENVIRONMENTAL SAFEGUARDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 4953 87-0429198
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
OF INCORPORATION CODE NUMBER)
OR ORGANIZATION)
2600 SOUTH LOOP WEST JAMES S. PERCELL
SUITE 445 CHIEF EXECUTIVE OFFICER
HOUSTON, TX 77054 2600 SOUTH LOOP WEST,
(713) 641-3838 STE. 445 HOUSTON, TX 77054
(ADDRESS, INCLUDING ZIP CODE, AND (713) 641-3838
TELEPHONE NUMBER, INCLUDING AREA (NAME, ADDRESS, INCLUDING ZIP
CODE, OR REGISTRANT'S PRINCIPAL CODE, AND TELEPHONE NUMBER,
EXECUTIVE OFFICES AND PLACE OF INCLUDING AREA CODE, OF AGENT
BUSINESS) FOR SERVICE OF PROCESS)
COPY TO:
ROBERT D. AXELROD, ESQ.
AXELROD, SMITH & KIRSHBAUM
5300 MEMORIAL DRIVE, SUITE 700
HOUSTON, TX 77007
(713) 961-2221
(713) 552-0202 FAX
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
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SHARE(*) PRICE(*) FEE
- ----------------- ---------- -------- -------- ---
<S> <C> <C> <C> <C>
Common Stock, par
value $0.001 2,200,000 $3.53(1) $7,836,600.00(1) $2,374.73
Common Stock, par
value $0.001 84,792 $3.06(2) $ 259,717.89(2) $ 78.70
</TABLE>
(1) 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 and paid
upon filing initial Form SB.2 Registration Statement on October 29, 1996.
(2) 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 January 7, 1997.
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
- --------------------------------- ----------------------
<S> <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 Change in Company's Certifying
Accountant
</TABLE>
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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 JANUARY 10, 1997
ENVIRONMENTAL SAFEGUARDS, INC.
2,304,792 SHARES OF COMMON STOCK
This Prospectus relates to the resale of 2,304,792 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,
1,934,792 shares of Common Stock were issued 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 mandatory conversion feature of the
Debentures required the holders of the Debentures to convert the Debentures
into shares of Common Stock . 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.
A current Prospectus must be in effect at the time of the sale of the shares of
Common Stock to which this Prospectus relates. 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 January 7, 1997 , 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 $2.875 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 _______________, 1997.
<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
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
Available Information 3
Prospectus Summary 4
Risk Factors 8
Use of Proceeds 16
Price Range of Common Stock 16
Dividend Policy 18
Capitalization 19
Selected Consolidated Financial Data 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations 21
Business 27
Management 34
Executive Compensation 38
Certain Relationships and Related Transactions 39
Principal Stockholders 40
Plan of Distribution 41
Selling Stockholders 41-44
Description of Securities 45
Shares Eligible for Future Sale 48
Legal Matters 49
Experts 49
Changes in Company's Certifying Accountant 49
Consolidated Financial Statements F-1
</TABLE>
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AVAILABLE INFORMATION
The Company is not currently subject to the reporting 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.
The Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of the site
is http://www.sec.gov. Visitors to the site may access such information by
searching the EDGAR data base on the site.
3
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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, through NFE, expanded its agreement
with Parker by forming OnSite Technology, L.L.C. ("OnSite"), an Oklahoma
limited liability company. OnSite is a joint venture between NFE and Parker in
which NFE and Parker each own 50%. 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 and paid by OnSite.
The Company currently conducts substantially all of its business operations
through OnSite.
The OnSite Operating Agreement presently provides that each member is
entitled to one vote on all matters submitted to a vote and 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
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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 OnSite's operations. See, Risk
Factors.
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.
5
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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. OnSite 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 ITD Units are mobile, and thus, contaminated soil can
be remediated on location. OnSite fabricated its second ITD Unit in August
1996, and OnSite has contracted for the fabrication of four additional ITD
Units for delivery during the first quarter of 1997. OnSite will own, manage
and operate all of the ITD Units. The Company formerly provided water
evaporation and bioremediation services utilizing Company equipment and
third-party contractors but the Company has discontinued these services.
Prior to November, 1996, the Company and OnSite utilized an
independent contractor, Double Eagle Operations, Inc. ("Double Eagle"), 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, OnSite moves its equipment on location and Double
Eagle supplied the crew necessary to operate the equipment and complete the
contract. OnSite compensated Double Eagle on an hourly basis for the labor
supplied. Subsequent to November, 1996, OnSite stopped using the services of
Double Eagle and began using the services of Business Staffing, Inc. to provide
independent contractor labor to fulfill OnSite's contracts.
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 resale by the Selling Stockholders of
an aggregate of 2,304,792 Stockholders Shares, consisting of (i) 1,934,792
shares of the Company's common stock received by the Selling Stockholders upon
the mandatory conversion of the Debentures into Common Stock
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and (ii) 370,000 shares which are currently outstanding. The Debentures provide
that they would 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 were convertible.
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 nine months ended September 30, 1996
and September 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>
Nine Months
-----------
Ended September 30, Year Ended December 31,
------------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue
Service Revenue $ 0 $ 53,545 $ 53,345 $ 731,311
Other Income 12,453 0 0 0
---------- ----------- ----------- ---------
TOTAL REVENUES 12,453 53,345 116,397 731,311
Loss from operations (571,264) (1,167,111) (1,215,613) (677,973)
Loss before income taxes (571,264) (1,167,111) (1,215,613) (677,973)
Extraordinary item 74,035 0 0 0
Net loss (497,229) (1,167,111) (1,215,613) (677,973)
Net loss per share before
extraordinary item (0.091) (0.258) (0.26) (0.21)
Net loss per share (0.079) (0.258)
BALANCE SHEET DATA:
Total assets $1,815,080 $ 36,608 $ 318,090 $ 888,330
Working capital (deficit) 729,321 (547,371) (429,544) (434,059)
Total liabilities 1,351,177 583,979 623,932 579,379
Stockholders' equity
(deficit) 463,903 (547,371) (305,842) 308,951
</TABLE>
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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
is a 50% owner of OnSite, a joint venture between NFE (the Company's wholly-
owned subsidiary) and Parker. . The Company has incurred substantial net
losses from operations throughout its history. In addition to those risks
specifically inherent in the hazardous and industrial waste industries, the
Company faces all of the risks inherent in a 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 with all of the unforeseen costs, expenses, problems, and
difficulties which may arise .
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 nine months ended
September 30, 1996 of $497,229 . 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 September
30, 1996, the Company reported positive working capital of $729,321 .
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.
Liquidity and Capital Resources. The Company has experienced
significant recurring losses from operations. This circumstance and
significant commitments by OnSite in 1996 have caused the Company severe
liquidity problems. However, the Company has taken steps to address and
mitigate these concerns. In December, 1996, a subsidiary of Parker lent the
Company $3,000,000 under the terms of a Credit Agreement (the "Credit
Agreement"). The Company will use the loan proceeds to fund the Company's
contribution to OnSite, approximately $2,000,000, in connection with the
fabrication of four ITD Units which OnSite will own, manage and operate, and
the balance of the loan proceeds will be used for working capital purposes by
the Company. The loan matures on December 31, 2000. In addition, 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. There can be no assurance that OnSite
will be successful or that the Company will achieve profitability.
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
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Company's two presently operational ITD Units is operating in 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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including the complete loss of the ITD Unit which the Company is currently
operating in 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 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. OnSite has awarded contracts for
fabrication of four additional ITD Units. The delivery of the completed Units
will commence in the first quarter of 1997. In December, 1996, the Company
obtained a $3,000,000 loan from a subsidiary of Parker in order to fund its
share of the contribution to OnSite for the costs for fabrication of the four
ITD Units, which it estimates to be approximately $2,000,000. OnSite will
own, manage and operate all of the ITD Units.
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.
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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. The Company has identified at least five (5)
fabricators currently capable of fabricating the ITD Units at a competitive
price.
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
11
<PAGE> 14
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
12
<PAGE> 15
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. While the Company
devotes resources to improving the engineering, design and fabrication of ITD
Units, the Company is also devoting resources to research and development of
alternatives to indirect thermal desorption.
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.
13
<PAGE> 16
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. There is currently only a limited
market for the common stock of the Company. 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.
14
<PAGE> 17
Accordingly, there is no assurance that the Selling Stockholders will be able
to sell the shares of Common Stock for any particular price.
In addition, of the 6,939,620 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 and Warrants. 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. This
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.
In December, 1996, in connection with the execution of its Credit
Agreement with a subsidiary of Parker, the Company entered into a Warrant
Agreement with Parker (the "Warrant Agreement") pursuant to which the Company
issued to Parker warrants to purchase 250,000 shares of its common stock at an
exercise price of $2.50 per share, expiring on December 31, 1998. The Warrant
Agreement also contains provisions for the issuance of additional warrants if
its loan with a subsidiary of Parker is outstanding beyond certain dates. If
the loan is not paid in full by June 30, 1997, the Company will issue 50,000
warrants to Parker and if the loan is not paid in full before December 31,
1997, the Company will issue an additional 50,000 warrants to Parker. The
Warrant Agreement also contains certain registration rights for the shares
issuable upon exercise of the warrants by Parker.
15
<PAGE> 18
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.
Certain Securities Law Considerations. The Company's stock is
considered "penny stock" and subject to the penny stock rules promulgated under
the Securities Exchange Act of 1934, Rules 15g-1 to 15g-9. The penny stock
rules require broker-dealers to take certain steps under certain circumstances
prior to executing any penny stock transactions in customer accounts. Among
other things, Rule 15g-3 requires a broker or dealer to advise potential
purchasers of a penny stock of the lowest offer and highest bid quotations for
such stock, and Rule 15g-4 requires a broker or dealer to disclose to the
potential purchaser its compensation in connection with such transaction.
Under Rule 15g-9, a broker or dealer who recommends such securities to persons
other than established customers must make a special written suitability
determination for the purchaser and receive the purchaser's prior agreement to
such a transaction. The effect of these regulations may be to delay
transactions in stocks that are deemed to be penny stocks and sales of the
Company's common stock by brokers or dealer and resales by investors could be
adversely affected.
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 resale 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.
Proceeds received by the Company from the Debenture offering were used
to finance the Company's contribution to OnSite for the fabrication of one ITD
Unit, to extinguish certain debt, to pay existing accounts payable, and for
general corporate expenses and working capital.
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
16
<PAGE> 19
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
17
<PAGE> 20
by the National Quotation Bureau taking into account and restated for all stock
splits. 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 $ 5.00 $ 4.25
Third Quarter $ 4.50 $ .25
Fourth Quarter $ .75 $ .325
1995
First Quarter $ 1.375 $ .4375
Second Quarter $ 2.1875 $ .875
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 $ 4.75 $ 2.75
Fourth Quarter $ 4.00 $ 2.75
1997
First Quarter (through January 7, 1997) $3.00 $2.75
</TABLE>
On January 7, 1997 , the last bid price for the Common Stock of the Company as
reported on the OTC Bulletin Board was $2.875 per share. On January 7, 1997 ,
there were approximately 215 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.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted to reflect the issuance by the Company of
1,934,792 shares of Common Stock pursuant to the mandatory conversion feature
of the Debentures. 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>
SEPTEMBER 30, SEPTEMBER 30, 1996
1996 HISTORICAL
UNAUDITED AS ADJUSTED(1)
---------- ------------------
<S> <C> <C>
Convertible debentures $ 1,110,000 $ 0
Stockholders' Equity:
Common Stock - $.001 par value;
50,000,000 shares authorized 6,855 8,790
Additional Paid In Capital (2) 3,763,589 4,870,822
Retained earnings (loss) (3,306,541) (3,358,227)
----------- -----------
Total Stockholders' Equity $ 463,903 $ 1,521,385
=========== ===========
Total Capitalization $ 463,903 $ 1,521,385
=========== ===========
Common shares issued and
outstanding 6,854,828 8,704,828
=========== ===========
</TABLE>
(1) Represents the as adjusted capitalization after giving effect to the
issuance of the Common Stock pursuant to the mandatory conversion
feature of the Debentures.
(2) Does not include: (i) 40,179 shares of Common Stock previously earned
by former note holders 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.
19
<PAGE> 22
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 nine months ended September 30, 1996 and
September 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue
Service Revenue $ 0 $ 53,545 $ 53,345 $ 731,311
Income from Investment
in OnSite 0 0 63,052 0
Other Income 12,453 0 0 0
---------- ----------- ----------- ---------
TOTAL REVENUES 12,453 53,545 116,397 731,311
Loss from operations (571,264) (1,167,111) (1,215,613) (677,973)
Loss before income taxes (571,264) (1,167,111) (1,215,613) (677,973)
Extraordinary item 74,035 0 0 0
Net loss (497,229) (1,167,111) (1,215,613) (677,973)
Net loss per share before
extraordinary item (0.091) (0.258) (0.26) (0.21)
Net loss per share (0.079) (0.258)
BALANCE SHEET DATA:
Total assets $1,815,080 $ 36,608 $ 318,090 $ 888,330
Working capital (deficit) 729,321 (547,371) (429,544) (434,059)
Total liabilities 1,351,177 583,979 623,932 579,379
Stockholders' equity
(deficit) 463,903 (547,371) (305,842) 308,951
</TABLE>
20
<PAGE> 23
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. To address this decline, in January 1995, the Company signed a
marketing agreement (the "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. The Company believed that Parker, a publicly held oil
and gas drilling company, would provide good exposure for the Company's
technology because Parker's customer base includes many of the independent and
major oil companies throughout the world. The Company also believed that
Parker's financial stability would be a further benefit for its marketing
efforts. Parker is a financially sound company and has shown positive earnings
and cash flows from operations in each of the last two years.
In August 1995, the Marketing Agreement was expanded through the
formation of OnSite, a 50%-50% joint venture between the Company, through NFE,
and Parker. The Company's anticipated results regarding the Marketing Agreement
had not been completely realized, but the Company believed that Parker's
involvement in OnSite would add needed support to the venture's efforts to
expand the market for the Company's ITD technology. Accordingly, OnSite was
created to expand the commercial application of the Company's ITD technology and
proprietary processes at a more ambitious pace than the Marketing Agreement
encompassed. Presently all commercial applications of the Company's technology
are delivered through OnSite, making the Company's financial success dependent
on the success of OnSite.
Under the Marketing Agreement, Parker agreed to actively market and
promote the Company's services including the preparation of brochures and the
delivery of certain presentations to specific groups involved in the energy
industry. All expenses associated with such promotional activities were paid by
Parker until July 31, 1996 and totaled approximately $23,000. Accordingly, the
expiration of the Marketing Agreement is not expected to have a significant
effect on the future operating results of OnSite.
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<PAGE> 24
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 financial
needs and such financial needs have increased dramatically since the formation
of OnSite.
OnSite is a capital intensive venture built on the performance of ITD
Units which cost between $800,000 and $1,000,000 each. 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 unit. OnSite undertakes no formal program of research and development but
continually considers modification to improve future units based upon field
performance. The Company believes this most recent 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 construction of four additional ITD
Units at a price of approximately $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 has raised its share of
OnSite's capital through a variety of means including the following:
o In December 1995 through February 1996, the Company raised $700,000 through
a private offering of its common stock. The proceeds from this offering
were used to settle old trade debts, repay certain loans from stockholders
and/or officers of the Company and to pay its share of the cost of OnSite's
first ITD Unit.
o In June 1996 the Company raised net proceeds of approximately $1,055,000
from the sale of its 10% convertible debentures. The proceeds from this
sale have been used to fund the
22
<PAGE> 25
Company's share of the cost of OnSite's second ITD Unit and to support
continuing operations of the Company.
o In July 1996 the Company raised $177,785 when Parker made a capital
contribution to OnSite on behalf of the Company in exchange for the
Company's granting a non-royalty bearing exclusive world-wide license for
manufacture and use of the Company's indirect thermal desorption soil
remediation and hydrocarbon reclamation system. The proceeds from the sale
of such license were used to partially fund the Company's share of OnSite's
first ITD Unit.
o In December 1996 the Company entered into a credit agreement with a
subsidiary of Parker under which Parker provided the Company with
$3,000,000 of long-term debt to allow the Company to fund its approximate
$2,000,000 share of current purchase obligations by OnSite and to provide
the Company with adequate working capital to meet its own debt service and
operating requirements. The debt under the credit agreement will be
repaid through a change in the Company's profit sharing percentage in
OnSite from 50%-50% to 30%-70% until the debt is fully repaid or
December 31, 2000, at which date the entire unpaid balance of the
long-term debt becomes due.
o The Company is currently involved in a private offering of its common stock
under which the Company is offering for sale a minimum of 200,000 shares
and a maximum of 2,000,000 shares at $2.50 per share. As of the date of
this prospectus, approximately $800,000 has been placed in a separate
account representing approximately 324,000 shares of common stock.
The Company is currently dependent on the operations of OnSite for its
future growth and success. From September 1996 until the date of this
Prospectus, the Company has made additional investments in OnSite of $1,175,000.
The Company considers its most important function 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 through a new
50%-50% joint venture between OnSite and a group of South American investors.
The joint venture, OnSite Colombia, is discussed below in Operations of OnSite.
The client of OnSite Colombia 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. Inability to obtain financing for its share of
capital requirements of OnSite could have extreme adverse affects on the
Company, including loss of its investment in OnSite and loss of rights to use
certain of its technologies. Such losses could ultimately threaten the continued
existence of the Company.
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 working
capital prompted management to form OnSite with Parker. During
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<PAGE> 26
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.
Nine months ended September 30, 1996 compared to the nine months ended
September 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 nine months ended September 30, 1996, the Company realized a loss
from its investment in OnSite of $43,427, with no similar loss reported during
the nine months ended September 30, 1995.
Costs and expenses sharply declined by $636,739 in the nine months
ended September 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. All costs of directly providing remediation services have
been eliminated from the Company's financial results for the first nine months
of 1996 as compared to the similar period of 1995 because such costs are now
reflected in OnSite's operating results. Essentially the only expenses that
remain in the Company are the costs of marketing the Company's technology and
managing the Company's investment in OnSite, including a small management group,
administrative personnel and professional services providers. Officers of the
Company also participate in the management of OnSite and their salaries are
allocated between the Company and OnSite. The Company expects that operational
and general expenses will rise from their 1996 levels because management
compensation has been extremely modest as all available funds have been targeted
for investment in OnSite.
The Company recorded a $74,035 extraordinary gain from restructuring
and/or eliminating certain aged trade accounts payable and awarded stock
compensation to a former contractor totaling $312,500 during the first nine
months of 1996. Management does not expect to experience similar items of income
or expense in future periods.
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<PAGE> 27
The net loss of $497,229, which includes the non-recurring stock
compensation of $312,500 previously mentioned, during the first nine months of
1996 represents a $669,882 improvement over the same period of 1995.
Operations of OnSite
OnSite began operations in late November of 1995 and has had a
significant impact on the composition of revenue, costs and expenses of the
Company. Management does not expect OnSite to be consistently profitable until
at least 3-4 ITD units are operational. To date OnSite has only had one ITD
unit in operation and following is an analysis of the results of operations of
OnSite:
Nine Months
Inception to Ended
December 31, September 30,
1995 1996
------------ -----------
Revenues $ 272,700 $ 466,350
Operational and general expenses (131,655) (431,945)
Depreciation (14,941) (109,678)
Other - (11,581)
---------- ----------
Net income (loss) $ 126,104 $ (86,854)
========== ==========
As shown by the results of OnSite's operations, in the nine months
ended September 30, 1996 OnSite experienced lower profitability as its single
job was nearing completion due to a decline in the hydrocarbon contaminated soil
available for processing. OnSite expects to stabilize profitability through the
addition of more units that will moderate the variation in earnings associated
with the operation of a single unit. The Company must help OnSite maintain
favorable utilization rates on all ITD Units in order for the Company to be
profitable.
In November 1996, OnSite entered into a joint venture, OnSite Colombia,
with a group of South American investors. OnSite Colombia was established to
provide hydrocarbon contaminated soil reclamation services to a major
international oil and gas company operating in Colombia. OnSite owns a 50%
interest in the assets, liabilities, capital and profits of OnSite Colombia and,
accordingly, the Company ultimately participates on a 25% basis in the
operations of OnSite Colombia. In December 1996, OnSite sold its newest and
most technologically advanced soil reclamation unit to OnSite Colombia for
$950,000 in a transaction that resulted in no gain or loss to the Venture. In
order to improve cash flow, OnSite Colombia is currently negotiating a sales
leaseback transaction for the unit.
TRENDS AND UNCERTAINTIES
OnSite 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
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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 other 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 independent
domestic petroleum industry participant in Wyoming will terminate during the
second quarter of 1997. Subsequent to the completion of that 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. OnSite's second
ITD Unit is now employed in Colombia. Management believes that environmental
concerns by major petroleum companies and pressures by the government will
continue to create opportunities for the Company's technology, particularly as
they relate to land based and offshore drilling discharge.
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<PAGE> 29
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.
("OnSite"), an Oklahoma limited liability company. OnSite is a joint venture
between NFE and Parker in which NFE and Parker each own 50%. 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 paid by Parker until
July 31, 1996, and after July 31, 1996, certain expenses associated with such
marketing and promotional activities are paid by OnSite. The Company intends
to conduct substantially all of its business operations through OnSite.
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<PAGE> 30
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> 31
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.
OnSite fabricated its second ITD Unit in August 1996, and has entered
into contracts for the fabrication of four additional ITD Units for delivery
during the first quarter of 1997. OnSite will own, manage and operate all of
the ITD Units. 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 in December,
1996, obtained a $3,000,000 loan from a subsidiary of Parker in order to fund
its share of the contribution to OnSite. .
As of September 30, 1996 , 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.
Recycling 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. OnSite 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. 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> 32
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.
Prior to November, 1996, the Company and OnSite contracted 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, OnSite moves its equipment on location and Double Eagle supplied
the crew necessary to operate the equipment and complete the contract. OnSite
compensated Double Eagle on an hourly basis for the labor supplied. Subsequent
to November, 1996, OnSite stopped using the services of Double Eagle and began
using the services of Business Staffing, Inc. to provide independent
contractor labor to fulfill OnSite's contracts.
EXISTING CONTRACTS FOR OPERATIONS
OnSite'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. The second ITD Unit has recently been
transported to Colombia pursuant to a one year contract. The ITD Unit was
placed in service in November, 1996.
ONSITE TECHNOLOGY L.L.C.
Effective August 1, 1995, the Company and Parker formed OnSite. 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, through NFE, 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 has recently been transported to Colombia to
fulfill a one-year 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.
OnSite has entered into a joint venture with unaffiliated third
parties for operations in the Colombian market. As part of the joint venture
agreement, OnSite has agreed to sell one ITD Unit to the joint venture for
$950,000. OnSite anticipates that the closing of the transaction will occur
during the first quarter of 1997.
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The nature and extent of the Company's control over OnSite are set
forth in OnSite's Operating Agreement ("Operating Agreement"), which provides
that each Member is entitled to one vote on matters submitted to a vote.
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 OnSite'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"). The offering commenced in September, 1996 and
as of the date of this Prospectus, 323,400 shares of Common Stock have been
subscribed for by prospective purchasers. All proceeds from these
subscriptions have been placed in a separate account until the closing of the
Offering. The Company intends to use the proceeds of the Offering, if any, to
fund the costs of additional ITD Units or to repay all or a portion of its
existing loan to a subsidiary of Parker. See Business- Recent Developments.
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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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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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 Huron , 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 twelve full-time employees, six of whom are in
management positions, including corporate and administrative operations and six
of whom are involved in field 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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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 $1,178 .
The lease for the executive offices will expire in December, 1997. The Company
believes that its offices are adequate for its present needs and that suitable
space will be available to accommodate its future needs.
RECENT DEVELOPMENTS
In December, 1996, a subsidiary of Parker lent the Company $3,000,000
under the terms of a Credit Agreement (the "Credit Agreement"). The Credit
Agreement provides that the Loan, which will mature on December 31, 2000, will
bear interest at the rate of 6.3% per annum. The Company shall repay this loan,
in arrears, commencing February 28, 1997 out of 40% of the Company's cash
received from OnSite during each preceding month, if any, applying any payment,
first to interest and thereafter to pay principal. Any remaining outstanding
balance on the loan plus any outstanding accrued interest shall be due and
payable on December 31, 2000. The Company will use the loan proceeds to fund
the Company's contribution to OnSite, approximately $2,000,000, in connection
with the fabrication of four ITD Units which OnSite will own, manage and
operate, and the balance of the loan proceeds will be used for working capital
purposes by the Company. In connection with the Credit Agreement, the Company
entered into a Warrant Agreement with Parker pursuant to which it issued to
Parker 250,000 warrants to purchase shares of its Common Stock at an exercise
price of $2.50 per share, expiring on December 31, 1998. The Warrant Agreement
contains provisions for the issuance of additional warrants if the loan is
outstanding beyond certain dates. If the loan is not paid in full by June 30,
1997, then the Company will issue to Parker warrants to purchase 50,000 shares
of its Common Stock at an exercise price of $2.50 per share. Further, if the
loan is not paid in full by December 31, 1997 then the Company will issue to
Parker warrants to purchase an additional 50,000 shares of its Common Stock at
an exercise price of $2.50 per share. All the warrants expire on December 31,
1998. The Warrant Agreement contains certain registration rights for the shares
issuable upon exercise of the warrants by Parker.
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.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
James S. Percell Chairman of the Board 54
of Directors, President,
Chief Executive Officer,
Chief Operating Officer
Robin M. Pate Director 70
Michael M. Dunson Chief Financial Officer, 49
Director, Secretary, Treasurer
Bryan Sharp Director 52
</TABLE>
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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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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 oil field 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
36
<PAGE> 39
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 indemnities'
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.
37
<PAGE> 40
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 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 a small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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
small business issuer 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.
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. Percell's employment contract
will not provide payment for any prior services to the Company performed by Mr.
Percell. 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 AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OTHER AWARDS (SHARES) SATION
- --------------------------- ---- --------- ----- ----- ------ -------- ------
<S> <C> <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
38
<PAGE> 41
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.
39
<PAGE> 42
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 992,861(1) 12.8%
2600 South Loop West, #445
Houston, Texas 77054
Robin M. Pate 869,722(1) 11.2%
9723 Truscan
Houston, Texas 77080
Bryan Sharp 800,000(1) 10.3%
3200 Wilcrest, #200
Houston, Texas 77042
Michael M. Dunson ---- ----
2600 South Loop West, #445
Houston, Texas 77054
Burl Jacks 500,000(1)(2) 6.7%
8202 Devlin Pt.
San Antonio, Texas 78240
Kelly Trimble 559,467 8.0%
175 South Main, #1430
Salt Lake City, Utah 84111
All officers and directors
as a Group (4 persons) 2,662,583 27.8%
</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. Mr. Jacks has exercised 40,000 options.
(2) Mr. Jacks is a former director of the Company.
40
<PAGE> 43
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 resale 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
resale 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
41
<PAGE> 44
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.
42
<PAGE> 45
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OWNED AFTER
SHARES SHARES OWNED AFTER OFFERING
OWNED OFFERED OFFERING IF IF
SELLING BEFORE FOR ALL SHARES ALL SHARES
STOCKHOLDER(1) OFFERING SALE SOLD* SOLD*
- -------------- -------- ---- ----- -----
<S> <C> <C> <C> <C>
James S. Percell (2) 992,861 34,801 958,000 12.4%
Robin M. Pate (3) 869,722 69,722 800,000 10.3%
Washach Textile 18,930 17,430 1,500 0.1%
and Supply,
a Trust
Kelly Trimble (4) 559,467 390,917 168,550 2.5%
Frank J. Gillen 122,177 20,917 101,260 1.5%
Allen Trevino (5) 177,685 17,430 160,255 2.3%
Rodney and Shauna 287,152 87,152 200,000 2.9%
Badger JT-ROS
Lee W. Jackson 297,152 87,152 210,000 3.0%
Banyan Investment 56,502 52,292 4,210 .1%
Company
Robert D. Axelrod (6) 17,430 17,430 0 0.0%
Robin Allen Pate (7) 435,763 435,763 0 0.0%
James Seamens 174,305 174,305 0 0.0%
L. E. Gunnels 87,152 87,152 0 0.0%
Jerry Lyn McKinney 34,861 34,861 0 0.0%
KGB Family Ltd. 17,430 17,430 0 0.0%
Partnership (8)
Keith Biesinger (9) 34,861 34,861 0 0.0%
Richard S. Cook 17,430 17,430 0 0.0%
James F. Jez 19,173 19,173 0 0.0%
The Diane Davis 87,152 87,152 0 0.0%
1992 Revocable
Trust
R. Bruce Jones 87,152 87,152 0 0.0%
DDS PC Profit
Sharing Trust
Patrick Berna 26,146 26,146 0 0.0%
Rodney K. Rayburn 52,292 52,292 0 0.0%
Mike Shelton 313,750 313,750 0 0.0%
Robert C. Ryan 34,861 34,861 0 0.0%
Roberds-Johnson (10) 87,152 87,152 0 0.0%
Industries
</TABLE>
43
<PAGE> 46
(*) Assumes no sales are effected by the Selling Stockholders during the
offering period other than pursuant hereto.
(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 counsel for certain
legal matters.
(7) Robin Allen Pate is the son of Robin M. Pate, a member of the Board of
Directors of the Company.
(8) Kathy Carter, President of the Company's Transfer Agent is a
beneficiary of KGB Family Ltd. Partnership.
(9) Keith Biesinger was formerly the Company's legal advisor.
(10) Roberds-Johnson Industries fabricates ITD Units for the Company,on a
successful bid basis.
44
<PAGE> 47
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 6,939,620 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.
45
<PAGE> 48
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.
46
<PAGE> 49
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Colonial
Stock Transfer Company. Its address is 455 East 400 South, Suite 100, Salt Lake
City, Utah 84111; (801) 355-5740.
47
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
There is currently only a limited market for Common Stock of the
Company. 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. Accordingly,
there is no assurance that the Selling Stockholders will be able to sell the
shares of Common Stock for any particular price.
In addition, of the 6,939,620 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.
48
<PAGE> 51
LEGAL MATTERS
Certain legal matters relating to the issuance and resale of shares
hereby will be passed upon for the Company by Axelrod, Smith & Kirshbaum, an
Association of Professional Corporations, Houston, Texas. Robert D. Axelrod
owned $10,000 of Debentures and received 17,430 shares of Common Stock upon
the mandatory conversion of the Debentures. In addition, 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.
CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT
Randy Simpson CPA, PC, certified public accountants of Sandy, Utah,
audited the financial statements of the Company for the year ended December 31,
1994. Randy Simpson CPA, PC was dismissed as of February, 1996 at which time
Ham, Langston & Brezina, L.L.P., certified public accountants of Houston, Texas
were engaged as the Company's accountants. There were no disagreements between
the Company and Randy Simpson CPA, PC, on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which, if not resolved, would have caused them to make reference to the subject
matter of the disagreement in connection with their report.
The report of Randy Simpson CPA, PC for the year ended December 31,
1994 did not contain any adverse opinion or disclaimer of opinion, excepting a
"going concern" qualification, and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to change principal accountants who approved by the Board
of Directors based upon the recommendation by the Company's President, James S.
Percell, because the offices of Ham, Langston & Brezina L.L.P. were located
near the new principal executive offices of the Company.
Also, during the Company's two most recent fiscal years, and since
then, Randy Simpson CPA, PC has not advised the Company that any of the
following exist or are applicable:
(1) That the internal controls necessary for the Company to develop
reliable financial statements do not exist, that information has come
to their attention that has lead them to no longer be able to rely on
management's representations, or that has made them unwilling to be
associated with the financial statements prepared by management;
(2) That the Company needs to expand significantly the scope of its
audit, or that information has come to their attention that if further
investigated may materially impact the fairness or reliability of a
previously issued audit report or the underlying financial statements
or any other financial presentation, or cause him to be unwilling to
rely on management's representations or be associated with the
Company's financial statements for the foregoing reasons or any other
reason; or
49
<PAGE> 52
(3)That they have advised the Company that information has come to
their attention that they have concluded materially impacts the
fairness or reliability of either a previously issued audit report or
the underlying financial statements for the foregoing reasons or any
other reason.
The Company has provided Randy Simpson CPA, PC with a copy of the
disclosure provided herein. Randy Simpson, CPA, PC has advised the Company
that it agrees with the disclosures made herein and the Company has been
provided with a letter to the Commission by Randy Simpson, CPA, PC confirming
such agreement.
50
<PAGE> 53
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> 54
[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.
F-2
<PAGE> 55
Environmental Safeguards, Inc.
Page 2
Houston, Texas
March 24, 1996, except for Notes 6, 13 and 14,
as to which the date is January 7, 1997
F-3
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
Salt Lake City, Utah
We have audited the consolidated balance sheets of Environmental Safeguards,
Inc. and Subsidiary as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
The consolidated financial statements of Environmental Safeguards, Inc. and
Subsidiary for the year ended December 31, 1992 were examined by David T.
Thomson P.C. and he expressed an unqualified opinion on them in his report
dated August 5, 1993, but he has not performed any audit procedures since that
date.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
March 11, 1995
Salt Lake City, Utah
/s/ RANDY SIMPSON CPA PC
Randy Simpson CPA PC
F-4
<PAGE> 57
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-5
<PAGE> 58
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-6
<PAGE> 59
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 prices of $0.80
to $1.00 per share - - 600,000 600
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 (296,170) (296) 888,627 888
Common stock for which cash was received but
shares were not issued at year end - - - -
Net loss for the year ended December 31, 1995 - - - -
----------- ----- ----------- ------
Balances at December 31, 1995 - $ - 5,551,450 $5,551
=========== ====== =========== ======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 60
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 prices of $0.80
to $1.00 per share - 539,400 - 540,000
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 - (592) - -
Common stock for which cash was received but
shares were not issued at year end 50,000 - - 50,000
Net loss for the year ended December 31, 1995 - - (1,215,613) (1,215,613)
-------- ---------- ----------- ----------
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-8
<PAGE> 61
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-9
<PAGE> 62
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-10
<PAGE> 63
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-11
<PAGE> 64
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-12
<PAGE> 65
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-13
<PAGE> 66
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-14
<PAGE> 67
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
but were insignificant during the year ended December 31, 1995. 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> <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-15
<PAGE> 68
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. Subsequent to year end, the Company was required to make capital
contributions totaling $355,570 to pay its share of the first soil
reclamation unit's cost.
In July 1996 the Venture took delivery of an additional new soil
reclamation unit at an approximate manufactured cost of $950,000. To
fund its share of the unit's cost and to provide working capital, in June
1996 the Company completed a private offering of 10% convertible
debentures which resulted in gross proceeds to the Company (before
issuance costs of $54,749) of $1,110,000. (See Note 13) 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. To fund
this obligation, in December 1996, the Company entered into a $3,000,000
credit agreement with a subsidiary of PDC. (See Note 13) The Company
must bear its share of liabilities entered into by the Venture and is
subject to any liabilities that result from the operations of the
Venture. Failure to meet such liabilities would have a significant
negative impact on the operations of the Company.
Continued
F-16
<PAGE> 69
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
6. INVESTMENT IN JOINT VENTURE, CONTINUED
In November 1996, the Venture entered into a joint venture, OnSite
Colombia, L.L.C., ("OnSite Colombia") with a group of South American
investors. OnSite Colombia was established to provide hydrocarbon
contaminated soil reclamation services to a major international oil and
gas company operating in Colombia. The Venture owns a 50% interest in
the assets, liabilities, capital and profits of OnSite Colombia and,
accordingly, the Company ultimately participates on a 25% basis in the
operations of OnSite Colombia. In December 1996, the Venture sold its
newest and most technologically advanced soil reclamation unit to OnSite
Colombia for $950,000 in a transaction that resulted in no gain or loss
to the Venture. In order to improve cash flow, OnSite Colombia is
currently negotiating a sales leaseback transaction for the unit.
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
</TABLE>
Continued
F-17
<PAGE> 70
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
7. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED
<TABLE>
<S> <C>
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.
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:
Continued
F-18
<PAGE> 71
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
9. INCOME TAX, CONTINUED
<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>
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. The 296,170 shares of preferred
stock, which were issued during 1993, included 147,400 shares issued for
cash of $2.50 per share, 100,000 shares issued to cancel certain
unsuccessful operating agreements and 48,770 shares issued in payment of
certain expenses and stockholder loans. All preferred stock issued in
1993 was valued at $2.50 per share. The cancellation of the operating
agreement, described above, also included the issuance of 150,000 shares
of common stock valued at $1.50 per share.
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, when the Company's common
stock had a value of approximately $1.00 per share, the Company's board
of directors adopted a three for one conversion of all outstanding
preferred stock to common stock.
Continued
F-19
<PAGE> 72
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
10. STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
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.
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 $0.50 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 Apprx. $0.50
2,900,000 November 2005 $0.60
</TABLE>
Continued
F-20
<PAGE> 73
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
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 year 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.
12. RELATED PARTY TRANSACTIONS
During the year 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, $159,260 and $120,104 during the years ended December 31, 1995,
1994 and 1993, 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.
Continued
F-21
<PAGE> 74
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
13. SUBSEQUENT EVENTS, CONTINUED
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.
In December 1996, the Company entered into a credit agreement (the
"Credit Agreement") with PDC under which PDC provided the Company with
$3,000,000 of long-term debt. The proceeds from the debt will be used to
fund the Company's approximate $2,000,000 share of the purchase
obligation by the Venture (See Note 7) and to provide the Company with
adequate working capital to meet current debt service and operating
requirements.
Debt obtained under the Credit Agreement bears interest at 6.30% per year
and is due in semi-annual payments of interest only through December 31,
2000, at which date the entire principal balance is due. However, the
Credit Agreement provides for a change in the Company's cash distribution
percentage in the Venture from 50%-50% to 30%-70% until the loan is fully
repaid. Such difference in the cash distribution percentage will be
applied to reduce debt under the Credit Agreement.
In connection with the Credit Agreement, the Company agreed to issue to
PDC warrants to acquire 250,000 shares of the Company's common stock
at $2.50 per share. The Credit Agreement encourages early repayment of
the underlying debt and accordingly, if the note is not fully repaid by
certain target dates the Company must issue to PDC warrants to acquire
50,000 additional shares of the Company's common stock at $2.50 per share
on each target date. These target dates are June 30, 1997 and December
31, 1997. All warrants issued under the Credit Agreement expire on
December 31, 1998.
Continued
F-22
<PAGE> 75
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. Management has taken specific actions to
address the liquidity issues as described below.
o Negotiation of the Venture with PDC (See Note 7) 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).
0 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. Through December 31,
1996, the Company has raised a total of approximately $800,000 which is
being held in an escrow account until the offering is closed.
o In December 1996 the Company negotiated a $3,000,000 credit agreement
with PDC under which PDC provided the Company with $3,000,000 of
long-term debt. (See Note 13)
There can be no assurance that the Venture will be successful or that
the Company will achieve profitability. The Company's long-term
viability is dependent upon the Company obtaining adequate sources of
debt or equity funding to meet commitments and in the Venture ultimately
achieving profitability.
Continued
F-23
<PAGE> 76
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-24
<PAGE> 77
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
F-25
<PAGE> 78
[HAM, LANGSTON & BREZINA, LLP LETTERHEAD]
To the Board of Directors
Environmental Safeguards, Inc.
The accompanying consolidated condensed interim balance sheet of Environmental
Safeguards, Inc. as of September 30, 1996 and 1995, and the related
consolidated condensed interim statements of operations and accumulated deficit
for the nine months then ended were not audited by us, and accordingly, we do
not express an opinion on them.
January 6, 1997
Houston, Texas
F-26
<PAGE> 79
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 794,221
----------
Total current assets 794,221
Property and equipment, net 10,065
Investment in joint venture 958,162
Debt issuance costs 51,707
Other assets, net 925
----------
Total assets $1,815,080
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable, trade $ 24,334
Accounts payable to joint venture 12,816
Accrued interest expense on convertible
debentures 27,750
----------
Total current liabilities 64,900
Convertible debentures 1,110,000
Deferred gain 176,277
----------
Total liabilities 1,351,177
----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 50,000,000
shares authorized, 6,854,828 shares
issued and outstanding 6,855
Additional paid-in capital 3,763,589
Accumulated deficit (3,306,541)
----------
Total stockholders' equity 463,903
----------
Total liabilities and stockholders'
equity $1,815,080
==========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
F-27
<PAGE> 80
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Income:
Service revenue $ - $ 53,345
Interest income 7,014 -
Other income 5,439 -
----------- -----------
Total income 12,453 53,345
Costs and expenses:
Loss from investment in joint venture 43,427 -
Operational and general 188,596 415,801
Depreciation expenses 5,475 56,738
Interest expense 33,719 10,700
Stock compensation to a former contractor 312,500 -
Provision for reduction in carrying value
of certain assets - 737,217
----------- -----------
Total costs and expenses 583,717 1,220,456
----------- -----------
Loss before extraordinary gain on elimination
of debt (571,264) (1,167,111)
Extraordinary gain on elimination of debt, net 74,035 -
----------- -----------
Net loss (497,229) (1,167,111)
Accumulated deficit at beginning of period (2,809,312) (1,594,524)
----------- -----------
Accumulated deficit at end of period $(3,306,541) $(2,761,635)
=========== ===========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
F-28
<PAGE> 81
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (497,229) $(1,167,111)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Extraordinary gain on elimination of debt (74,035) -
Common and preferred stock issued in exchange
for services 318,775 10,820
Loss from investment in joint venture 43,427 -
Provision for reduction in carrying value
of certain assets - 737,217
Amortization of deferred gain (1,508) -
Amortization of debt issuance costs 3,042 -
Depreciation expense 5,475 56,738
Changes in operating assets and liabilities:
Decrease in accounts receivable - 41,329
Increase in deposits and other assets (925) -
Decrease in accounts payable (71,253) (41,553)
Increase in accrued liabilities 25,688 64,070
---------- -----------
Net cash used in operating activities (248,543) (298,490)
---------- -----------
Cash flows from investing activities:
Capital expenditures - (46,067)
Investment in joint venture (690,888) (4,766)
Proceeds from sale of equipment 4,526 -
---------- -----------
Net cash used in investing activities (686,362) (50,833)
---------- -----------
Cash flows from financing activities:
Proceeds from note payable - 75,000
Repayment of notes payable (95,000) (62,649)
Proceeds from sale of convertible debentures 1,110,000 -
Payment of debt issuance costs (54,749) -
Proceeds from sale of common stock 600,500 300,000
Repayment of long-term debt (26,013) (30,299)
---------- -----------
Net cash provided by financing activities 1,534,738 282,052
---------- -----------
Net increase (decrease) in cash and cash equivalents 599,833 (67,271)
Cash and cash equivalents, beginning of period 194,388 79,048
---------- -----------
Cash and cash equivalents, end of period $ 794,221 $ 11,777
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 4,989 $ 14,035
========== ===========
</TABLE>
The accompanying selected notes are an integral
part of these interim financial statements.
F-29
<PAGE> 82
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 nine-month
periods ended September 30, 1996 and September 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-30
<PAGE> 83
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE
During 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.
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
agreed to actively market and promote the services of the Venture through
specific actions described in the Agreement. Certain expenses associated
with such promotional activities were borne by PDC until July 31, 1996
and totaled $23,120 in the first nine months of 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.
(See Note 8 regarding a temporary change in the percentage.) 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 per the
Agreement.
The Venture did not have significant assets, liabilities or operating
activity during the nine months ended September 30, 1995. Following is
summarized financial information of the Venture as of and for the nine
months ended September 30, 1996:
Continued
F-31
<PAGE> 84
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
<TABLE>
<S> <C>
BALANCE SHEET
-------------
ASSETS
------
Cash $ 192,662
Accounts receivable 51,150
Accounts receivable from Venturers 12,816
----------
Total current assets 256,628
Property and equipment, net 1,849,692
----------
Total assets $2,106,320
==========
LIABILITIES AND VENTURERS' CAPITAL
----------------------------------
Accounts payable $ 189,996
----------
Total current liabilities 189,996
Venturers' capital 1,916,324
----------
Total liabilities and venturers'
capital $2,106,320
==========
STATEMENT OF OPERATIONS
-----------------------
Revenue $ 466,350
Operating expenses (431,945)
Depreciation (109,678)
Provision for reduction in carrying value
of certain assets (11,581)
----------
Net loss $ (86,854)
==========
</TABLE>
Continued
F-32
<PAGE> 85
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
The Company currently owns two complete soil reclamation units. However,
one of the units was not available for service until subsequent to
September 30, 1996. (See Note 8.) 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, to fund its
share of the purchase obligation. The Company must bear its share of
liabilities entered into by the Venture and is subject to its share of
any liabilities that result from the operations of the Venture. Failure
to meet such liabilities would have a significant negative impact on the
operations of the Company.
4. 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.
5. 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.
Continued
F-33
<PAGE> 86
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
6. 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.
7. COMMITMENTS:
In September 1996, the Venture awarded contracts for four additional soil
reclamation 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. (See Note 8.)
8. SUBSEQUENT EVENTS:
In November 1996, the Venture entered into a joint venture, OnSite
Colombia, L.L.C., ("OnSite Colombia") with a group of South American
investors. OnSite Colombia was established to provide hydrocarbon
contaminated soil reclamation services to a major international oil and
gas company operating in Colombia. The Venture owns a 50% interest in
the assets, liabilities, capital and profits of OnSite Colombia and,
accordingly, the Company ultimately participates on a 25% basis in the
operations of OnSite Colombia. In December 1996, the Venture sold its
newest and most technologically advanced soil reclamation unit to OnSite
Colombia for $950,000 in a transaction that resulted in no gain or loss
to the Venture. In order to improve cash flow, OnSite Colombia is
currently negotiating a sales leaseback transaction for the unit.
In December 1996, the Company entered into a credit agreement (the
"Credit Agreement") with PDC under which PDC provided the Company with
$3,000,000 of long-term debt. The proceeds from the debt will be used to
fund the Company's approximate $2,000,000 share of the purchase
obligation by the Venture (See Note 7) and to provide the Company with
adequate working capital to meet current debt service and operating
requirements.
Continued
F-34
<PAGE> 87
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
8. SUBSEQUENT EVENTS, CONTINUED:
Debt obtained under the Credit Agreement bears interest at 6.30% per year
and is due in semi-annual payments of interest only through December 31,
2000, at which date the entire principal balance is due. However, the
Credit Agreement provides for a change in the Company's cash distribution
percentage in the Venture from 50%-50% to 30%-70% until the loan is fully
repaid. Such difference in the cash distribution percentage will be
applied to reduce debt under the Credit Agreement.
In connection with the Credit Agreement, the Company agreed to issue to
PDC warrants to acquire 250,000 shares of the Company's common stock
at $2.50 per share. The Credit Agreement encourages early repayment of
the underlying debt and accordingly, if the note is not fully repaid by
certain target dates the Company must issue to PDC warrants to acquire
50,000 additional shares of the Company's common stock at $2.50 per share
on each target date. These target dates are June 30, 1997 and December
31, 1997. All warrants issued under the Credit Agreement expire on
December 31, 1998.
F-35
<PAGE> 88
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.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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 Securities Act and will be governed
by the final adjudication of such issue.
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 indemnities'
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> 89
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 $2,454.43
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> 90
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. These were transactions by the Company as issuer not involving a
public offering.
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. These were transactions by the Company as issuer not involving a
public offering.
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. These
were transactions by the Company as issuer not involving a public offering.
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. These were
transactions by the Company as issuer not involving a public offering.
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. These were transactions by the Company as issuer not
involving a public offering.
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. These were transactions by
the Company as issuer not involving a public offering.
II-3
<PAGE> 91
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. The offerees were sophisticated investors.
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. These were transactions by the Company as issuer not involving
a public offering.
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. The offerees were sophisticated investors.
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. These were transactions by the Company as
issuer not involving a public offering.
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. These were transactions by
the Company as issuer not involving a public offering.
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.
The offerees were sophisticated investors. In December 1996 the Company issued
84,792 common shares as payment in kind of an interest payment due on the
Debentures to the Debenture holders.
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. These were transactions by the Company as issuer not involving a
public offering.
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. These were
transactions by the Company as issuer not involving a public offering.
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. These were transactions by the Company as issuer not involving a public
offering.
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. These were transactions by the Company as issuer not involving a
public offering.
II-4
<PAGE> 92
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.
4.5(*) - Form of Warrant Certificate of Parker Drilling Company
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.
10.3(*) - Credit Agreement between Environmental Safeguards,
Inc. and Casuarina, Ltd.
10.4(*) - Term Note of Environmental Safeguards, Inc., Borrower
10.5(*) - Warrant Agreement between Environmental Safeguards,
Inc. and Parker Drilling Company.
16.1(*) - Letter from Randy Simpson, CPA, P.C. to the
Commission.
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>
(*) Filed herewith
(**) To be filed by amendment
II-5
<PAGE> 93
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.
(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-6
<PAGE> 94
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 Amendment
No. 1 to the 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 January 6, 1997.
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
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the 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 January 6, 1997
James S. Percell of the Board, Chief
Executive Officer,
Principal Executive
Officer
/s/ Michael M. Dunson Director and Chief January 6, 1997
Michael M. Dunson Financial Officer
/s/ Bryan Sharp Director January 8, 1997
Bryan Sharp
/s/ Robin Pate Director January 8, 1997
Robin Pate
</TABLE>
II-7
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. INDEX TO EXHIBITS
--- -----------------
<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.
4.5(*) - Form of Warrant Certificate of Parker Drilling Company
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.
10.3(*) - Credit Agreement between Environmental Safeguards,
Inc. and Casuarina, Ltd.
10.4(*) - Term Note of Environmental Safeguards, Inc., Borrower
10.5(*) - Warrant Agreement between Environmental Safeguards,
Inc. and Parker Drilling Company.
16.1(*) - Letter from Randy Simpson, CPA, P.C. to the
Commission.
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>
(*) Filed herewith
(**) To be filed by amendment
<PAGE> 1
EXHIBIT 4.5
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 1 250,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from December 19, 1996, until 5:00
P.M., Tulsa time, on December 31, 1998, one fully paid and nonassessable
share of the Common Stock (subject to adjustment), par value $.001
per share (the "Common Stock"), of Environmental Safeguards, Inc., a Nevada
corporation (the "Company"), at the purchase price of $2.50 per share, subject
to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in
cash, or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
19, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies
1
<PAGE> 2
of the Warrant Agreement are on file at the principal office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding,and until such transfer on such books, the Company
may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entities any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
OKLAHOMA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------
ATTEST:
/s/ [ILLEGIBLE]
- ------------------------------------
2
<PAGE> 1
EXHIBIT 10.3
Credit Agreement
between
Environmental Safeguards, Inc.,
as Borrower
and
Casuarina, Ltd.,
as Lender
Dated as of December 19, 1996
$3,000,000 Term Loan
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions and Interpretation
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.03. Business Day Adjustment . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
Use of Proceeds
Section 2.01. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
The Loan
Section 3.01. Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.02. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.03. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.05. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.06. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
Representations and Warranties
Section 4.01. Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
Conditions Precedent
ARTICLE VI
Covenants
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.01. Notices of Material Events . . . . . . . . . . . . . . . . . . . . . 6
Section 6.02. Existence; Conduct of Business . . . . . . . . . . . . . . . . . . . 6
Section 6.03. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.04. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.05. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.06. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII
Events of Defaults
Section 7.01. Acceleration After Default . . . . . . . . . . . . . . . . . . . . . 7
Section 7.02. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.03. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.04. Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII
Miscellaneous
Section 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.03. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.04. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.05. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.06. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.07. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.08 Counterparts, Integration . . . . . . . . . . . . . . . . . . . . . 11
Section 8.09 Remedies and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.11 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
ii
<PAGE> 4
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of December 19, 1996 (the "Agreement"),
between ENVIRONMENTAL SAFEGUARDS, INC. ("Borrower"), and CASUARINA, LTD. (the
"Lender").
ARTICLE I
Definitions and Interpretation
SECTION 1.01. Definitions. Wherever used in this Agreement, unless
the context otherwise requires, the following terms have the meanings
indicated:
"Authority" means any government or governmental,
administrative, fiscal, judicial, or government-owned body,
department, commission, committee, authority, tribunal, agency or
entity.
"Authorization" means includes any consent, registration,
filing, agreement, notarization, certificate, license, approval,
permit, authority or exemption from, by or with any Authority, whether
given or withheld by express action or deemed given or withheld by
failure to act within any specified time period and all corporate,
creditors, and joint venturers approvals or consents.
"Business Day" means a day when banks are open for business in
Tulsa, Oklahoma.
"Change of Control" means the occurrence of any of the
following events: (i) any Person or two or more Persons acting as a
group shall acquire beneficial ownership of 35% or more of the
outstanding voting securities of Borrower, measured by voting power,
(ii) one-third or more of the directors of Borrower shall consist of
Persons not nominated by Borrower's Board of Directors (not including
as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust
arrangements or similar arrangements), or (iii) Borrower shall sell,
convey or transfer all or substantially all of its assets (either in
one transaction or in a series of related transactions) to any Person.
"Closing Date" means December 19, 1996.
"Dollars" and the sign "$" means the lawful currency of the
United States of America.
"Event of Default" means any one of the events specified in
Section 7.02.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision
thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity
exercising
<PAGE> 5
executive, legislative, judicial, taxing, regulatory or administrative
powers or functions of or pertaining to government.
"Loan" means the loan specified in Section 3.01 or, as the
context requires, its principal amount from time to time outstanding.
"Loan Interest Rate" means the rate of interest payable on the
Loan determined in accordance with Section 3.03.
"Material Adverse Effect" means a material adverse effect on
(a) the ability of Borrower to perform any of its obligations under
the Agreement or (b) the rights of or benefits available to the Lender
under the Agreement.
"Maturity Date" means the earlier of (i) December 31, 2000, or
(ii) the date on which a Change in Control occurs.
"Net Cash Flow" for any calendar month means the product of
(i) (a) actual cash receipts less (b) the actual cash operating
expenses (which would be classified as cost of goods sold according to
generally accepted accounting principles) of OnSite Technology L.L.C.
in such calendar month, and (ii) NFE's Sharing Ratio (expressed as a
percent), but only to the extent that such net receipts are
distributed by OnSite Technology L.L.C. to its members, provided that
if NFE votes to prevent such distribution of net receipts which are
available for distributing, then such net receipts shall be deemed to
have been distributed to its members.
"NFE" means National Fuel & Energy, Inc., a wholly owned
subsidiary of the Company.
"Obligations" means all indebtedness, obligations and
liabilities of Borrower to the Lender, existing on the Closing Date or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured
or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or the transactions
contemplated thereby.
"Officer's Certificate" means a certificate signed by the
President or the Vice President of Finance of Borrower, specifying the
amount of the Net Cash Flow realized by Borrower in any calendar
month.
"Onsite Technology L.L.C." means that Oklahoma limited
liability company formed pursuant to an Operating Agreement between
National Fuel & Energy, Inc. and Parker Drilling Investment Company,
Inc. dated as of August 1, 1995, as amended.
"Person" means any individual, corporation, company, voluntary
association, limited liability company, partnership, joint venture,
trust, unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
2
<PAGE> 6
"Sharing Ratio" shall mean the Sharing Ratio of NFE as may be
in effect from time to time pursuant to the Operating Agreement of
OnSite Technology L.L.C., dated as of August 1, 1995, as amended.
"Warrant Agreement" means an agreement in the form of Exhibit
A hereto.
Section 1.02. Interpretation. In this Agreement, unless the context
otherwise requires:
(a) headings and underlinings are for convenience only and do not
affect the interpretation of this Agreement;
(b) words importing the singular include the plural and vice
versa;
(c) an expression importing a natural person includes any company,
partnership, trust, joint venture, association, corporation or other body
corporate and any governmental authority or agency;
(d) a reference to a Section, party, Exhibit, Annex or Schedule is
a reference to that Section of, or that party, Exhibit, Annex or Schedule to,
this Agreement;
(e) a reference to a document includes an amendment or supplement
to, or replacement or novation of, that document but disregarding any
amendment, supplement, replacement or novation made in breach of this
Agreement; and
(f) a reference to a party to any document includes that party's
successors and permitted assigns.
Section 1.03. Business Day Adjustment. Where the day on or by which a
payment is due to be made is not a Business Day, that payment shall be done on
or by the next succeeding business Day.
ARTICLE II
Use of Proceeds
Section 2.01. Use of Proceeds. The proceeds of the Loan shall be used
to finance Borrower's and NFE's required capital contributions to OnSite
Technology, L.L.C., and for Borrower's general working capital purposes.
3
<PAGE> 7
ARTICLE III
The Loan
Section 3.01. Amount. On the terms and subject to the conditions of
this Agreement, the Lender agrees to lend to Borrower and Borrower agrees to
borrow from the Lender the Loan, in the amount of Three Million Dollars
($3,000,000) on the Closing Date.
Section 3.02. Borrowing Procedure.
(a) Procedure for Term Loan Borrowing. Borrower shall give the
Lender irrevocable notice (which notice must be received by the Lender prior to
10:00 A.M., Tulsa, Oklahoma time, two Business Days prior to the Closing Date)
requesting that the Lender make the Loan on the Closing Date. Not later than
12:00 Noon, Tulsa, Oklahoma time, on the Closing Date, the Lender shall
transfer the amount of the Loan to the account of the Borrower specified in
such notice in immediately available funds.
Section 3.03. Interest. Subject to Sections 3.04 and 8.11, Borrower
agrees to pay interest in arrears in respect of the outstanding principal
amount of the Loan from the Closing Date until the Maturity Date at a rate of
six and three tenths percent (6.3%) per annum (the "Loan Interest Rate").
Interest shall be computed on the last Business Day of each calendar month, and
if unpaid pursuant to the provisions of Section 3.06 hereof, added to the
outstanding principal amount of the Loan.
Section 3.04. Additional Interest. Without limiting the remedies
available to the Lender under this Agreement or otherwise (and subject to the
provisions of Section 8.11), if Borrower fails to make any payment of principal
or interest (including interest payable under this Section) on or before its
due date as specified in this Agreement (whether at stated maturity or upon
prematuring by acceleration or otherwise) or, if not so specified, as notified
by the Lender to Borrower, Borrower shall pay, by way of liquidated damages, in
respect of the amount of such payment due and unpaid, interest at the rate of
twelve per cent (12%) per annum from the date any such payment became due until
the date of actual payment (as well after as before judgment). Such interest
shall be payable on demand.
Section 3.05. Repayment. On or before the last Business Day of each
calendar month, commencing two months after the Closing Date, Borrower hereby
unconditionally promises to pay the Lender 40% of the Net Cash Flow realized by
NFE in the immediately preceding calendar month, as specified in an Officer's
Certificate delivered by Borrower to Lender in respect of such calendar month.
Such payments shall be applied, first, to pay any accrued but unpaid interest,
second, to pay any other amounts due to Lender under this Agreement, and third,
to reduce the outstanding principal amount of the Loan. In any case, Borrower
hereby unconditionally promises to pay the Lender any remaining outstanding
amount of the Loan on the Maturity Date, including any accrued and unpaid
interest thereon.
4
<PAGE> 8
Section 3.06. Prepayment.
(a) Borrower may at any time and from time to time prepay the
Loan, in whole or in part, without premium or penalty, upon irrevocable notice
delivered to the Lender at least one Business Day prior thereto, which notice
shall specify the date and amount of prepayment. If any such notice is given,
the amount specified in such notice, together with accrued interest thereon,
shall be due and payable on the date specified therein.
(b) Amounts paid or prepaid on account of the Loan may not be
reborrowed.
ARTICLE IV
Representations and Warranties
Section 4.01. Representations. Borrower represents and warrants to
the Lender that, on the Closing Date:
(a) it is duly organized and validly existing under the laws
of the jurisdiction of its organization, has all requisite power to carry on its
business as presently conducted and to enter into, and perform its obligations
under this Agreement, except where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required;
(b) the Agreement has been, duly authorized and executed by
Borrower and constitutes a valid and legally binding obligation of Borrower,
and is enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law;
(c) the Agreement (a) does not require any consent or
approval of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and are in
full force and effect, (b) will not violate any applicable law or regulation or
the organizational documents of Borrower or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
credit agreement or other instrument binding upon Borrower or its assets, or
give rise to a right thereunder to require any payment to be made by Borrower,
and (d) will not result in the creation or imposition of any lien on any asset
of Borrower; and
(d) Borrower is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
agreements and other instruments binding on it or its property, except where
the failure to do so will not reasonably be expected to result in a Material
Adverse Effect. No Default has occurred and is continuing.
5
<PAGE> 9
ARTICLE V
Conditions Precedent
The obligations of the Lender to make the Loan hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 8.09):
(a) The Lender shall have received this Agreement, executed
and delivered by a duly authorized officer of Borrower;
(b) The Lender shall have received a Warrant Agreement in the
form of Exhibit A, duly executed and delivered on the closing date by a duly
authorized officer of Borrower;
(c) The Lender shall have received the executed note (the
"Note"), substantially in the form of Exhibit B.
ARTICLE VI
Covenants
Until the principal of and interest on the Loan and all other amounts
payable hereunder shall have been paid in full, Borrower covenants and agrees
with Lender that:
Section 6.01. Notices of Material Events. Borrower will furnish to the
Lender prompt written notice of the following:
(a) the occurrence of any Event of Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against or
affecting Borrower that, if adversely determined, could reasonably be expected
to result in a Material Adverse Effect; and
(c) any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.
Section 6.02. Existence; Conduct of Business. Borrower will do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges
and franchises material to the conduct of its business.
Section 6.03. Payment of Obligations. Borrower will pay its
obligations, before the same shall become delinquent or in default, except
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) Borrower has set aside on its books adequate
reserves with respect thereto in accordance with GAAP and (c) the failure to
make payment pending such contest could not reasonably be expected to result in
a Material Adverse Effect.
6
<PAGE> 10
Section 6.04. Compliance with Laws. Borrower will comply with all
laws, rules, regulations and orders of any Governmental Authority applicable to
it or its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
Section 6.05. Use of Proceeds. The proceeds of the Loan will be used
only for the purposes contemplated in Section 2.01. No part of the proceeds of
the Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Federal Reserve Board,
including Regulations G, T, U and X.
Section 6.06. Negative Pledge. Borrower agrees that during the term of
this Agreement, and as long as any obligation that is subject to this Agreement
and the Note is outstanding, Borrower will not and will not permit NFE, to
enter into or suffer to exist any agreement permitting or creating a security
interest, lien or other encumbrance over any of its ownership interest in
OnSite Technology, L.L.C.
ARTICLE VII
Events of Defaults
Section 7.01. Acceleration after Default. If any Event of Default
occurs and is continuing (whether it is voluntary or involuntary, or results
from operation of law or otherwise), the Lender may, by notice to Borrower,
declare the Note, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Note, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest, notice of intent to accelerate or further
notice of any kind, all of which are hereby expressly waived by Borrower.
Section 7.02. Events of Default. It is an Event of Default if:
(a) Borrower shall fail to pay any principal of the Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise and such failure
shall continue unremedied for a period of five days;
(b) Borrower shall fail to pay any interest on the Loan
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due
and payable, and such failure shall continue unremedied for a period of five
days;
(c) any representation or warranty made or deemed made by
or on behalf of Borrower in or in connection with the Loan or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with the Agreement shall prove to have been incorrect in any
material respect when made or deemed made,
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 6.01(a), 6.02 or 6.06,
7
<PAGE> 11
(e) Borrower shall fail to observe or perform any
covenant, condition or agreement contained in the Agreement (other than those
specified in clause (a), (b), (c) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from the
Lender.
(f) Borrower shall commence any case, proceeding or other
action (A) under any law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or
(B) seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or
Borrower shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against Borrower any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against Borrower any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof, or (iv) Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) Borrower shall generally not
or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) Borrower fails to pay any of its debt (other than the
Loan) with an aggregate principal amount in excess of the equivalent of Fifty
Thousand Dollars ($50,000) or to perform any of its material obligations under
any agreement pursuant to which there is outstanding any debt of Borrower with
an aggregate principal amount in excess of the equivalent of Fifty Thousand
Dollars ($50,000) and such failure continues for more than any applicable
period of grace; or
(h) The Warrant Agreement or any provision thereof shall
cease to be in full force or effect as to Borrower, or Borrower of any Person
acting by or on behalf of Borrower shall deny or disaffirm Borrower's
obligations under the Warrant Agreement, or Borrower shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Warrant Agreement;
Section 7.03. Bankruptcy. If Borrower is liquidated or declared
bankrupt, the Loan, all interest accrued on it and any other amounts payable
under this Agreement will become immediately due and payable without any
presentment, demand, protest or notice of any kind, all of which Borrower
waives.
Section 7.04. Notice of Events. If any Event of Default happens,
Borrower shall immediately notify the Lender by facsimile specifying the nature
of such Event of Default and any steps Borrower is taking to remedy it.
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<PAGE> 12
ARTICLE VIII
Miscellaneous
Section 8.01. Notices. Any notice, request or other communication to
be given or made under this Agreement shall be in writing. Subject to Section
7.04, the notice, request or other communication may be delivered by hand or
facsimile, to the party's address specified below or at such other address as
such party notifies to the other party from time to time and will be effective
upon receipt.
For Borrower:
Environmental Safeguards, Inc.
2600 South Loop West, Suite 445
Houston, Texas 77054
Attention: Mr. James Percell
Telephone: (713) 641-3838
Telefax: (713) 641-0756
For the Lender:
c/o Parker Drilling Company
8 East Third Street
Tulsa, Oklahoma 74103
Attention: Ronald C. Potter, Esq.
Telephone: (918) 631-1257
Telefax: (918) 631-1284
Section 8.02. Expenses. Borrower shall pay to the Lender:
(a) the fees and expenses of the Lender's counsel
incurred in connection with:
(i) the preparation of the Loan by the Lender
provided for under this Agreement which shall
not exceed $5,000;
(ii) the preparation and/or review, execution and,
where appropriate, registration of the
Agreement and any other documents related to
them;
(iii) the giving of any legal opinions required by
the Lender under this Agreement;
(iv) the occurrence of any Event of Default; and
(b) the costs and expenses incurred by the Lender in
relation to the enforcement or protection or attempted enforcement or
protection of its fights under this Agreement or the
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<PAGE> 13
Warrant Agreement, or the exercise of its rights or powers consequent upon or
arising out of the occurrence of any Event of Default including reasonable
legal and other professional consultants' fees on a full indemnity basis.
Section 8.03. Termination of Agreement. This Agreement shall continue
in force until all monies payable under it have been fully paid in accordance
with its provisions.
Section 8.04. Governing Law.
(a) This Agreement is governed by, and shall be construed
in accordance with and governed by the law of the State of Oklahoma.
(b) The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
courts of the State of Oklahoma sitting in Tulsa County and of the United
States District Court of the district thereof, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
Oklahoma State Court or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Lender may otherwise have to bring
any action or proceeding relating to this Agreement against Borrower or its
properties in the courts of any jurisdiction.
(c) Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement which
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.
Section 8.05. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION.
Section 8.06. Successors and assigns. This Agreement binds and
benefits the respective successors and assigns of its parties. However Borrower
may not assign or delegate any of its rights or obligations under this
Agreement.
10
<PAGE> 14
Section 8.07. Amendment. Any amendment of any provision of this
Agreement shall be in writing and signed by the parties.
Section 8.08. Counterparts, Integration. This Agreement may be
executed in several counterparts, each of which is an original, but all of
which together constitute one and the same Agreement. This Agreement, together
with the Note and Warrant Agreement, constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, and as written, relating to the subject
matter hereof
Section 8.09. Remedies and Waivers. No failure or delay by the Lender
in exercising any power, remedy, discretion, authority or other rights under
this Agreement shall waive or impair that or any other right of the Lender. No
single or partial exercise of such a right shall preclude its additional or
future exercise. No such waiver shall waive any other right under this
Agreement. All waivers or consents given under this Agreement shall be in
writing.
Section 8.10. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof, and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
Section 8.11. Interest. It is the intention of the parties hereto that
the Lender shall conform strictly to usury laws applicable to it, if any.
Accordingly, if the transactions with the Lender contemplated hereby would be
usurious under applicable law, if any, then, in that event, notwithstanding
anything to the contrary in the Note, this Agreement or any other agreement
entered into in connection with this Agreement or the Note, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest
under applicable law that is contracted for, taken, reserved, charged or
received by the Lender, under the Note (including, without limitation, the
Warrant Agreement), this Agreement or under any other agreement entered into in
connection with this Agreement or the Note (including, without limitation, the
Warrant Agreement) shall under no circumstances exceed the maximum amount
allowed by such applicable law and any excess shall be canceled automatically
and, if theretofore paid, shall at the option of the Lender, be applied on the
principal amount of the obligations owed to the Lender, by Borrower or refunded
by the Lender, to Borrower, and (ii) in the event that the maturity of any Note
or other obligation payable to the Lender, is accelerated or in the event of
any permitted prepayment, then such consideration that constitutes interest
under law applicable to the Lender, may never include more than the maximum
amount allowed by such applicable law and excess interest, if any, to the
Lender, provided for in this Agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall, at the option of the Lender, be credited by Lender on
the principal amount of the obligations owed to the Lender by Borrower or
refunded by the Lender, to Borrower.
11
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed in their respective names as of the date first above written.
ENVIRONMENTAL SAFEGUARDS, INC.
BORROWER: By: /s/ JAMES PERCELL
-----------------------------
Name: Mr. James Percell
Title: President
LENDER: CASUARINA, LTD.
By: /s/ I.E. HENDRIX, JR.
----------------------------
Name: I.E. Hendrix, Jr.
Title: President
12
<PAGE> 16
EXHIBIT A
[FORM OF WARRANT AGREEMENT]
A-1
<PAGE> 17
WARRANT AGREEMENT
BETWEEN
ENVIRONMENTAL SAFEGUARDS, INC.
and
PARKER DRILLING COMPANY
Dated as of December ___, 1996
<PAGE> 18
WARRANT AGREEMENT dated as of December ___, 1996, between
Environmental Safeguards, Inc., a Nevada corporation (the "Company"), and
Parker Drilling Company ("Parker" and, together with any transferee of Warrants
or Warrant Shares, the "Warrant Holders(s)").
WHEREAS, Casuarina, Ltd.("Casuarina", a Bermuda corporation and wholly
owned subsidiary of Parker) and the Company have entered into a certain Credit
Agreement and Note (the "Credit Agreement") dated December ___, 1996, pursuant
to which Casuarina has agreed to loan $3,000,000 to the Company (the "Loan");
and
WHEREAS, the Company proposes to issue to Parker as partial
consideration for Casuarina's agreement to act as Lender pursuant to the Credit
Agreement, common stock purchase warrants (the "Original Warrants", the "June
1997 Warrants" and the "December 1997 Warrants" (as defined below), and
collectively, the "Warrants"), of the Company's Common Stock, par value $.001
per share (the "Common Stock"), each Warrant entitling the holder thereof to
purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS: FORM OF WARRANT. The Company will issue
and deliver 250,000 Warrants (the "Original Warrants") to Parker, or to an
affiliate thereof designated by Parker, on the Closing Date referred to in the
Credit Agreement. The form of warrant certificate for the Original Warrants is
attached hereto as Exhibit A. If the Loan is not repaid in full, inclusive of
any and all interest and other amounts due under the Credit Agreement, by June
30, 1997, then the Company shall issue and deliver an additional 50,000
Warrants (the "June 1997 Warrants") to Parker, or to an affiliate designated by
Parker, on June 30, 1997. The form of warrant certificate for the June 1997
Warrants is attached hereto as Exhibit B. Furthermore, if the Loan is not
repaid in full, inclusive of any and all interest and other amounts due under
the Credit Agreement, by December 31, 1997, then the Company shall issue and
deliver an additional 50,000 Warrants (the "December 1997 Warrants") to Parker,
or to an affiliate designated by Parker, on December 31, 1997. The form of
warrant certificate for the December 1997 Warrants is attached hereto as
Exhibit C.
The Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the Chairman of the Board or the President of the
Company, under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the Secretary of the Company. A Warrant
bearing the manual or facsimile signature of individuals who were at any time
the proper officers of the Company shall bind the Company notwithstanding that
such individuals or any of them shall have ceased to hold such offices prior to
the delivery of such Warrant or did not hold such offices on the date of this
Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by the
Company either upon initial issuance or upon division, exchange, substitution
or transfer.
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<PAGE> 19
The demand and the piggy-back registration rights set forth in Section
16 hereof may be exercised at any time during the term of the Warrants.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants as follows:
(a) EXISTENCE. The Company is a corporation, duly
organized and validly existing under the laws of the State of Nevada,
and is authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to have a material
adverse effect.
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue and deliver this Warrant and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrant. This Warrant Agreement has been
duly executed and delivered by the Company.
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK.
There have been reserved for issuance, and the Company shall at all
times keep reserved, out of the authorized and unissued shares of
Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrant, and
such shares, when issued upon receipt of payment therefor in
accordance with the terms of the Warrant and of this Warrant
Agreement, will be legally and validly issued, fully paid and
nonassessable and will be free of any preemptive rights of
shareholders or any restrictions not otherwise set forth in this
Warrant Agreement.
(d) EXECUTION AND DELIVERY. Neither the execution or
delivery of this Warrant Agreement nor the consummation of the
transactions herein contemplated does or will result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, Credit
Agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property
or assets of the Company is subject, nor will such action result in
any violation of any provision of the Certificate of Incorporation or
Bylaws of the Company or any statute or any order, rule or regulation
or any court or governmental agency or body having jurisdiction over
the Company or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issuance
and sale of the Warrant or the consummation by the Company of the
transactions contemplated by this Warrant Agreement.
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<PAGE> 20
(e) VALID AND BINDING OBLIGATIONS. This Warrant Agreement and all
related documents, when duly executed and delivered, will be legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to any applicable bankruptcy, insolvency or other
laws of general application affecting creditors' rights and judicial decisions
interpreting any of the foregoing.
(f) LIABILITIES, LITIGATION AND RESTRICTIONS. Except for the
litigation and liabilities disclosed in connection with the Credit Agreement,
the Company has no liabilities, direct or contingent, which may reasonably be
expected to result in a material adverse effect. Except as disclosed to Parker
in writing, no litigation or other action of any nature affecting the Company
is pending before any governmental authority or, to the knowledge of the
Company, threatened against or affecting the Company, which might reasonably be
expected to result in a material adverse effect. To the knowledge of the
Company, no unusual or unduly burdensome restriction, restraint or hazard
exists by contract, law, governmental regulation or otherwise relative to the
business or material properties of the Company, other than such as relate
generally to persons engaged in the business activities similar to those
conducted by the Company.
(g) AUTHORIZATION AND CONSENTS. No authorization, consent,
approval, exemption, franchise, permit or license of, or filing with, any
governmental authority or other person is required to authorize, or is
otherwise required in connection with, the valid execution and delivery by the
Company of this Warrant Agreement and all related documents and the performance
by the Company of its obligations hereunder, except for requisite actions under
federal and state securities laws related to the registration of the Warrant
Shares as contemplated by this Warrant Agreement.
(h) COMPLIANCE WITH LAWS, RULES, REGULATIONS AND ORDERS. To the
knowledge of the Company, neither the business nor any of the activities of the
Company, as presently conducted, violates any requirement of law the result of
which violation could reasonably be expected to result in a material adverse
effect on the Company. The Company possesses all licenses, approvals,
registrations, permits and other authorizations necessary to enable it to carry
on its business in all material respects as now conducted; all such licenses,
approvals, registrations, permits and other authorizations are in full force and
effect; and the Company has no reason to believe that it will be unable to
obtain the renewal of any such licenses, approvals, registrations, permits and
other authorizations; however, this representation does not extend to such
necessary licenses, approvals, registrations, permits and authorizations of On-
Site Technology, L.L.C.
(i) NO MATERIAL MISSTATEMENTS. No information, statement,
certificate, document, exhibit or report prepared by or at the direction or
with the supervision of the Company and furnished to Parker in connection with
the negotiation and preparation of this Warrant Agreement or of the Credit
Agreement and all related documents contains any material misstatements of fact
or omits to state a material fact necessary to make the statements contained
therein not misleading as of the date made or deemed made.
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<PAGE> 21
3. CONDITIONS TO PURCHASE. Parker's obligations hereunder shall
be subject to satisfaction of the following conditions on the Closing Date
referred to in the Credit Agreement:
(a) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Warrant
Agreement and the Warrants and all other legal matters relating to
this Warrant Agreement, the Warrants and the transactions contemplated
hereby shall be satisfactory in all respects to Ronald C. Potter,
counsel for Parker, in his reasonable judgment, and the Company shall
have furnished to such counsel all documents and information that he
may reasonably request to enable him to pass judgment upon such
matters.
(b) There shall have been duly tendered to Parker or upon
the order of Parker a certificate or certificates representing the
Warrants.
(c) Axelrod, Smith & Kirshbaum, counsel for the Company,
shall have furnished to Parker their written opinion, dated the
Closing Date, in form and substance satisfactory to Parker, covering
the matters set forth in subparagraphs 2(a) through 2(g). Opinions by
counsel for the Company covering the matters set forth in
subparagraphs 2(f) and 2(g) shall be made to the best of such
counsel's knowledge after reasonable inquiry.
(d) As required by paragraph 18, Parker and counsel for
Parker shall have received reimbursement for all reasonable fees and
expenses for which invoices have been presented.
4. REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company (the "Warrant Register") as they are
issued. The Warrants shall be registered initially in such names and such
denominations as Parker has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction
upon transfer set forth in this Warrant Agreement, each Warrant certificate may
be exchanged at the option of the Warrant Holder thereof for another
certificate or certificates of different denominations entitling the Warrant
Holder thereof to purchase upon surrender to the Company or its duly authorized
agent a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Warrant Holder to purchase. Any
Warrant Holder desiring to exchange a Warrant certificate or certificates shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate or certificates to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates, as the case may be, as so requested.
Any Warrant issued upon exchange, transfer or partial exercise of the Warrants
shall be the valid obligation of the Company, evidencing the same generic
rights and entitled to the same generic benefits under this Warrant Agreement
as the Warrants surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14
hereof, the Warrants shall be transferrable only on the Warrant Register upon
delivery to the Company of the
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<PAGE> 22
Warrant certificate or certificates duly endorsed by the Warrant Holder or by
his duly authorized attorney-in-fact or legal representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all
cases of transfer by an attorney-in-fact, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be deposited with
the Company. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto.
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) The Warrants granted hereunder become exercisable
upon the date of their issuance by the Company. Dates of issuance for
the Warrants are specified in Section 1 hereof. Once issued, each
Warrant entitles the Warrant Holder thereof to purchase one share of
Common Stock at any time prior to 5:00 P.M., Tulsa time, on December
31, 1998 (the "Expiration Date") at a purchase price of $2.50 per
share, subject to adjustment in accordance with Section 12 hereof (the
"Exercise Price").
(b) The Exercise Price and the number of shares issuable
upon exercise of Warrants are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 12
of this Warrant Agreement. Subject to the provisions of this Warrant
Agreement, each Warrant Holder shall have the right, which may be
exercised as expressed in such Warrants, to purchase from the Company
(and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender to the Company, or its duly
authorized agent, of such Warrants, with the purchase form on the
reverse thereof duly filled in and signed, and upon payment to the
Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 12 of this Warrant Agreement or upon a net
exercise pursuant to this subsection of this Warrant Agreement, for
the number of shares in respect of which such Warrants are then
exercised. The Warrant Holder may (i) pay the Exercise Price in cash,
by certified or official bank check payable to the order of the
Company, or by the surrender to the Company securities of the Company
having a Market Price equal to the Exercise Price or by the surrender
to the Company indebtedness owed by the Company pursuant to the Credit
Agreement (in which case the Company will accept such specified unpaid
principal amount in full payment, as if such payment had been made in
cash or (ii) make an exercise of Warrants for "Net Warrant Shares."
The number of Net Warrant Shares will be determined as described by
the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS" is
the number of Warrant Shares issuable upon exercise of the Warrants or
portion of Warrants in question. "MP" is the Market Price of the
Common Stock on the last trading day preceding the date of the request
to exercise the Warrants. "Market Price" shall mean the then current
market price per share of Common Stock, as determined in paragraph
12.1(e). "EP" shall mean the Exercise Price.
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<PAGE> 23
Upon such surrender of Warrants, and payment of the Exercise Price,
with cash or securities, or upon a net exercise as aforesaid, the Company at
its expense shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrant Holder and in such name or names as
the Warrant Holder may designate, a certificate or certificates for the number
of full shares of Common Stock so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 12 of this Warrant Agreement, in
respect of any fraction of a share of such stock otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares as of the date of the surrender of such
Warrants and payment of the Exercise Price or receipt of shares by net exercise
as aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Warrant Holders thereof, either in full or
from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the shares purchasable on such exercise at any time
prior to the Expiration Date, a new certificate evidencing the remaining
Warrant or Warrants will be issued.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants
that if any share of Common Stock required to be reserved for purposes of
exercise or conversion of Warrants require, under any Federal or state law or
applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange, before such shares may be issued upon
exercise, the Company will use its best efforts to cause such shares to be duly
registered, approved or listed on the relevant national securities exchange, as
the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants and any securities issued pursuant to Section 12 hereof;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any Warrants or certificates for Warrant Shares and any securities
issued pursuant to Section 12 hereof in a name other than that of the Warrant
Holder of such Warrants.
10. MUTILATED OR MISSING WARRANTS. Upon receipt by the Company of
an affidavit signed by an officer of Parker evidencing the mutilation, loss,
theft or destruction of any of the Warrants, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and in substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF
WARRANTS. The Company shall at all times reserve, out of the authorized and
unissued shares of Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the Common Stock ("Transfer Agent") and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite for such
purpose. The Company will keep a copy of this Warrant Agreement on file
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<PAGE> 24
with the Transfer Agent and with every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Company will supply the Transfer
Agent and any such subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be issuable as provided by Section 13 of this
Warrant Agreement. The Company will furnish to the Transfer Agent and any such
subsequent transfer agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Warrant Holder pursuant to
Section 12.3 hereof. All warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled, and such cancelled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants (subject to adjustment as herein
provided). No shares of stock shall be subject to reservation in respect of the
Warrants subsequent to the Expiration Date except to the extent necessary to
comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend
in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification
in connection with a consolidation or merger in which the
company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Warrant Holder
shall be entitled to receive the kind and number of Warrant
Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or
any record date with respect thereto regardless of whether the
Warrants are exercisable at the time of the happening of such
event or at the time of any record date with respect thereto.
An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights,
options or warrants to holders of its outstanding Common Stock
(other than rights, options or warrants issued to an officer,
director or employee of the Company as compensation,
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<PAGE> 25
regardless of whether such officer, director or employee is a
holder of the Company's Common Stock immediately prior to such
issue), without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a price
per share which is lower, at the record date mentioned below,
than the then current market price per share of Common Stock
(as determined in accordance with paragraph (e) below), then
in each such case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of shares which
the aggregate offering price of the total number of shares of
common stock so offered would purchase at the then current
market price per share of Common Stock. Such adjustment shall
be made whenever such rights, options or warrants are issued,
and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such
rights, options or warrants.
(c) In case the Company shall distribute to
holders of its shares of Common Stock evidences of its
indebtedness or assets (including cash dividends or other cash
distributions) or rights, options or warrants, or convertible
or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock (excluding those
referred to in paragraph (b) above), then in each case the
number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as determined in accordance with paragraph (e) below)
on the date of such distribution, and of which the denominator
shall be the then current market price per share of Common
Stock, less the then fair value (as determined in good faith
by the Board of Directors of the Company, whose determination
shall be conclusive, absent manifest error) of the portion of
the assets or evidences of indebtedness so distributed or of
such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share
of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
In the event of distribution, by the Company to
holders of its shares of Common Stock, of stock of a
subsidiary or securities convertible into or exercisable for
such stock, then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant,
the Warrant Holder, upon
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<PAGE> 26
the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary
or both, as the Company shall determine, the stock or other
securities to which such Warrant Holder would have been
entitled if such Warrant Holder had exercised such Warrant
immediately prior thereto regardless of whether the Warrants
are exercisable at such time, all subject to further
adjustment as provided in this subsection 12.1; provided,
however, that no adjustment in respect of dividends or
interest on such stock or other securities shall be made
during the term of a Warrant or upon the exercise of a
Warrant.
(d) In case the Company shall sell and issue
shares of Common Stock (other than (i) the shares of Common
Stock being offered for sale pursuant to the filing on Form
SB-2 made by the Company with the Securities and Exchange
Commission dated October 29, 1996; and (ii) the shares of
Common Stock offered by the Company in a private placement
memorandum dated September 18, 1996, provided that no more
than 2,000,000 shares of Common Stock are offered or sold in
such private placement) or rights, options, warrants or
convertible securities containing the right to subscribe for
or purchase shares of Common Stock (excluding shares, rights,
options, warrants or convertible securities issued in any of
the transactions described in paragraphs (a), (b) or (c)
above) at a price per share of Common Stock (determined, in
the case of such rights, options, warrants or convertible
securities, by dividing (w) the total of the amount received
or receivable by the Company (determined as provided below) in
consideration of the sale and issuance of such rights,
options, warrants or convertible securities, by (x) the total
number of shares of Common Stock covered by such rights,
options, warrants or convertible securities) lower than 75% of
the then current market price per share of Common Stock (as
determined in accordance with paragraph (e) below) in effect
immediately prior to such sale and issuance, then the number
of Warrant Shares thereafter purchasable upon the exercise of
the Warrants shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
shares, rights, options, warrants or convertible securities
plus the number of additional shares of Common Stock sold or
subject to issuance pursuant to such rights, options, warrants
or convertible securities, and of which the denominator shall
be the number of shares of Common Stock outstanding on the
date of issuance of such shares, rights, options, warrants or
convertible securities plus the number of shares of Common
Stock which the aggregate consideration received or receivable
(determined as provided below) for such sale or issuance would
purchase at 75% of the then current market price. Such
adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustments, the
consideration received or receivable by the Company for
rights, options, warrants or convertible securities shall be
deemed to be the consideration received by the Company for
such rights, options, warrants or convertible securities, plus
the consideration or premiums stated in such rights, options,
warrants or convertible
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<PAGE> 27
securities to be paid for the shares of Common Stock covered
thereby. In case the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or convertible
securities containing the right to subscribe for or purchase
shares of Common Stock, for a consideration consisting, in
whole or in part, of property other than cash or its
equivalent, then in determining the "price per share of Common
Stock" and the "consideration received or receivable by the
Company" for purposes of the first sentence of this paragraph
(d), the Board of Directors shall determine, in its
discretion, the fair value of said property, and such
determination, if made in good faith, shall be binding upon
all Holders.
(e) For the purpose of any computation under
paragraphs (b), (c) and (d) of this Section, the current
market price per share of Common Stock at any date shall be
the average of the daily closing prices of the Company's
Common Stock, as reported on the National Association of
Securities Dealers OTC Bulletin Board, for 30 consecutive
trading days commencing 45 trading days before the date of
such computation. The closing price for each day shall be the
last such reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in each
case on the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading
or, if not listed or admitted to trading, the average of the
closing bid and asked prices of the Common Stock in the
over-the-counter market as reported by NASDAQ or any
comparable system. In the absence of one or more such
quotations, the Board of Directors of the Company shall
determine the current market price, in good faith, on the
basis of such quotations as it considers appropriate.
(f) In any case in which this Section 12.1 shall
require that any adjustment in the number of Warrant Shares be
made effective as of immediately after a record date for a
specified event, the Company may elect to defer until the
occurrence of the event the issuing to the holder of any
Warrant exercised after that record date the shares of Common
Stock and other securities of the Company, if any, issuable
upon the exercise of any Warrant over and above the shares of
Common Stock and other securities of the Company, if any,
issuable upon the exercise of any Warrant prior to such
adjustment; provided, however, that the Company shall deliver
to such Warrant Holder a due bill or other appropriate
instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the
event requiring such adjustment.
(g) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one percent
(1%) in the number of Warrant Shares purchasable upon the
exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (g) are not
required to be made shall be carried forward
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<PAGE> 28
and taken into account in any subsequent adjustment. All
calculations shall be made to the nearest one-thousandth of a
share.
(h) Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Warrant Price payable upon the exercise
of each Warrant shall be adjusted by multiplying such Warrant
Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of such Warrant immediately
prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately
thereafter.
(i) No adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant need be made
under paragraphs (b), (c) and (d) if the Company issues or
distributes to each Warrant Holder the rights, options,
warrants, or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those
paragraphs which each Warrant Holder would have been entitled
to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect
thereto, regardless of whether the Warrants are exercisable at
the time of the happening of such event or at the time of any
record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares.
(j) For the purpose of this Section 12.1, the
terms "shares of Common Stock" shall mean (i) the class of
stock designated as the Common Stock of the Company at the
date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Warrant Holders shall
become entitled to purchase any securities of the Company
other than shares of Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in paragraphs (a)
through (i), inclusive, above, and the provisions of Section 7
and Section 12.2 through 12.5, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(k) Upon the expiration of any rights, options,
warrants or conversion or exchange privileges, if any thereof
shall not have been exercised, the Warrant Price and the
number of shares of Common Stock purchasable upon the exercise
of each warrant shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of
Common Stock
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<PAGE> 29
so issued were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options,
warrants or conversion or exchange rights and (B) such shares
of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, however, that no
such readjustment shall have the effect of increasing the
Warrant Price or decreasing the number of Warrant Shares by an
amount in excess of the amount of the adjustment initially
made with respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount determined appropriate by the Board of Directors
of the Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class, postage prepaid, to each Warrant Holder notice of such
adjustment or adjustments and a certificate of a firm of independent public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of
Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant Shares after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such certificate, absent
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the Company
into another person or in case of any sale, transfer or lease to another person
of all of or substantially all the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with each Warrant
Holder an agreement that each Warrant Holder shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to such action
to purchase upon exercise of each Warrant the kind and amount of shares and
other securities and property which the Warrant Holder would have owned or have
been entitled to receive after the happening of such consolidation, merger,
sale, transfer or lease had such Warrant been exercised immediately prior to
such action regardless of whether the Warrants are exercisable at the time of
such action. Such agreement shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 12. The provisions of this Section 12.4 shall similarly apply to
successive consolidations, mergers, sales, transfers or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore or
hereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Warrant Agreement, the parties understand and agree that such
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<PAGE> 30
Warrants will represent rights consistent with any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Warrant Holder, the number of full Warrant Shares which shall be issuable upon
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
13, be issuable on the exercise of any Warrant (or specified portion, thereof),
the Company shall pay an amount in cash equal to the closing price for one
share of the Common Stock on the trading day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Parker
represents and warrants to the Company that it will not dispose of the Warrant
or Warrant Shares except pursuant to (i) an effective registration statement,
or (ii) an applicable exemption from registration under the Securities Act of
1933 (the "Act"). In connection with any sale by Parker pursuant to clause (ii)
of the preceding sentence, it shall furnish to the Company an opinion of
counsel reasonably satisfactory to the Company to the effect that such
exemption from registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to
a stop-transfer order and the certificate or certificates therefor shall bear
the following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933.
ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE
MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION
FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following
legend by which the Warrant Holder thereof shall be bound:
"THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
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<PAGE> 31
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL TO THE
EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN
CONNECTION WITH SUCH SALE."
16. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with Parker and any subsequent holders of the Warrants and/or
Warrant Shares that within sixty (60) days after receipt of a written
request from holders of 60% in interest of the Warrants and/or Warrant
Shares issued pursuant to this Agreement (the "Initiating Holders"),
the Company shall file a registration statement (and use its best
efforts to cause such registration statement to become effective under
the Act) with respect to the offering and sale or other disposition of
any number of Warrants and/or Warrant Shares (including any securities
received by the Warrant Holders pursuant to Section 12 hereof) (all
such securities, the "Registrable Securities"). The Company shall
continuously maintain the effectiveness of such registration statement
for the lesser of (i) 180 days after the effective date of the
registration statement or (ii) the consummation of the distribution by
the holders of the Registrable Securities covered by such registration
statement (the "Termination Date"); provided, however, that if at the
Termination Date, the Offered Securities are covered by a registration
statement which also covers other securities and which is required to
remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to the
Registrable Securities for so long as such registration statement (or
any subsequent registration statement) remains or is required to
remain in effect for any of such other securities. The Company shall
not be required to comply with more than two requests for registration
pursuant to this Section 16(a). The Company shall not be required to
comply with a request for registration pursuant to this Section 16(a)
made after December 31, 2000, provided, however, that if a request is
properly and timely made on or prior to December 31, 2000 pursuant to
this Section 16(a), the Company shall be required to comply with such
request even though the registration statement does not or cannot
become effective until after December 31, 2000 or the effectiveness of
such registration statement is otherwise required under this Section
16(a) to be maintained beyond December 31, 2000. All expenses of such
registration shall be borne by the Company, except that underwriting
commissions and expenses attributable to the Registrable Securities
will be borne by such Warrant Holders requesting that such securities
be offered.
If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section
16(a). The right of any other holder to registration pursuant to this Section
16(a) shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Registrable Securities in the
underwriting (unless otherwise mutually
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<PAGE> 32
agreed by a majority in interest of the Initiating Holders and such holder with
respect to such participation and inclusion) to the extent provided herein. A
holder may elect to include in such underwriting all or a part of the
Registrable Securities he holds. If other holders of registration rights
request inclusion in any registration statement pursuant to this Section 16(a),
such holders may be included in the underwriting conditioned on their
acceptance of the further applicable provisions of this Section 16(a). The
Company shall (together with other holders proposed to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with a representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. If the representative advises the Initiating Holders in writing that
marketing factors require a limitation on the number of shares to be
underwritten, then securities held by holders other than the Initiating Holders
shall be excluded from such registration to the extent so required by such
limitation.
(b) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants
and agrees with Parker and any subsequent holders of the Warrants
and/or Warrant Shares that, in the event the Company proposes to file
a registration statement under the Act prior to December 31, 2000 with
respect to the firm commitment offering of Common Stock (other than in
connection with an exchange offer or a registration statement on Form
S-4 or S-8 or other similar registration statements not available to
register securities so requested to be included), the Company shall in
each case give written notice of such proposed filing to (i) the
holders of the Warrant Shares and (ii) if on or before the Expiration
Date, the Warrant Holders, in each case at least 30 days before the
earlier of the anticipated or the actual effective date of the
registration statement and at least ten days before the initial filing
of such registration statement and such notice shall offer to such
Warrant Holders the opportunity to include in such registration
statement such number of Warrants and/or Warrant Shares (and any
securities received by the Warrant Holders pursuant to Section 12
hereof) (the "Piggy-back Securities", and together with the securities
referred to in Section 16(a) above, the "Registrable Securities") as
they may request. Warrant Holders desiring inclusion of Piggy-back
Securities in such registration statement shall so inform the Company
by written notice, given within 10 days of the giving of such notice
by the Company in accordance with the provisions of Section 18 hereof.
The Company shall permit, or shall cause the managing underwriter of a
proposed offering to permit, the holders of Piggy-back Securities
requested to be included in the registration to include such
securities in the proposed offering on the same terms and conditions
as applicable to securities of the Company. Notwithstanding the
foregoing, if any such managing underwriter shall advise the Company
in writing that, in its opinion, the distribution of securities by
holders thereof, including all or a portion of the Piggy-back
Securities, requested to be included in the registration concurrently
with the securities being registered by the Company would materially
adversely affect the distribution of such securities by the Company
for its own account, then the holders of such Warrants and/or Warrant
Shares shall delay their offering and sale of Piggy-back Securities
(or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days, as the managing underwriter
shall request, provided that if any other securities are included in
such registration statement for the account of any person other than
the Company and the
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<PAGE> 33
holders of Warrants and/or Warrant Shares, then such securities, including the
Warrants and/or Warrant Shares, so included shall be apportioned among holders
who wish to be included therein pro rata according to amounts so requested to
be included by each such person. No such delay shall in any event impair any
right granted hereunder to make subsequent requests for inclusion pursuant to
the terms of this Section 16(b). The Company shall continuously maintain in
effect any registration statement with respect to which the Piggy-back
Securities have been requested to be included (and so included) for a period of
not less than (i) 180 days after the effectiveness of such registration
statement or (ii) the consummation of the distribution by the Warrant Holders
of the Piggy-back Securities ("Piggy-back Termination Date"); provided,
however, that if at the Piggy-back Termination Date the Piggy-back Securities
are covered by a registration statement which is, or is required to remain, in
effect beyond the Piggy-back Termination Date, the Company shall maintain in
effect the registration statement as it relates to the Piggy-back Securities
for so long as such registration statement remains or is required to remain in
effect for any of such other securities. All expenses of such registration
shall be borne by the Company, except that underwriting commissions and
expenses attributable to the Piggy-back Securities and fees and distributions
of counsel (if any) to the Warrant Holders requesting that the Piggy- back
Securities be offered will be borne by such Warrant Holders.
(c) OTHER MATTERS. In connection with the registration
of Registrable Securities in accordance with Paragraph (a) or (b) above, the
Company agrees to:
(i) Use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities or
Blue Sky laws of such jurisdictions in which the holders of such
Warrants and/or Warrant Shares shall designate; provided, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not so qualified at the time of the request
to register the Registrable Securities or to take any action which
would subject it to general service of process in any jurisdiction
where it is not so subject at the time of the request to register the
Registrable Securities, and use its best efforts to do any and all
other acts and things which may be necessary or advisable to enable
the Warrant Holders to consummate the sale, transfer or other
disposition of such securities in any jurisdiction;
(ii) Enter into indemnity and contribution agreements,
each in customary form, with each underwriter, if any, and each holder
of Registrable Securities included in such registration statement;
and, if requested, enter into an underwriting agreement containing
customary representations, warranties, covenants, allocation of
expenses, and customary closing conditions including, but not limited
to, opinions of counsel, accountants' cold comfort letters, engineers'
reports and environmental reports, with any underwriter who
participates in the offering of Registrable Securities;
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<PAGE> 34
(iii) Pay all expenses in connection with the registration
of the Warrants and/or Warrant Shares under the Act and compliance
with the provisions of clause (i) above, except to the extent
otherwise provided in Sections 16(a) and 16(b); and
(iv) List the Warrant Shares on each securities exchange on
which the Common Stock is listed.
In connection with the registration of Registrable Securities in
accordance with Paragraph (b) above, the Warrant Holders agree to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses (not otherwise inconsistent with this Warrant
Agreement), and customary closing conditions, with any underwriter who
participates in the offering of Registrable Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND
WARRANT HOLDERS, The Company agrees (i) not to effect any public sale
or distribution of any securities similar to the Registrable
Securities or any securities convertible into or exchangeable or
exercisable for such securities (or any option or other right for such
securities), except for any securities that may be issued to the
Warrant Holders pursuant Section 12 hereof, during the 15-day period
prior to, and during the 60-day period beginning on the effective date
of any registration statement under which the Registrable Securities
are registered in accordance with Section 16(a) (other than as part of
such registration).
(e) RULE 144, With a view to making available to Warrant
Holders the benefits of certain rules of the Securities and Exchange
Commission (the "Commission") that may permit the sale of Registrable
Securities to the public without registration, the Company hereby
covenants and agrees to use its best efforts to: (i) file in a timely
manner all reports and other documents required to be filed by it
under the Act and the Securities Exchange Act of 1934 and the rules
and regulations adopted by the Commission thereunder necessary to
permit sales under Rule 144 under the Act, and the Company will take
such further action to the extent required from time to time to enable
Warrant Holders to sell Registrable Securities (whether or not any
such securities have been the subject of a demand or piggy-back request
under Section 16 hereof) without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the Commission and (ii) promptly
furnish each Warrant Holder a copy of all such reports and documents.
Upon the request of a Warrant Holder, the Company will deliver to such
Warrant Holder a written statement as to whether it has complied with
such requirements.
(f) OTHER REGISTRATION RIGHTS. The Company hereby agrees
that it shall not issue any additional registration rights with
respect to shares of its Common Stock, warrants to purchase its Common
Stock or securities convertible into its Common Stock, which are
inconsistent with the provisions of this Agreement.
17
<PAGE> 35
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be
construed as conferring upon the Warrant Holders or their transferees the right
to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration
of the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares
of Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger, sale,
transfer or lease or all or substantially all of its property, assets,
and business as an entirety) shall be proposed,
then in any one or more of said events the Company shall (a) give notice in
writing of such event to the Warrant Holders as provided in Section 21 hereof
and (b) if there are more than 100 Warrant Holders, cause notice of such event
to be published once in The Wall Street Journal (national edition), such giving
of notice and publication to be completed at least 15 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution, or
subscription rights, or for the determination of stockholders entitled to vote
on such proposed dissolution, liquidation or winding up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to publish, mail or receive such notice or any defect therein
or in the publication or mailing thereof shall not affect the validity of any
action taken in connection with such dividend, distribution or subscription
rights, or such proposed dissolution, liquidation or winding up.
18. EXPENSES. The Company shall pay all legal and other reasonable
out-of-pocket expenses of the Warrant Holders and of their counsel, subject to
a limit of $5,000.
19. RIGHTS TO INFORMATION. The Company, in accordance with Section
16(c) above, will provide to all Warrant Holders and to all holders of Warrant
Shares, on a timely basis, copies of all documents and reports filed with the
Commission and annual and quarterly financial statements, prepared in
accordance with GAAP; and additionally will provide upon reasonable request any
other pertinent financial information.
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<PAGE> 36
20. NOTICES. Any notice pursuant to this Warrant Agreement to be
given or made by the holder of any Warrant or Warrant Shares to or on the
Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed as follows:
Environmental Safeguards, Inc.
2600 South Loop West
Suite 445
Houston, Texas 77054
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to
such Warrant Holder at the address of such Warrant Holder as shown on the
Warrant Register or the Common Stock Register, as the case may be.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL
RELATED DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Holders may from time to time supplement or amend this Warrant Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Holder may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Warrant
Holders. Any amendment to this Warrant Agreement may be effected with the
consent of Warrant Holders of at least a majority of the total then outstanding
Warrants (for this purpose Warrant Shares shall be deemed to be Warrants in the
proportion that Warrant Shares are then issuable upon the exercise of
Warrants); provided that, any amendment which shall have the effect of
materially adversely affecting the interests of any Warrant Holder shall not be
effective with respect to such Warrant Holder if such Warrant Holder shall not
have consented thereto.
23. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of the Company and all covenants and agreements
made herein shall survive the execution and delivery of this Warrant Agreement
and the Warrants and shall remain in force and effect until the Expiration
Date.
24. SUCCESSORS. All representations and warranties of the Company
and all covenants and agreements of this Warrant Agreement by or for the
benefit of the Company or the Warrant Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
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<PAGE> 37
25. MERGER OR CONSOLIDATION OF THE COMPANY. So long as this
Warrant Agreement remains in effect, the Company will not merge or consolidate
with or into, or sell, transfer or lease all or substantially all of its
property to, any other corporation unless the successor or purchasing
corporation, as the case may be (if not the Company), shall expressly assume,
by supplemental agreement executed and delivered to the Warrant Holders, the
due and punctual performance and observance of each and every covenant and
condition of this Warrant Agreement to be performed and observed by the
Company.
26. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation other than
the Company and the Warrant Holders, any legal or equitable right, remedy or
claim under this Warrant Agreement, but this Warrant Agreement shall be for the
sole and exclusive benefit of the Company and the holders of the Warrants and
Warrant Shares.
27. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
28. COUNTERPARTS. This Warrant Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed on the day, month and year first above written.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
--------------------------
Name:
Title:
(CORPORATE SEAL)
ATTEST:
- ----------------
Name:
Title:
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<PAGE> 38
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 1 250,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from December _, 1996, until 5:00 P.M.,
Tulsa time, on December 31, 1998, one fully paid and nonassessable share of the
Common Stock (subject to adjustment), par value $.001 per share (the "Common
Stock"), of Environmental Safeguards, Inc., a Nevada corporation (the
"Company"), at the purchase price of $2.50 per share, subject to adjustment as
described in the Warrant Agreement referred to below (the "Exercise Price").
The Warrant Holder may pay the Exercise Price in cash, or by certified or
official bank check or by reduction of the outstanding principal amount under
the Credit Agreement, or make a net exercise for Net Warrant Shares as
described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
___, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies
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<PAGE> 39
of the Warrant Agreement are on file at the principal office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
---------------------------
ATTEST:
- --------------------
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<PAGE> 40
EXHIBIT B
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 2 50,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from 5:00 P.M., Tulsa time, on June 30,
1997, until 5:00 P.M., Tulsa time, on December 31, 1998, one fully paid and
nonassessable share of the Common Stock (subject to adjustment), par value
$.001 per share (the "Common Stock"), of Environmental Safeguards, Inc., a
Nevada corporation (the "Company"), at the purchase price of $2.50 per share,
subject to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
__, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and
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<PAGE> 41
immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
---------------------------
ATTEST:
- -------------------------
4
<PAGE> 42
EXHIBIT C
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 3 50,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from 5:00 P.M., Tulsa time, on December
31, 1997, until 5:00 P.M., Tulsa time, on December 31, 1998, one fully paid and
nonassessable share of the Common Stock (subject to adjustment), par value
$.001 per share (the "Common Stock"), of Environmental Safeguards, Inc., a
Nevada corporation (the "Company"), at the purchase price of $2.50 per share,
subject to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated December ___,
1996 (the "Warrant Agreement") between the Company and Parker Drilling Company
which Warrant Agreement is hereby incorporated herein by reference and made a
part hereof and to which Warrant Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
5
<PAGE> 43
immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
--------------------------
ATTEST:
- -------------------------
6
<PAGE> 44
EXHIBIT B
TERM NOTE
$3,000,000 December 19, 1996
FOR VALUE RECEIVED, ENVIRONMENTAL SAFEGUARDS, INC., a Nevada
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of CASUARINA,
LTD. ("Lender") on or before the Maturity Date the principal amount of Three
Million Dollars ($3,000,000) or such lesser amount of unrepaid Term Loan under
the Credit Agreement (as defined below) as is outstanding on the Maturity Date.
The principal amount hereof shall be repaid by the Borrower in accordance with
the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
hereof in full, at a rate, and on such occasions, as provided in the Credit
Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Lender at 8 East Third Street, Tulsa, Oklahoma 74103 (or
at such other location as Lender may designate) in same day funds. Each
principal payment or prepayment and the resulting principal balance hereof
shall be recorded by the Lender and, prior to any transfer hereof, endorsed on
the grid attached hereto which is a part of this Note.
This Note is the Term Note referred to in and is entitled to the
benefits of the Credit Agreement dated as of December 19, 1996 (the "Credit
Agreement"), among the Borrower and Lender, which Credit Agreement, among other
things, contains provisions for acceleration of the maturities hereof upon the
happening of certain stated events. Terms used herein which are defined in the
Credit Agreement shall have the meanings specified in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF OKLAHOMA.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
-------------------------
Name: Mr. James Percell
Title: Chairman
B-1
<PAGE> 45
TERM NOTE
Principal
Payment Unpaid Principal
Date or Prepayment Balance
- ---- ------------- ----------------
B-2
<PAGE> 1
EXHIBIT 10.4
TERM NOTE
$3,000,000 December 19, 1996
FOR VALUE RECEIVED, ENVIRONMENTAL SAFEGUARDS, INC., a Nevada
corporation (the "Borrower") HEREBY PROMISES TO PAY to the order of
CASUARINA, LTD. ("Lender") on or before the Maturity Date the principal amount
of Three Million Dollars ($3,000,000) or such lesser amount of unrepaid Term
Loan under the Credit Agreement (as defined below) as is outstanding on the
Maturity Date. The principal amount hereof shall be repaid by the Borrower in
accordance with the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
hereof in full, at a rate, and on such occasions, as provided in the Credit
Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Lender at 8 East Third Street, Tulsa, Oklahoma 74103 (or
at such other location as Lender may designate) in same day funds. Each
principal payment or prepayment and the resulting principal balance hereof
shall be recorded by the Lender and, prior to any transfer hereof, endorsed on
the grid attached hereto which is a part of this Note.
This Note is the Term Note referred to in and is entitled to the
benefits of the Credit Agreement dated as of December 19, 1996 (the "Credit
Agreement"), among the Borrower and Lender, which Credit Agreement, among other
things, contains provisions for acceleration of the maturities hereof upon
the happening of certain stated events. Terms used herein which are defined in
the Credit Agreement shall have the meanings specified in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF OKLAHOMA.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ JAMES S. PERCELL
--------------------------
Name: Mr. James Percell
Title: Chairman
<PAGE> 2
TERM NOTE
Principal
Payment Unpaid Principal
Date or Prepayment Balance
- ---- ------------- ----------------
<PAGE> 1
EXHIBIT 10.5
WARRANT AGREEMENT
BETWEEN
ENVIRONMENTAL SAFEGUARDS, INC.
and
PARKER DRILLING COMPANY
Dated as of December 19, 1996
<PAGE> 2
WARRANT AGREEMENT dated as of December 19, 1996, between
Environmental Safeguards, Inc., a Nevada corporation (the "Company"), and
Parker Drilling Company ("Parker" and, together with any transferee of Warrants
or Warrant Shares, the "Warrant Holders(s)").
WHEREAS, Casuarina, Ltd. ("Casuarina", a Bermuda corporation and wholly
owned subsidiary of Parker) and the Company have entered into a certain Credit
Agreement and Note (the "Credit Agreement") dated December 19, 1996, pursuant
to which Casuarina has agreed to loan $3,000,000 to the Company (the "Loan");
and
WHEREAS, the Company proposes to issue to Parker as partial
consideration for Casuarina's agreement to act as Lender pursuant to the Credit
Agreement, common stock purchase warrants (the "Original Warrants", the "June
1997 Warrants" and the "December 1997 Warrants" (as defined below), and
collectively, the "Warrants"), of the Company's Common Stock, par value $.001
per share (the "Common Stock"), each Warrant entitling the holder thereof to
purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue
and deliver 250,000 Warrants (the "Original Warrants") to Parker, or to an
affiliate thereof designated by Parker, on the Closing Date referred to in the
Credit Agreement. The form of warrant certificate for the Original Warrants is
attached hereto as Exhibit A. If the Loan is not repaid in full, inclusive of
any and all interest and other amounts due under the Credit Agreement, by June
30, 1997, then the Company shall issue and deliver an additional 50,000
Warrants (the "June 1997 Warrants") to Parker, or to an affiliate designated by
Parker, on June 30, 1997. The form of warrant certificate for the June 1997
Warrants is attached hereto as Exhibit B. Furthermore, if the Loan is not
repaid in full, inclusive of any and all interest and other amounts due under
the Credit Agreement, by December 31, 1997, then the Company shall issue and
deliver an additional 50,000 Warrants (the "December 1997 Warrants") to Parker,
or to an affiliate designated by Parker, on December 31, 1997. The form of
warrant certificate for the December 1997 Warrants is attached hereto as
Exhibit C.
The Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the Chairman of the Board or the President of the
Company, under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the Secretary of the Company. A Warrant
bearing the manual or facsimile signature of individuals who were at any time
the proper officers of the Company shall bind the Company notwithstanding that
such individuals or any of them shall have ceased to hold such offices prior to
the delivery of such Warrant or did not hold such offices on the date of this
Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by the
Company either upon initial issuance or upon division, exchange, substitution
or transfer.
1
<PAGE> 3
The demand and the piggy-back registration rights set forth in Section
16 hereof may be exercised at any time during the term of the Warrants.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants as follows:
(a) EXISTENCE. The Company is a corporation, duly
organized and validly existing under the laws of the State of Nevada,
and is authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to have a material
adverse effect.
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue and deliver this Warrant and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrant. This Warrant Agreement has
been duly executed and delivered by the Company.
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK.
There have been reserved for issuance, and the Company shall at all
times keep reserved, out of the authorized and unissued shares of
Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrant, and
such shares, when issued upon receipt of payment therefor in
accordance with the terms of the Warrant and of this Warrant
Agreement, will be legally and validly issued, fully paid and
nonassessable and will be free of any preemptive rights of
shareholders or any restrictions not otherwise set forth in this
Warrant Agreement.
(d) EXECUTION AND DELIVERY. Neither the execution or
delivery of this Warrant Agreement nor the consummation of the
transactions herein contemplated does or will result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, Credit
Agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property
or assets of the Company is subject, nor will such action result in
any violation of any provision of the Certificate of Incorporation or
Bylaws of the Company or any statute or any order, rule or regulation
or any court or governmental agency or body having jurisdiction over
the Company or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issuance
and sale of the Warrant or the consummation by the Company of the
transactions contemplated by this Warrant Agreement.
2
<PAGE> 4
(e) VALID AND BINDING OBLIGATIONS. This Warrant
Agreement and all related documents, when duly executed and delivered,
will be legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to any
applicable bankruptcy, insolvency or other laws of general application
affecting creditors' rights and judicial decisions interpreting any of
the foregoing.
(f) LIABILITIES, LITIGATION AND RESTRICTIONS. Except for
the litigation and liabilities disclosed in connection with the Credit
Agreement, the Company has no liabilities, direct or contingent, which
may reasonably be expected to result in a material adverse effect.
Except as disclosed to Parker in writing, no litigation or other
action of any nature affecting the Company is pending before any
governmental authority or, to the knowledge of the Company, threatened
against or affecting the Company, which might reasonably be expected
to result in a material adverse effect. To the knowledge of the
Company, no unusual or unduly burdensome restriction, restraint or
hazard exists by contract, law, governmental regulation or otherwise
relative to the business or material properties of the Company, other
than such as relate generally to persons engaged in the business
activities similar to those conducted by the Company.
(g) AUTHORIZATION AND CONSENTS. No authorization,
consent, approval, exemption, franchise, permit or license of, or
filing with, any governmental authority or other person is required to
authorize, or is otherwise required in connection with, the valid
execution and delivery by the Company of this Warrant Agreement and
all related documents and the performance by the Company of its
obligations hereunder, except for requisite actions under federal and
state securities laws related to the registration of the Warrant
Shares as contemplated by this Warrant Agreement.
(h) COMPLIANCE WITH LAWS, RULES, REGULATIONS AND ORDERS.
To the knowledge of the Company, neither the business nor any of the
activities of the Company, as presently conducted, violates any
requirement of law the result of which violation could reasonably be
expected to result in a material adverse effect on the Company. The
Company possesses all licenses, approvals, registrations, permits and
other authorizations necessary to enable it to carry on its business
in all material respects as now conducted; all such licenses,
approvals, registrations, permits and other authorizations are in full
force and effect; and the Company has no reason to believe that it
will be unable to obtain the renewal of any such licenses, approvals,
registrations, permits and other authorizations; however, this
representation does not extend to such necessary licenses, approvals,
registrations, permits and authorizations of On-Site Technology,
L.L.C.
(i) NO MATERIAL MISSTATEMENTS. No information,
statement, certificate, document, exhibit or report prepared by or at
the direction or with the supervision of the Company and furnished to
Parker in connection with the negotiation and preparation of this
Warrant Agreement or of the Credit Agreement and all related documents
contains any material misstatements of fact or omits to state a
material fact necessary to make the statements contained therein not
misleading as of the date made or deemed made.
3
<PAGE> 5
3. CONDITIONS TO PURCHASE. Parker's obligations hereunder shall be
subject to satisfaction of the following conditions on the Closing Date
referred to in the Credit Agreement:
(a) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Warrant
Agreement and the Warrants and all other legal matters relating to
this Warrant Agreement, the Warrants and the transactions contemplated
hereby shall be satisfactory in all respects to Ronald C. Potter,
counsel for Parker, in his reasonable judgment, and the Company shall
have furnished to such counsel all documents and information that he
may reasonably request to enable him to pass judgment upon such
matters.
(b) There shall have been duly tendered to Parker or upon
the order of Parker a certificate or certificates representing the
Warrants.
(c) Axelrod, Smith & Kirshbaum, counsel for the Company,
shall have furnished to Parker their written opinion, dated the
Closing Date, in form and substance satisfactory to Parker, covering
the matters set forth in subparagraphs 2(a) through 2(g). Opinions by
counsel for the Company covering the matters set forth in
subparagraphs 2(f) and 2(g) shall be made to the best of such
counsel's knowledge after reasonable inquiry.
(d) As required by paragraph 18, Parker and counsel for
Parker shall have received reimbursement for all reasonable fees and
expenses for which invoices have been presented.
4. REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company (the "Warrant Register") as they are
issued. The Warrants shall be registered initially in such names and such
denominations as Parker has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction
upon transfer set forth in this Warrant Agreement, each Warrant certificate may
be exchanged at the option of the Warrant Holder thereof for another
certificate or certificates of different denominations entitling the Warrant
Holder thereof to purchase upon surrender to the Company or its duly authorized
agent a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Warrant Holder to purchase. Any
Warrant Holder desiring to exchange a Warrant certificate or certificates shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate or certificates to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates, as the case may be, as so requested.
Any Warrant issued upon exchange, transfer or partial exercise of the Warrants
shall be the valid obligation of the Company, evidencing the same generic
rights and entitled to the same generic benefits under this Warrant Agreement
as the Warrants surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14
hereof, the Warrants shall be transferrable only on the Warrant Register upon
delivery to the Company of the
4
<PAGE> 6
Warrant certificate or certificates duly endorsed by the Warrant Holder or by
his duly authorized attorney-in-fact or legal representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all
cases of transfer by an attorney-in-fact, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be deposited with
the Company. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto.
7. TERM OF WARRANTS, EXERCISE OF WARRANTS.
(a) The Warrants granted hereunder become exercisable
upon the date of their issuance by the Company. Dates of issuance for
the Warrants are specified in Section 1 hereof. Once issued, each
Warrant entitles the Warrant Holder thereof to purchase one share of
Common Stock at any time prior to 5:00 P.M., Tulsa time, on December
31, 1998 (the "Expiration Date") at a purchase price of $2.50 per
share, subject to adjustment in accordance with Section 12 hereof (the
"Exercise Price").
(b) The Exercise Price and the number of shares issuable
upon exercise of Warrants are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 12
of this Warrant Agreement. Subject to the provisions of this Warrant
Agreement, each Warrant Holder shall have the right, which may be
exercised as expressed in such Warrants, to purchase from the Company
(and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender to the Company, or its duly
authorized agent, of such Warrants, with the purchase form on the
reverse thereof duly filled in and signed, and upon payment to the
Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 12 of this Warrant Agreement or upon a net
exercise pursuant to this subsection of this Warrant Agreement, for
the number of shares in respect of which such Warrants are then
exercised. The Warrant Holder may (i) pay the Exercise Price in cash,
by certified or official bank check payable to the order of the
Company, or by the surrender to the Company securities of the Company
having a Market Price equal to the Exercise Price or by the surrender
to the Company indebtedness owed by the Company pursuant to the Credit
Agreement (in which case the Company will accept such specified unpaid
principal amount in full payment, as if such payment had been made in
cash or (ii) make an exercise of Warrants for "Net Warrant Shares."
The number of Net Warrant Shares will be determined as described by
the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS"
is the number of Warrant Shares issuable upon exercise of the Warrants
or portion of Warrants in question. "MP" is the Market Price of the
Common Stock on the last trading day preceding the date of the request
to exercise the Warrants. "Market Price" shall mean the then current
market price per share of Common Stock, as determined in paragraph
12.1(e). "EP" shall mean the Exercise Price.
5
<PAGE> 7
Upon such surrender of Warrants, and payment of the Exercise Price,
with cash or securities, or upon a net exercise as aforesaid, the Company at
its expense shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrant Holder and in such name or names as
the Warrant Holder may designate, a certificate or certificates for the number
of full shares of Common Stock so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 12 of this Warrant Agreement, in
respect of any fraction of a share of such stock otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares as of the date of the surrender of such
Warrants and payment of the Exercise Price or receipt of shares by net exercise
as aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Warrant Holders thereof, either in full or
from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the shares purchasable on such exercise at any time
prior to the Expiration Date, a new certificate evidencing the remaining
Warrant or Warrants will be issued.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants
that if any share of Common Stock required to be reserved for purposes of
exercise or conversion of Warrants require, under any Federal or state law or
applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange, before such shares may be issued upon
exercise, the Company will use its best efforts to cause such shares to be duly
registered, approved or listed on the relevant national securities exchange, as
the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants and any securities issued pursuant to Section 12 hereof;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any Warrants or certificates for Warrant Shares and any securities
issued pursuant to Section 12 hereof in a name other than that of the Warrant
Holder of such Warrants.
10. MUTILATED OR MISSING WARRANTS. Upon receipt by the Company of
an affidavit signed by an officer of Parker evidencing the mutilation, loss,
theft or destruction of any of the Warrants, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and in substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest.
11. RESERVATION OF WARRANT SHARES: PURCHASE AND CANCELLATION OF
WARRANTS. The Company shall at all times reserve, out of the authorized and
unissued shares of Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the Common Stock ("Transfer Agent") and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite for such
purpose. The Company will keep a copy of this Warrant Agreement on file
6
<PAGE> 8
with the Transfer Agent and with every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Company will supply the Transfer
Agent and any such subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be issuable as provided by Section 13 of this
Warrant Agreement. The Company will furnish to the Transfer Agent and any such
subsequent transfer agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Warrant Holder pursuant to
Section 12.3 hereof. All warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants (subject to adjustment as herein
provided). No shares of stock shall be subject to reservation in respect of the
Warrants subsequent to the Expiration Date except to the extent necessary to
comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend
in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification
in connection with a consolidation or merger in which the
company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Warrant Holder
shall be entitled to receive the kind and number of Warrant
Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or
any record date with respect thereto regardless of whether the
Warrants are exercisable at the time of the happening of such
event or at the time of any record date with respect thereto.
An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights,
options or warrants to holders of its outstanding Common Stock
(other than rights, options or warrants issued to an officer,
director or employee of the Company as compensation,
7
<PAGE> 9
regardless of whether such officer, director or employee is a
holder of the Company's Common Stock immediately prior to such
issue), without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a price
per share which is lower, at the record date mentioned below,
than the then current market price per share of Common Stock
(as determined in accordance with paragraph (e) below), then
in each such case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of shares which
the aggregate offering price of the total number of shares of
common stock so offered would purchase at the then current
market price per share of Common Stock. Such adjustment shall
be made whenever such rights, options or warrants are issued,
and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such
rights, options or warrants.
(c) In case the Company shall distribute to
holders of its shares of Common Stock evidences of its
indebtedness or assets (including cash dividends or other cash
distributions) or rights, options or warrants, or convertible
or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock (excluding those
referred to in paragraph (b) above), then in each case the
number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as determined in accordance with paragraph (e) below)
on the date of such distribution, and of which the denominator
shall be the then current market price per share of Common
Stock, less the then fair value (as determined in good faith
by the Board of Directors of the Company, whose determination
shall be conclusive, absent manifest error) of the portion of
the assets or evidences of indebtedness so distributed or of
such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share
of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
In the event of distribution, by the Company to
holders of its shares of Common Stock, of stock of a
subsidiary or securities convertible into or exercisable for
such stock, then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant,
the Warrant Holder, upon
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<PAGE> 10
the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary
or both, as the Company shall determine, the stock or other
securities to which such Warrant Holder would have been
entitled if such Warrant Holder had exercised such Warrant
immediately prior thereto regardless of whether the Warrants
are exercisable at such time, all subject to further
adjustment as provided in this subsection 12.1; provided,
however, that no adjustment in respect of dividends or
interest on such stock or other securities shall be made
during the term of a Warrant or upon the exercise of a
Warrant.
(d) In case the Company shall sell and issue
shares of Common Stock (other than (i) the shares of Common
Stock being offered for sale pursuant to the filing on Form
SB-2 made by the Company with the Securities and Exchange
Commission dated October 29, 1996; and (ii) the shares of
Common Stock offered by the Company in a private placement
memorandum dated September 18, 1996, provided that no more
than 2,000,000 shares of Common Stock are offered or sold in
such private placement) or rights, options, warrants or
convertible securities containing the right to subscribe for
or purchase shares of Common Stock (excluding shares, rights,
options, warrants or convertible securities issued in any of
the transactions described in paragraphs (a), (b) or (c)
above) at a price per share of Common Stock (determined, in
the case of such rights, options, warrants or convertible
securities, by dividing (w) the total of the amount received
or receivable by the Company (determined as provided below) in
consideration of the sale and issuance of such rights,
options, warrants or convertible securities, by (x) the total
number of shares of Common Stock covered by such rights,
options, warrants or convertible securities) lower than 75% of
the then current market price per share of Common Stock (as
determined in accordance with paragraph (e) below) in effect
immediately prior to such sale and issuance, then the number
of Warrant Shares thereafter purchasable upon the exercise of
the Warrants shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
shares, rights, options, warrants or convertible securities
plus the number of additional shares of Common Stock sold or
subject to issuance pursuant to such rights, options, warrants
or convertible securities, and of which the denominator shall
be the number of shares of Common Stock outstanding on the
date of issuance of such shares, rights, options, warrants or
convertible securities plus the number of shares of Common
Stock which the aggregate consideration received or receivable
(determined as provided below) for such sale or issuance would
purchase at 75% of the then current market price. Such
adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustments, the
consideration received or receivable by the Company for
rights, options, warrants or convertible securities shall be
deemed to be the consideration received by the Company for
such rights, options, warrants or convertible securities, plus
the consideration or premiums stated in such rights, options,
warrants or convertible
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<PAGE> 11
securities to be paid for the shares of Common Stock covered
thereby. In case the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or convertible
securities containing the right to subscribe for or purchase
shares of Common Stock, for a consideration consisting, in
whole or in part, of property other than cash or its
equivalent, then in determining the "price per share of Common
Stock" and the "consideration received or receivable by the
Company" for purposes of the first sentence of this paragraph
(d), the Board of Directors shall determine, in its
discretion, the fair value of said property, and such
determination, if made in good faith, shall be binding upon
all Holders.
(e) For the purpose of any computation under
paragraphs (b), (c) and (d) of this Section, the current
market price per share of Common Stock at any date shall be
the average of the daily closing prices of the Company's
Common Stock, as reported on the National Association of
Securities Dealers OTC Bulletin Board, for 30 consecutive
trading days commencing 45 trading days before the date of
such computation. The closing price for each day shall be
the last such reported sales price regular way or, in case
no such reported sale takes place on such day, the average of
the closing bid and asked prices regular way for such day, in
each case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to
trading or, if not listed or admitted to trading, the average
of the closing bid and asked prices of the Common Stock in the
over-the-counter market as reported by NASDAQ or any
comparable system. In the absence of one or more such
quotations, the Board of Directors of the Company shall
determine the current market price, in good faith, on the
basis of such quotations as it considers appropriate.
(f) In any case in which this Section 12.1 shall
require that any adjustment in the number of Warrant Shares be
made effective as of immediately after a record date for a
specified event, the Company may elect to defer until the
occurrence of the event the issuing to the holder of any
Warrant exercised after that record date the shares of Common
Stock and other securities of the Company, if any, issuable
upon the exercise of any Warrant over and above the shares of
Common Stock and other securities of the Company, if any,
issuable upon the exercise of any Warrant prior to such
adjustment; provided, however, that the Company shall deliver
to such Warrant Holder a due bill or other appropriate
instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the
event requiring such adjustment.
(g) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one percent
(1%) in the number of Warrant Shares purchasable upon the
exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (g) are not
required to be made shall be carried forward
10
<PAGE> 12
and taken into account in any subsequent adjustment. All
calculations shall be made to the nearest one-thousandth of a
share.
(h) Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Warrant Price payable upon the exercise
of each Warrant shall be adjusted by multiplying such Warrant
Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of such Warrant immediately
prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately
thereafter.
(i) No adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant need be made
under paragraphs (b), (c) and (d) if the Company issues or
distributes to each Warrant Holder the rights, options,
warrants, or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those
paragraphs which each Warrant Holder would have been entitled
to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect
thereto, regardless of whether the Warrants are exercisable at
the time of the happening of such event or at the time of any
record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares.
(j) For the purpose of this Section 12.1, the
terms "shares of Common Stock" shall mean (i) the class of
stock designated as the Common Stock of the Company at the
date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Warrant Holders shall
become entitled to purchase any securities of the Company
other than shares of Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in paragraphs (a)
through (i), inclusive, above, and the provisions of Section 7
and Section 12.2 through 12.5, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(k) Upon the expiration of any rights, options,
warrants or conversion or exchange privileges, if any thereof
shall not have been exercised, the Warrant Price and the
number of shares of Common Stock purchasable upon the exercise
of each warrant shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of
Common Stock
11
<PAGE> 13
so issued were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options,
warrants or conversion or exchange rights and (B) such shares
of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, however, that no
such readjustment shall have the effect of increasing the
Warrant Price or decreasing the number of Warrant Shares by an
amount in excess of the amount of the adjustment initially
made with respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may,
at its option, at any time during the term of the Warrants, reduce the then
current Exercise Price to any amount determined appropriate by the Board of
Directors of the Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class, postage prepaid, to each Warrant Holder notice of such
adjustment or adjustments and a certificate of a firm of independent public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of
Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant Shares after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such certificate, absent
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the Company
into another person or in case of any sale, transfer or lease to another person
of all of or substantially all the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with each Warrant
Holder an agreement that each Warrant Holder shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to such action
to purchase upon exercise of each Warrant the kind and amount of shares and
other securities and property which the Warrant Holder would have owned or have
been entitled to receive after the happening of such consolidation, merger,
sale, transfer or lease had such Warrant been exercised immediately prior to
such action regardless of whether the Warrants are exercisable at the time of
such action. Such agreement shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 12. The provisions of this Section 12.4 shall similarly apply to
successive consolidations, mergers, sales, transfers or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore or
hereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this Warrant
Agreement, the parties understand and agree that such
12
<PAGE> 14
Warrants will represent rights consistent with any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Warrant Holder, the number of full Warrant Shares which shall be issuable upon
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
13, be issuable on the exercise of any Warrant (or specified portion, thereof),
the Company shall pay an amount in cash equal to the closing price for one
share of the Common Stock on the trading day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Parker
represents and warrants to the Company that it will not dispose of the Warrant
or Warrant Shares except pursuant to (i) an effective registration statement,
or (ii) an applicable exemption from registration under the Securities Act of
1933 (the "Act"). In connection with any sale by Parker pursuant to clause (ii)
of the preceding sentence, it shall furnish to the Company an opinion of
counsel reasonably satisfactory to the Company to the effect that such
exemption from registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to
a stop-transfer order and the certificate or certificates therefor shall bear
the following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION
WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following
legend by which the Warrant Holder thereof shall be bound:
"THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
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<PAGE> 15
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933. ANY SALE PURSUANT TO CLAUSE (ii) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION
IS AVAILABLE IN CONNECTION WITH SUCH SALE."
16. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with Parker and any subsequent holders of the Warrants and/or
Warrant Shares that within sixty (60) days after receipt of a written
request from holders of 60% in interest of the Warrants and/or Warrant
Shares issued pursuant to this Agreement (the "Initiating Holders"),
the Company shall file a registration statement (and use its best
efforts to cause such registration statement to become effective under
the Act) with respect to the offering and sale or other disposition of
any number of Warrants and/or Warrant Shares (including any securities
received by the Warrant Holders pursuant to Section 12 hereof) (all
such securities, the "Registrable Securities"). The Company shall
continuously maintain the effectiveness of such registration statement
for the lesser of (i) 180 days after the effective date of the
registration statement or (ii) the consummation of the distribution by
the holders of the Registrable Securities covered by such registration
statement (the "Termination Date"); provided, however, that if at the
Termination Date, the Offered Securities are covered by a registration
statement which also covers other securities and which is required to
remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to the
Registrable Securities for so long as such registration statement (or
any subsequent registration statement) remains or is required to
remain in effect for any of such other securities. The Company shall
not be required to comply with more than two requests for registration
pursuant to this Section 16(a). The Company shall not be required to
comply with a request for registration pursuant to this Section 16(a)
made after December 31, 2000, provided, however, that if a request is
properly and timely made on or prior to December 31, 2000 pursuant to
this Section 16(a), the Company shall be required to comply with such
request even though the registration statement does not or cannot
become effective until after December 31, 2000 or the effectiveness of
such registration statement is otherwise required under this Section
16(a) to be maintained beyond December 31, 2000. All expenses of such
registration shall be borne by the Company, except that underwriting
commissions and expenses attributable to the Registrable Securities
will be borne by such Warrant Holders requesting that such securities
be offered.
If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section
16(a). The right of any other holder to registration pursuant to this Section
16(a) shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Registrable Securities in the
underwriting (unless otherwise mutually
14
<PAGE> 16
agreed by a majority in interest of the Initiating Holders and such holder with
respect to such participation and inclusion) to the extent provided herein. A
holder may elect to include in such underwriting all or a part of the
Registrable Securities he holds. If other holders of registration rights
request inclusion in any registration statement pursuant to this Section 16(a),
such holders may be included in the underwriting conditioned on their
acceptance of the further applicable provisions of this Section 16(a). The
Company shall (together with other holders proposed to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with a representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. If the representative advises the Initiating Holders in writing that
marketing factors require a limitation on the number of shares to be
underwritten, then securities held by holders other than the Initiating Holders
shall be excluded from such registration to the extent so required by such
limitation.
(b) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants
and agrees with Parker and any subsequent holders of the Warrants
and/or Warrant Shares that, in the event the Company proposes to file
a registration statement under the Act prior to December 31, 2000 with
respect to the firm commitment offering of Common Stock (other than in
connection with an exchange offer or a registration statement on Form
S-4 or S-8 or other similar registration statements not available to
register securities so requested to be included), the Company shall in
each case give written notice of such proposed filing to (i) the
holders of the Warrant Shares and (ii) if on or before the Expiration
Date, the Warrant Holders, in each case at least 30 days before the
earlier of the anticipated or the actual effective date of the
registration statement and at least ten days before the initial filing
of such registration statement and such notice shall offer to such
Warrant Holders the opportunity to include in such registration
statement such number of Warrants and/or Warrant Shares (and any
securities received by the Warrant Holders pursuant to Section 12
hereof) (the "Piggy-back Securities", and together with the securities
referred to in Section 16(a) above, the "Registrable Securities") as
they may request. Warrant Holders desiring inclusion of Piggy-back
Securities in such registration statement shall so inform the Company
by written notice, given within 10 days of the giving of such notice
by the Company in accordance with the provisions of Section 18 hereof.
The Company shall permit, or shall cause the managing underwriter of a
proposed offering to permit, the holders of Piggy-back Securities
requested to be included in the registration to include such
securities in the proposed offering on the same terms and conditions
as applicable to securities of the Company. Notwithstanding the
foregoing, if any such managing underwriter shall advise the Company
in writing that, in its opinion, the distribution of securities by
holders thereof, including all or a portion of the Piggy-back
Securities, requested to be included in the registration concurrently
with the securities being registered by the Company would materially
adversely affect the distribution of such securities by the Company
for its own account, then the holders of such Warrants and/or Warrant
Shares shall delay their offering and sale of Piggy-back Securities
(or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days, as the managing underwriter
shall request, provided that if any other securities are included in
such registration statement for the account of any person other than
the Company and the
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<PAGE> 17
holders of Warrants and/or Warrant Shares, then such securities,
including the Warrants and/or Warrant Shares, so included shall be
apportioned among holders who wish to be included therein pro rata
according to amounts so requested to be included by each such person.
No such delay shall in any event impair any right granted hereunder to
make subsequent requests for inclusion pursuant to the terms of this
Section 16(b). The Company shall continuously maintain in effect any
registration statement with respect to which the Piggy-back Securities
have been requested to be included (and so included) for a period of
not less than (i) 180 days after the effectiveness of such
registration statement or (ii) the consummation of the distribution by
the Warrant Holders of the Piggy-back Securities ("Piggy-back
Termination Date"); provided, however, that if at the Piggy-back
Termination Date the Piggy-back Securities are covered by a
registration statement which is, or is required to remain, in effect
beyond the Piggy-back Termination Date, the Company shall maintain in
effect the registration statement as it relates to the Piggy-back
Securities for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All
expenses of such registration shall be borne by the Company, except
that underwriting commissions and expenses attributable to the Piggy-
back Securities and fees and distributions of counsel (if any) to the
Warrant Holders requesting that the Piggy-back Securities be offered
will be borne by such Warrant Holders.
(c) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with Paragraph (a) or (b) above,
the Company agrees to:
(i) Use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities
or Blue Sky laws of such jurisdictions in which the holders of
such Warrants and/or Warrant Shares shall designate; provided,
that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not so qualified at
the time of the request to register the Registrable Securities
or to take any action which would subject it to general service
of process in any jurisdiction where it is not so subject at
the time of the request to register the Registrable Securities,
and use its best efforts to do any and all other acts and
things which may be necessary or advisable to enable the
Warrant Holders to consummate the sale, transfer or other
disposition of such securities in any jurisdiction;
(ii) Enter into indemnity and contribution
agreements, each in customary form, with each underwriter, if
any, and each holder of Registrable Securities included in such
registration statement; and, if requested, enter into an
underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses, and customary
closing conditions including, but not limited to, opinions of
counsel, accountants' cold comfort letters, engineers' reports
and environmental reports, with any underwriter who
participates in the offering of Registrable Securities;
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<PAGE> 18
(iii) Pay all expenses in connection with the
registration of the Warrants and/or Warrant Shares under the
Act and compliance with the provisions of clause (i) above,
except to the extent otherwise provided in Sections 16(a) and
16(b); and
(iv) List the Warrant Shares on each securities
exchange on which the Common Stock is listed.
In connection with the registration of Registrable Securities in
accordance with Paragraph (b) above, the Warrant Holders agree to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses (not otherwise inconsistent with this Warrant
Agreement), and customary closing conditions, with any underwriter who
participates in the offering of Registrable Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND WARRANT
HOLDERS. The Company agrees (i) not to effect any public sale or
distribution of any securities similar to the Registrable Securities
or any securities convertible into or exchangeable or exercisable for
such securities (or any option or other right for such securities),
except for any securities that may be issued to the Warrant Holders
pursuant Section 12 hereof, during the 15-day period prior to, and
during the 60-day period beginning on the effective date of any
registration statement under which the Registrable Securities are
registered in accordance with Section 16(a) (other than as part of
such registration).
(e) RULE 144. With a view to making available to Warrant
Holders the benefits of certain rules of the Securities and Exchange
Commission (the "Commission") that may permit the sale of Registrable
Securities to the public without registration, the Company hereby
covenants and agrees to use its best efforts to: (i) file in a timely
manner all reports and other documents required to be filed by it
under the Act and the Securities Exchange Act of 1934 and the rules
and regulations adopted by the Commission thereunder necessary to
permit sales under Rule 144 under the Act, and the Company will take
such further action to the extent required from time to time to enable
Warrant Holders to sell Registrable Securities (whether or not any
such securities have been the subject of a demand or piggy-back request
under Section 16 hereof) without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the Commission and (ii) promptly
furnish each Warrant Holder a copy of all such reports and documents.
Upon the request of a Warrant Holder, the Company will deliver to such
Warrant Holder a written statement as to whether it has complied with
such requirements.
(f) OTHER REGISTRATION RIGHTS. The Company hereby agrees
that it shall not issue any additional registration rights with
respect to shares of its Common Stock, warrants to purchase its Common
Stock or securities convertible into its Common Stock, which are
inconsistent with the provisions of this Agreement.
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<PAGE> 19
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be
construed as conferring upon the Warrant Holders or their transferees the right
to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration
of the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares
of Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease or all or substantially all of its property, assets, and
business as an entirety) shall be proposed,
then in any one or more of said events the Company shall (a) give notice in
writing of such event to the Warrant Holders as provided in Section 21 hereof
and (b) if there are more than 100 Warrant Holders, cause notice of such event
to be published once in The Wall Street Journal (national edition), such giving
of notice and publication to be completed at least 15 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution, or
subscription rights, or for the determination of stockholders entitled to vote
on such proposed dissolution, liquidation or winding up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to publish, mail or receive such notice or any defect therein
or in the publication or mailing thereof shall not affect the validity of any
action taken in connection with such dividend, distribution or subscription
rights, or such proposed dissolution, liquidation or winding up.
18. EXPENSES. The Company shall pay all legal and other reasonable
out-of-pocket expenses of the Warrant Holders and of their counsel, subject to
a limit of $5,000.
19. RIGHT TO INFORMATION. The Company, in accordance with Section
16(c) above, will provide to all Warrant Holders and to all holders of Warrant
Shares, on a timely basis, copies of all documents and reports filed with the
Commission and annual and quarterly financial statements, prepared in
accordance with GAAP; and additionally will provide upon reasonable request any
other pertinent financial information.
18
<PAGE> 20
20. NOTICES. Any notice pursuant to this Warrant Agreement to be
given or made by the holder of any Warrant or Warrant Shares to or on the
Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed as follows:
Environmental Safeguards, Inc.
2600 South Loop West
Suite 445
Houston, Texas 77054
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to
such Warrant Holder at the address of such Warrant Holder as shown on the
Warrant Register or the Common Stock Register, as the case may be.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL
RELATED DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Holders may from time to time supplement or amend this Warrant Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Holder may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Warrant
Holders. Any amendment to this Warrant Agreement may be effected with the
consent of Warrant Holders of at least a majority of the total then outstanding
Warrants (for this purpose Warrant Shares shall be deemed to be Warrants in the
proportion that Warrant Shares are then issuable upon the exercise of
Warrants); provided that, any amendment which shall have the effect of
materially adversely affecting the interests of any Warrant Holder shall not be
effective with respect to such Warrant Holder if such Warrant Holder shall not
have consented thereto.
23. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of the Company and all covenants and agreements
made herein shall survive the execution and delivery of this Warrant Agreement
and the Warrants and shall remain in force and effect until the Expiration
Date.
24. SUCCESSORS. All representations and warranties of the Company
and all covenants and agreements of this Warrant Agreement by or for the
benefit of the Company or the Warrant Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
19
<PAGE> 21
25. MERGER OR CONSOLIDATION OF THE COMPANY. So long as this
Warrant Agreement remains in effect, the Company will not merge or consolidate
with or into, or sell, transfer or lease all or substantially all of its
property to, any other corporation unless the successor or purchasing
corporation, as the case may be (if not the Company), shall expressly assume,
by supplemental agreement executed and delivered to the Warrant Holders, the
due and punctual performance and observance of each and every covenant and
condition of this Warrant Agreement to be performed and observed by the
Company.
26. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation other than
the Company and the Warrant Holders, any legal or equitable right, remedy or
claim under this Warrant Agreement, but this Warrant Agreement shall be for the
sole and exclusive benefit of the Company and the holders of the Warrants and
Warrant Shares.
27. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
28. COUNTERPARTS. This Warrant Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed on the day, month and year first above written.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ JAMES S. PERCELL
-----------------------------
Name: James S. Percell
Title: Chairman
(CORPORATE SEAL)
ATTEST:
/s/ MICHAEL M. DUNSON
- ------------------------------
Name: Michael M. Dunson
Title: Secretary
20
<PAGE> 22
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No.1 250,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from December _, 1996, until 5:00 P.M.,
Tulsa time, on December 31, 1998, one fully paid and nonassessable share of the
Common Stock (subject to adjustment), par value $.001 per share (the "Common
Stock"), of Environmental Safeguards, Inc., a Nevada corporation (the
"Company"), at the purchase price of $2.50 per share, subject to adjustment as
described in the Warrant Agreement referred to below (the "Exercise Price").
The Warrant Holder may pay the Exercise Price in cash, or by certified or
official bank check or by reduction of the outstanding principal amount under
the Credit Agreement, or make a net exercise for Net Warrant Shares as
described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
__, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies
1
<PAGE> 23
of the Warrant Agreement are on file at the principal office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
----------------------------
ATTEST:
- ------------------------------------
2
<PAGE> 24
EXHIBIT B
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 2 50,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from 5:00 P.M., Tulsa time, on June 30,
1997, until 5:00 P.M., Tulsa time, on December 31, 1998, one fully paid and
nonassessable share of the Common Stock (subject to adjustment), par value
$.001 per share (the "Common Stock"), of Environmental Safeguards, Inc., a
Nevada corporation (the "Company"), at the purchase price of $2.50 per share,
subject to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
__, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and
3
<PAGE> 25
immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
----------------------------
ATTEST:
- -------------------------------
4
<PAGE> 26
EXHIBIT C
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Certificate No. 3 50,000 Warrants
VOID AFTER 5:00 P.M. TULSA TIME
ON DECEMBER 31, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received, Parker Drilling Company, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from 5:00 P.M., Tulsa time, on December
31, 1997, until 5:00 P.M., Tulsa time, on December 31, 1998, one fully paid and
nonassessable share of the Common Stock (subject to adjustment), par value
$.001 per share (the "Common Stock"), of Environmental Safeguards, Inc., a
Nevada corporation (the "Company"), at the purchase price of $2.50 per share,
subject to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated December
__, 1996 (the "Warrant Agreement") between the Company and Parker Drilling
Company which Warrant Agreement is hereby incorporated herein by reference and
made a part hereof and to which Warrant Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and
5
<PAGE> 27
immunities hereunder of the Company and the Warrant Holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such books, the
Company may treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the
Warrant Holder shall be entitled to receive upon surrender hereof, another
Warrant Certificate or Warrant Certificates for the number of whole Warrants
not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Environmental Safeguards, Inc. has caused the
signature of its President and Secretary to be signed hereon and its corporate
seal to be placed hereon.
ENVIRONMENTAL SAFEGUARDS, INC.
By:
----------------------------
ATTEST:
- --------------------------------
6
<PAGE> 1
EXHIBIT 16.1
RANDY SIMPSON C.P.A. P.C.
11775 South Nicklaus Road
Sandy, Utah 84092
Fax & Phone (801) 572-3009
December 24, 1996
Securities and Exchange Commission
Washington, D. C. 20549
Re: Environmental Safeguards, Inc. 87-0429198
1994 Audit Report
Dear Sirs,
We agree with the disclosures made by Environmental Safeguards, Inc.
regarding their change of Certified Public Accountants.
There were no disagreements between the Company and Randy Simpson CPA PC,
which were not resolved to our satisfaction during the audit of the Company for
the year ended December 31, 1994, as to matters of accounting principle or
practices, financial statement disclosure or audit scope and procedure in
connection with our report on the 1994 financial statements of the Company.
Sincerely yours,
/s/ RANDY SIMPSON CPA PC
RANDY SIMPSON CPA PC
<PAGE> 1
[HAM, LANGSTON & BREZINA L.L.P. LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report, dated March 24, 1996, except for Notes 6, 13 and 14 as to which the date
is January 7, 1997, 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
January 7, 1997
<PAGE> 1
EXHIBIT 23.3
[RANDY SIMPSON C.P.A. P.C. LETTERHEAD]
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
January 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 194,388 794,221
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 194,388 794,221
<PP&E> 36,502 33,802
<DEPRECIATION> (18,262) 23,737
<TOTAL-ASSETS> 318,090 1,815,080
<CURRENT-LIABILITIES> 623,932 64,900
<BONDS> 233,517 1,110,000
0 0
0 0
<COMMON> 5,551 6,855
<OTHER-SE> (311,393) 457,048
<TOTAL-LIABILITY-AND-EQUITY> 318,090 1,815,080
<SALES> 0 0
<TOTAL-REVENUES> 116,397 12,453
<CGS> 0 0
<TOTAL-COSTS> 581,396 0
<OTHER-EXPENSES> 737,217 583,717
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,397 0
<INCOME-PRETAX> (1,215,613) (571,264)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,215,613) (571,264)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 74,035
<CHANGES> 0 0
<NET-INCOME> (1,215,613) (497,229)
<EPS-PRIMARY> (0.26) (.079)
<EPS-DILUTED> (0.26) (.079)
</TABLE>
