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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
FILE NO. 333-49753
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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.)
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2600 SOUTH LOOP WEST, SUITE 645, HOUSTON, TEXAS 77054
(713) 641-3838/(713) 641-0756 -- FAX
(Address of principal executive offices, including zip code and Registrant's
telephone number, including area code)
JAMES S. PERCELL, 2600 SOUTH LOOP WEST, SUITE 645, HOUSTON, TEXAS 77054
(713) 641-3838
(Name and address of agent for service and agent's telephone number, including
area code)
With copies to:
ROBERT D. AXELROD, AXELROD, SMITH & KIRSHBAUM, 5300 MEMORIAL DR., STE. 700,
HOUSTON, TEXAS 77007
(713) 861-1996/(713) 552-0202 -- FAX
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE EXERCISE PRICE PROCEEDS TO AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(*) OFFERING PRICE(*) PER SHARE THE COMPANY REGISTRATION FEE
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Common stock, par value
$0.001.................... 333,400 $4.625 $1,541,975.00 -- -0- $ 454.89
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Common Stock, par value
$0.001 underlying Class B
Convertible Preferred
Stock..................... 3,771,422 $4.625 $17,442,826.00 -- -0- $5,145.64
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Common Stock, par value
$0.001 underlying Loan
Warrants.................. 707,142 $4.625 $3,270,531.70 $0.01 $7,071.42 $ 966.90
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Common Stock, par value
$0.001(**)................ (**)1,770,541 -- -- -- -0- (**)
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Total............... $6,567.43
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(1) The prospectus contained in this current registration statement is a
combined prospectus pursuant to Rule 429 which also relates to an earlier
registration statement No. 333-15025. The securities registered hereby are
offered pursuant to terms and provisions which provide for a change in the
amount of securities being offered or issued, to include an indeterminate
number of additional shares of Common Stock issuable to prevent dilution
from stock splits, stock dividends, or similar transactions. Pursuant to
Rule 416, this registration statement shall be deemed to cover such
additional securities to be offered or issued in connection with any such
terms or provisions.
* Estimated solely for the purpose of calculating the registration fee.
Calculated pursuant to Rule 457 and based on the average high and low price
of the Company's Common Stock on April 8, 1998. Estimated legal, accounting,
printing fees are $33,000.00.
** These securities were previously registered on Form SB-2 effective February
11, 1997. The prospectus contained in this Form S-3 is also a post-effective
amendment to the Form SB-2, file number 333-15025 and serves as the current
prospectus for these securities. The total amount of $2,453.43 was paid as a
fee to the Securities and Exchange Commission for these securities in
connection with the original registration statement filed on Form SB-2.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
ENVIRONMENTAL SAFEGUARDS, INC.
6,582,505 SHARES OF COMMON STOCK
This Prospectus relates to the resale of 6,582,505 shares of common stock,
par value $0.001 per share (the "Common Stock"), of Environmental Safeguards,
Inc. (the "Company") which may be offered and sold from time to time (the
"Stockholder Shares") by certain security holders of the Company (the "Selling
Stockholders") on the American Stock Exchange (AMEX) or through other types of
transactions. See, "Plan of Distribution". Of the total number of shares offered
hereby, (i) 3,771,422 are issuable upon conversion of the Company's Class B
Convertible Preferred Stock, (ii) 707,142 are issuable upon the exercise of
certain warrants (the "Warrants") to acquire Common Stock, (iii) 333,400 are
currently outstanding shares of the Company's Common Stock purchased by certain
security holders pursuant to the Company's private placement memorandum dated
September 18, 1996, and (iv) 1,770,541 were issued to holders in connection with
the conversion of the Company's 10% Convertible Debentures. See, "Selling
Stockholders". The Company will not receive any of the proceeds from the sale of
the shares of Common Stock offered hereby. However, if all of the Warrants
representing shares of Common Stock in this offering are exercised, the Company
will receive aggregate proceeds therefrom of $7,071.42. The Selling Stockholders
may from time to time sell all or any portion of the Common Stock on the
American Stock Exchange (AMEX), in the over-the-counter market, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices, or by any other legally available
means. A current Prospectus must be in effect at the time of the sale of the
shares of Common Stock to which this Prospectus relates. The Common Stock may be
offered and sold from time to time by the Selling Stockholders directly or
through broker dealers, or in a distribution by one or more underwriters on a
firm commitment or a best efforts basis. The Selling Stockholders and any
broker-dealer who participates in the distribution of the Common Stock may be
deemed to be Underwriters ("Underwriters") within the meaning of the Securities
Act of 1933, as amended (the "Act"). Any commission received by any
broker-dealer and any profit on resale of Common Stock purchased by them may be
deemed to be underwriting commission under the Act. The Company will incur
certain expenses in connection with this Offering. See, "Use of Proceeds" and
"Plan of Distribution".
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "EVV". On June 16, 1998, the last closing sales price of the
Company's Common Stock as reported on the American Stock Exchange was $4 7/8 per
share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is , 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY STATE WHERE SUCH OFFER WOULD BE UNLAWFUL.
TABLE OF CONTENTS
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SECTION PAGE
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Available Information....................................... 2
Documents Incorporated by Reference......................... 2
Forward-looking Statement and Information................... 2
The Company................................................. 3
Risk Factors................................................ 4
Recent Events............................................... 10
Use of Proceeds............................................. 10
Selling Stockholders........................................ 11
Plan of Distribution........................................ 12
Description of Securities................................... 13
Limitations on Directors' Liability; Indemnification........ 15
Legal Matters............................................... 16
Experts..................................................... 16
Pro Forma Financial Statements.............................. F-1
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Company will provide without charge to each person who receives
a copy of this Prospectus, upon written or oral request, a copy of any
information that is incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such request
should be directed to Environmental Safeguards, Inc., Attention of James S.
Percell, 2600 South Loop West, Suite 645, Houston, Texas 77054, tel. (713)
641-3838
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Act with respect to the securities offered by this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the Registration
Statement, including the exhibits filed therewith, as well as such reports,
proxy statements and other information filed with the Commission, which may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company is an electronic filer. The Commission maintains a Web site on
the Internet that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission. The
address of the site is http://www.sec.gov. Visitors to the site may access such
information by searching the EDGAR data base on the site.
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference in this Prospectus: (i) the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997; (ii) Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997; (iii) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998; (iv) the Company's Current
Report on Form 8-K Amendment No. 1 filed on March 2, 1998; and (v) the Company's
Report on Form 8-K Amendment No. 2 filed on June 19, 1998. All other reports
filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act
since December 31, 1997, are hereby incorporated herein by reference.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act, prior to the termination of this
offering, shall be deemed to be incorporated by reference into this Prospectus.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or any other subsequently filed document which also is or is deemed
to be incorporated by reference modifies or replaces such statement.
FORWARD-LOOKING STATEMENT AND INFORMATION
The Company is including the following cautionary statement in this
Prospectus, and the Registration Statement on Form S-3 of which it is a part 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, expectations, 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
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Company's records and other data available from third parties, but there can be
no assurance that management's expectations, 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
The Company was incorporated under the laws of the State of Nevada in
December 1985, under the name of Cape Cod Investment Company. In December 1986,
the name of the Company was changed to Cape Cod Ventures, Inc. In August 1987,
the Company completed an initial public offering of 4,148,000 shares of Common
Stock at a price of $0.001 per share pursuant to the exemption from the
registration requirements of the Securities Act of 1933 provided by Regulation
A. In May 1993, the Company executed an Agreement and Plan of Reorganization
(the "Reorganization Agreement") with National Fuel & Energy, Inc. ("NFE"),
providing for the acquisition of NFE by the Company in exchange for shares of
the Company's Common Stock. In connection with the reorganization, the name of
the Company was changed to Environmental Safeguards, Inc., and NFE became a
wholly-owned subsidiary of the Company. NFE is a Wyoming Corporation. In
December 1997, the Company, through NFE, acquired the remaining 50% interest in
OnSite Technology, L.L.C., an Oklahoma limited liability company, ("OnSite")
which was previously owned by Parker Drilling Company. As a result of this
transaction OnSite is now a wholly owned subsidiary of NFE.
Substantially all of the Company's activities are conducted through OnSite
which is engaged in the development, production and sale of environmental
remediation and recycling technologies and services. OnSite owns the
technologies included in the Company's indirect thermal desorption units ("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 are transported from one clean-up
site to another. To date, the environmental remediation and recycling services
provided by the Company have involved the removal of petroleum contaminants from
soil using indirect thermal remediation and recycling equipment. The Company's
customers have been large corporations in the oil and gas drilling industry that
have anticipated the changing regulatory climate with respect to soil and other
environmental contamination and have taken the initiative in removing
contaminants from their properties.
The 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 customer's location. The
Company, through OnSite, typically submits a bid for a project based on the
costs of moving the equipment to the location, the estimated charges for labor
and fuel, the nature and extent of the contamination, the type and moisture
content of the soil, the estimated processing time and the desired profit
margin. Generally, once a contract has been awarded, OnSite moves its equipment
to the customer's location. The Company does not haul or dispose of soil or
contaminants away from the customer's location.
OnSite currently operates three of the four ITD Units which it owns. Of
these, one ITD Unit is operating for Newpark Resources, Inc. ("Newpark
Resources") in Louisiana, one ITD Unit is in Venezuela pending the finalization
of a contract with a major oil and gas industry participant, and the third ITD
Unit is newly fabricated and undergoing internal quality control review. The
fourth ITD Unit which the Company owns is
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leased to OnSite Columbia, Inc. ("Onsite Colombia") in which OnSite owns a 50%
interest. OnSite Colombia leases one ITD Unit from OnSite as stated above, and
OnSite Colombia leases two additional ITD Units pursuant to sale-leaseback
agreements with unrelated third parties. OnSite Colombia operates all of the ITD
Units in Colombia for a major oil and gas industry participant. Four additional
ITD Units are under construction and are anticipated to be ready for use at
customer locations starting in July, 1998. The remaining three ITD Units are
anticipated to be ready for use at customer locations during August and
September, 1998. At such time, the Company's portable fleet of ITD Units will
consist of ten ITD Units. However, there is no assurance that completion or
delivery of these four additional ITD Units will take place as scheduled.
Unless otherwise indicated, references to the Company include OnSite and
NFE, the Company's wholly owned subsidiaries.
The offices of the Company are located at 2600 South Loop West, Suite 645,
Houston, Texas 77054 and its telephone number is (713) 641-3838.
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "EVV".
RISK FACTORS
The Common Stock offered hereby is speculative and involves a high degree
of risk. In addition to the other information set forth in this Prospectus, each
prospective investor should carefully consider the following risk factors before
making an investment decision.
RECENT LOSSES
The Company incurred net losses of $1,849,000 and $647,000 for the fiscal
years ended December 31, 1997 and December 31, 1996, respectively. In order to
attain profitability, the Company must secure contracts at acceptable processing
prices and control costs so as to produce a positive operating margin. There can
be no assurance the Company can do so, and the failure of the Company to obtain
profitability could ultimately result in the inability of the Company to pay its
financial obligations as they become due.
At December 31, 1997, and 1996, the Company reported working capital of
approximately $5,277,000 and $3,304,000 respectively. The Company has
historically funded its operations through a combination of internally generated
cash, short-term borrowing and through debt and equity financing. Until such
time as the operating results of the Company improve sufficiently to fund the
Company's operations, the Company must obtain outside financing to fund the
expansion of its business. Any additional debt or equity financing may have a
dilutive effect. The Company is currently seeking equity financing to raise
capital in part to reduce debt. The effect of such a debt reduction would be to
reduce the Company's interest costs and thus reduce losses. There can be no
assurance that the Company will be successful in raising capital through the
sale of equity.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced prior losses from operations. This circumstance
and the significant commitment by the Company to expand its ITD Unit fleet may
cause the Company liquidity problems. In December, 1997, the Company raised from
an investor group $14,000,000 in a debt and equity financing, of which
$8,000,000 consisted of $4,000,000 of Series B Convertible Preferred Stock and
$4,000,000 of Series C Preferred Stock and $6,000,000 consisted of debt (the
"Debt") as evidenced by several term notes issued pursuant to a Loan and
Security Agreement with the investor group (the "Loan Agreement"). Pursuant to
the terms of the Loan Agreement, the Company has the right to borrow an
additional $5,000,000 provided that it is not in default under the terms of the
Loan Agreement. In connection with this right, the Company has notified the
investor group of the Company's intention to borrow the additional $5,000,000.
The Company anticipates receiving these funds before the end of the second
quarter of 1998. The Company used a portion of the proceeds of that transaction
to acquire the remaining 50% interest in OnSite and to retire $3,000,000 in
existing debt. As a result of these transactions, the Company retained
approximately $3,000,000 to utilize for working capital, expenses associated
with the financing and general corporate purposes. See, "Recent Events".
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ONGOING CAPITAL REQUIREMENTS OF ONSITE
The Company's ability to expand and increase its revenues, assets and
income is directly related to its ability to pay for construction of new ITD
Units as demand dictates. Further capital could be needed to meet such demand
and would be required to be provided from the Company's operations, from the
sale of equity securities, borrowing, or other sources of third party financing.
There is no assurance that capital will be available from any of these sources.
Further, the sale of equity securities could dilute the Company's existing
stockholders' interest, and borrowings from third parties could result in
restrictive loan terms which would increase its debt service requirements and
could restrict the Company's operations. Pursuant to the terms of the Loan
Agreement, the Company has available an additional credit facility in the amount
of $5,000,000 (the "Credit Facility") provided that the Company is not in
default under the Loan Agreement.
GROWTH STRATEGY
The Company's growth strategy is to seek customers who require remediation
and reclamation/recycling services primarily for oil and gas drilling sites
where the Company's ITD technology can be used on a regular basis with little
downtime other than transporting the ITD Units from time to time. Further, firms
conducting drilling activity in certain countries other than the United States
are required to carry out drilling site remediation activity, which makes such
foreign markets candidates for the Company's remediation and recycling services.
Thus, the Company's service revenues may be concentrated outside of the United
States. Moreover, during the period that the Company has a limited number of ITD
Units its service revenues may be concentrated in a small number of customers.
See, Risk Factors -- Foreign Political Climate.
FOREIGN POLITICAL CLIMATE
The Company, through OnSite Colombia, has entered into contracts with major
global oil and gas industry participants for the Company's remediation and
recycling services. Three ITD Units are operating in the Republic of Colombia.
Any changes in the political climate of the Republic of Colombia, or even a mere
unsettling in the current political climate, could have a negative impact on the
Company, up to and including the complete loss of ITD Units operating in the
Republic of Colombia. The Republic of Colombia has had an unsettling past
involving drug trafficking, narco-terrorism, domestic terrorism, and alleged
political corruption. While the Company maintains hazard insurance to address
these risks in the Republic of Colombia, the loss of potential income due to the
interruption of the Company's services could have an adverse effect on the
financial condition of the Company. See, Risk Factors -- Operating Risks and
Possible Insufficiency of Insurance. Further, the Company's assets and
operations located in Colombia are subject to the risk of nationalization or
expropriation. The Company has not experienced any set backs in connection with
the foreign political climate. The Company anticipates that the scope of its
operations may include activity in other nations where similar risks could
exist. During 1996, 25% of the Company's service revenues were generated outside
of the United States from one customer and the Company had service revenues from
one other customer representing 75% of service revenues within the United
States. During 1997, 96% of the Company's service revenues were generated
outside of the United States from one customer. The Company anticipates that
during 1998 approximately 80% of the Company's services revenues will be
generated outside of the United States from three customers. Accordingly, there
is a likelihood that the Company's percent of sales generated outside of the
United States will remain high and the Company believes such sales will be less
concentrated in a few customers as additional ITD Units come into the fleet.
INTERNATIONAL TRANSACTIONS
The Company is taking part in business operations in the Republic of
Colombia as described elsewhere herein. International business transactions
might create exposure for the Company to potential financial concerns in the
areas of foreign currency exchange, if the Company is paid in whole or in part
in a foreign currency, routine or extraordinary foreign government control of
the transfer of funds across international borders, and foreign taxes, tariffs
and duties. Any of the foregoing could adversely impact the Company. The Company
anticipates that the scope of its operations may include other nations in South
America, such as the
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Republic of Venezuela, where similar risks exist. 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 the course of conducting
business abroad in an effort to minimize risks associated with foreign exchange
fluctuation and its affect on Company profitability.
FABRICATION OF ITD UNITS
The Company uses outside fabricators to construct the ITD Units. The
Company negotiates bids and awards contracts for fabrication. The Company has
proprietary designs and engineering techniques which it uses for custom
fabrication. The fabrication process may subject the Company to several risks.
Deficient fabrication or financial instability of a fabricator could upset the
Company's ability to manufacture the ITD Units on a timely basis which could
result in delays in fulfilling contracts for soil remediation and recycling.
Failure to fulfill contracts for remediation and recycling could result in the
loss of such contracts or could subject the Company to liability for
nonperformance of the contracts. The Company has identified at least five
fabricators currently capable of fabricating the ITD Units at a competitive
price. Four additional ITD Units which are presently being fabricated for the
Company are expected to be ready for shipment to customer locations starting in
July, 1998, bringing the Company's portable fleet to 10. However, there is no
assurance that completion or delivery of these four additional ITD Units will
take place as scheduled.
ECONOMIC CONDITIONS AND RELATED UNCERTAINTIES
Environmental service companies are affected by economic conditions as well
as government policies. Economic downturns could result in decreased demand for
the Company's services. Potential customers could seek to delay their
environmental remediation and recycling programs during such economic downturns.
The Company's operations are dependent upon its ability to market its services.
While the Company would aggressively pursue its marketing efforts, in a time of
general or industry specific decline, such as a decline in oil and gas drilling
activity or a decline in the demand for remediation and recycling services, the
Company's business activities could be adversely affected.
PRODUCT DEVELOPMENT RISKS, AND USEFUL LIFE OF ITD UNITS
The ITD Units used by the Company are continually being refined, adjusted
and improved. There is no assurance that the Company's ITD Units will perform in
accordance with the Company's expectations over a long period of time or that
there will be continued demand for the Company's products and services in
commercially justifiable quantities. The Company estimates that the useful life
of an ITD Unit is 5 years. However, the actual useful life of an ITD Unit is
unknown and could be greater or less than 5 years.
PROPRIETARY TECHNOLOGY
The U.S. Patent and Trademark Office has allowed certain claims to methods
and apparatuses for removing and treating hydrocarbon contaminated drill
cuttings and a patent has been issued to the Company. Other inventions of the
Company are patent-pending. The Company has also filed for patent protection
through the Patent Cooperation Treaty, and directly in certain foreign
countries. The Company has also filed additional U.S. patent applications for
treating hydrocarbon contaminated soil; for the process and apparatus of
separating and recovering hydrocarbons and water from the ITD Units; and on
several novel ITD Unit mechanical features. The Company cannot state that others
will not independently develop alternative proprietary information for similar
types of processes and apparatus. The Company has not received notice that any
of its apparatus or processes used in regard to the ITD Units infringe upon any
U.S. patent.
GOVERNMENTAL REGULATIONS
The Company renders services in connection with the remediation, 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
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<PAGE> 9
Company is subject to potential liability for environmental damage its ITD Units
or its operations may cause, particularly as a result of contamination of water
or soil. Environmental laws regulate, among other things, the transportation,
storage, handling and disposal of waste. 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 remediation, recycling or cleanup effort conducted by it, or for an
accident which occurs in the course of such remediation, recycling or cleanup
effort. There can be no assurance that the Company's policy of establishing and
implementing proper procedures for complying with environmental regulations will
be effective at preventing the Company from incurring a substantial
environmental liability. If the Company were to incur a substantial uninsured
liability for environmental damage, its financial condition could be materially
adversely affected. Furthermore, the Company may from time to time become
subject to governmental enforcement proceedings and resulting fines or other
sanctions and may incur penalties. Such expenditures could be substantial and
accordingly could have a material adverse effect on the Company's financial
condition.
The Company presently has the ability to perform 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 removed from the soil.
COSTS OF COMPLIANCE WITH GOVERNMENTAL REGULATIONS
Governmental regulations govern matters such as the disposal of residual
chemical wastes, operating procedures, waste water discharges, fire protection,
worker and community right-to-know, and emergency response plans. Governmental
authorities have the power, under various circumstances, to enforce compliance,
and violators may be subject to civil or criminal penalties. Private individuals
may also have the right to sue to enforce compliance with certain of the
governmental requirements.
Operating permits are generally required by federal and state environmental
agencies for the operation of the Company's ITD Units. Most of these permits
must be renewed periodically and the governmental authorities involved have the
power, under various circumstances, to revoke, modify, or deny issuance or
renewal of these permits. However, it is generally the Company's customers who
must obtain such permits, if applicable, not the Company.
As a result of the stringent regulations governing the operation of the
Company's ITD Units, operating the ITD Units and conducting business in
compliance with the various applicable regulations requires the Company to
commit significant human and capital resources and results in increased
operating costs. The Company may from time to time become subject to
governmental enforcement proceedings and resulting fines or other sanctions and
may incur penalties. Such expenditures can be substantial and accordingly could
have a material adverse effect on the Company's financial condition.
COMPETITION
There are many companies which currently dispose of hazardous and
industrial wastes and remediate, recycle 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
and recycling services. Many of the Company's competitors are well established
companies with substantially greater capital resources, larger research and
development staffs and facilities and substantially greater marketing
capabilities than the Company.
The Company differentiates itself from its competitors primarily on what
the Company believes to be a significantly higher operational service level and
a significantly higher value-added result for its clients for the remediation of
hydrocarbons from soils and the subsequent reclaiming of the hydrocarbons into
liquids for
7
<PAGE> 10
customer recycling or resale. For example, some of the features of the Company's
ITD Unit design which the Company believes provide service-level advantages
include:
Recovery: The Company's ITD Units remove 99% of hydrocarbon
contaminants from the waste-stream soil (e.g., drill cuttings), resulting
in zero latent liability to the client. Conversely, some competitive
technologies such as incineration, solidification and bio-remediation
result in continuing latent liability.
Moreover, the Company's ITD Units transform waste streams into value
for its clients by reclaiming valuable hydrocarbons for client recycling or
resale. For example, during the past 18 months, the Company's equipment has
reclaimed 4.5 million gallons of diesel oil while processing drill cuttings
for a major O&G participant in Colombia.
Tonnage: The Company's ITD Units have proven processing capability of
from 5-10 tons per hour with up to 30% hydrocarbon-saturation in the soil.
Some competitors are capable of similar processing speeds, but with nearer
to 5% hydrocarbon saturation levels. This factor alone results in a 6-fold
throughput advantage for the Company's ITD.
Portability: The Company's ITD Units are built on two 40 foot trailer
beds for portability of the service to the clients location, avoiding
costly hauling expenses of contaminated materials to a central location. In
addition, the ITD Units design permits rig-down and/or rig-up in less than
a day. Some competitive units are much less transportable, or not portable
at all.
Wide Range of Hydrocarbons Treated: The Company's ITD Units operate at
low temperatures (200 degrees Fahrenheit), high temperatures (1,000-1,200
degrees Fahrenheit), and anywhere in between, thereby enabling the
remediation of wide ranges of hydrocarbon contaminants encountered at
client sites, including halogenated volatiles, halogenated semivolatiles,
non-halogenated volatiles, non-halogenated semivolatiles, fuel hydrocarbons
and pesticides.
The Company believes that competition in the industry is concentrated in
remediation services, whereas the Company's ITD technology not only provides
remediation services, but also is capable of reclaiming and recycling valuable
hydrocarbons. The Company further believes that its pricing policies are
competitive. No assurance, however, can be given that the Company will be able
to successfully compete with such companies or alternative technologies.
TECHNOLOGICAL OBSOLESCENCE
The Company uses a method called indirect thermal desorption to remediate
and recycle soil. While the Company believes that this technology has a long
market life, there is no assurance that the Company's technology will be
marketable in the future. Existing or future technologies of competitors could
make the Company's services obsolete and the Company could suffer a loss of
customers and revenue as a result. The Company's research and development
activities, to the extent that such activity takes place, are de minimis and
relate only to the incidental efforts of the Company to make incremental
improvements in operating efficiencies, design, and fabrication.
OPERATING RISKS AND POSSIBLE INSUFFICIENCY OF INSURANCE
The business of the Company exposes it to various risks, including claims
for damage to property, injuries to persons, negligence and professional errors
or omissions in the planning or performing of services, which claims could be
substantial. OnSite, the entity through which operations are conducted,
maintains $1,000,000 of general liability insurance, $1,000,000 of auto
liability insurance and an additional $5,000,000 of excess umbrella liability
coverage on all of its operations. There can be no assurances that such
insurance will continue to be adequate to meet the needs of the Company, or that
the Company will be able to continue to maintain or obtain adequate or required
insurance coverage as its business grows or, if obtainable, purchase it at
reasonable rates. If the Company has difficulty in maintaining or obtaining such
coverage, it could be at a competitive disadvantage with other companies, it may
become exposed to significant uninsured risks and
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<PAGE> 11
losses, and/or may be unable to continue certain of its operations. Under the
Company's insurance policies, there are various exclusions that are customary in
the industry. Accordingly, there can be no assurance that liabilities that may
be incurred by the Company will be covered by its insurance or that the dollar
amount of such liabilities which are covered by its insurance will not exceed
the Company's policy limits. A partially or completely uninsured claim, if
successful, could have a material adverse effect on the Company's financial
condition and results of operations.
LACK OF DIVERSIFICATION; RISKS OF INVESTING IN THE INDUSTRY
The Company operates primarily in the environmental services industry. The
current plan of operation calls for expansion within, but does not anticipate
diversification beyond, this industry. The plan of operation, therefore,
subjects the Company to the economic fluctuations within this industry and
increases the risk associated with its operations. An investment in any aspect
of the environmental services industry is speculative and historically has
involved a high degree of risk. The continued success of the Company will depend
on various factors over which the Company has little or no control.
DEPENDENCE ON MANAGEMENT
The Company is dependent upon the time, talent and experience of James S.
Percell, its President and Chief Executive Officer, with whom the Company has an
employment agreement. The loss of the services of Mr. Percell, for any reason,
could have a material adverse effect on the Company. The Company, however, has
obtained key-man life insurance on Mr. Percell in the amount of $5,000,000.
FUTURE NEED FOR ADDITIONAL PERSONNEL
As a result of a recent restructuring of the management and operations of
the Company, the Company has obtained the services of new personnel to perform
certain functions important to the long-term development of the Company,
including operations, accounting, finance and quality control functions. The
Company may hire additional staff with the special skills and education
necessary for important Company functions. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel.
ANTI-TAKEOVER EFFECTS OF ISSUANCE OF PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, par value
$0.001 per share ("Preferred Stock"), of which the Company has issued and
outstanding 3,771,422 shares of Series B Convertible Preferred Stock and 400,000
shares of Series C Preferred Stock. Thus, the Company could issue up to
5,828,578 additional shares of Preferred Stock. Preferred Stock is entitled to
certain preferences over the Common Stock. The Company's board of directors has
authority, without action or consent by the shareholders, to issue the
authorized but unissued shares of Preferred Stock in one or more series and to
determine the voting rights, preferences as to dividends and liquidation rights,
conversion rights, and other rights of any such series. All Preferred Stock,
when and if issued, could adversely affect the rights of the holders of Common
Stock. For example, such issuances could result in a class of securities
outstanding that would have preferences with respect to voting rights and
dividends and in liquidation over the Common Stock, and could, upon conversion
or otherwise, enjoy all of the rights of holders of Common Stock. The Board's
authority to issue Preferred Stock could discourage potential takeover attempts
and could delay or prevent a change in control of the Company through merger,
tender offer, proxy contest or otherwise by making such attempts more difficult
to achieve or more costly. Further, pursuant to the Loan Agreement, the Company
may not 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).
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<PAGE> 12
SHARES ELIGIBLE FOR FUTURE SALE
There is currently only a limited market for the common stock of the
Company. Possible or actual sales of a substantial number of shares of Common
Stock by the Selling Stockholders in this Offering could have a negative impact
on the market price of the Common Stock of the Company. Further, the Company
does not anticipate engaging an Underwriter to assist in a distribution of
shares of Common Stock on behalf of the Selling Stockholders.
Accordingly, there is no assurance that the Selling Stockholders will be
able to sell the shares of Common Stock for any particular price.
In addition, of the 9,282,265 shares of the Company's Common Stock
outstanding as of January 28, 1998, approximately 3,975,958 shares are
restricted securities as that term is defined in Rule 144 adopted under the Act
("Restricted Securities"). Rule 144 governs resales of Restricted Securities for
the account of any person, other than an issuer, and restricted and unrestricted
securities for the account of an "affiliate" of the issuer. Restricted
securities generally include any securities acquired directly or indirectly from
an issuer or its affiliates which were not issued or sold in connection with a
public offering registered under the Securities Act. An affiliate of the issuer
is any person who directly or indirectly controls, is controlled by, or is under
common control with, the issuer. Affiliates of the Company may include its
directors, executive officers, and persons directly or indirectly owning 10% or
more of the outstanding Common Stock. Under Rule 144 unregistered resales of
restricted Common Stock cannot be made until it has been held for one year from
the later of its acquisition from the Company or an affiliate of the Company.
Thereafter, shares of Common Stock may be resold without registration subject to
Rule 144's volume limitation, aggregation, broker transaction, notice filing
requirements, and requirements concerning publicly available information about
the Company ("Applicable Requirements"). Resales by the Company's affiliates of
restricted and unrestricted Common Stock are also subject to the Applicable
Requirements. The volume limitations provide that a person, or persons who must
aggregate their sales, cannot, within any three-month period, sell more than the
greater of (i) one percent of the then outstanding shares, or (ii) the average
weekly reported trading volume during the four calendar weeks preceding each
such sale. A person who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least two years would be entitled to sell such
shares under Rule 144 without regard to the Applicable Requirements. The Company
believes that approximately 1,176,595 shares of Common Stock have been held for
more than two years, and therefore may be sold by nonaffiliates without
limitation.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market would
likely have a material adverse effect on prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through equity
financing.
DILUTION DUE TO OUTSTANDING OPTIONS AND WARRANTS
In addition to the 3,771,422 shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock and the 707,142 shares of
Common Stock issuable upon the exercise of the Warrants, the Company presently
has outstanding options to purchase (i) 2,760,000 shares of its Common Stock
which are exercisable at $0.60 per share and expire in November 2005, (ii)
602,500 shares of its Common Stock which are exercisable at $2.50 per share and
expire in March 2007, (iii) 25,000 shares of its Common Stock which are
exercisable at $3.75 per share and expire in November 2007, (iv) 1,110,114
shares its Common Stock which are exercisable at $3.00 per share and expire in
December 2007, (v) 463,542 shares of its Common Stock which are exercisable at
$5.00 per share and expire in November 1998, (vi) 169,470 shares of its Common
Stock which are exercisable at $5.00 per share and expire in April 2008; and
(vii) 3,248 shares of its Common Stock which are exercisable in approximately
equal amounts at prices ranging from $2.38 to $4.00 per share and expire in
January 2008. The exercise of the outstanding options by the holders thereof may
result in the dilution in the interests of the other stockholders of the
Company.
Further, pursuant to the Loan Agreement, the Company is required to issue
additional warrants if certain conditions exist in the future. If the Debt is
not repaid in full by February 17, 2001, then the Company must
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<PAGE> 13
authorize, issue and deliver warrants to acquire up to 188,571 shares of common
stock. If the Company borrows additional funds pursuant to the Credit Facility,
then the Company must authorize, issue and deliver warrants to acquire up to
707,142 shares of common stock.
POSSIBLE VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock of the Company may be highly volatile,
as has been the case with the securities of many other small capitalization
companies. Additionally, in recent years, the securities markets have
experienced a high level of price and volume volatility and the market prices of
securities for many companies, particularly small capitalization companies, have
experienced wide fluctuations which have not necessarily been related to the
operating performances or underlying asset values of such companies. Securities
of issuers having relatively limited capitalization or securities recently
issued in a public offering are particularly susceptible to change based on
short-term trading strategies of certain investors. Further, the resale of
Common Stock in this Offering by Selling Stockholders could affect the market
price of the Common Stock.
NO CASH DIVIDENDS
The Company has never paid cash dividends on its Common Stock and the Board
of Directors does not anticipate paying cash dividends in the foreseeable
future. It currently intends to retain future earnings to finance the growth of
its business. Further, pursuant to the terms of its Loan Agreement with Cahill,
Warnock Strategic Partners Fund, L.P. and others, the Company is precluded from
paying any dividends while the loan is outstanding. See, "Recent Events".
RECENT EVENTS
On December 17, 1997, Environmental Safeguards, Inc. (the "Company"),
entered into a Purchase Agreement (the "Purchase Agreement") with Parker
Drilling Company and Parker Drilling Investment Company, (collectively,
"Parker") which provided for the acquisition by the Company, through it's wholly
owned subsidiary, National Fuel & Energy, Inc. ("NFE"), of Parker's 50% interest
in OnSite Technology L.L.C. ("OnSite") resulting in NFE becoming the owner of
100% of OnSite. Pursuant to the terms of the Purchase Agreement, the Company
paid $8,000,000 for the 50% 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 300,000 unexercised warrants to purchase the
Company's common stock. The acquisition was the result of negotiations between
the Company and Parker and was based on numerous factors including the Company's
estimate of the net worth of OnSite, and the future business prospects of
OnSite.
The Company's sources of funds to effect the acquisition was the sale of
$8,000,000 of new Series B Convertible Preferred Stock and Series C Preferred
Stock and the borrowing of $6,000,000 (the "Loan Agreement") from 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. Pursuant to this financing, the Company
agreed to register the shares of Common Stock underlying the Series B
Convertible Preferred Stock and the shares issuable upon exercise of certain
warrants to acquire common stock of the Company. Further, pursuant to the
financing David L. Warnock 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, expenses associated with the
financing and general corporate purposes.
Pursuant to the Loan Agreement, the Company has made formal notification to
the investor group of the Company's intention to borrow the additional
$5,000,000 from the investor group. The Company anticipates receiving these
funds before the end of the second quarter of 1998.
Cahill, Warnock Strategic Partners Fund, L.P. and Strategic Associates,
L.P. are investments funds that invest in small public companies. Newpark
Resources, Inc. ("Newpark") is a provider of oil field services and is listed on
the New York Stock Exchange. Newpark has entered into a contract with the
Company whereby
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<PAGE> 14
the Company has contracted for one ITD Unit at Newpark's Fouchon, Louisiana
dockside facility for the remediation and reclamation of contaminated soil that
Newpark may barge-in from offshore drilling sites.
Pro forma financial statements are included herein as set forth beginning
on page F-1.
USE OF PROCEEDS
The Company will not receive any proceeds upon the resale of the Common
Stock by the Selling Stockholders. In the event the shares of Common Stock are
issued upon exercise of all of the Warrants, the Company will receive as gross
proceeds from the exercise of the Warrants of $7,071.42 which it intends to
utilize to defray the expenses in connection with this offering. The Company
does not anticipate that any proceeds from this offering will be available after
the payment of such offering expenses. The Selling Stockholders will not pay any
of the costs of this Registration.
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder, the
number of shares of Common Stock offered by each Selling Stockholder, the number
of shares of Common Stock to be owned by each Selling Stockholder if all shares
were to be sold in the Offering and the percentage of the Company's outstanding
Common Stock that will be owned by each Selling Stockholder if all shares are
sold in the offering. The shares of Common Stock being offered hereby are being
registered to permit public secondary trading and the Selling Stockholders may
offer all or a portion of the shares for resale from time to time.
<TABLE>
<CAPTION>
SHARES SHARES SHARES OWNED PERCENTAGE
OWNED OFFERED AFTER OFFERING OWNED AFTER
SELLING BEFORE FOR IF ALL OFFERED OFFERING IF ALL
STOCKHOLDER(1) OFFERING(2) SALE SHARES SOLD(3) SHARES SOLD
- -------------- ----------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Glen Pfeil and Joyce Pfeil.................. 20,000 20,000 0 0%
Susan Roberts............................... 10,000 10,000 0 0%
Jeffrey B. Jones............................ 10,000 10,000 0 0%
R. Bruce Jones(4)........................... 20,000 20,000 0 0%
Golden Holt................................. 20,000 20,000 0 0%
Russell S. Jones DDS Employee Profit Sharing
Plan...................................... 10,000 10,000 0 0%
Badger Investments LLC...................... 308,797 107,152 201,645 2.2%
David B. Holt............................... 12,000 12,000 0 0%
Larry D. Jones.............................. 15,000 10,000 5,000 0.05%
Eugene P. Zanolli........................... 15,000 10,000 5,000 0.05%
Kelle Simon................................. 10,000 10,000 0 0%
Howard Lowe................................. 10,000 10,000 0 0%
Bradley C. Jones............................ 10,000 10,000 0 0%
Richard K. Jackson.......................... 12,000 12,000 0 0%
Parley D. Turnbow........................... 10,000 10,000 0 0%
Ralph H. Sudbury............................ 20,000 20,000 0 0%
Tri-Jacobs Partnership...................... 66,250 10,000 56,250 0.6%
James Seamans............................... 207,593 204,305 3,288 0.04%
Robert C. Ryan(5)........................... 57,018 56,261 757 0.01%
Jim Doherty................................. 48,000 48,000 0 0%
Jerry R. Roberts, IRA....................... 10,000 10,000 0 0%
Cahill, Warnock Strategic Partners Fund,
L.P.(6)................................... 2,045,943 2,045,943 0 0%
Strategic Associates, L.P.(6)............... 113,364 113,364 0 0%
Newpark Resources, Inc.(7).................. 2,239,282 2,239,282 0 0%
James H. Stone.............................. 79,975 79,975 0 0%
James S. Percell(8)......................... 1,269,785 34,861 1,234,924 13.3%
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
SHARES SHARES SHARES OWNED PERCENTAGE
OWNED OFFERED AFTER OFFERING OWNED AFTER
SELLING BEFORE FOR IF ALL OFFERED OFFERING IF ALL
STOCKHOLDER(1) OFFERING(2) SALE SHARES SOLD(3) SHARES SOLD
- -------------- ----------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Robin M. Pate(9)............................ 1,119,030 17,432 1,101,598 11.9%
Kelly Trimble(10)........................... 13,061 10,917 2,144 0.02%
Frank J. Gillen(11)......................... 32,311 20,917 11,394 0.12%
Allen Trevino(12)........................... 178,014 17,430 160,584 1.7%
Lee W. Jackson.............................. 268,797 87,153 181,644 2.0%
Banyon Investment Company................... 35,986 35,000 986 0.01%
Robert D. Axelrod(13)....................... 25,759 17,430 8,329 0.07%
Robin Allen Pate(9)......................... 443,982 435,764 8,218 0.09%
L.E Gunnels................................. 88,797 87,153 1,644 0.02%
Jerry Lyn McKinney.......................... 35,518 34,861 657 0.01%
KGB Family Ltd. Partnership(14)............. 1,959 1,630 329 0.01%
Keith Biesinger(15)......................... 20,657 20,000 657 0.01%
Richard S. Cook............................. 7,329 7,000 329 0.01%
James F. Jez................................ 19,536 19,174 362 0.01%
The Diane Davis 1992 Revocable Trust........ 87,153 87,153 0 0%
R. Bruce Jones DDS PC Profit Sharing
Trust..................................... 88,797 87,153 1,644 0.02%
Rodney K. Rayburn........................... 53,278 52,292 986 0.01%
Sean Ltd.................................... 319,667 313,750 5,917 0.06%
Roberds-Johnson Industries(16).............. 88,797 87,153 1,644 0.02%
</TABLE>
- ---------------
(1) Except as set forth below, no Selling Stockholder has held any position or
office, or has had any material relationship with the Company or any of its
affiliates within the past three years:
(2) Assumes that all Warrants currently exercisable or exercisable within the
next 60 days have been exercised and all Preferred Stock has been
converted.
(3) Assumes no sales are effected by the Selling Stockholders during the
offering period other than pursuant hereto.
(4) R. Bruce Jones is a beneficiary of The Jones Family Trust which owns 88,797
shares of the Common Stock of the Company.
(5) Of these shares, Robert C. Ryan Trustee owns 35,518 shares of the Common
Stock of the Company, all of which are beneficially owned by Robert C.
Ryan.
(6) David L. Warnock is a control person of Cahill, Warnock Strategic Partners
Fund, L.P. and Strategic Associates, L.P. Mr. Warnock is currently a
director of the Company.
(7) Newpark Resources, Inc. presently contracts with the Company for one ITD
Unit and may in the future contract with the Company for additional ITD
Units.
(8) James S. Percell is a principal stockholder, Chairman and President of the
Company.
(9) Robin M. Pate is a Director of the Company. Robin Allen Pate is the son of
Robin M. Pate.
(10) Kelly Trimble also indirectly owns 185,000 shares through Noel Investments
and 66,250 shares through Tri-Jacobs Partnership.
(11) Frank J. Gillen also indirectly owns 185,000 shares through Calamitous L.C.
(12) Allen Trevino is a former Director of the Company.
(13) Robert D. Axelrod is the Company's legal counsel for certain legal matters.
(14) Kathy Carter, President of the Company's transfer agent, is a beneficiary
of the KGB Family Ltd. Partnership.
(15) Keith Biesinger was formerly the Company's legal advisor.
(16) Roberds-Johnson Industries fabricates ITD Units for the Company on a
successful bid basis.
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<PAGE> 16
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that the Stockholder
Shares may be sold or distributed from time to time by the Selling Stockholders,
their distributees or assignees, or by pledgees, donees or transferees of, or
other successors in interest to, the Selling Stockholders, directly to one or
more purchasers (including pledgees) or through brokers, dealers or underwriters
who may act solely as agents or may acquire Stockholder Shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. The distribution of the Stockholder Shares may be effected by one or
more of the following methods: (i) ordinary brokers' transactions, which may
include long or short sales; (ii) transactions involving cross or block trades
or otherwise on the American Stock Exchange; (iii) purchases by brokers, dealers
or underwriters as principals and resale by such purchasers for their own
accounts pursuant to this Prospectus; (iv) "at the market" to or through market
makers or into an existing market for the Common Stock; (v) in other ways not
involving market makers or established trading markets, including direct sales
to purchasers or sales effected through agents; (vi) through transactions in
options, swaps or other derivatives (whether exchange-listed or otherwise); or
(vii) any combination of the foregoing, or by any other legally available means.
In addition, the Selling Stockholders, their distributees or assignees, or their
successors in interest may enter into hedging transactions with broker-dealers
who may engaged in short sales of Common Stock in the course of hedging the
positions they assume with the Selling Stockholders. The Selling Stockholders,
their distributees or assignees, or their successors in interest may also enter
into option or other transactions with broker-dealers that require the delivery
to such broker-dealers of the Stockholder Shares, which Stockholder Shares may
be resold thereafter pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the Stockholder Shares as agent may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders (and, if
they act as agent for the purchaser of such Stockholder Shares, from such
purchaser). Such discounts, concessions or commissions as to a particular
broker, dealer, underwriter or agent might be greater or less than those
customary in the type of transaction involved.
The Selling Stockholders and any brokers, dealers, underwriters or agents
that participate in the distribution of the Stockholder Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by any such persons might be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor the Selling Stockholders can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Stockholder and any other Selling Stockholder, broker, dealer, underwriter or
agent relating to the sale or distribution of the Stockholder Shares.
To the extent required, the Company will file, during any period in which
offers or sales are being made, a supplement to this Prospectus which sets
forth, with respect to a particular offering, the specific number of Stockholder
Shares to be sold, the name of the Selling Stockholder, the sales price, the
name of any participating broker, dealer, underwriter or agent, any applicable
commission or discount and any other material information with respect to the
plan of distribution not previously disclosed.
The Company will not receive any of the proceeds from the sale of the
Stockholder Shares offered hereby. The Company will pay substantially all of the
expenses incident to this Offering of the Stockholder Shares by the Selling
Stockholders to the public other than commissions and discounts of brokers,
dealers, underwriters or agents. The Company has agreed to indemnify certain of
the Selling Stockholders and certain related persons against certain
liabilities, including certain liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable, the
Stockholder Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Common Stock may
not be sold unless the Common Stock has been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is satisfied.
There is no assurance that the Selling Stockholders will sell any or all of
the Stockholder Shares.
14
<PAGE> 17
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of common stock, $0.001 par value, and 10,000,000 shares of preferred stock,
$0.001 par value.
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Company's Articles of
Incorporation, Bylaws, Certificate of Designation, Preferences, Rights and
Limitations of Series B Convertible Preferred Stock and the Certificate of
Designation, Preferences, Rights and Limitations of Series C Preferred Stock
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. See, "Additional Information".
PREFERRED STOCK
The Company's board of directors has authority, without action or consent
by the stockholders, to issue the authorized but unissued shares of Preferred
Stock in one or more series, to establish the number of shares to be included in
each series and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. This includes, among other things, voting rights, conversion
privileges, dividend rates, redemption rights, sinking fund provisions and
liquidation rights which shall be superior to the common stock.
Series B Convertible Preferred Stock. The Company has authorized 5,000,000
shares of Series B Convertible Preferred Stock, of which 3,771,422 shares are
issued and outstanding. Series B Convertible Preferred Stock is entitled to
receive dividends at the same rate as dividends on Common Stock. Series B
Convertible Preferred Stock may be converted into fully paid and non-assessable
shares of the Company's Common Stock. The number of shares of Common Stock into
which each share of Series B Convertible Preferred Stock may be converted is
determined by multiplying the number of shares of Series B Convertible Preferred
Stock to be converted by $1.06 and dividing the result by the Conversion Price
which presently is $1.06. The conversion price is subject to adjustment under
certain conditions, which include, but are not limited to stock splits, stock
dividends, combinations or corporate reorganizations.
Except for the election of directors, the shares of Series B Convertible
Preferred Stock shall be entitled to vote, together with the shares of the
Company's Common Stock, on all matters presented at any annual or special
meeting of stockholders of the Company, or may act by written consent in the
same manner as the holders of the Company's Common Stock, upon the following
basis: each holder of Series B Convertible Preferred Stock shall be entitled to
cast such number of votes for each share of Series B Convertible Preferred Stock
held by such holder on the record date fixed for such meeting, or on the
effective date of such written consent, as shall be equal to the number of
shares of the Company's Common Stock into which each of such holder's shares of
Series B Convertible Preferred Stock is convertible immediately after the close
of business on the record date fixed for such meeting or the effective date of
such written consent.
So long as the Series B Convertible Preferred Stock is outstanding and
unconverted to Common Stock, the holders of the Series B Convertible Preferred
Stock, voting separately as a class, shall be entitled to elect one member of
the Board of Directors.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Series B Convertible
Preferred Stock then outstanding are entitled to receive out of assets of the
Company available for distribution to stockholders, before any distribution of
assets is made to holders of any other class of capital stock of the Company, an
amount equal to $1.06 per share, plus accumulated and unpaid dividends thereon
to the date fixed for distribution. A consolidation or merger of the Company (in
the event that the Company is not the surviving entity) or sale of all or
substantially all of the Company's assets is regarded as a liquidation,
dissolution or winding up of the affairs of the Company.
So long as twenty-five percent (25%) of the shares of Series B Convertible
Preferred Stock are outstanding, the Company shall not: (i) create, authorize or
issue shares of any class or series of stock, or any security convertible into
such class or series ranking senior to or on parity with the Series B
Convertible Preferred Stock either as to payment of dividends or as
distributions in the event of a liquidation, dissolution or winding up of the
Company; or (ii) amend, alter or repeal any provision of the Articles of
Incorporation or
15
<PAGE> 18
Bylaws of the Company so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions (including, without
limitation, expanding the number of members on the Board of Directors) of the
Series B Convertible Preferred Stock; or (iii) declare or pay any dividend on
its Common Stock if any dividends are unpaid on the Series B Convertible
Preferred Stock; or (iv) redeem for cash any other securities issued by the
Company; or (v) directly or indirectly, enter into any merger, consolidation or
other reorganization in which the Company shall not be the surviving Company,
unless the surviving Company shall, prior to such merger, consolidation or
reorganization, agree in writing to assume the obligations of the Company under
the Certificate of Designation. The Company, however, is not limited in its
power to issue bonds, notes, mortgages, debentures, common stock, preferred
stock ranking junior to the terms of the Series B Convertible Preferred Stock
and other obligations, and to incur indebtedness to banks and to other lenders.
The Company has no right of redemption with respect to the Series B
Convertible Preferred Stock.
Series C Preferred Stock. The Company has authorized 400,000 shares of
Series C Preferred Stock of which 400,000 shares are issued and outstanding.
Series C Preferred Stock is entitled to received dividends in an annual amount
equal to the prime rate plus one and one-half percent (1 1/2%) as reported by
NationsBank of Maryland, N.A. on the outstanding stated value of the Series C
Preferred Stock. The dividends are calculated as of the last day of each
quarter, and are payable quarterly in arrears with the first quarterly payment
due for the quarter ending March 31, 1998. The Series C Preferred Stock is not
convertible into the Company's Common Stock. Holders of Series C Preferred Stock
are not entitled to vote on any matters.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Series C Preferred Stock
then outstanding shall be entitled to receive out of assets of the Company
available for distribution to stockholders, before any distribution of assets is
made to holders of any other class of capital stock of the Company, except
Series B Convertible Preferred Stock, an amount equal to $10.00 per share. A
consolidation or merger of the Company (in the event that the Company is not the
surviving entity) or sale of all or substantially all of the Company's assets
shall be regarded as a liquidation, dissolution or winding up of the affairs of
the Company.
The Company, at its sole discretion, may redeem any and/or all of the
shares of Series C Preferred Stock as may be outstanding from time to time, upon
thirty (30) days written notice to the holders. The Redemption Price for each
share of Series C Preferred Stock shall be $10.00, plus accumulated and unpaid
dividends thereon to the date fixed for redemption. The redemption notice shall
provide for the date of redemption and the redemption price, along with the
number of shares of Series C Preferred Stock to be redeemed.
LIMITATION ON PAYMENT OF DIVIDENDS
The Company may not, except for dividends payable in connection with the
Series C Preferred Stock, authorize or pay any dividends at any time if any
amount is unpaid with respect to the $6,000,000 Loan Agreement.
LIMITATION ON DIRECTOR'S LIABILITY; INDEMNIFICATION
The Articles of Incorporation of the Company ("Articles") provide, as
permitted by governing Nevada law, that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, with certain exceptions. These
provisions may discourage stockholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by stockholders on behalf of the Company against a director.
The Articles provide that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil litigation or criminal action brought against them on account
of their being or having been Company directors or officers unless, in such
action, they are adjudged to have acted with gross negligence or willful
misconduct.
16
<PAGE> 19
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the forgoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The inclusion of this provision in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
The Articles provide for the indemnification of its executive officers and
directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by the Nevada law. The
Articles include related provisions meant to facilitate the indemnities' receipt
of such benefits. These provisions cover, among other things: (i) specification
of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken, and (iii) the
establishment of certain presumptions in favor of an indemnitee.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Axelrod Smith & Kirshbaum of Houston, Texas. Mr. Robert D. Axelrod
presently owns 25,759 shares of Common Stock of the Company.
EXPERTS
The consolidated balance sheets at December 31, 1996 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended of Environmental Safeguards, Inc. incorporated by
reference into this Prospectus and Registration Statement have been audited by
Ham, Langston & Brezina, L.L.P. , independent auditors, as set forth in their
report, and are incorporated by reference in reliance upon such report, given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Environmental Safeguards, Inc.
appearing in Environmental Safeguards, Inc.'s Annual Report (Form 10-KSB) for
the year ended December 31, 1997 and the consolidated financial statements of
OnSite Technology, L.L.C. for the period January 1, 1997 through December 17,
1997 appearing in Environmental Safeguards, Inc.'s Current Report on Form 8-K
Amendment No. 1, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
17
<PAGE> 20
ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
F-1
<PAGE> 21
ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
---------------------
On December 17, 1997, Environmental Safeguards, Inc. (the "Company")
acquired Parker Drilling Company's 50% interest in OnSite Technology, L.L.C.
("OnSite") and, accordingly, OnSite became a wholly-owned subsidiary of the
Company. Prior to this transaction, the Company accounted for its 50% ownership
interest in OnSite on the equity method and following the transaction on the
consolidation method. The $8,000,000 purchase price and the resulting required
repayment of $3,000,000 of long-term debt due to a Parker subsidiary was
financed through a private sale of Series B and Series C preferred stock,
combined with 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. The following Unaudited Proforma Consolidated Statement of
Operations for the year ended December 31, 1997 gives effect to the transaction
as if it had occurred on January 1, 1997.
The Unaudited Proforma Consolidated Financial Statements are presented for
informational purposes only and are not necessarily indicative of the results of
operations that would have been achieved had the transaction been completed at
January 1, 1997, nor are they indicative of the Company's future results of
operations.
The Unaudited Proforma Consolidated Financial Statements should be read in
conjunction with the historical financial statements of the Company and related
notes thereto.
F-2
<PAGE> 22
ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS PROFORMA AS
REPORTED ADJUSTMENTS ADJUSTED
-------- ----------- --------
<S> <C> <C> <C>
Service revenue............................................. $ 6,678 $ 6,678
Cost of providing services.................................. 3,226 $ 151(a) 3,377
------- ----- -------
Gross margin.............................................. 3,452 151 3,301
Selling, general and administrative expenses................ 2,076 407(b) 2,483
Acquired research and development........................... 786 (786)(i) --
------- ----- -------
Income (loss) from operations.......................... 590 228 818
Other income (expenses):
Interest income........................................... 192 192
Interest expense.......................................... (466) (600)(c) (1,369)
(487)(d)
184(e)
Foreign currency transaction losses....................... (31) (31)
Other..................................................... 4 (4)(f) --
------- ----- -------
Income (loss) before provision for income taxes, minority
interest, elimination of pre-acquisition earnings of
subsidiary and extraordinary item......................... 289 (679) (390)
Provision for income taxes.................................. 1,205 1,205
------- ----- -------
Loss before minority interest, elimination of
pre-acquisition earnings of subsidiary and extraordinary
item...................................................... (916) (679) (1,595)
Minority interest........................................... (547) (547)
Elimination of pre-acquisition earnings of subsidiary....... (34) 34(g) --
------- ----- -------
Loss before extraordinary item.............................. (1,497) (645) (2,142)
Extraordinary gain (loss) on extinguishment of debt......... (352) 352(h) --
------- ----- -------
Net loss.................................................... (1,849) $(293) (2,142)
=====
Beneficial conversion feature of Class B preferred stock.... (3,998) (3,998)
Accretion of discount on Class C preferred stock............ (16) (375)
Class C preferred stock dividends........................... (17) (400)
------- -------
Net loss available to common stockholders................... $(5,880) $(6,915)
======= =======
Basic and dilutive earnings (loss) per common share:
Before extraordinary item................................. $ (0.61) $ (0.76)
Extraordinary item........................................ (0.04) --
------- -------
Net loss per common share................................. $ (0.65) $ (0.76)
======= =======
Weighted average shares outstanding......................... 9,075 9,075
======= =======
</TABLE>
See notes to unaudited proforma consolidated statement of operations.
F-3
<PAGE> 23
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONSOLIDATED
STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION
On December 17, 1997, Environmental Safeguards, Inc. (the "Company")
acquired Parker Drilling Company's ("Parker") 50% interest in OnSite Technology,
L.L.C. ("OnSite") and, accordingly, OnSite became a wholly-owned subsidiary of
the Company. Prior to this transaction, the Company accounted for its 50%
ownership interest in OnSite on the equity method, and following the transaction
on the consolidation method. The $8,000,000 purchase price and the resulting
required repayment of $3,000,000 of long-term debt to a Parker subsidiary was
financed through a private sale of Series B and 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. The
Unaudited Proforma Consolidated Statement of Operations for the year ended
December 31, 1997 gives effect to the transaction as if it had occurred at
January 1, 1997.
The Company believes that the assumptions used in preparing the Unaudited
Proforma Consolidated Statement of Operations provide a reasonable basis for
presenting all of the significant effects of the OnSite acquisition (other than
any synergies anticipated by the Company, and nonrecurring charges directly
attributable to the purchase and nonrecurring charges that will result from
combining operations), and that the proforma adjustments give effect to those
assumptions in the Unaudited Proforma Consolidated Statements of Operations.
2. EARNINGS PER SHARE
Net loss per share of common stock was computed by dividing the net income
available to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Due to the net loss, all of the
common stock equivalents were excluded from this calculation due to their anti-
dilutive effect. Certain amounts attributable to the Class B and Class C
preferred stock have been deducted from the net loss to derive net loss
available to common stockholders. These amounts include the cumulative dividends
to be paid on the Class C preferred stock and the accretion of the discounts on
both the Class C and Class B preferred stock. The entire Class B discount is
charged to net loss available to common stockholders immediately due to the
immediate conversion features of the related instruments. The Class C discount
is accreted to its liquidation value over a period of 26 months.
3. PROFORMA ADJUSTMENTS
Proforma adjustments to the Unaudited Proforma Consolidated Statements of
Operations are as follows:
a.Reflects additional depreciation expense resulting from the adjustment of
OnSite's equipment (indirect thermal desorption remediation units) to
fair market value at the time of acquisition.
b.Reflects the amortization of engineering design and developed technology
costs, an intangible asset related to the acquisition of the interest in
OnSite. The intangible asset is being amortized over an 8 year estimated
economic life.
c.Reflects additional interest expense resulting from the additional
long-term debt incurred in connection with the acquisition of OnSite
based on interest at 10% per year.
d.Reflects interest cost resulting from the amortization of the discount on
the sale of the long-term debt.
e.Reflects the elimination of interest expense on $3.0 million of long-term
debt to a Parker subsidiary, the repayment of which was required upon
acquisition of OnSite.
f.Reflects the elimination of the amortization of a deferred gain between
the Company and OnSite which was eliminated in the purchase price
allocation for the acquisition of OnSite.
F-4
<PAGE> 24
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)
g.Reflects the elimination of income allocated to Parker prior to the
Company's acquisition of Parker's 50% interest in OnSite.
h.Reflects the elimination of the non-recurring extraordinary loss on early
repayment of debt to Parker in connection with the Company's acquisition
of Parker's 50% interest in OnSite.
i.Reflects the elimination of the non-recurring charge for acquired
research and development costs which were incurred in connection with the
acquisition of Parker's 50% interest in OnSite.
F-5
<PAGE> 25
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee........................................ $ 6,567.43
Printing and Engraving Expenses............................. 2,500.00
Legal Fees and Expenses..................................... 15,000.00
Accounting Fees and Expenses................................ 15,000.00
Blue Sky Fees and Expenses.................................. 0.00
Transfer Agent Fees and Miscellaneous....................... 500.00
----------
Total....................................................... $39,567.43
</TABLE>
ITEM 15. LIMITATION ON DIRECTOR'S LIABILITY; INDEMNIFICATION
The Articles of Incorporation of the Company ("Articles") provide, as
permitted by governing Nevada law, that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, with certain exceptions. These
provisions may discourage stockholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by stockholders on behalf of the Company against a director.
The Articles provide that the Company will indemnify its directors and
officers against expenses and liabilities they incur to defend, settle, or
satisfy any civil litigation or criminal action brought against them on account
of their being or having been Company directors or officers unless, in such
action, they are adjudged to have acted with gross negligence or willful
misconduct.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the forgoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The inclusion of this provision in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
The Articles provide for the indemnification of its executive officers and
directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by the Nevada law. The
Articles include related provisions meant to facilitate the indemnitees' receipt
of such benefits. These provisions cover, among other things: (i) specification
of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken, and (iii) the
establishment of certain presumptions in favor of an indemnitee.
II-1
<PAGE> 26
ITEM 16.
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
3.1* -- Certificate of Incorporation of the Registrant, as
amended.
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).
5.1*** -- Opinion of Axelrod, Smith & Kirshbaum.
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.
23.1*** -- Consent of Axelrod, Smith & Kirshbaum (Included in
Exhibit 5.1).
23.2*** -- Consent of Ham, Langston & Brezina, L.L.P.
23.3*** -- Consent of Ernst & Young LLP
</TABLE>
- ---------------
* Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997, and incorporated by reference
thereto.
** 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.
*** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are being made,
a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
II-2
<PAGE> 27
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
iii. To include any additional or changed material information with
respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) i. That, for the purpose of determining liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of
1933 shall be deemed to be part of this registration statement as of the
time it was declared effective.
ii. That, for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 28
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and authorized this Amendment No. 1 to
the Form S-3 Registration Statement to be signed on its behalf by the
undersigned, in the City of Houston, State of Texas on June 19, 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 Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES S. PERCELL Chairman of the Board, Chief June 19, 1998
- --------------------------------------------- Executive Officer, and Director
James S. Percell
/s/ BRYAN SHARP Director June 19, 1998
- ---------------------------------------------
Bryan Sharp
/s/ ROBIN PATE Director June 19, 1998
- ---------------------------------------------
Robin Pate
/s/ ALBERT WOLFORD Director/Secretary June 19, 1998
- ---------------------------------------------
Albert Wolford
Director
- ---------------------------------------------
David L. Warnock
/s/ RONALD BIANCO Chief Financial Officer and June 19, 1998
- --------------------------------------------- Vice-Secretary
Ronald Bianco
</TABLE>
II-4
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. IDENTIFICATION OF EXHIBIT
------- -------------------------
<C> <S>
3.1(*) -- Certificate of Incorporation of the Registrant, as
amended.
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).
5.1(***) -- Opinion of Axelrod, Smith & Kirshbaum.
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.
23.1(***) -- Consent of Axelrod, Smith & Kirshbaum (Included in
Exhibit 5.1).
23.2(***) -- Consent of Ham, Langston & Brezina, L.L.P.
23.3(***) -- Consent of Ernst & Young LLP
</TABLE>
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(*) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997, and incorporated by
reference thereto.
(**) 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.
(***) Filed herewith.
<PAGE> 1
EXHIBIT 5.1
AXELROD, SMITH & KIRSHBAUM
AN ASSOCIATION OF PROFESSIONAL CORPORATIONS
ATTORNEYS AT LAW
5300 MEMORIAL DRIVE, SUITE 700
HOUSTON, TEXAS 77007-8292
Robert D. Axelrod
Paul D. Smith Telephone (713) 861-1996
Daniel R. Kirshbaum Facsimile (713) 552-0202
June 18, 1998
James S. Percell, President
Environmental Safeguards, Inc.
2600 South Loop West, Suite 645
Houston, Texas 77054
Dear Mr. Percell:
As counsel for Environmental Safeguards, Inc., a Nevada corporation
("Company"), you have requested our firm to render this opinion in connection
with the Registration Statement of the Company on Form S-3 Amendment No. 1
("Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed with the Securities and Exchange Commission relating to the resale
of 6,582,505 shares of common stock, par value $.001 per share (the "Common
Stock") by certain security holders of the Company. Of these, 333,400 shares of
Common Stock are currently outstanding shares of the Company's Common Stock
owned by certain security holders of the Company in connection with a September,
1996 private placement. The Registration Statement also relates to the
registration of the issuance of up to 4,478,564 shares of common stock, par
value $.001 per share (the "Common Stock"), consisting of (i) 3,771,422 shares
of Common Stock underlying 3,771,422 shares of Series B Convertible Preferred
Stock (the "Preferred Stock"), and, (ii) 707,142 shares of Common Stock
underlying 707,142 Warrants (the " Warrants"). Further, the Registration
Statement also relates to the post-effective registration amendment for shares
of common stock, par value $.001 per share (the "Common Stock") which were
originally registered pursuant to Form SB-2 effective with the Commission on
February 11, 1997, of which 1,770,541 shares of common stock are the subject of
the post-effective amendment.
We are familiar with the Registration Statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the Registration
Statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada; and
2. The shares of Common Stock to be resold are validly authorized,
validly issued, fully paid and nonassessable.
<PAGE> 2
3. The shares of Common Stock underlying the Preferred Stock to be
issued upon the conversion of such Preferred Stock are validly authorized
and, upon conversion of the shares of Preferred Stock, in accordance with
their terms, will be validly issued, fully paid and nonassessable.
4. The shares of Common Stock underlying the Warrants to be issued
upon exercise of such Warrants are validly authorized and, upon exercise of
the Warrants in accordance with their terms, and when fully paid for, will
be validly issued, fully paid and nonassessable.
We consent to the to the filing of this opinion as an exhibit to the
Registration Statement and to the reference in the Registration Statement to
Axelrod, Smith, & Kirshbaum under the heading "Exhibits -- Opinion."
Very truly yours,
/s/ AXELROD, SMITH, & KIRSHBAUM
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Environmental Safeguards, Inc.
We consent to the use of our Report dated March 18, 1997, relating to the
consolidated financial statements of Environmental Safeguards, Inc. as of
December 31, 1996 incorporated by reference herein and to the reference to our
firm under the heading "Experts" in the Registration Statement on Form S-3
Amendment No. 1.
/s/ HAM, LANGSTON & BREZINA, L.L.P.
June 17, 1998
Houston, Texas
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) No. 333-49753 and
related Prospectus of Environmental Safeguards, Inc. for the registration of
6,582,505 shares of its common stock and to the incorporation by reference
therein of our report dated March 24, 1998, with respect to the consolidated
financial statements of Environmental Safeguards, Inc. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1997 and our report dated
February 26, 1998 with respect to the consolidated financial statements for the
period from January 1, 1997 through December 17, 1997 of OnSite Technology,
L.L.C. included in the June 19, 1998 Form 8-K/Amendment No. 2 of Environmental
Safeguards, Inc. filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Houston, Texas
June 17, 1998
