SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) OR
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended Commission File Number 0-19013
December 31, 1996
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
(Exact name of registrant as specified in charter)
New York 84-1059226
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
730 17th Street, Suite 712
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 571-5564
(Registrant's telephone number, including area code)
Stock registered pursuant to Section 12 (g):
Common Stock, $.0001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. X Yes No
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $501,278. This calculation is based upon the
average bid and asked prices of the stock on March 18, 1997 of $.0027.
The number of shares of the registrant's $.0001 par value common stock
outstanding as of March 14, 1997 was 531,667,515.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
It is anticipated that Item 10, 11, 12 and 13 will be incorporated by
reference from either a definitive proxy statement on an amendment
filed under cover of Form 10-K/A filed within 120 days of December 31, 1996.
PART I
Items 1 and 2. Business and Properties
(a) General Development of Business.
Advanced Environmental Systems, Inc. ("AES") was incorporated in New York
under the name Northwest Passage of North America, Inc. in 1986. In 1988,
AES acquired Advanced Energy Corporation ("AEC"). International Catalyst,
Inc. ("Incat") is a wholly-owned subsidiary of AEC. Incat provides catalyst
handling services to the petroleum refining and petrochemical/chemical
industry.
Unless the context requires otherwise, the term "Company" includes AES and
its subsidiaries, AEC and Incat. All the Company's revenues from operations
are derived from the operations of Incat.
In April 1990, certain shareholders of the Company exchanged their shares of
the Company's common stock for shares of common stock of Industrial Services
Technologies, Inc. ("IST"). As a result, the Company became an approximately
62% owned subsidiary of IST. IST also owns 100% of the outstanding shares of
the voting preferred stock of the Company. See Items 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations.
(b) Financial Information about Industry Segments.
For the fiscal year ended December 31, 1996 the Company had revenues in one
industry segment only, and, therefore, this sub item is inapplicable.
(c) Narrative Description of Business.
General.
Incat is primarily engaged in providing highly specialized catalyst handling
services to petroleum refineries and petrochemical/chemical plants. Incat
operates from facilities in the Los Angeles and Houston metropolitan areas.
Catalyst - Refining
Catalysts play a critical role in both petroleum and petrochemical processing.
A wide range of catalysts are used to stimulate a variety of chemical processes.
Catalyst materials are generally small, solid particles composed of a porous
clay base, impregnated with an active ingredient. This active ingredient is
usually a metal such as platinum with a high recovery value. Catalysts are
used to promote a chemical reaction during the manufacturing process. The
purpose may be to remove impurities from a product, change the molecular
structure, enhance octane rating or accelerate production of a process.
The life of a catalyst ranges from a few months to several years, depending
upon the process or the build up of impurities. When the catalysts cease to
function properly, the catalysts must be removed from the reactor vessel. The
removed material might be cleaned and reinstalled or it may be discarded and
new material loaded into the reactor. Incat's role is to perform this
catalyst change. Incat performs many of these catalyst handling projects
in a total inert (nitrogen) atmosphere. Management believes that by
eliminating oxygen from the project's atmosphere the work can be accomplished
with less risk. Incat's customers are responsible for providing the new and
disposing of the spent, catalyst.
The four most common catalysts processes in petroleum refining are:
* Catalytic cracking
* Catalytic reforming
* Hydro-treating
* Hydro-cracking
The above catalyst processes are used in a bed environment, which may also be
found in either petrochemical or chemical plants.
Catalyst - Chemical
In addition to using the above catalyst processes in a bed environment,
chemical plants also employ catalyst in reactors which are tubular
structures containing thousands of tubes. These reactors require very
precise loading parameters for catalyst and can require as many as seven
charges or zones per tube. In the past either the customer or a contractor
had to pre-weigh and pre-bag each zone and color code prior to loading the
reactor. This method is costly and inefficient.
In 1996, Incat with another entity developed a new loader which can load tubes
with increased accuracy and speed. The Company has two such loading devises.
Expenditures for research and development of the loader or other developments
have not been material for the last three fiscal years.
Project & Resources
A typical project begins with the planning and coordination of the shutdown
with the customer. Once the scope of work is determined, the appropriate
resources are assigned. These resources include:
* Life support services - inert or hazardous atmosphere entry for
catalyst handling, inspection, repair and cleaning and continuous
environmental analyzers.
* Vacuum and catalyst unloading services - vacuum removal of
catalyst and support material, inert or atmospheric, wet or dry,
various vacuuming removal and cleanup of residues, filters and
process units, dust control and collection and recovery of catalyst
and catalyst residue having precious metal content.
* Catalyst and support media loading - under inert or atmospheric
conditions, by sock or dense loading methods, tubular reactor and
reformer furnace loading, pressure differential testing and prebagging
and weighing material for loading.
* Prescreening and screening services, respectively, of catalyst and
support materials.
* Inspection services using closed circuit video inspection under inert
or hazardous conditions.
* Mechanical services involving removal and replacement of reactor
heads, quench lines and temperature indicators, cleaning removal
and replacement of vessel internals, vessel blinding and welding
under inert conditions.
* Refrigeration and recirculation services including inert gas refrigeration
and recirculation during catalyst vacuum operations, forced cooling of
process vessels and furnaces, and forced ventilation of vessels, tanks,
and furnaces.
Marketing
Texas and California are first and second in the United States for production
of petroleum products. The Company's two facilities are well placed to
support these markets.
Project revenues typically range from $80,000 to $120,000; however,
Incat has worked on projects exceeding $1,000,000. Management
believes that, although Incat's prices are medium to high for the
industry, the high quality of its work combined with safety and
rapid rate of installation will allow it to continue to charge higher
than average prices for its services.
Sales are usually generated through solicitation efforts directed at
potential customers, which consist primarily of Fortune 500 companies.
Incat employs full time sales personnel. A significant portion of the
Company's sales are generated through reputation and referrals. As an IST
affiliate, Incat receives many referrals and sometimes may function as a
subcontractor of an affiliate.
Incat enjoys a high level of repeat business and the Company believes it will
continue to attract new customers based on its ability to perform safe, rapid
and efficient services. Most projects are awarded on a bid basis; However,
Incat has won many contracts as the sole bidder. Because future sales are
contingent upon Incat's ability to provide high quality service, management
is committed to a philosophy of planned growth. Incat is committed to not
expanding services until it has the trained manpower to maintain its
standards. Incat has and will continue to decline work where it does not
have adequate manpower to maintain its standards.
Competition and Significant Customers.
Management's estimate of United States expenditures in the catalyst handling
industry for 1996 were approximately $ 75,000,000. Size as indicated by
revenues places Incat as the second largest catalyst handling contractor in
the United States. Although the catalyst handling industry is highly
competitive, Incat's management believes opportunities exist for expansion
within and beyond its present markets, including foreign and the tubular
loading market.
Although Management believes opportunities for growth for Incat exist , there
can be no assurances that Incat will experience growth or meet its goals.
The catalyst handling business is subject to a variety of economic,
socio-economic and political forces that can determine when the petroleum
refineries and petrochemical/chemical plants shut down and make their reactors
available for catalyst change out. Other companies that provide catalyst
handling services may have more resources than Incat. In addition, in recent
years additional catalyst companies have entered the market and other catalyst
handling companies could be established in the future.
For the year ended December 31, 1996, Exxon and Arco were responsible for
27% and 17% , respectively, of Incat's sales. For the year ended December 31,
1995, Koch was responsible for 11% of Incat's sales. Foreign sales have been
concentrated among a few major customers; however, none of these customers
accounted for 10% or more of Incat's sales for the years ended December 31,
1996 and 1995.
Foreign Sales.
During the year ended December 31, 1996 approximately 7% of Incat's sales
were outside the United States, as contrasted with approximately 4% and 8%
in the years ended December 31, 1995 and 1994. The primary overseas markets
for the Company's services during these periods, were Asia, Central America,
Caribbean, and Mexico. Incat's revenues derived from Mexican customers
were negatively affected by recent political and economic events in Mexico.
The Company derived no revenue from Mexico in 1996 and 1995 as compared
with $400,000 in 1994. Management believes the political and economic events
in Mexico which negatively impacted revenue are improving. In addition,
management believes there are significant opportunities in South America and
Caribbean markets. Typically, the Company's foreign sales have been to a few
large customers and, therefore, the loss of any of these customers could have
an adverse effect on foreign sales.
All foreign sales are payable in U.S. dollars and, accordingly, there are no
currency risks associated with such revenues. Foreign customers typically
pay the amounts due Incat more slowly than U.S. customers, and foreign taxes
are sometimes withheld at the time of payment by some foreign customers.
Except for the delay in the receipt of some payments, Incat has not
experienced any special risks associated with its foreign operations. The
Company currently has no assets permanently located outside the U.S., but may
in the future keep catalyst-handling units in strategic foreign locations if
sales in these regions warrant the relocation of the units.
Backlog.
Typically, Incat's customers do not sign contracts until work commences on a
project. As of March 31, 1997, Incat had no material backlog supported by
signed contracts. Because many of the Company's contracts are performed
within short time periods after receipt of an order, the Company does not
believe backlog is a meaningful indicator of its sales activity.
Quarterly Fluctuations
The Company's revenues and operating income have historically been subject
to significant, quarterly fluctuations with respect to catalyst handling
services. This is due primarily to the timing of shutdowns at plant facilities
and rescheduling of work by customers. Accordingly, it is anticipated that
the Company's quarterly results will fluctuate and the results of one quarter
should not be deemed to be representative of the results of any other quarter
or for the year.
Insurance
The Company maintains worker's compensation insurance for its employees,
general liability insurance and other coverage for normal business risks in
the primary amount of $1,000,000 and umbrella policies with coverage limits
of $25,000,000 in the aggregate. The Company is responsible for the payment
of incurred claims up to specified individual and aggregate limits, over
which a third party insurer is contractually liable for any additional
payment of such claims. The program has a minimum and maximum premium as
well as a per occurrence loss limitation per line of coverage. The premium,
above the minimum is based on the actual loss experience, subject to the per
occurrence loss limitation per line of coverage of $250,000 in 1996 and
$50,000 in 1997 and the pre-set maximum premium. Accordingly, the
Company bears certain economic risks related to these coverages. The Company
records an accrual equal to the estimated costs expected to result from
incurred claims plus an estimate of claims incurred but not reported based
on the best available information. However, the nature of these claims is
such that actual development of the claims may vary significantly from the
estimated accruals. All changes in the accrual estimates are accounted for
on a prospective basis and could have a significant impact on the Company's
financial position or results of operations.
Many of the Company's contracts require it to indemnify its customers for
injury, damage or loss arising in connection with their projects, and provide
for warranties of materials and workmanship. There can be no assurance that
the Company's insurance coverage will protect it against the incurrence of
loss as a result of such contractual obligations.
Environmental Matters.
Various environmental protection laws have been enacted and amended during
the past 20 years in response to public concern over the environment. The
operations of the Company and its customers are subject to these evolving
laws and the related regulations, which are enforced by the Environmental
Protection Agency and various other federal, state and local environmental,
safety and health agencies and authorities. Although the Company believes
that its operations are in material compliance with such laws and
regulations, there can be no assurance that significant costs and liabilities
will not be incurred due to increasingly stringent environmental restrictions
and limitations. Historically, however, the cost of measures taken to comply
with these laws has not had a material adverse effect on the financial
condition of the Company.
Employees and Property.
Incat has approximately 135 full-time employees. Incat owns no real
property. It conducts its operations from leased facilities located in Los
Angeles, and Houston Metropolitan areas. Incat's headquarters are located
in a 20,000 square foot facility in Friendswood, outside of Houston, for
which Incat pays a monthly rental of $7,194 pursuant to a lease expiring in
August 1999. California operations are located in a 17,000 square foot
facility in Carson, California. The lease for this facility will expire in
June 30, 1998. The current monthly rental is $7,286. The Company
believes its facilities will be adequate for its operations for the year.
Item 3. Legal Proceedings.
During 1995, an Incat employee initiated litigation for damages in respect
of injuries claimed to have occurred while performing catalyst services at
a refining facility. Incat has not been named a party in the proceedings as
the customer is being defended by Incat's general liability insurer pursuant
to the customer's demand for coverage as an additional insured on a
contractual indemnity.
Demand has also been made on Incat and its general liability insurer for
indemnification by a customer regarding a total of $219,000 which it paid to
three employees of the Company for alleged injuries sustained in October 1995
at the customer's facility. The Company's insurer requested information
from the customer documenting liability and damages in connection with
the demand. The requested information was not provided to the Company's
insurer, and the Company's insurer accordingly has not made a determination
regarding the Company's duty to defend, indemnify, and treat the customer
as an additional insured under the Company's insurance policies.
The Company believes that, to the extent it may have any liability with
respect to the claims described in the above paragraphs the Company
would be covered by its workers' compensation and general liability
insurance carriers. The initial premium paid by Incat with respect
to these policies is subject to adjustment based on certain insurance
components plus losses during the applicable policy periods. Based on
current estimates prepared by Incat's insurers, the Company believes its
$175,000 retrospective insurance premium accrual is adequate. This amount
represents a general reserve pending the resolution of the above claims, and
various other open routine claims incidental to the Company's business which
affect the same policy years and, therefore, the retrospective premium
adjustments. However, due to the uncertainty of various factual and legal
issues which may affect these claims, there can be no assurance as to the
outcome of these claims or the adequacy of the amount reserved.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered
by this Report to a vote of security holders, and, therefore, this Item is
inapplicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders.
The Company's Common Stock is quoted in the over-the-counter market through
the "pink sheets" and is not quoted on any established stock exchange or
NASDAQ. Trading in the Company's securities is limited and sporadic and
prices are highly volatile. Quotations provided below are the high and low
bid for the quarters indicated based on inter-dealer quotations, without
retail mark-up, mark-down or commission, and do not necessarily represent
actual transactions.
Common Stock
Quarter Ended High Low
March 31, 1995 .005 .002
June 30, 1995 .005 .002
September 30, 1995 .004 .002
December 31, 1995 .006 .002
March 31, 1996 .003 .002
June 30, 1996 .010 .002
September 30, 1996 .004 .003
December 30, 1996 .003 .0015
The Company had 2,014 shareholders of record as of March 14, 1997. The
Company has not declared or paid any cash dividends on its common stock
and it is not anticipated that any such dividends will be paid on the common
stock in the near future. AEC and Incat are restricted in their ability to
pay dividends pursuant to their respective loan agreements with FINOVA
Capital Corporation ("FINOVA") and Wells Fargo Bank (Texas) NA
("Wells Fargo") and, accordingly, as a practical matter, the Company also
is restricted in its ability to pay cash dividends on its common stock without
the consent of the lenders.
Item 6. Selected Financial Data
The following summarizes certain financial information concerning the
Company and is based upon the audited consolidated financial statements of
the Company. The information presented for the year ended December 31, 1993
is unaudited. All information presented below should be read in conjunction
with the Company's consolidated financial statements and the notes thereto.
<TABLE>
HISTORICAL AS OF:
(In Thousands)
<CAPTION>
DEC 31 DEC 31 DEC 31 DEC 31 MAR 31
Balance Sheet: 1996 1995 1994 1993 1993
<S> <C> <C> <C> <C> <C>
Working Capital
(Deficiency) $ (318) $ (115) $ 651 $ 118 $ 629
Total Assets 4,991 4,996 5,716 4,467 5,997
Total Liabilities 4,265 3,918 3,765 2,877 3,921
Long Term
Obligations
and Series A
Redeemable
Convertible
Preferred Stock 1,176 1,586 1,657 2,013 2,112
Common and other
Stockholders'
Equity 693 841 1,609 1,156 1,588
</TABLE>
<TABLE>
For the For The For The For The For The For The
Year Year Year Year Nine Months Year
Ended Ended Ended Ended Ended Ended
DEC 31 DEC 31 DEC 31 DEC 31 DEC 31 MAR 31
1996 1995 1994 1993 1993 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Service Revenues $ 11,195 $10,448 $12,756 $12,004 $8,062 $10,869
Costs & Expenses
Service Costs 8,541 7,359 8,313 8,270 5,873 6,986
SG&A 2,723 2,751 2,453 2,235 1,705 2,338
Retrospective
insurance
adjustment(1) (379) 300 - - - -
Management Fees,
(Related Party) 152 112 96 97 72 88
Service and
Guarantee fees,
(Related Party) - - 50 50 - -
Interest Expense 275 255 211 270 206 260
Deprec. & Amort. 452 480 622 686 491 591
Income(Loss)
Before Taxes (569) (809) 1,061 396 (335) 606
Net Income(Loss) (186) (696) 535 (38) (407) 292
Net Income(Loss)
attributable
to Common
shareholders (242) (768) 453 (138) (482) 192
Net income(Loss)
per Common share (.0005) (.0013) .0009 (.0002) (.0009) .0004
(1) See footnote 4 (Commitments and Contingencies) To the audited financial
statements, and Items 3 and Item 7 for further discussions.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
General.
The Company expects a continued demand for its services in the foreseeable
future. The oil refinery, petrochemical and chemical processing industries
continue to rely on outside contractors for the performance of critical
services. The limitations on growth are due to more competition, timing of
shutdowns at plant facilities and rescheduling of work by customers. The
Company continues to recruit, hire and train additional employees and the
Company's ability to continue to grow will depend, in part, on its ability to
continue this process, and a stronger demand for the Company's services.
Periods ended December 31, 1996 and 1995.
The Company experienced an increase in 1996 revenues of 7% or $747,000.
The increase in revenue was primarily attributable to rescheduling of 1995
work in the first quarter of 1996 and work subcontracted to affiliated
companies on two large projects in the first quarter.
Cost of services as a percentage of service revenues was 76.3% and 70.4%,
respectively, for the 1996 and 1995 fiscal years. The 5.9% increase in
cost of goods sold (COGS) as a percentage of services revenues for the fiscal
year 1996 is attributable to a 10.1% increase in direct service costs and a
decrease of 4.2% in indirect service costs. The 10.1% increase in direct
costs is mainly attributable to work performed in the first and third
quarter of 1996. Due in part to a shift of significant revenues from the
fourth quarter of 1995 to the first quarter of 1996, employee travel and
overtime expenses and cost of hiring contract laborers increased direct
costs significantly in the first quarter. The Company was unable to bill its
customers the increased costs. The third quarter was a slow period in which
services for catalyst handling were performed at low profit margins. The
4.2% decrease in indirect costs as a percentage of revenue is mainly
attributable to the closing of the Company's Southern region office and the
curtailment of the Company's Gulf Coast regional office.
For the fiscal year ended December 31, 1996, the Southern region office
closure and the curtailment of the Gulf Coast office resulted in a reduction
of administrative overhead of approximately $300,000 from 1995. In conjunction
with the closing of these two offices, the Company increased its sales force
in the Southwestern and Western regions. It also devoted more resources
to pursuing international opportunities, incurring an additional $153,000 in
selling, general & administrative (SG&A) costs for the year ended December 31,
1996 as compared to $64,000 in 1995. As a result of the increase in the sales
force, overall SG&A expenses are comparable to prior year.
Interest expense increased $20,000 from $255,000 for the year ended
December 31, 1995 to $275,000 for the corresponding 1996 period. The
increase is due to the increased utilization by the Company of its line of
credit and a loan obtained in the fourth quarter to meet its working capital
needs.
Depreciation and amortization decreased $28,000 from $480,000 for the year
ended December 31, 1995 to $452,000 for the year ended December 31, 1996
due to older equipment being fully depreciated.
During the year ended December 31, 1995, the retrospective insurance premium
adjustment was reduced to $175,000 from $300,000 in 1995. (See item 3;
"Legal Proceedings") In addition, during the year ended December 31, 1996,
the Company received a refund of approximately $254,000 due to better than
expected workers' compensation and general liability losses for periods
covered under the Company's previous insurance program.
For the fiscal year ended December 31, 1996, the Company had a pretax loss
of $569,000 as compared to a pretax loss of $809,000 for the same period
in 1995. The loss in 1996 is primarily due to the Company's increased cost
of services in the first quarter of 1996 and lower than anticipated profit
margins on services rendered. The pretax loss was reduced by insurance
premium adjustments and refunds totaling approximately $379,000.
Periods ended December 31, 1995 and 1994
The Company experienced a decrease in 1995 revenues of 18% or $2,308,000. The
decrease in revenue was primarily attributable to shifts in timing of
refinery shutdowns and rescheduling of work which totaled approximately
$4,240,000. Approximately $3,190,000 of the $4,240,000 was completed during
the first quarter of 1996. Approximately, $1,050,00 of the $4,240,00 was
lost to competitors because the Company did not have the available manpower
and resources in 1996 to perform the rescheduled work. During 1995, the
Company added 13 new customers with revenues of approximately $728,000.
The decline in revenues was also impacted by the uncertain economic
conditions in Mexico which contributed to a decline in foreign revenues of
approximately $400,000.
Cost of services as a percentage of service revenues were 70.4% and 65.2%,
respectively, for the 1995 and 1994 fiscal years. The increase in COGS for
the fiscal year 1995 was primarily attributable to a 4% increase in indirect
service costs as a percentage of service revenues. 1995 indirect service
costs remained approximately the same as 1994 while service revenues
decreased 18% causing the indirect service costs as a percentage of service
revenues to increase 4%. The Company's direct costs as a percentage of
service revenues for the years ended December 31, 1995 and 1994 are comparable.
Selling, general and administrative expenses increased from $2,453,000 for the
year ended December 31, 1994 to $2,751,000 for the corresponding 1995 period.
The expenses have also increased as a percentage of sales from 19.2% in 1994
to 26.3% in 1995. The largest factor in this increase was the opening of the
Gulf Coast regional office in December 1994 which resulted in additional SG&A
costs of approximately $270,000 for the year ended December 31, 1995.
Interest expense increased $44,000 from $211,000 for the year ended
December 31, 1994 to $255,000 for the corresponding 1995 period. The
increase was due to an increase in the financial institution debt by
approximately $400,000 to finance equipment purchases.
Depreciation and amortization decreased $142,000 from $622,000 for the year
ended December 31, 1994 to $480,000 for the year ended December 31, 1995 due
to older equipment being fully depreciated.
For the fiscal year ended December 31, 1995, the Company had a pretax loss of
$809,000 as compared to a pretax income of $1,061,000 for the same period in
1994. This is primarily due to the Company having a decrease in net service
revenues. While net service revenues decreased 18% or $2,308,000, service
costs and expenses decreased by only 11% or $954,000. In addition,
the Company had an increase in selling, general & administrative expenses of
$298,000 of which $270,000 was associated with the opening of the Gulf Coast
regional office and incurred a retrospective insurance premium adjustment of
$300,000. These additional costs in conjunction with the shortfall in
revenues significantly contributed to the pretax loss of $809,000.
Periods ended December 31, 1994 and 1993
(Unaudited and Recasted to a Calendar year end)
Revenues increased 6.3% or $752,000 from $12,004,000 to $12,756,000 for the year
ended December 31, 1994 as compared to the 12 months ended December 31, 1993.
The Company added 13 new customers which contributed approximately $1,099,000
in new revenues. Revenue increases were impacted by approximately $1,000,000
resulting from work originally scheduled for the fourth quarter of 1994 being
rescheduled for 1995.
Cost of services as percentage of service revenues was 65.2% and 68.9%,
respectively, for the year ended December 31, 1994 and the 12 months ended
December 31, 1993. Improvement in gross margin percentages from 31.1% to
34.8% for 1994 as compared to 1993 is partially attributable to certain non-
recurring costs incurred in 1993 not repeating in fiscal year 1994. These
costs included equipment maintenance costs of a one-time nature and the costs
of idle personnel who were not reassigned when service contracts were re-
scheduled from the fourth quarter of 1994 to fiscal year 1995. Additionally,
subcontract revenues totaling were approximately $971,000 for the 12 month
period ended December 31, 1993 as compared to $851,000 in fiscal year 1994
which had the effect of reducing gross margins during both periods but with
greater impact for 1993 because of its larger relationships to total revenues.
Selling, general and administrative expenses increased from $2,235,000 for
the 12 month period ended December 31, 1993 to $2,453,000 for the cor-
responding 1994 period. The expenses increased as a percentage of sales
from 18.6% to 19.2% in 1994. The primary factors of the increase in 1994
were (1) an approximate $128,000 increase in the Company's health insurance
premiums from 1993 to 1994, and (2) a reduction of workers compensation
expense totaling $248,000 during the year ended December 31, 1993 due to a
retroactive experience rated premium adjustment in California which did not
reoccur during 1994.
Interest expense decreased $59,000 from $270,000 for the 12 month period
ended December 31, 1993 to $211,000 for the fiscal year 1994 due to the
payoff of notes totaling $207,000 and continued amortization of
financial institution debt totaling $258,000 during fiscal year 1994 without
any additional borrowings during the year. Depreciation and amortization
decreased from $686,000 for the year ended December 31, 1993 to $622,000 for
the corresponding 1994 period.
The Company's pretax income increased $665,000 to $1,061,000 for the
fiscal year 1994 as compared to $396,000 for the corresponding period of the
prior year is primarily due to the increase in revenue volume and gross margins.
The provision for income taxes differed from the Federal statutory rate
primarily due to the effect of state income taxes, amortization of the excess
of purchase price over fair value of net assets acquired, meals and
entertainment expenses not deductible for income tax purposes and foreign
income taxes.
Liquidity and Capital Resources.
The Company had a working capital deficit of $(318,000) at December 31, 1996
as compared to a working capital deficit of $(115,000) at December 31, 1995.
The decrease in working capital is primarily due to losses from operations.
During the year, the Company expended $219,000 for capital equipment.
These expenditures were funded by cash on hand since no further amounts
were available under the Company's loan agreement with FINOVA Capital
Corporation ("FINOVA"), which had previously provided a loan facility
for the Company to purchase capital equipment. At December 31, 1996, the
balance of the FINOVA loan was $1,166,000.
The agreements with FINOVA (the "Loan Agreements") provide that within
the 15 day period following its receipt of the annual financial statements of
AEC and Incat, FINOVA may require that the principal amounts payable to
FINOVA be prepaid in an amount not to exceed 50% of AEC's Excess Cash
Flow during the preceding fiscal year. Excess Cash Flow is defined as the
operating income of AEC and its subsidiaries, determined on a consolidated
basis, before depreciation, amortization, interest, income taxes and management
fees, reduced by capital expenditures and further reduced by (a) any payments
of principal and/or interest to FINOVA and dividends to IST with respect to
IST's repayment of its FINOVA loan and (b) interest on the Company's
revolving line of credit facility. There was no excess cash flow for the
years ended December 31, 1995 and 1996. The FINOVA loan is guaranteed by the
Company and Incat and secured by a security interests in all assets of AEC and
Incat.
On March 31, 1997, the loan from FINOVA was amended and increased
to include an additional $94,000 in long-term financing, which was used to
repay certain accumulated dividends to IST. Additionally, the interest rate
was reduced to 3% plus the prime rate in effect from time to time and the
maturity date of the loan was extended from December 31, 1997 to March 31,
2000. Under the amended note, the loan is to be repaid in monthly principal
and interest installments (approximately $19,000 in principal plus accrued
interest) with all unpaid interest and principal due March 31, 2000. As a
result of the amendment, the monthly amount required to service the Company's
obligation to FINOVA was reduced from approximately $52,000 to
approximately $26,000 per month assuming a current prime rate of 8.5%.
The FINOVA Loan Agreements require AEC to maintain, on a consolidated
basis with its subsidiaries, a ratio of current assets to current liabilities
of not less than .8-to-1 and a ratio of total debt to shareholders' equity of
not more than 4-to-1 and a ratio of Operating Cash Flow to Annual Debt Service
(as defined in the Loan Agreements) of at least 1.4-to-1. AEC was not in
compliance with these covenants at December 31, 1996. However, FINOVA
waived these requirements for the year ended December 31, 1996 and
modified the ratio of Operating Cash Flow to Annual Debt Service to no
less than 1.4 computed as of the end of each fiscal quarter rolling forward
on a cumulative quarter basis to December 31, 1997, commencing with the
quarter ending March 31, 1997. For 1998 and subsequent years, the Operating
Cash Flow to Annual Debt will be determined quarterly on a trailing 12 month
basis. The Company believes it will remain in compliance with the covenants,
as modified during the 1997 year.
In 1991, AES received $500,000 from IST in the form of a convertible debenture,
which was subsequently converted into Series A preferred stock. In conjunction
with these transactions, IST had a note payable to FINOVA ("the IST FINOVA
note"), under which IST's Series A preferred stock of the Company was pledged
as collateral. The Company had not classified the Series A preferred stock as
Common and Other Stockholders' Equity due to the Company's redemption of
shares of Series A preferred stock, the proceeds of which IST applied to
repay the IST FINOVA Note. On March 31, 1997, IST repaid the FINOVA Note
and the Company classified 11,657,000 shares of Series A redeemable preferred
stock as equity.
The holder of Series A preferred stock is entitled to receive cumulative cash
dividends of 14% per annum, payable in monthly installments. The Company
declared and paid $28,000, $44,000, and $54,000, of such dividends during the
years ended December 31, 1996, 1995, and 1994, respectively. The holder of
Series B preferred stock is entitled to receive cumulative cash dividends of
14% per annum, payable in quarterly installments. The Company declared
$28,000 of Series B dividends during each of the years ended December 31,
1996, 1995, and 1994. Amounts to be paid in respect of dividends on and
redemption of the Series A and B Preferred Shares will be approximately
$33,000 for the year ending December 31, 1997. At December 31, 1996, the
Company owed IST approximately $150,000 in cumulative and unpaid dividends on
Series B preferred stock. Of this amount, $94,000 was paid subsequent to
year-end to IST which then repaid the IST FINOVA Note.
During 1996, Incat had a $1,400,000 revolving working capital credit facility
with Wells Fargo Bank (Texas) NA ("Wells Fargo"). In November 1996, interest
on the credit facility was increased to 2.0% over prime (10.25% at
December 31, 1996) from the previous rate of prime plus 0.5%. The line is
collateralized by Incat's accounts receivable and inventory and is guaranteed
by AEC. $519,000 had been drawn at December 31, 1996. Subsequent to
year-end, the Company received a commitment letter from Wells Fargo agreeing
to extend the term of the credit facility to September 30, 1997. Wells Fargo
agreed to increase the credit facility to $1,600,000 for the three months
ended June 30, 1997 at which time the credit facility will return to
$1,400,000. The interest rate will be 2.5% plus the prime rate in effect
from time to time during the renewal period. The closing of the renewal is
subject to certain conditions which the Company believes it will meet.
Wells Fargo requires Incat to comply with a variety of financial and
operational covenants, including restrictions on the Company's ability to pay
dividends. The Company was not in compliance with certain covenants and
from September 30, 1996 through the date of this report, Wells Fargo has been
advancing funds under the line pursuant to a forbearance agreement with the
Company. In conjunction with the closing of the renewal of the credit
facility, Wells Fargo has agreed to waive all rights and remedies available
pursuant to the working capital agreement and modify the covenants.
Management believes the Company will remain in compliance with the modified
covenants during 1997.
Net worth decreased from $841,000 at December 31, 1995 to $693,000 at
December 31, 1996. The decrease is net of the classification of $94,000 from
Series A Preferred stock to equity and due to losses from operations of
$186,000 less dividends declared on preferred stock totaling $56,000.
After evaluating the economics of flow bin leasing operations, the
Company subsequent to year end has entered into an agreement to sell its
flow bins for $500,000. The proceeds to be received in April and
May 1997 will be used for working capital and to purchase additional
equipment. The Company has budgeted in excess of $200,000 in
fiscal 1997 to purchase additional capital equipment.
Operating activities, proceeds from the Wells Fargo working capital facility
and sale of flow bins combined with the Company's reduced term debt service
requirements should result in the Company generating sufficient cash to
provide for the Company's working capital needs during the coming year.
However, given the highly competitive and cyclical nature of the catalyst
handling industry, there are no assurances that the Company will not incur
additional operating losses or need additional funding from other sources.
The Company currently has no plans to obtain additional funding. There are
no assurances that its credit facility with Wells Fargo will be renewed on its
expiration in September 1997 or that funds will be available from other
sources if needed.
Cash Flows for the Year Ended December 31, 1996.
The Company generated approximately $496,000 in cash flow from operations
during the year ended December 31, 1996. Financing activities resulted in a
$312,000 outflow of cash. The outflow of cash is primarily due to preferred
stock redemption and dividends of $177,000, a net decrease in the line of
credit of $206,000, and proceeds and payments of $425,000 and $354,000
from/on notes payable, respectively. The primary use of cash flow from
investing activities was the purchase of equipment totaling $219,000.
Cash Flows for the Year Ended December 31, 1995.
The Company generated approximately $614,000 in cash flow from operations up
from $104,000 in 1994. The Company's reduction in trade and unbilled
receivables was the major factor impacting the cash provided from operating
activities during the year ended December 31, 1995. Financing activities
resulted in an outflow of cash of approximately $66,000 primarily due to
preferred stock redemptions and dividends of $177,000 and proceeds and payments
of $425,000 and $313,000 from/on notes payable, respectively. Investing
activities used cash of $488,000 to purchase equipment. The Company continued
its commitment to investing in equipment.
Cash Flows for the Year Ended December 31, 1994.
The Company generated approximately $104,000 in cash flow from operations
during the year ended December 31, 1994. Net positive cash flow from
financing activities was approximately $146,000. This was accomplished by
an increase in drawings on Incat's line of credit of $789,000 less reductions
of debt and preferred stock redemptions and dividends totaling $643,000. A
primary use of cash flow from investing activities was the Company self-
funding of equipment purchases totaling approximately $244,000.
The Company's fixed debt services and other requirements include debt service
of approximately $46,000 per month and monthly preferred stock redemption and
dividend payments totaling approximately $14,500 for the year ending December
31, 1994.
Impact of Recently Issued Accounting Standards.
In fiscal 1996, the Company adopted Financial Accounting Standards Board
Statement 121 "Impairment of Long-Lived Assets" (FAS 121). In the event
that facts and circumstances indicate that the cost of assets or other assets
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine
if a write-down to market value or discounted cash flow value is required.
Adoption of FAS 121 had no effect on the December 31, 1996 financial
statements.
In fiscal 1996, the Company adopted Financial Accounting Standards Board
"Accounting for Stock-Based Compensation" (FAS 123). FAS 123 encourages,
but does not require, companies to recognize compensation expense for grants
of stock, stock options, and other equity instruments to employees based on
fair value. Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the financial
statements. Transactions in equity instruments with non-employees for goods
or services must be accounted for on the fair value method. The Company
has elected not to adopt the fair value accounting prescribed by FAS 123 for
employees, and is subject only to the disclosure requirements prescribed by
FAS 123. The pro forma effect on the Company's net loss and earnings per
share by applying FAS 123 to the Company's stock options is insignificant.
Effects of inflation
The effect of inflation has been minimal over the past three years and
inflation is not expected to have a significant impact on the Company's
operations in 1997.
Certain Factors Influencing Results and Accuracy of Forward-Looking
Statements
This 10-K report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. Discussions containing such
forward-looking statements may be found in the material set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as within the 10-K report generally. In addition, when
used in this 10-K report, the words "believes" and "anticipates", "expects"
and similar expressions are intended to identify forward-looking statements.
Generally, these statements relate to business plans or strategies, or
projected or anticipated benefits or other consequences of such plans or
strategies, or projections involving anticipated revenues, earnings or other
aspects of operating results. Such forward-looking statements are subject to
a number of risks and uncertainties, some of which are briefly discussed in
Item 1 and 2, "Business and Properties"; Item 3, "Legal Proceedings" and
above in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations". All phases of the Company's operations
are subject to a number of uncertainties, risks and other influences, many
of which are beyond the control of the Company, and any one of which, or a
combination of which, could materially affect the results of the Company's
operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
The following discussion outlines certain factors that in the future could
affect the Company's results and cause them to differ materially from those
that may be set forth in any forward-looking statement made by or on behalf
of the Company. The Company cautions the reader, however, that this list of
risk factors and others discussed elsewhere in this report may not be
exhaustive.
Competition. The Company competes with numerous large and small companies,
some of which have greater financial and other resources than the Company.
Competition in the catalyst handling services is intense and is based on
quality of service, price, safety considerations and availability of personnel.
Market Factors. The Company is dependent on the petroleum refining,
petrochemical/chemical processing industries' reliance on outside contractors
for the performance of catalyst handling services. In addition, the Company
is and will continue to be affected by the timing and scheduling of shut downs
by petroleum refineries and petrochemical/chemical plants, which causes
fluctuations in quarterly operating results.
Availability of Management and Supervisory Personnel. The Company
employs in its operations managerial personnel and project supervisors
with substantial experience and training. The growth of the business will
depend on, and may be restricted by, its ability to retain these personnel
and to recruit and train additional supervisory employees. The competition
to recruit and retain qualified staff and managerial personnel is intense.
Potential Liability and Insurance. The operations of the Company involve
significant risks of liability for personal injury and property damage.
While the Company believes that it operates safely and prudently, there can
be no assurance that accidents will not occur or that the Company will not
incur substantial liability in connection with the operation of its business.
In addition, recent accidents within the petroleum refining and
petrochemical/chemical industries may result in additional regulations of
independent contractors serving those industries. The Company maintains
workers compensation insurance, general liability insurance, auto liability
insurance, and umbrella policies, but such insurance is subject to coverage
limits. Such insurance includes, commencing in the current year, coverage of
losses or liabilities relating to certain environmental damage or pollution.
Although the Company believes that it conducts its operations prudently
and that it minimizes its exposure to such risks, the Company could be
materially adversely affected by a claim that was not covered or only
partially covered by insurance. See Items 1 and 2; "Business and Properties"
and Item 3; "Legal Proceedings".
Developments and Technology. The catalyst industry is characterized by
developing technology. Changes in technology could affect catalyst
consumption and the need for catalyst handling services as well as how
catalyst services are providing. There are no assurances the Company will
have exclusive rights to the tubular loader discussed in Item 1 and 2,
"Business and Properties" or that other devices will not be developed by
the Company's competitors.
Availability of Resources. During the past two years, the Company
experienced operating losses. While the Company has implemented various
changes in its operations, the losses have negatively affected the Company's
available resources.
Item 8. Financial Statements and Supplementary Data
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
REPORT ON AUDIT OF
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, 1994
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - For the Years Ended December 31,
1996, 1995, and 1994
Consolidated Statement of Changes in Common and Other Stockholders' Equity -
For the Period from January 1, 1994 through December 31, 1996
Consolidated Statements of Cash Flows - For the Years Ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
Independent Auditor's Report on Supplementary Information
Schedule I - Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Directors
Advanced Environmental Systems, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Advanced
Environmental Systems, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, changes in
common and other stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Advanced Environmental Systems, Inc. and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
February 21, 1997
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 151,000 $ 186,000
Trade accounts receivable, net of
allowance for doubtful
accounts of $40,000:
Related companies 161,000 154,000
Other 1,178,000 1,468,000
Unbilled trade receivables 203,000 17,000
Income tax receivable, net 488,000 201,000
Asset held for sale 157,000 -
Deferred tax asset 404,000 260,000
Prepaid and other current assets 62,000 168,000
Total current assets 2,804,000 2,454,000
Property and Equipment, net 1,179,000 1,538,000
Intangibles and Other Assets:
Intangibles, net of accumulated
amortization of $592,000 and
$549,000, respectively 958,000 1,001,000
Other 50,000 3,000
Total other assets 1,008,000 1,004,000
Total Assets $4,991,000 $4,996,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, including payables
to related companies of
$282,000 and $407,000, respectively $1,304,000 $ 904,000
Revolving loans 519,000 725,000
Current portion of long-term debt:
Financial institutions 184,000 348,000
Related parties 425,000 1,000
Accrued expenses 690,000 591,000
Total current liabilities 3,122,000 2,569,000
Long-term Debt 982,000 1,171,000
Deferred Income Taxes 161,000 178,000
Commitments and Contingencies (Note 4)
Redeemable Convertible Preferred Stock -
Series A, 4,074,000 and 30,648,000 shares
issued and outstanding, respectively;
4,074,000 shares were redeemed subsequent
to December 31, 1996 33,000 237,000
Common and Other Stockholders' Equity:
Preferred stock, $.0001 par value;
750,000,000 shares authorized:
36,249,000 and 24,592,000 shares
of Series A and B issued and
outstanding, respectively;
liquidation preference of $295,000 96,000 2,000
Common stock, $.0001 par value; 2,250,000,000
shares authorized; 531,668,000 shares
issued and outstanding 53,000 53,000
Additional paid-in capital 548,000 548,000
Retained earnings(deficit) (4,000) 238,000
Total stockholders' equity 693,000 841,000
Total Liabilities and Stockholders' Equity $4,991,000 $4,996,000
See accompanying notes to these consolidated financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
1996 1995 1994
Net Service Revenues $11,195,000 $10,448,000 $12,756,000
Cost and Expenses:
Service costs and
expenses 8,541,000 7,359,000 8,313,000
Selling, general
and administrative 2,723,000 2,751,000 2,453,000
Management fees,
related party 152,000 112,000 96,000
Interest, including
interest paid to
related parties of
$15,000, $2,000,
and $10,000,
respectively 275,000 255,000 211,000
Depreciation and
amortization 452,000 480,000 622,000
Retrospective insurance
adjustments (379,000) 300,000 -
Total expenses 11,764,000 11,257,000 11,695,000
Income (Loss) Before
Income Taxes (569,000) (809,000) 1,061,000
Income Tax Expense
(Benefit) (383,000) (113,000) 526,000
Net Income (Loss) (186,000) (696,000) 535,000
Dividends on Preferred
Stock (56,000) (72,000) (82,000)
Net Income (Loss)
Attributable to Common
Stockholders $(242,000) $(768,000) $ 453,000
Net Income (Loss) Per
Common Share and
Common Share
Equivalent $ (.0005) $ (.0013) $ .0009
Weighted Average Shares
Outstanding 531,668,000 531,668,000 531,668,000
See accompanying notes to these consolidated financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON AND OTHER STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
Series A and B
Preferred Stock Common Stock
Shares Amount Shares Amount
Balances, January 1, 1994 24,592,000 $ 2,000 531,668,000 $ 53,000
Dividends on
preferred stock - - - -
Net income - - - -
Balances, Dec. 31, 1994 24,592,000 2,000 531,668,000 53,000
Dividends on
preferred stock - - - -
Net loss - - - -
Balances, Dec. 31, 1995 24,592,000 2,000 531,668,000 53,000
Transfer of preferred
stock from redeemable
classification 11,657,000 94,000 - -
Dividends on
preferred stock - - - -
Net loss - - - -
Balances, Dec. 31, 1996 36,249,000 $96,000 531,668,000 $53,000
Total
Additional Retained Stockholders'
Paid-in Earnings(deficit) Equity
Balances, January 1, 1994 $ 548,000 $ 553,000 $1,156,000
Dividends on
preferred stock - (82,000) (82,000)
Net income - 535,000 535,000
Balances, Dec. 31, 1994 548,000 1,006,000 1,609,000
Dividends on
preferred stock - (72,000) (72,000)
Net loss - (696,000) (696,000)
Balances, Dec. 31, 1995 548,000 238,000 841,000
Transfer of preferred
stock from redeemable
classification - - 94,000
Dividends on
preferred stock - (56,000) (56,000)
Net loss - (186,000) (186,000)
Balances, Dec. 31, 1996 $ 548,000 $ (4,000) $ 693,000
See accompanying notes to these consolidated financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
1996 1995 1994
Cash Flows from Operating Activities:
Net income (loss) $(186,000) $(696,000) $ 535,000
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation and amortization 452,000 480,000 622,000
Loss on sale of equipment 12,000 - 6,000
Deferred income tax expense
(benefit) (310,000) (213,000) 66,000
Changes in operating assets
and liabilities:
Decrease (increase) in:
Trade accounts receivable 284,000 875,000 (1,403,000)
Unbilled trade receivables (186,000) 172,000 (189,000)
Prepaid expenses and other 59,000 (3,000) (27,000)
Income tax receivables (140,000) (109,000) (92,000)
Increase (decrease) in:
Accounts payable 412,000 (24,000) 640,000
Accrued expenses 99,000 132,000 (42,000)
Income taxes payables - - (12,000)
Net cash provided by operating
activities 496,000 614,000 104,000
Cash Flows from Investing Activities:
Purchase of property and equipment (219,000) (488,000) (244,000)
Cash Flows from Financing Activities:
Proceeds from revolving
line-of-credit 11,998,000 4,910,000 8,982,000
Repayments on revolving
line-of-credit (12,204,000) (4,911,000) (8,193,000)
Proceeds from notes payable 425,000 425,000 -
Repayments of notes payable (354,000) (313,000) (469,000)
Redemption of Series A
preferred stock (121,000) (105,000) (92,000)
Dividends declared (56,000) (72,000) (82,000)
Net cash provided by (used in)
financing activities (312,000) (66,000) 146,000
Increase (Decrease) in Cash
and Cash Equivalents (35,000) 60,000 6,000
Cash and Cash Equivalents,
beginning of year 186,000 126,000 120,000
Cash and Cash Equivalents,
end of year $ 151,000 $ 186,000 $ 126,000
Supplemental Disclosures of Cash Flow
Information:
Cash paid for income taxes $ - $ 203,000 $ 283,000
Cash paid for interest $ 261,000 $ 327,000 $ 219,000
Equipment purchased through
capital leases $ - $ 63,000 $ -
See accompanying notes to these consolidated financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Nature of Operations - Advanced Environmental Systems, Inc. (AES) was
incorporated in New York. AES and its subsidiaries are collectively referred
to as the Company. The Company performs catalyst handling services for the
refining petrochemical and chemical industries. Divisions of the Company
operate or market services in primarily southwest and western United States,
South and Central America, the Caribbean, and Asia. Industrial Services
Technologies, Inc. (IST) owns approximately 62% of the common stock of the
Company and all of the preferred stock.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of AES and its subsidiaries, which include
Advanced Energy Corporation (AEC), which is principally a corporate vehicle
through which AES acquired International Catalyst, Inc. (Incat), the
operating company. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents - The Company considers all highly liquid monetary
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed using straight-line and
accelerated methods over estimated useful lives of three to seven years.
Maintenance and repairs are charged to expense as incurred, and expenditures
for major improvements are capitalized. When assets are retired, or
otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or
charged to income.
Asset Held for Sale - Subsequent to year-end, the Company entered into an
agreement to sell its flow bin equipment for $500,000. The Company has
segregated these assets held for sale on the balance sheet. At December 31,
1996, this equipment had a net book value of approximately $157,000.
Intangibles - Intangibles consist primarily of the excess of purchase price
over fair value of net assets acquired (goodwill) in connection with the
acquisition of Incat. This goodwill is being amortized over 30 years on a
straight-line basis. The Company periodically reviews the recoverability of
goodwill based on expected future income. Due to operating losses in the
past two years, if such losses were to continue, it is reasonably possible
the Company's estimate in connection with the recovery of goodwill and/or its
remaining life would materially change within the forthcoming year. If the
results of such an assessment indicates that goodwill is impaired, or its
life is less than its remaining term, the amount of the impairment will be
expensed, or the remaining amortization period will be decreased.
Revenue Recognition - Unbilled receivables represent contracts which are in
progress for which billings were prepared subsequent to the balance sheet
date. The Company's contracts are based either on time and materials or
fixed fees. For time and material contracts, revenue is recognized at agreed
upon rates as incurred. For fixed fee contracts, the Company follows the
percentage of completion method of reporting income which takes into account
the cost, estimated earnings, and revenue to date on contracts not yet
completed.
Income Taxes - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statements and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Impairment of Long-Lived Assets - In fiscal 1996, the Company adopted
Financial Accounting Standards Board Statement 121 "Impairment of Long-Lived
Assets" (FAS 121). In the event that facts and circumstances indicate that
the cost of assets or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value is required. Adoption of FAS 121
had no effect on the December 31, 1996 financial statements.
Stock-Based Compensation - In fiscal 1996, the Company adopted Financial
Accounting Standards Board "Accounting for Stock-Based Compensation"
(FAS 123). FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the new
method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for on
the fair value method. The Company has elected not to adopt the fair value
accounting prescribed by FAS 123 for employees, and is subject only to the
disclosure requirements prescribed by FAS 123.
Net Income (Loss) per Common Share - Net income (loss) per common share is
computed by dividing net income, less dividends on preferred stock, by the
weighted average number of common and common equivalent shares outstanding
during each period. Common stock options outstanding and common stock which
would be issued upon conversion of preferred stock are not included in the
computations because their effect would be antidilutive or would not be
material.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. The Company makes
various significant estimates which are discussed within the notes to the
consolidated financial statement.
Reclassifications - Amounts in prior years are reclassified as necessary to
conform with the current year's presentation. Such reclassifications had no
effect on net income (loss).
2. PROPERTY AND EQUIPMENT:
Property and equipment is summarized by major classifications as follows:
DECEMBER 31, DECEMBER 31,
1996 1995
Equipment $ 2,992,000 3,453,000
Furniture and fixtures 313,000 352,000
Transportation equipment 391,000 391,000
3,696,000 4,196,000
Accumulated depreciation (2,517,000) (2,658,000)
$ 1,179,000 $ 1,538,000
Depreciation expense charged to operations was $409,000, $439,000, and
$524,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
3. RELATED PARTY TRANSACTIONS:
The Company paid IST management fees of $152,000, $112,000, and $96,000
during the years ended December 31, 1996, 1995, and 1994, respectively.
Pursuant to the Company's loan agreement with a financial institution, future
management fees to IST are limited to $180,000 annually.
The Company has retained a stock transfer agent of which a major stockholder
is also a stockholder of IST. Fees paid to the stock transfer agent were not
significant. A director of the stock transfer agent is also a director of
the Company.
The Company has an annual lease, which expired December 31, 1996, for a
regional facility with a company controlled by certain officers and directors
of the Company and/or IST. The Company has paid lease costs of approximately
$39,000, each of the years ended December 31, 1996, 1995, and 1994.
See Notes 5 and 6 for additional related party transactions.
4. COMMITMENTS AND CONTINGENCIES:
Operating Leases - Incat has entered into operating leases for operating
facilities and vehicles for various periods through 1996. Total rent expense
on these leases for the year ended December 31, 1996, 1995, and 1994, was
approximately $333,000, $382,000, and $364,000, respectively. Non-cancelable
future minimum lease commitments under these leases are as follows:
YEARS ENDED
DECEMBER 31,
1997 $ 275,000
1998 193,000
1999 85,000
2000 3,000
$ 556,000
Contingencies - Various claims arising in the ordinary course of business are
pending against the Company. To the extent any liability may exist with
respect to these claims, the Company believes that resolution of these
matters would be covered by its workers' compensation and general liability
insurance carriers. The initial premiums paid with respect to these policies
are subject to adjustment based on certain components plus losses during the
applicable policy periods. Based on current estimates prepared by the
Company's insurers, the Company adjusted its retrospective insurance premium
accrual from $300,000 as of December 31, 1995 to $175,000 at December 31,
1996. This amount is reflected in accrued expenses and represents a general
reserve pending the resolution of these claims incidental to the Company's
business. However, due to the uncertainty of various factual and legal
issues which may affect these matters, there can be no assurance as to the
ultimate outcome of these matters or the adequacy of the amount reserved.
5. STOCKHOLDERS' EQUITY:
In 1991, AES received $500,000 from IST in the form of a convertible debenture,
which was subsequently converted into Series A preferred stock. In
conjunction with these transactions, IST has a note payable to a financial
institution, under which the Series A preferred stock and other stockholders'
equity was pledged as collateral. The Company had not classified the Series
A preferred stock as Common and Other Stockholder's Equity due to AES
redeeming preferred stock and IST applying those funds to repay the IST note.
Subsequent to year-end, IST repaid the financial institution note which has
enabled the Company to classify 11,657,000 shares of Series A redeemable
preferred stock as equity.
The holder of Series A preferred stock is entitled to receive cumulative cash
dividends of 14% per annum, payable in monthly installments. The Company
declared and paid $28,000, $44,000, and $54,000, of such dividends during the
years ended December 31, 1996, 1995, and 1994, respectively. The holder of
Series B preferred stock is entitled to receive cumulative cash dividends of
14% per annum, payable in quarterly installments. The Company declared
$28,000 of such dividends during each of the years ended December 31, 1996,
1995, and 1994. At December 31, 1996, the Company owed IST approximately
$150,000 in cumulative and unpaid dividends on the Series B preferred stock,
which is included in accounts payable, related party. Of this amount,
$94,000 was paid subsequent to year-end to IST. In connection with the
financial institution debt amendment (Note 6), IST repaid its financial
institution note.
At December 31, 1996, 15,731,000 shares of Series A preferred stock and
24,592,000 Series B preferred stock were outstanding. Both Series A and
Series B preferred stock have a liquidation preference of $.008133 per share
plus any unpaid accrued dividends. Each share of the Series A and Series B
preferred stock is convertible into one share of common stock at the option
of the holder. The Company may redeem all or any part of the Series A and
Series B preferred stock at $.008133 per share. During the years ended
December 31, 1996, 1995, and 1994, 14,917,000, 12,969,000, and 11,265,000
shares of Series A preferred stock were redeemed, respectively. Subsequent
to year-end, 4,074,000 shares of Series A preferred stock were redeemed.
As of December 31, 1996, the remaining 709,677,000 shares of authorized
preferred stock may be issued in such series and preferences as determined
by the Board of Directors.
Stock Option Plan - The Company has a Stock Option Plan under which
25,000,000 shares of common stock have been reserved for issuance. During
fiscal 1991, the Company granted options to purchase 18,261,013 shares of
common stock at $.015 per share. As of December 31, 1996, 7,028,594 options
were forfeited by employees no longer employed by the Company, and 163,129
options have been exercised, leaving 11,069,290 options outstanding. Options
are exercisable for a seven-year period from the date of the grant. As of
December 31, 1996, all outstanding options were exercisable.
In 1995, the Board of Directors changed the exercise price of all outstanding
options from $.015 to $.008. All other option terms remained unchanged. The
pro forma effect on the Company's net loss and earnings per share by applying
FAS 123 to these repriced options is insignificant.
6. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consisted of the following:
December 31,
1996 1995
Related Parties
Note to shareholder. The note accrued
interest at prime plus 2% (10.25% at
December 31, 1996) and was repaid in
January 1997. $ 425,000 $ -
Note to shareholder. The note bears
interest at 10% and is due on demand. - 1,000
$ 425,000 $ 1,000
Financial Institutions
Notes payable to a financial institution
with interest at prime plus 3.5% (11.75%
at December 31, 1996). The loan is
collateralized by substantially all
assets of the Company. $ 1,166,000 $ 1,458,000
Other - 61,000
1,166,000 1,519,000
Less current portion (184,000) (348,000)
$ 982,000 $ 1,171,000
Long-term debt maturities excluding prepayment rights and redemptions of
Series A preferred stock are as follows:
YEARS ENDED
DECEMBER 31,
1997 $ 184,000
1998 235,000
1999 235,000
2000 512,000
$ 1,166,000
Subsequent to year-end, the above note with the financial institution was
amended and increased to include an additional $94,000 in long-term
financing, which was used to repay certain accumulated dividends to IST.
Additionally the interest rate was reduced to 3% plus the prime rate in
effect from time to time. Under the amended note, the above balance is to be
repaid in monthly principal and interest installments (approximating $19,000
in principal plus accrued interest) with all unpaid interest and principal
due March 31, 2000. The financial institution may require AEC to prepay the
outstanding balance based upon 50% of annual excess cash flows as defined in
the agreement. In 1996, there were no excess cash flows.
Incat has a $1,400,000 line-of-credit with a financial institution, renewable
annually in July, with interest at prime plus 2% (totaling 10.25% at
December 31, 1996) collateralized by Incat's accounts receivable and
inventory and guaranteed by AEC, of which $519,000 has been drawn at
December 31, 1996. Subsequent to year-end, the Company received a commitment
letter from the financial institution agreeing to extend the term of the
line-of-credit to September 30, 1997 and modify its covenants. The financial
institution agreed to increase the line-of-credit to $1,600,000 for the three
months ended June 30, 1997 at which time the line-of-credit will return to
$1,400,000. The interest rate was changed to 2.5% plus the prime rate in
effect from time to time during the renewal period. The closing of the
renewal is subject to certain conditions which management believes it will
meet.
The Company's notes payable and the line-of-credit with financial institutions
have various financial and operational covenants and restrictions as to the
Company's ability to pay dividends. The Company was not in compliance with
certain covenants as of year-end on its notes and line-of-credit. The
covenants that pertain to the line-of-credit and notes payable were modified
subsequent to year-end and as such, management believes the Company will
remain in compliance with the modified covenants during 1997.
7. INCOME TAXES:
The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
1996 1995 1994
Current:
Federal $ (96,000) $ - $ 265,000
State (14,000) - 83,000
Foreign 37,000 100,000 112,000
(73,000) 100,000 460,000
Deferred - Federal (310,000) (213,000) 66,000
Income tax expense (benefit) $ (383,000) $ (113,000) $ 526,000
The actual income tax expense differs from the "expected" income tax expense
(benefit) (computed by applying the U.S. Federal corporate income tax rate of
35% for the years ended December 31, 1996 and 1995 and 34% for all previous
periods) as follows:
1996 1995 1994
Computed "expected" tax expense
(benefit) $ (199,000) $ (275,000) $ 361,000
State income taxes, net of
Federal income tax benefit (14,000) (27,000) 55,000
Foreign income taxes 37,000 100,000 112,000
Non-deductible expenses 28,000 85,000 98,000
Other (235,000) 4,000 (100,000)
$ (383,000) $ (113,000) $ 526,000
The components of the Company's deferred tax assets and liabilities at
December 31, 1996 are as follows:
Current deferred tax assets (liabilities):
Net operating loss $ 271,000
Prepaid expenses (25,000)
Vacation accrual reserve 45,000
Other 113,000
Net current deferred tax asset $ 404,000
Long-term deferred tax liability - depreciation
and capital lease treatments $ 161,000
As of December 31, 1996, the Company has income tax loss carryforwards
of approximately $678,000, which will expire in the year 2011. The Company
has estimated that loss will be utilized to offset future income. Therefore,
it has been recorded as a deferred asset.
8. 401(K) PLAN:
Several affiliates of IST, including the Company, have a 401(k) plan. All
active, full-time, non-union employees are eligible to participate in the
plan after 1,000 hours of service. Employees may make before-tax
contributions from 1% to 15% of total compensation with a maximum
contribution of $9,500. Employer matching contributions are made at the
discretion of the board of directors, and may not exceed 3% of the employee's
compensation. Employees are fully vested in their individual contributions
and vest in company matching contributions at a rate of 20% per year (fully
vested after 5 years). The Company made matching contributions to the plan
totaling approximately $-0-, $-0-, and $34,000 during the years ended
December 31, 1996, 1995, and 1994.
9. CONCENTRATIONS OF CREDIT RISK:
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise
from financial instruments exist for groups of customers or counterparties
when they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly effected by changes
in economic or other conditions.
The Company's receivables are concentrated from customers in the petrochemical
industry. To reduce this risk, the Company has a policy to examine the credit
worthiness of its customers prior to performing services on their behalf. The
Company's concentrations of credit risk also arise from the Corporation's
receivables in relation to the location of customers as presented in the
following table.
1996 1995
Asia $ - $ 339,000
North America 1,339,000 1,283,000
$ 1,339,000 $ 1,622,000
As of December 31, 1996, the Company had receivable balances due from
customers which represented 14%, 17%, and 32% of the total accounts
receivable balance.
For the years ended December 31, 1996, 1995, and 1994, the Company had
sales with customers which represented the following percentage of total
revenues for each year:
1996 1995 1994
Customer 1 17% 6% 11%
Customer 2 27% 3% 3%
Customer 3 1% 11% 12%
Information about the Company's sales in the United States and international
markets is presented below:
REGION 1996 1995 1994
United States $ 10,458,000 $ 9,992,000 $ 11,784,000
Central America and Caribbean - - 413,000
Asia 287,000 335,000 381,000
South America 450,000 121,000 178,000
$ 11,195,000 $ 10,448,000 $ 12,756,000
In accordance with FASB Statement No. 105, Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, the credit risk amounts
shown do not take into account the value of any collateral or security. The
amounts of credit risk shown do not represent expected losses.
INDEPENDENT AUDITOR'S REPORT
ON SUPPLEMENTARY INFORMATION
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules to the
consolidated financial statements referred to in the index are presented for
the purposes of additional analysis and are not a required part of the basic
consolidated financial statements. Such information for the year ended
December 31, 1996, 1995, and 1994 has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements. In our opinion, such information is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
February 21, 1997
Denver, Colorado
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - FINANCIAL INFORMATION OF REGISTRANT -
CONDENSED BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
Current Assets:
Due from subsidiaries $359,000 $ 76,000
Prepaid and other current assets 3,000 3,000
Total current assets 362,000 79,000
Other Assets:
Investment in subsidiaries 879,000 1,202.000
Total Assets $1,241,000 $1,281,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Related party accounts payable $ 4,000 $ 114,000
Related party notes payable 425,000 1,000
Related party accrued expenses
and other current liabilities 86,000 88,000
Total current liabilities 515,000 203,000
Redeemable Convertible Preferred Stock:
Series A $.0001 par value; 4,074,000
and 30,648,000 shares issued and
outstanding, respectively;
4,074,000 shares were redeemed
subsequent to December 31, 1996 33,000 237,000
Common and Other Stockholders' Equity:
Preferred stock, $.0001 par value,
750,000,000 shares authorized
36,249,000 and 24,592,000 shares
of Series A and B issued and
outstanding, respectively;
liquidation preference of
$295,000 96,000 2,000
Common stock, $.0001 par value;
2,250,000,000 shares authorized;
531,668,000 shares issued and
outstanding, respectively 53,000 53,000
Additional paid-in capital 548,000 548,000
Retained earnings(deficit) (4,000) 238,000
Total stockholders' equity 693,000 841,000
Total Liabilities and Stockholders'
Equity $1,241,000 $1,281,000
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - FINANCIAL INFORMATION OF REGISTRANT -
CONDENSED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
1996 1995 1994
Equity in undistributed earnings
(loss) of subsidiaries $(323,000) $(836,000) $409,000
Dividend income 149,000 142,000 146,000
General, selling and administrative (2,000) (3,000) (15,000)
Interest expense (15,000) - -
Income tax (expense) benefit 5,000 1,000 (5,000)
Net income (loss) $(186,000) $(696,000) $535,000
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE I - FINANCIAL INFORMATION OF REGISTRANT -
CONDENSED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
1996 1995 1994
Cash Flows from Operating Activities:
Net income (loss) $(186,000) $(696,000) $ 535,000
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Equity in undistributed
(earnings)losses of
subsidiaries 323,000 836,000 (409,000)
Amortization - 2,000 2,000
Decrease (increase) in:
Due from subsidiaries (283,000) 46,000 (25,000)
Increase (decrease) in:
Accounts payable:
Trade - (1,000) (34,000)
Related party (110,000) 28,000 86,000
Related party accrued
expenses and liabilities 9,000 (12,000) 23,000
Net cash provided by (used
in) operating activities (247,000) 203,000 178,000
Cash Flows from Financing Activities:
Proceeds from related party debt 425,000 - -
Repayment of related party debt (1,000) (26,000) (4,000)
Redemption of preferred stock (121,000) (105,000) (92,000)
Dividends declared (56,000) (72,000) (82,000)
Net cash provided by (used
in) financing activities 247,000 (203,000) (178,000)
Decrease in Cash and Cash Equivalents - - -
Cash and Cash Equivalents,
beginning of period - - -
Cash and Cash Equivalents,
end of period $ - $ - $ -
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Classification of Period Expenses Accounts Deductions Period
Year Ended
Dec 31, 1996:
Excess of
purchase price
over the value
of assets
acquired $ 204,000 $ 42,000 $ - $ - $ 246,000
Deferred loan
fees 157,000 1,000 - - 158,000
License rights 158,000 - - - 158,000
Other 30,000 - - - 30,000
Year Ended
Dec 31, 1995:
Excess of
purchase price
over the value
of assets
acquired $ 162,000 $ 42,000 $ - $ - $ 204,000
Deferred loan
fees 146,000 11,000 - - 157,000
License rights 145,000 13,000 - - 158,000
Other 30,000 - - - 30,000
Year Ended
Dec 31, 1994:
Excess of
purchase price
over the value
of assets
acquired $ 120,000 $ 42,000 $ - $ - $ 162,000
Deferred loan
fees 135,000 11,000 - - 146,000
License rights 97,000 48,000 - - 145,000
Other 25,000 5,000 - - 30,000
Item 9. Disagreements on Accounting and Financial Disclosure.
None of the events specified in this Item has occurred and, therefore,
it is inapplicable.
PART IV
Item 14 Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)(1)(2) See Item 8.
(b) Reports on Form 8-K.
A form 8-K was filed on December 11, 1996. Exhibits are incorporated
herein by reference.
(c) See the Exhibit Index.
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.
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
Date: April 14, 1997 By: /s/ J. Daniel Bell
J. Daniel Bell, President
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.
Date: April 14, 1997 By: /s/ J. Daniel Bell
J. Daniel Bell, President and
Director
Date: April 14, 1997 By: /s/ Alfred O. Brehmer
Alfred O. Brehmer, Secretary,
Treasurer and Director
EXHIBIT INDEX
Number Exhibit Name
3 Certificate of Incorporation, as amended, and Bylaws, filed as
Exhibits to the Company's Annual Report on Form 10-K for the year
ended March 31, 1992, which Exhibits are incorporated herein by
reference.
4(a) Form of Common Stock Certificate and forms of Class A, Class B,
Class C and Class D Warrant Certificates, filed as Exhibits to the
Company's Registration Statement on Form S-18 (No. 33-7107-NY),
which Exhibits are incorporated herein by reference.
10(c) Stock Purchase Agreement among Craig E. Bowman, Victor L. Kearns,
B.V. Corwin, Charles L. Bowman, Jan T. Kouri, Darryl F. Kouri,
G. L. Walker and Robert W. Dobbs, as Sellers, and Advanced Energy
Corporation ("AEC"), as Buyer, dated August 16, 1988, filed as an
Exhibit to the Company's Registration Statement on Form S-18
(No. 33-7107-NY), which Exhibit is incorporated herein by
reference.
10(f) Stock Option Plan of the Company, filed as an Exhibit to the
Company's Registration Statement on Form S-18 (No. 33-7107-NY),
which Exhibit is incorporated herein by reference.
10(g)(i) Plan of Reorganization and Agreement of Merger among the Company,
NWP Acquisition Corporation ("NWP") and AEC filed as an Exhibit to
the Company's Report on Form 10-Q for the quarter ended July 31,
1988, which Exhibit is incorporated herein by reference.
10(g)(ii) Amendment to Plan of Reorganization and Agreement of Merger
among Northwest, NWP and AEC filed as part of the Report on
Form 8-K of the Company for an event occurring December 30, 1988,
which Exhibit is incorporated herein by reference.
10(i) Loan and Security Agreement between FINOVA Capital Corporation
f/k/a Greyhound Financial Corporation ("Greyhound")and AEC dated
August 16, 1988, filed as an Exhibit to the Company's Registration
Statement on Form S-18 (No. 33-7107-NY), which Exhibit is
incorporated herein by reference.
10(j) Corporate Guarantee and Subordination Agreement between Incat
and Greyhound dated August 16, 1988, filed as an Exhibit to the
Company's Registration Statement on Form S-18 (No. 33-7107-NY),
which Exhibit is incorporated herein by reference.
10(k) Security Agreement between Incat and Greyhound dated
August 16, 1988, filed as an Exhibit to the Company's Registration
Statement on Form S-18 (No. 33-7107-NY), which Exhibit is
incorporated herein by reference.
10(l) Guarantee and Subordination Agreement between the Company
and Greyhound, filed as an Exhibit to the Company's Registration
Statement on Form S-18 (No. 33-7107-NY), which Exhibit is
incorporated herein by reference.
10(p) Stock Purchase Agreement among AEC, Teton Leasing, Inc.,
Craig Bowman, Victor L. Kearns and B.V. Corwin, filed as Exhibit
to the Company's Registration Statement on Form S-18
(No. 33-7107-NY), which Exhibit is incorporated herein by
reference.
10(r) First Amended Loan and Security Agreement between Greyhound
and AEC dated March 30, 1989, filed as an Exhibit to the Company's
Registration Statement on Form S-18 (No. 33-7107-NY), which
Exhibit is incorporated herein by reference.
10(s) First Amendment to Corporate Guarantee and Subordination
Agreement between Incat and Greyhound dated March 31, 1989,
filed as an Exhibit to the Company's Registration Statement on
Form S-18 (No. 33-7107-NY), which Exhibit is incorporated
herein by reference.
10(t) First Amendment to Security Agreement between Greyhound
and Incat dated March 31, 1989, filed as an Exhibit to the Company's
Registration Statement on Form S-18 (No. 33-7107-NY), which
Exhibit is incorporated herein by reference.
10(u) First Amendment to Corporate Guarantee and Subordination
Agreement between the Company and Greyhound dated March 30, 1989,
filed as an Exhibit to the Company's Registration Statement on
Form S-18 (No. 33-7107-NY), which Exhibit is incorporated herein
by reference.
10(a)(a) Convertible Note for $500,000 of the Company payable to Industrial
Services Technologies, Inc. filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31, 1990 which
Exhibit is incorporated herein by reference.
10(b)(b) AEC Assignment of Incat Security Interest to Greyhound dated
April 23, 1990 filed as an Exhibit to the Company's Annual Report
on Form 10-K for the year ended March 31, 1990 which Exhibit is
incorporated herein by reference.
10(d)(d) Security Agreement between AEC and Incat dated April 23, 1990
filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended March 31, 1990, which Exhibit is incorporated
herein by reference.
10(e)(e) Convertible Note for $100,000 of the Company payable to Industrial
Services Technologies, Inc., IST filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended March 3,
1991, which Exhibit is incorporated herein by reference.
10(i)(i) Amendment to Loan and Loan Documents between AEC and
Greyhound dated December 23, 1992 filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1993, which Exhibit is incorporated herein by reference.
10(j)(j) Note of AEC payable to Greyhound in the principal amount of
$2,100,000, dated December 23, 1992 filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended March 31,
1993, which Exhibit is incorporated herein by reference.
10(k)(k) Amendment to Security Agreement between Incat and
Greyhound dated December 23, 1992 filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1993, which Exhibit is incorporated herein by reference.
10(l)(l) Amendment to Guarantee between Incat and Greyhound and
Amendment to Guarantee between AES and Greyhound, both
dated December 23, 1992 filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31, 1993,
which Exhibit is incorporated herein by reference.
10(m)(m) Amendment to Instruments among IST, AEC, Incat and Greyhound
dated as of March 31, 1993, with form of Promissory Note of Incat
to AEC dated as of March 31, 1993, which replaced Exhibit 10(c)(c)
filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended March 31, 1993, which Exhibit is incorporated
herein by reference.
10(o)(o) Agreement between IST, The Argentum Group and various Purchasers
dated January 11, 1991 and April 8, 1991 filed as an Exhibit to
the Company's Annual Report on Form 10-K for the nine months
ended December 31, 1993 which Exhibit is incorporated herein by
reference.
10(p)(p)(i) Loan Agreement and Promissory Note dated July 31, 1995 between
Incat and First Interstate Bank of Texas filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, which Exhibit is incorporated herein by reference.
10(p)(p)(ii) Commitment Letter dated April 1, 1997 between Incat and Wells
Fargo filed as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
10(q)(q) Lease dated January 1, 1996 between Incat and Allen & Cameron filed
as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, which Exhibit is incorporated herein
by reference.
10(r)(r) Lease dated January 1996 between Larry W. Eubanks and Incat filed
as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, which Exhibit is incorporated herein
by reference.
10(s)(s) Asset Sale Agreement between Incat and
Federal Container Corporation filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
10(t)(t)(i) Fourth Amendment to Loan and Loan Document between AEC
and FINOVA filed as an Exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
10(t)(t)(ii) Note between AEC and FINOVA filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
10(t)(t)(iii) Second Amendment to Guarantees between Incat and FINOVA
filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
10(t)(t)(iv) Second Amendment to Guarantees between AES and FINOVA
filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
10(u)(u)(i) Loan Agreement dated November 25, 1996 by and between
Advanced Environmental Systems, Inc. and Carylyn K. Bell filed
as an Exhibit to the Company's Current Report on Form 8-K
dated December 11, 1996, which Exhibit is incorporated
herein by reference.
10(u)(u)(ii) Promissory Note dated November 25, 1996 in the
amount of $425,000 from Advanced Environmental Systems,
Inc. to Carylyn K. Bell filed as an Exhibit to the Company's
Current Report on Form 8-K dated December 11, 1996,
which is incorporated herein by reference.
10(u)(u)(iii) Security Agreement dated November 25, 1996 by
and between Advanced Environmental Systems, Inc. and
Carylyn K. Bell filed as an Exhibit to the Company's
Current Report on Form 8-K dated December 11, 1996,
which is incorporated herein by reference.
10(u)(u)(iv) Guaranty dated November 25, 1996 by Industrial
Services Technologies, Inc. and for the benefit of
Carylyn K. Bell filed as an Exhibit to the Company's
Current Report on Form 8-K dated December 11, 1996,
which is incorporated herein by reference.
22 Subsidiaries of the registrant.
DESCRIPTION: EXHIBIT 22
Advanced Environmental Systems, Inc.
Exhibit 22 to
Annual Report on Form 10K
Subsidiaries of Registrant
State of
Corporation Incorporation Percent Owned
Advanced Energy Corporation Delaware 100%
International Catalyst, Inc. Nevada 100%
EXHIBT 10(p)(p)(ii)
WELLS FARGO BANK (TEXAS), N.A.
Commercial Banking
P.O. Box 3326
Houston, TX 77253-3326
(713) 250-4826
COMMITMENT LETTER
April 1, 1997
Mr. Gary L. Schmitt, V. P., Finance
International Catalyst, Inc.
370 17th Street, Suite 2300
Denver, CO 80202-4614
Dear Gary:
As you are aware, the current Forbearance Agreement between
International Catalyst, Inc. (the "Borrower") and Wells Fargo Bank
(Texas), N.A. (the "Lender") expired 3/31/97, placing International
Catalyst in immediate violation of several financial covenants in the
current Loan Agreement for the Revolving Line of Credit which expires
4/30/97. Wells Fargo has chosen not to pursue the remedies available to it
under the Loan Agreement in anticipation of the early renewal and
restructure of the Revolving Line of Credit according to the terms and
provisions described in the attached Summary of Principal Terms and
Conditions.
Pursuant to our standard lending policy, the following matters are
applicable to this commitment and will be applicable to the proposed credit
facility:
AGREEMENT FOR BINDING ARBITRATION. The parties agree to
be bound by the terms and provisions of the Arbitration Program which is
incorporated by reference herein and is acknowledged as received by the
parties pursuant to which any and all disputes shall be resolved by
mandatory binding arbitration upon the request of any party.
NO ORAL AGREEMENTS. To the extent allowed by law, the parties
hereto agree to be bound by the terms of the following notice: NOTICE:
THIS PROPOSED WRITTEN COMMITMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE
COMMITMENT AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
RELATING TO THIS PROPOSED LOAN.
We at Wells Fargo Bank appreciate the opportunity to provide this
proposal to you and look forward to continuing our relationship. Please
contact me with any questions you may have concerning this proposal.
Very truly yours,
Wells Fargo Bank (Texas), N.A.
By: /s/ Tom Caver
Name: Thomas F. Caver, III
Title: Assistant Vice President
ACCEPTED AND AGREED TO THIS ____ DAY OF APRIL, 1997
International Catalyst, Inc.
By:
Name: Gary L. Schmitt
ACCEPTANCE RECEIVED AND COMMITMENT EFFECTIVE ON
THIS _____ DAY OF APRIL, 1997.
WELLS, FARGO BANK(TEXAS), N.A.
By:
Name: Thomas F. Caver, III
Title: Assistant Vice President
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
Attachment to April 1, 1997 letter from
Wells Fargo Bank (Texas), N.A. to
International Catalyst, Inc.
This credit facility will be subject to a comprehensive loan agreement that
will include, but shall not be limited to, the following terms and
conditions:
1. Lender(s): Wells Fargo Bank (Texas), N.A.
2. Borrower(s): International Catalyst, Inc.
3.Amount and Term:
Revolving Line of Credit with a maximum commitment amount of
$1,600,000.00 to June, 30, 1997. The maximum commitment amount will
decrease to $1,400,000.00 effective July 1, 1997 through expiration of the
commitment on September 30, 1997.
4.Interest Rate and Fees:Interest will accrue on the outstanding principal
balance at Lender's Prime Rate + 21/2 %, floating. An Unused Portion Fee
of 1/2 % per annum will accrue daily on that portion of the commitment
amount less the outstanding principal balance.
5. Repayment: Monthly payments to consist of accrued interest and
unused portion fees will be automatically debited from the Borrower's
operating account.
6.Events of Default: Those customarily in Lender's documents and others
appropriate to the specific transaction, including failure to pay, breach of
representations or warranties, default in covenant performance, default by
guarantors under guaranties, default in other debt, final judgments that are
not stayed, bankruptcy, insolvency, reorganization, appointment of trustees
or receivers, writs of attachment and the like material adverse changes.
7. Guarantors: This credit facility will have the continuing and unlimited
guaranty of Advanced Energy Corporation ("AEC").
8. Security: The subject credit facility will be secured by a first security
interest in all of Borrower's existing and future accounts receivable.
9. Collateral Inspections: The proposed revolving credit facility will be
subject to the satisfactory review by Lender or Lender's representatives of
the Borrower's accounting systems and books and records no more than
two times in a twelve month period during the term of the revolving line.
10. Borrowing Formula: Advances will be restricted by a Borrowing Base
that will allow principal advances of up to 80% against eligible accounts
receivable acceptable to the Lender, at the Lender's sole discretion, up to
the maximum commitment amount. Eligible accounts receivable will
generally include receivables due to the Borrower aged less than 90 days
from invoice, less standard excluded accounts as defined by Lender. Lender
may, at Lender's sole discretion, allow certain otherwise ineligible accounts
to be included in the Borrowing Base upon written request of the Borrower,
such exceptions to be evidenced in writing by Lender.
11. Credit Purposes: Advances under the Revolving Line will only be used
for legitimate business activities of the Borrower.
12. Financial and Other Material Covenants: Usual and customary for
financing of this type, including, but not limited to:
Borrower will provide to Lender annual audited financial statements of the
Borrower within 120 days of each fiscal year end. Audited financial
statements of the Borrowers parent, Advanced Environmental Systems, can
be provided as a substitute.
Borrower will provide to Lender monthly financial statements, accounts
receivable and payable agings, Certificate of No Default and Borrowing
base Certificate of Borrower, within 30 days of each month end.
Borrower will provide to Lender monthly consolidated financial statements
of Advanced Energy Corp. and Advanced Environmental Systems, Inc.
within 30 days of month end.
Capital expenditures limited to no more than $350,000 per fiscal year
without the Bank's written consent.
Two consecutive fiscal quarter net losses constitutes an event of default.
No dividends unless Borrower is in compliance with loan agreement.
Quarterly dividend distributions will be limited to the lesser of $125,000 or
the amount necessary to meet AEC's fixed debt service obligations to
FINOVA.
Borrower will maintain a minimum ratio of current assets to current
liabilities of 1.00 to 0.75 as of each fiscal month end through April 30,
1997. From May 31, 1997, through September 30, 1997, the ratio will
1998. be 1.00 to 1.00.
Borrower will maintain a maximum ratio of total liabilities to tangible net
worth of 4.75 to 1.00 as of 4/30/97, 4.50 to 1.00 as of 5/31/97, 4.25 to
1.0 as of 6/30/97, 4.00 to 1.00 as of 7/31/97, 3.75 to 1.00 as of 8/31/97,
and 3.50 to 1.00 as of 9/30/97.
Borrower will maintain a tangible net worth of at least $1,000,000 as of
4/30/97 through 5/31/97, and $1,100,000 as of 6/30/97 through 9/30/97.
Borrower will be required to maintain a lockbox with cash collateral
account.
13. Documentation: The obligations of the parties are subject in all
respects to the preparation and execution of documents acceptable to and
satisfactory in form and substance to Lender in its sole discretion, which
documents will supersede this commitment letter. Additionally, Borrower
agrees to bear the cost of any and all legal fees and other expenses incurred
by Lender in connection with this transaction. These fees will be payable at
Lender's request and in any event no later than the date of execution and
delivery of loan documents.
14. Additional Terms and Conditions: This proposal is subject to the
satisfactory closing, in Lender's sole judgment, of certain commitments
made by Borrower to Lender to sell certain assets described as catalyst flow
bins for the purpose of raising additional liquid working capital for the
Borrower.
15. Representations and Warranties: Those usually in Lender's credit
facilities of this type and others appropriate to the specific transaction,
including representations related to due organization, financial statement
accuracy, enforceability of obligations, authorization and power, litigation,
other debt, title to properties, purpose of credit, solvency, ownership and
existence of subsidiaries, judgments and governmental consents and
approvals.
16. Conditions of Funding: Obligations to fund are subject to, in
Lender's sole judgment, no material adverse change having occurred in the
financial condition, business or operations of the Borrower or any Guarantor,
or in the assets, liabilities and properties thereof, or no material
threatened or pending litigation adversely affecting them or their property.
This proposal and any subsequent obligation to fund is voidable at Lender's
option if the Borrower or any Guarantor is insolvent or is voluntarily or
involuntarily involved in bankruptcy or similar proceedings as debtor, if a
trustee or receiver is appointed for any of its or his property, if a judgment
is entered that it or he is bankrupt, or if an assignment is made for the
benefit of creditors.
17. Expiration: This proposal is not assignable and will expire if not
accepted by April 15, 1997.
18. Closing Date: This proposal will expire by its terms on April 30,
1997, unless closing of the subject facility(s) has sooner occurred.
19. Governing Law: This proposal will be governed by and construed
in accordance with the laws of the State of Texas and Federal laws of the
United States of America.
EXHIBIT 10 (s)(s)
ASSET SALE AGREEMENT
BETWEEN
FEDERAL CONTAINER CORPORATION, AS BUYER
AND
INTERNATIONAL CATALYST, INC., AS SELLER
This Asset Sale Agreement (the "Agreement") is made the 11th day
of April, 1997, by and between Federal Container Corporation, a
Delaware corporation ("Buyer"), and International Catalyst, Inc., a Nevada
corporation ("Seller"). Seller and Buyer are sometimes referred to
collectively herein as the "Parties".
Recitals
1. Seller desires to withdraw from the direct leasing of
carbon steel, intermediate bulk containers, used for the
transportation of catalysts ("Flo Bins"), and accordingly,
seeks to sell its entire fleet of Flo Bins on the terms and
conditions hereinafter set forth; and
2. Buyer, whose primary business is the direct leasing of Flo Bins,
desires to purchase Seller's entire fleet of Flo Bins with the
understanding that it will enter into a long-term agreement
with Seller to provide Flo Bins to meet Seller's reasonable needs.
NOW, THEREFORE, in consideration of the Recitals and the mutual
promises of the Parties and in reliance on the representations, warranties and
covenants hereinafter set forth, the Parties agree as follows:
Section 1. Sale and Transfer of Assets
1.1 Assets to be Sold. On April 22, 1997 (the "Closing Date"), and
subject to the terms and conditions of this Agreement, Buyer shall purchase
from Seller, and Seller shall sell, transfer, convey and deliver to Buyer,
all its right, title and interest in and to the Flo Bins listed on Schedules
1.1(a) and 1.1(b),subject to the right of Seller to collect and retain all
rental income earned by or accrued to and including May 30, 1997 from the
Flo Bins listed on Schedule 1.1(b), free and clear of all liabilities,
obligations, liens and encumbrances, except as expressly provided otherwise
to the contrary herein.
1.2 Purchase Price; Transfer Taxes. As consideration for the
Flo Bins to be purchased by Buyer pursuant to this Agreement, Buyer shall pay
to Seller a total of $500,000 (the "Purchase Price") payable as follows:
(a) $350,000 by wire transfer to the account of Seller
on the Closing Date (the "First Cash Payment").
(b) $150,000 by wire transfer to the account of Seller on
May 30, 1997 (the "Second Cash Payment").
Any use, sale or other transfer taxes payable in respect of the
transactions contemplated by this Agreement shall be paid by Buyer.
This Agreement and any other documents executed by Buyer and
Seller in connection with the transactions contemplated by this Agreement,
are referred to sometimes herein collectively as the "Purchase Documents".
Section 2. Representations and Warranties of Buyer
For purposes of this Section 3, any reference to the "the best knowledge of
Buyer" shall mean the best of Buyer's knowledge only after diligent inquiry by
Buyer with respect to the matter referenced. Buyer represents and warrants to
Seller as follows:
2.1 Status. Buyer is a Delaware corporation duly organized, validly
existing, and in good standing under the laws of Delaware and is qualified to
do business in Texas.
2.2 Authority. Buyer has full power and authority to enter into this
Agreement and to perform all obligations to be performed by it pursuant to
the Purchase Documents (the "Buyer Obligations"). The execution and delivery
of this Agreement and performance by Buyer of the Buyer Obligations have been
duly authorized by all requisite corporate action. Each of the Purchase
Documents has been duly executed and delivered by Buyer and constitutes the
valid and binding obligations of Buyer enforceable against Buyer in
accordance with its terms.
2.3 Consents. No consent, approval, qualification, order or authorization
of, or filing with, any governmental authority, including any court, or of any
other third party, is required in connection with the valid execution, delivery
or performance of the Purchase Documents by Buyer or the consummation by
Buyer of the transactions contemplated hereby.
2.4 No Conflict. The execution, delivery and performance of the
Purchase Documents and the consummation of the transactions therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the creation of or
imposition of any lien,
charge or encumbrance upon any property or assets of Buyer pursuant to any
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which Buyer is a party or by which Buyer is bound or to any of Buyer's
property, or any applicable law, rule, regulation, judgment, order or decree
of any court or governmental agency, authority or body having jurisdiction
over Buyer or any of Buyer's properties.
2.5 Condition of Flo Bins. Buyer acknowledges that (a) it has
previously leased the Flo Bins and it is fully familiar with their condition,
and (b) it shall receive the Flo Bins with all faults in an "AS IS, WHERE IS"
condition, with no warranties, either express or implied (except for
warranties of title) including but not limited to warranties of
merchantability or fitness for a particular purpose. Without limiting the
foregoing, Buyer acknowledges that the Flo Bins are used, may require
refurbishment and may not meet any manufacturer or governmental standards or
certification requirements. Buyer further acknowledges that the Flo Bins
have been used for the containment and transportation of catalysts and other
materials (the "Prior Contents") which may be subject to regulation by
"Environmental Laws" as hereinafter defined, and some residual amounts of the
Prior Contents may remain in the Flo Bins. Buyer acknowledges and agrees that
it shall, if necessary, store, handle, transport and dispose of such the Prior
Contents in accordance with applicable Environmental Laws, if any, and save,
defend, indemnify and hold harmless Seller from and against any violations
thereof or any costs, expenses, fines, penalties, remediation costs,
liabilities or claims of any nature whatsoever arising in connection
therewith. Buyer represents and warrants that (a) it has had an opportunity
to inspect the Flo Bins and to consult with such experts, legal advisors
and other consultants as it has deemed necessary or desirable, (b) Seller has
made no representations as to the condition of the Flo Bins and (c) the Buyer
has relied solely on its own investigation and experts. For purposes of this
Agreement, "Environmental Laws" means any and all federal, state and local
laws that relate to or impose liability or standards of conduct concerning
public or occupational health and safety or the environment, as now or
hereafter in effect and as have been or hereafter may be amended or
reauthorized, including, without limitation, the Comprehensive Response,
Compensation and Liability Act (42 U.S.C. 9601 et seq.), the Hazardous
Materials Transportation Act (42 U.S.C. 1802 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. 1251 et seq.), the Toxic Substances
Control Act (14 U.S.C. 2061 et seq.), the Clean Air Act (42 U.S.C. 7901 et
seq.), the Refuse Act (33 U.S.C. 407 et seq.), the Safe Drinking Water Act
(42 U.S.C. 300 (f) et seq.), the Occupational Safety
and Health Act (29 U.S.C. 651 et seq.), and all rules, regulations, codes,
ordinances and guidance documents promulgated or published thereunder, and
the provisions of any licenses, permits, orders and decrees issued pursuant
to any of the foregoing.
2.6 Lease Agreement Between Seller and Buyer. Buyer represents
and warrants that concurrently with the Closing, it shall enter into a Flo
Bin lease agreement (the "Master Lease") pursuant to which it shall agree to
lease Flo Bins to Seller for Seller's use in conjunction with its business,
said Master Lease to encompass automatically renewable successive one-year
terms on prices and other terms and conditions (exclusive of freight) which
are at least as favorable as Buyer's large, multiple location U.S. customers,
and pursuant to which Master Lease, Seller shall obtain all its requirements
for Flo Bins.
Section 3. Representations and Warranties of Seller
For purposes of this Section 3, any reference to the "the best knowledge of
Seller" shall mean the best of Seller's knowledge only after diligent inquiry by
Seller with respect to the matter referenced. Seller represents and warrants
to Buyer as follows:
3.1 Status. Seller is a Nevada Corporation, duly organized, validly existing
and in good standing under the laws of Nevada and is qualified to do business
in Texas.
3.2 Authority. Seller has full power and authority to enter into the
Purchase Documents and to carry out its obligations hereunder. The Purchase
Documents have been duly executed and delivered by Seller and constitute the
valid and binding obligation of Seller enforceable against Seller in
accordance with its terms.
3.3 Consents. No consent, approval, qualification, order or authorization
of, or filing with, any governmental authority, including any court or other
third party which has not been obtained, is required in connection with the
valid execution, delivery or performance of this Agreement by Seller or the
consummation by Seller of the transactions contemplated hereby.
3.4 No Conflict. The execution, delivery and performance of the Purchase
Documents and the consummation of the transactions therein contemplated will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, or result in the creation of or imposition of any
lien, charge or encumbrance upon any property or assets of Seller pursuant to
any indenture, mortgage, deed of trust, lease or other agreement or
instrument to which Seller is a party or by which Seller is bound or to any
of Seller's property, or any applicable law, rule, regulation, judgment,
order or decree of any court or governmental agency, authority or body having
jurisdiction over Seller or any of Seller's properties.
3.5 No Disputes. Seller is the sole owner of the Flo Bins and there is no
litigation pending or, to the best of Seller's knowledge, threatened regarding
Seller which affects Seller's title to the Flo Bins or which would otherwise
affect Seller's consummation of the transactions contemplated by this
Agreement. No security interests have been granted by Seller in the Flo Bins
other than the security interests in favor of FINOVA Capital Corporation,
f/k/a Greyhound Financial Corporation and which security interests Seller
will cause to be released on or before the Closing Date.
Section 4. Covenants of Seller and of Buyer
4.1 Credits for Rentals. In the event Buyer receives on or after the
Closing Date any rental payments earned for any period on or before (i) the
Closing Date for any of the Flo Bins listed on Schedule 1.1(a), or (ii)
May 30, 1997 for any of the Flo Bins listed on Schedule 1.1(b), Buyer shall
promptly deliver such rental payments to Seller. In the event Seller
receives in respect of any of the Flo Bins (i) listed on Schedule 1.1(a)
after the Closing Date or (ii) listed on Schedule 1.1(b) after May 30, 1997,
rental payments for such Flo Bins earned for any periods after such dates,
Seller shall promptly deliver such rental payments to Buyer.
4.2 No Changes to Leases. From and after the date of this Agreement,
Seller shall take no action with respect to any leases for any of the Flo
Bins listed in Schedule 1.1(b) which would accelerate any lease payments,
amend any provisions or extend the terms thereof without the advance written
consent of Buyers, which Buyer may withhold in its sole discretion.
4.3 Risk of Loss. From and after the Closing Date, Buyer shall have the
risk of loss of the Flo Bins and Seller shall have no liability therefor.
Section 5. Closing and Fund Cash payment
5.1 Closing. The Closing of the sale and purchase of Flo Bins (the "Closing")
shall be held at the offices of Seller, 4313 FM 2351, Friendswood, TX 77546,
or at such other location in the Houston metropolitan area as Seller may
designate, at 9:00 a.m. On the Closing Date:
(a) Seller shall (i) transfer to Buyer title of the Flo Bins
listed on Schedules 1.1(a) and 1.1(b) by a duly executed Bill
of Sale in the form attached on Exhibit A, (ii) deliver the
Uniform Commercial Code Financing Statements on
Form UCC-3 evidencing FINOVA Capital Corporation's
release of its security interest in the Flo Bins, (iii) make
available to Buyer for transport to its facilities the Flo
Bins on Schedule 1.1(a) which are not then in the
possession or control of Buyer and, (w) with respect to
the Flo Bins listed on Schedule 1.1(b), provide (x) a
Schedule which shall describe the location of, and the
identity of any leases for such Flo Bins, (y) copies of
any written leases for such Flo Bins, (y) or purchase
orders and Seller's most recent invoice for such Flo
Bins, and (z) an assignment of all leases or purchase
orders for such Flo Bins to Buyer,
(b) Buyer shall deliver the First Cash Payment to Seller,
and
(c) Seller and Buyer shall execute and deliver to each
other duplicate originals of the Master Lease.
5.2 Second Cash Payment. On May 30, 1997,
(a) Seller shall (i) make available to Buyer for transport to
its facilities any Flo Bins which have been returned to Seller's
facilities, (ii) deliver to Buyer its signed letters of direction
to each remaining lessee of the Flo Bins listed on Schedule
1.1(b) that all future rental payments shall be made to Buyer,
and
(b) Buyer shall deliver the Second Cash Payment to Seller.
Section 6. Indemnification
6.1 Indemnification by Buyer. Buyer hereby agrees to indemnify, defend
and hold harmless Seller and its direct and indirect parents and affiliates
and their officers, directors, shareholders, employees, attorneys and agents,
against any and all losses, claims, damages, liabilities, costs and expenses
(including but not limited to, attorneys' fees and other expenses of
investigation and defense of any claims or actions), remediation costs,
penalties or fines incurred by Seller due to, or which result from or
arise out of or are in any way connected with any of the following:
(a) Any misrepresentation, breach of warranty or
nonfulfillment of any of the covenants or agreements
of Buyer in any of the Purchase Documents, including but
not limited to the obligations of Buyer to save, defend,
indemnify and hold harmless Seller as set forth in Section
2.5 hereof.
(b) The omission to state any fact necessary to make the
statements contained in any of the Purchase Documents,
not misleading, but only if the omission relates to
information concerning Buyer and its operations.
6.2 Indemnification by Seller. Seller hereby agrees to indemnify,
defend and hold harmless Buyer and the officers, directors, employees and
agents of Buyer, against any and all losses, claims, damages, liabilities,
costs and expenses (including but not limited to, attorneys' fees and
other expenses of investigation and defense of any claims or actions)
incurred by them or by any of them due to, or which result from
or arise out of or are in any way connected with, any of the following:
(a) Any misrepresentation, breach of warranty or
nonfulfillment of any of the covenants or agreements
of Seller in any of the Purchase Documents.
(b) The omission to state any fact necessary to make
the statements contained in any of the Purchase Documents,
not misleading, but only if the omission relates to
information concerning Seller and its operations.
6.3 Nature and Survival of Representations. All statements
contained in the Purchase Documents shall be deemed representations
and warranties by the applicable Party thereunder. Each representation,
warranty, indemnity and agreement made by the Parties in the Purchase
Documents shall be true and accurate as of each of the Closing Dates and
shall survive the Closings.
Section 7. General Provisions
7.1 Disclosure. No representation or warranty by either Party to
the other contained in any of the Purchase Documents or in connection
with the transactions contemplated hereby, contains or will contain an
untrue statement of a material fact or omits or will omit to state a material
fact required to be stated or necessary to make the statements and facts
contained herein or therein, in light of the circumstances in which
they were or are made, not false or misleading.
7.2 Further Assurances. At any time, and from time to time,
after the Closing, each Party will execute such additional instruments and
take such action as may reasonably be required to evidence or effectuate
the transactions contemplated by this Agreement or for the performance
by any Party of any of their other respective obligations under the Purchase
Documents.
7.3 Amendment; Waiver. Except as otherwise expressly provided
herein, this Agreement may be amended, modified, superseded, or cancelled,
and any of the terms, representations, warranties, covenants or conditions
hereto may be waived, only by a written instrument executed by the Parties
or, in the case of a waiver, by the Party waiving compliance.
7.4 Brokers. Each of the Parties represents and warrants that there
are no claims for brokerage commissions or finders' fees in connection
with the transactions contemplated by this Agreement, arising from any actions
taken by it. Each of the Parties will pay or discharge, and will indemnify
and hold harmless the other from and against, any and all claims for
brokerage commissions or finders' fees incurred by reason of any action
taken by such indemnifying party.
7.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered
personally or three business days after when sent by registered or certified
mail, return receipt requested, postage prepaid, as follows:
(a) if to Buyer to:
Mr. Edward R. Hostetter
Federal Container Corporation
7509 Avenue N
Houston, Texas 77012
Facsimile: (713) 926-0879
(b) if to Seller:
Mr. Buster Austin, Vice President
International Catalyst, Inc.
4313 FM 2351
Friendswood, TX 77546
Facsimile: (713) 482-2103
or to such other person or address as any Party shall have specified by
notice in writing to the other Parties.
7.6 Entire Agreement. All Exhibits and Schedules are a part of
the document to which they are attached. This Agreement and the other
Purchase Documents, constitute the entire agreement between the Parties
and supersede and cancel any other agreement, representation, or
communication, whether oral or written, between the Parties hereto relating
to the transactions contemplated herein or the subject matter hereof. No
representation, promise, or statement of intention has been made by
any Party hereto which is not embodied in this Agreement or the other
Purchase Documents, and no Party hereto shall be bound by or liable for
any alleged representation, promise, or statement of intention not set forth
herein or therein.
7.7 Construction. Each of the Parties has participated in the
negotiation and review of this Agreement and no uncertainty or ambiguity
shall be construed strictly against Seller under any rule of construction or
otherwise. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
7.8. Governing Law; Arbitration. The Purchase Agreement
and all acts and transactions hereunder shall be governed by the laws of the
State of Texas. As a material part of the consideration to each Party to
enter this Agreement, each Party agrees that all disputes relating directly or
indirectly to this Agreement shall be resolved by binding arbitration before
a single arbitrator. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator
as the Parties may mutually agree upon in accordance with the AAA
Commercial Arbitration Rules. The arbitration shall be conducted at a
location in Harris County, Texas selected by the AAA or other administrator.
All discovery activity shall be expressly limited to matters directly
relevant to the dispute being arbitrated. To the maximum extent
practicable, the Parties shall take all actions required to conclude any
arbitration proceeding within 180 days of the filing of any dispute with the
AAA. No arbitrator or Party to an arbitration proceeding may disclose the
existence, content or results thereof except for disclosures of information
by a party required in the ordinary course of its business or by applicable
law. This arbitration provision shall survive termination, amendment or
expiration of any of the Purchase Documents or any relationship between
Parties.
7.9 Expenses; Attorneys Fees. Each of the Parties shall be
responsible for the fees and expenses of its counsel and other experts and
all other expenses incurred by it in connection with the preparation
for, entering into, and consummation of the transactions contemplated by
this Agreement. If either Party files any lawsuit against the other
predicated on a breach of this Agreement, the party prevailing in such
action shall be entitled to reasonable attorneys' fees and costs incurred
in the enforcement of, execution upon or defense of any order, degree or
award of judgment.
7.10 Severability. The invalidity or unenforcability of any
provision hereof shall not affect the validity or enforceability of any other
provision contained herein.
7.11 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the Parties and their successors and assigns;
provided, however, that any assignment by any Party of its rights under this
Agreement without the written consent of the other Parties shall be void.
7.12 Counterparts. Any of the Purchase Documents may be
executed, including by facsimile signature, in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the Parties have duly executed this
Agreement effective as of the date first above written.
FEDERAL CONTAINER CORPORATION, a Delaware corporation
By:/s/ Edward R. Hostetter
Edward R. Hostetter, President
INTERNATIONAL CATALYST, INC., a Nevada
Corporation
By:/s/ Buster Austin
George "Buster" Austin, Executive Vice President
EXHIBIT A
Bill of Sale
SCHEDULE 1.1(a)
TO ASSET SALE AGREEMENT BETWEEN
FEDERAL CONTAINER CORPORATION, AS BUYER, AND
INTERNATIONAL CATALYST, INC., AS SELLER
Number of Flo Bins Location of Flo Bins
368 In the possession and/or control of Buyer
128 At Seller's facility at 4313 FM 2351, Friendswood,
Texas 77546
57 At Seller's facility at 1044 Del Amo Blvd., Carson,
California
SCHEDULE 1.1(b)
TO ASSET SALE AGREEMENT BETWEEN
FEDERAL CONTAINER CORPORATION, AS BUYER, AND
INTERNATIONAL CATALYST, INC., AS SELLER
Number of Flo Bins Seller's Job No. Rent Date Client
24 215 7/5/96 La Roache, AL
9 226 3/6/97 Total, Ardmore OK
21 209 4/15/96 Fina, Port Arthur, TX
8 227 3/26/97 Terra, Iowa
1 214 6/5/97 Exxon BTCP, TX
3 205 2/8/96 Exxon BTCP, TX
5 210 4/17/96 Exxon BTCP, TX
20 225 3/7/97 Exxon BOP, TX
128 Houston Shop
8 61 3/3/97 Arco, Carson, CA
12 63 4/1/97 Arco, Carson, CA
24 60 12/12/96 Unocal, Wilmington, CA
17 62 3/27/97 Unocal, Wilmington, CA
58 In Plant
Tosco Avon, CA
57 Carson Shop
BILL OF SALE
INTERNATIONAL CATALYST, INC. ("Grantor"), for five hundred
thousand dollars ($500,000) and the other good and valuable consideration set
forth in the Asset Sale Agreement dated April 11, 1997, between Grantor
as Seller and Federal Container Corporation ("Grantee") as Buyer, has
bargained, sold and delivered, and by these presents does bargain, sell and
deliver, unto Grantee, carbon steel intermediate bulk containers (the
"Property") described on Schedules 1.1(a) and 1.1(b) attached to and made a
part of this Bill of Sale. Grantor warrants to Grantee, that the title to
the Property is, on the date of delivery hereof, owned by Grantor and free
and clear of liens, charges, claims or other encumbrances of any kind
whatsoever other than for personal property taxes not yet due or payable.
EXCEPT FOR THE ABOVE WARRANTIES OF TITLE, GRANTOR
EXPRESSLY DISCLAIMS ANY WARRANTIES, WHETHER EXPRESS,
IMPLIED OR STATUTORY, OF ANY KIND OR NATURE WITH RESPECT
TO THE PROPERTY TO BE SOLD OR OTHERWISE TRANSFERRED
PURSUANT TO THIS BILL OF SALE, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE. GRANTEE ACKNOWLEDGES THAT ITS
REPRESENTATIVES HAVE INSPECTED THE PROPERTY, AND
AGREES THAT ALL PROPERTY SOLD OR OTHERWISE
TRANSFERRED, IS HEREBY TRANSFERRED "AS IS, WHERE IS"
AND WITH ALL FAULTS. GRANTEE AGREES THAT NO WARRANTY
HAS ARISEN THROUGH TRADE, CUSTOM OR COURSE OF DEALING,
AND AGREES THAT ALL DISCLAIMERS OF WARRANTY SHALL BE
CONSTRUED LIBERALLY IN FAVOR OF GRANTOR.
This Bill of Sale is delivered pursuant to an Asset Sale Agreement between
Grantor and Grantee and is subject to the terms and conditions contained
therein, all of which are incorporated herein by this reference.
GRANTOR:
INTERNATIONAL CATALYST, INC.
Dated: April , 1997 By: ______________________
George "Buster" Austin,
Executive Vice President
Accepted and Agreed:
GRANTEE:
FEDERAL CONTAINER CORPORATION
By:_______________________________ Dated: April , 1997
Edward R. Hostetter, President
EXHIBIT 10 (t)(t)(i)
FOURTH AMENDMENT TO LOAN AND LOAN DOCUMENTS
This Fourth Amendment to Loan and Loan Documents
(this "Fourth Amendment"), dated as of March 31, 1997, is among
ADVANCED ENERGY CORPORATION, a Delaware corporation
("Borrower"), Advanced Environmental Systems, Inc., a New York corporation
("AES"), International Catalyst, Inc., a Nevada corporation ("Incat")
(AES and Incat hereinafter are referred to individually as a "Guarantor"
and collectively as the "Guarantors"), and FINOVA CAPITAL CORPORATION,
a Delaware corporation formerly known as Greyhound Financial Corporation
("Lender").
RECITALS
A. Lender and Borrower are parties to that certain First Amended Loan and
Security Agreement, dated March 30, 1989 (the "Original Loan Agreement"),
which Original Loan Agreement was amended by (i) that certain Amendment to
Loan and Loan Documents (the "First Amendment") executed by and between
Borrower and Lender and dated as of December 23, 1992, (ii) that certain
Second Amendment to Loan and Loan Documents dated as of December 31, 1993
(the "Second Amendment"), (iii) that certain Third Amendment to Loan and Loan
Documents dated as of June 30, 1994 (the "Third Amendment") and (iv) that
certain letter dated April 15, 1996 from Lender to Mr. Gary L. Schmitt (the
"Letter") (the Original Loan Agreement, as amended by the First Amendment,
the Second Amendment, the Third Amendment and the Letter hereinafter is
referred to as the "Loan Agreement").
B. Payment and performance of Borrower's Obligations has been guaranteed
by the Guarantors.
C. Borrower has requested that Lender make certain revisions to the Loan
Agreement, and Lender is willing to comply with such request, subject to the
terms and conditions set forth in this Fourth Amendment.
NOW THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, the parties hereto agree as follows:
1. Incorporation of Recitals. The recitals set forth above are incorporated
into this Fourth Amendment by this reference.
2. Definitions. All capitalized terms not elsewhere defined in this Fourth
Amendment shall have the respective meanings ascribed thereto in the Loan
Agreement, as amended by this Fourth Amendment.
3. Outstanding Principal Balance. Borrower acknowledges and agrees
that the Principal Balance as of the date hereof is $1,176,425.13.
4. Amendments. The Loan Agreement is amended as follows:
(a) Amended Definitions. The following definitions set forth in
Article I are deleted in their entirety and the applicable definitions set
forth below are substituted therefor:
"Interest Rate": a per annum rate of interest equal to Prime plus 3.0%."
"Loan": the loans made and to be made by Lender to Borrower
pursuant to this Agreement and any amendment hereto,
including, without limitation, the Fourth Amendment."
"Working Capital Loan": the revolving working capital line of
credit made available to Borrower by Wells Fargo or any
replacement working capital lender which is approved by
Lender, such approval not to be unreasonably withheld."
(b) Additional Definitions. The following definitions are
inserted into Article I in appropriate alphabetical order:
"Fourth Amendment Closing Date": March 31, 1997."
"Fourth Amendment": that certain Fourth Amendment to Loan
and Loan Documents dated as of March 31, 1997 among
Borrower, AES, Incat and Lender."
"Replacement Note": that certain Promissory Note dated as of
the Fourth Amendment Closing Date in the principal
amount of $1,176,425.13 made by Borrower in favor of
Lender which amends and restates in its entirety the Note."
"Wells Fargo": Wells Fargo Bank (Texas), N.A."
(c) General. (i) Each reference to "First Interstate" shall be a
reference to "Wells Fargo" and (ii) where the context permits, each
reference to the "Note" shall be a reference to the "Replacement Note."
(d) Section 2.1. Section 2.1 is deleted in its entirety and the
following is substituted therefor:
"2.1 Amount of Loan: Disbursements.
2.1.1 Amount. The Loan shall be a term loan
in the maximum aggregate amount of $1,176,425.13.
2.1.2 Reborrowing. Borrower shall not be entitled
to reborrow any portion of the Loan that is repaid or
prepaid.
2.1.3 Disbursements of Loan. The undisbursed proceeds
of the Loan in excess of the Principal Balance
outstanding on the Fourth Amendment Closing Date
shall be disbursed by Lender on the Fourth
Amendment Closing Date; provided, however, that
the proceeds of such disbursement shall be used by
Borrower to ensure that AES is able to repay
certain of its outstanding Indebtedness due and
owing to Industrial Services Technologies, Inc."
(e) Section 2.6. Section 2.6 is deleted in its entirety and the
following is substituted therefor:
"2.6 Payments of Principal and Interest. The Principal
Balance and accrued and unpaid interest thereon shall be repaid in 35 monthly
Installments commencing on March 31, 1997 and on the last Business Day of
each month thereafter through and including January 31, 2000. The amount of
each such monthly Installment shall be calculated and applied against
Borrower's Obligations in accordance with this Section 2.6. Borrower's
Obligations, including the entire unpaid Principal Balance and all accrued
and unpaid interest thereon, shall be due and payable in full on
February 29, 2000.
2.6.1 Amount of Monthly Installments. Each
Installment shall be in an amount equal to the following:
(a) through March 31, 1997,
the sum of (i) interest calculated at the Interest Rate in effect from time
to time during the period from the last date upon which a payment has been
made prior to the Fourth Amendment Closing Date through March 31, 1997,
as reflected in an invoice delivered by Lender to Borrower prior to the date
any payment is required, plus (ii) a principal component of $19,607.09
(which amount assumes a 60 month amortization); and
(b) thereafter, the sum of (i) interest calculated at the Interest Rate
in effect from time to time during the applicable
period, as reflected in an invoice delivered by Lender to Borrower prior to
the date any payment is required, plus (ii) a principal component of
$19,607.09 (which amount assumes a 60 month amortization).
2.6.2 Application of Monthly Installments. Each monthly Installment shall
be applied to Borrower's Obligations as follows:
(a) first, to Borrower's Obligations other than the Principal Balance and
Interest accrued thereon, (b) second, to accrued and unpaid interest on the
Loan, and (c) third, to the Principal Balance."
(f) Subsection 5.3(e) Subsection 5.3(e) is deleted in its entirety
and the following is substituted therefor:
"(e) Intentionally Deleted."
(g) Section 5.8. Section 5.8 is deleted in its entirety and the
following is substituted therefor:
"5.8 Location. Borrower covenants, represents and
warrants to Lender that the Collateral other than the Incat Stock will be used
in the ordinary course of business of Borrower and Incat at the following
locations: (i) 4313 FM 2351, Friendswood, Texas 77546 and (ii) 1044
Del Amo Boulevard, Carson, California. Borrower will give to Lender at
least 10 days' prior written notice of the removal of any of the Collateral
other than the Incat Stock from any of such locations for a purpose other
than the temporary removal of any of such Collateral to a customer's
location in connection with the ordinary conduct of the business of Incat,
which notice shall state the location to which such Collateral will be
removed. Borrower shall not permit more than three Units to be located
outside the United States at any time without the prior written consent of
Lender, unless Borrower has pledged or caused to be pledged to Lender
additional Collateral of a value equal to the number of Units in excess
of three which are located outside the United States. Within ten (10) days
after the end of each calendar quarter, Borrower shall provide to Lender a
written report identifying the location of each Unit."
(h) Subsection 5.12(c). Subsection 5.12(c) is deleted in its
entirety and the following is substituted therefor:
"(c) The Operating Cash Flow to Annual Debt Service will be no less
than 1.4 computed as of the end of each fiscal quarter of Borrower on a
cumulative quarter rolling basis up to 12 months, commencing with the quarter
ending of March 31, 1997. After the first 12 months, the Operating Cash Flow
to Annual Debt Service will be determined quarterly on a trailing 12 month
basis."
5. Conditions to Effectiveness. The effectiveness of this Fourth
Amendment and Lender's obligation to disburse any additional proceeds of the
Loan to or for the benefit of Borrower shall be subject to the satisfaction
of all of the following conditions on or prior to the Fourth Amendment
Closing Date in a manner, form and substance satisfactory to Lender:
(a) Representations and Warranties. On the Fourth
Amendment Closing Date the representations and warranties of
Borrower set forth in the Loan Agreement shall be true and
correct, except to the extent such representations and warranties
expressly relate to an earlier date.
(b) Delivery of Documents. The following (collectively,
the "Fourth Amendment Documents") shall have been delivered to
Lender, each duly authorized and executed:
(1) this Fourth Amendment;
(2) the Replacement Note;
(3) an amendment to the Incat Agreement;
(4) an amendment to the Guarantee-Incat;
(5) an amendment to the Guarantee-AES;
(6) such UCC financing, continuation and
termination statements as Lender reasonably
may require; and
(7) such evidence of the authority of Borrower,
Incat and AES to execute and deliver the
foregoing documents as Lender reasonably
may require, including but not limited to:
(A) certified copies of the articles of
incorporation and by-laws, and all
amendments thereto, of each of such
Persons;
(B) certificates of good standing for (i)
Borrower from Delaware and Colorado,
(ii) Incat from Nevada, Texas and
California and (iii) AES from New York
and Colorado;
(C) certificates of incumbency for each
of such Persons; and
(D) certified copies of resolutions adopted
by the board of directors of each of such
Persons authorizing the execution and
delivery of the foregoing documents to
which any such Person is to be a party
and the consummation of the transactions
contemplated therein.
(c) Opinion of Counsel. An opinion of counsel to Borrower,
Incat and AES addressing matters of enforceability, validity, due authority,
good standing and such other matters as Lender reasonably may request.
(d) Payment of Amendment & Waiver Fee. Borrower
shall pay to Lender a fee of $15,000 for entering into this Fourth Amendment.
(e) Performance; No Default. Borrower, Incat and AES
shall have performed and complied with all agreements and conditions
contained in the Fourth Amendment Documents and in any other document
to be executed pursuant to the terms hereof or thereof on their respective
parts to be performed by or complied with prior to or at the Fourth
Amendment Closing Date.
(f) Approvals. The approval and/or consent shall have been
obtained from all Persons whose approval or consent is necessary or required
to enable Borrower, Incat and AES to enter into and perform their respective
obligations under the Fourth Amendment Documents and any other document
to be executed pursuant to the terms hereof or thereof.
(g) Payment of Costs. Borrower shall pay or cause to be paid
to Lender all fees and expenses of Lender relating to the Fourth
Amendment Documents and the transactions contemplated therein,
including, without limitation, the expenses and reasonable fees of Lender's
counsel.
(h) Satisfaction of Lender's Counsel. All legal matters incident
to the transactions contemplated hereby shall be reasonably satisfactory
to counsel for Lender.
(i) Consent of Wells Fargo. Borrower shall have delivered
to Lender a consent of Wells Fargo, in form and substance reasonably
satisfactory to Lender, which permits the consummation of the
transactions contemplated by this Fourth Amendment.
The date on which all of the conditions set forth in this Paragraph 5 have
been satisfied (or waived by Lender) is referred to herein as the "Effective
Date."
6. Conflicts. From and after the Effective Date, to the extent
any provision of the Documents conflicts with any provision of this Fourth
Amendment, the applicable provision of this Fourth Amendment shall be
deemed to govern and control.
7. Representations and Warranties. Borrower hereby
confirms to Lender that except as disclosed on Schedule 7 attached hereto,
the representations and warranties set forth in the Documents are true and
correct as of the date hereof, and shall be deemed to be remade as of the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date. Borrower represents and warrants to
Lender that (i) Borrower, Incat and AES each have full power and authority
to execute and deliver the Fourth Amendment Documents to which any such
Person is a party and to perform such Person's respective obligations
thereunder, (ii) upon the execution and delivery of the Fourth Amendment
Documents, each such Fourth Amendment Document will be valid,
binding and enforceable upon Borrower, Incat and AES, to the extent
any such Person is a party thereto, in accordance with its terms, (iii) the
execution and delivery of the Fourth Amendment Documents does not
and will not contravene, conflict with, violate or constitute a default under
(A) the articles of incorporation or by-laws of any of Borrower, Incat or
AES or (B) any applicable law, rule, regulation, judgment, decree or
order or any agreement, indenture or instrument to which Borrower,
Incat or AES is a party or is bound or which is binding upon or applicable to
all or any portion of such Person's property and (iv) there is no condition,
event or circumstance existing, or any litigation, arbitration, governmental
or administrative proceeding, action, examination, claim or demand pending
or threatened affecting Borrower, Incat or AES which could prevent any
such Person from performing its respective obligations under the Documents,
as amended by the Fourth Amendment Documents, within the time limits set
forth herein or therein for such compliance or performance, and no basis for
any such matter exists.
8. Ratification of Liability; Waiver of Prior Defaults.
(a) Ratification of Liability. Except as set forth herein,
the liabilities, obligations and agreements of each Obligor under the
Documents shall remain in full force and effect in accordance with
their respective terms. Each Obligor hereby ratifies and confirms
its liabilities, obligations and agreements under the Documents,
all as amended by the Fourth Amendment Documents, and the
liens and security interests created thereby, and acknowledges that
(a) such Obligor has no defenses, claims or set-offs to the
enforcement by Lender of such liabilities, obligations and
agreements, (b) Lender has fully performed all obligations to
each Obligor which it may have had or has on and as of the
date hereof and (c) other than as specifically set forth herein, Lender
does not waive, diminish or limit any term or condition contained in
any of the Documents.
(b) Waiver. Lender hereby waives (i) Borrower's
noncompliance, as of December 31, 1996, with subsections 5.12(a)
and 5.12(c) of the Loan Agreement and (ii) any Event of Default
arising as a result of Borrower's failure to comply with Subsection
7.1(a) at any time prior to the Fourth Amendment Closing Date.
9. Costs and Expenses. Borrower shall reimburse Lender for
all fees and expenses incurred in the preparation, negotiation and execution
of this Fourth Amendment and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and expenses of
counsel for Lender.
10. Delivery to Borrower. Upon consummation of the transactions
contemplated by this Fourth Amendment, in addition to Borrower's copies of
the Fourth Amendment Documents, as applicable, Lender shall deliver to
Borrower (i) the Note, marked cancelled and (ii) the $500,000 Note.
11. No Custom. Lender's agreements to modify the Loan and the Documents
as set forth in this Fourth Amendment shall not establish a custom or
waive, limit or condition the rights and remedies of Lender under any of the
Documents, all of which rights and remedies expressly are reserved, except as
expressly provided in this Fourth Amendment.
12. Further Assurances. Borrower covenants and agrees that it will at
any time and from time to time do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
documents and instruments as reasonably may be required by Lender or any
successor in interest thereto in order to effectuate fully the intent of
this Fourth Amendment.
13. Severability. If any term or provision of this Fourth Amendment or the
application thereof to any party or circumstance shall be held to be invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
the validity, legality and enforceability of the remaining terms and
provisions of this Fourth Amendment shall not in any way be affected or
impaired thereby, and the affected term or provision shall be modified to
the minimum extent permitted by law so as most fully to achieve the
intention of this Fourth Amendment.
14. Binding Effect; Governing Law. This Fourth Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, legal representatives, successors and
assigns. This Fourth Amendment shall be construed in accordance with the laws
of the State of Arizona.
15. Captions. The captions in this Fourth Amendment are inserted for
convenience of reference only and in no way define, describe or limit the
scope or intent of this Fourth Amendment or any of the provisions hereof.
16. Counterparts. This Fourth Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which,
when taken together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Fourth Amendment as of the day and year first above written.
ADVANCED ENERGY CORPORATION
By: /s/Gary L. Schmitt
Title: Vice President-Finance
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
By: /s/ Gary L. Schmitt
Title: Vice Presidnet
INTERNATIONAL CATALYST, INC.
By: /s/ Gary L. Schmitt
Title: Vice President
FINOVA CAPITAL CORPORATION, formerly known as Greyhound Financial Corporation
By: /s/ Pete Martinez
Title: Vice President
SCHEDULE 7
"Exceptions to Representations and Warranties"
EXHIBIT 10 (t)(t)(ii)
NOTE
$1,176,425.13
Phoenix, Arizona March 31, 1997
FOR VALUE RECEIVED, the undersigned, ADVANCED
ENERGY CORPORATION, a Delaware corporation ("Maker"), hereby
promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware
corporation formerly known as Greyhound Financial Corporation ("Lender"),
the principal sum of ONE MILLION ONE HUNDRED SEVENTY SIX
THOUSAND FOUR HUNDRED TWENTY FIVE and 13/100 DOLLARS
($1,176,425.13), or as much as is advanced by Lender hereunder, at the
office of Lender at 355 S. Grand Avenue, Suite 2400, Los Angeles, California
90071, or at such other place as the holder hereof may appoint, plus interest
thereon as set forth below.
This Note is delivered by Maker to Lender pursuant to and in
accordance with the applicable provisions of that certain Fourth Amendment to
Loan and Loan Documents (the "Amendment") of even date herewith executed
by and among Maker, AES, Incat and Lender which Amendment amends the Loan
Agreement (these and all other capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Amendment or the Loan
Agreement, as applicable).
Borrower's Obligations shall bear interest from and after the Closing
Date at the per annum rate of interest equal to Prime, plus 3.0%.
Accrued interest and the Principal Balance shall be paid in the manner
set forth in Section 2.6.1 of the Loan Agreement.
Interest shall be: (i) computed on the basis of a year consisting of 360
days and (ii) charged for the actual number of days during the period for
which interest is being charged.
If any Installment or any other payment due under the Documents
is not paid when due, an additional fee for late payment, calculated at the
Overdue Rate, shall be payable thereon, from the due date of such Installment
or payment to and including the date of payment in full, which amount shall
be paid by Maker to Lender immediately upon demand.
At the election of the holder hereof, upon the occurrence and during
the continuation of an Event of Default, and with the notice, if any, required
under Article VII of the Loan Agreement, the Principal Balance, and all
accrued and unpaid interest thereon, shall be and become immediately due and
payable in full. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event
of Default, and such failure shall not be deemed to establish a custom or
course of dealing or performance between Maker and Lender.
This Note shall or may be prepaid, in whole or in part, at the
times and in accordance with the applicable provisions of the Amendment
and/or the Loan Agreement.
All funds received by Lender during the existence of an Event of
Default shall be applied in the manner set forth in Section 7.3 of the Loan
Agreement.
All payments to be made by Maker pursuant to this Note shall
be made in accordance with the instructions therefor set forth in the Loan
Agreement. Payment shall not be deemed to have been received by Lender
except in accordance with Section 2.7 of the Loan Agreement.
Notwithstanding any provision to the contrary contained herein or in any
other Documents, Lender shall not collect a rate of interest, including the
loan fees provided for in the Loan Agreement, on any obligation or liability
due and owing by Maker to Lender in excess of the maximum contract rate of
interest permitted by applicable law ("Excess Interest"). All fees, charges,
goods, things in action or any other sums or things of value (other than
items (a), (b), (c) and (d) below) paid or payable by Maker (collectively,
the "Additional Sums"), whether pursuant to this Note, the Loan Agreement,
the other Documents or any other document or instrument in any way pertaining
to the Loan, that, under the laws of the State of Arizona, may be deemed to
be interest with respect to the Loan, for the purpose of any laws of the
State of Arizona that may limit the maximum amount of interest to be charged
with respect to the Loan shall be payable by Maker and shall be deemed to
be additional interest, and for such purposes only, the agreed upon and
"contracted for rate of interest" with respect to the Loan shall be deemed
to be increased by the rate of interest resulting from the Additional Sums.
Lender and Maker agree that the interest laws of the State of Arizona shall
govern the relationship between them and understand and believe that the
transactions contemplated by the Documents comply with the usury laws of the
State of Arizona, but in the event of a final adjudication to the contrary,
Maker shall be obligated to pay, nunc pro tunc, to Lender only such interest
as then shall be permitted by the laws of the state found to govern the
contract relationship between Lender and Maker. For the purpose of any laws
of the State of Arizona that may limit the maximum amount of interest to be
charged with respect to a loan, the "contracted for rate of interest" for
the Loan shall consist of the following:
(a) interest calculated in accordance with the provisions of the Loan
Agreement; (b) the late charges, described and payable in accordance
with provisions of the Loan Agreement; (c) the fees payable under the
Loan Agreement; and (d) all Additional Sums, if any. Maker agrees
to pay an effective "contracted for rate of interest" which is the sum of
items (a), (b), (c), and (d) above. If any Excess Interest is provided
for or determined by a court of competent jurisdiction to have been
provided for in this Note, the Loan Agreement or any other Documents,
then in such event (i) Maker shall not be obligated to pay such Excess
Interest, (ii) any Excess Interest collected by Lender shall be, at Lender's
option, (A) applied to the Principal Balance or to accrued and unpaid interest
not in excess of the maximum rate permitted by applicable law or (B)
refunded to the payor thereof, (iii) the interest rates provided for
herein (collectively, including, without limitation, the Fees, the "Stated
Rate") shall be automatically reduced to the maximum rate allowed from time
to time under applicable law (the "Maximum Rate") and this Note and
the other Documents, as applicable, shall be deemed to have been, and
shall be, modified to reflect such reduction, and (iv) Maker shall not have
any action against Lender for any damages arising out of the payment or
collection of such Excess Interest; provided, however, that if at any time
thereafter the Stated Rate is less than the Maximum Rate, Maker shall, to
the extent permitted by law, continue to pay interest at the Maximum
Rate until such time as the total interest received by Lender is equal to
the total interest which Lender would have received had the Stated
Rate been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable shall be the Stated Rate unless and
until the Stated Rate again exceeds the Maximum Rate, in which
event the provisions contained in this paragraph again shall apply.
If any suit or action is instituted or attorneys are employed to
collect this Note or any part thereof, Maker promises and agrees to pay
all costs of collection, including court costs, expert witness fees and
reasonable attorneys' fees.
Except as expressly provided for in the Loan Agreement, Maker
hereby waives presentment for payment, protest and demand and notice of
protest, demand, dishonor and nonpayment of this Note, and expressly agrees
that this Note, or any payment hereunder, may be extended from time to time
before, at or after maturity, without in any way affecting the liability of
Maker hereunder or any guarantor hereof.
All funds disbursed to or for the benefit of Maker will be deemed
to have been disbursed in Phoenix, Arizona. This Note is to be governed and
construed in accordance with the laws and decisions of the State of Arizona.
This Note may not be changed or amended orally, but only by an instrument
in writing signed by the party against whom enforcement of the change or
amendment is sought.
This Note shall be binding upon Maker, its successors and assigns,
and shall inure to the benefit of the successors and assigns of Lender.
In the event that any provision hereof shall be deemed to be invalid by
reason of the operation of any law, or by reason of the interpretation placed
thereon by any court or any governmental body, this Note shall be construed as
not containing such provision and the invalidity of such provision shall not
affect the validity of any other provisions hereof, and any and all other
provisions hereof which otherwise are lawful and valid shall remain in full
force and effect.
Time for the performance of Maker's obligations under this Note is
of the essence of this Note.
This Note is entitled to the benefit of certain collateral security and
certain guaranties, all as more fully set forth in the Documents.
This Note(i) is issued in substitution for the Note dated December 23, 1992,
made by Maker to Lender in the original principal amount of $2,100,000.00
(the "Original Note"), (ii) evidences the Loan (as defined in the
Loan Agreement) and (iii) does not constitute a novation of the Indebtedness
relating to Borrower's Obligations as evidenced by the Original Note.
IN WITNESS WHEREOF, Maker has executed this Note as
of the day and year first written above.
ADVANCED ENERGY CORPORATION
By: /s/ Gary L. Schmitt
Title: Vice President-Finance
EXHIBIT 10(t)(t)(iii)
SECOND AMENDMENT TO GUARANTEE
This SECOND AMENDMENT (this "Agreement") is entered
into as of this 31st day of March, 1997 by and between
INTERNATIONAL CATALYST, INC., a Nevada corporation
("Incat") and FINOVA CAPITAL CORPORATION, a Delaware
corporation formerly known as Greyhound Financial Corporation
("Lender").
R E C I T A L S :
A. Lender and Advanced Energy Corporation, a
Delaware corporation ("Borrower"), are parties to that certain First
Amended Loan and Security Agreement, dated as of
March 30, 1989 (the "Original Agreement"), which Original Loan
Agreement was amended by (i) that certain Amendment to Loan
and Loan Documents (the "First Amendment") executed by and
between Borrower and Lender and dated as of
December 23, 1992, (ii) that certain Second Amendment to Loan
and Loan Documents dated as of December 31, 1993 (the
"Second Amendment"), (iii) that certain Third Amendment to Loan
and Loan Documents dated a of June 30, 1994 (the "Third
Amendment") and (iv) that certain letter dated April 15, 1996 from
Lender to Mr. Gary L. Schmitt (the "Letter") (the Original Loan
Agreement, as amended by the First Amendment, the Second
Amendment, the Third Amendment and the Letter
hereinafter is referred to as the "Loan Agreement").
B. Pursuant to the Loan Agreement, Lender made
a loan (the "Original Loan") to Borrower. Repayment of such Original
Loan was guaranteed by Incat pursuant to the terms of the Guarantee
(this and all other capitalized terms used as defined terms herein and
not otherwise defined herein which are defined in the Loan Agreement
or in the Fourth Amendment described below shall have the meanings
ascribed thereto in the Loan Agreement or Fourth Amendment, as
applicable, except that, with respect to any terms defined in such
Loan Agreement, such references shall be to any such terms, as so
amended pursuant to the Fourth Amendment).
C. Concurrently with the execution and delivery hereof,
Borrower, AES, Incat and Lender propose to execute that certain
Fourth Amendment to Loan and Loan Documents (the "Fourth
Amendment"), pursuant to which, inter alia, Lender shall (i) amend
the Loan Agreement as set forth therein and (ii) agree to make
an additional loan (the "Additional Loan") to Borrower so that the
aggregate amount of the Loan is $1,176,425.13.
D. One of the conditions precedent to the agreement of
Lender to make the Additional Loan is the execution and delivery
by Incat of this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Incorporation of Recitals. The recitals set forth above
are incorporated into this Agreement by this reference.
2. Amendment. The Guarantee is amended so that any
reference therein to any term or condition which has been amended
pursuant to the terms of the Fourth Amendment shall be deemed to be
amended in the Guarantee, to the same extent as such term or condition
as amended pursuant to the terms of the Fourth Amendment.
3. Confirmation. Incat hereby confirms that (i) except
as amended hereby, the Guarantee shall remain in full force and effect in
accordance with the original terms thereof and (ii) Incat shall continue to
be bound by the terms of the Guarantee.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
INTERNATIONAL CATALYST, INC.
By: /s/ Gary L. Schmitt
Title: Vice President
FINOVA CAPITAL CORPORATION, formerly
known as Greyhound Financial Corporation
By: /s/ Pete Martinez
Title: Vice President
EXHIBIT 10(t)(t)(iv)
SECOND AMENDMENT TO GUARANTEE
This SECOND AMENDMENT (this "Amendment") is entered
into as of this 31st day of March, 1997 by and between ADVANCED
ENVIRONMENTAL SYSTEMS, INC., a New York corporation
f/k/a Northwest Passage of North America, Inc. ("AES") and
FINOVA CAPITAL CORPORATION, a Delaware corporation
formerly known as Greyhound Financial Corporation ("Lender").
R E C I T A L S :
A. Lender and Advanced Energy Corporation, a Delaware
corporation ("Borrower"), are parties to that certain First Amended
Loan and Security Agreement, dated as of March 30, 1989 (the
"Original Agreement") which Original Loan Agreement was amended
by (i) that certain Amendment to Loan and Loan Documents (the
"First Amendment") executed by and between Borrower and Lender
and dated as of December 23, 1992, (ii) that certain Second
Amendment to Loan and Loan Documents dated as of
December 31, 1993 (the "Second Amendment"), (iii) that certain Third
Amendment to Loan and Loan Documents dated a of June 30, 1994
(the "Third Amendment") and (iv) that certain letter dated April 15, 1996
from Lender to Mr. Gary L. Schmitt (the "Letter") (the Original
Loan Agreement, as amended by the First Amendment, the
Second Amendment, the Third Amendment and the Letter
hereinafter is referred to as the "Loan Agreement").
B. Pursuant to the Loan Agreement, Lender made a loan
(the "Original Loan") to Borrower. Repayment of such Loan was
guaranteed by AES pursuant to the terms of the Guarantee (this and
all other capitalized terms used as defined terms herein and not
otherwise defined herein which are defined in the Loan Agreement
or in the Fourth Amendment described below shall have the meanings
ascribed thereto in the Loan Agreement or Fourth Amendment,
as applicable, except that with respect to any terms defined in such
Loan Agreement, such references shall be to any such terms, as so
amended pursuant to the Fourth Amendment).
C. Concurrently with the execution and delivery hereof,
Borrower, AES, Incat and Lender propose to execute that certain Fourth
Amendment to Loan and Loan Documents (the "Fourth Amendment"),
pursuant to which, inter alia, Lender shall (i) amend the Loan Agreement as
set forth therein and (ii) agree to make an additional loan (the "Additional
Loan") to Borrower so that the aggregate amount of the Loan is $1,176,425.13.
D. One of the conditions precedent to the agreement of Lender
to make the Additional Loan is the execution and delivery by AES of
this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Incorporation of Recitals. The recitals set forth above
are incorporated into this Agreement by this reference.
2. Amendment. The Guarantee is amended so that any
reference therein to any term or condition which has been amended
pursuant to the terms of the Fourth Amendment shall be deemed to be
amended in the Guarantee, to the same extent as such term or condition
as amended pursuant to the terms of the Fourth Amendment.
3. Confirmation. AES hereby confirms that (i) except
as amended hereby, the Guarantee shall remain in full force and effect in
accordance with the original terms and (ii) notwithstanding the
amendments effected hereby, AES shall continue to be bound by the
terms of the Guarantee.
4. Additional Loan. It is a requirement of the Fourth Amendment
that the proceeds of the Additional Loan be used to ensure that AES is
able to repay its outstanding Indebtedness due and owing to Industrial
Services Technologies, Inc. (the "IST Indebtedness"). Therefore, AES hereby
agrees that, upon receipt, in whatever form or nature, from Borrower
of the proceeds of the Additional Loan, AES shall repay such IST Indebtedness.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
By: /s/ Gary L. Schmitt
Title: Vice President-Finance
FINOVA CAPITAL CORPORATION, formerly
known as Greyhound Financial Corporation
By: /s/ Pete Martinez
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
DECEMBER 31, 1996 AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 151,000
<SECURITIES> 0
<RECEIVABLES> 1,379,000
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,804,000
<PP&E> 3,696,000
<DEPRECIATION> 2,517,000
<TOTAL-ASSETS> 4,991,000
<CURRENT-LIABILITIES> 3,122,000
<BONDS> 1,166,000
<COMMON> 53,000
195,000
0
<OTHER-SE> 544,000
<TOTAL-LIABILITY-AND-EQUITY> 4,991,000
<SALES> 11,195,000
<TOTAL-REVENUES> 11,195,000
<CGS> 8,541,000
<TOTAL-COSTS> 11,764,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275,000
<INCOME-PRETAX> (569,000)
<INCOME-TAX> (383,000)
<INCOME-CONTINUING> (186,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
