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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File No. 0-7099
ended December 31, 1997
CECO ENVIRONMENTAL CORP.
(Name of Small Business Issuer in Its Charter)
New York 13-2566064
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
505 University Avenue, Suite 1400
Toronto, Ontario CANADA M5G 1X3
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (416) 593-6543
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___.
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_X_]
State issuer's revenues for its most recent fiscal year: $14,530,974
Aggregate market value of voting stock held by non-affiliates of
registrant (based on the last sale price on March 9, 1998): $13,932,975
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: 8,415,048 shares of common
stock, par value $0.01 per share, as of March 9, 1998.
Transitional Small Business Disclosure Format: Yes ___ No _X_
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PART I
Item 1. Business
CECO Environmental Corp. ("CEC" or the "Company") was incorporated in
New York State in 1966. The Company owns 6,274,498 shares of common stock CECO
Filters, Inc. ("CECO"), representing 91.36% of CECO's outstanding common stock.
The Company has no significant operations nor does it hold any significant
assets other than CECO stock. CECO was incorporated July 25, 1985, and commenced
operations in August 1985.
For a description of CECO's business and other information regarding
CECO, see "CECO Filters, Inc." below.
Recent Developments
In 1997 management at CECO began to concentrate on targeting industrial
markets in addition to specialty markets by focusing on adding service
components to products offered. The acquisition of the business of Busch Co.,
described below, which provides engineering services as well as products was
part of the strategy. In addition, CECO began in 1997 to focus on offering a
facilities management service. The facilities management service combines
products and management services using industry leading computer technology.
Such service is also known as Computer Aided Facilities Management ("CAMF").
To further implement its new focus, CECO funded U.S. Facilities
Management Company, Inc. ("USFM"), a Delaware corporation and a wholly-owned
subsidiary of CECO, with approximately an additional $400,000 to test its CAMF
service in Phoenix, Arizona. As part of its strategy, CECO in early 1998,
entered into an agreement with Western VAR Alliance, which will provide certain
skills that USFM lacks. Management plans to standardize the system being used by
USFM to allow CECO to use the system in new territories. CECO is also launching
an acquisition program to gain such additional geographical territories where
such a standardized strategy may be used.
On September 25, 1997, pursuant to an Asset Purchase Agreement, New
Busch Co., Inc., a Delaware corporation ("Busch") which is a wholly-owned
subsidiary of CECO, acquired certain assets, and all rights and interests of,
Busch Co., a Pennsylvania corporation (the "Seller") for a purchase price of
$2,100,000 plus acquisition costs. The Seller was engaged in the business of
marketing, selling, designing and assembling ventilation, environmental and
process-related products, and also provided manufacturer's representative
services to certain companies or manufacturers in support of related businesses.
Seller's revenues in 1996 were slightly greater than the Company's consolidated
revenues in 1996.
The assets and rights Busch acquired include (i) the machinery,
fixtures, leasehold improvements, vehicles and equipment of the Seller, (ii) all
inventory of the Seller, (iii) all contractual rights of the Seller, including
rights to purchase orders, sales orders, contracts-in-process
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and similar agreements, (iv) certain items of prepaid expenses, (v) all
rights of the Seller in its patents, trademarks, service marks and licenses,
(vi) certain real property leasehold interests, (vii) the Seller's goodwill, and
(viii) all of the Seller's rights under employment agreements. The consideration
was determined by arm's length negotiations between Busch and the Seller. The
funds required for the acquisition were obtained using a credit facility
established by CECO with CoreStates Bank, N.A. and a loan from CEC. The closing
date was September 25, 1997, but was deemed to be effective as of July 1, 1997.
In connection with such acquisition, Busch entered into an Employment,
Non-Compete and Confidentiality Agreement with Andrew M. Halapin, the majority
stockholder and President of the Seller, pursuant to which Mr. Halapin agreed to
be Busch's President and chief operating officer for approximately three years.
Included as compensation for Mr. Halapin's services was a $500,000 signing
bonus. For a description of Busch's business and other information regarding
Busch, see "New Busch Co., Inc." below.
In October of 1997, for ease of administration, CECO transferred the
assets of Compliance Systems International, a Delaware corporation and a
wholly-owned subsidiary of CECO, to CECO.
On October 1, 1997, the Board of Directors of the Company adopted the
CECO Environmental Corp. 1997 Stock Option Plan (the "Plan"). The stock options
are intended to qualify as incentive stock options and may be issued to
officers, employees, directors, and consultants of the Company and its
subsidiaries. One Million, Five Hundred Thousand shares of the Company's stock
has been reserved for issuance pursuant to the Plan. As of March 18, 1998,
313,320 options under the Plan have been issued. Adoption of the Plan is subject
to the approval of the shareholders of the Company by September 30, 1998. Any
incentive stock options granted after adoption of the Plan by the Board of
Directors will be treated as nonqualified stock options if shareholder approval
is not obtained by September 30, 1998.
CECO Filters, Inc.
CECO Filters, Inc. ("CECO"), a Delaware corporation, is located in
Conshohocken, Pennsylvania. CECO manufactures and sells industrial air filters
known as fiber bed mist eliminators. The filters are used to trap, collect and
remove solid soluble and liquid particulate matter suspended in an air or other
gas stream whether generated in a point source emission or otherwise. The
principal functions which can be performed by use of the filters are (a) the
removal of damaging mists and particles (for example, in process operations that
could cause downstream corrosion and damage to equipment), (b) the removal of
pollutants and (c) the recovery of valuable materials for reuse. The filters are
also used to collect fine insoluble particulates. CECO's filters are used by,
among others, the printing, electronics and mining industries; metal refiners;
manufacturers of various acids, vegetable and animal based cooking oils, textile
products, alkalies, chlorine, paper, computers, automobiles, asphalt,
pharmaceutical products and chromic acid; electric generating facilities
including cogeneration facilities; and end users of pollution control products
such as incinerators.
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CECO's filters are typically cylindrical in shape. The cylinder
consists of inner and outer cylindrical cages, with filter material placed in
the gap between the cages (usually two inches wide). Prior to insertion in the
filter, raw filter material is placed in cylindrical molds and heated in an
oven. Finished filter material segments are compressed in the gap between the
cages. CECO also manufactures small vessels for holding its filters.
CECO holds a US Patent for a device with the trade names of the
N-SERT(R) and X-SERT(R) prefilter. This device is used to protect the filter's
surface from becoming coated with insoluble solids. Field performance has
demonstrated the effectiveness of this device. CECO also holds a patent for its
N-ESTED(R) multiple-bed fiberbed TWIN-PAK(R) filter, which permits an increase
in filter surface area of 60% or more, thus decreasing energy consumption and
improving collection efficiency. The device also permits the user to increase
the capacity of the emission generating source without an energy or major
modification penalty.
The air filters typically are mounted vertically in a closed tank with
an air inlet for dirty gas and an exhaust for clean flow. The air flow is
directed in such a manner that it passes through the outside of the filter to
the inside core, or vice versa. After being captured in the filter, liquid
particulates drain from the filter and are collected for reuse or removed, as
the case may be. Solid soluble particulates can be dissolved in water or other
suitable solvents and drained from the filter. Insoluble particles can be
removed only by gentle brushing or washing.
CECO's filters range in size from 2 to 20 feet in height and are
typically either 16 or 24 inches in diameter. The cages used in CECO's filter
assemblies may be stainless steel, carbon steel, titanium or fiberglass mesh.
The filter material used in approximately 75% of CECO's filters is fiberglass,
which may be purchased in various grades of fiber diameter and chemical
resistance depending on the specific requirements of the customer. Filter
material may also be made of polyester, polypropelene or ceramic materials.
CECO's filters are manufactured with different levels of efficiency in the
collectibility of particulates, depending on the requirements of the customer.
Eventually, the filter material contained in CECO's filters will become
saturated with insoluble solids or corroded and require replacement. The life of
the filter material will be primarily dependent on the nature of the particles
collected and the filtration atmosphere. Filter life generally ranges from 3
months to 15 years. The filters can be returned to CECO for replacement of the
filter material, or can be replaced on-site by the customer. CECO sells
replacement filter material segments with the trade name of SITE-PAK(R) for
on-site installation by the customer and compressor kits to be used in
connection with on-site replacement.
A significant portion of CECO's business consists of the sale of
replacement filter material segments for its filters and for filters made by
other manufacturers. The replacement process for filters made by other
manufacturers involves modification of the cages to permit the insertion of
replacement segments. Once modification of the cage and replacement of filter
material has been completed by CECO, subsequent replacement of the filter
material can be made on-site by the customer.
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During 1997, CECO continued to implement the results of its new design
strategies by utilizing standard components customized for specific customer
needs. These unique designs are characterized by ease of use, flexibility in
application and the ability to achieve complete product recycle when the
customer's use is satisfied. This breakthrough will enable CECO to offer the
same units or applications in widely disparate industries with the possibility
to reuse the units once the original use is satisfied. It also allows CECO the
flexibility to sell or rent the systems. The rental approach allows CECO to
reuse the units after cleaning and repacking, resulting in a high return on
capital employed.
Air Purator Corporation ("APC"), a wholly owned subsidiary of CECO, is
engaged in the manufacture of patented specialty needled fiberglass fabrics.
Some of the fabrics are coated to permit their use in certain highly corrosive
applications. The fabrics are mainly used in a particulate collection device
known as a pulse jet baghouse which is fabricated by a number of companies.
Before APC's fabric is placed into the baghouse, the fabric will generally be
sewn into a shape resembling a tube closed at one end, called a bag. The bag is
then placed in an enclosed cylindrical apparatus known as a bag holder. APC
mainly sells its fabrics to the bag fabricator. Other applications include the
recovery of valuable materials such as carbon black. There are many domestic and
foreign fabricators with which APC deals. Products are uniformly priced for all
purchasers through a published price list. APC's flagship product line is known
in the field under the Huyglas(R) trade name. Huyglas is patented and is mainly
used for high temperature (up to 550oF) service.
During 1996, APC developed a new, felted fiberglass fabric designed to
compete with DuPont's Nomex(R). A new, felted fiberglass fabric was developed by
APC targeted to compete with DuPont Nomex(R) and other fabrics sold for dust
collection in industrial applications. This product will allow CECO to compete
for a larger share of the global market for filter fabric media and will add to
our established position with the Huyglas(R) trade name.
APC is presently engaged in the development of additional products
based on its patented technology. One of its sales personnel is designated as a
"Product Champion" and is vigorously pursuing various applications outside of
uses traditionally associated with such fabrics. Several new products are
currently being tested, but APC is unable to predict whether these efforts will
result in the successful development of marketable products.
In October 1997, the assets of Compliance Systems International, a
Delaware corporation ("CSI"), a wholly-owned subsidiary of CECO, were moved to
CECO. CSI was originally formed by CECO to pursue domestic and foreign
environmental service markets and the sale of certain specialty equipment. CECO
does, however, maintain use of the name CSI in its operations.
CSI organized the Technology Council (the "Council"), a group of
independent consultants that are available to assist on CECO's behalf, CECO's
industrial and commercial clients with environmental control options including
waste minimization. Members of the
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Council are consulted by CECO when a customer hires CECO to address a problem
that CECO can not resolve and which falls within such Council member's
particular expertise.
Through CSI, CECO has exclusive rights to engineer, market and sell the
patented Catenary Grid Scrubber(R). This device is designed for use with heat
and mass transfer operations and particulate control. CECO designs complete
systems centered around these devices.
During the fourth quarter of 1996 CECO formed USFM. USFM provides
facilities management and emission control systems, software and outsource
monitoring and/or maintenance services to help customers achieve air quality and
operational goals. In 1997, CECO funded USFM with $400,000 to test CAMF services
in Phoenix, Arizona. This is a component in CECO's new strategy to focus on
adding additional service elements to its products.
During 1997, there were no customers which comprised more than 10% of
CECO's consolidated net sales. During 1996 and 1995, two customers each
comprised more than 10% of CECO's consolidated net sales in each year. Because
the demand for CECO's filters, replacement segments, fabric material, scrubbers
and consulting services is not constant but can fluctuate due to economic
conditions, filter life and other factors beyond CECO's control, CECO is unable
to predict the level of purchases by its largest customers, or any other
customer, in the future.
While CECO is exploring targeting larger industrial markets, CECO is
also continuing to service specialty market areas, where it believes it has a
competitive advantage over its larger competitors who generally have much
greater resources than CECO. In the year ended December 31, 1997, CECO and its
subsidiaries continued to develop additional market areas, including storage
facility and turbine lube oil vent emission control and their related odor
control, new dry particulate emission control and combination scrubber - fiber
bed filter systems, while also implementing changes to reach larger industrial
markets. In recent years CECO added capabilities to penetrate the semiconductor
and printed circuit board markets through its filter technology and its patented
scrubbers.
CECO has not been materially impacted by existing government
regulation, nor is CECO aware of any probable government regulation that would
materially affect its operations. CECO's costs in complying with environmental
laws has been negligible. During 1997 and 1996, CECO estimates that $91,803 and
$116,979, respectively, has been expended on research and development programs.
Such costs are generally included as factors in determining CECO's pricing
procedures.
Suppliers
CECO purchases all of its chemical grade fiberglass as needed from
Manville Corporation, which CECO believes is the only domestic supplier of such
fiberglass. However, there are foreign suppliers of chemical grade fiberglass,
and, based on current conditions, CECO
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believes that it could obtain such material from foreign suppliers on acceptable
terms. CECO believes that there is sufficient supply of raw materials for the
other components of its filters and does not anticipate any shortages in the
near future.
APC purchases its raw material from a variety of sources and does not
anticipate any shortages in the near future. While CECO depends upon two
suppliers for certain specialty items, including glass and chemicals, CECO
believes it has a good relationship with such suppliers and does not anticipate
any difficulty in continuing to receive such items on terms acceptable to CECO.
Busch purchases a majority of its fans from New York Blower and a
majority of its louvers from American Warming. Busch purchases additional
materials from a variety of sources and does not anticipate any shortages in the
near future. Busch believes it has a good relationship with such suppliers and
does not anticipate any difficulty in continuing to receive such items on terms
acceptable to Busch.
Backlog
As of December 31, 1997, CECO's backlog of orders was approximately
$10,213,816, as compared to approximately $3,700,000 as of December 31, 1996.
Competition and Marketing
Monsanto Corporation is dominant in the fiber bed mist eliminator
industry. Monsanto's financial resources are far greater than CECO's, and
Monsanto can undertake much more extensive marketing and advertising programs
than CECO. Monsanto is also a competitor of Busch. Certain other competitors
also have greater financial resources than CECO.
CECO competes by stressing its exclusive products, including
SITE-PAK(R) segments that permit on-site filter media replacement capability and
prefilters, its patented product that protects the surface of a fiber bed filter
from becoming plugged with solids, and its patented multiple-bed fiberbed
filters that dramatically increase the surface area of a filter. Also, CECO
believes that it is the only U.S. manufacturer of fiber bed mist eliminators
whose filter material can be replaced on-site by a customer. CECO believes it is
price competitive within the market for filters with similar efficiency.
Manufacturers of electrostatic precipitators and wet scrubbers may also
be deemed to be in competition with CECO, because those devices are also
effective in removing particulates from an air or another gas stream. While such
devices may have higher operating costs than fiber bed mist eliminators,
replacement of the component parts of such devices is rare as compared to fiber
bed mist eliminators.
CECO's subsidiaries each face substantial competition. Kirk & Blum is
dominant in the air systems design industry and competes with Busch
International, a division of Busch. Kirk
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& Blum's financial resources are far greater than CECO's. APC and CSI each face
competition from other forms of environmental control and material recovery
devices including scrubbers and electrostatic precipitators and from other
filter fabric media that can also be fabricated into bags for baghouses. These
fabrics and fibers include, Teflon(R), Goretex(R), woven fiberglass (both
treated and non-treated), polyester, Ryton(R), Nomex(R) and several other
fabrics.
CECO's marketing efforts have consisted of telemarketing and direct
solicitation of orders from existing customers. CECO is also utilizing direct
mail solicitation and selected advertising in trade journals and product guides
and trade shows. CECO also utilizes sales representatives located in the United
States, Canada and overseas and Special Sales Directors, each focused on
specific industries. Busch, in addition to using direct solicitation and some
sales representatives, also participates in industrial shows.
Employees
As of March 17, 1998, the Company did not have any full-time employees.
CECO and its subsidiaries had 78 full-time employees and 3 part-time employees
as of December 31, 1997. None of CECO's employees is currently unionized and
CECO considers its relationship with its employees to be satisfactory.
Key Employee
CECO's operations to date have been largely dependent on the efforts of
its President, Dr. Steven I. Taub. The loss to CECO of Dr. Taub would have a
material adverse effect upon the operations of CECO. CECO has obtained key man
life insurance in face amount of $5 million on the life of Dr. Taub in an effort
to reduce, to the extent possible, the immediate adverse economic impact to its
business that would occur if it were to lose the services of Dr.
Taub.
Product Liability Insurance
As of October, 1989 CECO obtained product liability insurance covering
its products. The policy excludes environmental liability.
Patents
CECO currently holds one US patent for its N-SERT(R) and X-SERT(R)
prefilters. CECO also holds a patent on its N-ESTED(R) multiple bed fiberbed
filter and an exclusive world-wide license to the patent on the Catenary Grid
Scrubber and the Narrow Gap Venturi Scrubber. APC holds two patents on the
Huyglas material. All of the prefilters, the multiple bed units and the Huyglas
material have contributed to CECO's performance during 1997. Busch holds an
exclusive license to the patent on the JET*STAR strip cooler, strip dryer, coil
cooler, and strip blow-off systems. Busch also holds an exclusive license on the
patent on the flexible nozzle material used in connection with the JET*STAR
systems and the process of using water in
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addition to air used in the JET*STAR systems. There is no assurance that
measurable revenues will accrue to CECO or its subsidiaries as a result of their
patents or licenses.
New Busch Co., Inc.
CECO purchased the business of Busch Co. in September of 1997. Busch
Co. had been in business since August of 1947.
Busch is engaged in the business of marketing, selling, designing and
assembling ventilation, environmental and process-related products, and
providing manufacturer's representative services to certain companies or
manufacturers in support or related businesses. Busch consists of three
divisions: Busch INTERNATIONAL, Busch MARTEC, and Busch RIG (resource
implementation group).
Busch INTERNATIONAL, the largest division of Busch, designs and
supplies custom air systems to steel, aluminum, chemical, paper, glass, cement,
power generation, and related industries on an international level. As part of
its system designs, it supplies custom engineered precision-manufactured
products specializing in air related applications. In addition, Busch
INTERNATIONAL provides a wide range of special services, including conceptual
studies, application engineering, and system start-up. Busch employs an
engineering staff experienced in aerodynamic, mechanical, civil, and electrical
disciplines. These personnel are utilized entirely to support Busch's air
systems work. Areas of expertise include turbine inlet filtration, evaporative
cooling, gas absorption, scrubbers, acoustics, and corrosion control.
Busch INTERNATIONAL is noted as the premier supplier of custom
engineered solutions for the control of fume and oil mist emissions from steel
and aluminum rolling mills. Busch's Fume-Shield Systems are designed and
supplied by Busch and are devised to contain, capture, convey, and clean
contaminated air. Busch International fume exhaust systems and air- curtain
hoods are designed to provide high efficiency control of oil mist and fumes.
Busch INTERNATIONAL also designs, manufactures and supplies ventilation
and other air handling equipment for industrial use. It also provides systems
for corrosion protection, fugitive emissions control, evaporative cooling, oil
mist collection, mill building ventilation, crane cab ventilation and other air
handling applications. Some of these air handling units are the MRV-80, MRV-81,
N-DUR-AIR, RE-TREAT,(R) and PCR.
Busch INTERNATIONAL'S Jet*Star strip cooler, strip dryer, coil cooler,
and strip blow- off systems are gaining significant market penetration for the
ability to rapidly cool metal. The rapid cooling permits higher throughput than
competitive processes. Busch is presently involved in supplying Jet*Start for
new and upgrade mill construction work.
Busch MARTEC acts as a manufacturers' representative with manufacturers
relating to air and fluids products. Busch MARTEC does business almost
exclusively in the Pittsburgh and tri-state area. Busch MARTEC also supplies
certain products to the other Busch divisions.
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Busch RIG (resource implementation group) was started in November 1996.
It designs and manufactures custom electrical and control systems and also acts
as a manufacturers' representative of certain products, such as heat transfer
devices and related support products.
Recent Acquisitions
On September 25, 1997, pursuant to an Asset Purchase Agreement, New
Busch Co., Inc., a Delaware corporation ("Busch") which is a wholly-owned
subsidiary of CECO formed on June 19, 1997, acquired certain assets, and all
rights and interests of, Busch Co., a Pennsylvania corporation (the "Seller")
for a purchase price of $2,100,000 plus acquisition costs. CECO financed the
acquisition with proceeds from (i) a $1,040,576 loan from CECO's secured
line-of-credit from CoreStates Bank, N.A., with an interest rate of 1/2% over
the bank's prime lending rate, (ii) a secured term loan in the amount of
$1,000,000 from CoreStates Bank, N.A. with an interest rate of 8.75% per annum,
and (iii) a subordinated, unsecured loan from the Company in the amount of
$500,000 with an interest rate of 10% per annum. The Seller was engaged in the
business of marketing, selling, designing and assembling ventilation,
environmental and process-related products, and also provided manufacturer's
representative services to certain companies or manufacturers in support or
related businesses.
Acquisition of Shares of CECO by the Company
In June, 1997, the Company exchanged 186,000 additional shares of its
common stock for 186,000 shares of CECO's common stock with unrelated third
parties. On August 13, 1997, pursuant to an Agreement and Plan of Reorganization
among the Company, CECO and Stephen Taub, the Company exchanged 582,500 shares
of its common stock for 1,165,000 shares of CECO's common stock with Dr. Taub.
Such transaction was intended to qualify as a "B" reorganization pursuant to the
Internal Revenue Code.
In addition, on February 18, 1998, the Company exchanged 281,768 shares
of the Company for 281,768 shares of CECO with a single off-shore investor,
which brought the Company's ownership of CECO's stock to 6,274,498 shares,
representing 91.36% of CECO's outstanding common stock.
The Company intends to purchase additional shares of CECO common stock
if such additional shares become available at a price which the Company
considers reasonable. Such purchases, if made, would be made through private
transactions, including exchanges of the Company's common stock for CECO common
stock, or open market stock purchases of CECO common stock.
Investment by CECO in the Company
On May 26, 1993, CECO purchased 100,000 shares of newly issued Common
Stock of the Company for $2.80 per share or $280,000 in the aggregate. The
market price for the Company's Common Stock closed at $4.00 per share at that
date. The purchase price was paid
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for with $160,000 in cash, with the balance due on demand, without interest. The
balance was paid in full during the first quarter of 1994. On the date of
purchase the Company owned 52.1% of CECO's common stock. As of December 31,
1997, CECO distributed 17,800 shares of such Common Stock of the Company to
certain of CECO's key employees in lieu of cash bonuses. Such CECO employees are
restricted from selling such Common Stock for one year from the date of
distribution.
Item 2. Properties
The Company maintains its offices in Toronto, Ontario at premises made
available to them at no charge by Phillip DeZwirek, the Chief Executive Officer,
Chief Financial Officer, Chairman of the Board of Directors and a controlling
shareholder of the Company.
CECO owns a plant facility in Conshohocken, Pennsylvania. On February
25, 1993 CECO refinanced the property with a fourteen year commercial mortgage
from CoreStates Bank at 8% through March 1, 1998 and thereafter at 3/4% over the
Bank's prime rate.
APC leases 11,500 square feet of space from BTR North America, Inc. for
the premises in Taunton, Massachusetts for annual rental of $54,625. This lease
expires on February 28 of each year and is renewable yearly upon mutual consent
and APC continues to lease the premises as a tenant-at-will.
CECO leases approximately 1,418 square feet at an annual rental of
$13,201.58 in California, which space was used by CSI and is now used by CECO.
Busch maintains its offices in Pittsburgh, Pennsylvania. The lease that
Busch was assigned in connection with the acquisition of the Busch assets, is
dated January 10, 1980 and extends through July 1999. The lease is for
approximately 12,000 square feet at an annual rental of $133,308. Andrew M.
Halapin, the former principal owner of Busch, is the beneficial owner of the
property in which Busch's offices are located. Busch also leases 1,000 square
feet of space in Etna, Pennsylvania for $315 per month. Such lease will expire
on March 31, 1999.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or to which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Period Report on Form
10-KSB.
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PART II
Item 5. Market of the Registrant's Common Stock and Related Stockholder Matters.
(a) The Company's common stock is traded in the over-the-counter market and
is quoted in the NASDAQ automated quotation system under the symbol CECE. The
following table sets forth the range of bid prices for the common stock of the
Company as reported in the NASDAQ system during the periods indicated, and
represents prices between broker-dealers, which do not include retail mark-ups
and mark-downs, or any commissions to the broker-dealers. The bid prices do not
reflect prices in actual transactions.
<TABLE>
<CAPTION>
CEC Common Stock - Bids CEC Common Stock - Bids
----------------------- -----------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1996 1997
- ---- ----
1st Quarter $4.00 $2.625 1st Quarter $3.125 $1.9375
2nd Quarter $3.50 $2.50 2nd Quarter $3.8125 $1.875
3rd Quarter $3.125 $1.6875 3rd Quarter $4.875 $3.0625
4th Quarter $2.9375 $1.75 4th Quarter $5.00 $3.0625
1998
- ----
1st Quarter $3.70 $2.75
(through March 9, 1998)
</TABLE>
(b) The approximate number of beneficial holders of common stock of the
Company as of March 9, 1998 was 515.
(c) The Company has paid no dividends during the fiscal year ended
December 31, 1996 or the fiscal year ended December 31, 1997. The Company does
not expect to pay dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Financial Condition, Liquidity and Capital Resources
The Company's consolidated cash position increased from $412,174 on December 31,
1996 to $847,827 on December 31, 1997. This net increase is attributable
principally to the increase in cash provided by operating activities of
$2,060,468 and the increase in cash provided by financing activities of
$946,937, offset by cash used in investing activities of $2,571,752. Cash
provided from operating activities includes cash received in connection with
progress billings related to engineering contracts negotiated by New Busch Co.
The Company acquired
13
<PAGE>
substantially all of the assets of Busch Co. in September 1997. Busch, located
in Pittsburgh, Pennsylvania, is engaged in the business of marketing, selling,
designing and assembling ventilation, environmental and process related products
and also provides manufacturer's representative services to certain companies or
manufacturers in support or related businesses.
At December 31, 1997, the Company's consolidated working capital was $648,756
compared to $2,187,596 at December 31,1996. A principal reason for the reduction
in working capital is the result of the liability associated with the progress
billing described previously. The investments in marketable securities, which
earned interest income of $84,326 in 1997, are primarily in high yield bonds of
major U.S. corporations.
CECO's capital expenditures amounted to $210,087 and $78,720 for the years ended
December 31, 1997 and 1996, respectively. Such expenditures were primarily for
computer hardware and software upgrades, engineering and manufacturing equipment
upgrades and office renovations. CECO does not have material firm commitments
for capital expenditures. However, equipment expenditure requirements are
expected to increase as a result of CECO's anticipated growth.
CECO increased its line of credit with a commercial bank from $1,250,000 to
$1,500,000, of which none was outstanding as of December 31, 1997. However, CECO
also entered into a four- year, $1,000,000 term loan, with the same bank, the
proceeds of which were used towards the acquisition of Busch described
previously. At December 31, 1997, the principal outstanding balance on the term
loan was $937,500.
The Company and CECO entered into a five-year management and consulting
agreement, dated January 1, 1994 pursuant to which the Company provides
management and financial consulting services to CECO for a monthly fee of
$20,000 until the agreement expires in December 1998.
The Company believes its consulting agreement with CECO and interest income from
its investments in marketable securities should provide sufficient revenue to
meet its general and administrative expenses. Management believes that CECO's
expected cash flow from operations, supplemented by the available line of
credit, will be adequate to meet CECO's anticipated cash needs for working
capital, revenue growth, scheduled debt repayment and capital investment
objectives for at least the next twelve months.
Results of Operations - The Company
The Company's consolidated statement of operations for the years ended December
31, 1997 and 1996 reflect the operations of the Company consolidated with the
operations of CECO. During 1997, the Company earned consulting fees from CECO
($240,000), earned investment income from marketable securities ($84,326) and
continued to incur general and administrative expenses ($204,104). As of
December 31, 1997, the Company owned approximately 87.5% of the outstanding
Common Stock of CECO. Minority interest on the consolidated statement of
operations has been presented as a reduction in the loss for the year.
14
<PAGE>
The following table sets forth income line items shown on the consolidated
statement of operations, as a percentage of net sales, for the periods
indicated. This table should be read in conjunction with the consolidated
financial statements and notes thereto.
Year Ended
December 31,
---------------
1997 1996
---- -----
Revenues:
Net sales- products 75.0% 100.0%
*Contract revenues 25.0 -
------ -----
Total revenues 100.0 100.0
------ -----
Costs and expenses:
Cost of revenues - products 39.5 52.7
Cost of revenues - contracts 16.3 -
Selling and administrative 41.8 35.8
Depreciation and amortization 2.6 4.2
----- -----
100.2 92.7
----- -----
Income (loss) from operations (.2) 7.3
Investment income .6 .9
Interest expense (.9) (1.6)
----- -----
Income (loss) before income taxes
and minority interest (.5) 6.6
Income taxes - 2.1
----- -----
Income (loss) before minority interest (.5) 4.5
Minority interest in net (income) loss of
consolidated subsidiary .2 (1.4)
----- -----
Net income (loss) (.3)% 3.1%
===== =====
* New business area due to acquisition of Busch Co.
15
<PAGE>
Results of Operations - The Company (continued)
The Company's consolidated net sales, comprised entirely of CECO's consolidated
net sales, were $14,530,974 for the year ended December 31, 1997 and $9,847,697
for the year ended December 31, 1996, an increase of 47.6%. This increase was
due primarily to the sales of Busch.
Selling and administrative expenses were $204,104 for the year ended December
31, 1997 and $208,018 for the year ended December 31, 1996, excluding those
expenses incurred by CECO that are reflected on the Company's consolidated
statement of operations. Those expenses included accounting and legal fees, and
fees relating to acquisition consulting and shareholder relations.
The Company received $240,000 for each of the years ended December 31, 1997 and
1996 for management and financial consulting services provided to CECO. This
amount is not reflected in the consolidated results of operations since it is
eliminated in consolidation.
Except as set forth above, the Company has no other income (loss), revenues or
expenses other than as a result of its investment in CECO and investment in
marketable securities. The Company does not engage in operations other than
through its operating subsidiary CECO. See discussion of CECO herein.
Results of Operations - CECO
1997 as Compared to 1996
Revenues for the year ended December 31, 1997 were $14,530,974, an increase of
$4,683,277 or 47.6% from $9,847,697 for the year ended December 31, 1996. This
increase was due primarily to the Busch acquisition completed in 1997.
CECO's overall cost of sales increased as a percentage of sales for the year
ended December 31, 1997 (55.8%) compared to the year ended December 31, 1996
(52.7%). This increase is attributed to the impact of the Busch acquisition;
Busch's costs as a percentage of sales amounted to 66.9% from July 1, 1997
through December 31, 1997. Without the acquisition of Busch, CECO's cost of
sales as a percentage of sales would have been 51.0%. The decrease compared to
the prior year, excluding figures from the operations of Busch, is attributed to
lower material costs, as well as lower costs incurred to service CECO's
products. CECO continues to use the latest technology available in an effort to
reduce both cost of sales, including maintaining optimal levels of inventory and
operating expenses, and ultimately increase overall company profits.
CECO's selling and administrative expenses amounted to $5,850,452 for the year
ended December 31, 1997 compared to $3,316,716 for the year ended December 31,
1996, representing an increase of $2,533,736, or 76.4%. A significant amount of
this increase is attributable to (i) selling and administrative expenses of
Busch's operations since the effective date of the Busch
16
<PAGE>
acquisition, and (ii) selling and administrative expenses associated with USFM
which only recently commenced its operations. The selling and administrative
expenses of Busch include a non-recurring $500,000 charge for a sign-on bonus
(the "Sign On Bonus") paid to a former officer of the old Busch Co. in
connection with a three-year employment agreement. A substantial portion of
CECO's selling and administrative expenses are fixed in nature.
CECO entered into a management and consulting agreement with the Company in
1994, in which terms of the agreement require payment of monthly fees of $20,000
through December 1998 in exchange for management and financial consulting
services involving corporate policies; marketing; strategic and financial
planning; and mergers, acquisitions and related matters. CECO paid management
fees to the Company of $240,000 during each of the years ended December 31, 1997
and 1996.
CECO's depreciation and amortization expense decreased from $341,599 in 1996 to
$289,544 in 1997, primarily because equipment and intangible assets acquired
more than five years ago became fully amortized or depreciated during 1997.
CECO's interest expense decreased by $24,136 or 15.6% during the year ended
December 31, 1997 compared to the same period in 1996, principally due to
decreased borrowings from CECO's line of credit in 1997.
CECO incurred a pretax loss of $95,744 for the year ended December 31, 1997
compared to pretax income of $606,813 for the year ended December 31, 1996.
Pretax income for the year ended December 31, 1997, before deducting the charge
for the Sign On Bonus ("non-recurring charge"), was $404,256. The decrease from
the prior year is attributed principally to the increase in selling and
administrative expenses in relation to the Busch acquisition, expenses connected
with the start-up of USFM and expenses in relation to international sales
development.
Net income (loss) per share for 1997 and 1996 before and after non-recurring
charges were as follows:
1997 1996
---- ----
Before non-recurring charge $ .06 $ .06
After non-recurring charge (.01) .06
1996 as Compared to 1995
CECO's consolidated net sales increased by $1,412,388 or 16.7% from
$8,435,309 in 1995 compared to $9,847,697 in 1996. Net income increased in
1996 from a loss of ($71,241) or ($0.01) per share to earnings of $401,025
or $0.07 per share in 1996, an improvement of $472,266. This dramatic
improvement in financial performance was attributed to:
17
<PAGE>
o Continuation of CECO's target market strategy which allowed CECO to
improve gross profit margins by attaining higher value for the products
and services CECO provides.
o Repositioning CECO in the marketplace to enhance how CECO is viewed by
customers, competitors, employees, and shareholders. CECO is making
good progress in identifying market segments that fit criteria for
delivering exceptional value to both its customers and shareholders.
o Redirection of CECO's design strategies to utilize standard components
customized for specific customer needs. This specialized
standardization approach helped shape much of CECO's new developments
in 1996, and will become the cornerstone for improving competitiveness
and profit margins over the next several years.
o A new subsidiary, USFM, was formed to implement CECO'S facilities
management strategy. Investment in this new activity was nearly
$200,000. The market potential of this service-oriented business could
greatly exceed that of the existing businesses and is discussed
subsequently.
o Research and development expenditures in 1996 were increased from
$17,484 in 1995 to $116,979 in 1996 and resulted in the following
developments:
Two patent applications directed toward enhancing CECO's customized
standardization (CS) strategy. These unique designs are characterized
by ease of use, flexibility in application and the ability to achieve
complete product recycle when the customer's use is satisfied. This
breakthrough will enable CECO to offer the same units or applications
in widely disparate industries with the possibility to reuse the units
once the original use is satisfied. It also allows CECO the flexibility
to sell or rent the systems. The rental approach allows CECO to reuse
the units after cleaning and repacking, resulting in a high return on
capital employed.
A new, felted fiberglass fabric was developed by CECO's APC subsidiary,
targeted to compete with DuPont Nomex(R) and other fabrics sold for
dust collection in industrial applications. This product will allow
CECO to compete for a larger share of the global market for filter
fabric media and will add to CECO's established position with the
Huyglas(R) trade name.
CECO's cost of sales as a percentage of sales decreased by 3.4% in 1996 from
56.1% in 1995 compared to 52.7% in 1996. The decrease was due primarily to
decreased raw material costs.
Selling and administrative expenses increased by $265,899 from $3,050,817 in
1995 to $3,316,716 in 1996. Approximately $200,000 of such increase was
attributed to CECO's investment in the facilities management strategy described
previously. CECO's
18
<PAGE>
selling and administrative expenses decreased by 2.5%, as a percentage of sales,
from 36.2% in 1995 to 33.7% in 1996. A substantial portion of the selling and
administrative expenses are fixed in nature.
CECO's depreciation and amortization expense decreased slightly from $356,634 in
1995 to $341,599 in 1996 primarily due to a decrease in equipment acquisitions
in 1996.
CECO's interest expense decreased from $175,028 in 1995 to $154,837 in 1996,
principally due to decreased borrowing from CECO's line of credit in 1996.
Nomex(R) is a registered trademark of E.I. DuPont.
Huyglas(R) is a registered trademark of Air Purator Corp., a subsidiary of CECO.
Item 7. Financial Statements
The Company's Consolidated Financial Statements of CECO
Environmental Corp. and Subsidiaries for Years Ended December 31, 1997 and 1996
and other data are presented on the following pages:
Cover Page 20
Independent Auditor's Report 21
(Margolis & Company P.C.)
Consolidated Balance Sheet 22
Consolidated Statement of Operations 23
Consolidated Statement of Shareholders' 24
Equity
Consolidated Statement of Cash Flows 25
Supplemental Disclosures of Cash 26
Flow Information
Supplemental Disclosures of Non-Cash 26
Investing and Financing Activities
Notes to Consolidated Financial Statements 27
for the Years Ended December 31, 1997,
and 1996
19
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
CECO Environmental Corp. and Subsidiaries
Toronto, Ontario Canada
We have audited the accompanying consolidated balance sheet of CECO
Environmental Corp. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CECO Environmental Corp. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Certified Public Accountants
Bala Cynwyd, PA
January 27, 1998
21
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 847,827 $ 412,174
Marketable securities - trading 634,150 1,015,521
Accounts receivable 2,979,414 2,077,045
Inventories 771,068 565,371
Costs and estimated earnings in excess of
billings on uncompleted contracts 235,454 -
Prepaid expenses and other current assets 230,458 45,464
Prepaid and refundable income taxes 150,200 -
Deferred income taxes 33,477 58,735
------------- -----------
Total current assets 5,882,048 4,174,310
Property and equipment, net 1,947,482 1,806,126
Intangible assets, at cost, net 6,107,554 3,220,841
Deferred income taxes 23,896 -
------------- ------------
Total assets $13,960,980 $9,201,277
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ - $ 400,000
Current portion of long-term debt 333,871 83,100
Current portion of capital lease obligation 5,554 6,043
Accounts payable and accrued expenses 1,873,965 1,220,595
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,517,310 -
Due former owners of Busch Co. 502,592 -
Income taxes payable - 276,976
------------- ------------
Total current liabilities 5,233,292 1,986,714
Long-term debt, less current portion 1,732,993 1,132,869
Capital lease obligation, less current portion 3,821 9,882
------------- ------------
Total liabilities 6,970,106 3,129,465
------------- ------------
Minority interest 248,289 964,203
------------- ------------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 100,000,000
shares authorized, 8,107,048 and 7,338,548
shares issued, respectively 81,070 73,385
Capital in excess of par value 9,860,063 8,178,998
Accumulated deficit (2,849,879) (2,796,105)
------------- ------------
7,091,254 5,456,278
Less treasury stock, at cost (348,669) (348,669)
------------- ------------
Net shareholders' equity 6,742,585 5,107,609
------------- ------------
Total liabilities and shareholders' equity $13,960,980 $ 9,201,277
============= ============
The notes to consolidated financial statements are an integral part of the above
statement.
</TABLE>
22
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
----------- ----------
<S> <C> <C>
Revenues:
Net sales - products $10,901,728 $9,847,697
Contract revenues 3,629,246 -
----------- ----------
Total revenues 14,530,974 9,847,697
----------- ----------
Costs and expenses:
Cost of revenues - products 5,746,125 5,187,732
Cost of revenues - contracts 2,369,886 -
Selling and administrative 6,054,556 3,524,734
Depreciation and amortization 384,661 416,988
----------- ----------
14,555,228 9,129,454
----------- ----------
Income (loss) from operations (24,254) 718,243
Investment income 84,326 82,763
Interest expense (130,701) (154,837)
----------- ----------
Income (loss) before income taxes
and minority interest (70,629) 646,169
Income taxes 7,200 205,788
----------- ----------
Income (loss) before minority interest (77,829) 440,381
Minority interest in net (income) loss of
consolidated subsidiary 24,055 (139,298)
----------- ----------
Net income (loss) ($53,774) $ 301,083
=========== ==========
Net income (loss) per share, basic and diluted ($.01) $ .04
=========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of the above
statement.
23
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED TREASURY
STOCK PAR VALUE DEFICIT STOCK
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $69,563 $7,767,945 ($3,097,188) ($398,669)
Net income for year ended
December 31, 1996 301,083
Distribution of 17,800 shares of
Company's common stock as
employee bonuses 50,000
Acquisition of 5.1% of CECO Filters, Inc.
common stock through issuance of
371,200 shares of common stock 3,712 383,663
Exercise of stock options 110 27,390
-------- ---------- ---------- -------
Balance, December 31, 1996 73,385 8,178,998 (2,796,105) (348,669)
Net (loss) for year ended
December 31, 1997 (53,774)
Acquisition of 19.5% of CECO Filters, Inc.
common stock through issuance of
768,500 shares of common stock 7,685 1,681,065
-------- --------- ---------- --------
Balance, December 31, 1997 $81,070 $9,860,063 ($2,849,879) ($348,669)
======== ========= ========== ========
</TABLE>
The notes to consolidated financial statements are an integral part of the above
statement.
24
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
----------- ------------
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($53,774) $ 301,083
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Non-cash consulting fees - 75,000
Distribution of 17,800 shares of Company's common
stock as employee bonuses in lieu of cash - 50,000
Depreciation and amortization 384,661 416,988
Deferred income taxes 1,362 (57,734)
Minority interest (24,055) 139,298
(Increase) decrease in operating assets:
Accounts receivable (902,369) (220,504)
Inventories (60,318) 89,455
Costs and estimated earnings in excess of
billings on uncompleted contracts (235,454) -
Prepaid expenses and other current assets (174,460) 11,272
Prepaid and refundable income taxes (150,200) -
Purchase of marketable securities (1,191,998) (1,615,959)
Proceeds from sale of marketable securities 1,573,369 600,439
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 653,370 54,589
Income taxes payable (276,976) 266,231
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,517,310 -
--------- ----------
Net cash provided by operating activities 2,060,468 110,158
--------- ----------
Cash flows from investing activities:
Acquisition of Busch Co. allocated to:
Goodwill (1,819,331) -
Inventory (145,379) -
Equipment (131,818) -
Patents (77,323) -
Prepaid expenses (13,059) -
Acquisitions of property and equipment (210,087) (78,720)
Acquisitions of intangible assets (198,855) (39,688)
Sale of CECO Filter's common stock 24,100 -
--------- ----------
Net cash (used in) investing activities (2,571,752) (118,408)
--------- ----------
</TABLE>
CONTINUED ON NEXT PAGE
The notes to consolidated financial statements are an integral part of the above
statement.
25
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
Cash flows from financing activities:
Increase in long-term debt $1,000,000 $ -
Net repayments, short-term obligations ( 400,000) (450,000)
Repayments of long-term debt and
capital lease obligation (155,655) (200,087)
Proceeds from exercise of stock options - 27,500
Due to former owners of Busch Co. 502,592 -
---------- ---------
Net cash provided by (used in)
financing activities 946,937 (622,587)
---------- ---------
Net increase (decrease) in cash 435,653 (630,837)
Cash at beginning of year 412,174 1,043,011
---------- ---------
Cash at end of year $ 847,827 $ 412,174
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 130,701 $ 158,430
---------- ---------
Income taxes $ 433,014 $ 23,861
---------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company exchanged 186,000 and 371,200 shares of its common stock for 186,000
and 371,200 shares of CECO Filters, Inc. ("CFI") common stock with unrelated
third parties in 1997 and 1996, respectively. On August 13, 1997, the Company
exchanged 582,500 shares of its common stock for 1,165,000 shares of CFI's
common stock with an officer of CFI.
The notes to consolidated financial statements are an integral part of the above
statement.
26
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business - The principal business of the Company's subsidiary
is to provide standard and engineered systems for air quality
improvement and to offer complete operation, maintenance and data
processing services to industrial and commercial customers, primarily in
the United States.
Principles of consolidation - The consolidated financial statements
include the accounts of CECO Environmental Corp. (the "Company"), and
CECO Filters, Inc. ("CFI"), an 87.5% (as of December 31, 1997) owned
subsidiary. The Company acquired its majority ownership in CFI in April
1993 (see Note 2). All intercompany balances and transactions have been
eliminated.
Use of estimates - The presentation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Investments in marketable securities - The Company's investments in
marketable securities comprise corporate debt securities, all classified
as trading securities, which are carried at their fair value based on
the quoted market prices. Accordingly, net realized and unrealized gains
and losses on trading securities are included in net income.
Investment income consists principally of interest income.
Accounts receivable - The Company considers accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is
required.
Inventories and revenue recognition - Inventories are valued at the
lower of cost, using the first-in, first-out (FIFO) method, or market.
Property and equipment - Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to income as
incurred. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
Intangible assets - Goodwill is being amortized on a straight-line basis
over 40 years. The Company's policy is to continually monitor the
recoverability of goodwill using a fair value approach. Other intangible
assets are being amortized on a straight-line basis over their estimated
useful lives, which range from 5 to 17 years.
Revenue recognition - Revenue from manufactured products and products
purchased for resale is recognized upon shipment to customers.
Revenue from contracts for the design and manufacture of air handling
units are recognized on the percentage of completion method, measured by
the percentage of contract costs incurred to date to estimated total
contract costs for each contract. This method is used because management
considers contract costs to be the best available measure of progress on
these contracts.
27
<PAGE>
1. Nature of Business and Summary of Significant Accounting Policies -
Continued
Contracts - continued
Contract costs include direct material, labor cost and those indirect
costs related to contract performance, such as indirect labor, supplies,
tools and repairs. Selling and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Changes in job performance, job conditions and estimated profitability
may result in revisions to contract revenue and costs and are recognized
in the period in which the revisions are made.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of
amounts billed. The liability, "billings in excess of costs and
estimated earnings on uncompleted contracts," represents billings in
excess of revenues recognized.
Advertising costs - Advertising costs are charged to operations in the
year incurred and totaled $117,481 in 1997 and $130,762 in 1996.
Research and development - Research and development costs are charged to
expense as incurred. The amounts charged were $91,803 in 1997 and
$116,979 in 1996.
Per share data - The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" which establishes
standards for computing basic and diluted earnings per share and is
effective for periods ending after December 15, 1997. Per share data is
computed using the weighted average number of common shares outstanding.
The Company considers outstanding options and warrants in computing
diluted net income (loss) per share only when they are dilutive. The
weighted average number of common shares was 7,551,836 for 1997 and
7,001,036 for 1996 for basic and 7,953,212 for 1997 and 7,001,036 for
1996 diluted net income (loss) per share.
Reclassifications - Certain reclassifications have been made to the 1995
financial statements to conform with the 1996 presentation.
Stock-based compensation - In October, 1996, the Financial Accounting
Standards Board adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation. SFAS 123
permits companies to choose between a "fair value based method of
accounting" for employee stock options or to continue to measure
compensation cost for employee stock compensation plans using the
intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to continue to use the APB
25 method. Under such method, compensation is measured by the quoted
market price of the stock at the measurement date less the amount, if
any, that the employee is required to pay. The measurement date is the
first date on which the number of shares that an individual employee is
entitled to receive and the option or purchase price, if any, are known.
The Company did not incur any compensation expense related to its or
CFI's stock option plan or the Company's warrants during 1997 and 1996.
28
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies -
Continued
Stock-based compensation - continued
Entities electing to remain with this method must make pro forma
disclosures of net income (loss) and earnings (loss) per share as if the
fair value based method of accounting defined in SFAS 123 had been
applied to all awards granted in fiscal years beginning after December
15, 1994. Had compensation cost for its or CFI's stock option plan and
the warrants issued by the Company been determined based on the fair
value at the grant dates for awards under those arrangements consistent
with the method of SFAS 123, the Company's 1996 net income and earnings
per share would have been reduced to $38,583 and $.01, respectively. The
effect on net loss for 1997 for options granted under the Company's
stock option plan would have been de minimis.
Changes in accounting policies - In June, 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". In February,
1998, the FASB also issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits". These pronouncements are
effective for fiscal years beginning after December 15, 1997, and thus
do not effect any of the financial statements reported on herein, but
will become effective in 1998. The adoption of these pronouncements will
have no impact on the Company's consolidated results of operations,
financial position, or cash flows, but upon adoption may require
disclosures for prior periods to be restated.
2. Investment in CFI/Goodwill
Pursuant to a Stock Exchange Agreement dated May 30, 1992, between the
Company and IntroTech Investments, Inc. ("IntroTech"), a privately-held
Ontario corporation, the Company exchanged 1,666,666 newly issued shares
of its common stock for 1,666,666 shares of CFI common stock owned by
IntroTech. CFI is a publicly-held Delaware corporation. The 1,666,666
shares of CFI common stock acquired by the Company are restricted. Those
shares represented 24.51% of the outstanding shares of common stock of
CFI.
During 1993 through 1996, the Company exchanged 2,953,964 additional
shares of its common stock for 2,953,964 shares of CFI's common stock
with unrelated third parties. Also, during 1993, the Company acquired,
for cash, an additional 21,100 shares of CFI's common stock from
unrelated third parties, which were subsequently sold in September,
1997. In June, 1997, the Company exchanged 186,000 additional shares of
its common stock for 186,000 shares of CFI's common stock with unrelated
third parties. On August 13, 1997, the Company exchanged 582,500 shares
of its common stock for 1,165,000 shares of CFI's common stock with an
officer of CFI. As of December 31, 1997, the Company owned 87.5% of
CFI's common stock.
The Company included CFI and its wholly-owned subsidiaries in its
consolidated financial statements as of April 1993 when the Company's
ownership of CFI's common stock exceeded 50%.
29
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
3. Acquisition of Business
On September 25, 1997, pursuant to an Asset Purchase Agreement, New
Busch Co., Inc., a wholly-owned subsidiary of CECO Filters, Inc.,
acquired substantially all of the assets, and the business, of Busch Co.
("Busch") for $2,100,000 in cash, plus acquisition costs. Busch, located
in Pittsburgh, Pennsylvania, was engaged in the business of marketing,
selling, designing and assembling ventilation, environmental and
process-related products, and also provided manufacturer's
representative services to certain companies or manufacturers in support
or related businesses. The acquisition was accounted for as a purchase.
The excess of the aggregate purchase price over the fair market value of
the net assets acquired of $1,819,331, which was allocated to goodwill
based upon preliminary estimates of fair value, is being amortized over
40 years. The Asset Purchase Agreement provides that, notwithstanding
the actual September 25, 1997 closing date, the closing was deemed to be
effective as of July 1, 1997. The 1997 statement of operations,
therefore, includes the operations of New Busch Co. since July 1, 1997.
On a pro forma basis, unaudited results of operations for the years
ended December 31, 1997 and 1996 would have been as follows, if the
acquisition had been made as of January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Total revenues $21,434,816 $21,599,393
Income before taxes on income 857,791 1,075,867
Net income 511,173 444,695
Net income per share $.07 $.06
</TABLE>
4. Financial Instruments
Fair value of financial instruments:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Financial assets:
Cash $847,827 $ 847,827 $ 412,174 $ 412,174
Marketable securities 634,150 634,150 1,015,521 1,015,521
Financial liabilities:
Long-term debt 2,066,864 1,963,547 1,215,469 1,140,611
Short-term obligations - - 400,000 400,000
</TABLE>
The fair values of cash and short-term obligations are assumed to be
equal to their reported carrying amounts based on their close proximity
to maturity.
30
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
4. Financial Instruments - Continued
Valuations for marketable securities are determined based on quoted
market prices and valuations for long-term debt are determined based on
future payments discounted at current interest rates for similar
obligations.
Management of the Company does not expect any losses to result from its
standby letter of credit described in Note 10 and, therefore, is of the
opinion that the fair value of this off- balance sheet financial
instrument is zero.
The Company does not hold any financial instruments for trading
purposes.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to credit
risk consist principally of cash and accounts receivable. The Company
performs periodic evaluations of the financial institutions in which its
cash is invested. The Company performs ongoing credit evaluations of its
customers' financial condition, and generally requires no collateral
from its customers.
5. Accounts Receivable
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Trade receivables $1,321,760 $2,077,045
Contract receivables:
Billed on completed contracts 3,817 -
Billed on contracts in progress 1,653,837 -
---------- ----------
$2,979,414 $2,077,045
========== ==========
</TABLE>
6. Inventories
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw material $409,639 $410,949
Finished goods 157,911 154,422
Parts for resale 203,518 -
-------- --------
$771,068 $565,371
======== ========
</TABLE>
31
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
7. Costs and Estimated Earnings on Uncompleted Contracts at
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Costs incurred on uncompleted contracts $2,217,978
Estimated earnings 1,205,994
----------
3,423,972
Less billings to date
5,705,828
----------
($2,281,856)
==========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 235,454
Billings in excess of costs and estimated
earnings on uncompleted contracts (2,517,310)
---------
($2,281,856)
==========
</TABLE>
8. Property and Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land $ 137,342 $ 137,342
Building 1,679,659 1,670,631
Machinery and equipment 1,884,572 1,551,694
--------- ---------
3,701,573 3,359,667
Less accumulated depreciation 1,754,091 1,553,541
--------- ---------
$1,947,482 $1,806,126
========= =========
</TABLE>
Depreciation expense was $200,550 and $292,225 for 1997 and 1996,
respectively. Machinery and equipment at December 31, 1997 and 1996
included equipment acquired under a capital lease with a cost of $19,793
and accumulated depreciation of $15,097 and $7,918, respectively.
9. Intangible Assets
Intangible assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Goodwill $6,177,927 $3,438,432
Customer lists - 81,500
Non-compete agreements 100,000 62,500
Patents 251,692 77,406
---------- ----------
6,529,619 3,659,838
Less accumulated amortization 422,065 438,997
---------- ----------
$6,107,554 $3,220,841
========== ==========
</TABLE>
Amortization expense was $184,111 and $124,763 for 1997 and 1996,
respectively.
32
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
10. Debt
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C> <C>
Short-term obligations
Note payable, bank, under line of credit. CFI has a line of credit with
a bank permitting borrowings of up to $1,500,000 ($1,250,000 at
December 31, 1996) with interest at the prime rate plus 1/2% (1/4% at
December 31, 1996) (effective rate of 9% and 8.5% at December 31, 1997
and 1996, respectively). Borrowing are limited to 80% of eligible
accounts receivable plus a permitted out-of-formula advance which at
December 31, 1997 was $600,000. There was also a $150,000 standby
letter of credit to the Pennsylvania Industrial Development Authority
which was outstanding
at both dates. $ - $ 400,000
============= ==========
Long-term debt
Term loan, bank, monthly payments of $20,833, plus interest at 1/2% over
the prime rate (effective rate
of 9%) through September, 2001 $937,500 $ -
Mortgage note payable, bank, monthly installments of $10,149, including
interest at 8% per annum through March 1, 1998 at which time the
interest rate will be adjusted to a per annum rate equal to 3/4% in
excess of the prime rate. Remaining principal will be repaid in 110
equal monthly installments beginning
April 1, 1998, plus interest. 857,956 907,928
Pennsylvania Industrial Development Authority, payable in equal monthly
installments of $2,797 including interest at 3% per annum, through
May, 2007, collateralized by a second mortgage on land
and building 271,408 296,420
Delaware Valley Industrial Resource Center, payable in equal monthly
installments of $489 including interest
at 3% per annum, through February, 1997 - 974
Delaware Valley Industrial Resource Center, payable
in equal monthly installments of $273 including
interest at 3% per annum, through May, 1997 - 1,355
---------- ----------
Totals (carried forward) $2,066,864 $1,206,677
---------- ----------
</TABLE>
33
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
10. Debt - Continued
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Long-term debt - continued
Totals (brought forward) $2,066,864 $1,206,677
Delaware Valley Industrial Resource Center, payable in equal monthly
installments of $131 including interest at
3% per annum, through April, 1997 - 521
Delaware Valley Industrial Resource Center, payable
in equal monthly installments of $560 including
interest at 3% per annum. Repaid in 1997. - 8,771
---------- -----------
2,066,864 1,215,969
Less current portion 333,871 83,100
---------- -----------
$1,732,993 $1,132,869
========== ===========
</TABLE>
Maturities of all long-term debt over the next five years are estimated
as follows:
1998 $333,871
1999 847,427
2000 355,272
2001 301,340
2002 123,201
CFI's property and equipment, accounts receivable, and inventory serve
as collateral for its bank debt. The bank debt is also subject to
financial covenants which require CFI to maintain a minimum cash flow
coverage, current ratio and net worth. The Company obtained a waiver
from the bank for these covenants which is effective through December
31, 1998.
11. Capital Lease Obligation
CFI acquired equipment under the provisions of a long-term lease. Future
minimum lease payments under the capital lease are as follows:
1998 $ 6,953
1999 3,478
-------
10,431
Less amount representing interest 1,056
Present value of net minimum -------
capital lease payments 9,375
Less current portion 5,554
-------
Long-term portion $ 3,821
=======
34
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
12. Shareholders' Equity
Stock Option Plan
CFI maintained a stock option plan for its employees through 1996.
During 1997, all participants in the CFI plan were given the opportunity
to exchange their unexercised options for the same number of options in
a new plan established by CECO Environmental Corp. Under the former
plan, options to purchase 500,000 shares of CFI's common stock were
available to be granted at not less than 100% of the market price of the
shares on the date of grant. Options were generally exercisable one year
from the date of grant and expired between five and ten years of the
date of grant. At December 31, 1997, there were no outstanding options
with respect to the CFI plan. Options under the 1997 CECO Environmental
Corp. plan have the same terms. The grant date for all of the exchanged
options is December 15, 1997, and 1,500,000 shares of CECO Environmental
Corp.'s common stock have been reserved for issuance under this plan.
The status of both stock option plans is as follows:
<TABLE>
<CAPTION>
1997 - CECO
ENVIRONMENTAL
CORP. PLAN 1996 - CFI PLAN
---------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 0 369,100 $1.14
Granted 312,320 $4.46 80,900 1.04
Forfeited 0 (41,400) .97
--------- -------
Outstanding at end of year 312,320 4.46 408,600 1.14
========= =======
Options exercisable at year end 0 327,700
========= =======
Available for grant at end of year 1,187,680 6,850
========= =======
</TABLE>
Warrants to Purchase Common Stock
In November 1996, the Company's Board of Directors authorized the
issuance of warrants to purchase 750,000 shares of the Company's Common
Stock to the Chief Executive Officer. The warrants carry an exercise
price of $1.75 per share. The warrants expire 10 years from issuance. In
January, 1998, additional warrants were issued to the Chief Executive
Officer to purchase 250,000 shares of the Company's common stock,
effective June 14, 1998, at an exercise price of $2.75 per warrant.
These warrants expire 9 1/2 years from issuance.
35
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
13. Sales to Major Customers
CFI had one customer in 1996 representing 15% of consolidated net
revenues. There were no customers in 1997 where revenues exceeded 10% of
consolidated net revenues.
14. Employee Benefit Plans
CFI has a 401(k) Savings and Retirement Plan which covers substantially
all employees. Under the terms of the Plan, employees can contribute
between 1% and 22% of their annual compensation to the Plan. CFI matches
50% of the first 6% of employee contributions. Plan expense for the
years ended December 31, 1997 and 1996 was $57,678 and $34,505,
respectively.
CFI also has a profit-sharing plan which covers substantially all
employees. There were no contributions to the Plan for 1997 or 1996.
15. Commitments
Rent
CFI leases certain facilities on a year-to-year basis. CFI also has
future annual minimum rental commitments under noncancelable operating
leases as follows:
1998 $208,188
1999 161,737
2000 151,101
2001 134,873
2002 77,763
Total rent expense under all operating leases for 1997 and 1996 was
$206,927 and $88,515, respectively.
Non-Compete Agreement
In connection with the acquisition described in Note 2, the Company
entered into a non-compete agreement with a former shareholder of Busch.
In addition to the $100,000 paid a the closing date, the agreement
requires annual payments of $200,000 on each of the next four
anniversary dates of the closing. The related cost is being amortized
ratably over the four-year period.
36
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
16. Income Taxes
Income taxes (benefit) consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Current:
Federal ($64,085) $179,030
State 69,923 84,492
------ --------
5,838 263,522
Deferred 1,362 (57,734)
------- --------
$ 7,200 $205,788
======= ========
</TABLE>
The provision (benefit) for income taxes differs from the statutory rate
due to the following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Tax (benefit) at statutory rate ($24,014) $219,697
Increase (decrease) in tax resulting from:
Net operating loss deduction (40,875) (39,013)
State tax, net of federal benefit 46,149 55,765
Change in tax versus book basis of assets 1,362 (57,734)
Permanent differences, principally goodwill 44,249 32,114
(Over) accrual of prior years' taxes (16,852) (9,198)
Other (2,819) 4,157
------- --------
$ 7,200 $205,788
======= ========
</TABLE>
Deferred income taxes reflect the future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The net deferred tax liability consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C> <C>
Deferred tax asset:
Inventory capitalization $13,477 $ 17,414
Depreciation 20,600 21,321
Non-compete agreement 18,666 -
Employee bonuses - restricted
stock in lieu of cash 20,000 20,000
Net operating loss carryforwards 50,000 92,000
Less valuation allowance (50,000) (92,000)
------ ------
72,743 58,735
Deferred tax liability:
Goodwill (15,370) -
------ ------
Net deferred tax liability $57,373 $58,735
====== ======
</TABLE>
37
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
16. Income Taxes - Continued
The Company has federal net operating loss carryforwards of
approximately $125,000 which expire in 2008.
The change in valuation allowance reflects current utilization of net
operating loss carryforwards. A valuation allowance is provided since
the utilization of tax benefits of net operating loss carryforwards is
not assured.
CECO Environmental Corp. and CFI each file separate federal income tax
returns. In addition, the federal net operating loss carryforwards are
not available to offset taxable income of CFI.
18. Related Party Transactions
Effective January 1, 1995, the Company entered into a consulting
agreement with CFI. The terms of the agreement require monthly fees by
CFI of $20,000 through December, 1998 in exchange for management and
financial consulting services involving corporate policies; marketing;
strategic and financial planning; and mergers, acquisitions and related
matters. CFI paid the Company $240,000 during each of the years ended
December 31, 1997 and 1996. These fees have been eliminated in
consolidation.
19. Consulting Agreement
The Company entered into an eighteen-month consulting agreement with an
unrelated third party, effective April 1, 1995, to provide financial
consulting services to the Company which would, among other things, help
the Company to broaden its stock market appeal. As compensation, the
consultant received an option to purchase 1,000,000 shares of the
Company's common stock at $2.50 per share, such option expiring April
30, 1996. Options exercised on or prior to December 31, 1995 were
exercisable at $2.25 per share. In addition, the Company issued 100,000
shares of its common stock to the consultant.
The value of the options and shares issued, as determined by an
unrelated third party, was $150,000, such amount being deferred and
amortized over the eighteen-month period of the consulting agreement.
Amortization of $75,000 was recorded during 1996.
During the year ended December 31, 1996, the consultant exercised
options to acquire 11,000 shares of the Company's common stock.
38
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
20. Backlog of Uncompleted Contracts
<TABLE>
<CAPTION>
<S> <C>
Contracts in progress acquired on July 1, 1997
in connection with acquisition of Busch Co. $ 8,557,030
New contracts, July 1 through December 31, 1997 2,804,467
Contract adjustments 291,501
-----------
11,652,998
Less contract revenues recognized, July 1, 1997
through December 31, 1997 3,629,246
-----------
Balance, December 31, 1997 $ 8,023,752
===========
</TABLE>
39
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has had no changes in or disagreements with its
independent accountants during the Company's two most recent fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following are the directors and executive officers of the Company.
The terms of all directors expire at the next annual meeting of shareholders and
upon election of their successors. The terms of all officers expire at the next
annual meeting of the board of directors and upon the election of the successors
of such officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Phillip DeZwirek 60 Chairman of the Board of Directors; Chief
Executive Officer and Chief Financial Officer
Jason Louis DeZwirek 27 Director, Secretary
Josephine Grivas 58 Director
Donald Wright 60 Director
</TABLE>
The business backgrounds during the past five years of the Company's
directors and officers are as follows:
Phillip DeZwirek became a director, the Chairman of the Board and the
Chief Executive Officer of the Company in August 1979. Mr. DeZwirek's principal
occupations during the past five years have been as President (since May 1982
until 1993) and Chairman of the Board of Digital Fusion Multimedia Corp.
(formerly Akers Medical Technologies Limited and herein called "Digital Fusion")
of Toronto Canada; Chairman of the Board and Vice President of CECO Filters,
Inc., a Delaware corporation (since 1985); and President of Can-Med (since
1990). Mr. DeZwirek has also been involved in private investment activities for
the past five years. Digital Fusion's common stock is traded over-the-counter on
the NASDAQ Bulletin Board. CECO is discussed elsewhere in this document. See
Item 1 - Business.
40
<PAGE>
Jason Louis DeZwirek, the son of Phillip DeZwirek, became a director
of the Company in February, 1994. He became Secretary of the Company on February
20, 1998, following the resignation of Josephine Grivas as Secretary. Mr.
DeZwirek from October 1, 1997, has also been a member of the Committee that was
established to administer the Company's stock option plan. Mr. DeZwirek's
principal occupation since 1993 has been as the President of Digital Fusion, a
company that adapts books and movies to the CD Rom medium. From 1992 until 1993,
Mr. DeZwirek was the Chief Financial Officer of Missing Treasurers Productions,
a television production company.
Josephine Grivas has been a director of the Company since February,
1991. She was its Secretary from October, 1992 until she resigned as of February
2, 1998. Ms. Grivas has since October 1, 1997, also been a member of the
Committee that was established to administer the Company's stock option plan.
Since February 20, 1998, Ms. Grivas has been a member of the Audit Committee,
which was created to evaluate transactions where the potential for a conflict of
interest exists and such other matters that are properly referred to the Audit
Committee by the Board of Directors. Ms. Grivas had been an administrative
assistant for Phillip DeZwirek, Icarus Investment Corp. and other entities he
controls since 1975. She retired from those positions in February 1998. Ms.
Grivas also is the Secretary and Treasurer and a director of Can-Med.
Donald A. Wright became a director of the Company on February 20,
1998. Mr. Wright has also been a member of the Audit Committee since February
20, 1998. Mr. Wright has been a principal of and real estate broker with The
Phillips Group in San Diego, California, a company which is a real estate
developer and apartment building syndicator, since 1992. Since November 1996,
Mr. Wright has also been a real estate broker with Prudential Dunn Realtors in
Pacific Beach, California. From August 1995 until October 1996 he was the
principal of and real estate broker with Barbour Real Estate Sales and Leasing
in La Costa, California.
During the fiscal year ended December 31, 1997, the Board held no
meetings. During and since the end of such period, action has been taken by
unanimous written consent of the Board of Directors.
Compliance with Section 16(a) of the Exchange Act. The Company is not
aware of any persons who beneficially own or owned more than 10 percent of the
outstanding common stock of the Company or any officer, director or other person
subject to the requirements of Section 16 of the Securities Exchange Act of 1934
who, during the period covered by this Annual Report on Form 10-KSB, failed to
file, or failed to file on a timely basis, any reports or forms required to be
filed under said Section 16 or the rules and regulations promulgated thereunder.
41
<PAGE>
Item 10. Executive Compensation
Except for the compensation described below, neither the Company nor
any of its subsidiaries paid, set aside or accrued any salary or other
remuneration or bonus, or any amount pursuant to a profit-sharing, pension,
retirement, deferred compensation or other similar plan, during its last fiscal
year, to or for any of the Company's executive officers or directors.
The directors of the Company received no consideration for serving in
their capacity as directors of the Company during its last fiscal year. The
Company has no annuity, pension or retirement plans.
Warrants
On January 14, 1998, in consideration for Philip DeZwirek's valuable
service to the Company as an employee, officer and director, the Company granted
Mr. DeZwirek warrants (the "Warrants") to purchase up to 250,000 shares of the
Company's common stock ("Warrant Shares"). The Warrants are exercisable at any
time between June 14, 1998 and January 14, 2008 inclusive at a price of $2.75,
the closing price of the Company's common stock on January 14, 1998. The
Warrants are transferable and grant the holders thereof "piggyback registration
rights", i.e. the right to participate in any registration of securities by the
Company other than a registration statement in connection with a merger or
pursuant to registration statements on Forms S-4 or S-8. Additionally, the
holders of a majority of the Warrant Shares and the Warrants have the right on
two occasions to have the Company prepare and file with the Securities and
Exchange Commission a registration statement and such other documents as may be
necessary for such holders to effect a public offering of Warrant Shares
previously issued or to be issued upon the effectiveness of such registration
statement. The Company is however required to pay the expenses of only one of
such registrations. The right to demand such registrations expires on January
14, 2008 or upon the happening of certain other conditions.
Compensation
On October 1, 1997, the Board of Directors of the Company adopted the
CECO Environmental Corp. 1997 Stock Option Plan (the "Plan"). The stock options
are intended to qualify as incentive stock options and may be issued to
officers, employees, directors, and consultants of the Company and its
subsidiaries. The Plan must be administered by a committee of at least two
non-employee directors; the committee currently consists of Jason DeZwirek and
Josephine Grivas. One Million, Five Hundred Thousand shares of the Company's
stock has been reserved for issuance pursuant to the Plan. Options to purchase
stock may be granted at not less than 100% of the market price of the shares on
the date of the grant, except that if the grantee of the options owns more than
10% of the voting power of stock of the Company or any of its subsidiaries, the
option price per share may not be less than 110% of the market price on the date
of the grant. As of March 18, 1998, 313,320 options under the Plan have been
issued, none of which were issued to an officer or director of the Company.
Adoption of the Plan is
42
<PAGE>
subject to the approval of the shareholders of the Company by September 30,
1998. Any incentive stock options granted after adoption of the Plan by the
Board of Directors will be treated as nonqualified stock options if shareholder
approval is not obtained by September 30, 1998.
During 1997 CECO's stock option plan was terminated and all
participants in CECO's stock option plan exchanged their options for options
pursuant to the Plan.
The following table summarizes the total compensation of Phillip
DeZwirek, the Chief Executive Officer of the Company, for 1997 and the two
previous years. There were no other executive officers of the Company who
received compensation in excess of $100,000 in 1997.
43
<PAGE>
SUMMARY COMPENSATION TABLE FOR THE COMPANY:
Name/ Annual Compensation Long Term Compensation
Principal Position Year Salary Options (#)
- ------------------ ---- ------ ----------------------
Phillip DeZwirek 1997 $50,000 -
President and 1996 $42,500 750,000(1)
Chief Executive Officer 1995 $37,500 -
The following tables set forth information with respect to Mr.
DeZwirek concerning exercise of options on stock of the Company during the last
fiscal year and unexercised options on stock of the Company held as of the end
of the fiscal year.
OPTION/SAR GRANTS BY THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1997:
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options Employees in or Base Expiration
Name Granted (#) Fiscal Year ($/SH) Date
- ---- ----------- -------------- -------- ----------
Phillip DeZwirek - - - -
AGGREGATED OPTION/SAR ON THE COMPANY
EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1997
AND OPTION/SAR VALUES ON THE COMPANY AS OF DECEMBER 31, 1997:
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options/SARs Options/SARs
Exercise Realized at 12/31/97 at 12/31/97
Name (#) ($) Exercisable Exercisable
- ---- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Phillip DeZwirek(1) 0 0 750,000 $984,375
</TABLE>
- -----------------
(1) Represents the Warrants issued to Phillip DeZwirek on November 7, 1996.
44
<PAGE>
The following table summarizes the total compensation of the Chief
Executive Officer of CECO Filters, Inc. for 1997 and the two previous years (the
"Named Executive Officer"). There were no other executive officers of CECO
Filters, Inc. who received compensation in excess of $100,000 for 1997.
SUMMARY COMPENSATION TABLE FOR CECO FILTERS, INC.:
<TABLE>
<CAPTION>
Name/ Annual Compensation Long Term Compensation All Other
Principal Position Year Salary Options (#) Compensation
- ------------------ ---- ------ ----------- ------------
<S> <C> <C> <C> <C>
Steven I. Taub, Ph.D./ 1997 $200,000 210,520(1) $26,300(2)
President and 1996 $200,000 30,000 $28,800
Chief Executive Officer 1995 $200,000 75,000 $29,200
</TABLE>
The following tables set forth information with respect to the Named
Executive Officer concerning exercise of options on stock of the Company during
the last fiscal year and unexercised options on stock of the Company held as of
the end of the fiscal year.
OPTION/SAR GRANTS BY THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year ($/SH) Date
- ---- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Steven I.Taub, Ph.D. 210,520(1,3) 67.4% $4.75 December 31, 2006
</TABLE>
- --------------------
(1) All options granted are for shares of stock of the Company pursuant
to the Company's Stock Option Plan and were granted in exchange for the
cancellation of all options held by Dr. Taub for the purchase of 325,000 shares
of CECO.
(2) Includes $2,000 as an IRA contribution and $24,300 as insurance
premiums.
(3) As of March 9, 1998, options for 42,104 shares are exercisable, with
additional options for 21,052 shares becoming exercisable on January 2 of each
year through 2006.
45
<PAGE>
AGGREGATED OPTION/SAR ON THE COMPANY
EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1997
AND OPTION/SAR VALUES ON THE COMPANY AS OF DECEMBER 31, 1997:
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options/SARs Options/SARs
Exercise Realized at 12/31/97 at 12/31/97
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven I. Taub, Ph.D. 0 0 21,052 189,468 $0 $0
</TABLE>
Dr. Taub entered into a new Employment Agreement dated September 30,
1997 with CECO. The Employment Agreement was effective September 30, 1997 and
has a term through June 30, 2002. Either party may terminate the Employment
Agreement for cause. Dr. Taub's base salary is set at $225,000 per year, but may
be modified by the mutual agreement of CECO and Dr. Taub. In addition to his
base salary, Dr. Taub is entitled to (i) a $2,000 IRA contribution by CECO, (ii)
a car for business use, or in the alternative, an expense reimbursement for his
personal car up to $600 per month, (iii) life, medical, dental and disability
insurance, and (iv) up to 25 days of paid vacation annually. In addition, Dr.
Taub will receive fees for service as a director of CECO equal to the highest
fee paid to any other director of CECO or its affiliates.
Under the terms of the Employment Agreement, upon Dr. Taub's death,
the Company must redeem, at the request of Dr. Taub's estate, all of the stock
owned by Dr. Taub. The price of such redeemed stock will be the lesser of
$2,000,000 or its market value. Either CECO or the Company must maintain at
least $2,000,000 of life insurance on the life of Dr. Taub to pay for such
redemption.
Dr. Taub has agreed not engage in any business competitive with CECO
for a term of two years after termination of his employment. The Employment
Agreement also provides that Dr. Taub will receive 210,520 options for stock of
the Company in exchange for options of stock of CECO.
46
<PAGE>
The following table summarizes the total compensation of Andrew M.
Halapin, President and Chief Operating Officer of Busch, for 1997. There were no
other executive officers of Busch who received compensation in excess of
$100,000 for 1997. Mr. Halapin did not receive any options or SAR grants from
the Company or Busch in 1997.
SUMMARY COMPENSATION TABLE FOR NEW BUSCH CO., INC.:
<TABLE>
<CAPTION>
Name/ Annual Compensation All Other
Principal Position Year Salary Bonus(1) Compensation(2)
- ------------------ ------------------- ------ -------- ---------------
<S> <C> <C> <C> <C>
Andrew M. Halapin 1997 $100,000 $500,000 $100,000
President and
Chief Operating Officer
</TABLE>
Busch entered into an Employment, Non-Compete and Confidentiality
Agreement dated September 25, 1997 with Andrew M. Halapin, pursuant to which Mr.
Halapin agreed to be Busch's President and chief operating officer until June
30, 2000. Mr. Halapin receives a $200,000 annual salary. Mr. Halapin is also
entitled to a bonus depending upon whether Busch meets or exceeds certain target
earnings. Mr. Halapin agrees to not compete with Busch and its affiliates
(including CECO) for two years from the date of the Employment Agreement or one
year from the date of termination of the Employment Agreement, whichever is
later. As compensation for Mr. Halapin's agreement not to compete, he received
$100,000 upon execution of the Employment Agreement and is entitled to
additional $200,000 annual payments for four years, for a total payment of
$900,000 for Mr. Halapin's agreement not to compete with Busch and its
affiliates. Upon termination of the Employment Agreement, Busch is required to
pay Mr. Halapin $450,000 before January 31, 2002 in consideration of Mr.
Halapin's providing certain consulting services to CECO.
- --------------------
(1) Represents a $500,000 signing bonus.
(2) Represents a $100,000 payment for consideration of a non-compete
agreement contained in Mr. Halapin's Employment Agreement.
47
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth the name and address of each beneficial
owner of more than five percent (5%) of the Company's common stock known to the
Company, the number of shares of common stock of the Company beneficially owned
as of March 9, 1998, and the percent of the class so owned by each such person.
48
<PAGE>
No. of Shares % of Total CEC
Name of of Common Stock Common Shares
Beneficial Owner Beneficially Owned Outstanding(1)
- ---------------- ------------------ --------------
Icarus Investment Corp.(2)
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1X3 1,334,360 15.9%
Phillip DeZwirek(2,3,4)
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1P7 2,089,857 22.8%
IntroTech Investments, Inc(5)
195 Hillsdale Avenue East
Toronto, Ontario M5S 1T4 1,598,666 19.0%
Jason Louis DeZwirek(2,5)
195 Hillsdale Avenue East
Toronto, Ontario M5S 1T4 2,933,026 34.9%
- --------
(1) Based upon 8,415,048 shares of common stock of the Company outstanding as of
March 9, 1998.
(2) Icarus Investment Corp. ("Icarus") is owned 50% by Phillip DeZwirek and 50%
by Jason Louis DeZwirek. Ownership of the shares of common stock of CEC owned by
Icarus Investment Corp. also are attributed to both Messrs. Phillip DeZwirek and
Jason Louis DeZwirek. With respect to the shares owned by Icarus, Icarus has
sole dispositive and voting power and Phillip DeZwirek and Jason Louis DeZwirek
are deemed to have shared voting and shared dispositive power.
(3) Phillip DeZwirek is the Chief Executive Officer, Chief Financial Officer and
Chairman of the Board of Directors of CEC.
(4) Includes 750,000 shares of the Company's common stock that Phillip DeZwirek
can purchase on or prior to November 7, 2006 from the Company at a price of
$1.75 per share pursuant to Warrants granted to Mr. DeZwirek by the Company on
November 7, 1996. Excludes 250,00 shares that may be purchased pursuant to
Warrants granted January 18, 1998, which are not exercisable until June 14,
1998.
(5) Introtech Investments, Inc. ("IntroTech") is owned 100% by Jason Louis
DeZwirek. Ownership of the shares of common stock of the Company owned by
IntroTech also are attributed to Jason Louis DeZwirek. IntroTech and Jason Louis
DeZwirek are each deemed to have sole dispositive and sole voting power with
respect to such shares.
49
<PAGE>
Steven Taub(6) 624,604 7.4%
- --------
(6) Includes 42,104 shares of the Company's common stock that Dr. Taub may
purchase by the exercise of options. Also includes 100,000 shares of stock that
are being held in escrow pursuant to the Agreement and Plan of Reorganization
dated August 13, 1997, pending results of audited 1998 financials of the
Company. If 1998 revenues of CECO are greater than 1997 revenues, the 100,000
shares will be delivered to Dr. Taub. If 1998 revenues are greater than 95% and
less than 100% of 1997 revenues of CECO, Dr. Taub will receive 50,000 of the
escrowed shares; the remainder to be returned to the Company. If 1998 revenues
are less than 95% of 1997's revenues of CECO, the Company will receive all of
the 100,000 shares. Prior to completion of such financials, Dr. Taub has voting
control of the escrowed shares.
50
<PAGE>
(b) Security Ownership of Management
As of March 9, 1998, the present directors and executive officers of
the Company are the beneficial owners of the numbers of shares of common stock
of the Company set forth below:
Name of Number of
Beneficial Shares of % of Total CEC
Owner and Common Stock Common Shares
Position Held Beneficially Owned Outstanding(1)
- ------------- ------------------ ---------------
Phillip DeZwirek
Chief Financial
Officer, Chief
Executive Officer,
Chairman of the
Board of Directors 2,089,857(2) 22.8%
Jason Louis DeZwirek
Director, Secretary 2,933,026(3) 34.9%
Josephine Grivas
Director --- ---
Donald Wright --- ---
Director
Officers and
Directors as a
group (4 persons) 3,688,523 40.2%
- -------------------
(1) See Note 1 to the foregoing table.
(2) See Notes 2, 3, and 4, to the foregoing table.
(3) See Notes 2 and 5 to the foregoing table.
51
<PAGE>
(c) Changes in Control
The Company is not aware of any current arrangement(s) that may result
in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
Since January 1, 1996, the following transactions have occurred in
which persons who, at the time of such transactions, were directors, officers or
owners of more than 5% of the Company's common stock, had a direct or indirect
material interest.
The Company and CECO have entered into a five (5) year written
management and consulting agreement pursuant to which the Company provides
management and financial consulting services to CECO. The Company advises CECO
on corporate policies, strategic and financial planning, mergers and
acquisitions, financing, long-term financial goals and growth plans and related
matters. This agreement was made as of January 1, 1994 and became effective as
of July 1, 1994. Pursuant to this agreement CECO paid the Company management and
financial consulting fees of $40,000 per month from July 1, 1994 through
December 31, 1994 ($240,000 total), and paid $20,000 per month ($240,000 total)
for the 1995, 1996 and 1997 fiscal years. The contract requires monthly fees of
$20,000 through the end of its term. The consulting agreement with CECO
terminates on December 31, 1998, and may be terminated earlier upon the
bankruptcy or liquidation of CECO or the Company, by the non-bankrupt party. The
consulting agreement may also be terminated upon the sale of substantially all
of the assets of CECO or the merger of CECO into another company, in which event
the Company is entitled to receive a severance fee of $240,000.
On September 25, 1997, CECO borrowed $500,000 from the Company to help
fund the purchase of the assets for Busch. The loan is a subordinated, unsecured
loan. No principal may be repaid until the entire balance of a $1,000,000 loan
from CoreStates Bank, N.A. is repaid in full. The Company, however, receives
payments of interest. Interest accrues on the unpaid principal at the rate of
10% per annum.
Andrew Halapin, President of Busch, is the beneficial owner of the
building in which Busch leases its principal office. The lease is a triple net
lease, with annual rent in the amount of $133,308.
52
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization dated August 13,
1997 between CECO, the Company and Steven I. Taub.
3(i) Articles of Incorporation (Incorporated by reference
from Form 10-KSB dated December 31, 1993 of the
Company)
3(ii) Bylaws (Incorporated by reference from Form 10-KSB
dated December 31, 1993 of the Company)
4.1 Form of Warrant to be issued to broker-dealers and
dealers in securities (Incorporated by reference from
CECO's Registration Statement on Form S-18 declared
effective on August 12, 1987)
4.2 1987 CECO Filters, Inc. Key Employees and Key
Personnel Stock Option Plan (Incorporated by
reference from CECO's Registration Statement on Form
S-18 declared effective on August 12, 1987)
4.3 CECO Filters, Inc. Savings and Retirement Plan
(Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1990)
4.4 CECO Environmental Corp. 1997 Stock Option Plan.
10.13 Stock Purchase Agreement dated as of March 27, 1991
between CECO and Michael Edge (Incorporated by
reference from CECO's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990)
10.14 Agreement of Sale dated July 2, 1991 between CECO and
Bassett Properties, Inc. (Incorporated by reference
from CECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991)
10.14.1 Addendum to Agreement of Sale dated July 14, 1991
(Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991)
10.14.2 Second Addendum to Agreement of Sale dated July 23,
1991 (Incorporated by reference from CECO's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991)
53
<PAGE>
10.15 Loan Agreement dated September 1, 1991 between CECO
and Philadelphia Economic Development Financing
Authority (Incorporated by reference from CECO's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991)
10.16 Reimbursement Agreement dated September 1, 1991
between CECO and Philadelphia National Bank
(Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991)
10.17 Mortgage dated October 28, 1991 by CECO and the
Montgomery County Industrial Development Corporation
("MCIDC") (Incorporated by reference from CECO's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991)
10.18 Mortgage dated October 28, 1991 by CECO and MCIDC
(Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991)
10.19 Installment Sale Agreement dated October 28, 1991
between CECO and MCIDC (Incorporated by reference
from CECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991)
10.20 Acquisition Agreement dated October 28, 1991 between
CECO and MCIDC (Incorporated by reference from CECO's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991)
10.21 Lease dated as of March 10, 1992 between CECO and BTR
North America, Inc. (Incorporated by reference from
CECO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991)
10.22 Agreement of Purchase and Sale of Assets dated as of
March 10, 1992 by and among A.P. Acquisition Corp.,
CECO, Air Purator Corporation and Vericon Corporation
(Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991)
10.23 Stock Purchase Agreement dated as of December 23,
1991, between CECO, Steven I. Taub, Introtech
Investments, Inc. and Trio Growth Trust (Incorporated
by reference from CECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992)
10.24 Promissory Note from Steven I. Taub to CECO in the
amount of $83,334 (Incorporated by reference from
CECO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992)
54
<PAGE>
10.25 Commercial Promissory Note dated February 25, 1993
between CECO and Corestates Bank, N.A. (Incorporated
by reference from CECO's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993)
10.26 Commercial-Industrial Mortgage dated February 25,
1993 between CECO and Corestates Bank, N.A.
(Incorporated by reference from CECO's Annual Report
on Form 10-KSB for the fiscal year ended December 31,
1993)
10.27 Stock Sale Agreement, dated June 18, 1992, between
Registrant and Phillip DeZwirek relating to Can-Med
Technology, Inc. stock (Incorporated by reference
from Form 8-K dated June 18, 1993 of the Company)
10.28 Stock Sale Agreement, dated June 18, 1993, between
Registrant and Phillip DeZwirek relating to API
Electronics, Inc. stock (Incorporated by reference
from Form 8-K dated June 18, 1993 of the Company)
10.29 Consulting Agreement dated as of January 1, 1994 and
effective as of July 1, 1994 between the Company and
CECO (Incorporated by reference to Form 10-QSB dated
September 30, 1994 of the Company)
10.30 Consulting Agreement, dated as of April 1, 1995
between the Company and Pioneer Capital Consulting
Corp. (Incorporated by reference from the Company's
Quarterly Report on 10-QSB for the quarter ended
March 31, 1995)
10.31 Consulting Agreement among the Company, Robert A.
Lerman and John F. Ferraro, dated as of April 1,
1995, which agreement replaced Exhibit 10.30.
(Incorporated by reference from the Company's
Registration Statement on Form S-8 dated August 29,
1995)
10.32 Warrant Agreement dated as of November 7, 1996
between the Company and Phillip DeZwirek.
(Incorporated by reference from the Company's Form
10-KSB dated December 31, 1996)
10.33 Warrant Agreement dated as of January 14, 1998
between the Company and Phillip DeZwirek.
10.34 Asset Purchase Agreement among New Busch Co., Inc.,
Busch Co. and Andrew Halapin dated September 9, 1997.
(Incorporated by reference from the Form 8-K filed by
CECO on October 9, 1997 with respect to event of
September 25, 1997)
55
<PAGE>
10.35 Employment, Non-Compete and Confidentiality Agreement
between New Busch Co., Inc. and Andrew M. Halapin
dated September 25, 1997. (Incorporated by reference
from the Form 8-K filed by CECO on October 9, 1997
with respect to event of September 25, 1997)
10.36 Employment Agreement and Addendum to Employment
Agreement between CECO and Steven I. Taub dated
September 30, 1997. (Incorporated by reference from
the Company's Quarterly Report on Form 10-QSB for
quarter ended September 30, 1997)
10.37 $1,000,000 Note of CECO payable to Corestates Bank,
N.A. dated September 25, 1997.
10.38 $1,500,000 Demand Note of CECO payable to Corestates
Bank, N.A. dated September 25, 1997.
10.39 Loan Agreement between CECO and Corestates Bank, N.A.
dated September 24, 1997.
10.40 Lease between Busch Co. and Richard Roos dated
January 10, 1980, Amendment to Lease dated August 1,
1988 between Busch Co. and Richard Roos, Amendment to
Lease dated May 21, 1991 between Richard A. Roos and
Busch Co. and Amendment to Lease dated June 1, 1991
between JDA, Inc. and Busch Co.
10.41 Lease between Joseph V. Salvucci and Busch Co. dated
October 17, 1994.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K during the fiscal quarter ended
December 31, 1997. This report, dated September 25, 1997 and filed October 10,
1997, reported that the Company had acquired substantially all of the assets of
Busch Co., a Pennsylvania corporation. On December 8, 1997, a Form 8-K/A was
filed, which contained the financial statements of the business acquired and
pro-forma consolidated financial statements for the Company and its
subsidiaries.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
----------------------------
Phillip DeZwirek,
Chief Executive Officer
Chief Financial Officer
Dated: March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Principal Executive, Financial
and Accounting Officer
/s/ Phillip DeZwirek March 23, 1998
- ---------------------------------------
Phillip DeZwirek, Chairman of the
Board and Director,
Principal Executive, Financial
and Accounting Officer
/s/ Jason Louis DeZwirek March 23, 1998
- ---------------------------------------
Jason Louis DeZwirek, Director
/s/ Josephine Grivas March 23, 1998
- ---------------------------------------
Josephine Grivas, Director
/s/ Donald Wright March 23, 1998
- ---------------------------------------
Donald Wright, Director
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF
THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The Company has not furnished to its security holders an annual report
or proxy materials since the filing of its immediately prior report on Form
10-KSB. The Company will furnish to its security holders an annual report and
proxy materials subsequent to filing this Form 10-KSB.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of the 13th day of August, 1997 by and between CECO Environmental Corp., a New
York corporation (the "Acquiror"), CECO Filters, Inc., a Delaware corporation
("CECO"), and Steven I. Taub (the "Shareholder").
RECITALS:
A. The Shareholder is the owner of 1,165,000 shares of common stock
("CECO Shares") of CECO.
B. Acquiror wishes to acquire and the Shareholder wishes to transfer
all of the CECO Shares in a transaction intended to qualify as a reorganization
within the meaning of Internal Revenue Code ("IRC") ss.368(a)(1)(B), as amended,
in exchange for 582,500 shares of the Acquiror's common stock (the "CEC
Shares").
C. There is a dispute between Acquiror and the Shareholder regarding
the value of the CECO Shares. Because of said dispute, the Shareholder and the
Acquiror agree to place 100,000 of the CEC Shares (the "Escrowed Shares") into
an escrow subject to the amount by which gross revenues of CECO for the calendar
year 1998 equal or exceed target levels.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual representations,
warranties and undertakings contained herein, the parties hereto agree as
follows:
1. Exchange of Shares. In accordance with the terms and subject to the
conditions contained herein, Acquiror hereby agrees to issue to the Shareholder
the CEC Shares in exchange for the CECO Shares.
2. The Closing.
2.1 Delivery by Acquiror. The Acquiror shall deliver to the
Shareholder certificates representing 482,500 of the CEC Shares (the "Delivered
Shares") issued in the name of the Shareholder and the Acquiror shall deliver
the certificates representing the Escrowed Shares issued in the name of the
Shareholder to the Acquiror or such other party as the Acquiror and Shareholder
agree upon, who shall hold such Escrowed Shares as escrowee ("Escrowee").
2.2 Delivery by Shareholder. The Shareholder shall deliver to the
Acquiror the CECO Shares endorsed in blank or
<PAGE>
accompanied by assignments separate from certificate sufficient to transfer the
CECO Shares into the name of the Acquiror. The Shareholder shall deliver to the
Escrowee assignments separate from certificates sufficient to transfer both
fifty percent (50%) and one hundred percent (100%) of the Escrowed Shares to the
Acquiror.
2.3 Closing Date. The closing of the transaction contemplated
hereby (the "Closing") shall occur at a time, date and place mutually agreed by
the parties hereto.
3. Escrowed Shares.
3.1 Release of Escrowed Shares. The Escrowed Shares and
assignments separate from certificates, shall be released to the Shareholder
and/or the Acquiror in accordance with subsections 3.1(a)-(c) below following
the receipt by the Acquiror of CECO's audited financial statements for the year
ending December 31, 1998, as prepared by CECO's regular independent accountants.
(a) Gross Revenues Equal to or Greater Than 1997 Revenues. In the
event that the gross revenues of CECO for the year ending December 31, 1998 are
equal to or greater than the gross revenues of CECO for the year ending December
31, 1997, as shown by CECO's audited financial statements prepared by CECO's
regular independent accountants, Escrowee shall promptly deliver all of the
Escrowed Shares and assignments separate from certificates that were previously
delivered to Escrowee to the Shareholder.
(b) Gross Revenues Ninety-Five Percent of 1997 Gross Revenues. In
the event that the gross revenues of CECO for the year ending December 31, 1998
are equal to or greater than ninety-five percent (95%) of the gross revenues of
CECO for the year ending December 31, 1997, but less than one hundred percent
(100%) of the gross revenues for the year ending December 31, 1997, as shown by
CECO's audited financial statements prepared by CECO's regular independent
accountants, Escrowee shall promptly deliver fifty percent (50%) of the Escrowed
Shares and assignments separate from certificates that were previously delivered
to Escrowee to the Shareholder and fifty percent (50%) of the Escrowed Shares to
the Acquiror with the assignment separate from certificate to transfer fifty
percent (50%) of the Escrowed Shares into the name of the Acquiror.
(c) Gross Revenues Less Than Ninety-Five Percent of 1997 Gross
Revenues. In the event that the gross revenues of CECO for the year ending
December 31, 1998 are less than ninety-five percent (95%) of the gross revenues
of CECO for the year ending December 31, 1997, as shown by CECO's audited
financial statements prepared by CECO's regular independent accountants,
Escrowee shall promptly deliver all of the Escrowed Shares to the Acquiror with
the assignment separate from certificate to transfer one hundred percent (100%)
of the Escrowed Shares into the name of the Acquiror.
<PAGE>
3.2 Ownership of Escrowed Shares. As of the date of Closing, the
books and records of the Acquiror shall be changed to reflect the Shareholder as
the owner of the Escrowed Shares, unless and until a portion or all of such
Escrowed Shares are returned to the Acquiror in accordance with Section 3.1.
Until the Escrowed Shares are released by the Escrowee, all dividends paid on
the Escrowed Shares shall be distributed to the Shareholder and all voting
rights of such Escrowed Shares shall be exercisable by or on behalf of the
Shareholder or his authorized agent.
4. Representations and Warranties of the Acquiror. The Acquiror hereby
represents and warrants to the Shareholder as follows:
4.1 The Acquiror. The Acquiror is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has all requisite right, power and authority necessary to own, lease and
operate all of its property and to carry on its business as it is now being
carried on. The Acquiror has taken all actions necessary to permit it lawfully
to do business in all jurisdictions where it is currently conducting its
business.
4.2 Authority. The Acquiror has the authority to enter into this
Agreement. This Agreement has been duly executed and delivered by the Acquiror
and is a valid and binding Agreement enforceable in accordance with its terms,
except as such enforcement is subject to bankruptcy, insolvency, reorganization
or other laws relating to or affecting the enforcement of creditors' rights
generally.
4.3 No Violation or Conflict. Neither the execution nor the
consummation of this Agreement will violate any provision of the articles of
incorporation or by-laws of the Acquiror or violate or result, with the giving
of notice or lapse of time, or both, in a violation of or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under, or result in the creation
of imposition of any lien, charge, pledge, security interest or other
encumbrance upon the property of the Acquiror pursuant to any provision of any
contract, agreement, note, mortgage, lien, indenture, license, lease, other
instrument, arbitration order, judgment or decree to which the Acquiror is a
party or by which it, or its property is bound, or permit the termination of any
agreement, instrument, lien, license, lease or mortgage to which the Acquiror is
a party.
4.4 Issuance. Upon delivery of the Delivered Shares to the
Shareholder and the Escrowed Shares to the Escrowee, the CEC Shares will be
validly issued and delivered and fully paid and nonassessable.
<PAGE>
5. Representations, Warranties and Covenants of the Shareholder. The
Shareholder hereby represents and warrants to the Acquiror as follows:
5.1 The Shareholder. The Shareholder has the legal capacity to
enter into this Agreement.
5.2 Authority. The Shareholder has the authority to enter into
this Agreement. This Agreement has been duly executed and delivered by the
Shareholder and is a valid and binding Agreement enforceable in accordance with
its terms except as such enforcement is subject to bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditors' rights generally.
5.3 No Violation or Conflict. Neither the execution nor the
consummation of this Agreement will (i) violate or result, with the giving of
notice or lapse of time, or both, in a violation of or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under, or result in the creation
or imposition of any lien, charge, pledge, security interest or other
encumbrance upon the property of the Shareholder pursuant to any provision of
any contract, agreement, note, mortgage, lien, indenture, license, lease, other
instrument, law, ordinance, regulation, arbitration order, judgment or decree to
which the Shareholder is a party or by which he or his property is bound, or
(ii) permit the termination of any agreement, instrument, lien, license, lease
or mortgage to which the Shareholder is a party.
5.4 Court Orders, Decrees and Laws. There is no outstanding, or
to the Shareholder's knowledge threatened, order, writ, injunction or decree of
any court, government agency or arbitrational tribunal against or affecting the
Shareholder or any of his assets that would significantly interfere with the
Shareholder's ability to consummate the transaction contemplated by this
Agreement.
5.5 Ownership. The Shareholder has good and marketable title to
the CECO Shares free and clear of all liens, security interests and other
encumbrances.
5.6 Information. The Shareholder or his representative(s) have
had the opportunity to examine to the full extent that they desired all the
books and records of the Acquiror, and to discuss the business, assets and
prospects of the Acquiror with the Acquiror's officers. The Shareholder
acknowledges and agrees that he (i) has received no information with respect to
CECO from the Acquiror or the Acquiror's representatives, (ii) has his own
sources of information with respect to CECO and (iii) is as fully informed as he
desires with respect to the business, assets and prospects of CECO and the
Acquiror.
<PAGE>
6. Conditions Precedent to Obligations of the Shareholder. Consummation
of the transaction contemplated hereby on the part of the Shareholder is subject
to the fulfillment, to the reasonable satisfaction of the Shareholder of each of
the following conditions:
6.1 Representations True at Closing. The representations and
warranties of the Acquiror contained in Section 4 of this Agreement shall be
true in all material respects on the date hereof and at the time of the Closing.
6.2 Litigation. No litigation or proceeding shall be pending or
threatened at the time of the Closing to restrain, set aside or invalidate the
transactions contemplated by this Agreement.
7. Conditions Precedent to Obligations of the Acquiror. Consummation of
the transactions contemplated hereby on the part of the Acquiror is subject to
the fulfillment, to the reasonable satisfaction of the Acquiror of each of the
following conditions:
7.1 Representations True at Closing. The Shareholder's
representations and warranties contained in Section 5 of this Agreement shall be
true in all material respects at the date hereof and at the time of the Closing.
7.2 Litigation. No litigation or proceeding shall be pending or
threatened at the time of the Closing to restrain, set aside or invalidate the
transactions contemplated by this Agreement.
8. Survival of Representations, Warranties, Covenants and Agreements.
All warranties, representations, covenants and agreements made hereunder shall
survive the Closing.
9. Termination. If any of the conditions for the consummation by the
Acquiror or the Shareholder of the Closing of the transactions hereunder shall
not have been fulfilled (despite the best efforts of the party, if any,
obligated to fulfill such condition) or waived by the date 90 days from the date
hereof, then this Agreement may thereafter be terminated by any party hereto.
Such termination hereunder shall be effected by notice by the terminating party
to the other parties hereunder, and upon such termination this Agreement shall
be without further force and effect, and no party hereto shall be liable to any
other for any claim, damage, cost or expense arising from the execution and
delivery of this Agreement or the failure to consummate the transactions
contemplated hereby.
10. Remedies. The parties hereto, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement and all other appropriate equitable remedies. The parties agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach of the provisions of this Agreement, and hereby
<PAGE>
agree to waive the defense, in any action for specific performance, that
monetary damages would be adequate compensation. The parties hereto further
agree that in the event of any breach of this Agreement, the breaching party
shall be liable for all damages arising as a consequence of such breach,
including without limitation, costs and expenses (including, without limitation,
attorneys' fees), incurred by the non-breaching party in attempting to enforce
its or his rights hereunder.
11. Reporting Requirements. The parties hereto agree to comply with the
reporting requirements of Regulation 1.368-3 promulgated under the IRC.
12. Miscellaneous. It is the understanding of the parties hereto that:
12.1 Waiver. Any party may, at its or his option, waive in
writing any or all of the conditions herein contained to which its or his
obligations hereunder are subject.
12.2 Expenses. Each party hereto shall bear its or his own
expenses in connection with this Agreement and the transactions contemplated
herein.
12.3 Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements, arrangements
and communications, whether oral or written, with respect to the subject matter
hereof. This Agreement shall not be modified or amended except by written
agreement of the parties hereto. Captions appearing in this Agreement are for
convenience only and shall not be deemed to explain, limit or amplify the
provisions or contents hereof.
12.4 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
12.5 Binding Effect; Assignment. All the terms, provisions,
covenants and conditions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs and successors. This Agreement and the rights and obligations of the
parties hereto shall not be assigned or delegated by any party hereto without
the written consent of the other parties hereto.
12.6 Notices. Any notice or other instrument or thing required or
permitted to be given, served or delivered to any of the parties hereto shall be
in writing and shall be considered given when hand-delivered to the recipient or
two (2) days after deposit with the U.S. Postal Service, using registered mail,
air mail (if available), postage prepaid, or two (2) days after deposit with a
recognized overnight courier service, addressed to the recipient at:
<PAGE>
The Acquiror:
CECO ENVIRONMENTAL CORP.
505 University Avenue
Suite 1400
Toronto, Ontario M5G 1X3
CANADA
Attention: Phillip DeZwirek
The Shareholder:
Steven I. Taub
1325 Centennial Road
Penn Valley, PA 19072
CECO:
CECO Filters, Inc.
1027-29 Conshohocken Road
Conshohocken, PA 19428-0683
or at such other address as a party may designate to another party in accordance
with the terms of this Section 12.6.
12.7 Governing Law. This Agreement shall in all respects be
governed by the laws of the State of New York and the United States of America
(without respect to their choice of law rules).
12.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9 Miscellaneous. Wherever necessary or proper herein, the
singular imports the plural or vice versa, and masculine, feminine and neuter
expressions are interchangeable. Any reference to section numbers in this
Agreement shall be deemed to be to sections in the Agreement. The section titles
used herein are provided for reference purposes only and shall affect neither
the meaning of the terms nor the intent of the parties. Any portion of this
Agreement which shall be deemed void, unenforceable, or contrary to public
policy by a court of competent jurisdiction shall be deemed to be reduced in
scope to that point at which it is valid and enforceable, and if it cannot be so
reduced, it shall be deemed severed from this Agreement, without affecting the
remaining provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
THE ACQUIROR:
CECO ENVIRONMENTAL CORP.
By:/s/ Phillip DeZwirek
-------- ------------------------
Its:/s/ President
- ------------- --------------------
SHAREHOLDER:
/s/ Steven I. Taub
- -------- ---------------------------
Steven I. Taub
ESCROWEE:
CECO ENVIRONMENTAL CORP.
By:/s/ Phillip DeZwirek
- --------- ------------------------
Its:/s/ President
- ------------- --------------------
CECO FILTERS, INC.
By:/s/ Phillip DeZwirek
- --------- ------------------------
Its:/s/ Vice-President
- ------------ --------------------
<PAGE>
EXHIBIT 4.4
CECO ENVIRONMENTAL CORP.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. If the Company's
securities are registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, then, to the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the Committee shall be
a "Disinterested Director" or "Non-Employee Director." For purposes of this
Section l(a), "Non-Employee Director" shall have the same meaning as set forth
in Rule 16b-3, or any successor provision, as then in effect, of the general
rules and regulations under the Securities Exchange Act of 1934, as amended
("Exchange Act").
(b) The "Code" is the Internal Revenue Code of 1986, as amended from
time to time.
(c) The "Company" shall mean CECO Environmental Corp., a New York
corporation.
(d) "Fair Market Value" as of any day shall mean (i) if such stock is
reported by the Nasdaq National Market or Nasdaq SmallCap Market or is listed
upon an established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market or Nasdaq SmallCap Market or on such
stock exchange or exchanges on such date or, if no sale of such stock shall have
occurred on such date, on the next preceding day on which there was a sale of
stock; (ii) if such stock is not so reported by the Nasdaq National Market or
Nasdaq SmallCap Market or listed upon an established stock exchange, the average
of the closing "bid" and "asked" prices quoted by the National Quotation Bureau,
Inc. (or any comparable reporting service) on such date or, if there are no
quoted "bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; or (iii) if such stock is not publicly traded as of
such date, the per share value as determined by the Board, or the Committee, in
its sole discretion by applying principles of valuation with respect to the
Company's Common Stock in accordance with Code Section 422.
(e) "Option Stock" shall mean Common Stock of the Company (subject to
adjustments as described in Section 12) reserved for options pursuant to this
Plan.
<PAGE>
(f) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section 9.
(g) The "Plan" means the CECO Environmental Corp. 1997 Stock Option
Plan, as amended hereafter from time to time, including the form of Option
Agreements as they may be modified by the Board from time to time.
(h) "Related Corporation" means a Parent Corporation or a Subsidiary
Corporation each as defined in Code Section 424.
(i) "Subsidiary" means a subsidiary corporation as that term is defined
in Code Section 424.
SECTION 2
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentives to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Code Section 422 or any successor provision, pursuant to
Section 9 of this Plan. Adoption of this Plan shall be and is expressly subject
to the condition of approval by the shareholders of the Company within twelve
(12) months before or after the adoption of the Plan by the Board of Directors.
Any incentive stock options granted after adoption of the Plan by the Board of
Directors shall be treated as nonqualified stock options if shareholder approval
is not obtain within such twelve-month period.
SECTION 3
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
<PAGE>
SECTION 4
ADMINISTRATION
The Plan shall be administered by a Committee which may be appointed by
the Board from time to time (collectively referred to as the "Administrator").
The Administrator shall have all of the powers vested in it under the provisions
of the Plan, including but not limited to exclusive authority (where applicable
and within the limitations described in the Plan) to determine, in its sole
discretion, whether an incentive stock option shall be granted, the individuals
to whom, and the time or times at which, options shall be granted, the number of
shares subject to each option and the option price and terms and conditions of
each option. The Administrator shall have full power and authority to administer
and interpret the Plan, to make and amend rules, regulations and guidelines for
administering the Plan, to prescribe the form and conditions of the respective
stock option agreements (which may vary from Optionee to Optionee) evidencing
each option and to make all other determinations necessary or advisable for the
administration of the Plan. The Administrator's interpretation of the Plan, and
all actions taken, and determinations made by the Administrator pursuant to the
power vested in it hereunder, shall be conclusive and binding on all parties
concerned.
No member of the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of the
Plan. Upon the appointment of a Committee by the Board as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5
PARTICIPANTS
The Administrator shall, from time to time, at its discretion and
without approval of the shareholders, designate those employees of the Company
or any Subsidiary to whom incentive stock options shall be granted pursuant to
Section 9 of the Plan. The Administrator may grant additional incentive stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Administrator shall also determine the number of shares to be
optioned to each such participant. The Administrator may from time to time
designate individuals as being ineligible to participate in the Plan.
<PAGE>
SECTION 6
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. One million, five hundred thousand
(1,500,000) Shares of Option Stock shall be reserved and available for options
under the Plan; provided, however, that the total number of shares of Option
Stock reserved for options under this Plan shall be subject to adjustment as
provided in Section 11 of the Plan. In the event that any outstanding option
under the Plan for any reason expires or is terminated prior to the exercise
thereof, the shares of Option Stock allocable to the unexercised portion of such
option shall continue to be reserved for options under the Plan and may be
optioned hereunder.
SECTION 7
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Any incentive stock option granted during such ten-year period shall
remain in full force and effect until the expiration of the option as specified
in the written stock option agreement and shall remain subject to the terms and
conditions of this Plan.
SECTION 8
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check, or such other form of
payment as may be authorized by the Administrator. The Administrator may, in its
sole discretion, limit the forms of payment available to the Optionee and may
exercise such discretion any time prior to the termination of the option granted
to the Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the general rules and regulations under the Securities
Exchange Act of 1934, if applicable.
<PAGE>
SECTION 9
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To the extent
required to qualify the Option as an incentive stock option under Code Section
422, or any successor provision, the option price per share shall not be less
than one hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided, however, that
if an Optionee owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of its Parent or
any Subsidiary, the option price per share of an incentive stock option granted
to such Optionee shall not be less than one hundred ten percent (110%) of the
Fair Market Value of the Common Stock per share on the date of the grant of the
option. The Administrator shall have full authority and discretion in
establishing the option price and shall be fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be exercised shall
be established in each case by the Administrator. To the extent required to
qualify the Option as an incentive stock option under Section 422 of the
Internal Revenue Code, or any successor provision, in no event shall any
incentive stock option be exercisable during a term of more than ten (10) years
after the date on which it is granted; provided, however, that if an Optionee
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its parent or any Subsidiary,
the incentive stock option granted to such Optionee shall be exercisable during
a term of not more than five (5) years after the date on which it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which the
option may be exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the Option Agreement. The
Administrator may accelerate the exercisability of any incentive stock option
granted hereunder which is not immediately exercisable as of the date of grant.
<PAGE>
(c) Maximum Size of Incentive Stock Option As Such. To the extent that
the aggregate Fair Market Value of Common Stock for which an Incentive Stock
Option becomes exercisable by the Optionee for the first time in any calendar
year exceeds $100,000, the portion of such incentive stock option which exceeds
such $100,000 limitation shall be treated as a Non-Statutory Stock Option and
not an incentive stock option under Code Section 422. For purposes of this
Section 9, all incentive stock options granted to an Optionee by the Company, as
well as any options that may have been granted to the Optionee under any other
stock incentive plans of the Company or any Related Corporation which are
intended to comply with the provisions Code Section 422 shall be considered in
the order in which they were granted, and the Fair Market Value as of the time
they were granted.
(d) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator shall deem
advisable. Any such Option Agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary to ensure
that such option will be considered an "incentive stock option" as defined in
Section 422 of the Internal Revenue Code or to conform to any change therein. To
the extent, if any, that the Option Agreement is classified as a formula award
plan under Rule 16b-3(c)(2)(ii) of the Securities and Exchange Act of 1933, the
formula provisions cannot be amended more often than once every six months
except to comport with changes in the Internal Revenue Code, ERISA, or the rules
thereunder.
SECTION 10
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and distribution
and, during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
SECTION 11
ANTI-DILUTION ADJUSTMENTS
A pro rata adjustment for an increase or decrease in the number of
shares of Common Stock of the Company subject to the Plan or that may be awarded
to any individual in any year shall be made to give effect to any consolidation
of shares, the equivalent value in stock of cash dividends, stock dividends,
stock splits, stock combinations, recapitalization and other similar changes in
the capital structure of the Company. Pro rata adjustments shall be made in the
number, kind and price of shares of Common Stock of the Company covered by any
outstanding Option hereunder to give effect
<PAGE>
to any consolidation of shares, stock dividends, stock splits, stock
combinations, recapitalization and similar changes in the capital structure in
the Company, or a merger or dissolution or reorganization of the Company, after
the date the Option is granted so that the Optionee is treated in a manner
equivalent to that of holders of the underlying Common Stock.
<PAGE>
SECTION 12
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (i) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the
Administrator shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (ii) represent that Optionee shall not dispose of the
shares of Option Stock in violation of the Securities Act of 1933 or any other
applicable securities laws.
In the event of a transaction (as defined in Section 12 of the Plan)
which is treated as a "pooling of interests" under generally accepted accounting
principles, Optionee will comply with Rule 145 of the Securities Act of 1933 and
any other restrictions imposed under other applicable legal or accounting
principles if Optionee is an "affiliate" (as defined in such applicable legal
and accounting principles) at the time of the transaction, and Optionee will
execute any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan to
assure compliance with this Section 13.
SECTION 13
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 12 of the Plan).
SECTION 14
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 12, shall
impair the terms and
<PAGE>
conditions of any option which is outstanding on the date of such revision or
amendment to the material detriment of the Optionee without the consent of the
Optionee. Notwithstanding the foregoing, no such revision or amendment shall (i)
materially increase the number of shares subject to the Plan except as provided
in Section 12 hereof, (ii) change the designation of the class of employees
eligible to receive options, (iii) decrease the price at which options may be
granted, or (iv) materially increase the benefits accruing to Optionees under
the Plan without the approval of the shareholders of the Company if such
approval is required for compliance with the requirements of any applicable law
or regulation. Furthermore, the Plan may not, without the approval of the
shareholders, be amended in any manner that will cause Incentive Stock Options
to fail to meet the requirements of Code Section 422 of the Internal Revenue
Code.
SECTION 15
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
<PAGE>
EXHIBIT 10.33
- --------------------------------------------------------------------------------
CECO ENVIRONMENTAL CORP.
AND
PHILLIP DeZWIREK
WARRANT AGREEMENT
Dated as of January 14, 1998
----------------------------------------
<PAGE>
WARRANT AGREEMENT (the "Agreement") dated as of January 14, 1998
between CECO Environmental Corp., a New York corporation (the "Company"), and
Phillip DeZwirek (hereinafter referred to as a "Holder" or "DeZwirek").
W I T N E S S E T H :
WHEREAS, DeZwirek is an employee, officer and director of the Company;
and
WHEREAS, DeZwirek has, and continues to provide valuable services to
the Company;
and
WHEREAS, the Company desires to grant to DeZwirek, and DeZwirek desires
to accept from the Company, warrant certificates giving DeZwirek the right to
purchase shares of the Company's Common Stock.
NOW, THEREFORE, in consideration of the premises, the payment by
DeZwirek to the Company of an aggregate of ten dollars ($10.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. DeZwirek is granted the right to purchase, from the Company,
at any time from June 14, 1998 until 5:30 p.m., New York time, on January 14,
2008 (the "Expiration Date"), at which time the Warrants expire, up to an
aggregate of 250,000 shares (subject to adjustment as provided in Section 8
hereof) of common stock, par value $.01 per share, of the Company ("Common
Stock") at an initial exercise price (subject to adjustment as provided in
Section 11 hereof) of $2.75 per share (the "Exercise Price").
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit
<PAGE>
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Registration of Warrant. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
4. Exercise of Warrant.
4.1 Method of Exercise. The Warrants initially are exercisable at
the product of (i) the Exercise Price multiplied by (ii) the number of shares of
Common Stock purchased (subject to adjustment as provided in Section 11 hereof),
as set forth in Section 8 hereof payable by certified or official bank check in
United States dollars. The product of the number of Warrants exercised at any
one time multiplied by the Exercise Price shall be referred to as the "Purchase
Price." Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Purchase Price
for the shares of Common Stock purchased at the Company's principal offices
located at 505 University Avenue, Suite 1400, Toronto, Ontario, Canada, the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock). In the case of the purchase of less
than all the shares of Common Stock purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
<PAGE>
5. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock shall be made forthwith (and
in any event within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 7 and 9 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock, or other securities, property or rights issued upon exercise of
the Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the then present President or any Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or any Assistant Secretary
of the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
6. Transfer of Warrant. The Warrants shall be transferable only on the
books of the Company maintained at its principal office, where its principal
office may then be located, upon delivery thereof duly endorsed by the Holder or
by its duly authorized attorney or representative accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any
<PAGE>
registration transfer, the Company shall execute and deliver new Warrants to the
person entitled thereto.
7. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof.
8. Exercise Price and Number of Securities. Except as otherwise
provided in Section 10 hereof, each of the Warrants are exercisable to purchase
one share of Common Stock at an initial exercise price equal to the Exercise
Price. The Exercise Price and the number of shares of Common Stock for which the
Warrant may be exercised shall be the price and the number of shares of Common
Stock which shall result from time to time from any and all adjustments in
accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each Warrant
Certificate and each certificate representing the shares of Common Stock, and
any of the other securities issuable upon exercise of the Warrants and the
securities underlying the securities issuable upon exercise of the Warrants
(collectively, the "Warrant Shares") shall bear the following legend, unless (i)
such Warrants or Warrant Shares are distributed to the public or sold for
distribution to the public pursuant to this Section 9 or otherwise pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"Act"), (ii) such Warrants or Warrant Shares are subject to a currently
effective registration statement under the Act; or (iii) the Company has
received an opinion of counsel, in form and substance reasonably satisfactory to
counsel for the Company, that such legend is unnecessary for any such
certificate:
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER
SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing on the
date of this Agreement, and expiring on the Expiration Date, the Company
proposes to register any of its securities, not registered on the date hereof,
under the Act (other than in connection with a merger or pursuant to Form S-4 or
Form S-8) it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the Holders of
the Warrants and/or the Warrant Shares of its intention to do so. If any of the
Holders of the Warrants and/or Warrant Shares notify the Company within twenty
(20) days after mailing of any such notice of its or their desire to include any
such securities in such proposed registration statement, the Company shall
afford such Holders of the Warrants and/or Warrant Shares the opportunity to
have any such Warrant Shares registered under such registration statement. In
the event that the managing underwriter for said offering advises the Company in
writing that in the underwriter's opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering without causing a diminution
<PAGE>
in the offering price or otherwise adversely affecting the offering, the Company
will include in such registration (a) first, the securities the Company proposes
to sell, (b) second, the securities held by the entities that made the demand
for registration, (c) third, the Warrants and/or Warrant Shares requested to be
included in such registration which in the opinion of such underwriter can be
sold, pro rata among the Holders of Warrants and/or Warrant Shares on the basis
of the number of Warrants and/or Warrant Shares requested to be registered by
such Holders, and (d) fourth, other securities requested to be included in such
registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 Demand Registration.
(a) At any time commencing January 1, 1998 and expiring on
the Expiration Date, the Holders of the Warrants and/or Warrant Shares
representing a "Majority" (as hereinafter defined) of the Warrants and/or
Warrant Shares shall have the right on one occasion (which right is in addition
to the registration rights under Section 9.2 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), a registration statement and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale by
such Holders and any other Holders of the Warrants
<PAGE>
and/or Warrant Shares who notify the Company within fifteen (15) days after the
Company mails notice of such request pursuant to Section 9.3(b) hereof
(collectively, the "Requesting Holders") of their respective Warrant Shares so
as to allow the unrestricted sale of the Warrant Shares to the public from time
to time until the earlier of the following: (i) the Expiration Date, or (ii) the
date on which all of the Warrant Shares requested to be registered by the
Requesting Holders have been sold (the "Registration Period").
(b) The Company covenants and agrees to give written notice
of any registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Warrants and/or Warrant Shares to all other
registered Holders of the Warrants and the Warrant Shares within ten (10) days
from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 9.2
and subsection (a) of this Section 9.3, at any time commencing January 1, 1998
and expiring on the Expiration Date, the Holders of Warrants and/or Warrant
Shares shall have the right on one occasion, exercisable by written request to
the Company, to have the Company prepare and file with the Commission a
registration statement so as to permit a public offering and sale by such
Holders of their respective Warrant Shares from time to time until the first to
occur of the following: (i) the expiration of this Agreement, or (ii) all of the
Warrant Shares requested to be registered by such Holders have been sold;
provided, however, that the provisions of Section 9.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
<PAGE>
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested. The Company
shall also file such applications and other documents as may be necessary to
permit the sale of the Warrant Shares to the public during the Registration
Period in those states to which the Company and the holders of the Warrants
and/or Warrant Shares shall mutually agree.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with the
registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Shares to be sold pursuant to any registration statement and each person, if
any, who controls such
<PAGE>
Holder(s) within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement.
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any Holder of the Warrant Shares or
controlling person thereof makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9.4(d) hereof
provide for indemnification in such case or (ii) contribution under the Act may
be required on the part of any Holder of the Warrant Shares, or controlling
person thereof, then the Company, any such Holder of the Warrant Shares, or
controlling person thereof shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a Holder of
Warrant Shares, or controlling person thereof on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and such Holders of such
<PAGE>
securities and such controlling persons agree that it would not be just and
equitable if contribution pursuant to this Section 9.4(e) were determined by pro
rata allocation or by any other method which does not take account of the
equitable considerations referred to in this Section 9.4(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
9.4(e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) The Holder(s) of the Warrant Shares to be sold pursuant
to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against any loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing, by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement.
(g) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
<PAGE>
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement (other than a registration statement on Form S-4 or S-8) to be or
remain effective during a one hundred and eighty (180) day period following the
effective date of a registration statement filed pursuant to Section 9.3 hereof,
without the prior written consent of the Holder(s) of the Warrants and Warrant
Shares representing a Majority of such securities or as otherwise required by
the terms of any existing registration rights granted prior to the date of this
Agreement by the Company to the holders of any of the Company's securities.
(i) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a "cold comfort" letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
<PAGE>
(j) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the Warrant Shares requested to be included in such underwriting.
Such agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holder(s) shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Shares and may, at their option, require that
any or all of the representations, warranties and covenants of the Company to or
for the benefit of such underwriters shall also be made to and for the benefit
of such Holder(s). Such Holder(s) shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holder(s) and their intended
methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Warrants or Warrant Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Shares that (i) are
not held by the Company, or (ii) have not been resold to the public pursuant to
a registration statement filed with the Commission under the Act or Rule 144
promulgated under the Act.
<PAGE>
10. Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus
relating to the Warrant Shares covered by a registration statement is required
to be delivered under the Act, of the happening of any event with respect to
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities. The
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants or the securities underlying the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
11.1 Dividend, Subdivision and Combination. In case the Company
shall (i) declare a dividend or make a distribution on its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a
<PAGE>
greater number of shares, or (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
11.2 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 11, the number of
Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each
Warrant shall be adjusted to the nearest number of whole shares of Common Stock
determined by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of the applicable Warrant
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
11.3 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Articles of Incorporation of the Company as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
11.4 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger
<PAGE>
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to each Holder a supplemental warrant agreement providing
that the Holder of each Warrant then outstanding shall have the right thereafter
(until the Expiration Date) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger to which the Holder would have been entitled if the
Holder had exercised such Warrant immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
11. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
11.5 No Adjustment of the Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the Warrant
Shares;
(b) Upon the issuance or sale of Common Stock (or any other
security convertible, exercisable, or exchangeable into shares of Common Stock)
upon the direct or indirect conversion, exercise, or exchange of any options,
rights, warrants, or other securities or indebtedness of the Company outstanding
as of the date of this Agreement or granted pursuant to any stock option plan of
the Company in existence as of the date of this Agreement, pursuant to the terms
thereof or issued pursuant to any stock purchase plan in existence as of the
date of this Agreement, pursuant to the terms thereof; or
(c) If the amount of said adjustment shall be less than ten
cents ($.10)
<PAGE>
per share, provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least ten cents
($.10) per share.
12. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company for a new
Warrant Certificate of like tenor and date representing in the aggregate the
Holder's right to purchase the same number of Warrant Shares in such
denominations as shall be designated in such Warrant Certificate at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
13. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or other securities upon the exercise of the Warrants, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
<PAGE>
14. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof or the exercise or conversion of any
other exercisable or convertible securities underlying the Warrants. Every
transfer agent and warrant agent (collectively "Transfer Agent") for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares of Common Stock and other securities as shall
be requisite for such purpose. The Company will keep a copy of this Agreement on
file with every Transfer Agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants. The Company will supply
every such Transfer Agent with duly executed stock and other certificates, as
appropriate, for such purpose. The Company covenants and agrees that, upon each
exercise of the Warrants and payment of the Purchase Price, all shares of Common
Stock and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock and other securities
issuable upon the exercise of the Warrants and the securities underlying the
securities issuable upon exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges or securities
associations on which the Common Stock issued to the public in connection
herewith may then be listed and/or quoted.
15. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holder(s) of the Warrants the right to
vote or to consent or to
<PAGE>
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then in any one or more of said events, the Company shall give written
notice to the registered holders of the Warrants of such event at least fifteen
(15) days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall
<PAGE>
not affect the validity of any action taken in connection with the declaration
or payment of any such dividend, or the issuance of any convertible or
exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
16. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) if to the registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
17. Supplements; Amendments; Entire Agreement. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought. The Company and DeZwirek may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates (other
than DeZwirek) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and DeZwirek may deem necessary or
desirable and which the Company and DeZwirek deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
<PAGE>
18. Successors. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holder(s) and
their respective successors and assigns hereunder.
19. Survival of Representations and Warranties. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
20. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Illinois and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
21. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
23. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
DeZwirek and any other registered
<PAGE>
Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and DeZwirek and any other Holder(s)
of the Warrant Certificates or Warrant Shares.
24. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
<PAGE>
25. IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
ATTEST: CECO ENVIRONMENTAL CORP.
/s/ Josephine Grivas By:/s/ Phillip DeZwirek
- --------------------------- ------------------------
Josephine Grivas, Secretary Name:/s/ Phillip DeZwirek
----------------------
Title:/s/ President
---------------------
/s/ Phillip DeZwirek
---------------------------
Phillip DeZwirek
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JANUARY 14, 2008
Warrant No. ____
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from June 14, 1998 until 5:30 p.m., New York time, on January 14,
2008 ("Expiration Date"), up to ____________ shares, of fully-paid and
non-assessable common stock, $.01 par value ("Common Stock") of CECO
Environmental Corp., a New York corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events, of ($2.75) per share
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the principal executive office of the Company, but subject to the conditions set
forth herein. Payment of the Exercise Price shall be made by certified or
official bank check in United States dollars payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter expire and shall be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a
EXH A-1
<PAGE>
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the principal executive office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrant holder to any of
the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of __________________, 199__.
ATTEST: CECO ENVIRONMENTAL CORP.
___________________________________ By:________________________[SEAL]
Secretary Name: ______________________
Title: _____________________
EXH A-2
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE
WARRANT AGREEMENT]
The undersigned hereby irrevocably elects to exercise the right,
represented by Warrant Certificate No. ____ , to purchase ____ shares of Common
Stock (as defined in the Warrant Agreement described below) and herewith tenders
in payment for such securities a certified or official bank check payable in
United States dollars to the order of CECO Environmental Corp., a New York
corporation (the "Company") in the amount of $____________, all in accordance
with the terms of Section 4.1 of the Warrant Agreement dated as of January 14,
1998 between the Company and Phillip DeZwirek. The undersigned requests that a
certificate for such securities be registered in the name of , whose address is
_______________________________________ and that such certificate be delivered
to ________________, whose address is ________________________________________,
and if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant Certificate for the
balance of the shares of Common Stock purchasable under the within Warrant
Certificate be registered in the name of the undersigned warrantholder or his
assignee as below indicated and delivered to the address stated below.
Dated: _____________________
Signature:
(Signature must conform in
all respects to name of holder
as specified on the face of the
Warrant Certificate.)
Address: _____________________________________________
_____________________________________________
______________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-3
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________ hereby sells, assigns and transfers unto [NAME OF
TRANSFEREE] Warrant Certificate No.______, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
__________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, with full power of substitution.
Dated: ___________
Signature: _______________________
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate.)
Address: ________________________________________________
________________________________________________
_________________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-4
<PAGE>
Exhibit 10.37
NOTE
Philadelphia, Pennsylvania
Dated: September 25, 1997
$1,000,000.00
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND, the undersigned
("Borrower") hereby promises to pay to the order of CORESTATES BANK, N.A.
("Bank"), the principal sum of One Million Dollars ($1,000,000.00), together
with interest thereon upon the following terms:
26. Term Note. This Note is the "Term Note" as defined in that certain
Loan Agreement of even date herewith among Borrower and Bank (such Loan
Agreement, as the same may be amended, supplemented or restated from time to
time, being the "Loan Agreement") and, as such, shall be construed in accordance
with all terms and conditions thereof. Capitalized terms not defined herein
shall have such meaning as provided in the Loan Agreement. This Note is entitled
to all the rights and remedies provided in the Loan Agreement and the Loan
Documents and is secured by all collateral as described therein.
27. Interest Rate. Interest on the unpaid principal balance hereof will
accrue from the date of advance until final payment thereof at a rate per annum
which is one-half of one percent (1/2 of 1%) in excess of the Prime Rate in
effect from time to time (such interest rate to change immediately upon any
change in the Prime Rate).
28. Default Interest. Interest will accrue on the outstanding principal
amount hereof following the occurrence of an Event of Default or the final
maturity date hereof, until paid at the Default Rate.
29. Post Judgment Interest. Any judgment obtained for sums due
hereunder or under the Loan Documents will accrue interest at the Default Rate
until paid.
30. Computation. Interest will be computed on the basis of a year of
three hundred sixty (360) days and paid for the actual number of days elapsed.
31. Principal and Interest Payments on the Term Loan. Principal and
accrued interest thereon is due and payable in forty-seven (47) equal and
consecutive monthly installments of Twenty Thousand Eight Hundred Thirty-Three
Dollars and Thirty-Three Cents ($20,833.33) each, plus interest, on the first
day of each calendar month commencing on October 1, 1997 and in one final
payment of the remaining principal balance plus all accrued
<PAGE>
and unpaid interest thereon on September 1, 2001. Notwithstanding the foregoing
payment schedule, the proceeds of any stock or equity offering initiated by
Borrower during the term of this Note shall be applied against the principal
balance of the Term Loan and any then outstanding Permitted Out-of-Formula
Advances, together with any accrued interest due thereon, shall be due and
payable in full, in inverse order of maturity.
32. Place of Payment. Principal and interest hereunder shall be payable
as provided in the Loan Agreement, or at such other place as Bank, from time to
time, may designate in writing.
33. Default; Remedies. Upon the occurrence of an Event of Default,
Bank, at its option and without notice to Borrower, may declare immediately due
and payable the entire unpaid balance of principal and all other sums due by
Borrower hereunder and under the other Loan Documents, together with interest
accrued thereon at the applicable rate specified above to the date of the Event
of Default and thereafter at the Default Rate. Payment thereof may be enforced
and recovered in whole or in part at any time and from time to time by one or
more of the remedies provided to Bank in this Note or in the Loan Documents or
as otherwise provided at law or in equity, all of which remedies are cumulative
and concurrent.
34. Waivers. Borrower and all endorsers hereby, jointly and severally,
waive presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement of
the payment of this Note.
35. Miscellaneous. If any provisions of this Note shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. This Note has been delivered in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the law of conflicts. This Note shall be binding upon Borrower
and upon Borrower's successors and assigns and shall benefit Bank and its
successors and assigns. The prompt and faithful performance of all of Borrower's
obligations hereunder, including without limitation, time of payment, is of the
essence of this Note.
36. CONFESSION OF JUDGMENT. BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT
BY CONFESSION, TO APPEAR FOR BORROWER AT ANY TIME AFTER THE OCCURRENCE OF AN
EVENT OF DEFAULT UNDER THE LOAN AGREEMENT IN ANY ACTION BROUGHT AGAINST BORROWER
ON THIS NOTE OR THE LOAN DOCUMENTS AT THE SUIT OF BANK, WITH OR WITHOUT
COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF EXECUTION, AS OF ANY TERM OR
TIME, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE
UNPAID OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AND ALL OTHER SUMS TO BE PAID
BY BORROWER TO OR ON BEHALF OF BANK PURSUANT TO THE TERMS HEREOF OR OF THE LOAN
DOCUMENTS AND ALL ARREARAGES OF INTEREST THEREON, TOGETHER WITH ALL COSTS AND
OTHER EXPENSES AND AN ATTORNEY'S COLLECTION COMMISSION OF
<PAGE>
FIFTEEN PERCENT (15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN NO
EVENT LESS THAN $5,000.00; AND FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED
BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE AUTHORITY GRANTED HEREIN TO
CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF BUT SHALL
CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL THE
AMOUNTS DUE HEREUNDER. BORROWER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY
COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS NOTE AND THAT IT
KNOWINGLY WAIVES ITS RIGHT TO BE HEARD PRIOR TO THE ENTRY OF SUCH JUDGMENT AND
UNDERSTANDS THAT, UPON SUCH ENTRY, SUCH JUDGMENT SHALL BECOME A LIEN ON ALL REAL
PROPERTY OF BORROWER IN THE COUNTY WHERE SUCH JUDGMENT IS ENTERED AND THAT
EXECUTION MAY IMMEDIATELY BE ISSUED ON THE JUDGMENT TO GARNISH, LEVY ON OR
ATTACH ANY PERSONAL PROPERTY OF BORROWER.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
CECO FILTERS, INC.
By:/s/ Steve I. Taub
---------------------
Steven I. Taub, President
<PAGE>
EXHIBIT 10.38
DEMAND NOTE
Philadelphia, Pennsylvania
Dated: September 25, 1997
$1,500,000.00
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND, the undersigned
("Borrower"), hereby promises to pay to the order of CORESTATES BANK, N.A.
("Bank"), ON DEMAND after the date hereof the principal sum of One Million Five
Hundred Thousand Dollars ($1,500,000.00), or such greater or lesser principal
amount as may be outstanding from time to time under the line of credit
established by Bank for the benefit of Borrower pursuant to the terms of that
certain Loan Agreement of even date herewith between Borrower and Bank (such
Loan Agreement, as the same may be amended, supplemented or restated from time
to time, being the "Loan Agreement"), together with interest thereon, upon the
following terms:
1. Line Note. This Demand Note is the "Line Note" as defined in the
Loan Agreement and, as such, shall be construed in accordance with all terms and
conditions thereof. Capitalized terms not defined herein shall have such meaning
as provided in the Loan Agreement. This Note is entitled to all the rights and
remedies provided in the Loan Agreement and the Loan Documents and is secured by
all Collateral as described therein.
2. Interest Rate. Interest on the unpaid principal balance hereof will
accrue from the date of advance until final payment thereof at the rate per
annum which is equal to one half of one percent (1/2 of 1%) in excess of the
Prime Rate in effect from time to time (such interest rate to change immediately
upon any change in the Prime Rate).
3. Default Interest. Interest will accrue on the outstanding principal
amount hereof following demand for the payment hereof or the occurrence of an
Event of Default until paid at the Default Rate.
4. Post Judgment Interest. Any judgment obtained for sums due hereunder
or under the Loan Documents will accrue interest at the Default Rate until paid.
5. Computation. Interest will be computed on the basis of a year of
three hundred sixty (360) days and paid for the actual number of days elapsed.
6. Interest Payments. Interest which accrues on the outstanding
principal balance hereof at the applicable rate set forth above shall be due and
payable monthly, in arrears, on the first day of each calendar month, commencing
on the first day of the first calendar month following the date hereof.
7. Place of Payment. Principal and interest hereunder shall be payable
as provided
<PAGE>
in the Loan Agreement, or at such other place as Bank, from time to time, may
designate in writing.
8. Default; Remedies. Upon demand, Bank, at its option and without
notice to Borrower, may declare immediately due and payable the entire unpaid
balance of principal and all other sums due by Borrower hereunder or under the
Loan Documents, together with interest accrued thereon at the applicable rate
specified above. Payment thereof may be enforced and recovered in whole or in
part at any time and from time to time by one or more of the remedies provided
to Bank in this Note or in the Loan Documents or as otherwise provided at law or
in equity, all of which remedies are cumulative and concurrent. THE INCLUSION OF
EVENTS OF DEFAULT AND COVENANTS IN THE LOAN AGREEMENT SHALL NOT IN ANY WAY LIMIT
THE DEMAND NATURE OF THIS NOTE. BORROWER UNDERSTANDS THAT BANK MAY MAKE DEMAND
FOR PAYMENT AT ANY TIME FOR ANY OR NO REASON, WITHOUT REGARD TO WHETHER AN EVENT
OF DEFAULT HAS OCCURRED.
9. Waivers. Borrower and all endorsers, jointly and severally, waive
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement of
the payment of this Note, except for such notices, if any, as are expressly
required to be delivered by Bank to Borrower under the Loan Agreement.
10. Miscellaneous. If any provisions of this Note shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. This Note has been delivered in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the law of conflicts. This Note shall be binding upon Borrower
and upon Borrower's, successors and assigns and shall benefit Bank and its
successors and assigns. The prompt and faithful performance of all of Borrower's
obligations hereunder, including without limitation, time of payment, is of the
essence of this Note.
11. Confession of Judgment. BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT
BY CONFESSION, TO APPEAR FOR BORROWER AT ANY TIME AFTER DEMAND HEREUNDER AS
PROVIDED ABOVE OR AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE LOAN
AGREEMENT IN ANY ACTION BROUGHT AGAINST BORROWER ON THIS NOTE OR THE LOAN
DOCUMENTS AT THE SUIT OF BANK, WITH OR WITHOUT COMPLAINT OR DECLARATION FILED,
WITHOUT STAY OF EXECUTION, AS OF ANY TERM OR TIME, AND THEREIN TO CONFESS OR
ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE UNPAID OUTSTANDING PRINCIPAL
AMOUNT OF THIS NOTE AND ALL OTHER SUMS TO BE PAID BY BORROWER TO OR ON BEHALF OF
BANK PURSUANT TO THE TERMS HEREOF OR OF THE LOAN DOCUMENTS AND ALL ARREARAGES OF
INTEREST THEREON, TOGETHER WITH ALL COSTS AND OTHER EXPENSES AND AN ATTORNEY'S
COLLECTION COMMISSION OF FIFTEEN PERCENT (15%) OF THE
<PAGE>
AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN $5,000.00; AND
FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A
SUFFICIENT WARRANT.
THE AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED
BY ANY EXERCISE THEREOF BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES
UNTIL PAYMENT IN FULL OF ALL THE AMOUNTS DUE HEREUNDER. BORROWER ACKNOWLEDGES
THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND
DELIVERY OF THIS NOTE AND THAT IT KNOWINGLY WAIVES ITS RIGHT TO BE HEARD PRIOR
TO THE ENTRY OF SUCH JUDGMENT AND UNDERSTANDS THAT, UPON SUCH ENTRY, SUCH
JUDGMENT SHALL BECOME A LIEN ON ALL REAL PROPERTY OF BORROWER IN THE COUNTY
WHERE SUCH JUDGMENT IS ENTERED.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
CECO FILTERS
By:/s/ Steven I. Taub
--------------------------
Steven I. Taub, President
<PAGE>
EXHIBIT 10.39
LOAN AGREEMENT
By and Between
CECO FILTERS, INC.
and
CORESTATES BANK, N.A.
---------------------------
Dated: September 25, 1997
---------------------------
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made effective the 25th day of
September, 1997, by and between CECO FILTERS, INC. ("Borrower") and CORESTATES
BANK, N.A. ("Bank").
BACKGROUND
A. Borrower has requested that Bank extend certain credit facilities to
Borrower, which Bank is willing to do on the terms set forth herein.
B. Capitalized terms not otherwise defined herein will have the
meanings set forth therefor in Section 12 of this Agreement.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extensions of credit now or hereafter made to or for the
benefit of Borrower by Bank, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. THE LINE; TERM LOAN; USE OF PROCEEDS.
1.1. Line of Credit. Bank will establish for Borrower subject to the
terms and conditions hereof, a revolving demand line of credit (the "Line")
pursuant to which Bank will from time to time make loans or other extensions of
credit to Borrower in an aggregate amount not exceeding at any time the lesser
of: (a) the sum of (i) an amount up to eighty percent (80%) of the Eligible
Receivables, plus (ii) the Permitted Out-of-Formula Advance; or (b) One Million
Five Hundred Thousand Dollars ($1,500,000.00). Within the limitations set forth
above, Borrower may borrow, repay and reborrow under the Line. The Line shall be
subject to all terms and conditions set forth in all of the Loan Documents (as
hereafter defined) which terms and conditions are incorporated herein.
Borrower's obligation to repay the loans and extensions of credit under the Line
shall be evidenced by Borrower's demand promissory note (the "Line Note") in the
face amount of One Million Five Hundred Thousand Dollars ($1,500,000.00), which
shall be in the form attached hereto as Exhibit "A", with the blanks
appropriately filled in. The Line Note shall amend and replace, but not repay or
satisfy, Borrower's obligations to Bank under a certain Master Demand Note dated
July 23, 1997.
1.2. Term Loan. Bank will lend to Borrower and Borrower will borrow
from Bank One Million Dollars ($1,000,000.00) (the "Term Loan"). Borrower's
obligation to repay the Term Loan Shall be evidenced by Borrower's promissory
note in the original principal amount of One Million dollars ($1,000,000.00)
(the "Term Note"), substantially in the form attached hereto as Exhibit "B" with
the blanks appropriately filled in.
1.3. Use of Proceeds. Borrower agrees to use (a) advances under the
Line for proper working capital purposes and to finance the acquisition of
certain assets of Busch Environmental Corporation; and (b) the proceeds of the
Term Loan to finance the acquisition of certain assets of Busch Environmental
Corporation.
<PAGE>
1.4. Method of Advances. On any Business Day, Borrower may request an
advance under the Line by making such request to the bank officer designated by
Bank no later than noon Philadelphia time on the Business Day such advance is
requested to be funded, and delivery to Bank of any documentation as Bank may
from time to time require. Subject to the terms and conditions of this
Agreement, Bank may make the proceeds of an advance available to Borrower by
crediting such proceeds to Borrower's deposit account with Bank. Such request
may be by telephone, unless Bank has advised Borrower that written requests are
required. Bank may require prompt written confirmation of any telephone request
and additional back-up documentation, from time to time. Each request for an
advance under the Line shall be conclusively presumed to be made by a person
authorized by Borrower to do so.
1.5. Letters of Credit. Bank, at its sole discretion, may issue for the
account of Borrower merchandise and standby letters of credit in form and
content satisfactory to Bank, at its sole discretion, with a term not to exceed
the earlier to occur of (a) ninety (90) days (for merchandise letters of
credit), or (b) twelve (12) months (for standby letters of credit).
Notwithstanding the foregoing, (i) at no time shall the aggregate face amount of
all outstanding letters of credit issued under the Line exceed the amount of
Five Hundred Thousand Dollars ($500,000.00); and (ii) at no time shall the
principal balance of the Line, plus the aggregate face amount of all outstanding
letters of credit issued under the Line exceed the amount of the loans and
extensions of credit then available to Borrower under the Line pursuant to
advances as described under Section 1.1.
Borrower will execute a letter of credit application and letter of
credit agreement, and such other documents as may be required by Bank in
connection with the issuance of letters of credit hereunder. The outstanding
face amount of all letters of credit issued by Bank pursuant hereto will reduce
Borrower's ability to borrow under the Line as if such face amount were an
advance under the Line. In the event that Bank pays any sums due pursuant to
such letters of credit for any reason, such payment shall be deemed to be an
advance under the Line repayable by Borrower pursuant to the terms hereof.
In the event that the Line is terminated for any reason or demand is
made thereunder, Borrower will deposit with Bank an amount equal to the face
amount of all letters of credit then outstanding which have been issued
hereunder, plus all fees related thereto or to accrue thereunder. Such funds
will be held by Bank as cash collateral to secure Borrower's obligations
hereunder.
1.6. Collection of Receivables; Proceeds of Collateral.
(a) Lockbox. Borrower and New Busch Co., Inc. will collect their
accounts receivable only in the ordinary course of business. Borrower and New
Busch Co., Inc. will notify all of their account debtors to forward all accounts
receivable collections owed to Borrower and New Busch Co., Inc. to a lockbox
maintained by Bank, and will execute such lockbox agreements as may be required
by Bank and will pay to Bank all customary fees in connection with such lockbox
arrangement. Immediately upon receipt, Borrower will forward to Bank all other
checks, drafts and other monies received by Borrower or New Busch Co., Inc.
which are proceeds of the Collateral to the lockbox maintained by Bank.
<PAGE>
(b) Operating Account. All accounts receivable collections of
Borrower and New Busch Co., Inc. and all checks, drafts and other monies
received by Borrower and New Busch Co., Inc. which are proceeds of the
Collateral will be deposited in Borrower's and New Busch Co., Inc.'s operating
account maintained at Bank (collectively, the "Operating Account").
(c) Collected Funds. The Operating Account will be cleared by Bank
daily on mutually agreed upon days as to collected funds, and such collected
funds will be applied to the principal balance of and accrued interest on the
Line, at the Bank's election. Upon the occurrence of an Event of Default, Bank
may apply such collected funds to the Bank Indebtedness in such order as it may
elect.
(d) Proceeds of Collateral. Borrower and New Busch Co., Inc. agree
that all monies, checks, notes, instruments, drafts or other payments relating
to or constituting proceeds of any accounts receivable or other Collateral of
Borrower and New Busch Co., Inc. which come into the possession or under the
control of Borrower and/or New Busch Co., Inc. or any employees, agents or other
persons acting for or in concert with Borrower and/or New Busch Co., Inc., shall
be received and held in trust for Bank and such items shall be the sole and
exclusive property of Bank. Immediately upon receipt thereof, Borrower, New
Busch Co., Inc. and such other persons shall remit the same or cause the same to
be remitted, in kind, to Bank. Borrower and New Busch Co., Inc. shall deliver or
cause to be delivered to Bank, with appropriate endorsement and assignment to
Bank with full recourse to Borrower and New Busch Co., Inc., all instruments,
notes and chattel paper constituting an account receivable or proceeds thereof
or other Collateral. Bank is hereby authorized to open all mail addressed to
Borrower and New Busch Co., Inc. and endorse all checks, drafts or other items
for payment on behalf of Borrower and New Busch Co., Inc. Bank is granted a
power of attorney by Borrower and New Busch Co., Inc. with full power of
substitution to execute on behalf of Borrower and New Busch Co., Inc. and in
their names or to endorse their names on any check, draft, instrument, note or
other item of payment or to take any other action or sign any document in order
to effectuate the foregoing. Such power of attorney being coupled with an
interest is irrevocable.
2. INTEREST RATE.
2.1. Interest on the Line. Interest on the unpaid principal balance of
the Line will accrue from the date of advance until final payment thereof at a
per annum rate which is one-half of one percent (1/2 of 1%) in excess of the
Prime Rate in effect from time to time (such interest rate to change immediately
upon any change in the Prime Rate).
2.2. Interest on Term Loan. Interest on the unpaid principal balance of
the Term Loan will accrue until final payment thereof at the rate per annum
which is one-half of one percent (1/2 of 1%) in excess of the Prime Rate in
effect from time to time (such interest rate to change immediately upon any
change in the Prime Rate).
2.3. Default Interest. Interest will accrue on the principal balance of
the Line and the Term Loan after demand or the occurrence of an Event of Default
at a rate which is three percent (3%) in excess of the Prime Rate in effect from
time to time (the "Default Rate").
2.4. Post Judgment Interest. Any judgment obtained for sums due
hereunder or
<PAGE>
under the Loan Documents will accrue interest at the applicable default rate set
forth above until paid.
2.5. Calculation. Interest will be computed on the basis of a year of
360 days and paid for the actual number of days elapsed.
2.6. Limitation of Interest to Maximum Lawful Rate. In no event will
the rate of interest payable hereunder exceed the maximum rate of interest
permitted to be charged by applicable law (including the choice of law rules)
and any interest paid in excess of the permitted rate will be refunded to
Borrower. Such refund will be made by application of the excessive amount of
interest paid against any sums outstanding hereunder and will be applied in such
order as Bank may determine. If the excessive amount of interest paid exceeds
the sums outstanding, the portion exceeding the sums outstanding will be
refunded in cash by Bank. Any such crediting or refunding will not cure or waive
any default by Borrower. Borrower agrees, however, that in determining whether
or not any interest payable hereunder exceeds the highest rate permitted by law,
any non-principal payment, including without limitation prepayment fees and late
charges, will be deemed to the extent permitted by law to be an expense, fee,
premium or penalty rather than interest.
3. PAYMENTS AND FEES.
3.1. Interest Payments on the Line. Borrower will pay interest on the
principal balance of the Line on the first day of each calendar month commencing
on the first day of the first calendar month following the date of this
Agreement.
3.2. Principal Payments on the Line. Borrower will pay the outstanding
principal balance of the Line, together with any accrued and unpaid interest
thereon, and any other sums due pursuant to the terms hereof, ON DEMAND. If any
Out-Of-Formula Advance arises or exists under the Line (other than a Permitted
Out-of-Formula Advance) for any reason whatsoever, Borrower will repay such
Out-Of-Formula Advance immediately, without demand. THE INCLUSION OF EVENTS OF
DEFAULT AND COVENANTS IN THE LOAN DOCUMENTS SHALL NOT IN ANY WAY LIMIT THE
DEMAND NATURE OF THE LINE. BORROWER UNDERSTANDS THAT THE BANK MAY MAKE DEMAND
FOR PAYMENT AT ANY TIME FOR ANY OR NO REASON, WITHOUT REGARD TO WHETHER AN EVENT
OF DEFAULT HAS OCCURRED.
3.3. Principal and Interest Payments on the Term Loan. Borrower will
pay the principal of the Term Loan and accrued interest thereon in forty-seven
(47) equal and consecutive monthly installments of Twenty Thousand Eight Hundred
Thirty-Three Dollars and Thirty-Three Cents ($20,833.33) each, plus interest, on
the first day of each calendar month commencing on October 1, 1997 and in one
final payment of the remaining principal balance plus all accrued and unpaid
interest thereon on September 1, 2001. Notwithstanding the foregoing payment
schedule, the proceeds of any stock or equity offering initiated by Borrower
during the term of the Term Loan shall be applied against the principal balance
of the Term Loan and any then outstanding Permitted Out-of-Formula Advances,
together with any accrued interest due thereon, in inverse order of maturity.
3.4. Letter of Credit Fees. Borrower shall pay all fees and charges in
connection with the issuance, renewal, negotiation and cancellation of each
merchandise and standby letter of credit as may be customarily charged by Bank.
Such fees shall be computed on the basis of a year of 360 days.
<PAGE>
3.5. Late Charge. In the event that Borrower fails to pay any
principal, interest or other fees or expenses payable hereunder for a period of
at least fifteen (15) days, in addition to paying such sums, Borrower will pay
to Bank a late charge equal to five percent (5%), of such past due payment as
compensation for the expenses incident to such past due payment.
3.6. Prepayment of Term Loan. Borrower may prepay all or any part of
the principal balance of the Term Loan at any time, without penalty or premium.
All prepayments will be applied to the regularly scheduled payments in the
inverse order in which they are due.
3.7. Payment Method. Borrower irrevocably authorizes Bank to debit all
payments required to be made by Borrower hereunder, under the Line and the Term
Loan, on the date due, from any deposit account maintained by Borrower with
Bank. Otherwise, Borrower will be obligated to make such payments directly to
Bank. All payments are to be made in immediately available funds. If Bank
accepts payment in any other form, such payment shall not be deemed to have been
made until the funds comprising such payment have actually been received by or
made available to Bank.
3.8. Application of Payments. Any and all payments on account of the
Line and the Term Loan will be applied to accrued and unpaid interest,
outstanding principal and other sums due hereunder or under the Loan Documents,
in such order as Bank, in its discretion, elects. If Borrower makes a payment or
payments and such payment or payments, or any part thereof, are subsequently
invalidated, declared to be fraudulent or preferential, set aside or are
required to be repaid to a trustee, receiver, or any other person under any
bankruptcy act, state or federal law, common law or equitable cause, then to the
extent of such payment or payments, the obligations or part thereof hereunder
intended to be satisfied shall be revived and continued in full force and effect
as if said payment or payments had not been made.
3.9. Loan Account. Bank will open and maintain on its books a loan
account (the "Loan Account") with respect to advances made, repayments,
prepayments, the computation and payment of interest and fees and the
computation and final payment of all other amounts due and sums paid to Bank
under this Agreement. Except in the case of manifest error in computation, the
Loan Account will be conclusive and binding on the Borrower as to the amount at
any time due to Bank from Borrower under this Agreement or the Notes.
4. SECURITY.
4.1. Collateral. Borrower's obligations hereunder and under the Loan
Documents shall be secured by (a) a certain security agreement of even date
herewith pursuant to which Borrower, New Busch Co., Inc. and Air Purator Corp.
shall grant to Bank a security interest in and lien upon all of Borrower's
present and future accounts, contract rights, chattel papers, instruments,
documents, inventory, general intangibles, machinery, equipment, furniture,
fixtures, books and records and all other tangible and intangible property of
Borrower, New Busch Co., Inc. and Air Purator Corp. and the products and
proceeds thereof (the "Security Agreement"), and (b) a certain open-end mortgage
and security agreement encumbering real property owned by Borrower located at
1029 Conshohocken Road, Conshohocken, Montgomery County, Pennsylvania, subject
only to prior liens in favor of the Bank and the Pennsylvania Industrial
Development Authority.
<PAGE>
4.2. Surety. As further security for the obligations of Borrower
hereunder and under the Loan Documents, Borrower shall cause each Guarantor to
execute and deliver to Bank an unlimited and unconditional surety agreement in
form and content acceptable to Bank (collectively, the "Surety Agreements").
5. CONDITIONS OF CLOSING. The obligations of Bank to make available the
Line and the Term Loan are subject to the performance by Borrower of all of its
agreements to be performed hereunder and to the following further conditions
(any of which may be waived by Bank):
5.1. Loan Documents. Borrower, Guarantors and all other required
persons and entities will have executed and delivered to Bank the Loan
Documents.
5.2. Representations and Warranties. All representations and warranties
of Borrower set forth in the Loan Documents will be true at and as of the date
hereof.
5.3. No Default. No condition or event shall exist or have occurred
which would constitute an Event of Default hereunder (or would, upon the giving
of notice or the passage of time or both, constitute such an Event of Default).
5.4. Proceedings and Documents. All proceedings taken by Borrower in
connection with the transactions contemplated by this Agreement and all
documents incident to such transactions shall be satisfactory in form and
substance to Bank and Bank's counsel, and Bank shall have received all documents
or other evidence which it reasonably may request in connection with such
proceedings and transactions. Borrower and each Guarantor shall have each
delivered to Bank a certificate, in form and substance satisfactory to Bank,
dated the date hereof and signed on behalf of the Borrower or the applicable
Guarantor, as the case may be, by an officer of Borrower or the applicable
Guarantor, as the case may be, certifying (a) true copies of the Articles of
Incorporation and bylaws of the Borrower or the applicable Guarantor in effect
on such date, (b) true copies of all corporate actions taken by Borrower or the
applicable Guarantor relative to the Loan Documents, and (c) the names, true
signatures and incumbency of the officers of the Borrower or the applicable
Guarantor authorized to execute and deliver this Agreement and the other Loan
Documents. Bank may conclusively rely on such certificate unless and until a
later certificate revising the prior certificate has been received by Bank.
5.5. Landlord's or Warehouseman's Release and Waiver Agreements. Bank
shall have received a landlord's or warehouseman's release and waiver agreement,
satisfactory in form and substance to Bank, from each landlord and warehouseman
for each location leased by Borrower or at which Borrower warehouses inventory.
5.6. Delivery of Other Documents. The following documents shall have
been delivered by or on behalf of Borrower and/or Guarantors to Bank:
(a) Good Standing and Tax Lien Certificates. Good Standing
Certificates issued by the State of incorporation of Borrower and of each
Guarantor certifying to the good standing and corporate status of Borrower, good
standing/foreign qualification certificates from all other jurisdictions in
which Borrower and Guarantors are required to be qualified to do business, and
tax lien certificates for Borrower and each Guarantor from each jurisdiction in
which Borrower and that Guarantor are required to be qualified to do business.
<PAGE>
(b) Authorization Documents. Evidence of authorization of
Borrower's and Guarantors' execution and full performance of this Agreement, the
Loan Documents and all other documents and actions required hereunder.
(c) Insurance. Evidence of the insurance coverage as required
under the Security Agreement.
(d) Opinion of Counsel. An opinion of counsel for Borrower in form
and content satisfactory to Bank.
(e) Lien Search. Copies of record searches (including UCC searches
and judgments, suits, tax and other lien searches) confirming that Bank has a
first priority security interest in the Collateral, except as otherwise provided
in this Agreement, acceptable to Bank.
(f) No Material Adverse Change. Evidence satisfactory to the Bank
that no material adverse change has occurred with respect to the Borrower since
December 31, 1996.
(g) Subordination Agreement. A subordination agreement in form and
content acceptable to Bank executed by CECO Environmental Corp., together with
evidence satisfactory to Bank of the extension and funding of an unsecured loan
in the amount of Five Hundred Thousand Dollars ($500,000.00) by CECO
Environmental Corp. to Borrower.
(h) Asset Purchase Agreement Copies of the executed Asset Purchase
Agreement dated September 9, 1997 by and between New Busch Co. and Busch Co.,
together with evidence satisfactory to Bank of the consummation of the
transactions contemplated therein.
(i) Other Documents. Such other documents as may be required to be
submitted to Bank by the terms hereof or of any Loan Document.
5.7. Non-Waiver of Rights. By completing the closing hereunder, or by
making advances hereunder, Bank does not thereby waive a breach of any warranty
or representation made by Borrower hereunder or any agreement, document, or
instrument delivered to Bank or otherwise referred to herein, and any claims and
rights of Bank resulting from any breach or misrepresentation by Borrower are
specifically reserved by Bank.
6. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Subsequent advances
shall be conditioned upon the following conditions and each request by Borrower
for an advance shall constitute a representation by Borrower to Bank that each
condition has been met or satisfied:
6.1. Representations and Warranties. All representations and warranties
of Borrower contained in the Loan Documents shall be true at and as of the date
of such advance as if made on such date, and each request for an advance shall
constitute reaffirmation by Borrower that such representations and warranties
are then true.
6.2. No Default. No condition or event shall exist or have occurred at
or as of the date of such advance which would constitute an Event of Default
hereunder (or would, upon the giving of notice or the passage of time or both,
constitute such an Event of Default).
6.3. Other Requirements. Bank shall have received all certificates,
authorizations,
<PAGE>
affidavits, schedules and other documents which are provided for hereunder or
under the Loan Documents, or which Bank may reasonably request.
7. DEFAULT AND REMEDIES.
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrower to pay any amount of principal or
interest on the Notes or any fee or other sums payable hereunder, or any other
Bank Indebtedness on the date on which such payment is due, whether on demand,
at the stated maturity or due date thereof, or by reason of any requirement for
the prepayment thereof, by acceleration or otherwise;
(b) The failure of Borrower or any Guarantor to duly perform or
observe any obligation, covenant or agreement on its part contained herein or in
any other Loan Document not otherwise specifically constituting an Event of
Default under this Section 7.1 and such failure continues unremedied for a
period of thirty (30) days after the earlier of (i) notice from Bank to Borrower
or Guarantor of the existence of such failure, or (ii) any officer or principal
of Borrower or Guarantor knows or should have known of the existence of such
failure, provided that, in the event such failure is incapable of remedy or
consists of a default of any of the financial covenants in Section 7 of the
Security Agrement, or was wilfully caused or permitted by Borrower or Guarantor,
Borrower and Guarantor shall not be entitled to any notice or grace hereunder;
(c) The failure of Borrower or any Guarantor to pay any
Indebtedness for borrowed money due to any third Person which results in
acceleration or an exercise of remedies thereunder or the existence of any other
event of default under any loan, security agreement, mortgage or other agreement
pertaining thereto binding Borrower, after the expiration of any notice and/or
grace periods permitted in such documents which results in acceleration or an
exercise of remedies thereunder;
(d) The failure of Borrower or any Guarantor to pay or perform any
other obligation to Bank under any other agreement or note or otherwise arising,
whether or not related to this Agreement, after the expiration of any notice
and/or grace periods permitted in such documents;
(e) The adjudication of Borrower or any Guarantor as a bankrupt or
insolvent, or the entry of an Order for Relief against Borrower or any Guarantor
or the entry of an order appointing a receiver or trustee for Borrower or any
Guarantor of any of its property or approving a petition seeking reorganization
or other similar relief under the bankruptcy or other similar laws of the United
States or any state or any other competent jurisdiction;
(f) A proceeding under any bankruptcy, reorganization, arrangement
of debt, insolvency, readjustment of debt or receivership law is filed by or
(unless dismissed within 60 days) against Borrower or any Guarantor or Borrower
or any Guarantor makes an assignment for the benefit of creditors, or Borrower
or any Guarantor takes any action to authorize any of the foregoing;
(g) The suspension of the operation of Borrower's present
business, or
<PAGE>
Borrower becoming unable to meet its debts as they mature, or the admission in
writing by Borrower or any Guarantor to such effect, or Borrower or any
Guarantor calling any meeting of all or any material portion of its creditors
for the purpose of debt restructure;
(h) All or any part of the Collateral or any material part of the
assets of Borrower or any Guarantor are attached, seized, subjected to a writ or
distress warrant, or levied upon, or come within the possession or control of
any receiver, trustee, custodian or assignee for the benefit of creditors;
(i) The entry of a final judgment for the payment of money against
Borrower or any Guarantor which, within ten (10) days after such entry, shall
not have been discharged or execution thereof stayed pending appeal or shall not
have been discharged within five (5) days after the expiration of any such stay;
(j) Any representation or warranty of Borrower or any Guarantor in
any of the Loan Documents is discovered to be untrue in any material respect or
any statement, certificate or data furnished by Borrower or that Guarantor
pursuant hereto is discovered to be untrue in any material respect as of the
date as of which the facts therein set forth are stated or certified;
(k) Borrower or any Guarantor voluntarily or involuntarily
dissolves or is dissolved, terminates or is terminated;
(l) Borrower is enjoined, restrained, or in any way prevented by
the order of any court or any administrative or regulatory agency, the effect of
which order restricts Borrower from conducting all or any material part of its
business;
(m) A material and adverse change occurs in any of Borrower's
operations, management or financial condition or in the value of the Collateral;
(n) Any breach by Borrower or any creditor of its obligations
under any subordination agreement now or hereafter executed in favor of Bank
after expiration of any notice or grace periods permitted in such documents; or
(o) The validity or enforceability of this Agreement, or any of
the Loan Documents, is contested by Borrower or any Guarantor; any stockholder
of Borrower or any Guarantor; or Borrower or any Guarantor denies that it has
any or any further liability or obligation hereunder or thereunder.
7.2. Remedies. At the option of the Bank, upon the occurrence of an
Event of Default, or at any time thereafter:
(a) The entire unpaid principal of the Line, all other Bank
Indebtedness, or any part thereof, all interest accrued thereon, all fees due
hereunder and all other obligations of Borrower to Bank hereunder or under any
other agreement, note or otherwise arising will become immediately due and
payable without any further demand or notice;
(b) The Line will immediately terminate and the Borrower will
receive no further extensions of credit thereunder;
<PAGE>
(c) Bank may increase the interest rate on the Notes to the
applicable default rate set forth herein, without notice;
(d) Bank may reduce availability for advances under the formula
set forth in Section 1.1 or require additional reserves without notice;
(e) Bank may enter the premises occupied by Borrower and take
possession of the Collateral and any records relating thereto; and/or
(f) Bank may exercise each and every right and remedy granted to
it under the Loan Documents, under the Uniform Commercial Code and under any
other applicable law or at equity.
If an Event of Default occurs under Section 7.1(e) or (f), all Bank
Indebtedness shall become immediately due and payable.
7.3. Set-Off. Without limiting the rights of Bank under applicable law,
Bank has and may exercise a right of set-off, a lien against and a security
interest in all property of Borrower now or at any time in Bank's possession in
any capacity whatsoever, including but not limited to any balance of any
deposit, trust or agency account, or any other bank account with Bank, as
security for all Bank Indebtedness. At any time and from time to time following
the occurrence of an Event of Default, Bank may without notice or demand, set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Bank to or for the credit of Borrower against any or all of the Bank
Indebtedness and the Borrower's obligations under the Loan Documents. If any
bank account of Borrower with Bank is attached or otherwise liened or levied
upon by any third party, Bank need not await the running of any applicable grace
period hereunder, but Bank shall have and be deemed to have the immediate right
of set-off and may apply the funds or amount thus set-off against Borrower's
obligations to the Bank.
7.4. Turnover of Property Held by Bank. Borrower irrevocably authorize
any Affiliate of Bank, upon and following the occurrence of an Event of Default,
at the request of Bank and without further notice, to turnover to Bank any
property of Borrower held by such Affiliate, including without limitation, funds
and securities for the Borrower's account and to debit, for the benefit of Bank,
any deposit account maintained by Borrower with such Affiliate (even if such
deposit account is not then due or there results a loss or reduction of interest
or the imposition of a penalty in accordance with law applicable to the early
withdrawal of time deposits), in the amount requested by Bank up to the amount
of the Bank Indebtedness, and to pay or transfer such amount or property to Bank
for application to the Bank Indebtedness.
7.5. Delay or Omission Not Waiver. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege under the
Loan Documents upon the occurrence of any Event of Default or otherwise shall
operate as a waiver thereof or impair any such right, remedy, power or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of Bank. No single, partial or full exercise
of any rights, remedies, powers and privileges by the Bank shall preclude
further or other exercise thereof. No course of dealing between Bank and
Borrower shall operate as or be deemed to constitute a waiver of Bank's rights
under the Loan Documents or affect the duties or obligations of Borrower.
<PAGE>
7.6. Remedies Cumulative; Consents. The rights, remedies, powers and
privileges provided for herein shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other rights, remedies, powers and
privileges in Bank's favor at law or in equity.
7.7. Certain Fees, Costs, Expenses, Expenditures and Indemnification.
Borrower agrees to pay on demand all costs and expenses of Bank, including
without limitation:
(a) all costs and expenses in connection with the preparation,
review, negotiation, execution, delivery and administration of the Loan
Documents, and the other documents to be delivered in connection therewith, or
any amendments, extensions and increases to any of the foregoing (including,
without limitation, attorney's fees and expenses, and the cost of appraisals and
reappraisals of Collateral), and the cost of periodic lien searches and tax
clearance certificates, as Bank deems advisable;
(b) all losses, costs and expenses in connection with the
enforcement, protection and preservation of the Bank's rights or remedies under
the Loan Documents, or any other agreement relating to any Bank Indebtedness, or
in connection with legal advice relating to the rights or responsibilities of
Bank (including without limitation court costs, attorney's fees and expenses of
accountants and appraisers); and
(c) any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of the Loan Documents, and
all liabilities to which Bank may become subject as the result of delay in
paying or omission to pay such taxes.
In the event Borrower shall fail to pay taxes, insurance, assessments,
costs or expenses which it is required to pay hereunder, or fails to keep the
Collateral free from security interests or lien (except as expressly permitted
herein), or fails to maintain or repair the Collateral as required hereby, or
otherwise breaches any obligations under the Loan Documents, Bank in its
discretion, may make expenditures for such purposes and the amount so expended
(including attorney's fees and expenses, filing fees and other charges) shall be
payable by Borrower on demand and shall constitute part of the Bank
Indebtedness.
With respect to any amount required to be paid by Borrower under this
Section, in the event Borrower fails to pay such amount on demand, Borrower
shall also pay to Bank interest thereon at the default rate set forth for the
Line.
Borrower agrees to indemnify and hold harmless, Bank and Bank's
officers, directors, shareholders, employees and agents, from and against any
and all claims, liabilities, losses, damages, costs and expenses (whether or not
such Person is a party to any litigation), including attorney's fees and costs
and costs of investigation, document production, attendance at depositions or
other discovery with respect to or arising out of this Agreement, the use of any
proceeds advanced hereunder, the transactions contemplated hereunder, or any
claim, demand, action or cause of action being asserted against Borrower or any
of its Affiliates.
Borrower's obligations under this Section shall survive termination of
this Agreement and repayment of the Bank Indebtedness.
7.8. Time is of the Essence. Time is of the essence in Borrower's
performance of its obligations under the Loan Documents.
<PAGE>
7.9. Acknowledgment of Confession of Judgment Provisions. BORROWER
ACKNOWLEDGES AND AGREES THAT THE NOTES AND THE LOAN DOCUMENTS CONTAIN PROVISIONS
WHEREBY BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST BORROWER AFTER DEMAND OR
THE OCCURRENCE OF AN EVENT OF DEFAULT, AS THE CASE MAY BE. BEING FULLY AWARE OF
ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE VALIDITY OF ANY
CLAIMS THAT MAY BE ASSERTED AGAINST IT BY BANK UNDER THE NOTES AND LOAN
DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWER HEREBY WAIVES THESE RIGHTS
AND AGREES AND CONSENTS TO BANK ENTERING JUDGMENT AGAINST BORROWER BY
CONFESSION. ANY PROVISION IN A CONFESSION OF JUDGMENT IN ANY OF THE LOAN
DOCUMENTS FOR AN ATTORNEY'S COLLECTION COMMISSION SHALL IN NO WAY LIMIT
BORROWER'S LIABILITY TO REIMBURSE BANK FOR ALL LEGAL FEES ACTUALLY INCURRED BY
BANK, EVEN IF SUCH FEES ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION
PROVIDED FOR IN SUCH CONFESSION OF JUDGMENT.
8. COMMUNICATIONS AND NOTICES.
8.1. Communications and Notices. All notices, requests and other
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
To Borrower:
CECO Filters, Inc.
1029 Conshohocken Road
Conshohocken, PA 19428
Attention: Steven I. Taub, President
Telecopy Number: (610) 825-3108
With a copy to:
White and Williams
1800 One Liberty Place
Philadelphia, PA 19103
Attention: George Hartnett, Esquire
Telecopy Number: (215) 864-7123
To Bank:
CoreStates Bank, N.A.
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Attention: William Dohmen, Vice President
Telecopy Number: (610) 834-2069
<PAGE>
With a copy to:
Wolf, Block, Schorr and Solis-Cohen LLP
350 Sentry Parkway
Building 640
Blue Bell, Pennsylvania 19422
Attention: Sara Lee Keller-Smith, Esquire
Telecopy Number: (610) 238-0305
9. DEFINITIONS. The following words and phrases as used in capitalized
form in this Agreement, whether in the singular or plural, shall have the
meanings indicated:
9.1. "Accounting Terms". As used in this Agreement, or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined elsewhere in this Agreement shall have the
respective meanings given to them under GAAP.
9.2. "Affiliate", as to any Person, means each other Person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person in question.
9.3. "Agreement" has the meaning set forth in the opening recital of
this Agreement.
9.4. "Bank" has the meaning set forth in the opening recital of this
Agreement.
9.5. "Bank Indebtedness" shall mean all obligations and Indebtedness of
Borrower to Bank, whether now or hereafter owing or existing, including, without
limitation, all obligations under the Loan Documents, all obligations to
reimburse Bank for payments made by Bank pursuant to any letter of credit issued
for the account or benefit of Borrower by Bank, all other obligations or
undertakings now or hereafter made by or for the benefit of Borrower to or for
the benefit of Bank under any other agreement, promissory note or undertaking
now existing or hereafter entered into by Borrower with Bank, including, without
limitation, all obligations of Borrower to Bank under any guaranty or surety
agreement and all obligations of Borrower to immediately pay to Bank the amount
of any overdraft on any deposit account maintained with Bank, together with all
interest and other sums payable in connection with any of the foregoing.
9.6. "Borrower" has the meaning set forth in the opening recital of
this Agreement.
9.7. "Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in Pennsylvania are authorized by law to close.
9.8. "Corporation" means a corporation, partnership, trust,
unincorporated organization, association or joint stock company.
9.9. "Default Rate" has the meaning set forth in Section 2.3.
9.10. "Eligible Receivables" means accounts receivable of Borrower and
New Busch Co. in which Bank has a prior, perfected, first priority lien which
have been due no more than ninety (90) days from the invoice date, are not
subject to offsets, deductions, counterclaims, discounts, credit, charge back,
freight claim, allowance or adjustment comply wit the representations set forth
in the Security Agreement and meet all specifications established by
<PAGE>
Bank in its sole discretion from time to time. Eligible Receivables shall not
include: (a) non-trade receivables; (b) foreign accounts receivable unless fully
secured by a letter of credit issued by a financial institution acceptable to
Bank in its discretion; (c) contra-accounts; (d) intercompany accounts or
accounts from other affiliated corporation, organizations or individuals; (e)
accounts receivable from the United States government or any of its agencies
which have not been assigned to Bank under the Assignment of Claims Act; (f)
finance charges; (g) lease receivables; (h) accounts receivable of poor quality;
and (i) accounts receivable concentrated in individual account debtors in such
amounts or percentage as may be unacceptable to Bank. In the event that any
account receivable previously scheduled, listed or referred to in any
certificate, statement or report by Borrower and upon which Borrower is basing
availability under the Line ceases to be an Eligible Receivable, Borrower shall
notify Bank thereof immediately.
9.11. "Event of Default" means each of the events specified in Section
7.1.
9.12. "GAAP" means generally accepted accounting principles in the
United States of America, in effect from time to time, consistently applied and
maintained.
9.13. "Guarantor" means CECO Environmental Corp., a New York
corporation, and New Busch Co., Inc., a Delaware corporation.
9.14. "Indebtedness", as applied to a Person, means:
(a) all items (except items of capital stock or of surplus) which
in accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date as
of which Indebtedness is to be determined;
(b) to the extent not included in the foregoing, all indebtedness,
obligations, and liabilities secured by any mortgage, pledge, lien, conditional
sale or other title retention agreement or other security interest to which any
property or asset owned or held by such Person is subject, whether or not the
indebtedness, obligations or liabilities secured thereby shall have been assumed
by such Person; and
(c) to the extent not included in the foregoing, all indebtedness,
obligations and liabilities of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), sold with recourse, or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire or in respect of which
such Person has agreed to supply or advance funds (whether by way of loan, stock
purchase, capital contribution or otherwise) or otherwise to become directly or
indirectly liable.
9.15. "Line" has the meaning set forth in Section 1.1.
9.16. "Line Note" has the meaning set forth in Section 1.1.
9.17. "Loan Documents" means this Agreement, the Line Note, the Term
Note, the Security Agreement, the Surety Agreements and all other documents,
executed or delivered by Borrower and/or the Guarantor pursuant to this
Agreement, as they may be amended from time to time.
9.18. "Notes" means the Line Note and the Term Note and "Note" means
either the Line Note or the Term Note.
<PAGE>
9.19. "Out-Of-Formula Advance" means the amount by which the then
outstanding principal balance of the Line exceeds the amount that Bank may
advance pursuant to the formula advance provisions of Section 1.1 subject to
such other restrictions on advances as are otherwise set forth in this
Agreement.
9.20. "Permitted Out-of-Formula Advance" means Out-of-Formula Advances
in a principal amount not to exceed at any time Six Hundred Thousand Dollars
($600,000.00), in the aggregate, which amount shall be decreased as of December
31, 1997 and again as of June 30, 1998 based upon the results of Borrower's
operations.
9.21. "Person" means an individual, a Corporation or a government or
any agency or subdivision thereof, or any other entity.
9.22. "Prime Rate" means the annual interest rate established from time
to time by Bank and generally known by Bank as its "prime rate", whether
published by it publicly or only for the internal guidance of its loan officers.
The Prime Rate is used merely as a pricing index and is not and should not be
considered to represent the lowest or best rate available to a borrower.
9.23. "Subsidiary" means a Corporation (a) which is organized under the
laws of the United States or any State thereof, or any other county or
jurisdiction of Canada or Puerto Rico, (b) which conducts substantially all of
its business and has substantially all of its assets within the United States,
Canada or Puerto Rico, and (c) of which more than fifty percent (50%) of its
outstanding voting stock of every class (or other voting equity interest) is
owned by Borrower or one or more of its Subsidiaries.
9.24. "Security Agreement" has the meaning set forth in Section 4.1.
9.25. "Surety" has the meaning set forth in Section 4.2.
9.26. "Term Note" has the meaning set forth in Section 1.2.
10. WAIVERS.
10.1. Waivers. In connection with any proceedings under the Loan
Documents, including without limitation any action by Bank in replevin,
foreclosure or other court process or in connection with any other action
related to the Loan Documents or the transactions contemplated hereunder,
Borrower waives:
(a) all errors, defects and imperfections in such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceeding, or otherwise providing for any valuation,
appraisal or exemption;
(c) all rights to inquisition on any real estate, which real
estate may be
<PAGE>
levied upon pursuant to a judgment obtained under any of the Loan Documents and
sold upon any writ of execution issued thereon in whole or in part, in any order
desired by Bank;
(d) presentment for payment, demand, notice of demand, notice of
non-payment, protest and notice of protest of any of the Loan Documents,
including the Notes;
(e) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(f) any demand for possession of Collateral prior to commencement
of any suit; and
(g) all rights to claim or recover attorney's fees and costs in
the event that Borrower is successful in any action to remove, suspend or
enforce a judgment entered by confession.
10.2. Forbearance. Bank may release, compromise, forbear with respect
to, waive, suspend, extend or renew any of the terms of the Loan Documents,
without notice to Borrower.
10.3. Limitation on Liability. Borrower shall be responsible for and
Bank is hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Bank shall only be liable for any act or omission on its part
constituting gross negligence or wilful misconduct. In the event that Bank
breaches its required standard of conduct, Borrower agrees that its liability
shall be only for direct damages suffered and shall not extend to consequential
or incidental damages. In the event Borrower brings suit against Bank in
connection with the transactions contemplated hereunder and Bank is found not to
be liable, Borrower will indemnify and hold Bank harmless from all costs and
expenses, including attorney's fees, incurred by Bank in connection with such
suit. This Agreement is not intended to obligate Bank to take any action with
respect to the Collateral or to incur expenses or perform any obligation or duty
of Borrower.
11. SUBMISSION TO JURISDICTION.
11.1. Submission to Jurisdiction. Borrower hereby consents to the
exclusive jurisdiction of any state or federal court located within the
Commonwealth of Pennsylvania, and irrevocably agrees that, subject to the Bank's
election, all actions or proceedings relating to the Loan Documents or the
transactions contemplated hereunder shall be litigated in such courts, and
Borrower waives any objection which it may have based on lack of personal
jurisdiction, improper venue or forum non conveniens to the conduct of any
proceeding in any such court and waives personal service of any and all process
upon it, and consents that all such service of
<PAGE>
process be made by mail or messenger directed to it at the address set forth in
Section 8.1. Nothing contained in this Section shall affect the right of Bank to
serve legal process in any other manner permitted by law or affect the right of
Bank to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction.
12. MISCELLANEOUS.
12.1. Brokers. The transaction contemplated hereunder was brought about
and entered into by Bank and Borrower acting as principals and without any
brokers, agents or finders being the effective procuring cause hereof. Borrower
represents to Bank that Borrower has not committed Bank to the payment of any
brokerage fee or commission in connection with this transaction. If any such
claim is made against Bank by any broker, finder or agent or any other Person,
Borrower agrees to indemnify, defend and hold Bank harmless against any such
claim, at Borrower's own cost and expense, including Bank's attorneys' fees.
Borrower further agrees that until any such claim or demand is adjudicated in
Bank's favor, the amount claimed and/or demanded shall be deemed part of the
Bank Indebtedness secured by the Collateral.
12.2. Use of Bank's Name. Borrower shall not use Bank's name or the
name of any of Bank's Affiliates in connection with any of its business or
activities except as may otherwise be required by the rules and regulations of
the Securities and Exchange Commission or any like regulatory body and except as
may be required in its dealings with any governmental agency.
12.3. No Joint Venture. Nothing contained herein is intended to permit
or authorize Borrower to make any contract on behalf of Bank, nor shall this
Agreement be construed as creating a partnership, joint venture or making Bank
an investor in Borrower.
12.4. Survival. All covenants, agreements, representations and
warranties made by Borrower in the Loan Documents or made by or on its behalf in
connection with the transactions contemplated here shall be true at all times
this Agreement is in effect and shall survive the execution and delivery of the
Loan Documents, any investigation at any time made by Bank or on its behalf and
the making by Bank of the loans or advances to Borrower. All statements
contained in any certificate, statement or other document delivered by or on
behalf of Borrower pursuant hereto or in connection with the transactions
contemplated hereunder shall be deemed representations and warranties by
Borrower.
12.5. No Assignment by Borrower. Borrower may not assign any of its
rights hereunder without the prior written consent of Bank, and Bank shall not
be required to lend hereunder except to Borrower as it presently exists.
12.6. Assignment or Sale by Bank. Bank may sell, assign or participate
all or a portion of its interest in the Loan Documents and in connection
therewith may make available to any prospective purchaser, assignee or
participant any information relative to Borrower in its possession.
12.7. Binding Effect. This Agreement and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
12.8. Severability. The provisions of this Agreement and all other Loan
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not
<PAGE>
affect or impair the remaining provisions which shall continue in full force and
effect.
12.9. No Third Party Beneficiaries. The rights and benefits of this
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
12.10. Modifications. No modification of this Agreement or any of the
Loan Documents shall be binding or enforceable unless in writing and signed by
or on behalf of the party against whom enforcement is sought.
12.11. Holidays. If the day provided herein for the payment of any
amount or the taking of any action falls on a Saturday, Sunday or public holiday
at the place for payment or action, then the due date for such payment or action
will be the next succeeding Business Day.
12.12. Law Governing. This Agreement has been made, executed and
delivered in the Commonwealth of Pennsylvania and will be construed in
accordance with and governed by the laws of such Commonwealth.
12.13. Integration. The Loan Documents shall be construed as integrated
and complementary of each other, and as augmenting and not restricting Bank's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties.
12.14. Exhibits and Schedules. All exhibits and schedules attached
hereto are hereby made a part of this Agreement.
12.15. Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
12.16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.17. Waiver of Right to Trial by Jury. BORROWER AND BANK WAIVE ANY
RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a)
ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER OR BANK WITH RESPECT TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER AND BANK AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF BORROWER AND BANK TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT
WITH COUNSEL REGARDING THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS,
CONTENT AND EFFECT, AND THAT IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF
THIS SECTION.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CECO FILTERS, INC.
By:/s/ Steven I. Taub
----------------------------------
Steven I. Taub, President
CORESTATES BANK, N.A.
By:/s/ William F. Dohmen
----------------------------------
William F. Dohmen, Vice President
<PAGE>
EXHIBIT 10.40
THIS LEASE AGREEMENT (hereinafter, the "Lease"), made and dated this
10th day of January, 1980, by and between Richard A. Roos, an individual,
residing at 9596 Park Edge Drive, Allison Par, Pennsylvania 15101 (hereinafter
called the "Lessor"), and BUSCH CO., a corporation organized and existing under
the laws of the Commonwealth of Pennsylvania, having its principal office at
4907 Penn Avenue, Pittsburgh, Pennsylvania 15224 (hereinafter called the
"Leasee).
W I T N E S S E T H:
Article 1. DEMISE.
Lessor, in consideration of the rents to be paid and the covenants
and agreements herein to be performed by the Lessee, does hereby let and demise
unto the Lessee and the Lessee does hereby hire and take from the Lessor, upon
the terms and conditions hereinafter set forth all of that certain tract or
parcel of land located in Shaler Township, Allegheny County, Pennsylvania, being
more particularly described in Exhibit "A" attached hereto, made a part hereof
and incorporated herein by reference (such tract or parcel of land being
hereafter called the "Land"), together with all buildings, structures, roads,
improvements and appurtenances now or hereafter erected thereon (such buildings,
structures, roads, improvements and appurtenances being hereinafter,
collectively, called the "Improvements" and the Land and the Improvements, being
hereinafter, collectively, called the "Demised Premises"). The Lessee, in
consideration of the Lessor's letting of the Demised Premises to the Lessee,
hereby agrees to pay the rent and other charges set forth in this Lease and
agrees to be bound by all of the terms and conditions hereof.
ARTICLE 2. TERM AND RENT.
The term of this Lease shall commence on the Occupancy Date (as
hereinafter defined), and shall expire at 12:01 A.M. on the day which is the
eleventh (11th) anniversary of the Occupancy Date, such eleventh (11th)
anniversary being hereinafter called the "Expiration Date". Within thirty (30)
days following the Occupancy Date, Lessor and Lessee will execute and deliver to
each other duplicate counterparts of an agreement, in recordable form, setting
forth the Occupancy Date and Expiration Date.
The Lessee will have the right, at its option, to renew and extend
this Lease for a term of five (5) years beginning on the Expiration Date and
ending at 12:01 A.M. on
<PAGE>
the day which is the fifth (5th) anniversary of the Expiration Date. The Lessee
may exercise it renewal option by giving written notice to Lessor of its
intention to do so at least twenty-four months prior to the Expiration Date of
the initial term of the Lease. If the Lessee exercises its renewal right, all of
the terms and conditions of this Lease will continue in effect during the period
of renewal.
During the initial term of this Lease, Lessee shall pay to Lessor, as
net basic rental for the Demised Premises, the following annual amounts (being
hereinafter referred to as "Annual Net Basic Rental"):
Annual Net
Year of Initial Term Basic Rental
-------------------- ------------
1st Year $ 62,400.00
2nd Year 67,080.00
3rd Year 72,111.00
4th Year 77,519.00
5th Year 83,333.00
6th Year 89,583.00
7th Year 96,302.00
8th year 103,524.00
9th Year 111,289.00
10th Year 119,636.00
11th Year 128,609.00
If the lessee exercises its renewal option under this Article 6, the
Annual New Basic Rental payments during the renewal period shall be the
following amounts:
Annual Net
Year of Renewal Period Basic Rental
- ---------------------- ------------
1st Year $138,254.00
2nd year 148,623.00
3rd Year 159,770.00
4th Year 171,753.00
5th Year 184,634.00
It is the intention and agreement of the Lessor and the Lessee that
such Annual Net Basic Rental shall be paid by the Lessee to the Lessor
absolutely net, without any deduction or set-off of any kind or nature
whatsoever. Such Annual Net Basic Rental shall be payable in monthly
<PAGE>
installments, each of which installments shall be in an amount equal to
one-twelfth (1/12) of the applicable Annual Net Basic Rental, and shall be paid
in advance on or before the first (1st) business day of each month during the
term of this Lease, without demand, to the Lessor at 9596 Park Edge Road,
Allison Park, Pennsylvania 15101, or at such other place as the Lessor may
designate in writing from time to time.
In the event that the Occupancy Date is a day other than the first
business day of a calendar month, then the Lessee shall pay to the Lessor, on or
before the Occupancy Date, a pro-rata portion of the applicable monthly
installment of Annual Net Basic Rental, as above provided, such pro-rata portion
to be based on the number of days remaining in such partial month following the
Occupancy Date.
ARTICLE 3. CONSTRUCTION OF IMPROVEMENTS: OCCUPANCY DATE.
Lessor covenants and agrees that, before the occupancy date, Lessor
shall, at its sole cost and expense, complete, or cause the completion of,
improvements to the building located on the Land after (such building, as
improved, shall hereinafter be referred to as the "Building"), the parking
facilities, and make all other improvements described in certain plans and
specifications prepared by Kenneth H. Roos, Architect, listed in Exhibit "B"
hereto (hereinafter the "Plans and Specifications").
<PAGE>
The Occupancy Date shall mean the earlier of:
(i) The date on which the Architect certifies to Lessee that the improvements
described in the Plans and Specifications have been completed in accordance
with the Plans and Specifications and that all utility services
contemplated in the Plans and Specifications have been installed and are
available for the Lessee's use in the Building and elsewhere at the Demised
Premises. Lessor agrees that it will exercise its best effort to cause its
Architect to inspect the Improvements in a reasonable and timely manner,
that it will cooperate with the Lessee in every reasonable way in order to
secure utility services to the Building and the Demised Premises).
(ii) The date upon which the appropriate governmental authority issues an
occupancy permit for the Demised Premises.
Lessor hereby covenants that, as of the Occupancy Date and thereafter,
there shall be no liens against the Demised Premises arising out of or in
any way connected with the improvement of the premises in accordance with
the Plans and Specifications.
ARTICLE 4. ALTERATIONS AND TRADE FIXTURES.
Lessee shall have the right to make alterations, improvements or
additions to the improvements; provided, however, that Lessee shall first obtain
Lessor's prior written approval of the applicable plans and specifications for
any alterations, improvements or additions (a) costing
<PAGE>
in excess of $5000.00, in the aggregate and not separately, or (b) affecting the
structural or load-bearing members of the Building, or (c) affecting the
exterior of the Building, or (d) affecting the roads, parking areas or other
exterior structures on the Demised Premises. Lessor shall not unreasonably
withhold its approval of any alterations, improvements or additions requested by
Lessee and Lessor shall respond to Lessee's written request for such approval
within fifteen (15) days following receipt thereof by Lessor.
During the term of the Lease, Lessee shall have the right but, except
as stated in the succeeding sentence, not the obligation to remove (a) any of
said alterations, improvements or additions made to the Demised Premises by
Lessee at Lessee's cost, and (b) any trade fixtures, furniture and equipment
installed by Lessee; provided, however, that Lessee shall, at its sole cost and
expense, repair any damage caused to the Demised Premises by such removal. By
notice to Lessee in writing given not more than six (6) months and not less than
two (2) months prior to the Expiration Date, Lessor may request that Lessee
remove from the Demised Premises (I) any of said alterations, improvements or
additions made to the Demised Premises by Lessee and (ii) any of the trade
fixtures, furniture and equipment installed by Lessee; and, if Lessor makes such
request, Lessee shall remove, on or before the Expiration Date, such of Lessee's
alterations, improvements, additions, trade fixtures, furniture and equipment as
are stated in such request and repair any damage caused to the Demised Premises
by said removal. Subject to the foregoing provisions of this
<PAGE>
Article 4, in the event that Lessor requests removal of certain property from
the Demised Premises and Lessee fails to remove the same and repair any damage
caused thereby on or before the Expiration Date (in each case as specifically
required by the immediately preceding sentence), then Lessee agrees to reimburse
and pay Lessor for the actual cost of removing the same and repairing any damage
to the Demised Premises caused by said removal. All of the alterations.
improvements, additions, trade fixtures, furniture and equipment remaining on
the Demised Premises after said Expiration Date shall become the property of
Lessor. Prior to the commencement by Lessee of construction of any alterations,
improvements or additions at or upon the Demised Premises, Lessee shall furnish
to Lessor satisfactory evidence of: (a) the procurement of any necessary permits
and authorizations (required by statutes, ordinances, building code
requirements, restrictive covenants, or otherwise) from the appropriate
governmental authorities having jurisdiction over the Demised Premises, (b) the
filing of a satisfactory waiver against mechanics' liens, and (c) Workmen's
Compensation Insurance, public liability insurance and property damage insurance
in amounts, form and content, and with insurance companies, in each case
reasonably satisfactory to Lessor.
ARTICLE 5. USE AND COVENANTS OF LESSEE.
The Lessee shall use the Demised Premises for office purposes and for
parking and other purposes related
<PAGE>
to Lessee's business, as lawfully permitted by any certificate of occupancy
issued with respect to the Demised Premises and the laws and ordinances of the
Commonwealth of Pennsylvania, Allegheny County and Shaler Township, and for
no other purpose.
ARTICLE 5.1. ADDITIONAL COVENANTS.
Lessee covenants and agrees that:
(a) It will not install, use or operate any machinery or
equipment that is harmful to the Demised Premises;
(b) It will not place any weights in any por- tion of the
building beyond its safe carrying capacity; and
(c) It will comply fully with, and will not knowingly do, or
suffer to be done, any act, matter or thing in violation of (I) the applicable
certificate of occupancy, (ii) the laws, statutes, ordinances, regulations,
orders and requirements of all federal, state, county, township or other
governmental authorities having jurisdiction over the Demised Premises and the
appropriate departments, commissions, boards and officers thereof, (iii) the
orders, rules and regulations of the Board of Fire Underwriters or any other
body hereafter constituted exercising similar functions, and (iv) the provisions
of the fire or any other insurance policies now or hereafter in effect in
connection with the Demised Premises.
<PAGE>
ARTICLE 6. INSPECTION AND WORK BY LESSOR.
Lessor shall have the right at all times, upon the giving of
twenty-four (24) hours prior notice to Lessee (except for an emergency, in which
event such prior notice to Lessee shall not be required), by its duly authorized
employees and agents, at Lessor's own sole cost and expense, to go upon and
inspect the Demised Premises during Lessee's usual business hours (except in the
case of an emergency, in which event such entry and inspection may be made at
any time); and at such time and under such circumstances, the Lessor may make
any necessary repairs to the Demised Premises and may perform any work therein
that may be necessary to comply with any applicable laws, statutes, ordinances,
regulations, orders and requirements of all federal, state, county, township or
other governmental authorities having jurisdiction over the Demised Premises and
the appropriate departments, commissions, boards and officers thereof, and the
orders, rules and regulations of the Board of Fire Underwriters or any other
body hereafter constitute exercising similar functions, or that the Lessor may
deem reasonably necessary to prevent waste or deterioration on the Demised
Premises. Nothing herein shall imply any duty upon the part of the Lessor to do
any such work that under any provisions of this Lease the Lessee is required to
perform, and the performance thereof by the Lessor shall not constitute a waiver
of the Lessee's default in failing to perform the same. The Lessor may, during
the progress of any work in the Demised Premises, keep and store upon the
<PAGE>
Demised Premises, in areas mutually convenient to Lessor and Lessee, all
necessary materials, tools and equipment required for said work. Lessee shall
fully reimburse Lessor for the cost of any work performed by Lessor pursuant to
this Article 6 which amount shall be deemed to be additional rent; provided,
however, that Lessor shall be responsible for and pay the cost of any work
performed in order to fulfill Lessor's obligations under this Lease.
ARTICLE 7. INSPECTION BY PROSPECTIVE PURCHASERS AND TENANTS.
The Lessor shall have the right, upon the giving of forty-eight (48)
hours prior notice to Lessee, to enter the Demised Premises during the Lessee's
usual business hours (a) to exhibit the same to prospective purchasers at any
time during the Lease term and (b) to exhibit the same to prospective tenants
within six (6) months prior to the Expiration Date. A representative of Lessor
shall always accompany any prospective purchaser or tenant on any of the
aforesaid inspections. Lessor shall also have the right, at any time during the
Lease term or any renewal thereof, to display the usual "For Sale" signs on the
Demised Premises and also the right, within six (6) months prior to the
Expiration Date, to display the usual "For Rent" signs; provided, however, that
any such "For Sale" or "For Rent" sign shall be displayed in such a manner so as
not to unreasonably interfere with the Lessee's business, and Lessee agrees that
Lessee shall not disturb any such signs placed upon the Demised Premises.
ARTICLE 8. SIGNS.
Lessee shall not install, maintain or display upon
<PAGE>
the Demised Premises any exterior signs without the prior written approval of
Lessor, which approval shall not be unreasonably withheld. Lessor agrees to make
a determination of whether to grant or withhold such approval and to inform
Lessee of same in writing within thirty (30) days of any such request by Lessee.
Lessor hereby grants its approval of all signs, logos and insignia which are
shown on the Plans and Specifications.
ARTICLE 9. INDEMNIFICATION.
During the Term of this Lease, Lessee agrees to indemnify and save
Lessor harmless against and form any and all claims by or on behalf of any
person(s), firm(s), corporation(s) or any other entity arising from anything
whatsoever done in or about the Demised Premises; and Lessee will further
indemnify and save Lessor harmless against and from any and all claims arising
from the conditions of the Demised Premises, or arising from any breach or
default on the part of the Lessee in the performance of any covenant or
agreement on the part of the Lessee to be performed pursuant to the terms and
conditions of this Lease, or arising from any willful or negligent act or
omission of the Lessee or any of its agents, servants or employees, or arising
from any accident, injury or damage whatsoever caused to any person(s), firm(s),
corporation(s) or any other entity occurring in or about the Demised Premises;
and Lessee will further indemnify and save Lessor harmless against and from all
costs, counsel fees, expenses and liabilities reasonably
<PAGE>
incurred in connection with any such claim or action or proceeding brought
thereon; and, in case any action or proceeding be brought against the Lessor by
reason of any such claim, the Lessee covenants to resist or defend such action
or proceeding by counsel, reasonably satisfactory to the Lessor; provided,
however, that Lessee's obligation to indemnify Lessor hereunder shall not extend
to any matters or occurrences (or their consequences) arising from or associated
with any negligent or willful act or omission of Lessor or his agents, servants
or employees.
ARTICLE 10. RELEASE OF LIABILITY.
Lessee agrees to release and indemnify and hereby releases the
Lessor, and his agents, servants and employees, from all liability in connection
with any and all damage to or loss of property, or loss or interruption of
business, or costs and expenses (including, but not limited to attorneys' fees)
occurring to Lessee, its agents, servants, employees, invitees, licensees,
visitors, or any other person, firm, corporation or entity, caused by an fire,
breakage or leakage in any part or portion of the Demised Premises, or from
water, rain or snow that may leak into, issue or flow from any part of the said
Demised Premises, or from the drains, pipes or plumbing work of the same, or
from any place or quarter, unless such loss, interruption, breakage, leakage,
injury or damage be caused by or result from negligent or willful acts or
omissions of the Lessor or his agents, servants and employees.
<PAGE>
ARTICLE 11. FIRE AND OTHER CASUALTY DAMAGE.
Lessee agrees to give prompt notice to Lessor of any damage or
destruction of and to the Demised Premises by fire or other casualty.
In the event at least fifty percent (50%) or more of the Improvements
on the Demised Premises are damaged or destroyed by fire or other casualty, and
(ii) such damage or destruction occurs on or after the tenth (10th) anniversary
of the Occupancy Date (unless Lessee has exercised its renewal option under
Article 2 of this Lease, in which event such destruction or damage must have
occurred after the fourteenth (14th) anniversary of the Occupancy Date), Lessor
or Lessee shall have the right to cancel and terminate this Lease by giving
written notice of such election to the other party within thirty (30) days
following the date of said damage or destruction, which notice shall set forth a
date of termination not less than thirty (30) days subsequent to the date of the
notice of termination.
In the event that this Lease is terminated as aforesaid, the rent shall
abate for the balance of the term, and Lessor shall be entitled to the insurance
proceeds for said damage or destruction and Lessee shall immediately pay to
Lessor the full amount of any policy deductible. If, however, (1) no lection to
terminate as aforesaid is made and this Lease remains in full force and effect,
or (b) the damage is of a lesser nature, Lessor shall restore the Demised
Premises with due diligence, except for delays
<PAGE>
caused by (I) Lessor's inability to obtain materials, (ii) Acts of God, as said
term is legally defined and construed, (iii) strikes, slow downs fire or
weather, (iv) act of governmental authority, or (v) any other cause beyond the
control of Lessor, to substantially the condition existing before such damage or
destruction, with Lessor reserving the right to enter upon the Demised Premises
for such purpose. In such event, the Annual Net Basic Rental shall be equitably
reduced, apportioned or suspended during the period of time required for the
repair or restoration of the Demised Premises, taking into account the
proportion and character (the Building, Improvements, Parking Area, etc.) of the
Demised Premises rendered untenantable by the damage or destruction; provided,
however, that Lessee's performance of all other covenants and agreements by the
Lessee herein to be performed shall not be affected by any such damage or
destruction to the Building on the Demised Premises. Notwithstanding anything in
this Agreement to the contrary, Lessor shall have no obligation to restore and
rebuild if: (I) the Improvements are substantially or totally damaged or
destroyed by a cause or event which is outside the scope of coverage of Lessee's
all risks insurance policy; or (ii) Mellon Bank, N.A. and/or the Allegheny
County Industrial Development Authority shall cause insurance proceeds to be
used to reduce the balance of any outstanding loans given by
<PAGE>
Mellon Bank, N.A. in connection with the Demised Premises
rather than to restore or rebuild.
All insurance proceeds received due to the damage or destruction of
and to the Demised Premises shall be immediately deposited with the Lessor Or
Mellon Bank, N.A. "in trust" and so as not to be subject to the claims of any
creditor of Lessor. Lessor shall first use such funds for the repair and
reconstruction of the Building and any other damaged potion of the Demised
Premises to the extent required by this Article. In addition, prior to the
commencement of any restoration, rebuilding or repair work, the total estimated
cost of such work, as determined by Lessor, up to the full amount of any
insurance deductible, shall be deposited by Lessee with Lessor.
ARTICLE 12. EMINENT DOMAIN.
If, during the term of this Lease or any renewal thereof, all or any
part of the Demised Premises shall be taken as a result of the exercise of the
power of eminent domain Lessee shall have the right to claim and prove in such
proceeding and to receive any award which may be made, if any, specifically for
damages or condemnation of the Lessee's movable trade fixtures, equipment and
relocation expenses and the Lessor shall be entitled to the balance of any award
in any such proceeding.
If the entire Demised Premises shall be taken under such eminent
domain proceeding, this Lease and all the right, title and interest of the
Lessee hereunder shall
<PAGE>
cease and come to an end on the date when possession is taken pursuant to such
proceeding, and the Lessee's obligations to pay annual Net Basic Rental and
other amounts under this Lease shall abate as of said date.
On a partial taking of the Demised Premises, (a) either Lessor or
Lessee shall have the option to terminate this Lease if (I) at least twenty
percent (20%) of the usable floor area of the Building or (ii) at least fifty
percent (50%) of the parking spaces on the Demised Premises shall be taken in
any such proceeding; and (b) Lessee shall have the option to terminate this
Lease without regard to the potion of the Demised Premises taken in any eminent
domain proceeding) if Lessee provides conclusive evidence that such taking of
the Demised Premises renders the balance of the Demised Premises impractical for
Lessee's business purposes. The Lessor or the Lessee may exercise the aforesaid
option or options to terminate this Lease in its entirety as aforesaid by giving
written notice to the other within sixty (60) days after the date of the vesting
of title in such proceeding, specifying a date not more than thirty (30) days
after the giving of such notice as the date for such terminations; provided,
however, if Lessor is able to provide, for the use of Lessee, its employees and
guests, equivalent parking area or areas within three hundred (300) feet of any
front, side or rear line of the Building or other Improvements, then Lessee's
<PAGE>
aforesaid right to terminate this Lease due to the taking of fifty percent (50%)
of the parking spaces shall thereby end and any notice of termination given by
Lessee to Lessor (due to the taking of said parking spaces) prior thereto shall
be void and of no further force and effect.
In the event that this Lease is not terminated after the eminent
domain proceeding under the aforesaid provisions, (a) Lessor shall promptly
commence to repair or restore the Demised Premises to tenantable condition for
Lessee's uses and complete same with due diligence except for delays caused by
(I) Lessor's inability to obtain materials, (ii) Acts of God, as said term is
legally defined and construed, (iii) strikes, fire or weather, (iv) act of
government authority, or (v) any other cause beyond the control of Lessor, and
(b) the Annual Net Basic Rental and, correspondingly, the monthly installments
thereof, shall be equitably reduced from and after the date possession is taken
by the condemnor for the balance of the term by taking into account the
character and the amount of the taking.
ARTICLE 13. INTERRUPTION OF USE.
Except to the extent caused by any negligent or willful act or
omission of Lessor or any employee or agent of Lessor, Lessor shall not be
liable for any damages, compensation or claims of Lessee by reason of (a)
<PAGE>
inconvenience, annoyance, loss of business or interruption in the use of said
Demised Premises to or by Lessee arising from the necessity of repairing or
restoring the Improvements on the Demised Premises at any time during the term
of this Lease or any renewal thereof, whether caused by fire or any other cause,
or (b) the termination of this Lease pursuant to any of the provisions hereof;
provided, however, that Lessor shall use its best efforts to minimize any such
inconvenience, annoyance, loss of business or interruption of use.
ARTICLE 14. REPAIRS.
The Lessee covenants throughout the term of this Lease at the
Lessee's sole cost and expense, to take good care of the Demised Premises,
including the equipment, fixtures and machinery thereof, and to keep the same in
good order, maintenance, repair and condition; and Lessee agrees to promptly, at
Lessee's sole cost and expense, make all necessary repairs, interior and
exterior, ordinary as well as extraordinary, and foreseen as well as unforeseen,
to the Demised Premises except to the extent that any such repairs are
necessitated because of negligent or willful acts or omissions of Lessor or any
of his employees or agents; provided, however, that Lessor shall be responsible
for making any repairs to the extent that the same are necessitated because of
negligent or willful acts or omissions of Lessor or any of his employees or
agents. The term
<PAGE>
"repair(s)" shall include replacement or renewals when necessary, and all such
repairs shall be equal in quality and class to the original work. At the
termination of this Lease, Lessee shall surrender the Demised Premises in the
same condition as when received, except for reasonable use and natural wear.
All work done in connection with any maintenance, repairs or
alterations shall be done in a good and workmanlike manner, in compliance with
the applicable building and zoning laws of Shaler Township and with all
applicable laws, statutes, ordinances, regulations, orders and requirements of
all federal, state, county, township, or other governmental authorities having
jurisdiction over the Demised Premises and the appropriate departments,
commissions, boards and officers thereof, and in compliance with the orders,
rules and regulations of the Board of Fire Underwriters or any other body
hereafter constituted exercising similar functions.
If either party fails or neglects to proceed with due diligence to
commence and complete the repairs, renewals or replacements in accordance with
its obligations hereunder (such party being hereinafter referred to as the
"defaulting party"), the other party, upon the lapse of thirty (30) days after
the mailing of written notice to the defaulting party
<PAGE>
(except (a) where such repairs, renewals or replacements by their nature may
take a longer reasonable specific period of time as agreed to by the other party
in said written notice, and (b) in the event of an emergency, in which event no
such written notice shall be required to Lessee) , may enter upon the Demised
Premises and cause such repairs, renewals or replacements to be made and charge
the cost thereof to the defaulting party. If the Lessee shall be the defaulting
party, such cost shall be deemed to be additional rent. If the Lessor shall be
the defaulting party, Lessor shall, within ten (10) days after written demand by
Lessee , remit such cost to Lessee; in no event , however , shall Lessee have
the right to offset such cost against rent payments.
ARTICLE 15. UTILITIES.
The Lessee agrees to pay or cause to be paid all charges for gas,
electricity, light, heat or power, water and sewer rental and charges, telephone
or other communication services, and all other utilities servicing and consumed
on the Demised Premises throughout the term of this Lease and to indemnify and
save Lessor harmless against any liability or damages on such account ( except
that Lessor shall reimburse Lessee for the cost on any utility services consumed
by Lessor or his employees and agents). The aforesaid utility services shall be
separately metered for the Demised Premises. From and after the Occupancy Date,
<PAGE>
the Lessee shall at its sole cost and expense procure any and all necessary
additional permits, licenses or other authorizations required for the lawful and
proper installation and maintenance upon the Demised Premises of wires, pipes,
conduits, tubes and other equipment and appliances for use in supplying any
services to and upon the Demised Premises which may be required subsequent to
the Occupancy Date, and Lessor shall comply with reasonable request by Lessee
for Lessor's cooperation or assistance in connection therewith.
ARTICLE 16. TAXES AND ASSESSMENTS.
The Lessee covenants and agrees to pay, before any fine, penalty,
interest or cost may be added thereto for the nonpayment thereof, all real
estate taxes (including, for so long as the Demised Premises are owned by the
Allegheny County IDA, an amount equal to the ad valorem taxes which would be due
if the Demised Premises were not owned by the IDA), assessments with respect to
the real property comprising the Demised Premises, water and sewer rates and
charges, fire hydrant tax, street lighting tax and other governmental charges,
general and special, ordinary and extraordinary, unforeseen as well as foreseen,
of any kind and nature whatsoever, including but not limited to assessments for
public improvements or benefits which shall during
<PAGE>
the term hereby demised be laid, assessed, levied or imposed upon or become due
and payable upon the Land and the Improvements of the Demised Premises (all of
which real estate taxes, assessments with respect to the real property
comprising the Demised Premises, water and sewer rates and charges, fire hydrant
tax, street lighting tax and other governmental charges are hereinafter,
collectively, referred to as "Impositions") ; provided, however, that, if by law
any such Imposition is payable or may at the option of the taxpayer be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Lessee may pay the same, together with any accrued interest on the
unpaid balance of such Imposition, in installments as the same respectively
become due and payable and before any fine, penalty, interest or cost may be
added thereto for the nonpayment of any such installment and interest. Both
Lessor and/or Lessee shall have the right, jointly and severally, to protest to
the appropriate governmental taxing authority involved, in the lawfully
prescribed manner, any such Imposition and any additional Imposition which may
be levied for imposed on the Demised Premises during the term of this Lease.
Lessor hereby names, constitutes and appoints Lessee as Lessor's
attorney-in-fact to take, in the name, place and stead of Lessor, any and all
actions which Lessee may deem necessary or appropriate in order to protest any
Imposition or to secure a reduction in the amount of any
<PAGE>
Imposition (including any interest and penalties thereon) which, by the terms of
this Article 16, is payable by the Lessee; and Lessor hereby agrees, promptly
upon the request of Lessee therefor, to execute and deliver to Lessee such other
and further documents as Lessee may reasonably require in order to carry out the
purposes of this Article 16.
An adjustment shall be made between Lessor and Lessee of all of the
said items included within the term "Impositions" as of the Occupancy Date and
as of the Expiration Date.
ARTICLE 17. INSURANCE.
During the term of this Lease, Lessee shall obtain, maintain, any
pay the reasonable cost of securing the following insurance coverages in
connection with the Demised Premises: (a) all risks insurance (which insures at
the minimum against the risks covered by a first-class Pennsylvania fire
insurance policy with extended coverage) insuring the Building and other
Improvements on the Demised Premises and the fixtures contained therein in
amounts of not less than 80% of the cost of replacement thereof in substantially
the same condition as existed when the loss occurred, providing for a
"deductible" of not more than $1,000.00 and naming Lessee, Lessor and the
Allegheny county Industrial Development Authority ("ACIDA") as name insureds "as
their interests may appear" and with a mortgagee clause in favor of Mellon Bank,
N.A.; and (b) general public liability insurance against claims for personal
injury,
<PAGE>
death or property damage occurring upon, in or about the Demised Premises, and
such insurance shall afford protection to Lessor, Lessee and the ACIDA to the
limit of not less than $1,000,000.00 in respect to any injury or death to
persons and in respect to property damage; (c) insurance insuring Lessor for
loss of rental income from the Demised Premises during the term of this Lease
due to the occurrence of any hazard, and having a policy limit not less than one
hundred percent (100%) of the Annual Net Basic Rental and Additional Rental
amounts established in this Lease; and (d) insurance against such other risks as
Lessor and Lessee may from time to time deem necessary or advisable or as Lessee
may desire to put into effect, of a similar or dissimilar nature, as are or
shall be customarily covered with respect to buildings similar in construction,
general location, use and occupancy, including, but without limiting the
generality of the foregoing, windstorm, plate glass damage, hail, explosion,
riot and civil commotion, damage from aircraft and vehicles, damage due to
boiler failure, and smoke damage, as and when insurance against such other risks
is available.
All policies of insurance and renewals thereof shall be subject to
the mutual approval of Lessor and Lessee and shall provide (a) that no material
change or cancellation of said policies shall be made without ten (10) days
prior written notice to Lessor, Lessee, the ACIDA and Mellon Bank, N.A., (b)
that any loss shall be payable notwithstanding any act or omission of the
Lessee, Lessor or the
<PAGE>
ACIDA (of any employee or agent of them) which might otherwise result in the
forfeiture of said insurance, and (c) that the insurance company issuing the
same shall have no right of subrogation against the Lessee, Lessor or the ACIDA.
Lessee and Lessor shall observe and comply with the requirements of all policies
of insurance in effect from time to time with respect to the Demised Premises
and the fixtures and equipment contained therein.
Lessor and Lessee, respectively, hereby release each other from any
and all liability or responsibility to the other and to anyone claiming through
or under it or them by way of subrogation or otherwise for any loss of or damage
to any property and any injury to or death of any person, to the extent that the
same is covered by any insurance then in effect, even if such loss or damage or
injury or death shall have been caused by the fault or negligence of the other
party or anyone for whom such party may be responsible; provided, however, that
this release shall be applicable and in force and effect only with respect to
any loss or damage or injury or death occurring during such time as the policy
or policies of insurance covering the same shall contain a clause or endorsement
to the effect that this release shall not adversely affect or impair such
insurance or prejudice the right of the insured to recover thereunder.
ARTICLE 18. ASSIGNMENT AND SUBLETTING.
Lessee shall not have the right to assign this Lease nor to sublet
all or a portion of the Demised Premises
<PAGE>
without the written consent of Lessor, which consent of Lessor will not be
unreasonably withheld. On any subletting consented to by Lessor, (a) the
sublease document must provide that the sublessee agrees to assume all terms,
conditions and obligations of Lessee under this Lease and (b) Lessee shall
remain liable under all terms and conditions of this Lease.
ARTICLE 19. DEFAULT.
The occurrence of any of the following shall constitute an "event of
default" hereunder:
(a) Failure of Lessee to take possession of the Demised Premises
within thirty (30) days after the Occupancy Date;
(b) The vacation or abandonment of the Demised Premises by
Lessee; provided, however, that the cessation of regular business activities at
the Demised Premises shall not constitute an event of default so long as (I)
such cessation does not continue for more than six (6) months, (ii) during such
cessation Lessee continues to maintain the Improvements and the Land in all
respects as if the Demised Premises were being occupied and used for the
purposes contemplated by this Lease, (iii) Lessee undertakes to provide security
services to the Demised Premises (reasonably acceptable to Lessor) so as to
protect the Demised Premises from damage or destruction by vandalism or the
like, (iv) such cessation does not cause cancellation of any
<PAGE>
insurance coverages required by this Lease, and (v) Lessee continues to observe
and perform all other obligations and covenants to which it is subject under
this Lease.
(c) A failure by lessee to pay (I) any installment of Annual Net
Basic Rental hereunder within fifteen (15) days after the date on which the same
is due, or (ii) any other sum herein required to be paid by Lessee and the same
is not paid within fifteen (15) days from the receipt of written notice that the
same is due;
(d) A failure by Lessee to observe and perform any other
provision or covenant of this Lease to be observed or performed by Lessee where
such failure continues for thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that, if the nature of the default is such
that the same cannot reasonably be cured within such thirty (30) day period,
Lessee shall not be deemed to be in default if Lessee shall within such period
commence such cure and thereafter diligently prosecute the same to completion;
and
(e) The filing of a petition by or against Lessee for
adjudication as a bankrupt or insolvent or for its reorganization or for the
appointment pursuant to any local, state or federal bankruptcy or insolvency law
of a receiver or trustee of Lessee's property; or an assignment by Lessee for
the benefit of creditors; or the taking possession of the property of Lessee by
any local, state or
<PAGE>
federal governmental officer or agency or court-appointed official for the
dissolution or liquidation of Lessee or for the operating, either temporarily or
permanently, of Lessee's business, provided; however, that if any such action is
com- menced against Lessee the same shall not constitute a de- fault if the same
is dismissed or stayed within sixty (60) days after the filing of the same.
ARTICLE 20. REMEDIES
Upon the occurrence of any such event of default set forth above in
Article 19:
(a) Lessor may accelerate all Annual Net Basic Rental payments
due to the balance of the term of this Lease, discounting the same to the then
present value using an interest factor of seven and one-half percent (7-1/2%)
per annum, and declare the same to be immediately due and payable;
(b) Lessor, at its option, may serve notice upon Lessee that this
Lease and the then unexpired term hereof shall cease and expire and become
absolutely void on the date specified in such notice, to be not less than five
(5) days after the date of such notice; and, thereupon and at the expiration of
the time limit specified in such notice, this Lease and the term hereof granted,
as well as the right, title and interest of the Lessee hereunder, shall wholly
cease and expire and become void in the same manner and with the same force and
effect (except as otherwise
<PAGE>
provided in the last sentence of this paragraph) as if the date fixed in such
notice were the Expiration Date. Thereupon, Lessee shall immediately quit and
surrender to Lessor the Demised Premises, and Lessor may enter into and
repossess the Demised Premises in any lawful manner by summary proceedings,
detainer, ejectment or otherwise and remove all occupants thereof and, at
Lessor's option, any property thereon. No such expiration or termination of this
Lease shall relieve Lessee of its liability and obligations under this Lease,
whether or not the Demised Premises shall be relet;
(c) Lessor may, at any time after the occurrence of any event
of default, re-enter and repossess the Demised Premises and any part thereof and
attempt in his own name, as agent for Lessee if this Lease not be terminated, or
in its own behalf if this Lease be terminated, to relet all or any part of such
Demised Premises, in a commercially reasonable manner on arms' length basis, for
and upon such terms and to such persons, firms or corporations and for such
period or periods a Lessor, in its sold discretion, shall determine, including a
term beyond the Expiration Date; and Lessor shall not be required to accept any
tenant offered by Lessee or observe any instruction given by Lessee about such
reletting; provided, however, that Lessor shall exercise its best efforts to
mitigate damages. Subject to the foregoing, for the purpose of such reletting,
Lessor may
<PAGE>
reasonably decorate or make reasonable repairs, changes, alterations, or
additions in or to the Demised Premises to the extent reasonably deemed by
Lessor necessary or desirable; an the cost of such decoration, repairs, changes
alterations or additions hall be charged to and by payable by Lessee as
additional rent hereunder, together with any reasonable brokerage and legal fees
expended by Lessor in connection therewith; and any sums collected by Lessor
from any new tenant of the Demised Premises shall be credited
against the balance of the Annual Net Basic Rental and additional rent due
hereunder. Lessee shall pay to Lessor, monthly, on the days when the Annual net
Basic Rental would have been payable under this Lease, the amount due under this
paragraph (c) less the amount obtained by Lessor from such new tenant;
(d) In the event of a breach or threatened breach by one party of
any of the agreements, conditions, covenants or terms hereof, the other party
shall have the right to invoke any remedy allowed by law or in equity, whether
or not other remedies, indemnity or reimbursements are herein provided. The
rights and remedies provided in this Lease are distinct, separate and cumulative
remedies; and no one of the, whether or not exercised, shall be deemed to be in
exclusion of any of the others;
(e) In the event of any such default, Lessee hereby empowers any
prothonotary or attorney of any court of
<PAGE>
record to appear for Lessee in any and all actions which may be brought for
Annual Net Basic Rental or additional rent, or other charges or expenses agreed
to be paid by Lessee hereunder, and to sign for Lessee an agreement for entering
into any competent court an amicable action or actions for the recovery of
Annual net Basic Rental, additional rent, or other charges for expenses and, in
said suits or in said amicable action or actions, to confess judgment against
Lessee for all or any part of such Annual Net Basic Rental, additional rent,
including, at Lessor's option, the Annual Net Basic Rental for the entire
unexpired balance of the term of this Lease, computed as set forth in paragraph
(a) of this Article 20, and any other charges, payments, costs and expenses
reserved as rent or agreed to be paid by Lessee, and for interest and costs
together with an attorney's commission of five percent (5%) thereof; provided,
however, that, at least fifteen (15) days prior to the commencement of any suit
or action pursuant to this paragraph (e) of Article 20, Lessor shall give Lessee
written notice of its intention to do so. Said authority shall not be exhausted
by any one exercise thereof, but judgment may be confessed as aforesaid form
time to time and as often as any of said Annual Net Basic Rental, additional
rent or other charges reserved as rent shall fall due or be in arrears, and such
powers may be exercised as well after the expiration of the term of this Lease.
It shall not be
<PAGE>
necessary for lessor to file the original of this Lease, but Lessor may file a
true copy thereof at the time of the entry of such judgment or judgments; and
(f) When this Lease shall be determined by condition broken
during the term of this Lease, and also when and as soon as the term hereby
created has expired, it shall be lawful for any attorney as attorney for the
Lessee to file an agreement for entering in any competent court an amicable
action and judgment in ejection against Lessee and all persons or entities
claiming under Lessee for the recovery by Lessor of possession of the Demised
Premises, for which this Lease shall be sufficient warrant; whereupon, if Lessor
so desires, a writ of Habere facias possessionem may issue forthwith, without
any prior writ or proceeding whatsoever, and provided that, if for any reason
after such action shall have been commenced the same shall be determined and
possession of the Demised Premised shall remain in or be restored to Lessee,
Lessor shall have the right, upon any subsequent default or defaults or upon the
termination or expiration of this Lease, to bring one or more amicable action or
actions to recover possession of the said Demised Premises; provided, however,
that, at least fifteen (15) day prior to the commencement of any suit or action
pursuant to this paragraph (f) of Article 20, Lessor shall give Lessee written
notice of its intention to do so. In any amicable action of ejectment, Lessor
shall first cause to be
<PAGE>
filed in such action an affidavit made by it or someone acting for it setting
orth the facts necessary to authorize the entry of judgment, and, if a true copy
of this Lease (and of the truth of the copy such affidavit shall be sufficient
evidence) be filed in such action, it shall not be necessary to file the
original as a warrant of attorney, any rule of court, custom or practice to the
contrary notwithstanding.
ARTICLE 21. PUBLIC AUTHORITY.
From and after the Occupancy Date and during the term of this Lease,
Lessee shall, at its sole cost and expense, promptly comply with all applicable
laws, statutes, ordinances, regulations, orders and requirements of all federal,
state, county, township or other governmental authorities having jurisdiction
over the Demised Premises including the appropriate departments, commissions,
boards and officers thereof, and with the orders, rules and regulations of the
Board of Fire Underwriters or any other body hereafter constituted exercising
similar functions, foreseen or unforeseen, ordinary as well as extraordinary,
and whether or not the same require additions or alterations to the Demised
Premises; provided, however, that Lessee shall have the right to contest the
applicability or validity of any such laws, statutes, ordinances, regulations,
orders and requirements and to defer compliance therewith pending the outcome of
such contest, unless a deferral of compliance
<PAGE>
(I) would constitute a criminal offense, or (ii) would or could subject Lessor
to liability (in which event Lessee may defer compliance only if Lessee
indemnifies Lessor against any such liability and provides to Lessor security
reasonably acceptable to Lessor for such indemnity).
ARTICLE 22. SUBORDINATION.
This Lease is subject and subordinate to the following mortgages,
liens, encumbrances and interests and no others (the same being hereinafter
collectively referred to as "Permitted Encumbrances") : (a) Lease Agreement
between Richard A. Roos (as Lessee) and the Allegheny County Industrial
Development Authority (as Lessor), dated January 10, 1980; (b) Mortgage and
Security Agreement between Allegheny County Industrial Development authority (as
Mortgagor and debtor) and Mellon Bank, N.A. (as mortgagee and secured party)
dated January 10, 1980.
This Lease shall be subject and subordinate to no future mortgage,
lien or other encumbrance (except Permitted Encumbrances) unless and until each
holder of each such mortgage, lien or other encumbrance (except Permitted
(Encumbrances) shall have delivered to Lessee a fully-executed original
counterpart of a non-disturbance agreement (in form and substance reasonably
satisfactory to Lessee) roviding that, notwithstanding such subordination, this
Lease shall not terminate in the event of any foreclosure
<PAGE>
of, or default by Lessor under any such future encumbrance as long as Lessee is
not in default under any of the terms and conditions hereof, and Lessee agrees
to attorn to and to recognize any successor of Lessor, by virtue of such
foreclosure of default, as Lessee's landlord for the balance of the term of this
Lease. The aforesaid subordination and attornment provisions shall be
self-operative; however, Lessee agrees to promptly execute any further agreement
submitted by Lessor in confirmation or acknowledgment of same.
ARTICLE 23. LESSOR'S APPROVAL OF REPAIRS.
When at any time during the term of this Lease, Lessee shall be
obligated to repair, replace or rebuild the Building and other Improvements on
the Demised Premises and if the estimated cost thereof will exceed the sum of
Five Thousand Dollars ($5,000.00) , Lessee shall not commence same until Lessee
shall have obtained the Lessor's prior written approval to the plans and
specifications for the proposed work, which approval the Lessor shall not
unreasonably withhold. All such work shall be performed by a contractor
reasonably acceptable to Lessor and under the supervision of a registered
architect, a registered engineer, or an employee of Lessee reasonably acceptable
to Lessor. All requests for approvals under this Article 23 shall be answered by
Lessor within fifteen (15) days following the receipt by Lessor of a written
request from Lessee for the
<PAGE>
same. Prior to the commencement of any work on said repairs, replacement or
rebuilding, Lessee shall supply Lessor with satisfactory evidence of the
following items: (a) the procurement of all necessary permits and authorizations
from the various governmental authorities having jurisdiction over the Demised
Premises, (b) the filing of a satisfactory waiver against mechanics' liens, and
(c) Workmen's Compensation Insurance, Public Liability Insurance and Property
Damage Insurance in amounts, form and content, and with companies reasonably
satisfactory to Lessor.
ARTICLE 24. QUIET POSSESSION.
Lessor covenants with Lessee, that, subject to the terms and
conditions of this Lease, if and so long as Lessee (I) pays the Annual Net Basic
Rental, the additional rent and any other charges payable by Lessee under the
terms, covenants, agreements and conditions of this Lease and (ii) performs all
of the other terms, covenants, agreements and conditions of this Lease to be
performed by Lessee, then Lessee shall quietly occupy and enjoy the Demised
Premises during the term of this Lease without hindrance or disturbance by
Lessor or by anyone claiming through or under Lessor.
ARTICLE 25. NOTICES.
Any notice from the Lessor to the Lessee or from the Lessee to the
Lessor shall be served by (a) personally delivering such notice to a duly
authorized representative of the Lessee at the Demised Premises or to a duly
authorized
<PAGE>
representative of the Lessor at the address hereinafter set forth or (b) by
mailing such notice, by Registered or Certified Mail, postage prepaid, to Lessee
at the Demised Premises or to Lessor at the address hereinafter set forth. Any
notice shall be deemed to have been received (a) in the case of personal
delivery, on the date such delivery is made, and (b) in the case of service by
mail, on the second (2nd) business day following the date the same is deposited
in the United States Mail, properly addressed and posted in the manner
hereinbefore provided. The address of the Lessor is 9596 Park Edge Drive,
Allison Park, Pennsylvania 15101. Either party hereto may change the address at
which any notice (or copy of any notice) shall be delivered or mailed by giving
written notice of such change to the other party hereto, as above provided in
this Article 25.
ARTICLE 26. REQUIREMENT OF STRICT PERFORMANCE.
Any law, usage or custom to the contrary notwith- standing, each
party shall have the right at all times to enforce all terms, conditions and
covenants hereof in strict accordance herewith, notwithstanding any conduct or
custom on the part of such party in refraining from so doing at any time or
times. Further, the failure of either party to this Lease at any time or times
to enforce its rights hereunder strictly in accordance with the same shall not
be construed as having created a custom in any way or manner contrary to any
specific term, condition or covenant hereof or as having in any way or manner
modified the same.
<PAGE>
ARTICLE 27. ADDITIONAL RENT.
All payments required of Lessee, in addition to the Annual Net Basic
Rental under the terms and conditions of this Lease, may, at the sole option of
Lessor, be deemed to be additional rent and shall be payable to Lessor within
fifteen (15) days after Lessor's written demand and notice to Lessee therefor;
and Lessor shall have all of the rights and remedies provided in this Lease in
event of default by Lessee in such payment. In the event that any payment
required of Lessee herein is made by Lessor, Lessee agrees that said payment,
together with interest at the rate of twelve percent (12%) per annum from the
date of payment by Lessor, shall be deemed additional rent hereunder and shall
be payable to Lessor as aforesaid. The making by Lessor of any payment required
of Lessee herein shall not be or construed to be a waiver of any such default by
Lessee.
If Lessor request, Lessee shall make monthly payments to Lessor
sufficient to cover one-twelfth (1/12th) of the annual real estate taxes and
one-twelfth (1/12th) of the all risk insurance policy premium, such payments to
be held in escrow by Mellon Bank, N.A. , without interest, for the payment or
such taxes and insurance premium as the same shall become due.
ARTICLE 28. LESSOR'S OBLIGATIONS.
The obligations under this Lease of the Lessor named in the
paragraph preceding Article 1 of this Lease
<PAGE>
shall be binding upon such Lessor only for the period in which he is the owner
of the Demised Premises; and upon termination of that ownership Lessee, except
as to any obligation which has then matured, shall look solely to Lessor's
successor in interest in the Demised Premises for the satisfaction of each and
every obligation of Lessor hereunder.
ARTICLE 29. INSPECTIONS.
The Allegheny County Industrial Development Authority and Mellon
Bank, N.A. shall both have that right, at all time, upon the giving of
twenty-four (24) hours prior notice to Lessee, by their duly authorized
employees and agents and at their sole cost and expense, to go upon and inspect
the Demised Premises during Lessee's usual business hours.
ARTICLE 30. SUCCESSORS.
The respective rights and obligations provided in this Lease shall
bind and shall inure to the benefit of the parties hereto, their respective
legal representative, heirs, successors and permitted assigns.
ARTICLE 31. GOVERNING LAW.
This Lease shall be construed, governed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania.
ARTICLE 32. SEVERABILITY.
If any provision of this Lease shall be held to be invalid, void or
unenforceable, the remaining provisions
<PAGE>
hereof shall in no way be affected or impaired, and such remaining provisions
shall remain in full force and effect.
ARTICLE 33. CAPTIONS.
Marginal captions and article titles to this Lease are of
convenience and reference only and are in no way to be construed as defining,
limited or modifying the scope of intent of the various provisions of this
Lease.
ARTICLE 34 ENTIRE AGREEMENT
This Lease, including the Exhibits hereto, contains all the
agreements, conditions, understandings, representations and warranties made
between the parties hereto with respect to the subject matter hereof, and may
not be modified orally or in any manner other than by an agreement in writing
signed by both parties hereto or their respective successors in interest.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly
executed this Lease and have initialed the Exhibits hereto,
in counterparts the day and year first above written.
WITNESS: RICHARD A. ROSS, LESSOR
/s/ Peter C. Baggerau /s/ Richard A. Roos
- ------------------------ ------------------------
Richard A. Roos
ATTEST: BUSCH CO., LESSEE
/s/ Christine H. Fleming /s/ Jack Blaiyousef
- ------------------------ ------------------------
Assistant Secretary Vice President
[Seal]
Exhibit A
ALL THOSE TWO CERTAIN PARCELS OF LAND situate in the Township of
Shaler, County of Allegheny and Commonwealth of Pennsylvania, separately bounded
and described as follows:
FIRST: Lots 1,2 and 3 in Mary Cunningham's Plan of Lots called
Littlewood, recorded in Plan Book 12, page 158, bounded and described as
follows:
BEGINNING at a point on the Easterly side of Mount Royal Boulevard
(formerly the Pittsburgh and Butler Turnpike Road) at the Northeasterly corner
of East Undercliff Street (formerly Highland Avenue) in said Plan: thence along
the Easterly side of Mount Royal Boulevard, North 6(0) 25' 56" East 120.45 feet
to an alley, 15 feet wide; thence along the Southerly side of said alley, South
88(0) 55' East 120.45 feet to the Westerly side of an unopened alley shown on
said Plan; thence along the Westerly side of said alley, South 6(0) West 120.45
feet of the Northerly side of East Undercliff Street; thence along said side of
East Undercliff Street, North 88(0) 55' West 119.63 feet to the place of
beginning.
SECOND: Part of Lot No. 4 in Mary Cunningham's Plan of Lots called
Littlewood,
<PAGE>
recorded in Plan Book 12, page 158, together with a portion of an alley situated
between Lot No. 4 on one side and Lots Nos. 1, 2 and 3 on the other side,
together bounded and described as follows:
BEGINNING at a point on the Northerly side of East Undercliff Street
(formerly Highland Avenue) at the Southeasterly corner of Lot No. 1 in said
Plan; thence along the Easterly line of Lots Nos. 1, 2 and 3 in said Plan, being
also along the Westerly side of an unopened alley in said Plan, North 6(0) East
120.45 feet of the Northeasterly corner of Lot No. 3 in said Plan; thence along
the Southerly side of another alley in said Plan, South 88(0) 55' East 42.18
feet to a point; thence through said lot No. 4, South 1(0) 33' 39" West 120.00
feet to the Northerly side of East Undercliff Street; thence along side of East
Undercliff Street, North 88(0) 55' West 51.50 feet of the place of beginning.
Exhibit B
Plans and Specifications
1. Specifications dated September 1, 1979
2. Addendum No. 1 to Specifications dated October 18, 1979
3. Addendum No. 2 to Specifications dated December 19, 1979
4. Drawings: No. 1 through No. 7 dated September 1, 1979
No. H-1 and No. H-2 dated December 27.1979
No. E-1 through No. E-3 dated December 27, 1979
<PAGE>
AMENDMENT TO LEASE
THE AMENDMENT made this 1st day of August, 1988, by and between
RICHARD A. ROOS, an individual residing at 9596 Park Edge Drive, Allison Park,
Pennsylvania 1501 ( hereafter called "Lessor")and BUSCH COMPANY,a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania,
having its principal office at 904 Mt. Royal Boulevard, Pittsburgh, Pennsylvania
15223 ( hereinafter called "Lessee").
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to a certain commercial lease
( the "Lease"), dated the 10th day of January, 1980, governing certain property
located at 904 Mt. Royal Boulevard, Pittsburgh, Pennsylvania 15223 ( said
property hereinafter called the "Demised Premises"); and
WHEREAS, Lessor and Lessee desire to change the terms of the Lease
in certain respects as hereinafter provided.
NOW, THEREFORE, intending to be legally bound hereby, Lessor and
Lessee hereby covenant and agree as follows:
1. Article II Term and Rent of the Lease is hereby deleted in its
entirety and the following Article II shall be substituted therefor:
<PAGE>
ARTICLE II
TERM AND RENT
The term of the Lease shall be extended to July 31, 1998. From
August 1, 1988 through July 31, 1993, the Annual Net Basic Rental for the
Demised Premises, shall be One Hundred Three-Thousand Two Hundred and 00 / 100
Dollars ($103,200.00). For the period commencing August 1, 1993 through July 31,
1998, the Annual Net Basic Rental for the Demised Premises shall be an amount
agreed to by Lessor and Lessee. If Lessor and Lessee are unable to agree on
appropriate rent, they shall select an M. A. I. appraiser who shall determine
the fair market rental for the remaining term of the lease. In the event that
the selection of an appraiser cannot be agreed upon, the Lessor and Lessee shall
each select one M. A. I. appraiser and the two appraisers so selected shall
select a third. The controlling rental for the remaining term of the Lease shall
be the average rental determined by the three appraisals. The expense of the
appraisals shall be borne one-half (1/2) by the Lessor and one-half ( 1/2 ) by
the Lessee. Notwithstanding anything herein herein to the contrary, the Annual
Net Basic Rental for the period August 1, 1993 through July 31, 1998 shall not
be less than One Hundred Three Thousand Two Hundred and 00/100 Dollars
($103,200.00).
<PAGE>
It is the intention and agreement of the Lessor and the Lessee that
such Annual Net Basic Rental shall be paid by the Lessee to the Lessor
absolutely net, without any deduction or set-off of any kind or nature
whatsoever. Such Annual Net Basic Rental Shall be payable in monthly
installments, each of which installment shall be an amount equal to one-twelfth
( 1/12th ) of the applicable Annual Net Basic Rental, and shall be paid in
advance on or before the first business day of each month during the term of
this Lease, without demand, to the Lessor at 9596 park Edge Road, Allison park,
Pennsylvania 15101 or at such other place as the Lessor may designate in writing
from time to time.
2. In all other respects, the lease is hereby ratified and confirmed
in its entirety.
IN WITNESS WHEREOF, the parties hereto sign as of this 1st day of
August, 1988.
WITNESS: LESSOR:
/s/ Keith Blough /s/ Richard A. Roos
- ----------------------------- -----------------------------
Richard A. Roos
ATTEST: LESSEE:
BUSCH COMPANY
/s/ John D. Houston II /s/ Andrew M. Halapin
- ----------------------------- ----------------------------
John D. Houston II, Secretary Andrew M. Halapin, President
<PAGE>
AMENDMENT TO LEASE
AMENDMENT MADE this 21st day of May, 1991, by and between RICHARD A.
ROOS, an individual residing at 9596 Park Edge Drive, Allison Park, Pennsylvania
15101 ( hereinafter called "Lessor" ) and BUSCH COMPANY, a corporation organized
and existing under the the laws of the Commonwealth of Pennsylvania, having its
principal office at 904 Mt. Royal Boulevard, Pittsburgh, Pennsylvania 15223 (
hereinafter called "Lessee").
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to a certain commercial lease
( the "Lease"), dated the 10th day of January, 1980, governing certain property
located at 904 Mt. Royal Boulevard, Pittsburgh, Pennsylvania 15223 ( said
property hereinafter called the "Demised Premises");
WHEREAS, the Lease was amended by agreement between the parties
dated August 1, 1988; and
WHEREAS, Lessor and Lessee desire to change the terms of the amended
Lease ( "Amended Lease" ) in certain respects as hereinafter provided.
NOW, THEREFORE, intending to be legally bound hereby, Lessor and
Lessee hereby covenant and agree as follows:
1. Article II Term and Rent of the Lease is hereby deleted in its
entirety and the following Article II shall be substituted therefor:
<PAGE>
ARTICLE II
TERM AND RENT
The term of the Lease shall be extended to July 31, 1999. The Annual
Net Basic Rental for the Demised Premises, shall be One Hundred Three-Thousand
Two Hundred and 00 / 100 Dollars ($103,200.00) for term of the Lease.
It is the intention and agreement of the Lessor and the Lessee that
such Annual Net Basic Rental shall be paid by the Lessee to the Lessor
absolutely net, without any deduction or set-off of any kind or nature
whatsoever. Such Annual Net Basic Rental Shall be payable in monthly
installments, each of which installment shall be an amount equal to one-twelfth
( 1/12th ) of the applicable Annual Net Basic Rental, and shall be paid in
advance on or before the first business day of each month during the term of
this Lease, without demand, to the Lessor at 9596 park Edge Road, Allison park,
Pennsylvania 15101 or at such other place as the Lessor may designate in writing
from time to time.
2. In all other respects, the lease is hereby ratified and confirmed
in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties hereto sign as of this 1st day of
May, 1991.
WITNESS: LESSOR:
/s/ Kathleen M. Blackburn /s/ Richard A. Roos
- ----------------------------- ----------------------------
Richard A. Roos
ATTEST: LESSEE:
/s/ John D. Houston II By:/s/ Andrew M. Halapin
- ----------------------------- ----------------------------
John D. Houston II, Secretary Andrew M. Halapin, President
<PAGE>
AMENDMENT TO LEASE
THIS ADDENDUM TO LEASE MADE this 1st day of June, 1991 by and
between JDA, Inc., a Pennsylvania corporation with an address at 904 Mt. Royal
boulevard, Pittsburgh, Pennsylvania 15223 (hereinafter called "JDA") and BUSCH
COMPANY, a Pennsylvania corporation having its principal office at 904 Mt. Royal
Boulevard, Pittsburgh, Pennsylvania 15223 ( hereinafter called "Lessee").
WITNESSETH:
WHEREAS, Richard A. Roos ("Roos") as Lessor and Lessee are parties
to a certain commercial lease ( the "Lease"), dated January 10, 1980, governing
certain property located at 904 Mt. Royal Boulevard, Pittsburgh, Pennsylvania
15223 ( said property hereinafter called the "Demised Premises");
WHEREAS, the Lease was amended by agreement between Roos and Lessee
dated August, 1, 19988 and by agreement of Roos and Lessee dated May 21, 1991:
and
WHEREAS, JDA acquired the Demised Premises from Roos subject to the
terms of the amended Lease "Amended Lease") such that the Lessee is to continue
to pay the Annual Net Basic Rental of $103,200 for the term of the Lease to Roos
(through and including July 31, 1999).
NOW, THEREFORE, intending to be legally bound hereby, JDA and Lessee
hereby covenant and agree as follows:
1. In addition to the Annual Net Basic Rental of $103,200 to be paid
to Roos, Lessee shall pay to JDA the amount of $2,509.00 per month as additional
rent for the term of the Lessee (through and including July 31, 1999).
2. In all other respects, the Amended Lease is hereby ratified and
confirmed in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
representatives, have executed this Addendum to lease as of the date first
written.
JDA, INC.
By: /s/ Andrew M. Halapin
----------------------------
Andre M. Halapin
President
BUSCH CO.
By: /s/ Andrew M. Halapin
----------------------------
Andrew M. Halapin
President
<PAGE>
Exhibit 10.41
LEASE
THIS AGREEMENT, made the 17th day of October, 1994 JOSEPH V. SALVUCCI (
hereinafter called "LANDLORD"), Party of the First Part. and BUSCH CO
(hereinafter called "Tenant" of the Second Part.
In consideration of the rents, covenants and agreements hereinafter
contained, the Landlord and Tenant hereby agree as follows:
1. THE PREMISES
Landlord does demise and lease to the Tenant and Tenant agrees to lease
from Landlord all that certain portion of building (hereinafter called
"Premises") having a municipal address of 51 Bridge Street, Etna, PA, and
containing 1,000 square feet of space, more fully identified in the exhibit
attached and made a part of hereof.
2. TERM
To have and to hold the Premises for the term of one year, commencing
on the 1st day of October, 1994, and ending on the 30th day of September, 1995,
unless otherwise terminated.
3. RENT
The tenant shall without deduction of right or offset pay to the
Landlord the total rent of Two Thousand Five Hundred Twenty Dollar (2,520.00)
payable in monthly installments of Two Hundred Ten Dollars ($210.) on or before
the first day of each month until the whole amount of said rent is paid. The
first installment of Two Hundred Ten Dollars ($210.00), being rent for the
period of October, 1994, shall be due on the signing of this Lease. In addition,
the Tenant agrees to pay the Landlord any other sum or sums herein reserved as
additional rentals. The rentals recited herein shall be increased by ten percent
(10%) each month the rent is overdue by more than five (5) days.
4. SECURITY DEPOSIT
As security for the performance of the terms and conditions of this
Lease, Tenant has deposited in escrow with Landlord's Agent, the sum of Two
Hundred Dollars ($200.00) on the signing of this Lease. Provided Tenant has
compiled with all the terms and conditions of this Lease, such sums will be
returned to
<PAGE>
the Tenant within thirty (30) days after the expiration of this Lease term or
any extension thereto, less any sums necessary for repairs to damaged caused by
Tenant over and above natural wear and tear. Landlord's Agent will hold the
security deposit in a federally insured financial institution with interest
accruing to the benefit of the Tenant. In the event of default by the Tenant,
principal and interest may be taken by the Landlord and applied toward the cure
of such default.
5. USE AND OCCUPANCY
Tenant covenants to use and occupy the leased Premises only for storage
and related uses. Landlord acknowledges that, to the best of his knowledge at
this time, the Premises' zoning permits the aforementioned use. If Tenant is
unable to obtain municipal zoning permission the start of his Lease to operate
his business under the aforementioned use, Tenant shall have the right to cancel
this Lease in which case Tenant's sole remedy will be to have all rental monies
and any security deposits paid on account returned to Tenant. Tenant shall
obtain, at his own cost and expense, any licenses and permits necessary for
Tenant to legally operate his aforementioned business in the Premises. Landlord
agrees, upon request by Tenant, to sign promptly and without a charge therefore,
any application for any licenses and permits where signature of Landlord is
required BY applicable laws in force at the time so long as Landlord incurs no
cost in connection therewith.
6. ENVIRONMENTAL CONCERNS
Landlord acknowledges that to the best of his knowledge the premises
are in compliance with the United States Government's Comprehensive
Environmental Response Compensation and Liability Act. Tenant may, at his option
and expense, prior to the first day of the lease, have the right to conduct an
examination and analysis of the soil and structures of his to be demised
Premises to determine the existence and levels of any environmentally hazardous
materials as may be identified in the aforementioned act. If the existence of
any environmentally hazardous materials is identified, tenant may, at his
options, terminate his lease or elect to enter into the lease agreement, in
which event tenant assumes the responsibility for the removal of said materials.
If tenant does not have testing done and takes possession of his demised
premises, tenant herein acknowledges that the demised premises are
environmentally in compliance with the aforementioned Act and any
environmentally hazardous materials found on the demised premises during the
term of tenant's lease or prior to a subsequent tenant's possession, shall be
<PAGE>
deemed to be the sole responsibility of tenant and the correction thereof shall
be at tenant's sole cost and expense.
7. UTILITY CHARGES
Landlord will provide electric to the leased premises. Landlord will
pay for Tenant's electric usage as long as the electric bills do not exceed the
monthly electric bills for the 12 months of 1993 by more than three (3%) per
cent as measured by the usage on said bills. Any increase over that factor will
be billed to Tenant. The cost of all utilities billed to Tenant by Landlord
shall be considered rent and collected as such with like remedies for the
non-payment thereof.
8. TAXES
The Landlord shall pay the 1994 base year real estate taxes. In the
event the taxes levied and assessed against the real estate are increased beyond
that imposed for the year 1994, whether occasioned by an increase in millage or
an increase in assessment or otherwise, the Tenant shall pay, as additional
rent, his proportionate share of any increase based upon the square footage of
Tenant's space as a fraction of the total square footage of the building over
the base year during the term of this Lease, or any renewal thereof based upon
his square footage occupied. This includes county, municipal and school district
taxes and shall apply to any tax measured by the value or use of the real
estate. Payment shall be made to landlord in a lump sum within thirty (30) days
of Landlord's written notice to Tenant with appropriate bills evidencing same.
9. PUBLIC LIABILITY INSURANCE
Tenant shall carry, at its own cost, comprehensive public liability
insurance in an insurance company satisfactory to the Landlord with Landlord
named as additional insured with limits of not less than $1,000,000 for bodily
injury and death and $500,000 for property damages, which shall include a
provision for thirty (30) days' advance written notice to the Landlord in the
event of any pending change or cancellation of such insurance. If Tenant shall
fail to take out or maintain such insurance, then Landlord may, at the
Landlord's election, procure the same, which premium costs shall be additional
rent hereunder due, it being expressly covenanted and agreed that payment by
Landlord of any such premium shall not be deemed a waiver or release of the
default of the Tenants in the payment thereof. Certificate of said insurance
will be issued to Landlord within fifteen (15) days of the signing of this Lease
by both parties. Tenant further agrees to indemnify and hold the Landlord and
Landlord's Agent harmless against claims for injury or damages, whether to
person or property, resulting from or in connection with the Tenant's use and
<PAGE>
occupancy of the leased premises, unless such accident or injury was caused by
Landlord's or Landlord's Agent's sole negligence.
10. FIRE AND EXTENDED COVERAGE INSURANCE
Landlord agrees to carry adequate fire and extended coverage insurance
on the leased Premises. The entire sum awarded in the event of damage by fire or
other causes shall belong to the Landlord. Should the occupancy of said space by
Tenant increase in any way the premiums shall be forthwith paid by the Tenant on
notice by Landlord or his Agent stating and giving the amount thereof based on
the present rate, collectable as rent with like remedies for the nonpayment
thereof.
11. MAINTENANCE AND REPAIRS
Landlord agrees to deliver possession of the Premises free of rubbish,
broom clean and shall deliver all lighting tubes and fixtures and overhead doors
in good working order. Tenant shall be responsible for the maintenance of the
interior of the Premises including all lighting and general cleanliness and will
keep the Premises in a safe and sanitary condition. Tenant shall also be
responsible for replacement to the leased Premises and any other parts of the
property in the event of any damage caused by Tenant, its employees or its
invitees. Landlord will be responsible for maintaining the roof, sidewalls,
external windows and foundation.
12. ALTERATIONS
Tenant will accept the Premises in its "as is" condition and is
authorized at its own expense to make such alterations, repairs and additions to
the leased Premises as it finds necessary for its purposes and as may be
required under the Americans with Disabilities Act, and be permitted by laws and
regulations in force at the time; but no alterations, repairs or additions which
shall affect the structure of the building shall be made without first obtaining
the written approval of the Landlord on each occasion; such approval shall not
be unreasonably withheld. Tenant shall obtain no lien contracts for such
alterations, additions and improvements. Upon termination of the Lease, building
must be restored to its original state if so desired by Landlord. All such
leasehold improvements shall constitute and become a permanent part of the
Premises.
13. SIGNS
The Tenant may, at his own risk and expense, erect signs concerning its
business on the exterior of the demised Premises, in places mutually agreed upon
by Landlord and Tenant. Tenant
<PAGE>
agrees to maintain signs in good state of repair and shall save the Landlord
harmless from any loss, cost or damage as the result of the erection,
maintenance, existence or removal of the same. At the expiration of the term, or
any renewals thereof, Tenant shall remove said signs and repair any damage
caused by the erection, existence or removal of same. Such signs shall comply
with any governing authority having jurisdiction thereof.
14. COMMON USE AREA
Tenant shall have the right to use in common with Landlord and other
Tenants the following areas: The overhead door on the southerly end of the
property and the common aisleway designated on the attached exhibit. The
maintenance thereof shall be the responsibility of Landlord.
15. DAMAGES
If during the term of this Lease r renewal thereof, the Premises hereby
demised are so damaged by fire or other casualty that, in the opinion of the
Landlord the Premises are rendered unfit for Tenant's occupancy, or any damage
which occurs in the last three (3) months of a lease term or renewal term, then
this Lease shall cease and terminate from the date of such damage and Tenant
shall immediately surrender the Premises to the Landlord who may enter and
repossess the same. If by the exercise of reasonable diligence such damage can
be repaired within thirty (30) days from the date of the occurrence thereof, the
Landlord may enter and repair, and this Lease shall not be affected thereby,
except that if a substantial part of the Premises has been rendered unfit for
occupancy, a just portion of the rent, according to the extend of such damage,
shall be canceled and abated for the period of such repair, but if such damage
does not interfere in any manner with occupancy by the Tenant of the Premises
herein demised, the rent shall not be apportioned or abated in any way. If said
building of which all or a part are herein leased to Tenant is so damaged by
fire or other casualty through the negligence of Tenant, then Tenant shall be
liable to Landlord for any loss of income incurred through such damage. In
addition, Tenant shall be held liable to Landlord for the replacement and repair
of any damage caused through said negligence of Tenant excepting such amounts
paid by Landlord's own insurance. In no event shall the Landlord or his Agent be
held liable for any loss or damage sustained by Tenant.
16. CONDEMNATION
If all or any part of the building in which Tenant occupies space shall
be taken or acquired by governmental authority or any corporation having the
right to condemn through eminent domain
<PAGE>
or other proceedings, this Lease shall be terminated as of the date of such
taking or acquiring and the rent shall be apportioned and paid to such date. The
entire sum awarded for the Premises taken or acquired shall be paid and belong
to the Landlord and shall not be diminished by the value of the leasehold of the
Tenant or any party claiming under or through this Lease.
17. ASSIGNMENT OR SUBLETTING
Tenant may assign this Lease and/or sublet the whole or any part or
parts of its demised Premises upon receiving the written permission of the
Landlord, which consent shall not be unreasonably held, provided that Tenant
shall remain liable for the performance of all terms and conditions of the
Lease. In the event any assignment of subletting results in Tenant receiving
rent or other related payments in excess of Tenant's financial obligations
hereunder, Tenant agrees to pay to Landlord monthly one-half (1/2) of the amount
by which such payments exceed its financial obligations hereunder.
18. TRADE FIXTURES
Tenant may, upon the termination of the Lease or any renewal thereof,
remove any and all trade fixtures owned by Tenant which are not attached to the
Premises or which may be removed without permanent injury to or defacement of
the Premises, provided, however, that all rents have been fully paid and all
covenants herein stipulated fully performed and, further, all damages, if any,
to said Premises incident to such removal are promptly repaired.
19. LANDLORD'S RIGHT TO ENTER
Landlord and its agents shall have access to the elapsed Premises at
all times for the purpose of general inspection, Landlord's repairs, protection
against damage by fire and other hazards, and for the purpose of verifying the
general compliance by Tenant with all applicable provisions of this Lease.
Further, Landlord expressly reserves the right to enter the leased Premises
within the last six (6) months of the Lease in order to show the Premises to
prospective tenants and display a notice or sign "For Rent" and/or "For Sale"
and to maintain the same as placed, and after the time Tenant abandons or
vacates the Premises or otherwise defaults hereunder, to enter and decorate,
remodel, repair, alter or otherwise prepare the premises for re-occupancy. The
exercise of any such reserved right by the Landlord shall not be deemed an
eviction or disturbance of Tenant's use and possession of the Premises and shall
not render Landlord liable in any manner to Tenant or to any other person.
<PAGE>
20. QUIET POSSESSION
Landlord covenants that they are seized in fee simple of the leased
Premises; that they have the full right to make this Lease, and that if and so
long as Tenant may not be in default here-under, Tenant shall quietly hold,
occupy and enjoy the leased Premises under the conditions of this Lease.
21. SUBORDINATION
Tenant accepts this Lease and will subordinate it only to bona fide
existing or future mortgage and financing or refinancing in connection
therewith, secured by the leased premises and/or this leasehold, and will
execute any instruments reasonably necessary to effect such subordinations which
Landlord may require.
22. CUMULATIVE REMEDIES
No remedy herein conferred upon or reserved to Landlord or Tenant is
intended to be exclusive of any other remedy herein or by law provided, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute, and
each shall be continuous so that none shall be exhausted by being exercised on
one or more occasions.
23. DISTRAINT
Tenant agrees that whenever rent or anything reserved as rent is unpaid
and in default under this Lease, Landlord may seize or distrain all property of
Tenant on the Premises, and sell the same on due legal notice for all rent and
other payments due as rent, subject, however, to the definition of default as
set forth in Paragraph 24.
24. DEFAULT
It is further agreed by and between Landlord and Tenant that, subject
as hereinafter provided, if the Tenant shall default in payment of any
installment of rent or breach any other term or condition of this Lease, or
should an execution be issued against Tenant, bankruptcy proceedings be begun by
or against Tenant, or an assignment be made by Tenant for the benefit of
creditors, or a Receiver appointed for Tenant, then and in such case, the entire
rent for the balance of said Term shall at once become due and payable as if by
the terms of this Lease it were all payable in advance. In case of such
assignment, bankruptcy proceedings,
<PAGE>
appointment of a Receiver or of a sale on legal process of Tenant's goods,
subject as hereinafter provided, Landlord shall have the right to demand and
receive rent for the balance of the term which shall be first paid out of the
proceeds of such assignment, bankruptcy or Receiver's proceedings or sale on
legal process, any law, usage or custom to the contrary notwithstanding. Inc
case of any event of default by Tenant under this Lease and if permitted by law,
Tenant hereby authorizes any attorney, as attorney for Tenant, at the sole
request of Landlord to sign as agreement for entering in any competent court:
(i) An amicable action and judgment in ejectment, or other process,
against Tenant for possession of the leased Premises, and
(ii) An amicable action and confession of judgment, or other summary
judgment process, for all accelerated rents and other charges, costs and
reasonable attorney's fees for collection.
It is hereby understood and agreed that Tenant shall not be considered
in default under Lease or as having breached any term, provision, condition,
covenant or agreement of or under this Lease, except as to the payment of rent,
unless and until Landlord shall have first given Tenant notice in writing by
certified mail of such alleged default, breach or violation and Tenant has
failed to correct or has not commenced to correct the same within a period of
ten (10) days from receipt of such notice. All rights and remedies given to
Landlord hereinafter including but not limited to the right to accelerate the
rent, shall be ineffective and shall not be used or exercised by Landlord unless
Tenant has failed to correct the alleged breach or violation within the
aforesaid ten (10) day period.
It is further agreed that if the premises at any time be deserted or
improperly closed, Landlord may enter by force, without liability to prosecution
or action therefor and may distrain for rent and also sublet the Premises as
Agent for Tenant for any expired portion of the Term and receive the rent
therefor and apply it to this lease.
25. HOLDING OVER
If Tenant shall remain in possession of all or any part of the Premises
after expiration of the term of this Lease, then the Tenant shall be deemed as a
tenant of the Premises from month to month and subject to all of the terms and
provisions hereof, except only as to the Term of this Lease.
26. TERMINATION
Tenant shall, on or before the last day of the Term hereby granted or
any extended term, or upon the sooner termination of this Lease, peaceably and
quietly leave, surrender and yield up
<PAGE>
unto Landlord the leased Premises together with all alterations, additions and
replacements thereon, free of subtenancies, broomclean and in good condition
except for reasonable were and tear thereof, damage by the elements, fire, acts
of God, insurrection, riot, invasion or acts of military power, waiving any and
all laws now in force or which may be passed from time to time during the Term
of this Lease which may be contrary to this provision.
27. SALES CLAUSE
It is understood and agreed that, in the event of a sale of the real
estate of which the leased Premises are a part, this Lease shall, at the option
of the Landlord, cease and terminate. Tenant agrees to give up quiet and
peaceable possession upon ninety (90) days' written notice of such sale and
desires of Landlord to terminate Lease due to such event.
28. NOTICES
Any and all notices, demand or communications required to be given
hereunder shall be in writing and sent by Certified Mail: (2) if intended for
landlord to Iversen Realty Co., P.O. Box 3611, Pittsburgh, Pa 15230-3611 and (b)
if intended for Tenant to Mr. Andy Halapin, c/o Busch Co., 904 Mount Royal
Boulevard, Pittsburgh, Pa 15223, or such other place as either Landlord or
Tenant may designate.
29. SUCCESSORS and ASSIGNS
All rights, remedies, liabilities, covenants, conditions and agreements
herein to or imposed upon either of the parties hereto shall inure to and be
binding upon the successors and assigns of Landlord and Tenant insofar as this
Lease and the terms created are assignable by the Term hereof.
30. ENTIRE AGREEMENT
This Lease contains all the agreements and conditions made between the
parties hereto and may not be modified orally or in any other manner than by an
agreement in writing, signed by all the parties hereto or their respective
successor in interest.
31. APPLICABLE LAW
It is understood and agreed that this Lease shall be interpreted in
accordance with the Laws of the Commonwealth of Pennsylvania and no presumption
shall be deemed to exist in favor of or against either party hereto by virtue of
the negotiation, drafting and execution of this Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto set their hands and seals on the
day and year first above mentioned.
SEALED AND DELIVERED IN THE
PRESENCE OF:
LANDLORD
/s/ Alecia Mckee /s/ Lorene Iversen (agent)
----------------------------
/s/ Alecia McKee TENANT
/s/ Andrew Halapin
----------------------------
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
CECO Filters, Inc.
Compliance Systems International (subsidiary of CECO Filters, Inc.)
Air Purator Corporation (subsidiary of CECO Filters, Inc.)
U.S. Facilities Management Company, Inc. (subsidiary of CECO
Filters, Inc.)
New Busch Co., Inc. (subsidiary of CECO Filters, Inc.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 847,827
<SECURITIES> 634,150
<RECEIVABLES> 2,979,414
<ALLOWANCES> 0
<INVENTORY> 771,068
<CURRENT-ASSETS> 5,882,048
<PP&E> 3,701,573
<DEPRECIATION> 1,754,091
<TOTAL-ASSETS> 13,960,980
<CURRENT-LIABILITIES> 5,233,292
<BONDS> 2,066,864
0
0
<COMMON> 81,070
<OTHER-SE> 6,661,515
<TOTAL-LIABILITY-AND-EQUITY> 13,960,980
<SALES> 10,901,728
<TOTAL-REVENUES> 14,530,974
<CGS> 5,746,125
<TOTAL-COSTS> 14,555,228
<OTHER-EXPENSES> 130,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,701
<INCOME-PRETAX> (70,629)
<INCOME-TAX> 7,200
<INCOME-CONTINUING> (77,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,774)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
