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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934;
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-21953
ENVIRONMENTAL SAFEGUARDS, INC.
(Exact name of registrant as specified in its charter)
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NEVADA 87-0429198
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
2600 SOUTH LOOP WEST, SUITE 645
HOUSTON, TEXAS 77054
(Address of principal executive offices, including zip code)
(713) 641-3838
(Registrant's telephone number, including area code)
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Securities registered under Section 12(b) of the Exchange Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
Common Stock, $.001 par value American Stock Exchange
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Securities registered pursuant to 12(g) of the Exchange Act: NONE
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (ii) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for the year ended December 31, 1997 were $6,678,000. The
aggregate market value of Common Stock held by non-affiliates of the registrant
at March 25, 1998, based upon the last closing price on the American Stock
Exchange, was $53,843,904. As of March 25, 1998, there were 9,282,265 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
N/A
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 8
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 7. Financial Statements........................................ 13
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of The Exchange
Act......................................................... 14
Item 10. Executive Compensation...................................... 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 17
Item 12. Certain Relationships and Related Transactions.............. 20
Item 13. Exhibits and Reports on Form 8-K............................ 21
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Environmental Safeguards, Inc. (the "Company"), is engaged in the
development, production and sale of environmental remediation and recycling
technologies and services, primarily to oil and gas industry participants,
through its wholly-owned subsidiaries National Fuel & Energy, Inc. ("NFE") and
OnSite Technology, L.L.C. ("OnSite"). The environmental remediation and
recycling services provided by the Company involve the removal of hydrocarbon
contaminants and valuable drilling fluids from soil using indirect thermal
desorption remediation and recycling technology. The Company provides these
services on site. The Company does not haul remediated soil or recycled material
away from a site.
Unless otherwise indicated, references to the Company include OnSite and
NFE, the Company's wholly owned subsidiaries. The Company's Common Stock is
traded on the American Stock Exchange under the symbol "EVV".
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 $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. , a Wyoming
corporation ("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.
In January 1995, the Company entered into an agreement with Parker Drilling
Company ("Parker"), a Delaware corporation, granting Parker exclusive marketing
rights to the Company's proprietary processes for on-site remediation and
recycling 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, a joint
company between NFE and Parker, in which NFE and Parker each owned 50%. Pursuant
to its agreement with OnSite, NFE granted to OnSite certain exclusive licenses
to use the technologies relating to the Company's Indirect Thermal Desorption
Units (the "ITD Units"), and the proprietary processes for on-site remediation
and recycling of hydrocarbon contaminated soil.
In December 1997, the Company entered into a Purchase Agreement (the
"Purchase Agreement") with Parker which provided for the acquisition by the
Company, through NFE, of Parker's 50% equity interest in OnSite resulting in NFE
becoming the owner of 100% of the equity interest in OnSite. Pursuant to the
terms of the Purchase Agreement, the Company paid $8,000,000 for the 50% equity
interest and repaid a $3,000,000 loan that had been made to the Company by an
affiliate of Parker. As part of the transaction, Parker returned to the Company
unexercised warrants to purchase 300,000 shares of the Company's common stock.
The Company's sources of funds to effect the acquisition included the sale
of $8,000,000 of new Series B Convertible Preferred Stock and Series C Preferred
Stock to an investor group consisting of Cahill, Warnock Strategic Partners
Fund, L.P., Strategic Associates, L.P., Newpark Resources, Inc. and James H.
Stone, who is the Chairman of Stone Energy Corporation and a secured loan of
$6,000,000 from the same investor group ("Loan Agreement"). Pursuant to the
financing, David L. Warnock, a member of Cahill, Warnock & Co., L.L.C. and
general partner of Cahill, Warnock Strategic Partners Fund, L.P., was appointed
as a Director of the Company.
As a result of the financing, the Company retained approximately $3,000,000
after the transaction to use for working capital, payment of expenses associated
with the financing and general corporate purposes.
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BUSINESS ACTIVITIES
General. Substantially all of the Company's activities are conducted
through OnSite, which is engaged in the development and production of
remediation and recycling technology and the sale of environmental remediation
and recycling services. OnSite owns the technologies included in the ITD Units,
and the proprietary processes for on-site remediation and recycling of
hydrocarbon contaminated soil. To date, the environmental remediation and
recycling services provided by the Company have involved the removal of
petroleum contaminants from soil using the ITD Units. Each ITD Unit is an easily
transportable processing system which produces clean soil from contaminated soil
while reclaiming the hydrocarbons. ITD Units may be transported from one
clean-up site to another. The Company's customers are large corporations in the
oil and gas drilling industry that have responded to the changing regulatory
climate with respect to soil and other environmental contamination.
The primary services offered by the Company involve remediation and
recycling of soil contaminated by oil-based drilling mud, fuel spills, leakage
at storage tanks and other sources of hydrocarbon contamination. To remediate
and recycle 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 and recycled at the site where the
contaminated soil is located. The Company does not haul or dispose of soil or
contaminants away from the customer's location.
As of March, 1998, the Company owns four ITD Units. It operates three of
these ITD Units, one in Louisiana for Newpark Resources, Inc. ("Newpark
Resources"), one in Venezuela pending finalization of a contract with a major
oil and gas producer and one in Houston undergoing final internal quality
control testing and review. The fourth ITD Unit owned by the Company is leased
to OnSite Colombia, Inc. ("OnSite Colombia"), an affiliate in which the Company
owns a 50% interest. OnSite Colombia leases two additional ITD Units pursuant to
sale-leaseback arrangements with unrelated third parties. All three of the ITD
Units leased by OnSite Colombia are under contract to a multinational oil and
gas company operating in Colombia. Four additional ITD Units are under
construction by third parties, with delivery of the completed ITD Units expected
to begin in May, 1998, bringing the Company's fleet of portable units to 10.
There can be no assurance that delivery of the four ITD Units will be made
starting in May, 1998.
Customers. The Company's customers are large oil and gas industry
participants. 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 and the estimated processing time. Once a
contract has been awarded, OnSite moves its equipment to the client's desired
location.
Indirect Thermal Remediation and Recycling. The primary services offered by
the Company involve: (i) the remediation and recycling of soil contaminated by
oil-based drilling mud, fuel spills, leakage at storage tanks, leakage from
pipelines; (ii) the remediation and recycling of hydrocarbon contamination at
settling ponds, oil and gas exploration sites, refineries, petrochemical
facilities, abandoned production fields, Department of Defense installations and
other similar type sites; and (iii) the remediation and recycling of valuable
drilling fluids which have been captured in soil and drilling muds during the
drilling process. To date the Company has employed its ITD Units to provide
remediation and recycling services to oil and gas industry drilling operations,
tank farms and compressor sites. This process is known as "indirect thermal
desorption" because it reverses the contamination process and removes the
hydrocarbons from the soil and discharges 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
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hydrocarbon vapor to condense to a liquid for client recycling. 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
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 and the soil
condition is within the permitted range. The soil is then returned to its
original location or such other location specified by the customer.
The hydrocarbon vapors removed from the heat exchange system by vacuum are
passed through a fan-cooled condensing system. The vapors are condensed into
liquids and collected 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. To date, an ITD Unit has 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 and the
remediation and recycling required. 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
unit, 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 of ITD Units. The Company contracts with outside fabricators
to manufacture ITD Units. The primary contractors which the Company uses are
Roberds-Johnson Industries, Cobrans Corporation, Stelcon, Inc. and Houston Pro
FAB. Currently, four ITD Units are under construction by fabricators for the
Company and the Company expects delivery of these four ITD Units beginning in
May 1998, but there can be no assurance that this will occur.
EXISTING CONTRACTS FOR OPERATIONS
As of March, 1998, the Company operates three ITD Units. One is under
contract to Newpark Resources in Louisiana, one is in Venezuela pending
finalization of a contract with a major oil and gas producer and one is in
Houston undergoing final testing and review. OnSite Colombia operates three
additional ITD Units, all of which are currently under contract and in operation
for a multinational oil and gas company in Colombia.
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 and have
substantially greater capital resources, larger research and development staffs
and facilities and substantially greater marketing capabilities than the
Company. There can be no assurance that the Company will be competitive in the
soil remediation and recycling industry in the future.
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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, remediating 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, remediation and recycling
businesses are, to a large extent, dependent upon and constrained by the costs
and regulations associated with transporting such wastes. More importantly, the
Company's remediation and recycling process addresses the latent liability
associated with the contamination at the site. The Company is currently
investigating techniques and technologies capable of evaporation of non-needed
liquids and ultra-filtration applications. There can be no assurance that the
Company will be able to develop or acquire such technology and skill or that, if
obtained, 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. ITD Units also
permit the customer to recapture certain valuable liquids which are otherwise
destroyed.
GOVERNMENTAL REGULATIONS -- COST OF COMPLIANCE
The Company renders services in connection with the remediation, recycling
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
the 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, air emissions
fire protection, worker and community right-to-know, and emergency response
plans. 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.
The Company presently has the ability to deliver soil remediation and
recycling 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. Moreover, site-related permits are generally the
responsibility of the customer, not the Company.
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EMPLOYEES
The Company has 18 full-time employees, eight of whom are in management
positions, including corporate and administrative operations. The Company
utilizes the services of an employee leasing firm, Business Staffing, Inc., for
all of its U.S. domiciled employees. None of the Company's employees are
represented by a union and the Company considers its employee relations to be
good.
SUBSEQUENT DEVELOPMENTS
On February 12, 1998 the Company's Common Stock began trading on the
American Stock Exchange under the symbol "EVV".
TRANSFER AGENT AND REGISTRAR
The co-transfer agents and registrars for the Common Stock of the Company
are Colonial Stock Transfer Company, Inc. ("Colonial Transfer") and Registrar
and Transfer Company. Colonial Transfer's address is 455 East 400 South, Suite
100, Salt Lake City, Utah 84111; (801) 355-5740.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased facilities
at 2600 South Loop West, Suite 645, Houston, Texas 77054, which consist of a
total of approximately 2,000 square feet. The current monthly rental for these
executive offices is $1,500. The lease for the executive offices will expire in
May 1998. The Company anticipates renewing the lease. The Company believes that
its offices are adequate for its present needs and that suitable space will be
available to accommodate its future needs.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of shareholders on November 17, 1997.
The following table sets forth the names and tabulations of all nominees for
Director at the Annual Meeting:
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DIRECTOR FOR WITHHELD
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James S. Percell............................................ 5,974,346 6,000
Robin M. Pate............................................... 5,974,346 6,000
Bryan Sharp................................................. 5,974,346 6,000
Albert M. Wolford........................................... 5,974,346 6,000
Billy G. Taylor............................................. 5,974,346 6,000
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on the American Stock
Exchange under the symbol "EVV". Prior to February 12, 1998, the Company's
Common Stock was traded in the over-the-counter securities market on the OTC
Bulletin Board. The following table sets forth, for the periods indicated,
closing prices on the American Stock Exchange or the high and low closing bid
prices for the Common Stock of the Company as reported on the OTC Bulletin
Board. The bid prices reflect inter-dealer quotations, do not include retail
markups, markdowns or commissions and do not necessarily reflect actual
transactions.
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COMMON STOCK PRICE RANGE
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HIGH BID LOW BID
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1996
First Quarter............................................. $5 $ 11/16
Second Quarter............................................ $3 1/4 $2 1/4
Third Quarter............................................. $4 3/4 $2 3/4
Fourth Quarter............................................ $4 $2 3/4
1997
First Quarter............................................. $3 7/8 $2 3/8
Second Quarter............................................ $3 5/8 $2 1/4
Third Quarter............................................. $3 3/8 $2 3/8
Fourth Quarter............................................ $4 9/16 $2 3/16
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On March 25, 1998, the closing price for the Common Stock of the Company on
the American Stock Exchange was $6.00 per share. On March 25, 1998, there were
approximately 900 stockholders of record of the Common Stock, including
broker-dealers holding shares beneficially owned by their customers.
DIVIDEND POLICY
The Company has not paid, and the Company does not currently intend to pay
cash dividends on its Common Stock in the foreseeable future. The current policy
of the Company's Board of Directors is for the Company to retain all earnings,
if any, to provide funds for operation and expansion of the Company's business.
The declaration of dividends, if any, 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.
The Company may not, except for dividends payable in connection with its
Series C Preferred Stock, authorize or pay any dividends at any time if any
amount is unpaid with respect to the Company's $6,000,000 Loan Agreement.
ITEM 6. 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 included elsewhere in this
Report. See, Financial Statements.
OVERVIEW
The Company is engaged in the development, production and sale of
environmental reclamation and recycling technologies and services. Substantially
all of the Company's technologies and services are provided through On-Site and
the Company is devoting substantially all of its efforts to the development of
markets for OnSite's services. The Company is currently providing reclamation
and recycling services to companies engaged in land-based oil and gas
exploration, and to offshore applications where drill cuttings are barged to an
accessible land based facility for recycling. Oil and gas exploration often
produces significant quantities of
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petroleum-contaminated drill cuttings, from which the Company's Indirect Thermal
Desorption ("ITD") process can extract and recover the hydrocarbons as
re-useable or re-saleable liquids, and produce recycled soil compliant with
environmental regulations. The Company intends to expand the activities of
OnSite to include use of ITD technology to address hydrocarbon contamination
problems and hydrocarbon recycling and reclamation opportunities at heavy
industrial, refining and petrochemical sites, as well as at Superfund, DOD and
DOE sites.
On December 17, 1997, the Company acquired the remaining 50% interest in
OnSite from Parker Drilling Co., giving the Company complete control of the ITD
technology owned by OnSite, and providing the Company with a wholly-owned
operating subsidiary that forms the cornerstone of the Company's future
operations. Total purchase consideration in the OnSite acquisition was financed
by the Company through a private placement of Convertible Preferred and
Preferred Stock, combined with senior secured notes and warrants to purchase
shares of the Company's Common Stock. The Company has included OnSite's
operating results in its statement of operations for the year ended December 31,
1997, as though the acquisition took place at the beginning of the year, and has
deducted as a separate line item the preacquisition earnings attributable to the
former 50% owner.
For the past two years the Company has focused essentially all of its
attention on its now wholly owned business operations in OnSite. OnSite was
formed, as a 50/50 joint company with Parker, as a means for assembling the
capital necessary to build and improve the ITD Units and to generate market
awareness and acceptance of ITD technology. The Company expects that a
substantial portion of its revenues will continue to be generated from major oil
and gas industry participants operating in Columbia and other Latin American
countries. In December 1997, the Company reached an agreement with Newpark
Resources, Inc. to provide reclamation and recycling services in support of
offshore drilling activity in the Gulf of Mexico.
In November 1996, OnSite formed a 50/50 joint company, OnSite Columbia,
Inc. ("OnSite Columbia") with a group of South American investors. OnSite
Columbia was established to provide hydrocarbon contaminated soil reclamation
and recycling services to oil and gas industry participants operating in
Columbia. OnSite Columbia's operations are included in the Company's
consolidated results in 1997 because the Company has effective management
control.
RESULTS OF OPERATIONS
The Company's historical consolidated operating results have been
significantly affected by the acquisition of the remaining 50% interest in
OnSite. In order to make a more meaningful period-to-period comparison of the
Company's operating results, the table below compares historical results (on the
left side) and pro forma financial data (on the right side). Historical
financial data is based on the consolidated method of reporting for 1997
(adopted in December 1997), and is based on the equity method for 1996
consistent with historical reporting prior to the change to the consolidated
method. Pro forma financial data assumes the acquisition and related financing
transaction were consummated as of the beginning of the periods presented. The
pro forma data presents both 1997 and 1996 using the consolidated method of
reporting to enhance comparability. The pro forma results of operations are not
necessarily indicative of the results that would have
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occurred had the acquisitions been consummated as of the beginning of the
periods presented or that might be attained in the future.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------
1997 1996 VARIANCE 1997 1996 VARIANCE
------- ----- -------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Service revenue................................. $ 6,678 $ -- $ 6,678 $ 6,678 $ 730 $ 5,948
Gross margin.................................... 3,452 -- 3,452 3,307 18 3,289
Selling, general and administrative expense..... (2,076) (511) (1,565) (2,467) (1,332) (1,135)
Acquired research & development costs........... (786) -- (786) (24) -- (24)
------- ----- ------- ------- ------- -------
Operating income (loss)......................... 590 (511) 1,101 816 (1,314) 2,130
Other income (expense):
Investment in OnSite.......................... -- (93) 93 -- -- --
Interest income............................... 192 18 174 192 18 174
Interest (expense)............................ (466) (138) (328) (1,253) (1,218) (35)
Foreign currency.............................. (31) -- (31) (31) -- (31)
Other......................................... 4 3 1 -- -- --
------- ----- ------- ------- ------- -------
Income (loss) before provision for income tax... 289 (721) 1,010 (276) (2,514) 2,238
Provision for income tax........................ (1,205) -- (1,205) (1,205) (22) (1,183)
------- ----- ------- ------- ------- -------
Loss before minority interest................... (916) (721) (195) (1,481) (2,536) 1,055
Elimination of minority interest................ (581) -- (581) (547) 82 (629)
------- ----- ------- ------- ------- -------
Loss before extraordinary item.................. (1,497) (721) (776) (2,028) (2,454) 426
Extraordinary item.............................. (352) 74 (426) -- 74 (74)
------- ----- ------- ------- ------- -------
Net loss............................... $(1,849) $(647) $(1,202) $(2,028) $(2,380) $ 352
======= ===== ======= ======= ======= =======
</TABLE>
The pro forma consolidated net loss from 1997 and 1996 includes pro forma
interest expense of $1.1 million in each year, which is not necessarily
indicative of future years' expenses. For example, the Company is evaluating
additional equity financing which could be utilized to retire certain debt. In
such case, the incremental interest expense could be eliminated on a go-forward
basis, but there can be no assurances that the Company will be successful in
that effort.
The pro forma consolidated net loss for 1997 and 1996 also includes in each
year pro forma expense of $151,000 additional depreciation expense resulting
from the adjustment of OnSite's ITD Units to fair value at the time of
acquisition (to be depreciated over a 4.5 year weighted average remaining
economic life of that equipment); and $407,000 amortization of engineering
design and developed technology costs, an intangible asset related to the
acquisition of the 50% interest in OnSite (to be amortized over an 8 year
estimated economic life).
The pro forma data for 1997 excludes the $762,000 acquired research and
development writeoff and the $352,000 extraordinary charge from extinguishment
of debt, as these charges are one-time events.
COMPARISON OF HISTORICAL OPERATING RESULTS
Summary. For the year ended December 31, 1997, the Company incurred a net
loss of $1,849,000 as compared to a 1996 net loss of $647,000. The $1,202,000
increase essentially resulted from a $352,000 extraordinary charge from
retirement of debt, a $762,000 write-off of acquired research and development in
connection with the Company's acquisition of OnSite, and the non-recurrence of a
$74,000 extraordinary gain on elimination of debt recorded in 1996.
The following line-by-line comparison reflects 1997 using the consolidated
method of reporting (adopted as a consequence of the Company's acquiring the
remaining 50% of OnSite), whereas 1996 results use the equity method (the 1996
historical basis of reporting). (The pro forma comparison which follows the
10
<PAGE> 11
historical comparison reflects both 1997 and 1996 under the consolidated method
in order to enhance comparability).
Revenues and Gross Margin. Service revenue of $6.6 million for 1997 was
primarily generated by ITD Units under contract in Colombia. Gross margin for
1997 was $3.4 million, or 51% of revenue. In 1996, neither revenue nor gross
margin were reported, as the Company accounted for the operations of OnSite
under the equity method. (See comments under pro forma comparison for additional
details).
Selling, General and Administrative ("SGA") Expense. SG&A expenses
increased by $1,565,000 compared with the amount reported in 1996 due in part to
OnSite being accounted for on the equity method in 1996. SGA expenses in 1997
were the result of increased operations in Colombia which increased from one ITD
Unit in operation in November 1996 to three ITD Units in full operation starting
in June 1997. The higher level of business activity also prompted personnel
additions and/or recruitment of more experienced personnel at the Corporate
level in such key areas as international operations, accounting/finance,
engineering design and procurement, and regulatory matters. The number of
management employees increased from four at the end of 1996 to six at the end of
1997.
Research and Development ("R&D") Expense. The 1997 R&D expense is primarily
the writeoff of acquired research and development based on a valuation of
in-process technology that resulted from the acquisition of Parker Drilling
Company's 50% interest in OnSite.
Interest Income. In 1997, the Company earned interest income from
investment of proceeds from long-term debt of $3 million received in the fourth
quarter of 1996, and investment of net proceeds of approximately $800,000 from
the company's Regulation D offering that closed in February 1997. During 1996
the Company had little excess cash to invest.
Interest Expense. The 1997 increase to $466,000 resulted from increased
borrowing to finance the construction of additional ITD Units.
Income Taxes. The Company's reported tax provision in 1997 primarily
relates to foreign income taxes incurred by OnSite Colombia, a 50% owned
consolidated subsidiary of OnSite. (The 1996 taxes were included in the loss
from investment in OnSite). The Company has incurred net operating losses
("NOLs") in the U.S. in recent years, which may be used to offset taxable income
reported in future periods. The NOLs and certain foreign tax credits associated
with the taxes paid in Colombia have generated deferred tax assets, but due to
uncertainties regarding the future realization of these assets, a valuation
allowance has been provided for the full amount of the deferred tax assets. The
Company is implementing tax planning strategies, which if successful, may result
in the Company recognizing these deferred tax assets in future periods, which
would significantly reduce the current effective tax rate. There can be no
assurances that the NOL and foreign tax credits will be utilizable.
Elimination of Minority Interest. Minority interest for 1997 reflects the
50% minority ownership's interest in the 1997 net income of OnSite Colombia. In
1996, the Company accounted for its 50% ownership in OnSite Colombia using the
equity method (which excluded the minority ownership).
Extraordinary Item. The extraordinary loss of $352,000 for 1997 resulted
from the writeoff of deferred financing costs that resulted from the early
repayment of the $3 million long-term debt due to Parker. This debt was repaid
in connection with the Company's acquisition of OnSite. The $74,000
extraordinary gain in 1996 also relates to elimination of debt.
COMPARISON OF CONSOLIDATED PRO FORMA OPERATING RESULTS
Summary. The pro forma consolidated data presents 1997 and 1996 operating
results as if the acquisition and related financing transaction were consummated
as of the beginning of each year, and also presents OnSite for both years under
the consolidated method of reporting to enhance line-by-line comparability.
The 1997 pro forma consolidated net loss of $2,028,000 indicates an
improvement of $352,000 as compared to the pro forma consolidated net loss of
$2,380,000 for 1996. The $352,000 improvement is due to $3,289,000 higher gross
margin from increased volume of ITD Units operating in Colombia, partially
offset by
11
<PAGE> 12
increases of $1,135,000 in SGA expense, $1,183,000 in Colombian income tax and
$629,000 in minority interests (each resulting from higher revenues and business
activity).
Following are line-by-line comparisons of 1997 to 1996 on a consolidated
pro forma basis, where variances are significant:
Revenues and Gross Margin. The Company's consolidated pro forma revenues
for 1997 increased from $730,000 to $6,678,000 as a direct result of OnSite's
construction and subsequent deployment of additional ITD Units under contract
with a major oil and gas industry participant in Colombia.
During 1997, based on the positive recycling and remediation results that
were initially achieved, the Company was able to expand the scope of its initial
contract in Colombia and increase, from one to three, the number of ITD Units
deployed there. In 1996, the Company had concentrated its efforts and resources
on a single contract in Lysite, Wyoming and on the construction and improvement
of its ITD and Ultra-filtration technology. The Lysite project provided valuable
feedback concerning ITD Unit performance. Such feedback formed the basis for
improvements which were made to the current Series 6000 ITD design.
Consolidated pro forma gross margin reached $3,307,000 or 49% of revenue
during 1997, reflecting economies of scale from operating 2.3 average units per
month in Colombia throughout 1997 versus one unit for two months only in 1996.
Selling, General and Administrative ("SGA") Expense. Pro forma consolidated
SGA expenses increased by $1,135,000, an increase of 85% over 1996, versus a
corresponding revenue increase of over 800%, which demonstrates the benefits
derived from economies of scale on profitability. The increased SGA included
additions to the Corporate staff of important skills (as discussed above in the
historical analysis).
LIQUIDITY AND CAPITAL RESOURCES
During both 1997 and 1996, the Company raised additional debt and equity
capital to fund current operations, support the construction of ITD Units
necessary for its future growth, and acquire the remaining 50% of OnSite from
Parker. In December 1997, the Company raised $14 million in a private placement
of Series B Convertible Preferred Stock, non-convertible Series C Preferred
Stock, senior secured notes and warrants to purchase the Company's Common Stock.
The proceeds from this private placement were primarily used to fund the $8
million acquisition of OnSite, repay $3 million of long-term debt to a Parker
subsidiary, and provide the Company with capital resources to continue funding
current operations and planned capital expenditures. In the 1997 private
placement, the Company received $6 million in proceeds from senior secured notes
and a commitment by the investors for an additional $5 million of long-term
debt, provided that the Company remains in compliance with the loan covenants of
the secured notes.
Prior to the $14 million in funding described above, in the first quarter
of 1997, the Company converted debt and related accrued interest totaling
$1,262,000 to equity and completed a Regulation D offering of its common stock.
The proceeds from these transactions, along with the $3 million long-term debt
proceeds raised by the Company in December 1996 were used to support operations
throughout most of 1997.
During 1997 the Company arranged capital leasing with third party lenders
for two ITD Units operated in OnSite Colombia in order to improve cash flows.
The Company has and will continue to make capital expenditures for ITD Units,
and at December 31, 1997, had placed orders for four additional units at an
aggregate cost of approximately $4.6 million. The Company plans to finance
additional ITD Units through a combination of surplus operating cash flows,
additional third party sale leaseback transactions, bank term financing, and
potentially an additional sale of equity. There can be no assurances that the
Company will be able to obtain this additional financing.
The functional currency of OnSite Colombia is the U.S. dollar because
customer invoicing, customer receivables, imported equipment and many of the
operating cost factors are denominated in U.S. dollars. The Company plans to
continue to implement the same approach as other foreign operations come on
stream in
12
<PAGE> 13
the course of conducting business abroad in an effort to minimize risks
associated with foreign exchange fluctuation and its affect on Company
profitability.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruption of business activities.
Based on ongoing assessments, the Company believes that no significant
modifications of existing computer software will be required. The Company
believes that its computer systems will function property with respect to dates
in the year 2000 and thereafter. The Company's ITD units are not dependent on
computer software or hardware, and therefore the Year 2000 issue is not expected
to pose material operational problems. The Company also believes that costs
related to the Year 2000 issue will not be significant.
The Company is currently assessing its relationships with significant
suppliers and major customers to determine the extent to which the Company is
vulnerable to any third party's failure to remedy their own Year 2000 issues.
Based on preliminary assessments, management believes that significant exposure
does not exist with respect to third parties.
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in this Annual
Report on Form 10-KSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform act of 1995 for any
forward-looking statements made by, or on behalf of the Company. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical facts. Certain statements
contained herein are forward looking statements and, accordingly, involve risks
and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to attain widespread market acceptance of its technology; the
ability of the Company to obtain acceptable forms and amounts of financing to
fund planned expansion efforts; demand for the Company's services; competitive
factors; the actual useful life of ITD Units; and the ability of the Company to
maintain acceptable utilization rates on its equipment. The Company disclaims
any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
ITEM 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Ham, Langston & Brezina, LLP ("Ham, Langston & Brezina") audited the
financial statements of the Company for the years ended December 31, 1995 and
1996, and were replaced by Ernst & Young LLP ("Ernst & Young), Certified Public
Accountants on September 17, 1997.
There were no disagreements between the Company and Ham, Langston & Brezina
whether resolved or not resolved, on any matter of accounting principles or
practices, financial statement disclosure or auditing
13
<PAGE> 14
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 Ham, Langston & Brezina for the past two fiscal years 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 was not submitted for approval
to the Board of Directors. The change was made by the Company's President, James
S. Percell, in order to provide for the Company's growing need for global
expertise in accounting and other business matters.
Also, during the Company's two most recent fiscal years, and since then,
Ham, Langston & Brezina 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
(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.
Prior to the engagement of Ernst & Young as independent auditors, the
Company had not consulted Ernst & Young regarding the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the Company's financial statements or
any other financial presentation whatsoever.
Ham, Langston & Brezina has provided the Securities and Exchange Commission
with a letter agreeing to the disclosure contained herein.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James S. Percell........................ 55 Chairman, President and CEO
Robin M. Pate........................... 71 Director
Bryan Sharp............................. 54 Director
Albert M. Wolford....................... 76 Director and Secretary
David L. Warnock........................ 40 Director
Douglas A. Schonacher, Jr............... 42 Vice President and Chief Operating Officer
Ronald L. Bianco........................ 51 Chief Financial Officer and Vice-Secretary
</TABLE>
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 serve at the discretion of the Board of
14
<PAGE> 15
Directors. There is no family relationship between or among any of the directors
and executive officers of the Company.
BIOGRAPHIES
JAMES S. 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. 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
attended Amarillo College in Amarillo, Texas.
ROBIN M. 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 formerly served on the Board of Directors of the Gas Processors
Association and National Petroleum Refiners Association of America. 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 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. ("EH&A"), an environmental consulting company, and from
1990-1993, he served as President of EH&A. Mr. Sharp has also been employed by
North Texas State University, the Department of the Interior, and the University
of Texas. 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.
ALBERT M. WOLFORD has served as director of the Company since August 5,
1997. Mr. Wolford is a member of the Company's independent audit committee. Mr.
Wolford is also the Company's Secretary. Mr. Wolford has been an independent
business consultant since 1988. From 1970 to 1988, Mr. Wolford served with Texas
United Corporation as a director, a member of the executive committee, senior
vice-president, and as the chairman of executive development and compensation
committee. As a senior vice-president of Texas United Corporation, Mr. Wolford
served its subsidiaries as president and CEO of Texas United Chemical
Corporation, as the chairman, president and CEO of United Salt Corporation, and
as the president of American Borate Corporation. He has also served the Texas
Chemical Council, an industry trade group, as a director, a member of its
executive committee, and as secretary-treasurer. Mr. Wolford served as a member
of the executive committee of the Salt Institute, an industry trade group. Mr.
Wolford is a graduate of the University of Texas.
DAVID L. WARNOCK was appointed as Director of the Company in December, 1997
in connection with the December, 1997 financing. Mr. Warnock is a founding
partner of Cahill, Warnock & Company, L.L.C., an asset management firm
established in 1995 to invest in small public companies. From 1983 to 1995, Mr.
Warnock was with T. Rowe Price Associates in senior management positions
including President of the corporate general partner of T. Rowe Price Strategic
Partners I and T. Rowe Price Strategic Partners II, and as the Executive Vice
President of T. Rowe Price New Horizons Fund. Mr. Warnock also serves on the
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<PAGE> 16
Boards of Directors of other companies including Children's Comprehensive
Services, Inc., SRB Corporation, and ALLIANCE National Incorporated. Mr. Warnock
received a Bachelor of Arts Degree, History, from the University of Delaware and
a Masters Degree, Finance, from the University of Wisconsin.
DOUGLAS A. SCHONACHER, JR. joined the Company in March 1997 and is the
Company's Vice President and Chief Operating Officer. Mr. Schonacher has 23
years of experience in the fields of drilling fluids control and drilling waste
management. From 1992 until 1997, Mr. Schonacher was with Tubescope/Vetco
International in the solids control division, serving as manager of Latin
American operations. Mr. Schonacher also served as the manager of technical
services for the solids control division of Tubescope/Vetco International. From
1987 until 1992, Mr. Schonacher was with Sun Drilling Products Corp. serving as
vice president of Sun Environmental Services, Inc. and Gulf Coast operations
manager. Mr. Schonacher was responsible for sales engineering and all product
applications. Mr. Schonacher also was with Sun Drilling Products Corp. 1979
until 1983 where he was responsible for hiring drilling fluid engineers and for
application of drilling fluids specialty products in offshore Gulf Coast
regions. From 1974 until 1979, and again from 1983 until 1987, Mr. Schonacher
was a drilling fluids consultant. Mr. Schonacher attended Nichols State
University and Louisiana State University.
RONALD L. BIANCO joined the Company in April 1997 as Chief Financial
Officer. From 1975 through 1991, Mr. Bianco was with Dresser Industries where he
served as controller of Dresser Rand Power in Norway, as the controller for
North America -- Operations of Dresser Masonelian Valve and in other headquarter
and division assignments. From 1992 through 1993, Mr. Bianco was an independent
business consultant. From 1994 through 1996, Mr. Bianco served as Chief
Financial Officer of SWECO Oilfield Services. Mr. Bianco received his B.B.A. in
accounting in 1970 from St. Bonaventure University in Olean, New York, and his
M.B.A. in 1983 from Southern Methodist University in Dallas, Texas.
CERTAIN SECURITIES FILINGS
The Company believes that the reports required by Section 16(a) of the
Exchange Act have been filed timely.
ITEM 10. EXECUTIVE COMPENSATION
Mr. James Percell, became President and Chief Executive Officer of the
Company in January, 1996. The Company has an employment contract with Mr.
Percell (the "Employment Agreement"). The Employment Agreement which commenced
in April 1997, has a term of three years. The Employment Agreement automatically
extends, unless terminated by the Company or Mr. Percell, for additional
successive one year periods after the initial three year term. Mr. Percell's
employment contract provides that he receive annual compensation from the
Company in the amount of $125,000. However on November 17, 1997, the Company's
Board of Directors increased Mr. Percell's annual compensation to $250,000. No
other executive officer of the Company received compensation which exceeded
$100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-----------------------
SECURITIES PAYOUTS
ANNUAL COMPENSATION RESTRICTED UNDERLYING ------- ALL
NAME AND ----------------------------- STOCK OPTIONS/ LTIPS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS SARS PAYOUTS COMPENSATION
- ---------------------- ---- ------------ ----- ----- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Percell...... 1997 $168,750(*) -0- -0- -0- -0- -0- -0-
Chief Executive 1996 -0- -0- -0- -0- -0- -0- -0-
Officer 1995 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ---------------
(*) In addition to the compensation received pursuant to Mr. Percell's
employment contract, Mr. Percell also received compensation directly from
OnSite.
16
<PAGE> 17
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 an option to
purchase 800,000 shares of Common Stock of the Company at $0.60 per share. Each
option is fully vested and may be exercised at any time until the option
terminates on 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
may adopt an employee stock option program.
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 25, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person who is known to the Company to beneficially own 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. Unless otherwise indicated, each
stockholder has sole voting and investment power with respect to the shares
shown.
<TABLE>
<CAPTION>
NUMBER OF PERCENT CLASS OF
NAME SHARES OWNED(1) OF CLASS SECURITIES
---- --------------- -------- ----------
<S> <C> <C> <C>
James S. Percell.............................. 1,269,785(2) 12.3% Common Stock
2600 South Loop West,
Suite #645
Houston, Texas 77054
Robin M. Pate................................. 1,119,030(3) 10.9% Common Stock
9723 Truscan
Houston, Texas 77080
Bryan Sharp................................... 1,101,267(4) 10.7% Common Stock
3200 Wilcrest, #200
Houston, Texas 77042
Albert M. Wolford............................. 56,415(5) 0.7% Common Stock
2600 South Loop West,
Suite #645
Houston, Texas 77054
David L. Warnock.............................. 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
NUMBER OF PERCENT CLASS OF
NAME SHARES OWNED(1) OF CLASS SECURITIES
---- --------------- -------- ----------
<S> <C> <C> <C>
Edward L. Cahill.............................. 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
Cahill, Warnock Strategic
Partners Fund, L.P............................ 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
Strategic Associates, L.P..................... 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
Cahill, Warnock & Company, L.L.C.............. 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
Cahill, Warnock Strategic Partners, L.P....... 2,159,308(6)(7) 18.9% Common Stock
One South Street,
Suite #2150
Baltimore, Maryland 21202
Douglas A. Schonacher, Jr..................... 68,829(8) 0.8% Common Stock
2600 South Loop West,
Suite #645
Houston, Texas 77054
Ronald L. Bianco.............................. 68,829(9) 0.8% Common Stock
2600 South Loop West,
Suite #645
Houston, Texas 77054
Newpark Resources, Inc........................ 2,239,282(7)(10) 19.5% Common Stock
3850 N. Causeway
Suite 1770
Metairie, LA 70002-1756
All officers and directors as a Group (7 5,843,463 39.4% Common Stock
persons)....................................
</TABLE>
- ---------------
(1) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person who directly or indirectly has or shares voting
power or investment power with respect to a security is considered a
beneficial owner of the security. Voting power is the power to vote or
direct the voting of shares, and investment power is the power to dispose
of or direct the disposition of shares. Shares as to which voting power or
investment power may be acquired within 60 days are also considered as
beneficially owned under the Commission's rules and are, accordingly,
included as shares beneficially owned.
(2) Includes an option to purchase 800,000 shares of Common Stock of the
Company at $0.60 per share, and an option to purchase 301,267 shares of
Common Stock of the Company at $3.00 per share. These options are fully
vested and immediately exercisable.
(3) Includes an option to purchase 700,000 shares of Common Stock of the
Company at $0.60 per share, and an option to purchase 301,267 shares of
Common Stock of the Company at $3.00 per share. These options are fully
vested and immediately exercisable.
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<PAGE> 19
(4) Includes an option to purchase 800,000 shares of Common Stock of the
Company at $0.60 per share, and an option to purchase 301,267 shares of
Common Stock of the Company at $3.00 per share. These options are fully
vested and immediately exercisable.
(5) Includes an option to purchase 9,415 shares of Common Stock of the Company
at $3.00 per share and includes an option to purchase 25,000 shares of
Common Stock at $3.75 per share. These options are fully vested and
immediately exercisable.
(6) Includes 1,722,900 shares of Series B Convertible Preferred Stock and a
warrant to purchase 323,044 shares of common stock of the Company at $0.01
per share issued to Cahill, Warnock Strategic Partners Fund, L.P. ("Cahill
Warnock Fund"), whose sole general partner is Cahill, Warnock Strategic
Partners, L.P. ("Cahill Warnock Partners"). In addition, includes 95,464
shares of Series B Convertible Preferred Stock and a warrant to purchase
17,900 shares of common stock of the Company at $0.01 per share issued to
Strategic Associates, L.P. ("Strategic Associates"), whose sole general
partner is Cahill, Warnock & Company, L.L.C. ("Cahill Warnock"). Each share
of Series B Convertible Preferred Stock is immediately convertible into one
share of common stock of the Company, subject to adjustment under certain
conditions. The warrant is fully vested and immediately exercisable. David
L. Warnock and Edward L. Cahill are the sole general partners of Cahill
Warnock Partners and the sole members of Cahill Warnock. David L. Warnock
and Edward L. Cahill are control persons of Cahill Warnock Fund, Cahill
Warnock Partners, Strategic Associates, and Cahill Warnock. David L.
Warnock, Edward L. Cahill, Cahill Warnock Fund, Cahill Warnock Partners,
Strategic Associates and Cahill Warnock have shared voting power and shared
dispositive power of these shares and each disclaim beneficial ownership of
the shares and warrants, except with respect to their pecuniary interest
therein, if any.
(7) Not included herein are other warrants which could be issuable under
certain circumstances pursuant to the terms of the Loan Agreement as
follows: (i) warrants for up to a total of 707,142 shares of Common Stock
of the Company are issuable upon the earlier of an event of default under
the terms of the Loan Agreement or February 17, 2000, provided, however,
that if the loans are repaid in full prior to February 17, 2000, then no
additional warrants would be issued, and further provided that if a portion
of the loans are repaid prior to February 17, 2000, then warrants for a
number of shares of Common Stock of the Company would be issued on a pro
rata basis; and (ii) warrants for up to a total of 188,571 shares of Common
Stock of the Company are issuable if loans made pursuant to the Loan
Agreement are not repaid in full by December 17, 2001.
(8) Includes an option to purchase 50,000 shares of Common Stock of the Company
at $2.50 per share, and an option to purchase 18,829 shares of Common Stock
of the Company at $3.00 per share. These options are fully vested and
immediately exercisable.
(9) Includes an option to purchase 50,000 shares of Common Stock of the Company
at $2.50 per share, and an option to purchase 18,829 shares of Common Stock
of the Company at $3.00 per share. These options are fully vested and
immediately exercisable.
(10) Includes 1,885,711 shares of Series B Convertible Preferred Stock which are
immediately convertible into shares of the Company's Common Stock. The
number of shares of Common Stock into which each share of Preferred Stock
may be converted is presently one share of Common Stock for each share of
Series B Convertible Preferred Stock, subject to adjustment under certain
conditions. Also includes a warrant to purchase 353,571 shares of Common
Stock of the Company at $0.01 per share. The warrant is fully vested and
immediately exercisable.
19
<PAGE> 20
ITEM 12. 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 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.
The Company sold $4,000,000 of Series B Convertible Preferred Stock and
$4,000,000 of Series C Preferred Stock, and borrowed $6,000,000 from an investor
group consisting of, among others, Cahill, Warnock Strategic Partners Fund,
L.P., Strategic Associates, L.P. and Newpark Resources, Inc. Pursuant to the
financing, David L. Warnock was appointed as a Director of the Company. Mr.
Warnock has an indirect interest in these transactions. Mr. Warnock is a general
partner of Cahill Warnock Strategic Partners, L.P. which is the sole general
partner of Cahill, Warnock Strategic Partners Fund, L.P. Mr. Warnock is a member
of Cahill, Warnock & Company, L.L.C. which is the sole general partner of
Strategic Associates, L.P.
20
<PAGE> 21
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
3.1 (*) -- Certificate of Incorporation of the Registrant, and
amendments thereto.
3.2 (*) -- Bylaws of the Registrant
4.1 (*) -- See Exhibits 3.1 and 3.2. for provisions of the Articles
of Incorporation and Bylaws of the Registrant defining
rights of holders of common stock of the Registrant
4.2 (*) -- Common Stock specimen
4.3 (**) -- Certificate of Designation, Preferences, Rights and
Limitations of Series B Convertible Preferred Stock.
4.4 (**) -- Certificate of Designation, Preferences, Rights and
Limitations of Series C Preferred Stock.
4.5 (*) -- Form of Warrant Certificate dated December 17, 1997
(Included in Exhibit 10.5).
10.1 (**) -- Purchase Agreement dated December 17, 1997, among the
Company, Parker Drilling Investment Company and Parker
Drilling Company.
10.2 (*) -- Loan and Security Agreement dated December 17, 1997 by
and among the Company, National Fuel & Energy, and OnSite
Technology, L.L.C. as Borrowers and Cahill, Warnock
Strategic Partners Fund, L.P., Strategic Associates,
L.P., Newpark Resources, Inc. and James H. Stone, as
Lenders.
10.3 (*) -- Form of Registration Rights Agreement pursuant to Private
Placement Memorandum dated September 18, 1996.
10.4 (*) -- Form of Registration Rights Agreement dated December 17,
1997, between the Company and Cahill, Warnock Strategic
Partners Fund, L.P., Strategic Associates, L.P., Newpark
Resources, Inc. and James H. Stone.
10.5 (*) -- Form of Warrant Agreement dated December 17, 1997,
between the Company and Cahill, Warnock Strategic
Partners Fund, L.P., Strategic Associates, L.P., Newpark
Resources, Inc. and James H. Stone.
10.6 (*) -- Employment Agreement of James S. Percell.
16.1 (***) -- Letter on Change in Certifying Accountant
21.1 (*) -- Subsidiaries of Registrant
27.1 (*) -- Financial Data Schedule
</TABLE>
- ---------------
(*) Filed herewith
(**) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated December 17, 1997 and filed December 30, 1997, and incorporated
herein by reference thereto.
(***) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 17, 1997 and filed September 19, 1997, and incorporated
herein by reference thereto.
(B) REPORTS ON FORM 8-K.
A Current Report on Form 8-K dated December 17, 1997 was filed on December
30, 1997, relating to (i) Item 2. Acquisition or Disposition of Assets and (ii)
Item 7. Financial Statements and Exhibits. An Amendment No. 1 to the Form 8-K
relating to Item 7. Financial Statements and Exhibits was subsequently filed on
March 2, 1998.
21
<PAGE> 22
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 30th day of March, 1998.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ JAMES S. PERCELL
----------------------------------
James S. Percell
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES S. PERCELL Chairman of the Board, Chief March 30, 1998
- ----------------------------------------------------- Executive Officer, and
James S. Percell Director
/s/ BRYAN SHARP Director March 30, 1998
- -----------------------------------------------------
Bryan Sharp
/s/ ROBIN PATE Director March 30, 1998
- -----------------------------------------------------
Robin Pate
/s/ ALBERT WOLFORD Director and Secretary March 30, 1998
- -----------------------------------------------------
Albert Wolford
/s/ DAVID L. WARNOCK Director March 30, 1998
- -----------------------------------------------------
David L. Warnock
/s/ RONALD BIANCO Chief Financial Officer and March 30, 1998
- ----------------------------------------------------- Vice-Secretary
Ronald Bianco
</TABLE>
22
<PAGE> 23
ENVIRONMENTAL SAFEGUARDS, INC.
------------------
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORTS OF INDEPENDENT AUDITORS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 24
ENVIRONMENTAL SAFEGUARDS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Reports of Independent Auditors............................. F-2
Audited Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996............................. F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1996................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996............................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Environmental Safeguards, Inc.
We have audited the accompanying consolidated balance sheet of
Environmental Safeguards, Inc. as of December 31, 1997, and the related
statements of operations, stockholders' equity 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.
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 financial position of
Environmental Safeguards, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG, LLP
Houston, Texas
March 24, 1998
F-2
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Environmental Safeguards, Inc.
We have audited the accompanying consolidated balance sheet of
Environmental Safeguards, Inc. as of December 31, 1996, and the related
statements of operations, stockholders' equity 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.
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 financial position of
Environmental Safeguards, Inc. as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ HAM, LANGSTON & BREZINA, LLP
Houston, Texas
March 18, 1997
F-3
<PAGE> 27
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6,686 $ 3,363
Accounts receivable....................................... 1,554 --
Prepaid expenses.......................................... 206 --
Deferred taxes............................................ 85 --
------- -------
Total current assets.............................. 8,531 3,363
Property and equipment, net................................. 6,286 5
Investments in joint venture................................ -- 1,980
Acquired engineering design and technology, net............. 3,242 --
Other assets................................................ 239 120
------- -------
Total assets...................................... $18,298 $ 5,468
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 844 $ --
Current portion of capital lease obligation............... 1,039 --
Accounts payable.......................................... 480 10
Accrued liabilities....................................... 366 49
Income taxes payable...................................... 525 --
------- -------
Total current liabilities......................... 3,254 59
Long-term debt.............................................. 4,117 3,694
Capital lease obligation.................................... 1,093 --
Deferred gain............................................... -- 200
Minority interest........................................... 628 --
Commitments and contingencies (Notes 6 and 13)
Stockholders' equity:
Preferred stock; Series B convertible; voting, $.001 par
value (aggregate liquidation value -- $3,998,000);
5,000,000 shares authorized; 3,771,422 shares issued
and outstanding at December 31, 1997................... 4 --
Preferred stock; Series C non-convertible, non-voting,
cumulative; $.001 par value (aggregate liquidation
value -- $4,000,000); 400,000 shares authorized, issued
and outstanding at December 31, 1997................... 1 --
Common stock; $.001 par value; 50,000,000 shares
authorized; 9,282,265 and 6,854,828 shares issued and
outstanding at December 31, 1997 and 1996,
respectively........................................... 9 7
Unissued common stock..................................... 56 813
Additional paid-in capital................................ 14,459 4,152
Accumulated deficit....................................... (5,323) (3,457)
------- -------
Total stockholders' equity........................ 9,206 1,515
------- -------
Total liabilities and stockholders' equity........ $18,298 $ 5,468
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 28
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996
------- ------
<S> <C> <C>
Service revenue............................................. $ 6,678 $ --
Cost of providing services.................................. 3,226 --
------- ------
Gross margin.............................................. 3,452 --
Selling, general and administrative expenses................ (2,076) (511)
Acquired research and development........................... (786) --
------- ------
Income (loss) from operations............................. 590 (511)
Other income (expenses):
Loss from investment in joint venture..................... -- (93)
Interest income........................................... 192 18
Interest expense.......................................... (466) (138)
Foreign currency transaction losses....................... (31) --
Other..................................................... 4 3
------- ------
Income (loss) before provision for income taxes, minority
interest, elimination of pre-acquisition earnings of
subsidiary and extraordinary item......................... 289 (721)
Provision for income taxes.................................. 1,205 --
------- ------
Loss before minority interest, elimination of
pre-acquisition earnings of subsidiary and extraordinary
item...................................................... (916) (721)
Minority interest........................................... (547) --
Elimination of pre-acquisition earnings of subsidiary....... (34) --
------- ------
Loss before extraordinary item.............................. (1,497) (721)
Extraordinary gain (loss) on extinguishment of debt......... (352) 74
------- ------
Net loss.................................................... $(1,849) $ (647)
======= ======
Net loss available to common stockholders................... $(5,880) $ (647)
======= ======
Basic and dilutive earnings (loss) per common share:
Before extraordinary item................................. $ (0.61) $(0.11)
Extraordinary item........................................ (0.04) .01
------- ------
Net loss per common share................................. $ (0.65) $(0.10)
======= ======
Weighted average shares outstanding......................... 9,075 6,375
======= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 29
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES B SERIES C UNISSUED ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
--------- --------- ------ -------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996............ $ -- $ -- $ 6 $ 50 $ 2,449 $(2,810) $ (305)
Issuance of common stock............ 1 -- 409 -- 410
Issuance for which the proceeds were
received in 1995 (62,500
shares)........................... -- -- -- (50) 50 -- --
Exercise of stock options and
warrants (410,000 shares)......... -- -- -- -- 190 -- 190
Issuances for services, compensation
and settlement of debt (318,378
shares)........................... -- -- -- -- 594 -- 594
Proceeds received on Regulation D
offering that closed in February
1997.............................. -- -- -- 689 -- -- 689
Issuance declared in payment of
accrued interest on convertible
debentures (84,791 shares)........ -- -- -- 68 -- -- 68
Shares to be issued in January 1998
under terms of a note settlement
agreement......................... -- -- -- 56 -- -- 56
Fair value of warrants issued in
connection with the funding of
long-term debt (See Note 1)....... -- -- -- -- 460 -- 460
Net loss............................ -- -- -- -- -- (647) (647)
---- ---- ---- ---- ------- ------- ------
Balance at December 31, 1996.......... $ -- $ -- $ 7 $813 $ 4,152 $(3,457) $1,515
Issuance of common stock including
shares for which the proceeds were
received in 1996 (333,400
shares)........................... -- -- -- (689) 833 -- 144
Exercise of stock options (100,000
shares)........................... -- -- -- -- 60 -- 60
Issuance in conversion of debentures
and related accrued interest
(1,994,037 shares)................ -- -- 2 (68) 1,125 -- 1,059
Repurchase and cancellation of stock
warrants originally issued in
connection with the funding of
long-term debt in 1996............ -- -- -- -- (170) -- (170)
Issuance of preferred stock and
warrants for common stock
(3,771,422 shares -- Series B,
400,000 shares -- Series C and
warrants for 707,142 shares of
common stock)..................... 4 1 -- -- 8,459 -- 8,464
Dividends on Series C preferred
stock............................. -- -- -- -- -- (17) (17)
Net loss............................ -- -- -- -- -- (1,849) (1,849)
---- ---- ---- ---- ------- ------- ------
Balance at December 31, 1997........ $ 4 $ 1 $ 9 $ 56 $14,459 $(5,323) $9,206
==== ==== ==== ==== ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 30
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,849) $ (647)
Adjustment to reconcile net loss to net cash used in
operating activities:
Extraordinary (gain) loss.............................. 352 (74)
Elimination of pre-acquisition earnings of
subsidiary............................................ 34 --
Write-off of acquired research and development......... 762 --
Common stock exchanged for services and interest
expense............................................... 30 418
Loss from investment in joint venture.................. -- 93
Depreciation expense................................... 45 55
Amortization expense................................... 119 --
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable.................................. (116) (57)
Prepaid expenses and other assets.................... (344) (1)
Accounts payable..................................... 163 (131)
Accrued liabilities.................................. 19 47
Income taxes payable................................. 118 --
------- -------
Net cash provided by (used in) operating
activities....................................... (667) (297)
------- -------
Cash flows from investing activities:
Acquisition of remaining 50% interest in OnSite, net of
cash acquired.......................................... (6,609) --
Purchase of property and equipment........................ (40) --
Investment in OnSite...................................... (1,050) (1,692)
Proceeds from sale of property and equipment.............. -- 6
------- -------
Net cash used in investing activities............. (7,699) (1,686)
------- -------
Cash flows from financing activities:
Payments on notes payable................................. -- (95)
Net proceeds from long-term debt and convertible
debentures............................................. 6,191 4,055
Payments on long-term debt................................ (3,000) (26)
Repurchase of stock warrants.............................. (170) --
Net proceeds from sale of common stock, preferred stock
and stock warrants..................................... 8,668 1,218
------- -------
Net cash provided by financing activities......... 11,689 5,152
------- -------
Net increase in cash and cash equivalents................... 3,323 3,169
Cash and cash equivalents, beginning of year................ 3,363 194
------- -------
Cash and cash equivalents, end of year...................... $ 6,686 $ 3,363
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 421 $ 5
======= =======
Cash paid for income taxes................................ $ 859 $ --
======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 31
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Environmental Safeguards, Inc. (the "Company") provides environmental
remediation and hydrocarbon reclamation/recycling services principally to oil
and gas companies, using proprietary Indirect Thermal Desorption ("ITD")
technology. To date the primary service offered by the Company has been the
remediation of soil contaminated by oil based drill cuttings and the subsequent
recovery of diesel and synthetic oils which were in the drill cuttings.
Substantially all of the Company's operations to date have been conducted in
Colombia.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned or controlled subsidiaries after elimination of all
significant intercompany accounts and transactions. (See Note 4)
Management 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. These estimates mainly involve the useful lives of property and
equipment, the valuation of deferred tax assets and the realizability of
accounts receivable.
Research and Development
Research and development activities are expensed as incurred, including
costs relating to patents or rights which may result from such expenditures.
Revenue Recognition
Revenue is recognized at the time services are performed or when products
are shipped.
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
well known banks selected based upon management's assessment of the banks'
financial stability and international capability. 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 and South America. Collateral is generally not required for credit
granted. Essentially all of the Company's trade receivables were due from one
multinational energy company for services performed in Colombia. Management
believes that all receivables are fully collectible.
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.
F-8
<PAGE> 32
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated useful lives of 5
years for ITD Units, 7 years for office furniture and equipment, and 3 to 7
years for transportation and other equipment.
Income Taxes
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax carrying amounts of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Stock-Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.
Acquired Engineering Design and Technology
Acquired engineering design and technology represents the intangible value
associated with certain proprietary equipment and process designs acquired by
the Company in the acquisition of OnSite (See Note 2). This intangible asset is
being amortized over an estimated useful life of 8 years using the straight-line
method. As of December 31, 1997, the accumulated amortization was $18,000.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different from
the book value. When the book value approximates fair value, no additional
disclosure is made.
Reclassifications
Certain prior year amounts in the 1996 consolidated balance sheet have been
reclassified to conform to the 1997 presentation. In December 1996, the Company
issued stock warrants in connection with the funding of certain long-term debt
with Parker Drilling Company ("Parker"). These warrants were assigned a value of
zero at the date of issuance but should have been valued at approximately
$460,000 with a related increase to additional paid-in capital. The accompanying
December 31, 1996 financial statements include a reclassification of the value
assigned to stock warrants. This reclassification had no impact on the statement
of operations. In addition, certain amounts in the 1996 statement of operations
have been reclassified to conform to the 1997 presentation.
Recently Issued Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. It requires (a)
classification of the components of other comprehensive income by their nature
in a financial statement and (b) the display of the accumulated balance of the
other comprehensive income separate from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for years beginning after December 15, 1997 and is not expected
to have a material impact on financial position or results of operations.
F-9
<PAGE> 33
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION OF ONSITE TECHNOLOGY, L.L.C.
On December 17, 1997, the Company acquired Parker Drilling Company's 50%
interest in OnSite Technology, L.L.C. ("OnSite") and, accordingly, OnSite became
a wholly-owned consolidated subsidiary of the Company. Prior to this
transaction, the Company accounted for its 50% ownership interest in OnSite on
the equity method. The $8 million purchase price and the required repayment of
$3 million of long-term debt due to a Parker subsidiary was financed through a
private placement of Series B convertible preferred stock, Series C preferred
stock, senior secured notes, and warrants for shares of the Company's common
stock. This acquisition has been accounted for using the purchase method of
accounting and the results of operations of OnSite have been consolidated with
the Company's for the year ended December 31, 1997 with a deduction in the
consolidated statement of operations for preacquisition earnings attributable to
Parker's interest prior to December 17, 1997.
The $8 million purchase price has been allocated to the assets acquired and
liabilities assumed based on independent valuation. Approximately $762,000 of
the purchase price was allocated to research and development activities which
had not yet reached technological feasibility. This amount has been included in
the Company's 1997 consolidated statement of operations as acquired research and
development. The following is a summary of assets acquired and liabilities
assumed in the purchase.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assets acquired:
Fair value of tangible assets acquired.................... $5,072
Engineering design and technology......................... 3,259
Acquired research and development......................... 762
------
9,093
Cash paid to Parker, net of cash in OnSite.................. 6,609
------
Liabilities assumed......................................... $2,484
======
</TABLE>
The following unaudited summary proforma information presents the
consolidated results of operations as if the effective date of the acquisition
occurred at the beginning of each of the periods presented after giving effect
to certain adjustments which include increased depreciation of ITD units, the
expensing of acquired research and development and the additional interest
expense associated with the financing of the transaction.
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service revenue............................................. $ 6,678 $ 730
Loss before extraordinary item.............................. $(2,028) $(2,454)
Net loss.................................................... $(2,028) $(2,380)
Net loss available to common stockholders................... $(2,696) $(7,153)
Basic and dilutive net loss per common share................ $ (0.30) $ (1.12)
</TABLE>
F-10
<PAGE> 34
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
------ ----
(IN THOUSANDS)
<S> <C> <C>
ITD Remediation/Recycling Units, including the cost of units
currently under construction of $1,338,000................ $7,019 $--
Office furniture and equipment.............................. 18 9
Transportation and other equipment.......................... 111 --
------ ---
7,148 9
Less accumulated depreciation and amortization.............. 862 4
------ ---
$6,286 $ 5
====== ===
</TABLE>
The Company presently contracts with one fabricator for the manufacture of
ITD Units and one fabricator for the manufacture of Condensing Units used in the
Company's operations. As of December 31, 1997, the Company had 1 ITD Unit and 2
Condensing Units in process at a cost of $1,338,000 with an expected cost to
complete of approximately $140,000. An unexpected disruption of the fabricator's
ability to timely deliver ITD Units could cause a delay in the Company's ability
to meet future service orders. Should a delay occur, the Company has taken steps
to facilitate the placement of orders with alternative fabricators.
4. INVESTMENT IN ONSITE TECHNOLOGY, L.L.C.
During the year ended December 31, 1996, the Company accounted for its
investment in OnSite on the equity method. The following summarized financial
information presents the consolidated financial position and results of
operations of OnSite as of December 31, 1996 and for the year then ended:
BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 221
Accounts receivable......................................... 210
Prepaid expenses and other assets........................... 48
------
Total current assets.............................. 479
Property and equipment, net................................. 4,665
------
Total assets...................................... $5,144
======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $1,111
Accrued liabilities......................................... 15
Income taxes payable........................................ 22
Due to the Company.......................................... 44
------
Total current liabilities......................... 1,192
Minority interest in subsidiaries........................... 80
Members' equity............................................. 3,872
------
Total liabilities and members' equity............. $5,144
======
</TABLE>
F-11
<PAGE> 35
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Service revenue............................................. $ 730
Cost of providing services.................................. 561
-----
Gross margin.............................................. 169
General and administrative expenses......................... 414
-----
Loss before provision for income taxes and minority
interest............................................... (245)
Provision for income taxes.................................. 22
-----
Loss before minority interest............................... (267)
Minority interest........................................... 82
-----
Net loss.................................................... $(185)
=====
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Senior secured notes payable to certain corporate and
individual investors (the "Investor Notes") funded in
connection with the Company's acquisition of OnSite. (See
Note 2) The notes have a face value of $6 million and are
carried net of an unamortized discount of approximately
$1,039,000. Payments are due in quarterly principal
installments of $300,000 plus accrued interest at a stated
rate of prime plus 1.5% per year through December 2002.
After considering the amortization of the discount, the
notes bear an effective interest rate that approximates
prime plus 7.5% per year. These notes are collateralized
by all assets of the Company except ITD units financed
under capital leases...................................... $4,961 $ --
Note payable to Parker, $3 million stated value, bearing
interest at a stated rate of 6.3% per year and repayable
based upon cash distributions from OnSite. At December 31,
1996, the unamortized discount on this note was $460,000.
This note was repaid December 17, 1997 upon acquisition of
OnSite (See Note 2). Upon the early extinguishment of this
debt, the Company incurred an extraordinary loss of
$352,000 related to the write-off of the unamortized
discount.................................................. -- 2,540
Convertible debentures, bearing interest at a stated rate of
10% per year. These debentures were converted to common
stock of the Company in February 1997. (See Note 10)...... -- 1,154
------ ------
Total long-term debt.............................. 4,961 3,694
Less current maturities..................................... 844 --
------ ------
Long-term debt.............................................. $4,117 $3,694
====== ======
</TABLE>
The Investor Notes contain certain covenants, the most restrictive of which
requires the Company to maintain positive working capital of at least $2 million
and precludes the Company from paying common dividends. Management believes the
Company is in compliance with all debt covenants at December 31, 1997.
F-12
<PAGE> 36
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Investor Notes include a commitment by the lenders to provide an
additional $5 million supplemental loan under provisions similar to the initial
loan provided that the Company remains in
F-13
<PAGE> 37
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compliance with the terms of the initial loan. The Investor Notes also include a
provision for the Company to issue the lenders warrants to acquire an additional
188,571 shares of the Company's common stock at $0.01 per share if the Investor
Notes are not prepaid in full by December 2001.
Further, the Investor Notes include a provision for the Company to issue to
the lenders warrants to acquire up to a total of 707,142 shares of Common Stock
of the Company upon the earlier of an event of default under the terms of the
Investor Notes or February 17, 2000, provided, however, that if the Investor
Notes are repaid in full prior to February 17, 2000, then no additional warrants
would be issued, and further provided that if a portion of the Investor Notes
are repaid prior to February 17, 2000, then warrants for a number of shares of
Common Stock of the Company would be issued on a pro rata basis.
Following is an analysis of future annual maturities of long-term debt:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------ (IN THOUSANDS)
<S> <C> <C>
1998............................................................ $ 844
1999............................................................ 910
2000............................................................ 982
2001............................................................ 1,060
2002............................................................ 1,165
------
$4,961
======
</TABLE>
6. LEASE COMMITMENTS
During 1997, OnSite Colombia sold and leased back an indirect thermal
desorption unit. No gain or loss resulted from this transaction, and the related
lease is accounted for as a capital lease. Amortization of leased assets is
included in depreciation and amortization expense. Included in property and
equipment in the accompanying consolidated balance sheet at December 31, 1997
are the following assets held under capital leases:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Indirect thermal desorption units........................... $2,155
Accumulated amortization.................................... (391)
------
Assets under capital leases, net............................ $1,764
======
</TABLE>
OnSite Colombia also leases office and warehouse facilities and a truck
under operating leases. Certain of the leases provide for renewal options;
however, only one such lease has an original term of greater than one year.
Rental expense for operating leases was $52,000 and $7,000 during the years
ended December 31, 1997 and 1996, respectively.
F-13
<PAGE> 38
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum lease payments due under leases with original lease terms of
greater than one year and expiration dates subsequent to December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998...................................................... $1,292 $27
1999...................................................... 839 27
2000...................................................... 290 14
Total minimum leases........................................ 2,421 $68
===
Less amount representing interest........................... 289
Present value of minimum lease payments..................... 2,132
------
Less current portion........................................ 1,039
------
Long-term portion........................................... $1,093
======
</TABLE>
Included in other assets at December 31, 1997 is $238,000 of restricted
cash deposits that secure a letter of credit. Such letter of credit serves as a
payment bond on one existing capital lease.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Deferred tax liabilities:
Tax on undistributed foreign income....................... $ 196 $ --
Deferred tax assets:
Net operating loss carryforwards.......................... 1,217 758
Foreign tax credit carryforwards.......................... 301 --
Purchased in-process research and development............. 259 --
Deferred gain on sale of licensing agreement.............. 66 68
Deferred foreign municipal tax............................ 85 --
Other..................................................... 26 30
------- -----
Total deferred tax assets......................... 1,954 856
Valuation allowance for deferred tax assets............... (1,673) (856)
------- -----
281 --
------- -----
Net deferred tax assets..................................... $ 85 $ --
======= =====
</TABLE>
For financial reporting purposes, income before income taxes, minority
interest and extraordinary items includes the following components:
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Pretax income (loss):
United States............................................. $(2,011) $(721)
Foreign................................................... 2,300 --
------- -----
$ 289 $(721)
======= =====
</TABLE>
F-14
<PAGE> 39
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1997 1996
------- ----
<S> <C> <C>
Current:
Federal................................................... $ -- $ --
Foreign................................................... 1,290 --
------- ----
Total current..................................... 1,290 --
------- ----
Deferred:
Federal................................................... -- --
Foreign................................................... (85) --
------- ----
Total deferred.................................... (85) --
------- ----
$ 1,205 $ --
======= ====
</TABLE>
The Company consolidates its 50% owned subsidiary, OnSite Colombia, Inc., a
Cayman Island company that conducts operations in Colombia. The Cayman Island
imposes no income tax on such operations. However, the operations in Colombia
are subject to Colombian federal and local taxes. Accordingly, the Company has
included in its financial statements the Colombian income tax expense related to
such operations.
The differences between the Federal statutory income tax rates and the
Company's effective income tax rates were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Federal statutory rate...................................... 34% 34%
Foreign (Colombian) income taxes............................ 417% --
Increase in valuation allowance............................. (34%) (34%)
--- ---
417% 0%
=== ===
</TABLE>
At December 31, 1997, for federal income tax reporting purposes, the
Company has approximately $3,580,000 of unused net operating losses available
for carryforward to future years. The benefit from carryforward of such net
operating losses will expire during the years ended December 31, 2001 to 2013.
The benefit from utilization of net operating loss carryforwards could be
subject to limitations if significant ownership changes occur in the Company.
8. FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations is as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Sales to unaffiliated customers............................. $6,432 $ 188
Operating income (loss)..................................... 2,574 (118)
Identifiable assets......................................... 6,403 1,278
Net assets.................................................. 1,256 135
</TABLE>
Substantially all of the Company's foreign operations were conducted by the
Company's 50% owned joint company in Colombia. The Company's Colombian
subsidiary operated with the U.S. dollar as its functional
F-15
<PAGE> 40
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
currency and, accordingly, no cumulative translation adjustment is presented in
the accompanying balance sheet.
9. STOCKHOLDERS' EQUITY
The Company's articles of incorporation authorize the issuance of up to
10,000,000 shares of preferred stock with characteristics determined by the
Company's board of directors. Effective December 17, 1997, in connection with
the Company's acquisition of OnSite, the board of directors authorized the
issuance and sale of up to 5,000,000 shares of Series B convertible preferred
stock and up to 400,000 shares of Series C preferred stock.
Series B Convertible Preferred Stock
The Company issued 3,771,422 shares of $0.001 par value Series B
convertible preferred stock. Dividends are paid at the same rate as common stock
based upon the conversion rate. The initial rate is 1 common share for each
preferred share; however, the conversion rate is subject to adjustments to
prevent dilution. The Series B convertible preferred stock has a liquidation
preference of $1.06 per share plus any unpaid dividends.
Series C Preferred Stock
The Company issued 400,000 shares of Series C non-voting preferred stock
with a $0.001 per share par value and a $10 per share stated value. The Series C
preferred stock carries a quarterly dividend payable in arrears of prime (8.5%
at December 31, 1997) plus 1.5% based on the stated value of the stock. The
Series C preferred stock is redeemable at the option of the Company at a price
of $10 per share plus any unpaid dividends.
Common Stock
In February 1997, the Company completed a public registration of 2,304,792
shares of its common stock. The Company's 10% convertible debentures provided
for automatic conversion into shares of the Company's common stock upon the
effective registration by the Company of its common stock under the Securities
Exchange Act of 1934, as amended. Of the 2,304,792 shares registered, 1,934,792
were newly issued shares for conversion of the 10% debentures and payment of
related accrued interest.
In February 1997, the Company closed an exempt offering under Regulation D
of the Securities Act of 1933. The Company collected cash proceeds of $833,500
for the issuance of 333,400 shares of common stock ($688,500 collected in 1996
and $145,000 in 1997).
In February 1996, the Company closed an exempt offering under Regulation D
of the Securities Act of 1933. The Company collected cash proceeds of $700,000
for issuance of 875,000 shares of common stock ($290,000 collected in 1995 and
$410,000 in 1996).
Unissued Common Stock
Unissued common stock at December 31, 1997 and 1996 represents shares for
which cash proceeds or other consideration had been received but shares had not
been issued.
Stock Options
The Company periodically issues incentive stock options to key employees,
officers, and directors to provide additional incentives to promote the success
of the Company's business and to enhance the ability to attract and retain the
services of qualified persons. The issuance of such options are approved by the
Board of
F-16
<PAGE> 41
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Directors. The exercise price of an option granted is determined by the fair
market value of the stock on the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation", requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options is greater than or equals the market price of the
underlying stock on the date of grant, no compensation expense has been
recognized.
Proforma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rate of 6%; no dividend yield;
weighted average volatility factor of the expected market price of the Company's
common stock of 0.698; and a weighted-average expected life of the options of 5
years.
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is included in expense at the date of issuance because the options may
be fully exercised at that date. The Company's proforma information follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Proforma net loss........................................... $(4,676) $ (647)
Proforma net loss available to common stockholder's......... $(8,707) $ (647)
Proforma basic and dilutive loss per share.................. $ (0.96) $(0.10)
</TABLE>
A summary of the Company's stock option activity and related information
for the years ended December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding -- beginning of
year.......................... 3,323,542 $1.32 3,363,542 $1.21
Granted....................... 1,598,144 2.82 -- --
Exercised..................... (100,000) .60 (40,000) .60
Forfeited..................... -- -- -- --
--------- ---------
Outstanding-end of year......... 4,821,686 1.76 3,323,542 1.21
========= =========
Exercisable at end of year...... 4,821,686 1.76 3,323,542 1.21
========= =========
Weighted-Average fair value of
options granted during the
year.......................... 1.77 --
</TABLE>
F-17
<PAGE> 42
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of outstanding stock options, all of which are currently
exercisable at December 31, 1997, follows:
<TABLE>
<CAPTION>
REMAINING
CONTRACTUAL
NUMBER OF SHARES EXPIRATION DATE LIFE (YEARS) EXERCISE PRICE
- ---------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
463,542................... November 1998 0.9 $5.00
2,760,000................... November 2005 7.9 $0.60
602,500................... March 2007 9.2 $2.50
25,000................... November 2007 9.9 $3.75
970,644................... December 2007 10.0 $3.00
</TABLE>
Stock Warrants
Following is a summary of stock warrant activity:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE WEIGHTED
SHARES PRICE AVERAGE PRICE
--------- ------------- -------------
<S> <C> <C> <C>
Warrants outstanding at January 1, 1996....... 370,000 $0.45 $0.45
Issued...................................... 250,000 $2.50 $2.50
Exercised................................... (370,000) $0.45 --
--------
Warrants outstanding at December 31, 1996..... 250,000 $2.50 $2.50
Issued...................................... 757,143 $0.01-$2.50 $0.17
Canceled.................................... (300,000) $2.50
--------
Warrants outstanding at December 31, 1997..... 707,143 $0.01 $0.01
========
</TABLE>
All warrants outstanding at December 31, 1997 were issued in connection
with the sale of the Company's Series B and Series C preferred stock and the
funding of the Investor Notes (See Note 5). The warrants bear an exercise price
of $0.01 per share, are currently exercisable, and expire in December 2007.
10. EARNINGS PER SHARE
For the years ended December 31, 1997 and 1996, due to the fact that the
Company incurred net losses, all common stock equivalents have been excluded
from the calculation of earnings per share because their effect is
anti-dilutive. In future periods, the calculation of diluted earnings per share
may require that the common stock equivalents disclosed in Note 9 be included in
the calculation of the weighted average shares outstanding for periods in which
net income is reported, using the treasury stock method. Following is the
reconciliation of net loss to the net loss available to common stockholders.
<TABLE>
<CAPTION>
1997 1996
------- -----
(IN THOUSANDS)
<S> <C> <C>
Net loss.................................................... $(1,849) $(647)
Less: Accretion of discount on Class B preferred stock...... (3,998) --
Series C Preferred stock dividends.................... (17) --
Accretion of discount on Class C preferred stock...... (16) --
------- -----
Net loss available to common stockholders................... $(5,880) $(647)
======= =====
</TABLE>
11. RESEARCH AND DEVELOPMENT
During the year ended December 31, 1997, expenditures for research and
development were $786,000, which includes approximately $762,000 of acquired
research and development (See Note 2). During the year
F-18
<PAGE> 43
ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1996, all research and development was conducted by OnSite
and such expenses are not included separately in the 1996 consolidated financial
statements as OnSite was accounted for under the equity method.
12. MAJOR CUSTOMERS
During the years ended December 31, 1997 and 1996, the Company provided
services to only two customers and each accounted for more than 10% of service
revenue.
13. LITIGATION
The Company is involved as a defendant in certain litigation filed by an
engineering company (the "Engineering Company") that constructed certain soil
remediation 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 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. The Company believes, after consultation with legal
counsel, that the risk of material financial exposure to the Company is remote.
14. RELATED PARTY TRANSACTIONS
The Company and OnSite share office facilities and certain employees.
Shared costs are generally specifically identified by company; however, certain
costs must be allocated based upon management's estimates. The operations of the
Company and OnSite were combined during the year ended December 31, 1997 in a
manner described in Note 4. However, during the period from January 1, 1997
through December 17, 1997 and the year ended December 31, 1996, 50% of OnSite's
operations were attributable to Parker, the former owner of a 50% interest in
OnSite.
15. NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company engaged in certain non-cash investing and financing activities
as follows:
<TABLE>
<CAPTION>
1997 1996
------ ----
(IN THOUSANDS)
<S> <C> <C>
Conversion of debentures to common stock, net of deferred
offering costs............................................ $ 889 $ --
Assumption of liabilities upon acquisition of OnSite
Technology, L.L.C. (Includes $607 minority interest in
OnSite Colombia, Inc.).................................... 2,484 --
Deferred gain offset in acquisition of OnSite............... 193 --
Investment in the Joint company in exchange for an
all-inclusive license for ITD technology.................. -- 203
Converted short-term notes and accrued liabilities to common
stock..................................................... -- 276
</TABLE>
F-19
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
3.1 (*) -- Certificate of Incorporation of the Registrant, and
amendments thereto.
3.2 (*) -- Bylaws of the Registrant
4.1 (*) -- See Exhibits 3.1 and 3.2. for provisions of the Articles
of Incorporation and Bylaws of the Registrant defining
rights of holders of common stock of the Registrant
4.2 (*) -- Common Stock specimen
4.3 (**) -- Certificate of Designation, Preferences, Rights and
Limitations of Series B Convertible Preferred Stock.
4.4 (**) -- Certificate of Designation, Preferences, Rights and
Limitations of Series C Preferred Stock.
4.5 (*) -- Form of Warrant Certificate dated December 17, 1997
(Included in Exhibit 10.5).
10.1 (**) -- Purchase Agreement dated December 17, 1997, among the
Company, Parker Drilling Investment Company and Parker
Drilling Company.
10.2 (*) -- Loan and Security Agreement dated December 17, 1997 by
and among the Company, National Fuel & Energy, and OnSite
Technology, L.L.C. as Borrowers and Cahill, Warnock
Strategic Partners Fund, L.P., Strategic Associates,
L.P., Newpark Resources, Inc. and James H. Stone, as
Lenders.
10.3 (*) -- Form of Registration Rights Agreement pursuant to Private
Placement Memorandum dated September 18, 1996.
10.4 (*) -- Form of Registration Rights Agreement dated December 17,
1997, between the Company and Cahill, Warnock Strategic
Partners Fund, L.P., Strategic Associates, L.P., Newpark
Resources, Inc. and James H. Stone.
10.5 (*) -- Form of Warrant Agreement dated December 17, 1997,
between the Company and Cahill, Warnock Strategic
Partners Fund, L.P., Strategic Associates, L.P., Newpark
Resources, Inc. and James H. Stone.
10.6 (*) -- Employment Agreement of James S. Percell.
16.1 (***) -- Letter on Change in Certifying Accountant
21.1 (*) -- Subsidiaries of Registrant
27.1 (*) -- Financial Data Schedule
</TABLE>
- ---------------
(*) Filed herewith
(**) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated December 17, 1997 and filed December 30, 1997, and incorporated
herein by reference thereto.
(***) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 17, 1997 and filed September 19, 1997, and incorporated
herein by reference thereto.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CAPE COD INVESTMENT COMPANY
I, the undersigned, being a natural person more than eighteen (18)
years of age, acting as incorporator of the above-named corporation
(hereinafter referred to as the "Corporation") under the provisions of the
Nevada Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such Corporation:
ARTICLE
NAME
The name of the Corporation hereby created shall be:
Cape Cod Investment Company
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized are:
(a) To acquire by purchase or otherwise, own, hold,
lease, rent, mortgage or otherwise, to trade with and deal in real
estate, lands and interests in lands and all other property of every
kind and nature;
(b) To manufacture, use, work, sell and deal in
chemicals, biologicals, pharmaceuticals, electronics and products of
all types owned or hereafter owned by it for manufacturing, using and
vending any device or devices, machine or machines or manufacturing,
working or producing any or all products;
<PAGE> 2
(c) To borrow money and to execute notes and obligations
and security contracts therefor, to lend any of the monies or funds of
the Corporation and to take evidence of indebtedness therefor; and to
negotiate loans; to carry on a general mercantile and merchandise
business and to purchase, sell and deal in such goods, supplies and
merchandise of every kind and nature;
(d) To guarantee the payment of dividends or interest on
any other contract or obligation of any corporation whenever proper or
necessary for the business of the Corporation in the judgment of its
directors;
(e) To do all and everything necessary, suitable,
convenient, or proper for the accomplishment of any of the purposes or
the attainment of any one or more of the objects herein enumerated or
incidental to the powers therein named or which shall at any time
appear conclusive or expedient for the protection or benefit of the
Corporation, with all the powers hereafter conferred by the laws under
which this Corporation is organized; and
(f) To engage in any and all other lawful purposes,
activities and pursuits, whether similar or dissimilar to the
foregoing, and the Corporation shall have all the powers allowed or
permitted by the laws of the state of Nevada.
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60,000,000 shares, consisting of
10,000,000 shares of preferred stock, par value $0.001 per share (hereinafter
the "Preferred Stock"), and 50,000,000 shares of common stock, par value $0.001
per share (hereinafter the "Common Stock"). The Common Stock shall be
non-assessable and shall not have cumulative voting rights.
(a) Preferred Stock. Shares of Preferred Stock may be
issued from time to time in one or more series as may from time to
time be determined by the Board of Directors. Each series shall be
distinctly designated. All shares of any one series of the Preferred
Stock shall be alike in every particular, except that there may be
different dates from which dividends thereon, if any, shall be
cumulative, if made cumulative. The powers, preferences and relative,
participating, optional and other rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
Except as hereinafter
2
<PAGE> 3
provided, the Board of Directors of this corporation is hereby
expressly granted authority to fix, by resolution or resolutions
adopted prior to the issuance of any shares of each particular series
of Preferred Stock, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series,
including but without limiting the generality of the foregoing, the
following:
(i) the distinctive designation of, and the number of
shares of Preferred Stock which shall constitute the series, which
number may be increased (except as otherwise fixed by the Board OF
Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(ii) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the series
shall be paid, the extent of preferences or relations, if any, of such
dividends to the dividends payable on any other class or classes of
stock of this corporation, or on any series of Preferred Stock or of
any other class or classes of stock of this corporation, and whether
such dividends shall be cumulative or non-cumulative.
(iii) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for, shares of
any other class or classes of stock of this corporation, or of any
series of Preferred Stock or of any other class or classes of stock of
this corporation, and the terms and conditions of such conversion or
exchange;
(iv) whether shares of the series shall be subject to
redemption, and the redemption price or prices including, without
limitation, a redemption price or prices payable in shares of the
Common Stock and the time or times at which, and the terms and
conditions upon which, shares of the series may be redeemed;
(v) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up of this corporation;
(vi) the terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the series; and
3
<PAGE> 4
(vii) the voting power, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include the right to more or less than one vote per share
of any or all matters voted upon by the shareholders and the right to
vote, as a series by itself or together with other series of Preferred
Stock as a class, upon such matters, under such circumstances and upon
such conditions as the Board of Directors may fix, including, without
limitation, the right, voting as a series by itself or together with
other series of Preferred Stock or together with all series of
Preferred Stock as a class, to elect one or more directors of this
corporation in the event there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock or
under such other circumstances and upon such condition as the Board
may determine.
(b) Common Stock
(i) after the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with the provisions
of subparagraph (a)(ii) of this Article, if any, shall have been met
and after this corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as
sinking funds or redemption or purchase accounts as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of subparagraph (a)(ii) of this Article) and subject
further to any other conditions which may be fixed in accordance with
the provisions of paragraph (a) of this Article, then, but not
otherwise, the holders of Common Stock shall be entitled to receive
such dividends, if any, as may be declared from time to time by the
board of directors;
(ii) after distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (a) of this
Article), if any, to be distributed to the holders of Preferred Stock
in the event of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up of the corporation, the
holders of the Common Stock shall be entitled to receive all the
remaining assets of this Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in
proportion to the number of shares of the Common Stock held by each;
and
4
<PAGE> 5
(iii) no holder of any of the shares of any class or series
of stock or of options, warrants or other rights to purchase share of
any class or series of stock or of other securities of the Corporation
shall have any pre-emptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of any
class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation or any
class or series, or carrying any right to purchase stock, may be
issued and disposed of pursuant to resolution of the board of
directors to such persons, firms, corporation or association, whether
such holders or others, and upon such terms as may be deemed advisable
by the board of directors in the exercise of its sole discretion.
ARTICLE V
DENIAL OF PRE-EMPTIVE RIGHTS
No holder of any shares of the Corporation, whether now or hereafter
authorized, shall have any pre-emptive or preferential rights to acquire shares
or securities of the Corporation.
ARTICLE VI
PAID IN CAPITAL
The Corporation will not commence business until the consideration of
the value of at least $1,000.00 has been received by it as consideration for
the issuance of the shares.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve or
who have served at any time as directors or officers or who at the request of
the Board of Directors of the Corporation, may serve or any time have served as
directors or officers of another corporation in which the Corporation at such
time owned or may own shares of stock or of which it was or may be a creditor,
and their respective heirs, administrators, successors and assigns, against any
and all expenses, including amounts paid upon judgments, counsel fees and
amounts paid in settlement
5
<PAGE> 6
(before or after suit is commenced), actually and necessarily by such persons
in connection with the defense or settlement of any claim, action, suit or
proceeding in which they, or any of them, are made parties, or a party, or
which may be asserted against them or any of them, by reason of being or having
been directors or officers of the Corporation, or of such other corporation,
except in relation to matters as to which any such director or officer of the
Corporation, or of such other corporation or former director or officer or
person shall be adjudged in any action, suit or proceeding to be liable for his
own negligence or misconduct in the performance of his duty. Such
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, by law, agreement, vote of
shareholder or otherwise.
ARTICLE III
OFFICERS' AND DIRECTORS' CONTRACTS
No contract or other transaction between this Corporation and any
other firm or corporation shall be affected by the fact that a director or
officer of this Corporation has an interest in, or is a director or officer of
this Corporation or any other corporation. Any officer or director,
individually or with others, may be a party to, or may have an interest in, any
transaction of this Corporation or any transaction in which this Corporation is
a party or has an interest. Each person who is now or may become an officer or
director of this Corporation is hereby relieved from liability that he might
otherwise obtain in the event such officer or director contracts with this
Corporation for the benefit of himself or any firm or other corporation in
which he may have an interest, provided such officer or director acts in good
faith.
ARTICLE IX
ADOPTION AND AMENDMENT OF BY-LAWS
The initial By-Laws of the Corporation shall be adopted by its board
of directors. The power to alter or amend or repeal the By-Laws or adopt new
By-Laws shall be vested in the board of directors, but the holders of common
stock of the Corporation may also alter, amend, or repeal the By-Laws or adopt
new By-Laws. The By-Laws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with law or these
Articles of Incorporation.
6
<PAGE> 7
ARTICLE X
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation and
its initial registered agent at such address is:
The Corporation Trust Company of Nevada
One East First Street
Reno, Nevada 89501
ARTICLE XI
DIRECTORS
The Corporation shall not have fewer directors than the number of
shareholders who own an equity interest in the Corporation. At such time as the
Corporation has three (3) or more shareholders, it shall not have less than
three (3) nor more than nine (9) directors. The permissible number of directors
may be increased or decreased from time to time by the board of directors in
accordance with 78.330 of the Nevada Revised Statutes or any amendment or
successor statute. The original board of directors shall be comprised of one
(1) person. The name and address of the person who is to serve as director
until the first annual meeting of shareholders and until his successor is duly
elected and shall qualify is:
Frank D. Bond
526 East 2825 North
Provo, Utah 84601
ARTICLE XII
INCORPORATOR
The name and address of the incorporator is:
Frank D. Bond
526 East 2825 North
Provo, Utah 84601
Dated this 20 day of December, 1985.
/s/ FRANK D. BOND
----------------------------------------
Frank D. Bond
7
<PAGE> 8
STATE OF UTAH )
:ss.
County of Salt Lake )
I, Lark Jackson, a notary public, hereby certify that on the 20th day
of December, 1985, personally appeared before me Frank D. Bond, being by me
first duly sworn, who acknowledged to me that he is the person who signed the
foregoing document as the incorporator and that the statements contained herein
are true.
/s/ LARK JACKSON
------------------------------
My commission expires: NOTARY PUBLIC
8-13-89 Residing in Bountiful, Utah
- ----------------------
8
<PAGE> 9
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CAPE COD INVESTMENT COMPANY
(Changed herein to "Cape Cod Ventures, Inc.")
We the undersigned, as President and Secretary of Cape Cod Investment
Company do hereby certify:
That the Board of Directors of said corporation pursuant to a
unanimous consent executed by all the shareholders in accordance with the
provisions of Section 78.320 of the Nevada Revised Statutes dated March 31,
1987, adopted a resolution to amend the original Articles of Incorporation as
follows:
1. Article I of the Company's Articles of Incorporation is hereby
amended by striking the entire Article I and inserting in lieu thereof
the following:
The name of the corporation is: "Cape Cod Ventures, Inc.".
2. By the execution OF this amendment to the Articles of
Incorporation, the president and secretary of said corporation do
hereby certify that the foregoing amendment to the Articles of
Incorporation was adopted as an amendment to the original Articles of
Incorporation of Cape Cod Investment Company, by the shareholders of
said corporation pursuant to a unanimous consent executed by all of
the shareholders in accordance with the provisions of Section 78.320
of the Nevada Revised Statutes, which provides that a written consent
setting forth the action taken and signed by all the shareholders of
the corporation shall have the same effect as a unanimous vote taken
at a meeting of the shareholders. As of March 31, 1987, there was a
total of 3,000,000 shares of the corporations's common stock issued
and outstanding, of which all 3,000,000 shares voted for the adoption
of this amendment to the Articles of Incorporation. No shares voted
against the adoption of this amendment to the Articles of
Incorporation.
DATED this 2nd day of April, 1987.
CAPE COD VENTURES, INC.
ATTEST:
/s/ MARILYN C. PARRY /s/ FRANK D. BOND
- --------------------------- ------------------------------
Marilyn C. Parry, Secretary Frank D. Bond
<PAGE> 10
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 2nd day of April, 1987, personally appeared before me a Notary
Public, Frank Bond and Marilyn C. Parry, President and Secretary of the
corporation, who acknowledged that they executed the above instrument.
/s/ LARK JACKSON
----------------------------------------
Notary Public
Residing at Bountiful, Utah
My Commission Expires:
8-13-89
- ----------------------
2
<PAGE> 11
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF
CAPE COD VENTURES, INC.
Pursuant to section 78.390 of the Nevada Revised Statutes, Cape Cod
Ventures, Inc., hereinafter referred to as the "Corporation," hereby adopts the
following amendment to its Articles of Incorporation.
1. The Articles of Incorporation of the Corporation are hereby
amended by deleting Article One thereof and substituting the following
therefor:
ARTICLE I
NAME
The name of the Corporation shall be:
Environmental Safeguards, Inc.
2. The Articles of Incorporation of the Corporation are hereby
amended by inserting the following provision as new subsection (c) of Article
IV captioned "CAPITAL STOCK:"
(c) Reverse Split. On the effective date of this
amendment, the Corporation shall effect a reverse split in its issued
and outstanding shares of Common Stock so that the 50,000,000 shares
currently issued and outstanding shall be reverse split, or
consolidated, on a 1-for-100 basis, and stockholders shall receive one
share of the Corporation's Common Stock, par value $0.001 (hereinafter
the "Consolidated Common Stock"), for each 100 shares of Common Stock,
par value $0.001, held by them on the effective date of the reverse
split. No scrip or fractional share will be issued in connection with
the reverse split and any fractional shares will be rounded to the
nearest whole share. All shares returned to the Corporation as a
result of the reverse split will be canceled and returned to the
status of authorized and unissued shares. This amendment shall be
become effective on the date filed with the office of the Nevada
Secretary of State.
3. By execution of this Certificate of Amendment to Articles of
Incorporation of Cape Cod, Inc., the president and secretary of the Corporation
do hereby certify that the
<PAGE> 12
foregoing amendment was duly adopted, authorized and consented to in accordance
with section 78.320 of the Nevada Revised Statutes by the written consent,
dated April 19, 1993, of shareholders holding 33,537,000 shares of the
Corporation's Common Stock, or approximately 67.07% of the 50,000,000 shares
which were issued and outstanding on April 19, 1993, the record date.
DATED the 17th day of May, 1993.
Cape Cod Ventures, Inc.
By /s/ MICHAEL P. BRINTON
-------------------------------------
Michael P. Brinton, President
By /s/ ELISABETH JONES
-------------------------------------
Elisabeth Jones, Secretary
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On this 17th day of May, 1993, personally appeared before me Michael
P. Brinton and Elisabeth Jones, who being by me duly sworn did say that they
are the president and secretary, respectively, of Cape Cod Ventures, Inc., a
Nevada corporation, that they are the persons who executed the foregoing
Certificate of Amendment to Articles of Incorporation on behalf of said
corporation by authority of resolutions of a majority of its shareholders, and
each duly acknowledged to me that said corporation executed the same.
/s/ KATHLEEN G. CARTER
--------------------------
Notary Public
2
<PAGE> 13
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
ENVIRONMENTAL SAFEGUARDS, INC.
We, the undersigned President and Assistant Secretary of Environmental
Safeguards, Inc. do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened
and held on November 3, 1995, adopted resolutions to amend the original
article of incorporation as follows:
Article IV is hereby amended (i) give effect to a 10 for 1 forward split
of the Common Shares; (ii) decrease the post-reverse split authorized
Common Shares to 50,000,000 shares; and (iii) increase the post-forward
split par value of the Common Shares to $0.001 per share, and to read in
full as follows:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60,000,000 shares,
consisting of 10,000,000 shares of preferred stock, par value $0.001
per share (hereinafter the "Preferred Stock"), and 50,000,000 shares
of common stock, par value $0.001 per share (hereinafter "Common
Stock"). The Common Stock shall be nonassessable and shall not have
cumulative voting rights.
(a) Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may from time to time be
determined by the Board of Directors. Each series shall be distinctly
designated. All shares of any one series of the Preferred Stock shall
be alike in every particular, except that there may be different
dates from which dividends thereon, if any, shall be cumulative; if
made cumulative. The powers, preference and relative, participating,
optional and other rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding. Except as hereinafter provided, the Board of Directors
of this corporation is hereby expressly granted authority to fix, by
resolution or resolutions adopted prior to the issuance of any shares
of each particular series of Preferred Stock, the designation,
powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions thereof,
if any, of such series, including but without limiting the generality
of the foregoing, the following:
<PAGE> 14
(i) the distinctive designation of, and the number of
shares of Preferred Stock which shall constitute the series,
which number may be increased (except as otherwise fixed by the
Board of Directors) or decreased (but not below the number of
shares thereof then outstanding) from time to time by action of
the Board of Directors;
(ii) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the
series shall be paid, the extent of preferences or relations, if
any, of such dividends to the dividends payable on any other
class or classes of stock of this corporation, or on any series
of Preferred Stock or of any other class or classes of stock of
this corporation, and whether such dividends shall be cumulative
or noncumulative.
(iii) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for,
shares of any other class or classes of stock of this
corporation, or of any series of Preferred Stock or of any other
class or classes of stock of this corporation, and the terms and
conditions of such conversion or exchange;
(iv) whether shares of the series shall be subject to
redemption, and the redemption price or prices including,
without limitation, a redemption price or prices payable in
shares of the Common Stock and the time or times at which, and
the terms and conditions upon which, shares of the series may be
redeemed;
(v) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up of this corporation;
(vi) the terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the
series, and
(vii) the voting power, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include the right to more or less than one vote per
share of any or all matters voted upon by the shareholders and
the right to vote, as a series by itself or together with other
series of Preferred Stock as a class, upon such matters, under
such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock
as a class, to elect
<PAGE> 15
one or more directors of this corporation in the event there
shall have been a default in the payment of dividends on any one
or more series of Preferred Stock or under such other
circumstances and upon such condition as the Board may
determine.
(b) Common Stock
(i) after the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with the
provisions of subparagraph (a)(ii) of this Article, if any,
shall have been met and after this corporation shall have
complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of
subparagraph (a)(ii) of this Article) and subject further to any
other conditions which may be fixed in accordance with the
provisions of paragraph (a) of this Article, then, but not
otherwise, the holders of Common Stock shall be entitled to
receive such dividends, if any, as may be declared from time to
time by the Board of Directors;
(ii) after distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (a) of
this Article), if any, to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up of the corporation, the holders of the Common Stock
shall be entitled to receive all the remaining assets of this
Corporation, tangible and intangible, of whatever kind available
for distribution to stockholders, ratably in proportion to the
number of shares of the Common Stock held by each; and
(iii) no holder of any of the shares of any class or series
of stock or of options, warrants or other rights to purchase
shares of any class or series of stock or of other securities of
the Corporation shall have any pre-emptive right to purchase or
subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason
of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates or
indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation or any class or
series, or carrying any right to purchase stock of any class or
series, but any such unissued stock, additional authorized issue
of shares of any class or series of stock or securities
convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant
to resolution of the board of directors to
15
<PAGE> 16
such persons, firms, corporation or association, whether such
holders or others, and upon such terms as may be deemed
advisable by the board of directors in the exercise of its sole
discretion.
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation are 555,145 that the said
change(s) and amendment has been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ JAMES S. PERCELL
-------------------------------
JAMES S. PERCELL, President
/s/ BURL JACKS
-------------------------------
BURL JACKS, Assistant Secretary
<PAGE> 17
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On December 27, 1995, personally appeared before me, a Notary Public,
JAMES S. PERCELL, who acknowledged that he executed the above document.
[ILLEGIBLE]
-------------
Notary Public
[Notary Stamp or Seal]
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On December 27, 1995, personally appeared before me, a Notary Public, BURL
JACKS, who acknowledged that she executed the above document.
/s/ CECILE A SACKER
---------------------
Notary Public
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
STATE OF NEVADA C 35092
ATT: HANK VANDERKAM
C/O VANDERKAM & SANDER
111 CAROLINE STE 2905
HOUSTON TX 77010
DEAN HELLER, Secretary of State * Capitol Complex * Carson City, Nevada 89710
================================================================================
Date 1/2/96
-------
Corp. No. 8688-85 Check $ 135.00 Check No 1785 Cash $
-------- ----------- ----- ----------
RE: ENVIRONMENTAL SAFEGUARDS, INC.
INCORPORATION: Domestic / / Non Profit / / Foreign / / ____________________
AMENDMENT: Dissolution / / Withdrawal / / Merger / / Other /X/ STOCK SPLIT $75.00
CERTIFICATE: Good Standing (Short) _______ (Long) _______ Misc. ______________
COPIES: ___________ @ $1.00 ____________ @ $.50
CERTIFIED:____________ @ $5.00 ______________ @ $10.00 $10.00
LIST OF OFFICERS: Annual___ Sixty Day___ Non Profit____ Amended____ Late Fee____ EXP.
REINSTATEMENT $50.00
------------------------------------------------------------------ -------
RESOLUTION: Address Change__________ Resident Agent Change _______ _____________ $135.00
EXPEDITE _______________________________________________________________________
OTHER___________________________________________________________________________ DF
CORP-R (Rev.11-94) YELLOW, Customer; PINK, Accounting; BLUE, Department. By_____________
</TABLE>
<PAGE> 1
EXHIBIT 3.2
CAPE COD INVESTMENT COMPANY
BYLAWS
ARTICLE I
OFFICES
Section 1. The principal registered office of the Corporation shall be in
the city of Las Vegas, county of Clark, state of Nevada.
Section 2. The corporation may also have offices at such other places both
within and without the state of Nevada as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders shall be held at the
principal executive office of the corporation or such other place as the board
of directors shall determine. Special meetings of the stockholders may be held
at such time and place within or without the state of Nevada as shall be stated
in the notice of the meeting, or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such place and
time not less than 90 nor more than 180 days after the end of the corporation's
fiscal year as the board of directors shall determine, at which they shall
elect by a plurality vote a board of directors, and transact such other
business as may properly be brought before the meeting.
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
president or a vice-president, or the secretary, or an assistant secretary, or
by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the time
and the place at which it is to be held, which may be mailed, postage prepaid,
to each stockholder of record entitled to vote at such meeting not less than ten
nor more than 60 days before such meeting. If mailed, it shall be directed to a
stockholder at his address as it appears upon the records of the corporation and
<PAGE> 2
upon such mailing of any such notice, the service thereof shall be complete, and
the time of the notice shall begin to run from the date upon which such notice
is deposited in the mail for transmission to such stockholder. Personal delivery
of any such notice to any officer of a corporation or association, or to any
member of a partnership shall constitute delivery of such notice to such
corporation, association, or partnership. In the event of the transfer of stock
after delivery or mailing of the notice of and prior to the holding of the
meeting it shall not be necessary to deliver or mail notice of the meeting to
the transferee.
Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 6. The holders of at least 33-1/3% of stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders or for the transaction
of business except as otherwise provided by statute or by the articles of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted at the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the articles of incorporation a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 8. Every stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the corporation.
Section 9. At any meeting of the stockholders, any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, than that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person
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<PAGE> 3
executing it specifies therein the length of time for which it is to continue in
force, which in no case shall exceed seven years from the date of its revoked
and continues in full force and effect until and instrument revoking it or a
duly executed proxy bearing a later date is filed with the secretary of the
corporation.
Section 10. Any action, except election of directors, which may be taken
by the vote of the stockholders at a meeting, may be taken without a meeting if
authorized by the written consent of stockholders holding at least a majority
of the voting power, incorporation require a greater proportion of voting power
to authorize such action in which case such greater proportion of written
consents shall be required.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be three. The board of directors may increase or decrease the number of
directors by resolution to not less than three. The directors shall be elected
at the annual meeting of the stockholders and except as provided in Section 2
of this Article III, each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies, including those caused by an increase in the number
of directors, may be filled by a majority of the remaining directors though
less than a quorum. When one or more directors shall give notice of his or
their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.
Section 3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the articles of
incorporation or by these Bylaws directed or required to be exercised or done
by the Stockholders.
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the state of Nevada.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a
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<PAGE> 4
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and place as shall from time to time be determined by the
board.
Section 7. Special meetings of the board of directors may be called by the
president or secretary on the written request of two directors. Written notice
of special meetings of the board of directors shall be given to each director
at least five days before the date of the meeting.
Section 8. A majority of the board of directors, at a meeting duly
assembled, shall be necessary to constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the articles of
incorporation. Any action required or permitted to be taken at a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors entitled to vote with respect to the subject matter thereof.
COMMITTEES OF DIRECTORS
Section 9. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may have power to authorized the seal of the corporation to be affixed to
all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 10. The committees shall keep regular minutes of their proceedings
and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
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Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting, whether
of directors or stockholders, consent, either by a writing on the records of
the meeting or filed with the secretary, or by presence at such meeting and
oral consent entered on the minutes, or by taking part in the deliberations at
such meeting without objection, the doings of such meeting shall be as valid as
if a meeting had regularly been called and noticed, and at such meeting any
business may be transacted which is not excepted from the written consent or to
the consideration of which no objection for want of notice is made at the time,
and if any meeting be irregular for want of notice or of such consent, provided
a quorum was present at such meeting, the preceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meetings; and such consent or approval of stockholders may be by
proxy or attorney, but all such proxies and powers of attorney must be in
writing.
Section 3. Whenever any notice whatever is required to be given under the
provisions of the statutes, of the articles of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice president, a secretary, and a
treasurer. Any person may hold two or more offices.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, a vice president, a
secretary, and a treasurer, none of whom need be a member of the board.
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<PAGE> 6
Section 3. The board of directors may appoint additional vice presidents,
and assistant secretaries and assistant treasurers, and such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation by death, resignation, removal, or otherwise shall be filled by the
board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages, and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENT
Section 8. The vice president shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president and
shall perform such other duties as the board of directors may from time to time
prescribe.
THE SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as way be prescribed by the board of
directors or president, under whose supervision he shall be. He shall keep in
safe custody the seal of the corporation and, when authorized by the board of
directors, affix the same to any instrument requiring it and,
6
<PAGE> 7
when so affixed, it shall be attested by his signature or by the
signature of the treasurer or an assistant secretary.
THE TREASURER
Section 10. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 11. He shall disburse the funds of the corporation as may be
ordered by the board of directors taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
the regular meetings of the board, or when the board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 12. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement, or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every stockholder shall be entitled to have a certificate,
signed by the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. When the
corporation is authorized to issue shares of more than one class or more than
one series of any class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the corporation
will furnish to any stockholders upon request and without charge, a full or
summary statement of the designations, preferences, and relative,
participating, optional, or other special rights of the various classes of
stock or series thereof and the qualifications, limitations, or restrictions of
such rights, and, if the corporation shall be authorized to issue only special
stock, such certificate shall set forth in full or summarize the rights of the
holders of such stock.
Section 2. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then
a facsimile of the signatures of the
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<PAGE> 8
officers or agents of the corporation may be printed or lithographed
upon such certificate in lieu of the actual signatures. In case any
officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates shall
cease to be such officer or officers of the corporation, whether because of
death, resignation, or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates may
nevertheless be adopted by the corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates, or
whose facsimile signature or signatures shall have been used thereon, had not
ceased to be the officer or officers of such corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The directors may prescribe a period not exceeding 60 days
prior to any meeting of the stockholders during which no transfer of stock on
the books of the corporation may be made, or may fix a day not more than 60
days prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined; and only stockholders of record on such day shall be entitled to
notice or to vote as such meeting.
8
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the state of Nevada.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the articles of incorporation, if any, may be declared by the
board of directors at any regular or special meeting pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers of such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation and of the words "Corporate Seal,
Nevada".
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ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
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CERTIFICATE
The undersigned does hereby certify that he is an officer of Cape Cod
Investment Company, a corporation duly organized and existing under and virtue
of the laws of the state of Nevada; that the above and foregoing Bylaws of said
corporation were duly and regularly adopted as such by the board of directors
of said corporation, on the 2nd day of January, 1986; and that the above and
foregoing Bylaws are now in full force and effect.
DATED this 2nd day of January, 1986.
/s/ FRANK D. BOND
-------------------------------
11
<PAGE> 1
EXHIBIT 4.2
INCORPORATED UNDER THE LAWS OF THE
STATE OF NEVADA
[ENVIRONMENTAL SAFEGUARDS, INC. LOGO]
CUSIP NO. 294069 30 7
ENVIRONMENTAL SAFEGUARDS, INC.
50,000,000 AUTHORIZED SHARES
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF $.001 PAR VALUE OF
ENVIRONMENTAL SAFEGUARDS, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated:
ENVIRONMENTAL SAFEGUARDS, INC.
/s/ ILLEGIBLE [CORPORATE SEAL] /s/ ILLEGIBLE
SECRETARY NEVADA PRESIDENT
COUNTERSIGNED
COLONIAL STOCK TRANSFER
440 EAST 400 SOUTH, # 1
Salt Lake City, Utah 84111
By ______________________________
Authorized Signature
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED DECEMBER 17, 1997
BY AND AMONG
ENVIRONMENTAL SAFEGUARDS, INC.
AND
NATIONAL FUEL & ENERGY, INC.,
AND
ONSITE TECHNOLOGY, L.L.C.
AS BORROWERS
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
AND
STRATEGIC ASSOCIATES, L.P.
AND
NEWPARK RESOURCES, INC.
AND
JAMES H. STONE,
AS LENDERS
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
AS AGENT FOR EACH LENDER
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
SECTION 1
<S> <C>
DEFINITIONS.................................................................................................2
1.1. Definitions.....................................................................................2
SECTION 2
THE LOAN...................................................................................................12
2.1. Commitment for the Loan........................................................................12
2.2. Interest on the Loan. .........................................................................13
2.3. Payments. ....................................................................................14
2.4. Late Charges. ................................................................................14
2.5. Prepayment; No Revolver........................................................................14
2.6. Additional Warrant if No Prepayment by December 12, 2001.......................................15
SECTION 3
COLLATERAL ................................................................................................15
3.1. Grant of Security Interest. ..................................................................15
3.2. Obligations Secured............................................................................16
3.3. Collateral Disclosure List.....................................................................16
SECTION 4
APPLICATION OF PROCEEDS....................................................................................16
4.1. Loan...........................................................................................16
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BORROWERS................................................................16
5.1. Organization; Charter and Bylaws...............................................................17
5.2. Power and Authority............................................................................17
5.3. No Violation...................................................................................17
5.4. Litigation.....................................................................................17
5.5. Financial Statements...........................................................................18
5.6. Compliance with Licenses and Laws..............................................................18
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<TABLE>
<CAPTION>
<S> <C>
5.7. Investments and Guaranties.....................................................................18
5.8. Title to Properties; Liens.....................................................................18
5.9. ERISA..........................................................................................18
5.10. Chief Executive Office.........................................................................21
5.11. Inventory......................................................................................21
5.12. Indebtedness...................................................................................21
5.13. Compliance with Environmental, Health and Safety Laws..........................................22
5.14. Solvency.......................................................................................23
5.15. Security Interests.............................................................................23
5.16. Taxes..........................................................................................23
5.17. No Event of Default............................................................................23
5.18. Investment Company Act.........................................................................23
5.19. Public Utility Holding Company Act.............................................................23
5.20. Full Disclosure................................................................................23
5.21. Foreign Person.................................................................................24
5.22. Capitalization.................................................................................24
5.23. No Indebtedness to Shareholders, Officers, Directors or Affiliates.............................25
5.24. Foreign Corrupt Practices......................................................................25
5.25. Labor Agreements and Actions...................................................................25
SECTION 6
THE CLOSING; CONDITIONS PRECEDENT..........................................................................26
6.1. Time and Place of Closing......................................................................26
6.2. Conditions on Closing Date.....................................................................26
6.3. Additional Conditional Precedent...............................................................29
SECTION 7
BORROWER'S AFFIRMATIVE COVENANTS...........................................................................29
7.1. Punctual Payment and Performance...............................................................29
7.2. Taxes and Other Charges; Accounts Payable......................................................29
(a) Taxes and Other Charges......................................................29
(b) Accounts Payable.............................................................30
7.3. Conduct of Business, etc.......................................................................30
(a) Types of Business............................................................30
(b) Maintenance of Properties....................................................30
7.4. Compliance with Applicable Laws................................................................30
7.5. Information....................................................................................31
(a) Annual Audited Financial Statements..........................................31
(b) Quarterly Financial Statements...............................................31
(c) Additional Information.......................................................31
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<TABLE>
<CAPTION>
<S> <C>
(d) Immediate Notices............................................................31
(e) Taxes........................................................................32
(f) Inventory Listing............................................................32
(g) Annual Budget................................................................32
7.6. Insurance......................................................................................33
7.7. Inventory and Equipment Insurance..............................................................33
7.8. Corporate Existence; Compliance with Laws......................................................33
7.9. Issuance of Additional Warrants................................................................33
7.10. Key Man Insurance..............................................................................33
7.11. Visits and Inspections.........................................................................33
7.12 ERISA Compliance..............................................................................34
SECTION 8
THE AGENT..................................................................................................35
8.1. Appointment....................................................................................35
8.2. Nature of Duties...............................................................................35
(a) In General...................................................................35
(b) Express Authorization........................................................36
8.3. Rights, Exculpation, Etc.......................................................................36
8.4. Reliance.......................................................................................37
8.5. Indemnification................................................................................38
8.6. Cahill, Warnock Strategic Partners Fund, L.P., as Agent Individually...........................38
8.7. Successor Agent................................................................................38
(a) Resignation..................................................................38
(b) Appointment of Successor.....................................................39
(c) Successor Agent..............................................................39
8.8. Collateral Matters.............................................................................39
(a) Release of Collateral........................................................39
(b) Confirmation of Authority, Execution of Releases.............................40
(c) Absence of Duty..............................................................40
8.9. Agency for Perfection..........................................................................40
8.10. Exercise of Remedies...........................................................................41
8.11. Consents.......................................................................................41
8.12. Dissemination of Information...................................................................41
SECTION 9
BORROWER'S NEGATIVE COVENANTS..............................................................................42
9.1. Disposition of Collateral......................................................................42
9.2. Indebtedness...................................................................................42
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<TABLE>
<CAPTION>
<S> <C>
9.3. Liens..........................................................................................42
9.4. Dividends......................................................................................43
9.5. Loans..........................................................................................43
9.6. Guarantees.....................................................................................43
9.7. Merger.........................................................................................43
9.8. Affiliates.....................................................................................43
9.9. Financial Covenants............................................................................43
SECTION 10
ADDITIONAL COVENANTS AND ASSURANCES........................................................................44
10.1. Additional Assurances..........................................................................44
10.2. Possession Following Event of Default..........................................................44
10.3. Additional Collateral Actions..................................................................44
10.4. Verification of Accounts and Leases............................................................45
10.5. Inspection of Collateral.......................................................................45
10.6. Power of Attorney..............................................................................45
10.7. Insurance Assignment...........................................................................45
10.8. Payments by Lender.............................................................................45
10.9. Access to Records..............................................................................46
10.10. License to Use Premises........................................................................46
10.11. Instruments Evidencing Accounts................................................................46
10.12. Continuing Security Interest...................................................................46
10.13. No Lender Liability............................................................................47
SECTION 11
EVENTS OF DEFAULT..........................................................................................47
11.1. Events of Default..............................................................................47
SECTION 12
AGENT'S RIGHTS AND REMEDIES UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT.....................................................................................49
12.1. Remedies.......................................................................................49
12.2. Exercise of Remedies...........................................................................49
12.3. Disposition of Collateral......................................................................49
12.4. Cumulative Remedies............................................................................50
12.5. Waivers........................................................................................50
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<TABLE>
<CAPTION>
SECTION 13
<S> <C>
INDEMNIFICATION, ETC.......................................................................................50
13.1. Environmental Indemnity........................................................................50
13.2. GENERAL INDEMNITY. ............................................................................50
13.3. Exculpation....................................................................................52
13.4. Collateral Secures Indemnification.............................................................52
SECTION 14
MISCELLANEOUS PROVISIONS...................................................................................52
14.1. Notices........................................................................................52
14.2. No Waiver......................................................................................54
14.3. Assignment.....................................................................................54
14.4. Headings.......................................................................................54
14.5. Term...........................................................................................55
14.6. Waiver of Remedies.............................................................................55
14.7. Further Assurances.............................................................................55
14.8. Counterparts...................................................................................55
14.9. Fees and Expenses..............................................................................55
14.10. Consent of all Lenders.........................................................................56
14.11. Usury Laws.....................................................................................56
SECTION 15
GOVERNING LAW; JURISDICTION................................................................................57
15.1. Governing Law. ...............................................................................57
15.2. SUBMISSION TO JURISDICTION.....................................................................57
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<PAGE> 7
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of December
17, 1997 is entered into by and among CAHILL, WARNOCK STRATEGIC PARTNERS FUND,
L.P., a limited partnership organized under the laws of the State of Delaware,
and STRATEGIC ASSOCIATES, L.P., a limited partnership organized under the laws
of the State of Delaware, NEWPARK RESOURCES, INC., a Delaware corporation, and
JAMES H. STONE, an individual whose address is c/o Stone Energy, 909 Poydras
Street, Suite 2650, New Orleans, LA 70112 (each a "Lender" and collectively,
the "Lenders") and CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., in its
capacity as both collateral and administrative agent for each of the Lenders
(the "Agent") and ENVIRONMENTAL SAFEGUARDS, INC. ("EVSF" or the "Company"), a
Nevada corporation, NATIONAL FUEL & ENERGY, INC. ("NFE"), a Wyoming corporation
and wholly-owned Subsidiary of EVSF, and ONSITE TECHNOLOGY, L.L.C. ("OnSite"),
a limited liability company organized under the laws of the State of Oklahoma
(collectively, each a "Borrower" and collectively the "Borrowers").
WHEREAS, Borrowers have requested that Lenders advance an initial amount
of $6,000,000 upon the terms and conditions set forth in this Agreement and the
Loan Documents (as hereinafter defined) and a second tranche of $5,000,000 upon
the terms and conditions set forth in this Agreement and the Loan Documents;
and
WHEREAS, each Borrower has agreed to pledge and to grant security
interests in all of its interests in all of its assets, where applicable, as
collateral for the loan; and
WHEREAS, EVSF has agreed to issue Warrants to each Lender in consideration
of the Loan; and
WHEREAS, EVSF also has agreed to issue and sell its Series B Convertible
Preferred Stock and Series C Preferred Stock (collectively, the "Preferred
Stock") to the Lenders pursuant to a Stock Purchase Agreement of even date
herewith; and
WHEREAS, concurrent with the Closing (as defined in Section 6.1), EVSF
shall purchase the 50% interest of Parker Drilling Investment Company
("Parker") in OnSite and repay in full the outstanding balance owed by EVSF to
Casuarina, Ltd. ("Casuarina"), a Bermuda corporation and wholly-owned
subsidiary of Parker pursuant to a loan agreement and term note dated as of
December 19, 1996 (including without limitation repurchasing warrants to
purchase 300,000 shares of EVSF's Common Stock issued pursuant to that loan
agreement) (the "Parker Transaction").
WHEREAS, Lenders severally are willing to make such advance to Borrowers
jointly and severally upon such terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereby agree as follows:
<PAGE> 8
SECTION 1
DEFINITIONS
1.1. Definitions. As used herein the following terms have the
meanings set forth below:
"Accounts" means all of Borrowers' accounts, accounts receivable,
contract rights, notes, bills, drafts, acceptances, instruments, documents,
chattel paper and all other debts, obligations and liabilities in whatever form
owing to Borrowers from any Person for goods sold by it or for services
rendered by it, or however otherwise established or created; all guarantees and
security therefor, all right, title and interest of each Borrower in the goods
or services which gave rise thereto, including rights to reclamation and
stoppage in transit and all rights of an unpaid seller of goods or services;
whether any of the foregoing be now existing or hereafter arising, now or
hereafter received by or owing or belonging to Borrowers.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person and any other Person
that is an officer, director, or full time employee of such other Person.
"Agent" means Cahill, Warnock Strategic Partners Fund, L.P. or any
successor Agent appointed pursuant to Section 8.
"Agreement of Purchase and Sale" shall mean the agreement pursuant to
which Borrower is acquiring Parker's interest in OnSite.
"Business Day" means any day (except a Saturday, Sunday or other day)
on which commercial banks are open for domestic and international business,
including dealing in dollar deposits in the City of Baltimore, Maryland.
"Capital Equipment" means machinery and equipment acquired by a Person
and used in such Person's operations, excluding furnishings, fixtures and
leasehold improvements.
"Casuarina" means Casuarina, Ltd., a Bermuda corporation and
wholly-owned subsidiary of Parker.
"Change of Control" means any event or series of events by which (i)
any Person or group obtains a majority (by voting or otherwise) of the
securities of EVSF ordinarily having the right to vote in the election of
directors; (ii) during any two year period, individuals who at the beginning of
any such two year period constituted the Board of Directors of EVSF (together
with
2
<PAGE> 9
any new directors whose election by such Board or whose nomination for election
by the stockholders of EVSF was approved by a vote of the majority of the
directors then still in office who were either directors at the beginning of
such period or whose election, recommendation, or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of EVSF then in office; (iii) the merger, consolidation,
reorganization, recapitalization, dissolution or liquidation of EVSF if as a
result the current stockholders no longer own more than 50% of the voting
securities of EVSF, (iv) any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of EVSF; or (v) the adoption of a plan leading
to the liquidation or dissolution of EVSF.
"Closing" shall each have the respective meaning set forth in Section
6.1.
"Closing Date" means December 17, 1997, provided that Borrower has
satisfied all of the conditions precedent in Section 6.1, or such other time as
may be specified by Agent in its sole discretion.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and published interpretations thereunder.
Section references to the Code and its regulations are to those provisions as
in effect at the date of this Agreement, together with any subsequent
provisions of the Code that amend, supplement, or replace the provisions to
which reference is made.
"Collateral" has the meaning given such term in Section 3 hereof.
"Collateral Disclosure List" has the meaning set forth in Section 3.3.
"Commitment" means the obligation of each Lender, subject to the terms
and conditions of this Agreement, to make the Loan to the Borrowers in an
aggregate amount not exceeding the Commitment Amount.
"Commitment Amount" means an aggregate unpaid amount of principal
outstanding under the Agreement not exceeding Eleven Million Dollars
($11,000,000) as set forth in Section 2.
"Commitment Period" means the period from and including the Closing
Date to and including the Maturity Date.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored
or maintained by the Company or its Subsidiaries or with respect to which the
Company or a Subsidiary has or may have any liability (whether actual,
contingent, with respect to any of its assets or otherwise) as of any Closing
Date, in each case with respect to any present or former directors, employees,
or agents of the Company or the Subsidiaries.
3
<PAGE> 10
"Company Plan" means, as of any Closing Date, any Employee Benefit
Plan for which the Company or any Subsidiary is the "plan sponsor" (as defined
in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or any Subsidiary or to which the Company or any Subsidiary is
obligated to make payments, in each case with respect to any present or former
employees of the Company or the Subsidiaries.
"Contracts" means all contracts, agreements or understandings
and all rights thereunder to which any Person now or hereafter shall be a party
or by which any Person nor or hereafter shall be bound.
"Convertible Preferred Stock" means the Company's Series B
Convertible Preferred Stock, par value $.001 per share.
"Current Liabilities" means for any period all liabilities of
a Person which would, in accordance with GAAP, be classified as current
liabilities.
"Debt or Indebtedness" of any Person means, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments issued by such Person, (iii) all obligations of such Person to pay
the deferred purchase price of assets, property or services, (iv) all
obligations of such Person under any lease of property, real or personal, the
obligations of the lessees in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee, (v) all reimbursement
obligations of any Person in respect of letters of credit or other similar
instruments, (vi) all debt of others secured by a lien on any asset or property
of any Person, whether or not such debt is otherwise an obligation of such
Person, and (vii) all debts or obligations guaranteed by any Person.
"Default Rate" shall have the meaning set forth in Section
12.2.
"Demand" means written notice from Agent addressed and sent
in accordance with Section 13(a) to a Borrower requiring payment of a Loan or
Loans, in whole or in part, in the sole discretion of the Agent.
"Dividends" or "Distributions" means, for the applicable
period, the aggregate of all amounts paid or payable (without duplication) as
dividends, distributions or owner withdrawals with respect to the shares of
stock of a Borrower organized as a corporation or the limited liability company
interests of a Borrower organized as a limited liability company, as the case
may be, whether now or hereafter outstanding and includes any purchase,
redemption or other retirement of any shares of stock of a Borrower organized
as a corporation or any limited liability company interests of a Borrower
organized as a limited liability company, as the case may be, directly or
indirectly through a Subsidiary of a Borrower or otherwise, and includes return
of capital by a Borrower to its stockholders or members, as the case may be.
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<PAGE> 11
"Dollars" and "$" means lawful money of the United States.
Any reference to payment means payment in immediately available Dollar funds.
"Employee Benefit Plan" has the meaning given in Section 3(3)
of ERISA.
"Environmental Complaint" shall mean any citation, complaint,
demand, order, or notice by any person, association, entity, or governmental
authority alleging, asserting or claiming that Borrower or any of its
properties: (i) is in material violation of applicable Environmental Laws, (ii)
does not comply in all material respects with applicable Environmental Laws, or
(iii) does not have or maintain all material permits, licenses, and/or
approvals required under applicable Environmental Laws.
"Environmental Laws" shall mean any one or more of the
following: (i) the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. ss. 9601 et seq. ("CERCLA"), (ii) the
Resource Conservation and Recovery Act, as amended by the Hazardous and Solid
Waste Amendment of 1984, 42 U.S.C. ss. 6901 et seq. ("RCRA"), (iii) the Clean
Air Act, 42 U.S.C. ss. 7401 et seq., (iv) the Federal Water Pollution Control
Act, 33 U.S.C. ss. 1251 et seq., (v) the Toxic Substances Control Act, 15
U.S.C. ss. 2601 et seq., (vi) the Federal Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f to 300j-11, (vii) the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. ss. 1101 et seq., (viii) the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., (ix) applicable laws
of the states of Nevada, Texas, Oklahoma, Utah and Wyoming, and (x) all other
foreign, federal, state, tribal and local laws (whether common or statutory),
rules, regulations, consent agreements, compliance schedules, and orders
directly and/or indirectly relating to public health and safety, air pollution,
water pollution, noise control, wetlands, oceans, waterways, and/or the
presence, use, generation, manufacture, transportation, processing, treatment,
handling, discharge, release, disposal, or recovery of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
materials and/or underground storage tanks, as each of the foregoing laws,
rules, regulations and orders may be amended, supplemented, and/or reauthorized
from time to time.
"Equipment" means all "equipment," as such term is defined in
ss.9-109(2) of the UCC, now or hereafter owned by a Borrower, and also means
and includes all personal property constituting machinery, equipment, plant,
furnishings, fixtures, and other fixed assets now owned or hereafter acquired
by a Borrower, including (without limitation) all items of machinery and
equipment of any kind, nature and description, as well as vessels, trucks and
vehicles of every description, trailers, handling and delivery equipment and
office furniture, and all additions to, substitutions for, replacements of or
accessions to any of the foregoing items and all attachments, components, parts
(including spare parts) and accessories, whether installed thereon or affixed
thereto, and all fuel for any thereof.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations and published
interpretations thereunder.
5
<PAGE> 12
Section references to ERISA and its regulations are to those provisions as in
effect at the date of this Agreement, together with any subsequent provisions
of ERISA that amend, supplement, or replace the provisions to which reference
is made.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) that, together with a Borrower, would be treated as a
single employer under Section 4001(b) of ERISA or that would be deemed to be a
member of the same "controlled group" within the meaning of Section 414(b),
(c), (m), and (o) of the Code (provided, however, that when the subject of the
provision is a Multiemployer Plan only subsections (b) and (c) of Section 414
shall be taken into account).
"Event of Default" means any event specified in Section 11.
"Fully Registered Company Common Stock" shall mean the
unrestricted common stock, par value $.001 per share, of EVSF that has been
registered with the SEC under the Securities Act and is freely transferable
without restriction.
"GAAP" means generally accepted accounting principles as in
effect in the United States on the date hereof, consistently applied.
"General Intangibles" means all "general intangibles," as
such term is defined in ss.9-106 of the UCC, and all intangible personal
property not included in Accounts, or in Instruments and Documents, now or
hereafter owned or acquired by a Borrower, and also means and includes all
right, title and interest of a Borrower now or hereafter owned or acquired in
intellectual property, patents, patent applications, goodwill, trademarks,
trademark applications, trade names, service marks, copyrights, permits,
licenses, federal, state, or local tax refunds, claims under insurance policies
(whether or not Proceeds), other rights (if any) to payment, rights of set off,
chooses in action, rights under judgments, computer programs and software,
customer lists, and all contracts and agreements to, or of which a Borrower is
a party or beneficiary, and all leasehold interests of a Borrower in real
estate to the extent considered personal property under applicable law.
"Hazardous Materials" shall mean any one or more of the
following substances, wastes and materials:
(a) Any substance, waste or material defined as a
"hazardous substance," "hazardous material," "hazardous waste,"
"pollutant," "contaminant," "toxic material," or "toxic substance," in
any of the applicable Environmental Laws, or in the standards,
criteria, rules and/or regulations promulgated pursuant to any of said
Environmental Laws; and
(b) Any substance, waste or material, the presence
of which requires investigation or remediation under any Environmental
Laws.
6
<PAGE> 13
"Interest Pledge Agreement" means the Limited Liability
Company Interest Assignment and Agreement by and among EVSF, NFE and the Agent,
dated as of December 17, 1997.
"Instruments" and "Documents" means all "instruments,"
"documents," "deposit accounts," and "chattel paper," as defined in ss.9-105 of
the UCC, all securities, and includes (without limitation) all warehouse
receipts and other documents of title, policies and certificates of insurance,
checking, savings, and other bank accounts, certificates of deposit, checks,
notes and drafts, now or hereafter acquired, to the extent not included in
Accounts.
"Inventory" means all inventory of whatever name, nature,
kind or description, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials, materials
used or consumed by a Borrower, parts, supplies, all wrapping, packaging,
advertising, labeling, and shipping materials, devices, names and marks, all
contracts, rights and documents relating to any of the foregoing, whether any
of the foregoing be now existing or hereafter arising, wherever located, now
owned or hereafter acquired by Borrower.
"Knowledge" or derivations thereof shall mean the knowledge
of the officers of a Borrower and each Subsidiary, and, with respect to ERISA,
each person who conducts human resource and employee benefits management
functions for or any Subsidiary, whether or not an officer of a Borrower or
such Subsidiary.
"Leases" means all leases from time to time outstanding
between a Borrower and other Persons for the lease of personal property,
including without limitation all computer hardware, peripheral equipment and
software, all of which are pledged to Lender to secure payment of the Loans and
other Obligations hereunder.
"Lien" means any mortgage, pledge, assignment, lien, charge,
encumbrance or security interest of any kind whatsoever, or the interest of a
vendor or lessor under a conditional sale, title retention or capital lease
Agreement.
"Loan" means a term loan made to Borrowers pursuant to Section
2.1.
"Loans" means the term loans, collectively, made to Borrowers
pursuant to Section 2.1.
"Loan Documents" means this Agreement, the Notes, the
Collateral Disclosure List, the Stock Pledge Agreements, the Interest Pledge
Agreement, the Patent Security Agreement and the Trademark Security Agreement
and any and all other agreements, instruments and documents now existing or
hereafter entered into, relating to, evidencing or securing the Obligations.
7
<PAGE> 14
"Maturity Date" means December 17, 2002.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA
"Net Earnings" means net income of a Person from continuing
operations (or deficit) excluding all extraordinary and nonrecurring items, as
determined in accordance with GAAP.
"Note" means the term note evidencing the Loan, in the form
of the term note attached hereto as Exhibit A, as amended or modified, from
time to time (as the context permits).
"Obligations" means all loans, advances, interest, fees,
debts, liabilities, guaranties, obligations (including without limitation
contingent obligations under guaranties and letters of credit), agreements,
undertakings, covenants and duties owing or to be performed or observed by a
Borrower to or in favor of Agent and/or Lenders, of every kind and description
(whether or not evidenced by any note or other instrument; for the payment of
money; arising out of the Loans, this Agreement or any other Agreement between
Lenders and/or Agent and a Borrower or any other instrument of a Borrower in
favor of Lenders and/or Agent; arising out of or relating or similar to
transactions described herein; or contemplated as of the Closing Date), direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including without limitation all interest, fees, charges,
and amounts chargeable to a Borrower under Section 10.
"OnSite" means OnSite Technology, L.L.C., a limited liability
company organized under the laws of the State of Oklahoma.
"OnSite Colombia" means OnSite Colombia, Inc., a Cayman Island
corporation.
"Patent Security Agreement" means the Patent Security
Agreement, dated as of December 17, 1997, by and among the Borrowers and the
Agent.
"Parker" means Parker Drilling Company, an Oklahoma
corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA or other
applicable federal law.
"Permits" shall mean all governmental licenses, permits,
certificates, orders, concessions, grants, franchises, approvals and
authorizations necessary for the conduct of the business of a Borrower.
"Permitted Indebtedness" has the meaning given to such term in
Section 9.2.
8
<PAGE> 15
"Permitted Liens" has the meaning given such term in Section
9.3.
"Person" means any individual, partnership, firm,
association, business enterprise, trust, estate, company, joint venture,
governmental authority, corporation or other entity.
"Plan" means any employee plan subject to Title IV of ERISA
maintained for employees of Borrower, any subsidiary of Borrower or any other
trade or business under common control with Borrower within the meaning of
ss.414(c) of the Internal Revenue Code or the regulations thereunder.
"Proceeds" has the meaning given such term under the UCC and,
in any event, includes (but is not limited to) (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any Person acting
under color of governmental authority), or (c) whatever is received upon any
collection, exchange, sale, lease or other disposition of any of the Collateral
and any property into which any of the Collateral is converted, whether cash or
non-cash proceeds, and (d) any and all other products of, or any rents, profits
or other amounts from time to time paid or payable under, or in connection
with, any of the Collateral.
"Preferred Stock" means the Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock, par value $.001 per share.
"Prohibited Transaction" shall mean any transaction set forth
in Section 406 of ERISA or Section 4975 of the Code.
"Qualified Plan" means any Employee Benefit Plan that meets,
purports to meet, or is intended to meet the requirements of Section 401(a) of
the Code.
"Real Estate" means all real property now or hereafter owned,
leased or acquired by any Person and all rights thereto, including all
appurtenances, fixtures and ascensions thereto, and all substitutions on
replacements therefore, now owner or hereafter acquired by any Person or to
which any Person now has or hereafter acquires any rights or interests.
"Related Collateral" means all goodwill; cash; deposit
accounts; claims under insurance policies (whether or not proceeds of other
Collateral); rights of set off; rights under judgments; tort claims and chooses
in action; computer programs and software; books and records (including without
limitation all electronically recorded data); contract rights; and all
contracts and agreements to or of which it is a party or beneficiary, whether
any of the foregoing be now existing or hereafter arising, now or hereafter
received by or belonging to any Person.
9
<PAGE> 16
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove,
treat or in any other way address any Hazardous Material; (y) prevent the
Release of any Hazardous Material so it does not endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring and
care.
"Reportable Event" shall mean any event described in Section
4043(b) of ERISA with respect to an Employee Benefit Plan subject to Title IV
of ERISA, other than those as to which the PBGC has waived the notice
requirement.
"Requirement of Law" shall mean, as to any Person, the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person and any law, treaty, rule or regulation, any
determination of an arbitrator or a court or other governmental authority or
agency, or the terms of any license, permit, certificate, authorization or
other direction or requirement (including, without limitation, any of the
foregoing which relate to energy regulations, drilling or production
regulations, occupational, safety and health standards or controls, and
requirements under the Environmental Laws), in each case applicable to or
binding upon such Person or to which any of its property is subject.
"Responsible Officer" means for each Borrower, its chief
executive officer or president or, with respect to its financial matters, its
chief financial officer or such similar Member with respect to a limited
liability company.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Pledge Agreements" means the Stock Pledge and
Hypothecation Agreement between EVSF, and the Agent, as Pledgee, of even date
herewith and the Stock Pledge and Hypothecation Agreement between OnSite, and
the Agent, as Pledgee, of even date herewith.
"Stock Purchase Agreement" mans the Series B Convertible
Preferred and Series C Preferred Stock Purchase Agreement of even date herewith
by and among Environmental Safeguards, Inc., as issuer, and Cahill, Warnock
Strategic Partners Fund, L.P., Strategic Associates, L.P., Newpark Resources,
Inc. and James H. Stone, as the purchasers.
"Subsidiaries" means, with respect to any Person, any
corporation, partnership, limited liability company or other entity of which at
least a majority of the securities or other
10
<PAGE> 17
ownership interests having by the terms thereof voting power to elect a
majority of the board of directors or other persons performing similar
functions of such corporation, partnership, limited liability company or entity
is at the time directly or indirectly owned or controlled by such Person or one
or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such person, and shall include (without limitation) OnSite,
OnSite Colombia, Environmental Technology Services, Inc., a Cayman Island
corporation and Environmental Leasing Company, a Cayman Island Corporation.
"Termination Event" shall mean (i) a Reportable Event; (ii)
the withdrawal of a Borrower or any ERISA Affiliate from a Multiple Employer
Plan during a plan year in which it was a "substantial employer," as such term
is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by
Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan; (iii) submission to a governmental
authority of a request for a waiver of minimum funding standards required by
ERISA or the Code, with respect to any Employee Benefit Plan; (iv) the
existence or likely creation of a lien under ERISA or the Code on Borrower or
any ERISA Affiliate on account of any Employee Benefit Plan; (v) the disclosure
to affected parties of a notice of intent to terminate an Employee Benefit Plan
under Section 4041 of ERISA other than in a "standard termination" within the
meaning of Section 4041 of ERISA; (vi) the institution of proceedings by the
PBGC to terminate an Employee Benefit Plan under Section 4042 of ERISA; (vii)
any other event or condition that might reasonably constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Employee Benefit Plan; (viii) the commencement or, to the
knowledge of Borrower, likely commencement of a proceeding against Borrower or
any ERISA Affiliate under Section 515 of ERISA to collect a delinquent
contribution to a Multiemployer Plan; or (ix) any other event or condition
reasonably indicating that Borrower or any ERISA Affiliate will or may incur
any material liability (including any contingent or secondary liability) to or
on account of the termination of or withdrawal from an Employee Benefit Plan or
Multiemployer Plan under Section 4062, 4063, 4064, 4201, or 4204 of ERISA.
"Trademark Security Agreement" means the Trademark Security
Agreement, dated as of December 17, 1997 by and between the Borrowers and the
Agent.
"UCC" means the Uniform Commercial Code, as adopted in the
states of Nevada, Texas, Oklahoma, Utah and Wyoming, and, unless the context
otherwise requires, the following terms shall have the same meanings given
therein: "account," "account debtor," "chattel paper" and "good faith."
"Unfunded Current Liability" of any Employee Benefit Plan
shall mean the amount, if any, by which the present value of the accrued
benefits under the plan as of the close of its most recent plan year exceeds
the value, determined in accordance with Section 412 of the Code, of the plan's
assets.
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<PAGE> 18
"U.S. Foreign Corrupt Practices Act" means the U.S. Foreign
Corrupt Practices Act of 1977, Pub. L. No. 95-213, Sections 101-104, as
amended, and any other U.S. law, regulation, order, decree or directive having
the force of law and relating to bribes, kick-backs or similar business
practices.
"Withdrawal Liability" shall have the meaning given such term
under Part 1 of Subtitle E of Title VI of ERISA.
All references to the plural herein shall also mean the
singular and to the singular shall also mean the plural. All references to
Borrowers, Agent and Lenders pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. Any accounting terms used herein unless otherwise
defined in this Agreement shall have the meanings customarily given such term
in accordance with GAAP. Wherever, pursuant to this Agreement, an action is
required or permitted to be taken or omitted by Agent in its discretion, such
discretion shall be exercised in good faith.
SECTION 2
THE LOAN
2.1. Commitment for the Loan.
(a) Subject to and upon the provisions of this Agreement,
each Lender severally agrees to make an initial loan (the "Initial Loan"; and
collectively with the Supplemental Loan (as defined below), the "Loans") to the
Borrowers on the Closing Date in the principal amount set forth below opposite
such Lender's name (herein called such Lender's "Initial Committed Amount").
The proportionate share set forth below opposite each Lender's name is herein
called such Lender's "Pro Rata Share"
<TABLE>
<CAPTION>
Lender Initial Committed Amount Pro Rata Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cahill Warnock Strategic $2,740,982.14 45.683%
Partners Fund, L.P.
Strategic Associates, L.P. $ 151,875 2.531%
Newpark Resources, Inc. $3,000,000 50%
James H. Stone $ 107,142.86 1.786%
Initial Committed Amount $6,000,000 100%
</TABLE>
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<PAGE> 19
The obligation of each Lender to make the Initial
Loan is several and is limited to its Committed Amount, and such obligation of
each Lender is herein called its "Loan Commitment". The Loan Commitment of each
of the Lenders are herein collectively referred to as the "Loan Commitments".
The Agent shall not be responsible for the Commitment of any Lender; and
similarly, none of the Lenders shall be responsible for the Commitment of any
of the other Lenders; the failure, however, of any Lender to perform its
Commitment shall not relieve any of the other Lenders from the performance of
their respective Commitments.
(b) The Loan shall be evidenced by and payable in accordance
with a term note (the "Note" and collectively, the "Notes") in the form of
Exhibit A hereto and shall be in the principal amount of such Lender's
Committed Amount.
(c) Subject to and upon the provisions of this Agreement,
each Lender severally agrees to make a supplemental loan (a "Supplemental
Loan") to the Borrowers on sixty (60) days' prior written notice from the
Borrowers to each of the Lenders, with a copy to the Agent, in the principal
amount of Five Million Dollars ($5,000,000). Borrowers hereby acknowledge and
agree that they are prohibited from obtaining the Supplemental Loan in the
event that they are in default on the Initial Loan. The obligation of each
Lender to make a Supplemental Loan is several and shall be determined by
agreement among the Lenders, and if no agreement can be reached among Lenders,
then the obligation of each Lender to make a Supplemental Loan shall be
consistent with its respective Pro Rata Share on the Initial Loan. The Agent
shall not be responsible for a Commitment of any Lender; and similarly, none of
the Lenders shall be responsible for the Commitment of any of the other
Lenders; the failure, however, of any Lender to perform its Commitment under
the Supplemental Loan shall not relieve any of the other Lenders from the
performance of their respective Commitments. The terms of the Supplemental Loan
with respect to Maturity Date, interest, payments, late charges, Events of
Default, etc. shall be the same for the Supplemental Loan as it is for the
Initial Loan.
2.2. Interest on the Loan.
(a) Each Loan shall bear interest calculated on the basis of
actual days elapsed and a 360-day year, at the prime rate, as reported in the
Wall Street Journal five (5) Business Days prior to the end of each calendar
month or if not reported on such date then the closest Business Day thereto,
plus one and five-tenths percent (1.5%). Interest shall accrue daily on the
aggregate outstanding principal balance of the Loan for the period commencing
on the date the Loan is made until the Loan is paid in full.
(b) If not earlier paid, or if not accelerated for payment,
each Loan shall be payable to each Lender (for its Pro Rata Share), with notice
of such payment to the Agent, quarterly in arrears in substantially equal
periodic installments consisting of principal plus interest accrued at the rate
set forth in the Note, on the fifth (5th) day of each March, June, September
and December (each an "Interest Payment Date"), commencing on March 5, 1998,
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with the entire remaining principal balance of the Loan and all interest
accrued thereon due and payable on the Maturity Date.
2.3. Payments.
(a) Principal and interest shall be payable in lawful money
of the United States of America without set-off, deduction or counterclaim to
each of the Lenders (for its Pro Rata Share) at each Lender's principal
business office not later than 10:00 a.m. local time for each Lender on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) The payments shall be made to the addresses and accounts
as set forth in Schedule 2.3.
2.4. Late Charges. Any principal or interest payment due under any
Note not paid within five (5) days from the date such payment is due, by
acceleration, conversion or otherwise, shall, to the extent permitted by law,
be subject to an additional interest charge equal to five percent (5%) above
the then prevailing interest rate under the Note. The charging or collection of
any late charge shall not be deemed a waiver of any of Agent's and/or Lenders'
rights arising thereby or hereunder, including Agent's right to declare an
"Event of Default" hereunder.
2.5. Prepayment; No Revolver.
(a) Borrowers may prepay all of the Loans with accrued
interest thereon, or any part of the Loans with accrued interest thereon in
increments of One Million Dollars ($1,000,000), at any time (except as provided
in Section 2.5(d)) by payment in cash of the Pro Rata Share to each of the
Lenders, with a notice of such payment to the Agent, without premium or
penalty. Such payment shall be made by 12:00 noon local time of each Lender on
any Business Day.
(b) Borrowers shall give Agent notice of prepayment hereunder
not less than thirty (30) days prior to the date of the prepayment. Such notice
shall specify the Loans to be prepaid and the amount of the Loans to be prepaid
and the date of prepayment (which shall be a Business Day).
(c) Amounts paid or prepaid on account of the Loans may not
be reborrowed.
(d) Borrowers hereby agree that they shall not make any
prepayments on the Loans unless and until EVSF shall have redeemed any and all
of the shares of Series C Preferred Stock as may be outstanding from time to
time.
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2.6 Additional Warrant if No Prepayment by December 12, 2001. In the
event that the Borrowers have not paid in full all Obligations, including
without limitation all unpaid principal and accrued interest thereon by
December 17, 2001, EVSF shall authorize, issue and deliver an additional
warrant for 188,571 shares of common stock, substantially in the form of
Exhibit B.
SECTION 3
COLLATERAL
3.1. Grant of Security Interest. As security for the prompt
performance, observance and payment in full of all Obligations, each Borrower
hereby grants to Agent for the ratable benefit of the Lenders and for the
benefit of the Agent a continuing first priority security interest in and lien
on, and assigns, transfers, sets over and pledges to Agent all property of such
Borrower whether now owned by such Borrower or hereafter acquired or existing,
and wherever located (collectively, the "Collateral"), including without
limitation:
(i) all Real Estate;
(ii) all Accounts;
(iii) all Inventory;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments and Documents;
(vii) all Leases;
(viii) all stock of NFE owned by EVSF, all interests
in OnSite held by NFE and/or EVSF and all stock in OnSite Colombia, OnSite
Venezuela, Environmental Leasing Company and Environmental Technology Services,
Inc. held by OnSite, NFE and/or EVSF;
(ix) all Related Collateral;
(x) all accessions to and additions to,
substitutions for, replacements, products and Proceeds to any and all of the
foregoing; and
(xi) all patents, copyrights, intellectual
property, trademarks, and all other properties requiring additional steps to
perfect.
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The term "Collateral" shall also refer to any other property in which
Agent is granted a Lien to secure any of the Obligations pursuant to an
Agreement supplemental hereto or otherwise (whether or not such Agreement makes
reference to this Agreement or the Obligations of a Borrower hereunder).
3.2. Obligations Secured. The security interest granted by each
Borrower and created hereby secures the payment and performance of all of the
Obligations under this Agreement and the other Loan Documents, however
evidenced, whether now existing or hereafter arising, direct or indirect,
absolute or contingent, including all costs and reasonable attorneys' fees
incurred by Agent in enforcing this Agreement and the other Loan Documents
and/or collecting or attempting to collect on the Notes. The Obligations of
each Borrower under the Notes and all other Obligations of Borrowers to Agent
and/or Lenders are also secured by the security interest created pursuant to
the Patent Security Agreement, the Trademark Security Agreement, Stock Pledge
Agreements with respect to NFE and Interest Pledge Agreement with respect to
OnSite.
3.3. Collateral Disclosure List. On or prior to the Closing Date, the
Borrowers shall deliver to the Agent a list (the "Collateral Disclosure List")
which shall contain such information with respect to each Borrower's business
and real and personal property as the Agent may require and shall be certified
by a Responsible Officer of each of the Borrowers, all in the form provided to
the Borrowers by the Agent. Promptly after demand by the Agent, the Borrowers,
as appropriate, shall furnish to the Agent an update of the information
contained in the Collateral Disclosure List at any time and from time to time
as may be requested by the Agent.
SECTION 4
APPLICATION OF PROCEEDS
4.1. Loan. EVSF shall apply the proceeds of the Loan for (i) the
purchase of the 50% interest of Parker in OnSite and repayment in full of the
outstanding balance owed by EVSF to Casuarina, a wholly-owned subsidiary of
Parker, pursuant to a loan agreement and term note dated as of December 19,
1996 (including without limitation repurchasing warrants to purchase 300,000
shares of EVSF's common stock issued pursuant to that loan agreement), (ii)
payment of fees and expenses, and (iii) working capital.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BORROWERS
Each Borrower represents and warrants to Lender on the issuance of the
Initial Loan and of the Supplemental Loan that:
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5.1. Organization; Charter and Bylaws. Borrower is validly existing
and in good standing under the laws of its state of incorporation or
organization and has the requisite power to own, lease and operate its
properties and to carry on its business as now being conducted. Borrower is
duly qualified to do business and is in good standing in each jurisdiction in
which the character or location of the properties owned or leased by Borrower
or the nature of the business conducted by Borrower makes such qualification
necessary or advisable, except where the failure to do so would not be material
to the Company.
5.2. Power and Authority. Borrower has the requisite power to execute,
deliver and perform the Loan Documents, and to consummate the transactions
contemplated thereby. The execution and delivery of the Loan Documents by
Borrower and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate or company action on the part
of Borrower. Each of the Loan Documents has been duly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of Borrower and
is enforceable against Borrower in accordance with its terms except (i) that
such enforcement may be subject to bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought. No consent or approval of any Person
(including, without limitation, any stockholder or member approval), no consent
or approval of any landlord or mortgagee and no waiver of any Lien is required
in connection with execution, delivery or performance by Borrower, or the
validity, enforcement or priority, of the Loan Documents or any Lien created
and granted thereunder.
5.3. No Violation. The execution and delivery of the Loan Documents by
Borrower do not, and the performance of the Loan Documents will not, (i)
conflict with or result in a breach of the certificate or articles of
incorporation or bylaws or other formation documents of Borrower, or (ii)
violate, or conflict with, or constitute a default under, or (except for Liens
created pursuant to the Loan Documents) result in the creation or imposition of
any security interest, mortgage, pledge, lien, encumbrance, claim, restriction,
or other charge upon any property or assets of Borrower under any mortgage,
indenture or agreement to which Borrower is a party or by which the property or
assets of Borrower is bound, or (iii) violate any Requirement of Law, the
effect of which violation would be material and adverse to the business, assets
or financial condition of Borrower, or (iv) violate any permit, concession,
grant, franchise, license, or other governmental authorization or approval
necessary for the appropriate conduct of the business of Borrower, the effect
of which violation would be material and adverse to the business, assets or
financial condition of Borrower.
5.4. Litigation. Except as provided in Schedule 5.4 hereto, there are
no actions, suits, proceedings or governmental investigations or inquiries
pending, or to the knowledge of Borrower threatened against Borrower or any of
its Affiliates or their respective properties, assets, operations or businesses
(i) that might prevent or interfere with the consummation of the transactions
contemplated hereunder or (ii) that might, singly or in the aggregate, result
in any
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<PAGE> 24
material adverse effect on the prospects, results of operation, properties,
liabilities, assets, financial condition or business of Borrower.
5.5. Financial Statements. The financial statements of Borrower
heretofore delivered to Agent by Borrower (the "Financial Statements") fairly
represent the financial condition of Borrower as of the date thereof and for
the periods reflected therein. Since the date of such Financial Statements,
there has been no material adverse change in the assets, business, financial
condition or prospects of Borrower.
5.6. Compliance with Licenses and Laws. Except as disclosed in writing
to Agent by Borrower, Borrower possesses all Permits, and Borrower is in
compliance with the Permits and all Requirements of Law except where the
failure to possess any Permits or the failure to be in compliance with the
Permits or Requirements of Law would not, singly or in the aggregate, have a
material adverse effect on the business, assets, financial condition or
operations of Borrower. There are no proceedings pending or, to the knowledge
of Borrower, threatened that may result in the revocation, cancellation, or
suspension or any materially adverse modification of any of the aforementioned
Permits. Borrower has not received any written notice to the effect that, or
otherwise been advised that, it is not in compliance with any Permit or
Requirement of Law. Except as set forth in Schedule 5.6 hereto, no consent,
approval or authorization of, or declaration, filing or registration with, any
United States federal, state, or local governmental or regulatory authority, or
any foreign government or governmental authority, is required to be made or
obtained by Borrower in connection with the execution, delivery and performance
of any Loan Document or the consummation by Borrower of the transactions
contemplated thereunder.
5.7. Investments and Guaranties. Except as listed in Schedule 5.7 at
the date of this Agreement, Borrower has not made investments in, advances to
or guaranties of the obligations of any Person not otherwise disclosed on the
Financial Statements.
5.8. Title to Properties; Liens. Borrower owns all of its assets and
properties and such assets and properties together with any other assets and
properties acquired since such date, including, without limitation, the
Collateral, are subject to no Liens except Permitted Liens. The Liens granted
to Lender under the Loan Documents constitute valid perfected first Liens on
the Collateral, subject to no prior or equal Lien, except for Permitted Liens.
5.9. ERISA. (a) Schedule 5.9(a) contains a complete and
accurate list of all Company Plans and Company Benefit Arrangements. Schedule
5.9(a) specifically identifies all Company Plans (if any) that are Qualified
Plans.
(b) With respect, as applicable, to Employee Benefit
Plans and Benefit Arrangements:
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(i) true, correct, and complete copies of all of
the following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to the Lenders: (A)
all documents constituting the Company Plans and Company Benefit Arrangements,
including, but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500 C/R and any financial statements attached thereto for the
prior three years; (C) the most recent Internal Revenue Service (the "IRS")
determination letter and the latest IRS determination letter that covered the
qualification of the entire Company Plan (if different), and copies of the
materials submitted by the Company to obtain those letters; (D) the most recent
summary plan descriptions; (E) the most recent written descriptions of all
non-written agreements relating to any such plan or arrangement (if such
documents or writings exist), (F) all reports submitted within the four years
preceding the date of this Agreement by third-party administrators, actuaries,
investment managers, consultants, or other independent contractors; (G) all
notices that were given to the Company within the three years preceding the
date of this Agreement by the IRS, Department of Labor, or any other
governmental agency or entity with respect to any plan or arrangement; and (H)
employee manuals or handbooks containing personnel or employee relations
policies;
(ii) Neither the Company nor any Subsidiary has
ever maintained, contributed to, or been obligated to contribute to any
Qualified Plan.
(iii) the Company and the Subsidiaries have never
sponsored or maintained, had any obligation to sponsor or maintain, or had any
liability (whether actual or contingent, with respect to any of its assets or
otherwise) with respect to any Employee Benefit Plan subject to Section 302 of
ERISA or Section 412 of the Code or Title IV of ERISA (including any
Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been operated with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including federal and
state securities laws;
(v) There are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or any Stockholder, and no claims or
lawsuits have been asserted, instituted or to the Company's Knowledge
threatened by, against, or relating to any Company Plan or Company Benefit
Arrangement, against the assets of any trust or other funding arrangement under
any such Company Plan, by or against the Company or the Subsidiaries with
respect to any Company Plan or Company Benefit Arrangement, or by or against
the plan administrator or any fiduciary of any Company Plan or Company Benefit
Arrangement, and the Company and the Subsidiaries do not have knowledge of any
fact that could form the basis for any such claim or lawsuit. The Company Plans
and Company Benefit Arrangements are not presently under audit or
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<PAGE> 26
examination (nor has notice been received of a potential audit or examination)
by the IRS, Department of Labor, or any other governmental agency or entity;
(vi) no Company Plan or Company Benefit
Arrangement contains any provision or is subject to any law that would prohibit
the transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities
as a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has
occurred no non- exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach
of any fiduciary duty described in Section 404 of ERISA that would, if
successful, result in any liability for the Company or any Stockholder,
officer, director, or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied
with respect to each Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring
the Company Benefit Plans into conformity with the applicable provisions of
ERISA, the Code, and other applicable laws have been made or taken except to
the extent such amendments or actions (A) are not required by law to be made or
taken until after the Effective Date and (B) are disclosed on Schedule
5.9(b)(ix);
(x) payment has been made of all amounts that
the Company and each Subsidiary is required to pay as contributions to the
Company Benefit Plans as of the last day of the most recent fiscal year of each
of the plans ended before the date of this Agreement; all benefits accrued
under any unfunded Company Plan or Company Benefit Arrangement will have been
paid, accrued, or otherwise adequately reserved in accordance with GAAP as of
the Balance Sheet Date; and all monies withheld from employee paychecks with
respect to Company Plans have been transferred to the appropriate plan within
30 days of such withholding;
(xi) except as disclosed on Schedule 5.9(b)(xi),
the Company and the Subsidiaries have not prepaid or prefunded any Welfare Plan
through a trust, reserve, premium stabilization, or similar account, nor do
they provide benefits through a voluntary employee beneficiary association as
defined in Section 501(c)(9);
(xii) no statement, either written or oral, has
been made by the Company or the Subsidiaries to any Person with regard to any
Company Plan or Company Benefit Arrangement that was not in accordance with the
Company Plan or Company Benefit Arrangement and that could have an adverse
economic consequence to the Company or the Subsidiaries;
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(xiii) the Company and the Subsidiaries have no
liability (whether actual, contingent, with respect to any of its assets or
otherwise) with respect to any Employee Benefit Plan or Benefit Arrangement
that is not a Company Benefit Arrangement or with respect to any Employee
Benefit Plan sponsored or maintained (or which has been or should have been
sponsored or maintained) by any ERISA Affiliate;
(xiv) all group health plans of the Company and
its ERISA Affiliates have been operated in material compliance with the
requirements of Sections 4980B (and its predecessor) and 5000 of the Code; and
(xv) no employee or former employee of the
Company or beneficiary of any such employee or former employee is, by reason of
such employee's or former employee's employment, entitled to receive any
benefits, including, without limitation, death or medical benefits (whether or
not insured) beyond retirement or other termination of employment as described
in Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Closing Statement or (iii) continuation coverage
mandated under Section 4980B of the Code or other applicable law.
(c) Schedule 5.9(c) hereto sets forth an accurate list, as of
the date hereof, of all officers, directors, and key employees of the Company
and lists all employment agreements with such officers, directors, and key
employees and the rate of compensation (and the portions thereof attributable
to salary, bonus, and other compensation respectively) of each such Person as
of (a) December 31, 1996 and (b) the date hereof.
(d) Except as set forth on Schedule 5.9(d), the Company has
not declared or paid any bonus compensation in contemplation of the
transactions contemplated by this Agreement.
5.10. Chief Executive Office. Borrower's chief executive office and
the office where it keeps its records concerning its Accounts, General
Intangibles and other assets is that shown in Section 14.1 of this Agreement.
Except as set forth in Schedule 5.10 it has no other place of business where
such records are located.
5.11. Inventory. Borrower's Inventory is (and has been since the date
of this Agreement) valued (i) for annual financial reporting purposes, at the
lower of cost or market, using the specific identification method consistent
with the basis applied for prior financial periods by Borrower.
5.12. Indebtedness. Borrower has no Indebtedness of any type except as
set forth on Schedule 5.12 and Indebtedness incurred with Lenders pursuant to
this Agreement and other than up to $500,000 incurred in the ordinary course of
business.
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5.13. Compliance with Environmental, Health and Safety Laws.
Except as set forth on Schedule 5.13:
(a) To the Company's best Knowledge, the operations of each
of Borrower and its Subsidiaries are in compliance with all applicable
Environmental Laws and all Permits issued pursuant to Environmental Laws or
otherwise;
(b) Each of Borrower and its Subsidiaries has obtained all
Permits required under all applicable Environmental Laws necessary to operate
its business to the Company's best Knowledge;
(c) None of Borrower or any of its Subsidiaries is the
subject of any outstanding written order, agreement or arrangement with any
governmental authority or Person respecting (i) Environmental Laws, (ii)
Remedial Action or (iii) any Release or threatened Release of a Hazardous
Material;
(d) None of Borrower or any of its Subsidiaries has received
any written communication alleging either or both that Borrower or any of its
Subsidiaries may be in violation of any Environmental Law, or any Permit issued
pursuant to Environmental Law, or may have any liability under any
Environmental Law;
(e) None of Borrower or any of its Subsidiaries has to the
Company's best Knowledge any current contingent liability in connection with
any Release of any Hazardous Materials into the indoor or outdoor environment
(whether on-site or off-site);
(f) There are no investigations of the business, operations,
or currently or previously owned, operated or leased property of Borrower or
any of its Subsidiaries pending or to the Company's best Knowledge threatened
that could lead to the imposition of any liability pursuant to Environmental
Law;
(g) There is not located at any of the properties owned at
any of the properties leased or operated by Borrower or any of its Subsidiaries
any (i) underground storage tanks, (ii) asbestos-containing material, (iii)
equipment containing polychlorinated biphenyls, any (iv) Hazardous Materials
located at any Borrower Property (other than for Hazardous Materials used or
stored by the Borrower or any Subsidiary in the ordinary course of business and
in material compliance with applicable Environmental Laws and Permits); and
(h) Borrower has provided to Agent all environmentally
related audits, studies, reports, analyses and results of investigations, if
any, that have been performed with respect to the currently or previously
owned, leased or operated properties of Borrower or any of its Subsidiaries.
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5.14. Solvency. Borrower is, and after giving effect to the
transactions contemplated hereby will be, solvent.
5.15. Security Interests. Upon filing of all Uniform Commercial Code
Financing Statements and any other documents of title or financing statements
of applicable governmental agencies or by applicable law, Lenders will have a
first priority perfected security interest in all of the Collateral, except to
the extent the relevant Uniform Commercial Code provides that a security
interest will be perfected by some other method.
5.16. Taxes. Borrower has filed or caused to be filed within the times
and within the manner prescribed by law, all federal, state, local and foreign
tax returns and tax reports that are required to be filed by, or with respect
to, Borrower. Such returns and reports reflect accurately all liability for
taxes of Borrower for the periods covered thereby, and all federal, state,
local and foreign income, profits, franchise, sales, use, occupancy, excise and
other taxes and assessments (including interest and penalties) payable by, or
due from, Borrower have been fully paid or adequately disclosed and fully
provided for in the books and Financial Statements of Borrower to the extent
required by generally accepted accounting principles. No examination of any tax
return of Borrower is currently in progress, and there are no unpaid taxes in
any material amount claimed to be overdue by the taxing authority of any
jurisdiction. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Borrower.
5.17. No Event of Default. No Event of Default has occurred and No
Event of Default is continuing.
5.18. Investment Company Act. Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
5.19. Public Utility Holding Company Act. Borrower is not a "holding
company,"or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
5.20. Full Disclosure. All written agreements, lists, schedules
(including without limitation each Collateral Disclosure List), instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to the Agent and/or Lenders pursuant hereto or in connection with the
Loan Documents or this Agreement or the transactions contemplated hereby, are
and will be complete and accurate in all material respects. No representation
or warranty by Borrower contained in this Agreement, in the schedules attached
hereto (including without limitation each Collateral Disclosure List) or in any
certificate furnished or to be furnished by Borrower to Agent and/or Lenders in
connection herewith or pursuant hereto or in any of the Loan Documents contains
or will contain any untrue statement or a material fact or omits or will
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omit to state any material fact necessary in order to make any statement
contained herein or therein not misleading. There is no fact known to the
officers and directors of Borrower that has specific application to Borrower
(other than general economic or industry conditions) and that materially
adversely affects or, as far as such officers and directors can reasonably
foresee, materially threatens, the assets, business, prospects, financial
condition, or results of operations of Borrower that has not been set forth in
this Agreement, the Loan Documents or any schedule hereto (including without
limitation each Collateral Disclosure List) or thereto. No information,
schedule, exhibit or report furnished to Agent by Borrower in connection with
the negotiation of this Agreement or the Loan Documents (including without
limitation each Collateral Disclosure List) contains any material misstatement
of fact or omits to state any material fact necessary to make the statement
contained therein not misleading.
5.21. Foreign Person. Borrower is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, foreign estate or foreign
person within the meaning of Sections 1445 or 7701 of the Internal Revenue Code
of 1986, as amended, or the regulations thereto.
5.22. Capitalization.
(a) The authorized capital stock of EVSF is 60,000,000
shares, consisting of 50,000,000 shares of common stock, par value $.001 per
share ("Common Stock") of which 9,282,265 shares are issued and outstanding and
no shares are held in treasury, and 10,000,000 shares of preferred stock, par
value $.001 per share ("Preferred Stock"), none of which are issued and
outstanding. There are no outstanding shares of Series A Preferred Stock.
Schedule 5.22 lists the options, rights and warrants of EVSF issued and
outstanding prior to Closing. EVSF has reserved for issuance 4,391,221 shares
of Common Stock upon exercise or conversion of currently outstanding shares of
convertible preferred stock and rights, options, warrants and other convertible
securities. EVSF has no employee stock purchase plans, stock option plans or
other Employee Benefit Plans. EVSF has reserved for issuance 6,354,334 shares
of Common Stock upon conversion of the authorized shares of Convertible
Preferred Stock and the Loan Warrants and management options. Except as listed
on Schedule 5.22(a), there are outstanding (a) no shares of capital stock or
other voting stock of EVSF, (b) no securities of EVSF or any Person convertible
into or exchangeable for shares of capital stock or voting securities of EVSF,
(c) no options, warrants or other rights to acquire from EVSF (including any
rights issuable or issued under any shareholder rights plan or similar
arrangement), and no obligations, contingent or otherwise, of EVSF to issue any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of EVSF, (d) no equity equivalent in the
earnings or ownership of EVSF or any person or any similar rights to share
earnings or ownership, and (e) no outstanding obligations of EVSF to
repurchase, redeem or otherwise acquire any of its securities or to make any
investment (by loan, capital contribution or otherwise) in any entity or
person. All outstanding options, rights and warrants have been duly and validly
issued and are in full force and effect. All shares of capital stock subject to
issuance upon exercise of any options, rights or warrants or otherwise, upon
issuance pursuant to the instruments under which they are issuable, shall be
duly authorized, validly issued, fully paid for
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<PAGE> 31
and non-assessable and free of all preemptive rights. No outstanding options,
warrants or other securities exercisable for or convertible into shares of
capital stock of EVSF require anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
(b) The authorized capital of NFE consists of 10,000,000
shares, consisting of 10,000,000 shares of common stock, no par value, of which
9,640,000 shares are issued and outstanding and no shares are held in treasury,
and no shares of preferred stock are issued and outstanding. NFE has reserved
for issuance no shares of common stock upon exercise or conversion of currently
outstanding shares of convertible preferred stock and rights, options, warrants
and other convertible securities. NFE has no employee stock purchase plans,
stock option plans or other Employee Benefit Plans. There are outstanding (a)
no securities of NFE or any Person convertible into or exchangeable for shares
of capital stock or voting securities of NFE, (b) no options, warrants or other
rights to acquire from NFE (including any rights issuable or issued under any
shareholder rights plan or similar arrangement), and no obligations, contingent
or otherwise, of NFE to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of NFE, (c) no equity equivalent in the earnings or ownership of NFE
or any person or any similar rights to share earnings or ownership, and (d) no
outstanding obligations of NFE to repurchase, redeem or otherwise acquire any
of its securities or to make any investment (by loan, capital contribution or
otherwise) in any entity or person. All outstanding options, rights and
warrants have been duly and validly issued and are in full force and effect.
All shares of capital stock subject to issuance upon exercise of any options,
rights or warrants or otherwise, upon issuance pursuant to the instruments
under which they are issuable, shall be duly authorized, validly issued, fully
paid for and non-assessable and free of all preemptive rights. No outstanding
options, warrants or other securities exercisable for or convertible into
shares of capital stock of NFE require anti-dilution adjustments by reason of
the consummation of the transactions contemplated hereby.
(c) At Closing, all of the authorized capital of OnSite
shall be owned by the EVSF.
5.23. No Indebtedness to Shareholders, Officers, Directors or
Affiliates. Except as set forth in Schedule 5.23 Borrower owes no Indebtedness
to any Affiliate of Borrower, or any shareholder, officer, or director or
Affiliate of such person.
5.24. Foreign Corrupt Practices. Neither the Borrower nor any
Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action that would cause the Borrower or any
Subsidiary to be in violation of the U.S. Foreign Corrupt Practices Act or any
law of similar effect.
5.25. Labor Agreements and Actions. With respect to employees of and
service providers to Borrower and the Subsidiaries: (a) Borrower and the
Subsidiaries are and have been in compliance in all material respects with all
applicable laws respecting employment and
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employment practices, terms and conditions of employment and wages and hours,
including without limitation any such laws respecting employment
discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and have not and are not engaged in any unfair labor practice;
(b) there is not now, nor within the past three years has there been, any
unfair labor practice complaint against Borrower or any Subsidiary pending or,
to Borrower's or any Subsidiary's Knowledge, threatened before the National
Labor Relations Board or any other comparable authority; (c) there is not now,
nor within the past three years has there been, any labor strike, slowdown or
stoppage actually pending or, to Borrower's or any Subsidiary's Knowledge,
threatened against or directly affecting Borrower or any Subsidiary; (d) to
Borrower's or any Subsidiary's Knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending and, to Borrower's or any Subsidiary's
Knowledge, no claims therefor exist or have been threatened; (f) the employees
of Borrower and the Subsidiaries are not and have never been represented by any
labor union, and no collective bargaining agreement is binding and in force
against Borrower or any Subsidiary or currently being negotiated by Borrower or
any Subsidiary; and (g) to Borrower's Knowledge, all Persons classified by
Borrower or its Subsidiaries as independent contractors do satisfy and have
satisfied the requirements of law to be so classified, and Borrower and its
Subsidiaries have fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
SECTION 6
THE CLOSING; CONDITIONS PRECEDENT
6.1. Time and Place of Closing. The closing of the Initial Loan will
take place at the offices of Axelrod, Smith & Kirshbaum, 5300 Memorial, Suite
700, Houston, Texas 77007 or such other place as may be mutually agreed upon by
the Borrowers and the Agent (the "Closing"), on December 17, 1997, provided
that each Borrower has satisfied all of the conditions precedent in Section 6,
or such other time as may be specified by Agent in its sole discretion (the
"Closing Date"). The closing of the Supplemental Loan will take place at such
location and on such date as may be mutually agreed upon by the Borrowers and
the Agent; provided that each Borrower has satisfied all of the conditions
precedent in Section 6.
6.2. Conditions on Closing Date. The obligations of Agent and/or
Lenders to make the Initial Loan and the Supplemental Loan pursuant to Section
2 shall be subject to the satisfaction, on or before each Closing Date, of the
conditions set forth in this Section 6.2, including without limitation, that no
Event of Default has occurred or is occurring. If the conditions set forth in
this Section 6.2 are not met on or prior to each of the Closing Dates, the
Lender shall have no obligation to make any extensions of credit hereunder;
provided, however, that the conditions set forth in Sections 6.2 (b), (c), (f),
(g), (i), (p) and (q) shall not be required for a closing under the
Supplemental Loan).
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(a) Notes. Borrower shall have duly executed and delivered
the Notes to Agent.
(b) Warrants. EVSF shall have duly executed and delivered the
Warrants and Warrant Agreements attached hereto as Exhibit C to Agent.
(c) Stock Purchase Agreement. EVSF shall have duly executed
and delivered the Stock Purchase Agreement of even date herewith.
(d) Perfection of Security. Borrower shall have duly
authorized, executed, acknowledged, delivered, filed, registered and recorded
such security agreements, notices, financing statements and other instruments
as Agent may have requested in order to perfect the Liens purported or required
to be created pursuant to the Loan Documents.
(e) Legal Opinions. On the Closing Date, Agent shall have
received from Axelrod, Smith & Kirshbaum an opinion with respect to the
transactions contemplated by the Loan Documents, which opinions shall be in
form and substance satisfactory to Agent and its counsel. On the Closing Date,
Lender shall have received an opinion or opinions from Maples and Calder with
respect to the transactions contemplated by the Loan Documents under Cayman
Island law. Borrowers authorize and directs its counsel to furnish the
foregoing opinions.
(f) Parker Transaction. Concurrent with the Closing
hereunder, EVSF shall purchase the 50% interest of Parker in OnSite and repay
in full the outstanding balance owed by EVSF to Casuarina, a wholly-owned
subsidiary of Parker, pursuant to a loan agreement and term not dated December
19, 1996 (including without limitation repurchasing warrants to purchase
300,000 shares of EVSF's Common Stock issued pursuant to that loan agreement).
(g) Certificates. Concurrent with the Closing hereunder,
Agent shall have received a certificate of a Responsible Officer of EVSF to the
effect that (i) the Parker Transaction has been completed and (ii) each of the
conditions set forth in this Section 6 has been fully satisfied.
(h) Officer's/Member's Certificate. The representations and
warranties contained in Section 5 shall be true and correct on and as of such
Closing Date with the same force and effect as though made on and as of such
date (except as to any representation or warranty which refers to a specific
earlier date and except to the extent Schedules referred to in Section 5 have
been supplemented in accordance with this Agreement); Borrowers shall be in
compliance with each covenant under the Loan Documents; no Event of Default
shall exist on such Closing Date prior to or immediately after giving effect to
the requested extension of credit; no material adverse change shall have
occurred, as determined by Agent in its sole discretion, in the financial
condition, results of operations, assets or business of Borrowers. Borrowers
shall have furnished to Agent a certificate to these effects.
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(i) Corporate/Company Documents; Secretary's Certificate. On
the Closing Date, each Borrower shall deliver to Agent:
(i) a certificate of the Secretary of State of
Borrower's state of incorporation or formation, dated not earlier than forty
(40) days preceding the Closing Date, to the effect that Borrower is a
corporation validly existing and in good standing under the laws of such state
as of such date;
(ii) a certificate of the Secretary of State of
each state where Borrower is required to qualify to do business (including
without limitation, the states where the Collateral is located), dated not
earlier than forty (40) days preceding the applicable Closing Date, to the
effect that Borrower is a corporation duly licensed or qualified to do business
in such state and is in good standing as a foreign corporation under the laws
of such state as of such date; and
(iii) certificates of the Secretary or Assistant
Secretary of Borrower including (A) copies of the Articles of Incorporation and
By-laws of Borrower as then in effect or a certification that there has been no
change in such instruments since the last such certification delivered to Agent
pursuant to this Agreement, (B) duly enacted resolutions of Borrower's Board of
Directors in form and substance satisfactory to Agent approving the Loan
Documents and authorizing officers of Borrower to execute and deliver
instruments required to be delivered hereunder as a condition precedent to the
Closing, or a certification that there has been no amendment or revocation of
such resolutions since the last such certification delivered to Agent pursuant
to this Agreement, and (C) specimen signatures of the officers of Borrower
authorized to sign such instruments to the extent such specimen signatures have
not previously been delivered to Lender.
(j) Insurance. Agent shall have received evidence of such
insurance coverage as Agent may reasonably request.
(k) Other Indebtedness. Agent shall have received written
reports in form and substance satisfactory to it that a search of the public
records of the jurisdiction in which Collateral is located evidence
satisfactory to Agent in its sole discretion that, except for Permitted
Indebtedness and the Loans, all Indebtedness of Borrower has been repaid and
discharged in full, and all security interests relating thereto have been
released.
(l) Proper Proceedings. This Agreement, each other Loan
Document and the transactions contemplated hereby and thereby shall have been
authorized by all necessary corporate or company action, or other proceedings.
All necessary consents, approvals and authorizations of any of the transactions
contemplated hereby or by any other Loan Document shall have been obtained and
shall be in full force and effect.
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(m) Legality, etc. The transactions contemplated by this
Agreement shall not (i) subject Agent and/or Lenders to any penalty or special
tax or (ii) be prohibited by any law, rule or regulation of any governmental
authority.
(n) General. All legal and corporate or company proceedings
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Agent and Agent shall have received
copies of all documents, including certified copies of the Charter and By-Laws
of Borrower, records of corporate or company proceedings, certificates as to
signatures and incumbency of officers, and opinions of counsel, which Agent may
have reasonably requested in connection therewith, such documents where
appropriate to be certified by proper corporate or company or governmental
authorities.
(o) Pledge Agreements. Agent shall have received executed
Stock Pledge Agreements and an executed Interest Pledge Agreement.
(p) Intellectual Property Security Agreement. Agent shall
have received executed security agreements for patents, copyrights, and other
intellectual property.
6.3. Additional Conditional Precedent. The obligations of Agent and/or
Lenders to make the Supplemental Loan on or after February 12, 2000 shall be
subject to the condition that the Borrowers shall have delivered the executed
Additional Warrant (as defined in Section 7.9).
SECTION 7
BORROWER'S AFFIRMATIVE COVENANTS
For so long as any Borrower shall have any Obligations to Lenders
under this Agreement, each Borrower covenants as follows:
7.1. Punctual Payment and Performance. Borrower shall duly and
punctually pay the principal and interest on the Loans and all other amounts
provided for in this Agreement, or any other Loan Document, and shall perform
its obligations and covenants under all Loan Documents.
7.2. Taxes and Other Charges; Accounts Payable.
(a) Taxes and Other Charges. Borrower and its Subsidiaries
shall duly pay and discharge, or cause to be paid and discharged, before the
same becomes in arrears, all taxes, assessments and other governmental charges
imposed upon such Person and its properties, sales or activities, or upon the
income or profits therefrom, as well as all claims for labor, materials or
supplies which if unpaid might be law become a Lien upon any of its property;
provided, however, that any such tax, assessment, charge or claim need not be
paid if the validity or
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amount thereof shall at the time be contested in good faith by appropriate
proceedings and if such Person shall, in accordance with GAAP, have set aside
on its books adequate reserves with respect thereto; and provided, further,
that Borrower and its Subsidiaries shall pay or bond, or cause to be paid or
bonded, all such taxes, assessments, charges or other governmental claims
immediately upon the commencement of proceedings to foreclose any Lien which
may have attached as security therefor (except to the extent such proceedings
have been dismissed or stayed).
(b) Accounts Payable. Borrower and its Subsidiaries shall
promptly pay when due, or in conformity with customary trade terms, all other
Indebtedness incident to the operations of such Person not referred to in
Section 7.2; provided, however, that any such Indebtedness need not be paid if
the validity or amount thereof shall at the time be contested in good faith and
if such Person shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto.
7.3. Conduct of Business, etc.
(a) Types of Business. Borrower and its Subsidiaries shall engage
only in the business of development, production and sale of environmental
reclamation/remediation technologies and services.
(b) Maintenance of Properties. Borrower and its Subsidiaries:
(i) shall keep their properties in such repair, working
order and condition, and shall from time to time make such repairs,
replacements, additions and improvements thereto as are necessary for the
efficient operation of its businesses and shall comply at all times in all
material respects with all material franchises, licenses and leases to which it
is party so as to prevent any loss or forfeiture thereof or thereunder, except
where (i) compliance is at the time being contested in good faith by
appropriate proceedings and (ii) failure to comply with the provisions being
contested have not resulted, or do not create a material risk of resulting, in
the aggregate in any material adverse effect on the business, on operations or
properties of Borrower (financial or otherwise); and
(ii) shall do all things necessary to preserve, renew and
keep in full force and effect and in good standing its legal existence and
authority necessary to continue its business.
7.4. Compliance with Applicable Laws. Borrower and its Subsidiaries
shall comply, and Borrower shall cause its Subsidiaries to comply, in all
material respects with all valid and applicable statutes, laws, ordinances,
zoning and building codes and other rules and regulations, including
environmental regulations, of the United States of America, of the states and
territories thereof and their counties, municipalities and other subdivisions
and of any foreign jurisdiction in which any Collateral is located and obtain
and keep in force any and all licenses, permits,
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franchises or other governmental authorizations which it is required to obtain
which are necessary or beneficial to the ownership or use of its properties or
to the operation of its business.
7.5. Information.
(a) Annual Audited Financial Statements. Annually, as soon as
available but in any event within ninety (90) days after the close of each
fiscal year of Borrower, a balance sheet of Borrower as at the end of such year
and statements of income and retained earnings and of cash flow of Borrower
prepared in accordance with GAAP consistently applied, reflecting the results
of its operations during such year, prepared by Borrower's independent
accounting firm, together with the audit report of such independent accounting,
which financial statements shall be true, correct and accurate and fairly
present the financial position of Borrower as of the date thereof.
(b) Quarterly Financial Statements. As soon as available, but
in any event not later than forty-five (45) days after the end of each
quarterly fiscal period (other than the last quarterly fiscal period in any
fiscal year of the Company), the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such period and the related
unaudited consolidated statements of income and cash flows of the Company and
its Subsidiaries for such period and for the elapsed period in such fiscal
year, all in reasonable detail and stating in comparative form (i) the figures
as of the end of and for the comparable periods of the preceding fiscal year
and (ii) the figures reflected in the operating budget (if any) for such period
as specified in the financial plan of the Company. All such financial
statements shall be prepared in accordance with GAAP applied on a consistent
basis throughout the periods reflected therein except as stated therein.
(c) Additional Information. Borrower shall promptly provide
such information concerning Borrower and its Subsidiaries, the Collateral
(including without limitation an updated Collateral Disclosure List for any
Borrower or Borrowers), the operation of its business, its financial condition,
as Agent may from time to time reasonably request, and shall also provide
copies of such governmental filings and other documentation as Agent may from
time to time reasonably request.
(d) Immediate Notices. Borrower shall immediately provide
notice to Agent of:
(i) any Event of Default or any event which, with
notice or lapse of time or both, might become an Event of Default;
(ii) a change in the basis for valuing Inventory from
that shown in Section 5.11;
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(iii) the institution or commencement of any action,
suit, proceeding or investigation against or affecting Borrower or its
Subsidiaries or any of its or their assets which, if determined adversely could
result in judgment in excess of $100,000;
(iv) any judgment, award, decree, order or
determination in an amount in excess of $100,000;
(v) the imposition or creation of any Lien against
any asset or property of Borrower except in favor of Agent or Permitted Liens;
(vi) any potential or known release or threat of
release of hazardous or toxic chemicals, materials or substances or oil from,
on or onto any site owned or used by Borrower or the incurrence of any expense
or loss in connection therewith or upon Borrower obtaining knowledge of any
investigation, action or the incurrence of any expense or loss by any
governmental authority in connection with the containment or removal of any
hazardous or toxic chemical, material or substance or oil for which expense or
loss Borrower may be liable or potentially responsible;
(vii) any loss or destruction of Collateral or other
assets or property whether or not covered by insurance if the value thereof
exceeds $100,000;
(viii) the occurrence of any event or the existence
of any fact which would render any representation or warranty in this Agreement
or any other Loan Document inaccurate, incomplete or misleading in any material
respect;
(ix) any organized labor dispute to which
Borrower may become a party or any walkouts, strikes or other similar events
affecting Borrower.
(e) Taxes. If requested by Lender, within ten (10) days after
the accrual in accordance with applicable law of Borrower's obligation to make
deposits for F.I.C.A. and withholding taxes, evidence satisfactory to Agent
that such deposits have been made as required.
(f) Inventory Listing. If requested by Agent, a copy
(certified by an authorized officer of Borrower to be true, correct and
complete) of any listing of Inventory but is no event more often than two times
a year.
(g) Annual Budget. As soon as available, but in any event not
later than thirty (30) days prior to the beginning of each fiscal year of
Borrower, the financial plan of Borrower for such fiscal year, including,
without limitation, a cash flow projection and operating budget, calculated
quarterly, as contained in its operating plan presented to the Borrower's Board
of Directors as well as any updates or revisions to such plan as soon as
available.
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7.6. Insurance. Maintain property and liability insurance with
responsible insurance companies (and with deductibles) reasonably satisfactory
to Agent in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas as Borrower operates.
7.7. Inventory and Equipment Insurance. Maintain insurance with
responsible insurance companies (and with deductibles) reasonably satisfactory
to Agent covering Borrower's Inventory and Equipment in such amounts as is
usually carried by companies engaged in similar businesses and in any event not
less than Agent may from time to time reasonably require, and deliver to Agent
copies of such insurance policies (and all renewals thereof) together with
Agent's loss payable endorsements naming Agent as a secured party executed by
the insurer(s), such policies to provide that coverage may not be modified or
terminated without prior notice to Agent.
7.8. Corporate Existence; Compliance with Laws. Maintain its corporate
or company existence in good standing, and its qualification to do business in
good standing in every state and foreign jurisdiction in which such
qualification may be necessary by reason of the nature or location of its
assets or operations, and comply with its charter documents and by-laws, or
other constituent documents, as the case may be, all contractual requirements
by which it or any of its properties may be bound and all applicable laws,
rules and regulations (including without limitation, ERISA and those relating
to environmental protection and health and safety).
7.9. Issuance of Additional Warrants. Authorize, issue and deliver
additional warrants (the "Additional Warrants"), substantially in the form of
the Warrant attached hereto as Exhibit C upon the earlier of (i) an Event of
Default or (ii) February 17,2000; provided, however, that if Borrowers have
repaid the Loans in part, then EVSF shall issue warrants for a pro rata number
of shares based upon the amount of the Loans that remain unpaid as of February
17, 2000, or if EVSF shall have repaid in full prior to February 17, 2000, EVSF
will not be obligated to issue any Additional Warrants under this Agreement.
7.10. Key Man Insurance. After the Closing Date, Borrower will use its
best efforts to obtain and, if obtained, will maintain life insurance upon the
life of James S. Percell in the amount of no less than $5 million, with the
proceeds payable to Agent.
7.11. Visits and Inspections. Borrower will permit representatives of
Agent (including without limitation its counsel, accountants and agents), from
time to time, as often as may reasonably requested, but only during normal
business hours, to visit and inspect the offices and properties of Borrower and
its Subsidiaries, inspect, audit and make extracts from its books and records,
and discuss with officers, its employees and its independent accountants,
Borrower's and its Subsidiaries' business, assets, liabilities, financial
condition, business prospects and results of operations.
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7.12. ERISA Compliance. Borrower will make, and, if reasonably within
its control, will cause each ERISA Affiliate to make, all payments or
contributions to the Employee Benefit Plans and Multiemployer Plans required
under the terms thereof and in accordance with the funding requirements
applicable to such plans under ERISA and the Code and applicable collective
bargaining agreements. Borrower will cause all Employee Benefit Plans that it
sponsors, and, if reasonably within its control, will cause each ERISA
Affiliate to cause all Employee Benefit Plans that such ERISA Affiliate
sponsors, to be maintained in substantial compliance with ERISA and the Code
and, if applicable, to maintain the qualified status of each Employee Benefit
Plan under the Code. Borrower will not engage, and, if reasonably within its
control, will not permit or suffer any ERISA Affiliate or fiduciary of any
Employee Benefit Plan to engage, in any Prohibited Transaction for which an
exemption is not available and that is likely to give rise to material
liability to Borrower or any ERISA Affiliates. Borrower will not permit any
Termination Event to occur where, 30 days after notice thereof shall have been
given to Borrower, such Termination Event shall still exist and the liability
of Borrower or any ERISA Affiliate relating thereto is material to the
financial condition of Borrower or any ERISA Affiliate.
(a) Borrower will notify Agent promptly of any Reportable Event or
Termination Event or any partial or complete withdrawal from any Multiemployer
Plan that may result in any Withdrawal Liability of Borrower or any ERISA
Affiliate or upon learning of any insolvency, reorganization status, or
termination of a Multiemployer Plan that may result in material liability of
Borrower or any ERISA Affiliate, together with the actions proposed to be taken
by Borrower or its ERISA Affiliate. Borrower will furnish to Lender a copy of
any request for waiver of the minimum funding standards required by ERISA or
the Code promptly after submission thereof to a governmental authority.
(b) Borrower covenants and agrees with Lenders that, so long as this
Agreement shall remain in effect, unless Agent otherwise consents in writing,
which consent shall not be unreasonably withheld, Borrower will not:
(i) Cause any Employee Benefit Plan to become subject to
Title IV or Section 302 of ERISA or Section 412 of the Code, except those plans
to which those sections apply as of the date of this Agreement;
(ii) Adopt any new plan, fund, or other arrangement that
would be subject to Title IV or Section 302 of ERISA or Section 412 of the
Code; or
(iii)Adopt or incur any new obligation to contribute to any
Multiemployer Plan.
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SECTION 8
THE AGENT
8.1. Appointment.
Each Lender hereby designates and appoints Cahill, Warnock Strategic
Partners Fund, L.P. as its agent under this Agreement and the Loan Documents,
and each Lender hereby irrevocably authorizes the Agent to take such action or
to refrain from taking such action on its behalf under the provisions of this
Agreement and the Loan Documents and to exercise such powers as are set forth
herein or therein, together with such other powers as are reasonably incidental
thereto. The Agent agrees to act as such on the express conditions contained in
this Section 8. The provisions of this Section 8 are solely for the benefit of
the Agent and the Lenders and neither Borrower nor any Person shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as an administrative representative of the Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or relationship
of agency or trust with or for the Lenders, the Borrowers or any Person. The
Agent may perform any of its duties hereunder, or under the Loan Documents, by
or through its agents or employees.
8.2. Nature of Duties.
(a) In General
The Agent shall have no duties, obligations or responsibilities except
those expressly set forth in this Agreement or in the Loan Documents. The
duties of the Agent shall be mechanical and administrative in nature. The Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender. Each Lender shall make its own independent investigation of the
financial condition and affairs of the Borrowers in connection with the
extension of credit hereunder and shall make its own appraisal of the credit
worthiness of the Borrowers, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether
coming into its possession before the Closing Date or at any time or times
thereafter. If the Agent seeks the consent or approval of any of the Lenders to
the taking or refraining from taking of any action hereunder, then the Agent
shall send notice thereof to each Lender. The Agent shall promptly notify each
Lender any time that the applicable percentage of the Lenders have instructed
the Agent to act or refrain from acting pursuant hereto.
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(b) Express Authorization
The Agent is hereby expressly and irrevocably authorized by each of the
Lenders, as agent on behalf of itself and the other Lenders:
(i) To receive all documents and items to be furnished to the
Lenders under the Loan Documents (nothing contained herein shall relieve
Borrower of any obligation to deliver any item directly to the Lenders to the
extent expressly required by the provisions of this Agreement);
(ii) To act or refrain from acting in this Agreement and in
the other Loan Documents with respect to those matters so designated for the
Agent;
(iii) To act as nominee for and on behalf of the Lenders in
and under this Agreement and the other Loan Documents;
(iv) To arrange for the means whereby the funds of the
Lenders are to be made available to Borrower;
(v) To distribute promptly to the Lenders, if required by the
terms of this Agreement, all written information, requests, notices, payments,
prepayments, documents and other items received from Borrower or other Person;
(vi) To amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of the Lenders subject to the
requirement that certain of the Lenders' consent be obtained in certain
instances as provided in Section 14.10;
(vii) To deliver to Borrower and other Persons, all requests,
demands, approvals, notices, and consents received from any of the Lenders;
(viii) To exercise on behalf of each Lender all rights and
remedies of the Lenders upon the occurrence of any Event of Default and/or
default specified in this Agreement and/or in any of the other Loan Documents
or applicable laws;
(ix) To execute any of the Loan Documents and any other
documents on behalf of the Lenders as the secured party for the benefit of the
Agent and the Lenders; and
(x) To take such other actions as may be requested by the
Requisite Lenders.
8.3. Rights, Exculpation, Etc.
Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to any Lender for any action taken or omitted by them
hereunder or under any of the Loan
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Documents, or in connection herewith or therewith, except that the Agent shall
be obligated on the terms set forth herein for performance of its express
obligations hereunder, and except that the Agent shall be liable with respect
to its own gross negligence or willful misconduct. The Agent shall not be
liable for any apportionment or distribution of payments made by it in good
faith and if any such apportionment or distribution is subsequently determined
to have been made in error the sole recourse of any Lender to whom payment was
due but not made, shall be to recover from other Lenders any payment in excess
of the amount to which they are determined to be entitled (and such other
Lenders hereby agree to return to such Lender any such erroneous payments
received by them). The Agent shall not be responsible to any Lender for any
recitals, statements, representations or warranties herein or for the
execution, effectiveness, genuineness, validity, enforceability, collectible,
or sufficiency of this Agreement or any of the Loan Documents or the
transactions contemplated thereby, or for the financial condition of any
Person. The Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement or any of the Loan Documents or the financial condition of any
Person, or the existence or possible existence of any Event of Default. The
Agent may at any time request instructions from the Lenders with respect to any
actions or approvals which by the terms of this Agreement or of any of the Loan
Documents the Agent is permitted or required to take or to grant, and the Agent
shall be absolutely entitled to refrain from taking any action or to withhold
any approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from the applicable
percentage of the Lenders. Without limiting the foregoing, no Lender shall have
any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of the applicable percentage of
the Lenders and notwithstanding the instructions of the Lenders, the Agent
shall have no obligation to take any action if it, in good faith believes that
such action exposes the Agent to any liability.
8.4. Reliance.
The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, telecopy or telegram)
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining
to this Agreement or any of the Loan Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it. The Agent may deem and treat
the original Lenders as the owners of the respective Notes for all purposes
until receipt by the Agent of a written notice of assignment, negotiation or
transfer of any interest therein by the Lenders in accordance with the terms of
this Agreement. Any interest, authority or consent of any holder of any of the
Notes shall be conclusive and binding on any subsequent holder, transferee, or
assignee of such Notes. The Agent shall be entitled to rely upon the advice of
legal counsel, independent accountants, and other experts selected by the Agent
in its sole discretion.
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8.5. Indemnification.
Each Lender, severally, agrees to reimburse and indemnify the Agent
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or
disbursements including, without limitation, all costs and expenses (including
attorneys' fees) incurred in connection with the Collection of any Loan and/or
enforcement of any Loan Document, of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Agent in any way relating to
or arising out of this Agreement or any of the Loan Documents or any action
taken or omitted by the Agent under this Agreement for any of the Loan
Documents, in proportion to each Lender's Pro Rata Share, all of the foregoing
as they may arise, be asserted or be imposed from time to time; provided,
however, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements resulting from the Agent's gross negligence
or willful misconduct. The obligations of the Lenders under this Section 8.5
shall survive the payment in full of the Obligations and the termination of
this Agreement.
8.6. Cahill, Warnock Strategic Partners Fund, L.P., as Agent
Individually.
With respect to its Commitments and the Loans made by it, and the
Notes issued to it, Cahill, Warnock Strategic Partners Fund, L.P. shall have
and may exercise the same rights and powers hereunder and is subject to the
same obligations and liabilities as and to the extent set forth herein for any
other Lender. The terms "the Lenders" or "Requisite Lenders" or any similar
terms shall, unless the context clearly otherwise indicates, include Cahill,
Warnock Strategic Partners Fund, L.P. in its individual capacity as a Lender or
one of the Requisite Lenders. Cahill, Warnock Strategic Partners Fund, L.P. and
its Affiliates may engage in any kind of business with Borrower, any Affiliate
of any Borrower, or any other Person or any of their officers, directors and
employees and Cahill, Warnock Strategic Partners Fund, L.P. may accept fees and
other consideration from Borrower, any Affiliate of Borrower or any of their
officers, directors and employees for services without having to account for or
share the same with the Lenders.
8.7. Successor Agent.
(a) Resignation.
The Agent may resign from the performance of all its
functions and duties hereunder at any time by giving at least sixty (60)
Business Days' prior written notice to Borrower and the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to Section 8.7(b) below or as otherwise provided below.
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(b) Appointment of Successor.
Upon any such notice of resignation pursuant to Section
8.7(a) above, the Requisite Lenders shall appoint a successor to the Agent. If
a successor to the Agent shall not have been so appointed within said sixty
(60) Business Day period, the Agent retiring, upon notice to Borrower, shall
then appoint a successor Agent who shall serve as the Agent until such time, as
the Requisite Lenders appoint a successor the Agent as provided above.
(c) Successor Agent.
Upon the acceptance of any appointment as the Agent under the
Loan Documents by a successor Agent, such successor to the Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the Agent retiring, and the Agent retiring shall be discharged
from its duties and obligations under the Loan Documents. After any Agent's
resignation as the Agent under the Loan Documents, the provisions of this
Section 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under the Loan Documents.
8.8. Collateral Matters.
(a) Release of Collateral.
The Lenders hereby irrevocably authorize the Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Agent upon any property covered by this Agreement or the Loan Documents:
(i) upon termination of the Commitments and payment and
satisfaction of all Obligations;
(ii) constituting property being sold or disposed of if
Borrower certifier to the Agent that the sale or disposition is made in
compliance with the provisions of this Agreement (and the Agent may rely in
good faith conclusively on any such certificate, without further inquiry);
(iii) constituting property leased to Borrower under a lease
which has expired or been terminated in a transaction permitted under this
Agreement or is about to expire and which has not been, and is not intended by
Borrower to be, renewed or extended; or
(iv) constituting property covered by Permitted Liens with
lien priority superior to those Liens in favor or for the benefit of the
Lenders.
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(b) Confirmation of Authority, Execution of Releases.
Without in any manner limiting the Agent's authority to act without
any specific or further authorization or consent by the Lenders as set forth in
Section 8.8(a), each Lender agrees to confirm in writing, upon request by the
Borrowers, the authority to release any property covered by this Agreement or
the Loan Documents conferred upon the Agent under Section 8.8(a). So long as no
Event of Default is then continuing, upon receipt by the Agent of confirmation
from the requisite percentage of the Lenders, of its authority to release any
particular item or types of property covered by this Agreement or the Loan
Documents, and upon at least five (5) Business Days prior written request by
Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders
to) execute such documents as may be necessary to evidence the release of the
Liens granted to the Agent for the benefit of the Lenders herein or pursuant
hereto upon such Collateral; provided, however, that (i) the Agent shall not be
required to execute any such document on terms which, in the Agent's opinion,
would expose the Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of any Person, in respect of),
all interests retained by any Person, including, without limitation, the
proceeds of any sale, all of which shall continue to constitute part of the
property covered by this Agreement or the Loan Documents.
(c) Absence of Duty.
The Agent shall have no obligation whatsoever to any Lender, Borrower
or any other Person to assure that the property covered by this Agreement or
the Loan Documents exists or is owned by Borrower or is cared for, protected or
insured or has been encumbered or that the Liens granted to the Agent on behalf
of the Lenders herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to the Agent in this
Section 8.8(c) or in any of the Loan Documents, it being understood and agreed
that in respect of the property covered by this Agreement or the Loan Documents
or any act, omission or event related thereto, the Agent may act in any manner
it may deem appropriate, in its discretion, given the Agent's own interest in
property covered by this Agreement or the Loan Documents as one of the Lenders
and that the Agent shall have no duty or liability whatsoever to any of the
other the Lenders.
8.9. Agency for Perfection.
Each Lender hereby appoints the Agent and each other Lender as agent
for the purpose of perfecting the Lenders' Liens in Collateral which, in
accordance with Article 9 of the Uniform Commercial Code in any applicable
jurisdiction or otherwise, can be perfected only by possession. Should any
Lender (other than the Agent) obtain possession of any such Collateral,
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such Lender shall notify the Agent thereof, and. promptly upon the Agent's
request therefor, shall deliver such Collateral to the Agent or in accordance
with the Agent's instructions.
8.10. Exercise of Remedies.
Each Lender agrees that it will not have any right individually to
enforce or seek to enforce this Agreement or any Loan Document or to realize
upon any collateral security for the Loan, it being understood and agreed that
such rights and remedies may be exercised only by the Agent.
8.11. Consents.
(a) In the event the Agent requests the consent of a Lender and does
not receive a written denial thereof, or a written notice from a Lender that
due course consideration of the request requires additional time, in each case,
within ten (10) Business Days after such Lender's receipt of such request, then
such Lender will be deemed to have given such consent.
(b) In the event the Agent requests the consent of a Lender and such
consent is denied, then Cahill, Warnock Strategic Partners Fund, L.P. may, at
its option, require such Lender to assign its interest in the Loan to Cahill,
Warnock Strategic Partners Fund, L.P. for a price equal to the then outstanding
principal amount thereof plus accrued and unpaid interest, fees and costs and
expenses due such Lender under the Loan Documents, which principal, interest,
fees and costs and expenses will be paid on the date of such assignment. In the
event that Cahill, Warnock Strategic Partners Fund, L.P. elects to require any
Lender to assign its interest to Cahill, Warnock Strategic Partners Fund, L.P.,
will so notify such Lender in writing within thirty (30) days following such
Lender's denial, and such Lender will assign its interest to Cahill, Warnock
Strategic Partners Fund, L.P no later than five (5) days following receipt of
such notice.
8.12. Dissemination of Information.
The Agent will provide the Lenders with any information received by
the Agent from Borrower which is required to be provided to the Agent or to the
Lenders hereunder; provided, however, that the Agent shall not be liable to any
one or more the Lenders for any failure to do so, except to the extent that
such failure is attributable to the Agent's gross negligence or willful
misconduct.
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SECTION 9
BORROWER'S NEGATIVE COVENANTS
For so long as a Borrower shall have any obligation to Agent and/or a
Lender under this Agreement, each Borrower covenants that it will not:
9.1. Disposition of Collateral. Except as part of a financing transaction
in the form of a sale-leaseback of Indirect Thermal Desportion ("ITD") units,
sell, assign, exchange or otherwise dispose of any of the Collateral (other
than Inventory consisting of (i) scrap, waste, defective goods and the like;
(ii) obsolete goods or obsolete, unused or surplus Equipment; (iii) sales of
other Equipment provided such Equipment is promptly replaced with Equipment of
equal or greater value and utility to the Borrower; and (iv) finished goods
sold in the ordinary course of businesses) or any interest therein to any other
Person;
9.2. Indebtedness. Create, incur, assume or allow to exist any
Indebtedness, except: (i) Indebtedness evidenced by this Agreement and the
Notes owing to or held by Agent and/or Lenders and arising under any of the
Loan Documents; (ii) unsecured Current Liabilities (not the result of
borrowing) incurred in the ordinary course of business which are not evidenced
by notes or instruments and which are not more than sixty (60) days overdue
from the original due dates thereof unless contracted in good faith; (iii)
subordinated Indebtedness; (iv) Indebtedness incurred after the date hereof
with the prior written consent of Agent, and (v) any financing transaction in
the form of a sale-leaseback of ITD units (collectively referred to as
"Permitted Indebtedness").
9.3. Liens. Create, permit to be created or suffer to exist any Lien upon
any of the Collateral or any other property of Borrower, now owned or hereafter
acquired, except: (i) Liens existing on the date hereof as set forth in
Schedule 9.3, which the Borrower will use its best efforts to release; (ii)
subordinated Liens; (iii) landlords' carriers', warehousemen's, mechanics' and
other similar Liens arising by operation of law in the ordinary course of
Borrower's business; (iv) Liens arising out of pledge or deposits under
workmen's compensation, unemployment insurance, old age pension, social
security, retirement benefits or other similar legislation; (v) Liens in favor
of Agent on behalf of Lenders; (vi) Liens for taxes (excluding any Lien imposed
pursuant to any provision of ERISA) not yet due or which are being contested in
good faith by appropriate proceedings and Borrower maintains appropriate
reserves in respect thereto provided that in Agent's judgment such Lien does
not adversely affect Agent's and/or Lenders' rights or the priority of Agent's
Lien in the Collateral; (vii) easements, rights of way, restrictions and other
similar charges or Liens relating to real property and not interfering in a
material way with the ordinary conduct of Borrower's business; (viii) Liens
arising after the date hereof with the prior written consent of Agent, and (ix)
any financing transaction in the form of a sale-leaseback of ITD units
(collectively, "Permitted Liens").
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9.4. Dividends. Except for dividends payable in connection with the
Series C Preferred Stock, pay or make any Dividends at any time any amount is
unpaid with respect to the Loan (whether for principal, interest, or other
charges), except if Borrower has elected S corporation status under the Code
Borrower may pay Dividends on a quarterly basis to stockholders to the extent
of taxable income of its stockholders attributable to the stockholders' portion
of the Net Earnings of Borrower provided that no default or Event of Default
has occurred or is continuing.
9.5. Loans. Make any loans or advances to any Person, including without
limitation any of Borrower's directors, officers and employees, except for
advances in the ordinary course of business in an amount not to exceed $10,000.
9.6. Guarantees. Except as set forth in Schedule 9.6 assume, guaranty,
endorse or otherwise become directly or contingently liable in respect of
(including without limitation by way of agreement, contingent or otherwise, to
purchase, provide funds to or otherwise invest in a debtor or otherwise to
assure a creditor against loss), any Indebtedness of any Person (except
guarantees by endorsement of instruments for deposit or collection in the
ordinary course of business and guarantees in favor of Agent and/or Lenders).
9.7. Merger. Merge or consolidate with any Person, or sell, lease,
transfer or otherwise dispose of any substantial part of its assets (whether in
one or more transactions).
9.8. Affiliates. Directly or indirectly, transfer, sell, lease, assign or
otherwise dispose of any assets to an Affiliate; purchase or acquire any assets
from an Affiliate; enter into any management agreement, service agreement or
consulting agreement with an Affiliate or make any payment thereon; or enter
into any other transaction directly or indirectly with or for the benefit of an
Affiliate (including, without limitation, guarantees or assumptions of
obligations of an Affiliate), except with the prior written consent of Agent.
9.9. Financial Covenants. Have or maintain,
(a) on a consolidated basis, one year after the execution of this
Agreement, a minimum ratio of two-to-one of EBITDAE (Earnings Before Interest
Taxes Depreciation Amortization and Extraordinary Items) to interest expense;
(b) at all times, positive working capital of at least $2 million
($2,000,000);
(c) at all times, positive net worth.
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SECTION 10
ADDITIONAL COVENANTS AND ASSURANCES
10.1. Additional Assurances. Each Borrower at its expense will promptly
and duly execute and deliver such documents and assurances and take such
actions as may be necessary or desirable or as Agent may request in order to
correct any defect, error or omission which may at any time be discovered or to
more effectively carry out the intent and purpose of this Agreement and to
establish, perfect and protect Agent's and/or Lenders' security interest,
rights and remedies created or intended to be created hereunder. Without
limiting the generality of the above, Borrower will join with Agent in
executing financing and continuation statements pursuant to the Uniform
Commercial Code or other notices appropriate under applicable foreign, Federal
or State law in form satisfactory to Agent and filing the same in all public
offices and jurisdictions wherever and whenever requested by Agent (including,
without limitation, upon the occurrence of any event referred to in Section
10.4. Moreover, Borrower appoints Agent or its agent and designee, as
Borrower's attorney-in-fact, to execute in Borrower's name and behalf any UCC
financing statements or amendments thereto for any of the foregoing purposes,
which power is coupled with an interest, and irrevocable, until all Obligations
have been paid in full. Borrower releases Agent and its officers, employees,
agents, stockholders, members and designees from any liability arising from any
act or acts in connection with such action(s) or in furtherance thereof,
whether of admission or omission and whether based on any error of judgment or
mistake or flaw or fact.
10.2. Possession Following Event of Default. Agent will at any time
following the occurrence of an Event of Default and during the continuation
thereof have the right to take physical possession of the Collateral and to
maintain such possession on Borrower's premises or to remove the Collateral or
any part thereof to such other places as Agent may desire. If Agent exercises
such right, Borrower shall at its sole expense upon Agent's request assemble
the same and make it available to Lender at a place reasonably convenient to
Agent. If any Inventory is in the possession or control of any of Borrower's
agents or processors, Borrower shall, at Agent's request (before or after the
occurrence of an Event of Default), notify them of Agent's security interest
therein and, at Agent's request, instruct them to hold the same for Agent's
account and subject to Agent's instructions. At any time following the
occurrence of an Event of Default and during the continuation thereof, Agent
shall have full power, in its own name or that of such Borrower, to collect,
endorse, compromise, settle, sell or otherwise deal with any or all of the
Collateral or proceeds thereof.
10.3. Additional Collateral Actions. Each Borrower shall perform any and
all further steps requested by Agent to perfect Agent's security interest in
Inventory, such as leasing warehouses to Agent or its designee, placing and
maintaining signs, appointing custodians, maintaining stock records and
transferring Inventory to warehouses. A physical listing of all Inventory,
wherever located, shall be taken by such Borrower whenever requested by Agent.
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Upon execution and delivery of any Lease by lessee and such Borrower, such
Borrower shall cause the sole original thereof and/or schedule thereto to be
delivered and pledged to Agent.
10.4. Verification of Accounts and Leases. In an Event of Default, Agent
may (i) in its own name or in the name of others communicate with account
debtors and lessors in order to verify with them to Agent's satisfaction the
existence, amount and terms of any Accounts and/or leases and the absence of
any reductions, discounts, defenses or offsets with respect thereto or (ii)
upon the occurrence of an Event of Default and simultaneous notice to Borrower,
notify account debtors that Collateral has been assign's request, Borrower will
notify any or all such debtors and lessors of such assignment, give
instructions and/or indicate on billings to such debtors that their Accounts
and Leases shall be paid to Agent and/or supply such debtors with a copy of
this Agreement.
10.5. Inspection of Collateral. Agent may at all times during normal
business hours and at all times after reasonable prior notice have access to,
examine and inspect the Collateral.
10.6. Power of Attorney. Each Borrower does hereby make, constitute and
appoint Agent as Borrower's true and lawful attorney-in-fact, with power of
substitution, to endorse the name of Borrower or any of its officers or agents
upon any notes, checks, drafts, money orders, or other instruments of payment
(including under any policy of insurance on Collateral) or Collateral that may
come into possession of Agent in full or part payment of any amounts owing to
Agent and/or Lenders; to sign and endorse the name of Borrower or any of its
officers or agents upon any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts, and any instruments or
documents relating thereto or to Borrower's rights therein; upon the occurrence
of an Event of Default, to give written notice to such offices and officials of
the United States Postal Service to effect such change or changes of address so
that all mail addressed to Borrower may be delivered directly to Agent, to take
any and all other actions necessary or appropriate to collect, compromise,
settle, sell or otherwise deal with any or all of the Collateral or proceeds
thereof; and to obtain, adjust, settle and cancel any insurance hereby granting
to each said attorney-in-fact or his substitute full power to do any and all
things necessary or appropriate to be done in and about the premises as fully
and effectively as Borrower might or could do, and hereby ratifying all that
any said attorney-in-fact or his substitute shall lawfully do or cause to be
done by virtue hereof.
10.7. Insurance Assignment. In the Event of Default, each Borrower hereby
assigns to Agent all sums, including without limitation return of premiums,
which may become payable under any and all of such Borrower's policies of
insurance and directs each insurance company issuing any such policy to make
payment thereof directly to Agent.
10.8. Payments by Lender. In its sole discretion, Agent may: (i)
discharge taxes that Borrower fails to pay (except taxes being contested in
good faith and by appropriate proceedings, for which Borrower has established
and is maintaining appropriate reserves, and as to which no
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Lien having priority over Lender's Lien arises) and Liens levied or placed on
Collateral; (ii) pay for insurance of Borrower that Borrower fails to pay or
the maintenance and preservation thereof; or (iii) if Borrower shall fail to
make deposits in respect of F.I.C.A. and withholding or similar taxes, make
such deposits or pay such taxes, in whole or in part, or set up such reserves
as Lenders shall in its sole discretion deem necessary in respect of such
Borrower's liability therefor. Any amount so paid, deposited or reserved for
shall constitute a Loan for all purposes hereunder. Nothing herein shall be
deemed to obligate Agent or Lender to do any of the foregoing and the making of
any one or more such payments, deposits or reserves shall not constitute an
Agreement by Agent or Lender to take any further or similar action or a waiver
of any right of Agent or Lender hereunder.
10.9. Access to Records. Borrowers will at all times keep accurate
records of the Collateral and will permit Agent or its agents or
representatives at any reasonable time from time to time to visit Borrower's
place(s) of business, without hindrance or delay, to inspect Inventory and
examine, check, audit and make copies and abstracts from Borrower's records and
books of account (including without limitation corporate or company minutes,
and records, journals, orders, receipts and correspondence relating to
Collateral, account debtors, transactions unrelated to collateral and
Borrower's general financial condition, business and affairs); and to discuss
with any of Borrower's appropriate directors, officers, employees, accountants
and other agents or representatives the Collateral and Borrower's general
financial condition, business and affairs.
10.10. License to Use Premises. Each Borrower hereby grants to Agent, for
a term commencing on the Closing Date and continuing so long as any of the
Obligations remain outstanding, at a rental of $1.00 for such entire term, the
right to the use of all premises or places of business which Borrower now or
hereafter may have and where any Collateral may be located; provided that Agent
agrees not to exercise such right unless and until an Event of Default occurs
and is continuing and Agent determines to exercise its rights against
Collateral hereunder.
10.11. Instruments Evidencing Accounts. If any Accounts are at any time
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, Borrowers will immediately deliver the same to Agent
appropriately endorsed to Lender's order and, regardless of the form of such
endorsement, each Borrower hereby waives presentment, demand, notice of
dishonor, protest, notice of protest and all other notices with respect
thereto.
10.12. Continuing Security Interest. In the event of the sale, exchange
or disposition of any of the Collateral or any interest therein (and no such
sale, exchange or other disposition is hereby authorized or consented to,
except as permitted and provided in Section 9.1), Agent's and/or Lenders'
security interest shall nevertheless continue in such Collateral (including
without limitation all proceeds, cash and non-cash) notwithstanding such sale,
exchange or other disposition; all of said proceeds shall remain Collateral
hereunder and shall be transferred and paid over to Agent immediately, and
shall be applied at Agent's option to the payment of Obligations; and Agent's
receipt of any such Proceeds shall not be deemed or construed to be an
authorization of or consent to any such sale, exchange or other disposition.
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10.13. No Lender Liability. Notwithstanding anything to the contrary set
forth herein, neither Lenders nor Agent shall have any obligation or liability
under any Accounts, Leases or other Collateral arising out of this Agreement or
Agent's or Lenders' exercise of its rights and remedies or Borrower's
performance of its obligations hereunder, nor shall Agent or Lenders have any
obligation to make any inquiry as to the nature or sufficiency of any payment
received by it, or to file any claim or take any action to enforce the payment
or performance of any portion of the Collateral. Beyond the safe custody
thereof, Agent and/or Lenders shall have no duty as to any Collateral in it or
its nominee's possession or any income thereon, or as to the preservation of
rights against other parties or otherwise.
SECTION 11
EVENTS OF DEFAULT
11.1. Events of Default. At the option of Agent, the occurrence of any of
the following shall constitute an Event of Default:
(a) failure by a Borrower to pay any principal, interest or other
amount when due on account of the Loan, which failure shall continue for a
period of three (3) days after notice thereof has been made by Agent to
Borrower;
(b) failure by a Borrower to pay any other Obligation within five (5)
days of notice by Agent that such other Obligation is due;
(c) breach or non-compliance by a Borrower of any covenant under this
Agreement or any of the other Loan Document, or any representation or warranty
by Borrower under this Agreement or any of the other Loan Documents is found to
have been false or misleading in any respect as of the time when made;
(d) loss, theft, damage, or destruction of any part of the Collateral;
provided, that Agent will not declare a default if the loss is insured against
in full or if substitute Collateral is pledged within thirty (30) days thereof;
(e) the Collateral directly or indirectly becomes the subject matter
of any executable judgment (which is not covered by insurance) that could, in
the reasonable opinion of the Agent, based upon written advice from counsel
selected by the Agent, result in (i) impairment of, or loss of, the security
interests intended to be provided by this Agreement, or (ii) forfeiture of any
of the Collateral to the Federal Government, any state government or agency
thereof, or any foreign government which shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution shall at any time not
be effectively stayed;
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(f) occurrence of any event of default as defined in any other
instrument evidencing or governing Indebtedness of a Borrower now or hereafter
outstanding;
(g) a Borrower's liquidation, termination, dissolution or cessation of
a substantial part of its current business;
(h) commencement by a Borrower of a voluntary proceeding seeking
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law, or seeking appointment of a trustee, receiver, liquidator or
other similar official for it or any substantial part of its assets; or its
consent to any of the foregoing in an involuntary proceeding against it; or a
Borrower shall generally not be paying its debts as they become due or admit in
writing its inability to do so; or an assignment for the benefit of, or the
offering to or entering into by a Borrower of any composition, extension,
reorganization or other Agreement or arrangement with, its creditors;
(i) commencement of an involuntary proceeding against a Borrower
seeking relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law, or seeking appointment of a trustee, receiver, liquidator
or other similar official for it or any substantial part of its assets, which
proceeding is not dismissed or stayed within sixty (60) days;
(j) service upon Agent of a writ of levy or attachment or naming Agent
as trustee for Borrower, or of any other similar process or attachment in an
amount of $100,000 or more and if less than $100,000, if such levy, attachment
or process is not discharged in 30 days;
(k) entry of any executable judgment(s) against Borrowers in an
aggregate amount greater than $100,000 which is not covered by insurance (and
for this purpose a judgment shall be deemed "covered by insurance" only if the
insurance company has formally advised Borrowers that the judgment in its
entirety is covered by insurance and no action is being taken to execute such
judgment against a Borrower's assets) and shall remain undischarged or
unvacated for a period in excess of thirty (30) days or execution shall at any
time not be effectively stayed;
(l) attachment of any Lien in excess of $100,000 (other than a
Permitted Lien) upon property of a Borrower not in favor of Agent without
Agent's prior written consent which Lien is not discharged in thirty (30) days;
(m) entry of any court order which enjoins, restrains, or in any way
prevents a Borrower from conducting all or any substantial part of its
business;
(n) reclamation or repossession of any asset(s) of a Borrower valued
in excess of $100,000, unless contracted in good faith; or
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(o) there shall occur and be continuing any Reportable Event which
constitutes grounds for termination of or for appointment by a United States
district court of a trustee to administer any Plan; the PBGC shall institute
proceedings to terminate or to appoint a trustee to administer any Plan; a
United States district court shall appoint a trustee to administer any Plan; or
any Plan shall be terminated in circumstances giving rise to liabilities having
a material adverse effect on a Borrower's financial condition.
Each Borrower acknowledges and agrees that each and every Event of
Default described above shall be of equal weight and significance, and equally
and fully shall allow Agent to exercise its rights and remedies hereunder. Each
Borrower acknowledges and agrees that each such Event of Default has been a
material inducement for Agent and/Lenders or to enter into its Agreement and
that Agent and/or Lenders would be irreparably harmed if Agent and/or Lenders,
in any way, were unable to exercise their rights and remedies on the basis that
certain Event of Default (for example, Events of Default not relating to
payment) were of less weight or significance than certain other Events of
Default (for example, Events of Default relating to payment).
SECTION 12
AGENT'S RIGHTS AND REMEDIES UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT
Following the occurrence and during the continuance of an Event of
Default, Agent may, at its option:
12.1. Remedies. Agent may declare any and all of the Obligations to be
immediately due and payable; and, in addition to that right, and in addition to
exercising all other rights or remedies, Agent may proceed to exercise with
respect to the Collateral all rights, options and remedies of a secured party
upon default as provided for under the UCC.
12.2. Exercise of Remedies. Agent may by notice to Borrower terminate the
commitment to make the Loans under Section 2 and/or accelerate the payment of
all Obligations (provided that no such notice shall be required if the Event of
Default is under Sections 11.1(i) or 11.1(j)); Agent may proceed to enforce
payment of any of the Obligations and shall have and may exercise any and all
rights under the Uniform Commercial Code or which are afforded to Agent herein
or otherwise; and all Obligations (including without limitation principal,
accrued interest, amounts payable under Section 13.1 or upon entry of any
judgment) shall bear interest payable on demand at the rate per annum five
percent (5%) in excess of the applicable rate of interest provided in Section 2
(the "Default Rate").
12.3. Disposition of Collateral. Agent may sell, lease or otherwise
dispose of and deliver any or all Collateral at public or private sale, for
cash, upon credit or otherwise, at such
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prices and upon such terms as Agent deems advisable in its sole discretion. Any
requirements of reasonable notice shall be met if such notice is mailed postage
prepaid to Borrowers at its address set forth herein at least ten (10) business
days before the time of sale or other disposition. Agent or a Lender may be the
purchaser at any such sale, if it is public, and in such event Agent and/or
Lender shall have all rights of a good faith, bona fide purchaser for value
from a secured party after default. The proceeds of any sale may be applied (in
whatever order and manner Agent elects in its sole discretion) to all costs and
expenses of sale (including without limitation reasonable attorneys' fees and
disbursements) and to the payment of Obligations, and any remaining proceeds
shall be applied in accordance with Article 9, Part 5, of the UCC. Borrower
shall remain liable to Agent for any deficiency.
12.4. Cumulative Remedies. The rights and remedies of the Agent and/or
Lender shall be deemed to be cumulative, and any exercise of any right or
remedy shall not be deemed to be an election of that right or remedy to the
exclusion of any other right or remedy.
12.5. Waivers. Each Borrower acknowledges that this Agreement involves
the grant of multiple security interests, and such Borrower hereby waives, to
the extent permitted by applicable law, (i) any requirement of marshaling
assets or proceeding against persons or assets in any particular order, and
(ii) any and all notices of every kind and description that may be required to
be given by any statute or rule of law and any defense of any kind based on any
such notice, except any notices required under the Note.
SECTION 13
INDEMNIFICATION, ETC.
13.1. Environmental Indemnity. Each Borrower shall indemnify, defend, and
hold harmless Agent, each Lender, its Affiliates, and their respective
directors, officers, shareholders, partners, employees, consultants and agents
(herein individually called an "Indemnified Party," and collectively called
"Indemnified Parties") from and against, and shall reimburse and pay
Indemnified Parties with respect to, any and all claims, demands, liabilities,
losses, damages (including without limitation actual, consequential, exemplary
and punitive damages), causes of action, judgments, penalties, fees, costs and
expenses (including without limitation attorneys' fees, court costs and legal
expenses and consultant's and expert's fees and expenses) of any and every kind
or character, known or unknown, fixed or contingent, that may be imposed upon,
asserted against, or incurred or paid by or on behalf of any Indemnified Party
on account of, in connection with, or arising out of (a) the breach of any
representation or warranty of a Borrower relating to Environmental Laws or
Hazardous Materials, or (b) the failure of a Borrower to perform any agreement,
covenant or obligation required to be performed by a Borrower relating to
Environmental Laws or Hazardous Materials, (c) any violation of or failure to
comply with any Environmental Law now existing or hereafter occurring, (d) the
removal of Hazardous
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<PAGE> 57
Materials from a Borrower's properties (or if removal is prohibited by law, the
taking of whatever action is required by law), (e) any act, omission, event or
circumstance existing or occurring or resulting from or in connection with the
ownership, construction, occupancy, operation, use or maintenance of the
properties, regardless of whether the act, omission, event or circumstance
constituted a violation of or failure to comply with any Environmental Law at
the time of its existence or occurrence, and (f) any and all claims or
proceedings (whether brought by private party or governmental agency) for
bodily injury, property damage, abatement or remediation, environmental damage,
or impairment or any other injury or damage resulting from or relating to any
Hazardous Material located upon or migrating into, on, from or through the
properties (whether or not any or all of the foregoing was caused by a
Borrower, a prior owner of the properties, an operator or prior operator of the
properties, their respective tenants or subtenants, or any third party and
whether or not the alleged liability is attributable to the handling, storage,
use, treatment, processing, distribution, manufacture, generation, discharge,
transportation or disposal of such Hazardous Material or the mere presence of
such Hazardous Material on the properties). Without limiting the generality of
the foregoing, it is the intention of each Borrower and each Borrower agrees
that the foregoing indemnities shall apply to each Indemnified Party with
respect to claims, demands, liabilities, losses, damages (including without
limitation actual, consequential, exemplary and punitive damages), causes of
action, judgments, penalties, fees, costs, court costs and legal expenses and
consultant's and expert's fees and expenses, of any kind or character, known or
unknown, fixed or contingent, that in whole or in part are caused by or arise
out of the negligence of such Indemnified Party; however, such indemnities
shall not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such Indemnified Party. The foregoing indemnities shall be
perpetual and shall survive the payment or satisfaction of the Loans and the
release, foreclosure or other termination of the Loan Document. Any amount to
be paid hereunder by Borrower to Agent and/or Lenders or for which Borrower has
indemnified an Indemnified Party shall be a demand obligation owing by Borrower
to Agent and/or Lenders and shall bear interest at the Default Rate until paid,
and shall constitute a part of the obligations of Borrower under this Agreement
and shall be indebtedness evidenced by this Agreement and secured by the Loan
Documents.
13.2. GENERAL INDEMNITY. EACH BORROWER AGREES TO
INDEMNIFY AGENT AND/OR LENDERS UPON DEMAND, FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, PENALTIES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS,
COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS,
ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS
SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN
WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST LENDER
GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE
COLLATERAL, THE LOAN DOCUMENTS, OR THE TRANSACTIONS AND EVENTS (INCLUDING THE
ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR
CONTEMPLATED THEREIN. THE FOREGOING
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<PAGE> 58
INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN
ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY AGENT AND/OR LENDER PROVIDED ONLY THAT A LENDER SHALL
NOT BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT PORTION,
IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY ITS OWN
INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL
JUDGMENT. IF ANY PERSON (INCLUDING A BORROWER OR ANY OF ITS AFFILIATES) EVER
ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY A LENDER OR THE AGENT,
THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON
DEMAND, SUBJECT TO LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A
COURT OF COMPETENT JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND
EFFECT OF THE ALLEGED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY AMOUNT TO BE
PAID HEREUNDER BY BORROWER TO AGENT AND/OR LENDERS, OR FOR WHICH BORROWER HAS
INDEMNIFIED AN INDEMNIFIED PARTY, SHALL BE A DEMAND OBLIGATION OWING BY
BORROWER TO AGENT AND/OR LENDER AND SHALL BEAR INTEREST AT THE DEFAULT RATE
UNTIL PAID, AND SHALL CONSTITUTE A PART OF THE OBLIGATIONS OF BORROWER UNDER
THIS AGREEMENT AND SHALL BE INDEBTEDNESS EVIDENCED BY THIS AGREEMENT AND
SECURED BY THE LOAN DOCUMENTS. AS USED IN THIS SECTION THE TERM "LENDER" SHALL
REFER NOT ONLY TO THE PERSON DESIGNATED AS SUCH IN THIS SECTION BUT ALSO TO
EACH DIRECTOR, OFFICER, PARTNER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND
AFFILIATE OF SUCH PERSON.
13.3. Exculpation. In the absence of willful misconduct taken or omitted
in bad faith, or gross negligence, neither a Lender, Agent nor any
attorney-in-fact pursuant to Section 10.__ shall be liable to a Borrower or any
other Person for any act or omission, any mistake of fact or any error of
judgment in exercising any right or remedy granted herein.
13.4. Collateral Secures Indemnification. Agent shall be entitled to
retain Collateral or require substitution therefor to the extent required to
assure Agents of satisfaction of Borrower's Obligations under this Section 13.
SECTION 14
MISCELLANEOUS PROVISIONS
14.1. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if in writing and delivered in Person,
transmitted by facsimile transmission (fax) or sent by registered or certified
mail (return receipt requested) or recognized
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overnight delivery service, postage pre-paid, addressed as follows, or to such
other address has such party may notify to the other parties in writing:
(a) if to Borrowers:
Environmental Safeguards, Inc.
2600 South Loop West, Suite 645
Houston, TX 77054
Attn: James S. Percell
Telephone No.: 713-641-3838
Facsimile No.: 713-641-0756
with a copy (which will not constitute notice) to:
Axelrod, Smith & Kirshbaum
5300 Memorial
Houston, TX 77007
Attn: Robert D. Axelrod, Esq.
Telephone No.: 713-861-1996
Facsimile No.: 713-552-0202
(b) if to Agent and/or Lenders:
Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: David L. Warnock
Telephone No.: 410-895-3800
Facsimile No.: 410-895-3805
and
Newpark Resources, Inc.
3850 N. Causeway
Suite 1770
Metairie, LA 70002-1756
Telephone No.: 504-838-8222
Facsimile No.: 504-833-9506
Attn: James Cole
and
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<PAGE> 60
James H. Stone
Stone Energy
909 Poydras Street, Suite 2650
New Orleans, LA 70112
with a copy (which will not constitute notice) to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
14.2. No Waiver. No failure to exercise and no delay in exercising, on
the part of Agent and/or a Lender, any right or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right or
remedy. Waiver by Agent and/or a Lender of any right or remedy on any one
occasion shall not be construed as a bar to or waiver thereof or of any other
right or remedy on any future occasion. Without limiting the generality of the
foregoing, the Borrowers expressly agree that no failure by a Agent and/or
Lenders to detect or to communicate with a Borrower or take action in response
to any failure by a Borrower to perform or observe any Obligation shall operate
as a waiver of any right or remedy of Agent and/or Lenders. Any waivers by
Agent and/or Lenders must be in writing. Agent's and/or Lender's rights and
remedies hereunder, under any Agreement or instrument supplemental hereto or
under any other Agreement or instrument shall be cumulative, may be exercised
singly or concurrently and are not exclusive of any rights or remedies provided
by law.
14.3. Assignment. This Agreement shall be binding upon and shall inure
to the benefit of each Borrower, Agents and Lenders and their respective
successors and assigns; provided that Borrowers may not assign or transfer any
rights or Obligations hereunder without Agent's prior written consent.
14.4. Headings. The headings contained herein are for convenience only
and shall not affect the construction hereof. If one or more provisions of this
Agreement (or the application thereof) shall be invalid, illegal or
unenforceable in any respect in any jurisdiction, the same shall not, to the
fullest extent permitted by applicable law, invalidate or render illegal or
unenforceable such provision (or its application) in any other jurisdiction or
any other provision of this
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<PAGE> 61
Agreement (or its application). This Agreement is the entire Agreement of the
parties with respect to the subject matter hereof and supersedes any prior
written or verbal communications or instruments relating thereof.
14.5. Term. This Agreement shall continue in full force and effect so
long as any of the Obligations remains outstanding or has not been fully and
finally paid, performed or satisfied. All agreements, representations,
warranties and covenants made herein shall survive delivery of this Agreement
and the Note.
14.6. Waiver of Remedies. Each Borrower acknowledges that the
transactions contemplated hereby are commercial transactions and waives, to the
fullest extent it may do so under applicable law, such rights as it may have or
hereafter have to notices and/or hearings under applicable federal or state
laws relating to exercise of any of Agent's and/or Lenders' rights, including
without limitation the right to deprive a Borrower of or affect its use,
possession or enjoyment of property prior to rendition of a final judgment
against Borrower.
14.7. Further Assurances. Each Borrower shall execute and deliver to
Agent such further assurances and take such other further actions as Agent may
from time to time request to further the intent and purpose of this Agreement
and to maintain and protect the rights and remedies intended in favor of Agent
and/or Lenders under this Agreement. Borrowers shall execute and deliver to
Agent any financing statement or other notice document requested, or procure
any other document requested, and record such financing statements or other
notice documents to perfect the Liens, and the first priority of the Liens,
created under this Agreement. If the Collateral is of a type as to which it is
necessary or desirable for Agent to take possession of the Collateral in order
to perfect, or maintain the priority of, Agent's Liens, then upon Agent's
request, such Borrower shall deliver such Collateral to Agent.
14.8. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature thereto and hereto were
upon the same instrument.
14.9. Fees and Expenses. Borrower shall pay to Agent all reasonable
costs, filing fees, expenses, losses, claims, damages, liabilities, penalties,
suits, judgments or disbursements of any nature (including without limitation
reasonable attorneys' fees and disbursements and appraisal costs) which may be
incurred by, imposed on or asserted against Lender in connection with: this
Agreement and any of the other Loan Documents; all other amendments,
modifications or waivers hereof or thereof; taxes and other governmental
charges payable by reason of this Agreement, documents and filings relating
hereto and Collateral (excluding income and franchise taxes payable by Agent);
any exercise of Agent's and/or Lenders' rights and remedies, including the
right of acceleration; any enforcement, collection or other proceedings with
respect to the Obligations or from any negotiations or other measures to
preserve Agent's and/or Lenders' rights hereunder; any investigative,
administrative or judicial proceeding (whether or not Lender is designated as a
party thereto) relating to or arising out of this Agreement; or any bankruptcy,
insolvency or other similar proceedings relating to a Borrower. Notwithstanding
anything in this
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section to the contrary, the parties hereto agree that each party shall pay its
own respective fees and disbursements for legal counsel incurred in connection
with the Loan Documents.
14.10. Consent of all Lenders. Notwithstanding anything to the
contrary contained herein, no amendment, modification, change or waiver shall
be effective without the consent of all of the Lenders to:
(a) extend the maturity of the principal of, or interest on,
any Note or of any of the other Obligations;
(b) reduce the principal amount of any Note or of any of the
other Obligations, the rate of interest thereon due to the Lenders, except as
expressly permitted herein or therein;
(c) change the aggregate Commitments;
(d) change the date of payment of principal of, or interest
on, any Note or of any of the other Obligations;
(e) change the method of calculation utilized in connection
with the computation of interest;
(f) change the manner of pro rata application by the Agent of
payments made by the Borrowers, or any other payments required hereunder or
under the other Loan Documents;
(g) modify this Section, Section 8.8 or Section 8.12;
(h) release or agree to subordinate any material portion of
any Collateral or Financing Document (except to the extent provided herein or
therein); or
(i) waive the performance, observance or compliance with or
amend and financial covenants.
Additionally, no change may be made to the amount of a Lender's Commitment
without the prior written consent of that Lender.
14.11 Usury Laws. It is the intention of the parties hereto to comply
with all applicable usury laws; accordingly, it is agreed that notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents,
in no event shall such Loan Documents require the payment or permit the
collection of interest (which term, for purposes hereof, shall include any
amount which, under applicable law, is deemed to be interest, whether or not
such amount is characterized by the parties as interest) in excess of the
maximum amount permitted by such laws. If any excess of interest is
unintentionally contracted for, charged or received under this Agreement or
under the terms of any other Loan Documents, or in the event the maturity of
the
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indebtedness evidenced by the Notes is accelerated in whole or in part, or in
the event that all or part of the principal or interest of the Notes shall be
prepaid, so that the amount of interest contracted for, charged or received
under this Agreement or under any of the other Loan Documents, on the amount of
principal actually outstanding from time to time under this Agreement shall
exceed the maximum amount of interest permitted by the applicable usury laws,
then in any such event (i) the provisions of this paragraph shall govern and
control, (ii) neither Borrowers nor any other person or entity now or hereafter
liable for the payment thereof, shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by such applicable usury laws, (iii) any such excess which may have
been collected shall be either applied as a credit against the then unpaid
principal amount thereof or refunded to Borrowers at Lender's option, and (iv)
the effective rate of interest shall be automatically reduced to the maximum
lawful rate of interest allowed under the applicable usury laws as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate
of interest contracted for, charged or received under the Notes or under such
other Loan Documents which are made for the purpose of determining whether such
rate exceeds the maximum lawful rate of interest, shall be made, to the extent
permitted by applicable laws, by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the Loans
evidenced thereby, all interest at any time contracted for, charged or received
from Borrowers or otherwise by Lenders in connection with such Loans.
SECTION 15
GOVERNING LAW; JURISDICTION
15.1. Governing Law. This Agreement shall take effect as a sealed
instrument and shall be governed by and construed in accordance with the laws
of the State of Maryland (without giving effect to its conflict of laws rules).
15.2. SUBMISSION TO JURISDICTION. EACH BORROWER, TO THE FULL EXTENT
PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND
UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN
THE STATE OF MARYLAND OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR
PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION SITTING IN THE CITY OF BALTIMORE, MARYLAND, (C) SUBMITS TO THE
JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW,
AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY FORUM OTHER
THAN THE CITY OF BALTIMORE, MARYLAND (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF LENDER TO
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<PAGE> 64
BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). EACH BORROWER FURTHER
CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID, TO THE INDEMNITOR AT THE ADDRESS FOR NOTICES DESCRIBED HEREIN
) HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).
[remainder of page intentionally left blank]
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LOAN AND SECURITY AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be executed effective as of the date first above written.
BORROWERS: ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ James S. Percell
Name: James S. Percell
Title: Chairman, President and Chief Executive Officer
NATIONAL FUEL & ENERGY, INC.
By: /s/ James S. Percell
Name: James S. Percell
Title: Chairman, President and Chief Executive Officer
ONSITE TECHNOLOGY, L.L.C.
By: /s/ James S. Percell
Name:
Title: Managing Member
LENDERS: CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By: /s/ David L. Warnock
Name: David L. Warnock
Title: a General Partner
<PAGE> 66
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC, its
General Partner
By: /s/ David L. Warnock
Name: David L. Warnock
Title: Managing Member
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
Name: James D. Cole
Title: Chairman of the Board, President
and Chief Executive Officer
JAMES H. STONE
/s/ JAMES H. STONE
<PAGE> 1
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made by and
between the undersigned (the "Shareholder") and ENVIRONMENTAL SAFEGUARDS, INC.,
a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Subscription Agreement (the
"Subscription Agreement") the Shareholder has purchased __________ shares (the
"Shares") of common stock of the Company, par value $.001 per share (the
"Common Stock") in the Offering of Shares of Common Stock (the "Offering") made
by the Company as described in the Confidential Private Placement Memorandum
dated September 18, 1996 (the "Memorandum");
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Registration. Commencing six months after the Termination Date
(as defined in the Memorandum) of the Offering and continuing for a period of
two years from the Termination Date, subject to the Shareholder and the
purchasers in the Offering holding, at the time of exercise of their rights,
Shares of Common Stock which represent in the aggregate a minimum of 10,000
shares (the "Registration Shares") (such number as determined without
adjustment for stock dividends, reclassifications, splits and reverse splits
occurring after the date of the closing of the Offering), upon the written
request of the Shareholder and such purchasers in the Offering requesting that
the Company effect the registration under the Securities Act of 1933, as
amended (the "Securities Act") of all or a specified portion of the
Registration Shares, the Company will use its best efforts to file a
registration statement (the "Registration Statement") under the Securities Act
with the Securities and Exchange Commission (the "Commission"). The Company
shall promptly give written notice of such requested registration to all
holders of record of shares of Common Stock, which were purchased or issued in
connection with the Offering. The Registration Statement will include the
Registration Shares, all other shares for which written notice was given by the
Company which are requested to be included by the holders thereof by written
notice to the Company within thirty (30) days of the giving of written notice
by the Company and may include shares of Common Stock other than the foregoing,
either for the Company's account or for the account of other selling
shareholders. The Company will use reasonable efforts to cause the Registration
Statement to become effective and to keep the Registration Statement current
for a period of two years after the Termination Date of the Offering. The
Company shall not be obligated to effect more than one registration on behalf
of Shareholder and purchasers in the Offering under this section.
Notwithstanding the foregoing, if the Company is engaged in negotiations in
respect of an acquisition or financing transaction and, in the good faith
judgment of the Board of Directors such transaction would be adversely affected
by the filing of the Registration Statement, the Company
<PAGE> 2
shall be entitled to postpone the filing of such registration statement until
such transaction would not be adversely affected by such filing but, in any
event, for a period not to exceed six months.
2. Registration Procedures.
(a) In performing its obligations under Section 1 to
register the Shares, the Company will, subject to
the limitations provided herein, as expeditiously as
possible:
(i) prepare and file with the Commission the
Registration Statement and use its
commercially reasonable best efforts to cause
such registration to become and remain
effective for the term specified herein;
(ii) prepare and file with the Commission such
amendments and supplements to the Registration
Statement and the Prospectus used in
connection therewith as may be necessary to
keep the Registration Statement effective in
accordance with the terms of the Agreement and
to comply with the provisions of the
Securities Act with respect to the disposition
of all shares covered by the Registration
Statement;
(ii) furnish to the Shareholder one conformed copy
of the Registration Statement and of each such
amendment and supplement thereto (in each case
including all exhibits), one copy of the
Prospectus (including each preliminary
prospectus and any summary prospectus) and any
other Prospectus filed under Rule 424 under
the Securities Act, and such other documents,
as the Shareholder may reasonably request;
(iv) use its reasonable efforts to (a) register or
qualify the Shares under such other securities
or blue sky laws of such jurisdictions as the
Shareholder shall reasonably request, (b) keep
such registration or qualification in effect
for so long as each of the Registration
Statement remain in effect, and (c) take any
other action which may be reasonably necessary
or advisable to enable the Shareholder to
consummate the disposition of the Shares in
such jurisdictions, except that the Company
shall not for any such purpose be required to
qualify generally to do business as a foreign
corporation in any jurisdiction wherein it
would not but for the requirements of this
subdivision (iv) be obligated to be so
qualified, to consent to general service of
process in any such jurisdiction, or to take
any
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<PAGE> 3
such action which would impose unreasonable
expense on the Company;
(v) furnish to the Shareholder a copy of an
opinion of counsel for the Company rendered to
the underwriter, if one is engaged, dated the
effective date of each of the Registration
Statement (and, if such registration includes
an underwritten public offering, dated the
date of the closing under the underwriting
agreement), covering substantially the same
matters with respect to each registration
statement and prospectus as are customarily
covered in opinions of issuer's counsel
delivered to the underwriters in underwritten
public offerings of securities;
(vi) notify the Shareholder at any time when a
Prospectus relating to the Shares is required
to be delivered under the Securities Act, upon
discovery that, or upon the happening of any
event as a result of which, the Prospectus
included in the Registration Statement, as
then in effect, includes an untrue statement
of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading in the light of the circumstances
under which they were made, and prepare and
furnish to the Shareholder one copy of a
supplement to or an amendment of such
Prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such
securities, such Prospectus shall not include
an untrue statement of a material fact or omit
to state a material fact required to be stated
therein or necessary to make the statements
therein not misleading in the light of the
circumstances under which they were made;
(vii) otherwise use reasonable efforts to comply with
all applicable rules and regulations of the
Commission;
(viii) provide and cause to be maintained a transfer
agent for the Common Stock from and after a
date not later than the effective date of the
Registration Statement;
(ix) properly notify any securities exchange on
which any of the Company's Common Stock is
listed of the registration of any of the
Shares, and use its best efforts to satisfy
all prerequisites and regulations of any such
exchange relating to the trading of such
Shares on such exchange;
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<PAGE> 4
(x) if requested by the Shareholder, promptly
incorporate in a prospectus supplement or
post-effective amendment such information as
the Shareholder reasonably requests to be
included therein with respect to the number of
Shares being sold by the Shareholder and the
Shareholder's plan of distribution and
promptly make all required filings of such
prospectus supplement or post-effective
amendment;
(xi) as promptly as practicable after filing with
the Commission of any document which is
incorporated by reference in a prospectus
contained in a registration statement, deliver
a copy of such document to the Shareholder;
(xii) cooperate with the Shareholder to facilitate
the timely preparation and delivery of
certificates (not bearing any restrictive
legends) representing Shares to be sold under
the Registration Statement, in such
denominations and registered in such names as
the Shareholder may reasonably request; and
(xiii) make available for inspection by the
Shareholder, and any one attorney, accountant
or other agent retained by one or more holders
of Shares (the "Inspector"), all financial and
other records, pertinent corporate documents
and properties of the Company (collectively,
the "Records"), as shall be reasonably
necessary to enable them to exercise their due
diligence responsibility, and cause the
Company's officers, directors and employees to
supply all information reasonably requested by
any such Inspector in connection with such
registration statement; provided that records
which the Company determines, in good faith,
to be confidential and which it notifies the
Inspector are confidential shall not be
disclosed by the Inspector unless (i) the
disclosure of such Records is necessary to
avoid or correct a misstatement or omission in
the Registration Statement or (ii) the release
of such Records is ordered pursuant to a
subpoena or other order from a court of
competent jurisdiction; provided, further, the
Shareholder agrees that it will, upon learning
that disclosure of such Records is sought in a
court of competent jurisdiction, give notice
to the Company and allow the Company, at its
expense, to undertake appropriate action and
to prevent disclosure of the Records deemed
confidential.
(b) All expenses incident to the Company's performance of its
obligations under this Agreement, including without
limitation, all registration and filing fees, fees and
expenses of compliance with securities and Blue Sky laws,
printing expenses,
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<PAGE> 5
fees and disbursements of the Company's counsel,
independent certified public accountants, and other
persons retained by the Company (all such expenses being
herein called "Registration Expenses") will be borne by
the Company. The Shareholder shall be responsible for all
selling fees, expenses, discounts and commissions
relating to the Shares and for the fees and expenses of
counsel and other persons engaged by the Shareholder.
3. Obligations of Shareholder.
(a) The Shareholder agrees that it will offer and sell Shares
in compliance with all applicable state and federal
securities laws. Specifically, without limitation, the
Shareholder agrees as follows:
(i) The Shareholder agrees not to use any prospectus
(as that term is defined under the Securities
Act) for the purpose of offering or selling the
Shares to the public except for the Prospectus,
as the same may be supplemented and amended from
time to time.
(ii) Neither the Shareholder nor any affiliate of the
Shareholder shall engage in any practice which
would violate Rule 10b-6 promulgated under the
Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Shareholder nor any affiliate of the
Shareholder shall solicit purchases of Common
Stock to facilitate the distribution of Shares in
violation of Rule 10b-2 promulgated under the
Exchange Act.
(iv) Neither the Shareholder nor any affiliate of the
Shareholder shall effect any stabilizing
transactions to facilitate the offer and sale of
Shares to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
(b) The Shareholder agrees to promptly notify the Company as
and when any Shares are sold and when the Shareholder
elects to terminate all further offers and sales of
Shares pursuant to the Registration Statement. The
Shareholder acknowledges that any Shares which have not
been sold within two years after the Termination Date of
the Offering or any earlier termination of the
distribution of the Shares will be removed from
registration by means of a post-effective amendment to
the Registration Statement.
(c) It shall be a condition precedent to the obligations of
the Company to take any action with respect to
registering the Shares that the Shareholder furnish the
Company in writing such information regarding the
Shareholder, the Shares and other securities of the
Company held by the Shareholder, and the distribution of
such Shares as the Company may from time to time
reasonably request in
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<PAGE> 6
writing. If the Shareholder refuses to provide the
Company with any of such information on the grounds that
it is not necessary to include such information in the
Registration Statement, the Company may exclude the
Shareholder's Shares from the Registration Statement if
the Company provides the Shareholder with an opinion of
counsel to the effect that such information must be
included in the Registration Statement and the
Shareholder thereafter continues to withhold such
information.
The Shareholder agrees that upon receipt of any
notice from the Company of the happening of any event of
the kind described in Section 2(a)(vi), the Shareholder
will forthwith discontinue the Shareholder's disposition
of Shares pursuant to the Registration Statement until
the Shareholder's receipt of the copies of the
supplemented or amended prospectus contemplated by
Section 2(a)(vi) and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such
Shareholder's possession, of the Prospectus current at
the time of receipt of such notice.
4. Public Offering by the Company. Notwithstanding the registration
rights granted to the Shareholder under this Agreement, in the event the
Company files a registration statement for an underwritten public offering of
Common Stock (a "Company Offering") within two years of the Termination Date of
the Offering and while the Registration Statement covering the Registration
Shares is effective, then upon the request of the Company's underwriter in such
Company Offering, the Shareholder agrees to enter into an agreement pursuant to
which the Shareholder will be prohibited from transferring the Shares for such
period of time, not to exceed 90 days after completion of the Company Offering,
as the Company's underwriter may request. The Company may enter stop transfer
orders with its transfer agent in order to effect this prohibition. In the
event the Company makes a Company Offering and the Company's underwriter
imposes transfer restrictions on the sale of Shares, the period during which
the Registration Statement will be kept current shall not be extended beyond
the maximum two-year period from the Termination Date of the Offering as
provided in Section 1.
5. Restrictions on Transfer. The Shareholder agrees that it will not
sell, exchange, pledge or otherwise transfer any Shares except in transactions
(i) made pursuant to the Registration Statement, or (ii) which are exempt from
all registration requirements of the Securities Act (or conducted pursuant to
Rule 144 thereunder) and all applicable state securities laws, and for which
the Company is provided with an opinion of counsel to the Shareholder and other
evidence as may be reasonably satisfactory to the Company to the effect that
such transfer will not be in violation of the Securities Act and all applicable
state securities laws.
6. Indemnification.
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<PAGE> 7
(a) Indemnification by the Company. To the extent permitted
by law, the Company will, and hereby does, indemnify and
hold harmless the Shareholder, its directors and
officers, each other natural person, corporation,
business trust, association, company, partnership, joint
venture and other entity (each, a "Person") who
participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who
controls the Shareholder or any such underwriter within
the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to
which the Shareholder or any such director or officer or
underwriter or controlling Person may become subject
under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in any registration statement under which
such securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and the Company will reimburse the
Shareholder and each such director, officer, underwriter
and controlling person for any legal or any other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim,
liability, action or proceeding; provided that --------
the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon written
information furnished to the Company by the Shareholder
expressly for use in the preparation thereof. Such
indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of
the Shareholder or any such director, officer,
underwriter or controlling person and shall survive the
transfer of Shares by the Shareholder.
(b) Indemnification by the Shareholder. To the extent
permitted by law, the Shareholder will, and hereby does,
indemnify and hold harmless (in the same manner and to
the same extent as set forth in subdivision (a) of this
Section 6) each underwriter, each Person who controls
such underwriter within the meaning of the Securities
Act, the Company, each director of the Company, each
officer of the Company and each other Person, if any, who
controls the Company within the meaning of the Securities
Act, with respect to any statement or alleged statement
in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon written
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<PAGE> 8
information furnished to the Company by the Shareholder
expressly for use in the preparation of such registration
statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, and with
respect to any violation by the Shareholder of the
Securities Act or the Exchange Act.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 6, such
indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, give written
notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to
give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding
subdivisions of this Section 6, except to the extent that
the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is
brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying
parties actually exists in respect of such claim, the
indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume
the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall,
without the consent of the indemnified party, consent to
entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified
party of a release from all liability in respect to such
claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 6
(with appropriate modifications) shall be given by the
Company and the Shareholder with respect to any required
registration or other qualification of securities under
any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss,
damage or liability is incurred.
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<PAGE> 9
7. Notices. All notices required or permitted herein must be in writing
and shall be deemed to have been duly given the first business day following
the date of service if served personally, on the first business day following
the date of actual receipt if delivered by telecopier, telex or other similar
communication to the party or parties to whom notice is to be given, or on the
third business day after mailing if mailed to the party or parties to whom
notice is to be given by registered or certified mail, return receipt
requested, postage prepaid, to the Shareholder at the address set forth in the
Subscription Agreement, and to the Company at the address set forth below, or
to such other addresses as either party hereto may designate to the other by
notice from time to time for this purpose.
ENVIRONMENTAL SAFEGUARDS, INC.
2600 South Loop West
Suite 445
Houston, Texas 77054
Attn: James S. Percell
Telecopier No: (713) 641-0756
With a copy to:
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, TX 77007
Attn: Robert Axelrod
Telecopier No.: (713) 552-0202
8. Entire Agreement. This Agreement contains and constitutes the entire
agreement between and among the parties with respect to the matters set forth
herein and supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof. There are no agreements,
understandings, restrictions, warranties or representations among the parties
relating to the subject matter hereof other than those set forth or referred to
herein. This instrument is not intended to have any legal effect whatsoever, or
to be a legally binding agreement or any evidence thereof, until it has been
signed by all parties hereto.
9. Binding Effect. This Agreement shall be binding on and enforceable by
the Shareholder and by the Company and its successors. No transferee of Shares
shall acquire any rights under this Agreement except with the written consent
of the Company, which may be withheld for any reason. In the event the Company
is a party to a merger or consolidation in a transaction in which the Shares
are converted into equity securities of another entity, then the Company shall
cause such other entity to assume the Company's obligations under this
Agreement such that this Agreement shall apply to the equity securities
received by the Shareholder in exchange for the Shares, unless such equity
securities are, upon receipt and without further action by the Shareholder,
readily salable without registration under the Securities Act.
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<PAGE> 10
10. Construction. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Texas. All pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine or
neuter gender thereof or to the plurals of each, as the identity of the person
or persons or the context may require. The descriptive headings contained in
this Agreement are for reference purposes only and are not intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision contained herein.
11. Invalidity. If any provision contained in this Agreement shall for
any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
12. Counterparts. This Agreement may be executed in any number of
Counterparts and by the parties hereto in separate Counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
13. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless agreed to in writing by both
the Company and the Shareholder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
SHAREHOLDER: /s/ HOLDER
--------------------------------------------------
--------------------------------------------------
Date
COMPANY: ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ James S. Percell
----------------------------------------------
James S. Percell, President
----------------------------------------------
Date
-10-
<PAGE> 1
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
December 17, 1997, is by and between Environmental Safeguards, Inc., a Nevada
corporation ("Company"), and ________________________ (the "Holder").
W I T N E S E T H:
WHEREAS, the Company has entered into a Purchase Agreement dated
December 17, 1997 (the "Purchase Agreement"), pursuant to which it has offered
and sold shares of its Series B Convertible Preferred Stock (the "Preferred
Stock") to certain participants thereto; and
WHEREAS, the Company has sold shares of its Preferred Stock to the
Holder pursuant to the Purchase Agreement; and
WHEREAS, the shares of Preferred Stock purchased by Holder are
convertible into shares of the Company's common stock, $0.001 par value per
share ("Common Stock"); and
WHEREAS, in connection with Holder's purchase of the Preferred Stock,
the Company agreed to grant certain registration rights in respect of the
shares of Common Stock underlying the Preferred Stock (the "Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE ONE
REGISTRATION RIGHTS
Section 1.1 Registration Rights Available. The Company agrees to
provide Holder and its transferees or distributees (collectively the "Holders")
with the following registration rights with respect to the Shares and any other
securities issued or issuable at any time or from time to time in respect of
the Shares upon a stock split, stock dividend, recapitalization or other
similar event involving the Company (collectively, the "Registered Shares") (a)
two rights to demand registration in a secondary offering by means of shelf
registration under Rule 415 of the Securities Act of 1933, as amended (the
"Act"), and (b) "piggyback" registration in a firm commitment underwritten
offering of Company securities, all subject to the rights and limitations of
the provisions of this Agreement (the rights to two demand and unlimited
piggyback registrations granted hereunder are referred to herein as
"Registration Rights").
Section 1.2 Demand Registration.
(a) Subject to the restrictions of Section 1.2(b) below, upon the
written request of at least a majority of the Holders of the Preferred Stock
requesting that the Company effect a registration under the Act and specifying
the intended method of distribution thereof, the Company
<PAGE> 2
shall promptly use its best efforts to file with the Securities and Exchange
Commission (the "Commission") and cause to become effective as soon as
practicable thereafter, a Registration Statement on an appropriate form
relating to the offer and sale of the Registered Shares by the Holders. The
Company shall promptly give written notice of such requested registration to
all Holders of record of shares of Preferred Stock which were purchased in
connection with the Purchase Agreement. The Registration Statement will include
the Registered Shares, all other shares for which written notice was given by
the Company which are requested to be included by the Holders thereof by
written notice to the Company within 15 days of the giving of written notice by
the Company and may include shares of common stock other than the foregoing,
either for the Company's account or for the account of other selling
shareholders. The Company shall not be obligated to effect more than two
registrations on behalf of the Holders under this Section 1.2.
(b) The Company shall not be required to file any registration
statement pursuant to Section 1.1(a): (i) when the Company is engaged in
discussions with an underwriter concerning a contemplated underwritten public
offering of its securities and the managing underwriter thereof has advised
Holders in writing that such filing would have a material adverse effect on the
contemplated offering; (ii) if the Company is engaged in negotiations in
respect of an acquisition or financing transaction and, in the good faith
judgment of the Board of Directors such transaction would be adversely affected
by the filing of the Registration Statement, provided clause (i) and (ii) shall
not delay the Company's obligations under this Section beyond 90 days after
completion of the contemplated offering or financing or notice of cancellation
of such contemplated offering or financing; or (iii) if the Company is in the
possession of material nonpublic information the disclosure of which, in the
good faith judgment of the Company's board of directors, would materially
adversely affect or materially interfere with its business; provided, however,
that if the Company's obligation to file a registration statement under this
Section is tolled by reason of one of the preceding clauses (i) - (iii) and a
registration request is made hereunder during such time, the Company shall
promptly notify Holder when the Company is able to file a registration
statement without conflicting with clauses (i) - (iii) above.
Section 1.3 Piggyback Registration. With respect to Holders rights to
piggyback registration in a firm commitment underwriting of the Company
securities pursuant to Section 1.1 (b), the parties agree as follows:
(a) Pursuant to Section 1.1(b), the Company will (i) promptly give to
Holders written notice of any registration relating to a firm commitment public
offering of the Company's securities; and (ii) include in such registration,
and in the underwriting involved therein, all the Registered Shares specified
in Holders written request delivered in accordance with Section 6.1 herein
within 15 days after the date of such written notice from the Company.
(b) The right of the Holders to registration pursuant to Section
1.1(b) shall be conditioned upon Holders participation in such underwriting,
and the inclusion of the Registered Shares in the underwriting shall be limited
to the extent provided herein. The Holders proposing to distribute its
securities through such underwriting shall enter into an underwriting agreement
2
<PAGE> 3
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Agreement, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit some
or all of the Registered Shares that may be included in the registration and
underwriting provided, however, the Holders shall have priority rights to
piggyback registration over any and all other persons. If Holder disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter, delivered not less
than seven days before the effective date. Any Registered Shares excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to 90 days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.
Section 1.4 Exception to Registration. The Company shall not be
required to effect a registration under this Article One if (i) in the written
opinion of counsel for the Company, which counsel and the opinion so rendered
shall be reasonably acceptable to Holders, such Holders may sell without
registration under the Act all Registered Shares which it requested
registration under the provisions of the Act and in the manner and in the
quantity in which the Registered Shares were proposed to be sold, or (ii) the
Company shall have obtained from the Commission a "no-action" letter to that
effect.
ARTICLE TWO
REGISTRATION PROCEDURES
Section 2.1 Registration Obligations. In performing its obligations
under Article One to register the Registered Shares, Company will, subject to
the limitations provided herein, as expeditiously as possible:
(a) prepare and file with the Commission the Registration Statement and
use its best efforts to cause such registration to become and remain effective
for the term specified herein;
(b) prepare and file with the Commission such amendments and supplements
to the Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep the Registration Statement effective in accordance
with the terms of this Agreement and to comply with the provisions of the Act
with respect to the disposition of all Registered Shares covered by the
Registration Statement;
(c) furnish to the Holder one conformed copy of the Registration
Statement and of each such amendment and supplement thereto (in each case
including all exhibits), one copy of the Prospectus (including each preliminary
prospectus and any summary prospectus) and any other Prospectus filed under
Rule 424 under the Act, and such other documents, as the Holder may reasonably
request;
3
<PAGE> 4
(d) use its best efforts to (i) register or qualify the Registered
Shares under such other securities or blue sky laws of such jurisdictions as
the Holder shall reasonably request, (ii) keep such
registration or qualification in effect for so long as the Registration
Statement remains in effect, and (iii) take any other action which may be
reasonably necessary or advisable to enable the Holder to consummate the
disposition of the Registered Shares in such jurisdictions, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this Section 2.1(d) be obligated to be so qualified, to
consent to general service of process in any such jurisdiction, or to take any
such action which would impose unreasonable expense on the Company;
(e) notify the Holders at any time when a Prospectus relating to the
Shares is required to be delivered under the Act, upon discovery that, or upon
the happening of any event as a result of which, the Prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and prepare and furnish to the
Holders one copy of a supplement to or an amendment of such Prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
securities, such Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(f) provide and cause to be maintained a transfer agent for the Common
Stock from and after a date not later than the effective date of the
Registration Statement;
(g) properly notify any securities exchange on which any of the
Company's Common Stock is listed of the registration of any of the Registered
Shares, and use its best efforts to satisfy all prerequisites and regulations
of any such exchange relating to the trading of such Registered Shares on such
exchange; and
(h) make available for inspection by the Holders, and any one attorney,
accountant or other agent retained by the Holders of Registered Shares, as a
group, (the "Inspector"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement; provided that records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspector are confidential shall not be disclosed by the Inspector unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the Registration Statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction; provided, further, the Holders agree that they will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action and to prevent disclosure of the Records deemed
confidential.
4
<PAGE> 5
Section 2.2 Registration Obligations of Holder. As a condition to the
Company performing its obligations under Article One to register the Registered
Shares, the Holder will, as expeditiously as possible:
(a) furnish the Company in writing such information regarding the
Holder, the Registered Shares and other securities of the Company held by the
Holder, and the distribution of such Registered Shares as the Company may from
time to time reasonably request in writing. If the Holder refuses to provide
the Company with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement, the
Company may exclude the Holder's Registered Shares from the Registration
Statement if the Company provides the Holder with an opinion of counsel to the
effect that such information must be included in the Registration Statement and
the Holder thereafter continues to withhold such information.
(b) agree to promptly notify the Company as and when any Registered
Shares are sold and when the Holder elects to terminate all further offers and
sales of Shares pursuant to the Registration Statement.
(c) upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 2.1(e), the Holder will forthwith
discontinue the Holder's disposition of the Registered Shares pursuant to the
Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.1(e) and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the current Prospectus at the time of receipt of such notice.
Section 2.3 Expenses. All expenses incident to the Company's performance
of its obligations under this Agreement, including without limitation, all
registration and filing fees, fees and expenses of compliance with securities
and Blue Sky laws, printing expenses, fees and disbursements of the Company's
counsel, independent certified public accountants, and other persons retained
by the Company (all such expenses being herein called "Registration Expenses")
will be borne by the Company. The Holders shall be responsible for all selling
fees, expenses, discounts and commissions relating to the Registered Shares and
for the fees and expenses of counsel and other persons engaged by the Holders
(as well as any costs for any interim audit if requested by the Holder pursuant
to Section 1.2(b)).
ARTICLE THREE
REPORTING REQUIREMENTS
With a view to making available to the Holders the benefits of certain
rules and regulations of the Commission which may at any time permit the sale
of the Registered Shares to the public without registration, the Company agrees
to use its best efforts to (i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act and (ii) file
with the Commission in a timely manner all reports and other documents required
of the Company under the Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
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and (iii) take such further action as any Holder may reasonably request, to the
extent required from time to time to enable such Holder to sell the Registered
Shares without registration under the Act pursuant to the exemptions provided
by Rule 144 or any similar rule or regulation adopted by the Commission.
ARTICLE FOUR
LIMITATIONS ON REGISTRATION RIGHTS TO OTHER PARTIES
From and after the date of this Agreement, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company giving such holder or prospective holder (a) the right to require
the Company, upon any registration of any of its securities, to include, among
the securities which the Company is then registering, securities owned by such
holder, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not limit the number of shares sought
to be included by Holder or reduce the offering price thereof; or (b) the right
to require the Company to initiate any registration of any securities of the
Company. The foregoing limitation shall not apply to registration rights
previously granted by the Company pursuant to its Confidential Private
Placement Memorandum dated September 18, 1996.
ARTICLE FIVE
INDEMNIFICATION
Section 5.1 Indemnification by the Company. In the event of any
registration of the Shares under the Act, the Company agrees to indemnify and
hold harmless Holder and each other person who participates as an underwriter
in the offering or sale of such securities against any and all claims, demands,
losses, costs, expenses, obligations, liabilities, joint or several, damages,
recoveries and deficiencies, including interest, penalties and attorneys' fees
(collectively, "Claims"), to which Holder or underwriter may become subject
under the Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
on any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which Holder's Shares were
registered under the Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
or any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse Holder and each such underwriter for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such Claim (or action or proceeding in respect
thereof); provided that the Company shall not be liable in any such case to the
extent that any such Claim (or action or proceeding in respect thereof) or
expense arises out of or is based on an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance on and in conformity with written
information furnished to the Company by the Holder expressly for use in the
preparation thereof, and provided, further, that the Company shall not be
liable to any
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person who participates as an underwriter in the offering or sale of Registered
Shares or any other person, if any, who controls such underwriter within the
meaning of the Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of such person's failure to send or give a copy of the Prospectus,
as the same may be then supplemented or amended, to the person asserting an
untrue statement or alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of the sale of Registered Shares to such
person if such statement or omission was corrected in such Prospectus so long
as such Prospectus, and any amendments or supplements thereto, have been
furnished to such underwriter in sufficient numbers and in a timely manner to
permit distribution thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of Holder or any
such underwriter and shall survive the transfer of the Registered Shares by
Holder.
Section 5.2 Indemnification by Holder. In the event of any registration
of the Registered Shares under the Act, the Holder agrees to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
5.1) the Company, each director of the Company, each officer of the Company and
each other person, if any, who controls the Company, within the meaning of the
Act, with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance on and
in conformity with written information furnished to the Company by the Holder
expressly for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of the Registered
Shares by Holder.
Section 5.3 Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a Claim referred to in this Article Five, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Article Five, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnifying party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such Claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs
of investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement that does not include as an
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unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such Claim.
Section 5.4 Indemnification Payments. The indemnification required by
this Article Five shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
ARTICLE SIX
MISCELLANEOUS
Section 6.1 Notices. All notices required or permitted herein must be in
writing and shall be deemed to have been duly given the first business day
following the date of service if served personally, on the first business day
following the date of actual receipt if delivered by telecopier, telex or other
similar communication to the party or parties to whom notice is to be given, on
the first business day following delivery to an air courier, if sent by
overnight air courier guaranteeing next day delivery, or on the third business
day after mailing if mailed to the party or parties to whom notice is to be
given by registered or certified mail, return receipt requested, postage
prepaid, to the parties at the addresses set forth below, or to such other
addresses as either party hereto may designate to the other by notice from time
to time for this purpose.
ENVIRONMENTAL SAFEGUARDS, INC.
2600 South Loop West, Suite 645
Houston, Texas 77054
Attn: James S. Percell, President
Telephone No. 713-641-3838
Facsimile No: 713-641-0756
With a copy to:
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, TX 77007
Attn: Robert Axelrod
Telephone No.: 713-861-1996
Facsimile No.: 713-552-0202
HOLDER
c/o Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: David L. Warnock
Telephone No.: 410-895-3800
Facsimile No.: 410-895-3805
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<PAGE> 9
With a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
Section 6.2 Term of the Agreement. This Agreement shall terminate with
respect to Holder on the earlier to occur of (i) all of the Registered Shares
having been registered as provided in Article One or (ii) two years after the
Preferred Stock is converted in full; provided, however, that the provisions of
Article One shall not terminate if Holder makes a registration request pursuant
to this Agreement which request is currently tolled by reason of one of the
clauses (i) - (iv) in Section 1.2(b), but shall terminate 30 days after notice
of the suspension of such tolling shall have been given to Holder.
Section 6.3 Mergers, Etc. The Company shall not, directly or indirectly,
enter into any merger, consolidation, or reorganization in which the Company
shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation, or reorganization,
agree in writing to assume the obligations of the Company under this Agreement,
and for this purpose references hereunder to "Registered Shares" shall be
deemed to be references to the securities that the Holders would be entitled to
receive in exchange for Registered Shares under any such merger, consolidation,
or reorganization.
Section 6.4 Entire Agreement. This Agreement contains and constitutes
the entire agreement between and among the parties with respect to the matters
set forth herein and supersedes all prior agreements and understandings between
the parties hereto relating to the subject matter hereof. There are no
agreements, understandings, restrictions, warranties or representations among
the parties relating to the subject matter hereof other than those set forth or
referred to herein. This instrument is not intended to have any legal effect
whatsoever, or to be a legally binding agreement or any evidence thereof, until
it has been signed by all parties hereto.
Section 6.5 Binding Effect. This Agreement shall be binding on and
enforceable by the Holder and by the Company and its successors. No transferee
of Registered Shares shall acquire any rights under this Agreement except with
the written consent of the Company, which may be withheld for any reason. In
the event the Company is a party to a merger or consolidation in a transaction
in which the Registered Shares are converted into equity securities of another
entity, then the Company shall cause such other entity to assume the Company's
obligations under this Agreement such that this Agreement shall apply to the
equity securities received by the Holder in exchange for the Registered Shares,
unless such equity securities are, upon receipt and without further action by
the Holder, readily salable without registration under the Act.
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<PAGE> 10
Section 6.6 Construction. This Agreement shall be construed, enforced
and governed in accordance with the laws of the State of Texas. All pronouns
and any variations thereof shall be deemed to refer to the masculine, feminine
or neuter gender thereof or to the plurals of each, as the identity of the
person or persons or the context may require. The descriptive headings
contained in this Agreement are for reference purposes only and are not
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision contained herein.
Section 6.7 Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless agreed to in
writing by both the Company and the Holder.
Section 6.8 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
Section 6.9 Successors and Assigns. Except as otherwise provided herein,
the provisions shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No party hereto may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other parties hereto.
Section 6.10 Counterparts. This Agreement may be executed in any number
of Counterparts and by the parties hereto in separate Counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER: /s/ HOLDER
------------------------------------------------
------------------------------------------------
Date
COMPANY: ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ James S. Percell
--------------------------------------------
James S. Percell, President
------------------------------------------------
Date
10
<PAGE> 1
EXHIBIT 10.5
ENVIRONMENTAL SAFEGUARDS, INC.
WARRANT AGREEMENT
December 17, 1997
To the persons whose names appear
on the signature page of this Agreement
c/o Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, Maryland 21202
Gentlemen:
In consideration of entering into a transaction composed of a Purchase
Agreement for the sale of Series B Convertible Preferred Stock and Series C
Preferred Stock ("Purchase Agreement") and that certain Loan and Security
Agreement ("Loan Agreement") with Environmental Safeguards, Inc. (the
"Company"), the Company hereby agrees to issue non-redeemable stock purchase
warrants ("Warrants") to the persons whose names appear on Exhibit A of this
Agreement entitling them to purchase an aggregate of 707,142 shares of Company
common stock, $0.001 par value per share ("Common Stock"). The Warrants are
evidenced by warrant certificates in the form attached hereto as Exhibit B
("Warrant Certificate"). The number of shares of Common Stock purchasable upon
exercise of the Warrants is subject to adjustment as provided in Section 4
below. The Warrants will be exercisable by you or any other Warrant holder (as
defined in Section 2(a) below) as to all or any lesser number of shares of
Common Stock covered thereby, at the Purchase Price of $0.01 per share
("Exercise Price"), at any time and from time to time during the period
beginning December 17, 1997 and ending at 5:00 p.m., Houston, Texas time, on
December 16, 2007. The term "Warrant holder" refers to the person whose name
appears on the signature page of this Warrant Agreement and any transferee or
transferees of it permitted by Section 3(a) below. Such term, when used in this
Warrant Agreement in reference to or in the context of a person who holds or
owns shares of Common Stock issued upon exercise of a Warrant, refers where
appropriate to such person who holds or owns such shares of Common Stock.
1. Representations and Warranties.
The Company represents and warrants to each Warrant holder as follows:
(a) Corporate and Other Action. The Company has all requisite power
and authority and has taken all necessary corporate action, to authorize,
execute, deliver and perform this Warrant Agreement, to execute, issue, sell
and deliver the Warrants and Warrant certificates evidencing the Warrants, to
authorize and reserve for issue and, upon payment from time to time of the
Exercise Price, to issue, sell and deliver, the shares of the Common Stock
issuable upon exercise of the Warrants ("Shares"), and to perform all of its
obligations under this Warrant
WARRANT AGREEMENT PAGE 1
<PAGE> 2
Agreement and the Warrants. This Warrant Agreement and, when issued, each
Warrant issued pursuant hereto, has been or will be duly executed and delivered
by the Company and is or will be a legal, valid and binding agreement of the
Company, enforceable in accordance with its terms. No authorization, approval,
consent or other order of any governmental entity, regulatory authority or
other third party is required for such authorization, execution, delivery,
performance, issue or sale.
(b) No Violation. The execution and delivery of this Warrant
Agreement, the consummation of the transactions herein contemplated and the
compliance with the terms and provisions of this Warrant Agreement and of the
Warrants will not conflict with, or result in a breach of, or constitute a
default or an event permitting acceleration under, any statute, the Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement, franchise, license, lease, permit, or
any other agreement, understanding, instrument, judgment, decree, order,
statute, rule or regulation to which the Company is a party or by which it is
or may be bound.
2. Exercise of Warrants.
The Warrants may be exercised by the Warrant holder in whole, or in
part, by surrender of the Warrant Certificate at the office of the Company (or
such other office or agency of the Company as may be designated by notice in
writing to the Warrant holder at the address of such Warrant holder appearing
on the books of the Company) with the subscription form attached hereto duly
completed, at any time within the period beginning on the date hereof and
expiring at 5:00 p.m. Houston, Texas time, on December 16, 2007 (the "Exercise
Period") and by payment to the Company by certified check or bank draft of the
Exercise Price for such shares. The Company agrees that the shares of Common
Stock so purchased shall be and are deemed to be issued to the Warrant holder
as the record owner of such shares of Common Stock as of the close of business
on the date on which the Warrant Certificate shall have been surrendered and
payment made for such shares of Common Stock. Certificates representing the
shares of Common Stock so purchased, together with any cash for fractional
shares of Common Stock paid pursuant to Section 4(f), shall be delivered to the
Warrant holder promptly, and, unless the Warrants have expired, a new Warrant
Certificate representing the number of Warrants represented by the surrendered
Warrant Certificate, if any, that shall not have been exercised also shall be
delivered to the Warrant holder within such time.
3. Transfer.
(a) Transferability of Warrants and Shares. The Warrant holder agrees
that the Warrants are being acquired as an investment and not with a view to
distribution thereof (except for partners, limited partners or affiliates of
the Warrant holder) and that the Warrants and the underlying Shares issued on
exercise of the Warrants, may not be transferred, sold, assigned or otherwise
disposed of without registration under the Securities Act of 1933, as amended
(the "Act"), or any exemption therefrom and for which the Company is provided
with an opinion of counsel to
WARRANT AGREEMENT PAGE 2
<PAGE> 3
the Warrant holder, reasonably satisfactory to the Company, to the effect that
such transfer is not in violation of any of said securities laws. Any Warrants
issued upon the transfer of a Warrant shall be registered in a Warrant Register
as they are issued. The Company shall be entitled to treat the registered
holder of any Warrant on the Warrant Register as the owner in fact thereof for
all purposes and shall not be bound to recognize any equitable or other claim
to or interest in such Warrant on the part of any other person. Warrants may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor or representing in the
aggregate the right to purchase a like number of shares of Common Stock, upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause the Warrants to be
transferred on its books to any person if, in the opinion of counsel to the
Company, this transfer does not comply with the provisions of the Act, and the
rules and regulations thereunder.
(b) Registration of Shares. You agree not to make any sale or other
disposition of the Shares except pursuant to a registration statement which has
become effective under the Act, setting forth the terms of such offering, the
underwriting discount and commissions and any other pertinent data with respect
thereto, unless the Warrant holder has provided the Company with an opinion of
counsel reasonably acceptable to the Company that such registration is not
required. Notwithstanding the foregoing, the Warrant holder further agrees that
it will not sell, transfer, assign or otherwise dispose of the Shares prior to
December 17,1998, without the prior written consent of the Company.
Certificates representing the Shares shall bear an appropriate legend
reflecting these restriction and shall be subject to a "stop-transfer" order.
(c) Investment Representations. Each of the Warrant holders,
severally, represent and warrant to the Company as follows:
(i) Each Warrant holder which is a corporation, partnership
or trust is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, has all requisite power and authority
and has taken all necessary action required for the due authorization,
execution, delivery and performance of this Warrant Agreement, and any other
agreements or instruments executed in connection herewith or therewith and the
consummation of the transactions contemplated herein or therein, and has not
been organized, reorganized or recapitalized specifically for the purposes of
investing in the Company;
(ii) Assuming due execution and delivery by the Company of
this Warrant Agreement, this Warrant Agreement to which such Warrant holder is
a party constitutes the legal, valid and binding obligation of such Warrant
holder, enforceable against such Warrant holder in accordance with its terms;
(iii) Such Warrant holder has been advised and understands
that neither the Warrants nor the underlying shares of Common Stock have been
registered under the Act, on the basis that no public offering of the Warrants
or underlying shares of Common Stock is to be effected, except in compliance
with applicable securities laws and regulations or pursuant to an exemption
WARRANT AGREEMENT PAGE 3
<PAGE> 4
therefrom, and that, in this connection, the Company is relying in part on the
representations of such Warrant holders set forth in this Section 3(c);
(iv) Such Warrant holder is purchasing the Warrant for
investment purposes, for its own account and not with a view to, or for sale in
violation of Federal or state securities laws; and
(v) Such Warrant holder is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated under the Act and, by
reason of its business or financial experience, such Warrant holder has the
capacity to protect its own interest in connection with the transactions
contemplated hereunder.
4. Adjustment of Number of Shares Purchasable.
The number of Shares to be issued upon exercise of the Warrant is
subject to adjustment from time to time as set forth in this Section 4.
(a) Stock Dividend; Stock Splits; Reverse Stock Splits;
Reclassifications. In case the Company shall at any time after the date of this
Agreement (i) declare a dividend on the Common Stock in shares of its capital
stock, (ii) subdivide the outstanding Shares, (iii) combine the outstanding
Common Stock into a smaller number of Common Stock, or (iv) issue any shares of
its capital stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each case the number of Shares
of Common Stock for which this Warrant is exercisable shall be adjusted so that
the holder hereof after such time shall be entitled to receive the aggregate
number and kind of Shares which, if such Warrant had been exercised immediately
prior to such time, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination, or
reclassification. An adjustment made pursuant to this subsection (a) shall
become effective on the date of the dividend payment, subdivision, combination
or issuance retroactive to the record date with respect thereto, if any, for
such event. Such adjustment shall be made successively whenever any event
listed above shall occur. In the event that at any time, as a result of an
adjustment made pursuant to this subsection (a), the holder hereof shall become
entitled to purchase any securities other than shares of Common Stock,
thereafter the number of such other securities so purchasable upon exercise of
such Warrant and the exercise price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions of this Section 4 with respect to the shares of Common Stock for
which this Warrant shall be exercisable.
(b) Adjustment of Exercise Price. Whenever the number of shares of
Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant
to Section 4(a), the Exercise Price for each share of Common Stock payable upon
exercise of each Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
WARRANT AGREEMENT PAGE 4
<PAGE> 5
of each Warrant immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock so purchasable immediately
thereafter.
(c) De Minimis Adjustments. No adjustment in the number of shares of
Common Stock for which this Warrant is exercisable shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
number of shares of Common Stock for which this Warrant is exercisable;
provided, however, that any adjustments which by reason of this subsection (c)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 4 shall be made
to the nearest one-hundredth of a share.
(d) Notice of Adjustment. Whenever the number of shares of Common
Stock purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall promptly notify the Warrant
holder in writing (such writing referred to as an "Adjustment Notice") of such
adjustment or adjustments and shall deliver to such Warrant holder a statement
setting forth the number of shares of Common Stock purchasable upon the
exercise of each Warrant and the Exercise Price after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting
forth the computation by which such adjustment was made.
(e) Statement on Warrant Certificates. The form of the Warrant
Certificate need not be changed because of any change in the Exercise Price or
in the number or kind of shares purchasable upon the exercise of a Warrant.
However, the Company may at any time in its sole discretion make any change in
the form of the Warrant Certificate that it may deem appropriate and that does
not affect the substance thereof and any Warrant Certificate thereafter issued,
whether in exchange or substitution for any outstanding Warrant Certificate or
otherwise, may be in the form so changed.
(f) Fractional Shares. No fractional Shares are to be issued upon the
exercise of any Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to such fraction multiplied by the fair value of a share of Common Stock on the
date of such exercise as determined by the board of directors of the Company.
(g) Capital Reorganization. In case of any capital reorganization of
the Company, or of any reclassification of the Common Stock (other than a
reclassification of the Common Stock referred to in subsection (a) of this
Section 4), or in the case of the consolidation of the Company with or the
merger of the Company into any other Company which does not result in a change
of control, each Warrant shall after such capital reorganization,
reclassification of the Common Stock, consolidation or merger be exercisable,
upon the terms and conditions specified in this Agreement, for the number of
shares of stock or other securities, assets, or cash to which a holder of the
number of shares of Common Stock purchasable (at the time of such capital
reorganization, reclassification of shares, consolidation or merger) upon
exercise of such Warrant would have
WARRANT AGREEMENT PAGE 5
<PAGE> 6
been entitled upon such capital reorganization, reclassification of the Common
Stock, consolidation or merger; and in any such case, if necessary, the
provisions set forth in this Section 4 with respect to the rights and interests
thereafter of the holders of the Warrants shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities, assets, or cash thereafter deliverable upon the exercise of
the Warrants. The subdivision or combination of the Common Stock at any time
outstanding into a greater or lesser number of shares shall not be deemed to be
a reclassification of the Common Stock for the purposes of this paragraph. The
Company shall not effect any such consolidation or merger unless prior to or
simultaneously with the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing or receiving such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the Warrant
holder such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase, and to perform
the other obligations of the Company under this Warrant Agreement.
5. Covenants of the Company.
(a) Reservation and Authorization of Common Stock. The Company
covenants and agrees (i) that all shares of Common Stock which may be issued
upon the exercise of the Warrants represented by the Warrant Certificate, upon
issuance and when fully paid for, will be validly issued, fully paid and
nonassessable and free of all taxes, liens, charges, encumbrances and security
interests other than those attaching by or through the Warrant holder, (ii)
that during the Exercise Period, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the Warrants
evidenced by the Warrant Certificate, sufficient shares of Common Stock to
provide for the exercise of the Warrants represented by the Warrant Certificate
and (iii) that the Company will take all such action as may be necessary to
ensure that the shares of Common Stock issuable upon the exercise of the
Warrants may be so issued without violation of any applicable law or
regulation, or any requirement of any securities exchange upon which any
capital stock of the Company may be listed.
(b) Replacement of Warrant Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the Warrant holder, will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(c) Reporting by the Company. The Company agrees that during the term
of the Warrants it will use its best efforts to keep current in the filing of
all forms and other materials, if any, which it may be required to file with
the appropriate regulatory authority pursuant to the Securities Exchange Act of
1934, as amended ("Exchange Act"), and all other forms and reports required to
be filed with any regulatory authority having jurisdiction over the Company.
WARRANT AGREEMENT PAGE 6
<PAGE> 7
6. No Rights of Stockholder.
The Warrant holder shall not be entitled to vote or to receive
dividends or shall otherwise be deemed to be the holder of shares of Common
Stock for any purpose, nor shall anything contained herein or in any Warrant
Certificate be construed to confer upon the Warrant holder, as such, any of the
rights of a stockholder of the Company or any right to vote upon or give or
withhold consent to any action of the Company (whether upon any reorganization,
issuance of securities, reclassification or conversion of Common Stock,
consolidation, merger, sale, lease, conveyance, or otherwise), receive notice
of meetings or other action affecting stockholders (except for notices
expressly provided for herein) or receive dividends or subscription rights,
until the Warrant Certificate shall have been surrendered for exercise
accompanied by full and proper payment of the Exercise Price as provided herein
and shares of Common Stock hereunder shall have become issuable and until the
Warrant holder shall have been deemed to have become a holder of record of such
shares. The Warrant holder shall not, upon the exercise of Warrants, be
entitled to any dividends if the record date with respect to payment of such
dividends shall be a date prior to the date such shares of Common Stock became
issuable upon the exercise of such Warrants. Notwithstanding the foregoing,
this Section 6 shall not affect a Warrant holder's rights as a stockholder
pursuant to his or its ownership of Common Stock or Preferred Stock of the
Company.
7. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to any Warrant holder shall be delivered personally, by
prepaid overnight courier, by facsimile transmission or by certified mail,
return receipt requested, addressed to the Warrant Holder at its address as it
appears on the books of the Company. This Warrant Agreement and any of the
terms hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant Agreement
shall be construed and enforced in accordance with and governed by the laws of
the State of Maryland. The headings in this Warrant Agreement are for purposes
of reference only and shall not limit or otherwise affect any of the terms
hereof. This Warrant Agreement, together with the forms of instruments annexed
hereto as exhibits, constitutes the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
This Warrant Agreement may be executed in counterparts.
WARRANT AGREEMENT PAGE 7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to
be executed on this the 17th day of December, 1997, in Houston, Texas, by its
proper corporate officers, thereunto duly authorized.
ENVIRONMENTAL SAFEGUARDS, INC.
By: /s/ JAMES S. PERCELL
JAMES S. PERCELL, President
The above Warrant Agreement is confirmed and agreed to as of this 17th day of
December, 1997.
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By: /s/ David L. Warnock
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, L.L.C.,
its General Partner
By: /s/ David L. Warnock
Name: David L. Warnock
Title: Managing Member
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
Name: James D. Cole
Title: Chairman of the Board, President and
Chief Executive Officer
JAMES H. STONE
/s/ JAMES H. STONE
WARRANT AGREEMENT PAGE 8
<PAGE> 9
EXHIBIT A
<TABLE>
<CAPTION>
NAME TOTAL NUMBER OF WARRANTS
- ---- ------------------------
<S> <C>
Newpark Resources, Inc......................................................................................353,571
Cahill, Warnock Strategic Partners Fund, L.P................................................................323,044
Strategic Associates, L.P....................................................................................17,900
James H. Stone...............................................................................................12,628
</TABLE>
A-1
<PAGE> 10
EXHIBIT B
WARRANT CERTIFICATE
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR AN OPINION OF COUNSEL TO
THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION. THIS WARRANT AND ITS
TRANSFERABLILITY IS FURTHER SUBJECT TO THAT CERTAIN WARRANT AGREEMENT DATED
DECEMBER 17,1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF ENVIRONMENTAL
SAFEGUARDS, INC.
Warrant No. W-_____ To Purchase
_________ Shares of
Common Stock
ENVIRONMENTAL SAFEGUARDS, INC.
Incorporated Under the Laws of Nevada
This certifies that, for value received, the hereafter named
registered owner is entitled, subject to the terms and conditions of this
Warrant, until the expiration date, to purchase the number of shares subject to
adjustment set forth above of the common stock ("Common Stock"), of
Environmental Safeguards, Inc. ("Corporation") from the Corporation at the
purchase price per share hereafter set forth, on delivery of this Warrant to
the Corporation with the form of subscription duly executed and payment of the
purchase price pursuant to Section 2 of that certain Warrant Agreement between
the parties thereto dated as of December 17, 1997. This Warrant is subject to
the terms of the Warrant Agreement between the parties, the terms of which are
hereby incorporated herein. Reference is hereby made to such Warrant Agreement
for a further statement of the rights of the holder of this Warrant.
Registered Owner: _________ Date: December 17, 1997
Purchase Price
Per Share: $.01
Expiration Date: Subject to Section 2 of the Warrant Agreement, 5:00 p.m.
Houston, Texas time on December 16, 2007.
WITNESS the signature of the Corporation's authorized officer:
ENVIRONMENTAL SAFEGUARDS, INC.
By /s/ James S. Percell
-----------------------------
JAMES S. PERCELL, President
B-2
<PAGE> 11
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Environmental Safeguards, Inc.
The undersigned, the holder of the enclosed Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _________* shares of Common Stock of
Environmental Safeguards, Inc. and herewith makes payment of $_______________
therefor, and requests that the certificate or certificates for such shares be
issued in the name of and delivered to the undersigned.
Dated:______________
-------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
--------------------------------------------
(Address)
- ---------------------------
(*) Insert here the number of shares called for on the face of the Warrant
or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised, in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant Agreement pursuant to which the Warrant was
granted, may be delivered upon exercise.
B-3
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), between ENVIRONMENTAL
SAFEGUARDS, INC., a Nevada corporation, having its principal office and place
of business in Houston, Texas (hereinafter referred to as the "Company") and
JAMES S. PERCELL, a resident of Harris County, Texas (hereinafter referred to
as the "Employee").
R E C I T A L S:
WHEREAS, the Company is engaged in the development, production and
sale of environmental remediation technologies and services.; and
WHEREAS, the Company desires to employ the Employee in the capacity of
the President and Chief Executive Officer of the Company to manage the
day-to-day operations of the Company's business and its expansion efforts and
the Employee desires to be so employed under this Agreement, subject to the
terms, conditions and covenants contained herein.
CONDITIONS OF AGREEMENT
I.
CONSIDERATION
This Agreement is executed and delivered for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged.
The special training and knowledge acquired or to be acquired by the Employee
during employment are material factors relating to the employment of the
Employee without which the employment relationship would not be commenced. The
parties hereto acknowledge and agree that this Agreement is necessary to
protect the Company's legitimate interests, including, but not limited to, its
business goodwill, trade secrets and other confidential or proprietary
information.
II.
TERM OF EMPLOYMENT
2.1 Term. The Company hereby employs the Employee, and the
Employee hereby accepts employment with the Company for a term of three (3 )
years ("Initial Term") which shall commence on the 1st day of April, 1997 and
shall continue for the entire Initial Term, subject to earlier termination as
provided in this Agreement.
2.2 Extension of Initial Term. After the expiration of the
Initial Term, this Agreement will be automatically extended for additional and
successive one (1) year periods, unless either party gives written notice to
the other at least 30 days prior to the expiration of the Initial Term, or any
one year renewal term, that such automatic extension shall not occur, in which
event Employee's employment shall terminate upon the expiration of the Initial
Term, or such renewal term, whatever the case may be. The terms and conditions
then in effect at the end of the Initial Term, or any
EMPLOYMENT AGREEMENT
Page 1
<PAGE> 2
renewal term, shall control during the succeeding renewal term unless otherwise
set forth herein or mutually agreed to in writing.
III.
DUTIES OF EMPLOYEE
3.1 Duties. The Employee is hereby employed as President and
Chief Executive Officer of the Company. The Employee's responsibilities for
such office shall be as set forth in the Bylaws of the Company including
managing the day-to-day operations of the Company's business and its ongoing
expansion efforts. Generally, in his capacity as President and Chief Executive
Officer of the Company, the Employee will be primarily responsible for the
general supervision, direction, and control of the business and officers of the
Company, subject to the control of the Board of Directors. In the discharge of
such duties and throughout Employee's employment with Company, Employee shall,
with respect to conduct involving certain matters including, but not limited
to, conflicts of interest and usurpation of corporate authority, comply with
(i) all requirements imposed by the Company upon similarly situated employees
of the Company; (ii) standards generally accepted within the business community
regarding similarly situated persons; and (iii) any relevant legal authority.
Should the Company determine at a regularly or specially called meeting of the
Board of Directors, held with proper notice, that Employees performance is in
question, the Employee will be notified in writing and provided 30 days to
present a plan to conform to the requests of the Company.
3.2 Change in Duties. The duties of Employee shall be those
assigned to him from time to time by the Company and may be changed by Company
from time to time without resulting in rescission or termination of this
Agreement.
3.3 Engaging in Other Employment. The Employee shall devote such
productive time, ability, and attention to the business of the Company during
the term of this Agreement as is required to fulfill his duties and
responsibilities as set forth in Section 3.1 above. During the period of
employment, the Employee further agrees not to (i) solely or jointly with
others undertake or join any planning for or organization of any business
activity competitive with the business activities of the Company, and (ii)
directly or indirectly, engage or participate in any other activities in
conflict with the best interest of the Company. Notwithstanding anything
herein contained to the contrary, the Employee shall be able to devote such
time as he deems reasonably necessary to his own private investments and
affairs, so long as the performance of the Employee hereunder is not impaired
and the covenants contained herein are not violated.
IV.
COMPENSATION TO EMPLOYEE
4.1. Yearly Salary. During the Initial Term of this Agreement, the
Employee shall be entitled to a yearly salary of $125,000.00, less all payroll
deductions and applicable taxes. The time of payment for each installment
shall be consistent with the general business practices of the Company. Such
salary shall be reviewed annually and shall remain fixed or be increased to the
extent deemed appropriate by the Board of Directors of the Company.
EMPLOYMENT AGREEMENT
Page 2
<PAGE> 3
4.2 Other Compensation. The Employee understands and agrees that
any additional compensation to the Employee (whether a bonus or other form of
additional compensation) shall rest in the sole discretion of the Board of
Directors (or any Compensation Committee consisting of members of the Board of
Directors) and shall be based upon the performance of the Company as well as
participation in all benefit plans maintained by the Company for salaried
employees.
4.3 Review. The Employee, after the Initial Term, if still
employed by the Company, shall be reviewed at such times as are consistent with
the Company's general personnel policies.
4.4 Fringe Benefits-Employee Benefits Plan. The Employee shall be
entitled to participate on an equitable basis, as the Board of Directors may,
in the exercise of its discretion deem appropriate, in any stock option plan
and any additional year-end or other profit sharing or incentive or deferred
compensation arrangements, whether provided for in stock, cash or otherwise,
which the Company may distribute to or provide for officers and employees
generally, or for a limited or selected group, as well as under any other
plans, benefits, customs or practices now or hereinafter made available to
other executives of the Company, including as examples only, group life
insurance and medical insurance. The Company may terminate, amend or modify
any or all such plans at any time and may choose not to adopt additional plans.
The Employee's rights under any benefits plans now in force or later adopted by
the Company shall be governed solely by their terms.
4.5 Expense Account. The Employee is authorized to incur
reasonable and necessary expenses directly associated with the promotion of the
interests of the Company, and the performance of his assignments, including
expenditures for entertainment and travel. The Company will reimburse the
Employee from time to time for all such business expenses, upon the Employee's
presenting to the Company such information and support as prescribed by Company
policy.
4.6 Holidays and Vacations. The Employee shall be entitled to at
least three (3) weeks of paid vacation for each year during the term hereof.
Additionally, the Employee shall be entitled to such fully paid holidays as are
normally taken by other full time employees of businesses similar to the
Company, and such other holidays which may be particular to the Employee's
religious preference.
V.
LIFE INSURANCE
At any time during the term of this Agreement, the Company shall have
the right to insure the Employee's life for the Company's sole benefit, and to
determine the amount and type of insurance and type of policy. The Company
shall be required to pay all premiums due on such policies. The Employee shall
cooperate with the Company in taking out insurance by submitting to physical
examination(s), by supplying all information required by the insurance company,
and by executing any and all other necessary documents. The Employee shall
incur no financial obligation by executing the required documents and shall
have no interest in any such policies, except as otherwise provided herein.
EMPLOYMENT AGREEMENT
Page 3
<PAGE> 4
VI.
TERMINATION OF EMPLOYMENT
6.1 Termination by the Employee Without Cause. If the employment
of the Employee is terminated by the Employee for any reason other than as set
forth in the other paragraphs of this Article VI (such termination being herein
defined as "without cause"), the Employee shall give the Company thirty (30)
days written notice of termination; provided, however, that the Employee shall
not be entitled to terminate his employment with the Company during the Initial
Term without cause. Except as otherwise provided for herein, any such
termination of the Employee's employment for any reason whatsoever, whether
voluntary or involuntary, shall not prejudice any other remedy to which any
party may be entitled either at law, in equity, or under this Agreement.
6.2 Termination for Cause by the Company. The Company may "for
cause" terminate the employment of the Employee at any time (after giving
Employee notice to cure pursuant to Paragraph 3.1, if such termination is the
result of violations of Paragraph 6.2A or 6.2B below) with 30 days notice..
"For cause" for the purpose of this Agreement is defined as:
A. The willful and continued failure to substantially perform his
duties as set forth in this Agreement;
B. The breach by the Employee of any of the provisions of this
Agreement or of the covenants contained in Article VII of this Agreement; or
C. If the Employee is convicted of any crime involving moral
turpitude, including without limitation, fraud or embezzlement or similar acts
of dishonesty toward the Company.
If the Employee is terminated for cause as hereinabove defined, the
Company shall pay to the Employee only that compensation specified in Paragraph
6.3 below.
6.3 Effect of Termination on Compensation. In the event of the
termination of employment by the Company or the Employee for any reason
whatsoever, including resignation or voluntary termination by the Employee, the
Employee shall be entitled to the compensation earned by him including all
compensation specified in Article IV herein, prior to the date of termination
as provided for in this Agreement, computed pro rata up to and including the
date of such termination of employment. Upon such payment to the Employee, the
Company shall be relieved of further obligation as it relates to this
Agreement; however, the Employee shall still be bound by the covenants and
restrictions contained in Article VII below.
EMPLOYMENT AGREEMENT
Page 4
<PAGE> 5
VII.
RESTRICTIVE COVENANTS
7.1 Definition. The Employee hereby acknowledges that during the
course of his employment with the Company, he will have access to and will
become familiar with various trade secrets and other proprietary and
confidential information which are owned by the Company and which are used in
the operation of the Company's business. "Trade secrets and other proprietary
and confidential information" consist of, for example, and not intending to be
inclusive, (i) methods of doing business; (ii) financial information,
consisting of financial cost, and sales data and other information; (iii)
personnel information (iv) lists of customers and accounts, contracts, sales
information, pricing list, vendor and supplier list of the Company; (v) other
information of a confidential nature which must remain confidential for the
continuing success of the Company; and (vi) such other information concerning
the business of the Company and the Company's goodwill.
7.2 Non-Disclosure and Confidentiality Covenants. The Employee
acknowledges that the Company's trade secrets and other proprietary and
confidential information, as they may exist from time to time, are valuable,
special and unique assets of the Company's business. Additionally, Employee
acknowledges that the business goodwill and business contacts of the Company
are the sole property of the Company and are among the Company's most valuable
business property. Therefore, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and to protect the foregoing
valuable property of the Company, the Employee expressly covenants and agrees
as follows:
Except as required in the course of his employment with the Company,
the Employee will not, during and after the termination of his
employment:
(1) Disclose, directly or indirectly, the Company's trade
secrets and other proprietary and confidential information, or any
part thereof, to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever; or
(2) Directly or indirectly use the Company's trade
secrets and other proprietary and confidential information, or any
part thereof, for his own purpose or for his own benefit in any
activity of any nature whatsoever.
7.3 Return of Company's Property. The Employee covenants and
agrees that, upon the request of the Company or upon termination of employment,
the Employee shall turn over to the Company all files, records, documents,
drawings, presentations, specifications, equipment, disks or other computer
media, data, computer printouts, records, written materials and similar items
relating to the business of the Company, and any other property of the Company
in his possession or under his control. In the event the Employee fails to
return the Company's property when required or requested to do so, the Company
may, in addition to any other remedy provided by law, withhold any amounts due
the Employee until full compliance with this Paragraph 7.3.
EMPLOYMENT AGREEMENT
Page 5
<PAGE> 6
7.4 Covenant Not to Compete. So long as the Employee is employed
by the Company and for a period of eighteen (18) months after either (i) the
voluntary termination of employment by Employee or (ii) the termination of the
Employee by the Company for cause, as set forth in Section 6.2 hereof, the
Employee specifically agrees that he will not, for himself, on behalf of, or in
conjunction with any person, firm, corporation or entity, other than the
Company (either as principal, employee, shareholder, member, director, partner,
consultant, owner or part-owner of any corporation, partnership or any type of
business entity) anywhere in any county in which the Company is doing business
at the time of termination, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business similar to the
type of business conducted by the Company at the time of termination of the
Employee's employment.
7.5 Employee's Acknowledgments and Agreements. The Employee
acknowledges and agrees that:
(1) Due to the nature of the Company's business, the
foregoing covenants place no greater restraint upon the Employee than
is reasonably necessary to protect the business and goodwill of the
Company;
(2) These covenants protect a legitimate interest of the
Company and do not serve solely to limit the Company's future
competition;
(3) This Agreement is not an invalid or unreasonable
restraint of trade;
(4) A breach of these covenants by the Employee would
cause irreparable damage to the Company;
(5) These covenants will not preclude the Employee from
becoming gainfully employed following termination of employment with
the Company;
(6) These covenants are reasonable in scope and are
reasonably necessary to protect the Company's business and goodwill
and valuable and extensive trade which the Company has established
through its own expense and effort;
(7) The signing of this Agreement is necessary for the
Employee's employment; and
(8) He has carefully read and considered all provisions
of this Agreement and that all of the restrictions set forth are fair
and reasonable and are reasonably required for the protection of the
interests of the Company.
7.6 Remedies, Injunction. In the event of the Employee's actual
or threatened breach of any provisions of this Agreement, the Employee agrees
that the Company shall be entitled to a temporary restraining order,
preliminary injunction and/or permanent injunction restraining and enjoining
the Employee from violating the provisions herein. Nothing in this Agreement
shall be
EMPLOYMENT AGREEMENT
Page 6
<PAGE> 7
construed to prohibit the Company from pursuing any other available remedies
for such breach or threatened breach, including the recovery of damages from
the Employee. The Employee further agrees that for the purpose of any such
injunction proceeding, it shall be presumed that the Company's legal remedies
would be inadequate and that the Company would suffer irreparable harm as a
result of the Employee's violation of the provisions of this Agreement. In any
proceeding brought by the Company to enforce the provisions of this Agreement,
no other matter relating to the terms of any claim or cause of action of the
Employee against the Company will be defense thereto. The foregoing remedy
provisions are subject to the provisions of Section 15.15 of the Texas Business
and Commerce Code, as amended (the "Code"), which Code provisions shall control
in the event of any conflict between the provisions hereof and the Code or any
other law in effect relevant and applicable hereto.
7.7 Severability. In the event that any of the provisions of this
Agreement are held to be invalid or unenforceable in whole or in part, those
provisions to the extent enforceable and all other provisions shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included in this Agreement. In the event that
any provision relating to the time period or scope of a restriction shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or scope such court deems reasonable and enforceable, then the time period or
scope of the restriction deemed reasonable and enforceable by the court shall
become and shall thereafter be the maximum time period or the applicable scope
of the restriction. The Employee further agrees that such covenants and/or any
portion thereof are severable, separate and independent, and should any
specific restriction or the application thereof, to any person, firm,
corporation, or situation be held to be invalid, that holding shall not affect
the remainder of such provisions or covenants.
VIII.
GENERAL PROVISIONS
8.1 Notices. Any notices to be given hereunder by either party to
the other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses set forth below, but
each party may change their address by written notice in accordance with this
Paragraph 8.1. Notices delivered personally shall be deemed communicated as of
actual receipt; mailed notices shall be deemed communicated as of three (3)
days after mailing.
If to Company: Environmental Safeguards, Inc.
2600 South Loop West,Suite 445
Houston, Texas, 77054
If to Employee: James S. Percell
2600 South Loop West, Suite 445
Houston, Texas 77054
EMPLOYMENT AGREEMENT
Page 7
<PAGE> 8
8.2 Law Governing Agreement and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
This Agreement is executed in Harris County, Texas. Venue shall be in Harris
County, Texas for any legal proceeding to enforce the terms, conditions or
covenants contained herein.
8.3 Attorneys' Fees and Costs. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing parties shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
8.4 Contract Terms to be Exclusive. This Agreement contains the
sole and entire agreement between the parties and shall supersede any and all
other agreements between the parties with respect to the Employee's employment.
The parties acknowledge and agree that neither of them has made any
representation with respect to the subject matter of this Agreement or any
other agreement executed between them or any representations inducing the
execution and delivery hereof or any other agreement executed between them
except such representations as are specifically set forth herein and each of
the parties hereto acknowledges that he or it has relied on his or its own
judgment in entering into the same. The parties hereto further acknowledge
that any statements or representations that may have heretofore been made by
either of them to the other are void and of no effect and that neither of them
has relied thereon in connection with his or its dealings with the other.
8.5 Waiver or Modification Ineffective Unless in Writing. It is
further agreed that no waiver or modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and that no
evidence of any waiver or modification shall be offered or received in evidence
in any proceeding or litigation between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations of any party hereunder,
unless such waiver or modification is in writing, duly executed as aforesaid,
and the parties further agree that the provisions of this paragraph may not be
waived as herein set forth.
8.6 Invalidity of Contract. Should any provision(s) of this
Agreement be declared invalid or unenforceable by a court of competent
jurisdiction, it shall be severed or modified and the remainder of this
Agreement shall be enforced in total. Additionally, if the Employee claims
that any provision or covenant contained herein is invalid or unenforceable, he
nevertheless agrees to comply with such provision or covenant as written until
a court of competent jurisdiction determines the enforceability or validity of
such provision or covenant, or limits the scope thereof, and further agrees to
be liable for any and all damages to the Company pending such determination by
the court.
8.7 Assignment. The rights and benefits of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company. The rights of the Employee hereunder are personal and
nontransferable except that the rights and benefits hereof shall inure to the
benefit of the heirs, executors and legal representatives of the Employee.
EMPLOYMENT AGREEMENT
Page 8
<PAGE> 9
8.8 Gender. In all cases where a feminine or masculine pronoun is
used it shall be deemed to include the other and as may be applicable to the
instant matter.
IN WITNESS WHEREOF, this Agreement has been executed in Houston,
Harris County, Texas, as of the 1st day of April, 1997.
COMPANY:
ENVIRONMENTAL SAFEGUARDS, INC.
BY: /S/ JAMES S. PERCELL, PRESIDENT
-------------------------------
JAMES S. PERCELL, PRESIDENT
EMPLOYEE:
/S/ JAMES S. PERCELL
------------------------------------
JAMES S. PERCELL
ACKNOWLEDGED AND
WITNESSED BY:
/S/ BRYAN SHARP
- ---------------------
BRYAN SHARP, DIRECTOR
EMPLOYMENT AGREEMENT
Page 9
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Environmental Safeguards, Inc., a Nevada corporation
("EVV"):
1. National Fuel & Energy, Inc, a Wyoming corporation ("NFE")
(100% owned by EVV)
2. OnSite Technology, L.L.C., an Oklahoma limited liability company
("OnSite") (100% owned by NFE)
3. OnSite Colombia, Inc., a Cayman Island corporation ("Colombia") (50%
owned by OnSite)
4. OnSite Venezuela, Inc., a Cayman Island corporation ("Venezuela")
(100% owned by OnSite)
5. Environmental Technology Services, Inc., a Cayman Island corporation
("ETSI") (100% owned by OnSite)
6. Environmental Services, Inc, a Cayman Island corporation ("ES") (100%
owned by Colombia)
7. Environmental Leasing Company, a Cayman Island corporation ("ELC")
(100% owned by OnSite)
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,686
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<PP&E> 7,148
<DEPRECIATION> (862)
<TOTAL-ASSETS> 18,298
<CURRENT-LIABILITIES> 3,254
<BONDS> 4,117
0
5
<COMMON> 9
<OTHER-SE> 9,192
<TOTAL-LIABILITY-AND-EQUITY> 18,298
<SALES> 6,678
<TOTAL-REVENUES> 6,870
<CGS> 0
<TOTAL-COSTS> 6,088
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<INTEREST-EXPENSE> 466
<INCOME-PRETAX> 289
<INCOME-TAX> 1,205
<INCOME-CONTINUING> (916)
<DISCONTINUED> 0
<EXTRAORDINARY> (352)
<NET-INCOME> (1,849)
<CHANGES> 0
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
