SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended May 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File: 0-19678
ETS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its charter)
Virginia 54-1414643
(State or other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
1401 Municipal Road, NW
Roanoke, VA 24012-1309
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (540) 265-0004
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock without par value
(Title of Class)
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
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. [x]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
registrant is (based on closing price on July 31, 1997) was $5,046,361*.
The total number of shares outstanding as of July 31, 1997 was 14,539,453.
*Affiliates for the purposes of this item refer to the officers, directors
and/or any persons or firms owning 5% or more of the registrant's common
stock, both of record and beneficially.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) are
incorporated by reference to the Company's definitive proxy statement to be
filed with the Commission on or before 120 days after the end of the fiscal
year covered by this Form 10-K.
<PAGE>
ETS INTERNATIONAL, INC.
FORM 10-K
For the Fiscal Year Ended May 31, 1997
Page
Part I
Item 1. Business 4
Item 2. Properties 24
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 27
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 30
Item 8. Financial Statements and Supplementary Data 38
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 38
Part III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management 38
Item 13. Certain Relationships and Related Transactions 39
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 39
SIGNATURES
SUPPLEMENTAL INFORMATION AND EXHIBITS
<PAGE>
PART I
Item 1. Business
Introduction
ETS International, Inc. ("ETSI"), a Virginia corporation, is a technology
based firm which provides environmental and infrastructure products and
services. ETSI specializes in toxic emission measurement and control, as
well as infrastructure design, construction and maintenance. ETSI operates
through four wholly-owned affiliates: ETS, Inc., ETS Analytical Services,
Inc., ETS Water and Waste Management, Inc. and ETS Liner, Inc., a subsidiary
of ETS Water and Waste Management, Inc.
ETS, Inc. ("ETS"), a Virginia corporation, owns the proprietary rights to a
number of patented inventions. Resources have been allocated for the
commercialization of two of these inventions. The first of these proprietary
systems, the Limestone Emission Control System is designed to address the
acid rain problem by eliminating greater than 90 percent sulfur oxide
emissions from electric power plants and industry. The first commercial
system is operating in Taiwan. The second invention, the Baghouse
Performance Monitor ("BPM"), is a patented instrument which serves as an
early warning system of industrial dust collector malfunctions. A number of
Baghouse Performance Monitor systems are operating in the United States.
The services offered by ETS generally include: training, contract research
and development, engineering, consulting, regulatory assistance and field
testing. These services and related unique capabilities have been the
springboard from which ETS has developed its patented air pollution control
products and systems.
ETS Analytical Services, Inc. ("ETSAS"), a Virginia corporation, is an
environmentally oriented analytical laboratory serving both government and
industry. ETSAS has executed numerous United States Environmental Protection
Agency ("USEPA") contracts and has been a contract authorized Superfund
laboratory participating in the USEPA's Contract Laboratory Program. ETSAS
currently is executing a multi-year contract for the USEPA's Office of Water.
In addition to a number of industrial clients, ETSAS is known for its work
with electric utilities. The lab specializes in the areas of trace
environmental analysis, methods development and research and development. In
addition, ETSAS provides comprehensive field and laboratory services relating
to wastewater/treatability, water/drinking water, OSHA compliance and toxic
substances.
ETS Water and Waste Management, Inc. ("ETSW"), organized under Virginia law
and headquartered in Richmond, Virginia, is a construction and maintenance
service firm whose history dates back to 1947. ETSW provides storm and sewer
line, water system and gas line construction with a special focus, through
its subsidiary, ETS Liner, Inc. ("ETSL"), which is headquartered in Orlando,
Florida, on trenchless rehabilitation, i.e., the repair of sewer and water
lines by relining these lines without digging up and replacing them. ETSW
also designs and installs septic systems and irrigation systems.
Additionally, related repair and maintenance services are provided. Among
its customers are municipalities, government agencies, Fortune 500 companies
and developers. ETSW has completed major infrastructure projects in eastern
Virginia and the greater Washington, D.C. area.
<PAGE>
ETSI divides its revenues into four categories: (a) services - encompassing
field and analytical testing, regulatory assistance and monitoring;
(b) consulting/engineering - encompassing consulting and engineering services
and educational areas; (c) products; and (d) construction. In fiscal 1997,
77% of ETSI's total revenues came from the construction operations of ETSW,
20% came from the testing service operations of ETS and ETSAS and 3% came
from the consulting/engineering and products operations of ETS. In fiscal
1996 and 1995, the following percentages of ETSI's total revenues were
derived from its affiliates' products and services: Fiscal 1996: 69% from
construction, 29% from testing service and 2% from consulting/engineering and
products. Fiscal 1995: 67% from construction, 31% from testing service and
2% from consulting/engineering and products. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
History
ETSI, a Virginia corporation, was incorporated on February 25, 1987. On
January 28, 1988, it acquired all of the issued and outstanding common stock
of ETS from John D. McKenna and John C. Mycock (officers and directors of
ETSI) and two others, and the next day completed a public offering pursuant
to the rules of the Vancouver Stock Exchange ("VSE"). On October 29, 1989,
certain sophisticated analytical laboratory equipment of Centec Analytical
Services, Inc. ("Centec"), an analytical laboratory, were purchased by ETSI
and, in 1990, placed in ETSAS. In 1992, the common stock of ETSI commenced
trading on the Emerging Company Marketplace of the American Stock Exchange;
and ETSI voluntarily delisted its securities from the VSE.
In June, 1994, ETSI exchanged 2,730,000 of its shares of common stock
("Shares of Common Stock") for all the outstanding common stock of Stamie E.
Lyttle Co., Inc., Lyttle Utilities, Inc. and LPS Corp., all of which were
merged into ETSW. In January, 1995, Environmental Laboratories Incorporated,
an environmental laboratory located in Richmond, Virginia, was merged into
ETSAS, the Company's analytical laboratory subsidiary, in exchange for
183,600 Shares of Common Stock issued to its stockholders; and, in April,
1995, the assets of Air Compliance, Inc. were acquired by ETS, Inc., the
Company's air quality subsidiary, for 113,000 Shares of Common Stock issued
to Air Compliance, Inc.
In February, 1996, ETSI acquired certain assets of Olympic Industries, Inc.,
Pompano Beach, Florida, for 539,130 Shares of Common Stock. The assets were
placed in a newly-formed corporation, ETSL, which is a wholly-owned
subsidiary of ETSW, and the business just moved to Orlando, Florida. The
focus of ETSL's business is trenchless rehabilitation of aging sewer lines.
In April, 1996, ETSI acquired the assets of an environmental laboratory in
Fairfax, Virginia, from Dewberry & Davis in exchange for 65,617 Shares of
Common Stock. The assets were placed in ETSAS and continue to be operated at
the same location.
<PAGE>
The Subsidiaries
ETS, Inc.
History and Overview
ETS, formed in 1973, has been engaged in designing, manufacturing and
supplying air pollution control systems, with particular emphasis on fabric
filter particulate collectors, providing software and testing services to
industry and utilities and conducting industrial and government contract
research and development. It also has developed three products designed for
use in the air pollution control industry - the Limestone Emission Control
System, the Baghouse Performance Monitor and the Dry Reactor. It has
suspended the development of one product, the Reduced Entrainment
Precipitator, until suitable funding can be obtained, of which there is no
guarantee. In fiscal 1997, ETS's service business generated almost all of
its operating revenues. Since its acquisition by ETSI in 1988, ETS has
expanded the services it offers, particularly in the fields of air pollution
control, consulting, regulatory assistance, toxic emission testing, asbestos
surveys and fabric filter testing and has developed and sold related systems
and products. It intends to continue to develop, market and license
proprietary products for the air pollution control industry. In April, 1995,
ETS expanded its service area to Pennsylvania and New Jersey through the
acquisition of the assets of Air Compliance, Inc., an air pollution control
and toxic emission testing company, located in Feasterville, Pennsylvania.
Products
The Limestone Emission Control System (the "LEC")
The LEC is an air pollution control system which controls acid gas and
particulate emissions from utility and industrial boilers. Development of
the LEC began in 1982 and was successfully completed in 1993. In December
1994, a commercial unit was constructed and is currently in operation. Since
the close of fiscal 1997, ETS has entered a letter of intent with a Taiwan
firm, contingent upon successful negotiations and posting a performance bond,
to supply three of the Company's Limestone Emission Control Systems, which
will take two years to install and start-up.
In the LEC, hot sulfur dioxide ("SO2") laden flue gas passes through the
cross section of a vertical moving bed of standard quarry limestone ("CaCO3")
gravity fed from a hopper and covered by a thin film of water. The rate of
flow of the limestone can be adjusted by varying the speed of a screw
conveyor into which the limestone falls. Sulfur dioxide is absorbed from the
flue gas into the water and subsequently reacts with the limestone to form a
surface layer principally of calcium sulfate ("CaSO2") and calcium sulfite
("CaSO3"). The limestone granules are then reactivated by mild abrasion to
remove the calcium sulfite and calcium sulfate layers. The particles of
calcium sulfate and calcium sulfite fall through a fine screen, thereby
exposing the active limestone for further reaction. Gypsum, the waste
product, is the main content of wallboard.
Management believes that the gypsum produced by the LEC will be readily
marketable by utilities or other users as it conforms to commercial
standards. The recycled limestone, supplemented by a new supply, is then fed
back into the hopper for continued reaction with flue gas.
<PAGE>
Title IV of the Clean Air Act Amendments of 1990 ("CAAA") deals with the
prevention of smokestack pollution causing "acid rain." It finds that acidic
compounds and their precursors in the atmosphere threaten natural resources,
ecosystems, materials, visibility and public health and that the principal
sources of acid rain are sulfur dioxide and nitrous oxides. It regulates the
emissions of those substances from fossil fuel fired combustion devices, in
part by permitting companies with low emissions to trade pollution credits
with companies with higher levels. As a consequence, the LEC, with its
ability to remove 99% sulfur dioxide may be considered attractive in meeting
the SO2 Allowance Program and the ability of companies to trade pollution
credits.
On June 23, 1992, ETS entered into a license agreement with Procedair
Industries, Montreal, Canada, a subsidiary of Stein Heurtey, an industrial
furnace manufacturer and a sister company of Procedair, S.A., a French air
pollution control firm, and EGCI, S.A., a French engineering firm
specializing in combustion, to license the LEC. The license was extended on
July 1, 1995 for a period of twelve months. Presently, this agreement has
been extended orally on an "at will" basis. The license is exclusive in
North America and non-exclusive outside North America. ETS will receive
royalties at the rate of 8% of sales until a sales level of $8,333,333 is
reached. Thereafter, until the expiration of the agreement, ETS will receive
royalties of 5% of sales. ETS is obligated to maintain patents, provide and
make available know-how, provide sufficient information to enable the
licensee to design applications for the system, to make available fully
qualified and competent employees and make available technical information
and sales support at specified levels. No sales have resulted from this
agreement to date and there is no assurance that any royalties will be
generated.
In February, 1993, ETS entered into a license agreement with U-Tah Industrial
Company, Ltd. ("U-Tah") located in Taipei, Taiwan to market the LEC within
Taiwan, R.O.C. The five year contract calls for U-Tah to provide ETS an
up-front license fee, followed by 5% royalties on LEC system sales. In 1993,
ETS opened an office in Taipei, to provide technical support to its
licensees. In March, 1994, the first commercial sale of the LEC system was
made through U-Tah to Shing Ming Metal Industrial Company, a plant near
Taipei. The plant is modest in size, but represents, to ETS, an opportunity
to prove the technology on a commercial basis. The LEC system was made
operational in December, 1994 and has performed pursuant to its
specifications to date. Management believes that this installation
represents a breakthrough for future sales as it proves the LEC technology in
ability to remove SO2 from smokestack emissions on a commercially viable
basis as well as its reliability and its cost effectiveness. No sales have
resulted from this agreement to date, and there is no assurance that any
royalties will be generated. In November 1996, ETS granted a license to E &
C Engineering Corporation for the exclusive right to sell the LEC throughout
Taiwan, R.O.C. Since the close of fiscal 1997, ETS received a Letter of
Intent from China Steel Corporation, in Taiwan, to supply three LEC systems,
contingent upon successful negotiations and posting a performance bond.
The Baghouse Performance Monitor (the "BPM") and the Baghouse Performance
Monitor Expert System
A baghouse, also referred to as a "fabric filter," is essentially a
collection of numerous fabric bags. Baghouses are the leading method of
collecting particulates from industrial and commercial smokestacks. Of the
250,000 baghouses presently operating in the United States, ETSI has targeted
the 2,500 largest as its present market. Each bag works in a fashion similar
<PAGE>
to a vacuum cleaner to trap dust and particulate matter from a gas stream.
However, as particulates collect on the fabric of each bag, they form a dust
cake which develops increasing resistance to the flow of gas. Thus, the dust
cake must be periodically removed to maintain system flow stability.
The BPM, and its associated expert system software (both devices referred to
as the "BPM," unless otherwise noted), collects, organizes, displays and
assists the analysis of all the important parameters of a baghouse emission
control system. Its primary purpose is to monitor current status and
stability, warn operators of any system instability or developing problems
and prepare an easy to access and use database of operational history for any
necessary troubleshooting. A BPM can directly monitor the flow and pressure
drop characteristics of many individual bags within an operating baghouse,
thus providing the capability of simultaneous side-by-side evaluations of
alternative fabrics, designs, or operational methods. To date, the BPM has
been utilized extensively for this purpose in all types of baghouses.
The BPM is manufactured to order from standard components, such as printed
circuit boards and fabricated metal parts which are readily available from
multiple sources. After purchase, materials and components are inventoried
and some subassemblies are completed in-house. Upon receipt of an order,
ETSI technicians assemble, calibrate and test the devices prior to shipment
and installation. ETS's present manufacturing facilities are considered
adequate.
ETS's marketing strategy for the BPM has been to concentrate on the utility
and large industrial baghouse markets which include utilities, industrial
boilers, chemical plants, forest products plants, steel mills, cement plants
and nonferrous mining and smelting operations. ETS believes that potential
customers in these markets may require a monitoring system. Bag replacement
costs are relatively high and a small percentage of savings justifies the
purchase of this relatively inexpensive monitor. In addition, reduced
baghouse capacity may reduce performance of a given customer's production
rates and may result in emissions of unacceptable levels of pollutants and
the closure of the process and/or imposition of monetary penalties.
The first commercial BPM installation was completed in 1983. Customers have
included chemical plants, steel mills, glass manufacturers, foundries,
industrial coal-fired boilers and utilities. The BPM has been described in
literature published by the Electric Power Research Institute, Inc. ("EPRI"),
which is distributed to all electric utilities. The EPRI refers all
inquiries to ETS. To implement its marketing strategy, ETS has initiated a
direct mail advertising campaign and employs in-house sales personnel. In
addition, ETS conducts technical seminars and has entered into agreements
with firms in both Mexico and Taiwan for the sale and servicing of the BPM.
ETS believes that strict enforcement of Title IV of the CAAA dealing with
permitting would have a positive impact on sales of the BPM. At present,
enforcement is lax and sales of the BPM have been sporadic. Title IV
requires that after the effective date of any permit program relating to
major sources of pollution, it would be unlawful to violate the conditions of
such a permit. States are required, within three years, to submit a
conforming permit program. Major sources are those which emit, per year, ten
tons of any hazardous air pollutant or a combination of 25 tons of hazardous
air pollutants. Title III of the CAAA relating to Air Toxics establishes a
list of 189 substances and compounds which must be considered hazardous air
pollutants and a procedure for review of that list. Title VII of the CAAA
expands and defines the authority of the individual states to include
enhanced monitoring and requires major source owners to demonstrate
compliance at regular intervals using approved continuous monitoring
technology which the BPM can provide.<PAGE>
The Dry Reactor
The "Dry Reactor" is an air pollution control system designed to control
emission of acid gases, such as hydrochloric acid, sulfur oxides and nitrous
oxides and particulates. Hot flue gases pass through the Dry Reactor, and
the acid gases and particles are substantially removed before the flue gases
enter the atmosphere. The Dry Reactor has applications for emission control
in hospital and hazardous waste incinerators and small municipal solid waste
facilities. Both the LEC and the Dry Reactor use a dry scrubber system to
control acid gas pollutants. However, the Dry Reactor is a smaller, modular
unit, designed for use in smaller installations, whereas the LEC is targeted
at larger utility and industrial boilers.
The Dry Reactor uses a process called a "dry" scrubber, in contrast to
competing "wet" and "semidry" (sometimes referred to as "half-dry" or
"spraydrying") systems. In wet and semidry systems, when noxious gases are
brought into contact with alkaline materials, these systems produce liquid
wastes which must be handled with pumping and plumbing systems. Such waste
often is corrosive, causing scaling, flaking and clogging of the handling
systems and requiring further treatment. In the Dry Reactor, flue gas is
directed into a chamber where it is mixed with a dry reagent (lime) by the
mechanical action of a rotating plate, known as a "slinger." The slinger
delivers the lime perpendicularly to the flue gas allowing intimate contact
of the dry reagent and any pollutants in the flue gas. This contact causes a
reaction which forms a non-acidic compound and removes as much as 90% of
unwanted acid gases. An internal recirculator, located above the slinger,
increases the contact time, thus enhancing the removal of pollutants.
ETS's only commercially sold Dry Reactor was installed at the Fairfax
Hospital, Fairfax, Virginia in 1987 and was successfully operated until
recently when they discontinued the use of their incinerator. It has removed
greater than 98% of unwanted acid gases since installation without
degradation or greater than normal maintenance. In management's opinion,
future sales, if any, of the Dry Reactor will be generated through increasing
enforcement and the imposition of tougher standards of clean air legislation
and regulations. Specifically, the CAAA institutes a program under which all
subject air pollution sources must obtain an operating permit. The USEPA is
responsible for issuing regulations and monitoring compliance. The various
states must develop and implement the programs. If a state fails to develop
or implement such a permitting program, the USEPA must develop and implement
a federal permit program for that state. However, until enforcement is
strengthened, ETS does not contemplate substantial sales, if any, of the Dry
Reactor.
In 1992, Gibbson Engineering Company Ltd. ("Gibbson"), located in Taipei,
Taiwan, was granted the exclusive right to market the Dry Reactor throughout
Taiwan, R.O.C. The agreement provides that Gibbson pay ETS an up-front
license fee followed by a 7% royalty fee on all system components. No sales
have resulted from the agreement, and there is no assurance that any
royalties will be generated.
<PAGE>
The Reduced Entrainment Precipitator (the "REP")
An electronic precipitator gives dust particles an electric charge which
attracts them out of a gas stream onto the sidewalls of the collector for
subsequent collection and disposal. However, in standard designs, not all
the dust particles remain captured on the side walls and some become
dislodged by the gas motion and are "re-entrained" in the gas flow. The REP
prevents reentrainment of dust particles. The REP uses a conventional
electrostatic precipitator to attract dust particles to a porous fabric
collecting surface. Since the collection surface is porous, a small portion
of the gas stream containing the dust flows through the pores which ensures
that the dust layers remain attached to the collection surface. Specified
applications for REP include control of fine particulate emissions from
coal-fired utility boilers and, possibly, fine particulate control in
so-called "clean rooms" in which complex electronic and computer circuits are
produced.
On the basis of the pilot plant test conducted in 1990, management concluded
that the test identified additional design parameters which, if adopted,
would improve performance and that the REP concept can be utilized, when
properly developed, to enhance the collection of fine particulates at lower
cost than existing methods. ETS has not pursued further testing, does not
intend to fund future development and will require future Government or
private funding to continue development. As the Company's more mature
technologies, such as the BPM and LEC, neared commercial development, the
Company determined that its financial commitment to products should be
concentrated on commercializing and marketing the BPM and LEC. Although it
continues to seek outside funding sources, ETS has no current proposals
outstanding for further funding. In the event the question of commercial
viability is successfully resolved, of which there is no guarantee, ETS
intends to secure a licensee to market the REP of which there is no
guarantee. Even if commercial viability is established to ETS's
satisfaction, it is unlikely that development will be completed and delivery
of orders will commence in the foreseeable future.
Services
Contract Research and Development. ETS has performed specific research and
development projects for both government and private industry. These
projects primarily involve the advancement of air pollution control
technology and have included the design and fabrication of pilot plants to
demonstrate certain air pollution control hardware, operation of equipment
within the pilot plants and long-term testing and monitoring of systems. ETS
has designed, built, operated and tested pilot plants for coal-fired
industrial boiler systems, refuse-fired boilers, cement kilns and glass
furnaces. These pilot plants have examined, among other things, control of
fly ash, sulfur dioxide and toxic emissions.
For clients such as Dupont, Celanese, Phillips Fibers, Baltimore Gas &
Electric, Serrine, ARCO and General Electric, ETS has performed studies of
alternative filtration. Studies have ranged from bench top swatch test
programs to pilot plant evaluations, to full scale tests within operating
baghouses utilizing the BPM analysis tools. Some programs were designed to
evaluate the usability of new fabric offerings in specific applications,
others to provide evaluation of new fabrics as a viable general fabric filter
candidate and others to select the optimum candidate from a group of possible
fabric alternatives in a specific baghouse. Except for U.S. Government
sponsored research and development, all research and development contracts
have been performed on behalf of customers.
<PAGE>
Fabric Testing Services. The fabrics used in baghouses to collect dust must
meet certain requirements as to strength, permeability, pressure resistance,
air flow characteristics and chemical content. ETS offers quality control
and other fabric testing services to the fabric filtration industry to
determine whether baghouse fabrics meet these standards.
Stack Testing and Other Field Services. ETS offers analyses of particulate
and gaseous emissions for evaluating the performance of pollution control
devices and statutory compliance. Customers include both government and
private industry. Testing has been undertaken at steel plants, cement
factories, quarries, foundries, incinerators, chemical plants and utilities.
To assist in supplying these services, ETS has five mobile field testing
laboratories for on-site testing and analysis.
Other field services include continuous emission monitor certification,
asbestos surveys, environmental audits, analysis and evaluation of on-line
systems, filter bag analysis of operating systems through on-site and
laboratory examinations, evaluation of bags for use in particulate filtration
systems, new filter media inspection and testing, compliance with emissions
standards, on-site and laboratory particle size analysis and OSHA in-plant
air quality testing. This service is appropriate for compliance with Title
III of the CAAA involving Air Toxics because compliance requires
sophisticated field and laboratory capability. Title IV of the 1990 CAAA
requires the annual testing of 2,000 utility continuous emissions systems.
ETS has become a major vendor for this service.
Major clients, on a continuing basis, for ETS's field service activities
include Westinghouse, Philip Morris, DuPont, Air and Water Technologies,
Allied Chemical, Duke Power, Sun Oil Company, Tennessee Valley Authority and
Baltimore Gas & Electric.
Regulatory Assistance. ETS offers its industrial clients which operate
facilities subject to state and federal environmental regulations
professional assistance in understanding relevant environmental regulations.
Many environmental regulations are complicated, apply only to certain types
of operations and not to others and change in their scope and content from
time to time. They are written by technical personnel employed by the
regulatory agencies in order to fulfill legal requirements of the relevant
laws and statutes promulgated thereunder. ETS staff consists of technically
trained people who maintain a current knowledge of these environmental
regulations and are also familiar with clients' plant operations. Thus, ETS
can provide clients specific interpretations of regulations and assist in
establishing the most effective route to demonstrate or achieve compliance
with specific requirements. The CAAA, particularly Title V regulating
permitting, has had a positive effect on demand for ETS's regulatory
assistance services. ETS does not employ an attorney on a regular basis in
rendering its regulatory assistance services; but has available specialized
counsel on an as-needed basis. ETS recommends that its clients seek
independent legal counsel to address legal issues, including but not limited
to past noncompliance with environmental regulations. In addition, ETS often
works with the clients' legal counsel in resolving issues of noncompliance
with federal and state environmental regulations.
<PAGE>
Monitoring. Federal and state environmental protection agencies are
increasingly requiring self-monitoring by industry. Monitoring activities
involve either direct measurement of pollutants emitted in the stack gases or
measurement of pollutant concentrations in ambient air at or beyond the
plant's fence line. Both measurements involve the collection of large
quantities of data using sensitive continuous monitoring systems. ETS
assists in designing, calibrating and auditing the monitoring systems and in
preparing periodic reports and summaries of the data obtained.
Consulting. The consulting aspect of ETS's business is diverse. Included
are expert testimony, pollution control equipment operational problem
solving, review of plant specifications, market analysis recommendations,
license evaluation and acquisition analysis.
Technical Services. ETS has performed technical and economical evaluations
of existing and proposed air pollution control systems. It provides air
pollution control system design and on-site services during system erection
and start up. ETS also provides advice on emission control system design,
specifications, bid evaluation, and air pollution control systems trouble
shooting and maintenance as well as operator training.
Training and Education. ETS regularly offers several in-depth seminars in
the fields of air pollution control design and regulatory assistance,
incinerator emissions control, fabric filtration and electrostatic
precipitation. It also has produced a cassette tape seminar. Although
training and education constitute only a minor portion of ETS's business,
ETSI believes that its involvement in this area allows industry participants
to become familiar with its products and services. In total, in excess of
1,000 industry representatives have attended ETS seminars since their
inception. The seminars resulted in numerous clients for other services
offered by ETSI. ETS has a continuous and comprehensive seminar program
servicing industry and government. Recent seminars have been conducted in
Canada, Brazil, Egypt, India and Turkey in addition to those held in the
United States.
Technical Writing. ETS's technical writing staff is experienced in all areas
of air and water pollution control and is proficient at the art of relating
technical data in a readily understandable manner. Other capabilities
include research, graphics layout and design and proofreading.
Literature Searches. Under contract with both government and industry, ETS
has successfully conducted extensive literature searches in the area of
particulate and sulfur dioxide control. ETS maintains an extensive and
well-cataloged in-house library and, when required, employs outside library
services.
It is anticipated that the service business will continue with additional
expansion of revenues from areas such as engineering, field testing and
regulatory assistance. ETSI intends to continue to explore foreign market
opportunities for ETS's products, particularly in Taiwan, Canada, Brazil,
Korea, Egypt, India and China to focus on marketing the BPM system and more
actively to pursue licensing of the Dry Reactor and Limestone Emission
Control System. In addition, the stricter enforcement of the CAAA, if it is
implemented, would result in increased activities in both laboratory
analysis, field testing, baghouse monitoring and other aspects of ETS and
ETSAS' business. There can be no assurance of stricter enforcement of the
CAAA.
<PAGE>
Patents, Licenses And Trademarks
ETS currently holds various U. S. patents and licenses covering certain
aspects of its proprietary products that it considers material to present
sales and further development and marketing of such products.
Features of the Dry Reactor involve a process subject to U. S. Patent No.
4,273,750, expiring in 1998, the rights to which were acquired by ETS in
1982.
ETS is the assignee of U.S. Patent No. 4,663,136, issued to Dale A. Furlong
on May 5, 1987, for an invention which is the process basis of the LEC. ETS
was also assigned another patent on another apparatus utilized in the sulfur
dioxide and particulate removal process (U.S. Patent No. 4,764,348) which was
issued to Dale A. Furlong on August 10, 1988. That patent is the basis of
European patents issued to ETS.
ETS owns two additional patents relating to the LEC. Aspects of the LEC are
also covered by U.S. Patent 4,663,136 and European patents based on it.
Management of ETS believes that the patents relating to the LEC will protect
it from infringing use. On April 29, 1997, ETS was granted U.S. Patent No.
5,624,644 covering the equipment design aspect of the LEC.
ETS holds U.S. Patent No. 4,481,017, issued to Dale A. Furlong and assigned
upon issuance to ETS, covering the combination of the electrostatic
precipitator and fabric filtration technologies used in the REP. This patent
was issued on November 6, 1984.
ETS holds U.S. Patent No. 4,719,791, which relates to the BPM system and
claims protection for several unique aspects of the system. This patent was
issued on January 17, 1988 and assigned to ETS.
ETS has acquired the non-exclusive license to utilize U. S. Patent No.
4,297,113, which provides a method for eliminating the effect of bag failure
on baghouse operations. ETSI has no specific plans for the use of such
patent. The license is nonassignable and will lapse upon termination of John
D. McKenna's employment with ETSI.
ETS Analytical Services, Inc.
ETSAS maintains extensive laboratory facilities and modern mostly automated
and computerized equipment to detect other types of environmental
contamination. It has established a stringent Quality Assurance/Quality
Control ("QA/QC") Program to insure data reliability. Although at the end of
the 1995 fiscal year, ETSW was a Superfund Contract Laboratory, its status as
a Superfund Laboratory had not been renewed due to lack of funding for the
program. It continues, however, to receive contracts from the United States
Environmental Protection Agency ("USEPA") and other governmental agencies.
ETSAS is also a certified laboratory in the states of Virginia and in North
Carolina for water, waste water, soil and hazardous waste analysis. In
addition to its laboratory operations, ETSAS offers a wide range of field
services, including sampling of water and soil, infield testing and on-site
monitoring, environmental assessment and monitoring programs. ETSAS owns a
mobile laboratory which provides on-site analysis for trace organic
compounds. In January, 1995, Environmental Laboratories, Inc., a Richmond
Virginia - based company, founded in 1980, engaged in water, wastewater, soil
and materials analysis, was merged into ETSAS. This additional operation is
located in the same city as ETSW. The merger expands the geographic range of
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ETSAS, enables the Richmond operation to bid on larger and more complex
contracts than it could support prior to the merger and facilitates a closer
working relationship with ETSW. The acquisition of environmental laboratory
assets located in Fairfax, Virginia enhances the ability of ETSAS to bid on
projects in Northern Virginia. ETSAS has opened a satellite lab in
Chesapeake, Virginia in order to better serve its clients in the Chesapeake-
Norfolk area.
ETSAS's analytical services include obtaining and isolating samples of
industrial and other waste materials including potentially hazardous wastes,
analyzing samples by identifying and quantifying their toxic components,
electronically archiving data and the delivery of analytical data in a
legally defensible manner. ETSAS's analyses are used by regulatory
authorities, such as the USEPA and the City of Roanoke, Virginia, and site
owners, such as Exxon, Union Carbide and Columbia Gas Transmission, to report
the risks posed by the potential or actual presence or release of hazardous
substances.
ETSAS performs analyses of waste materials to determine the chemical
compounds present, organizes the data obtained and presents a comprehensive
report of this data. There may be myriad potentially harmful chemical
compounds present in wastes and multiple tests may be required to determine
the levels of contaminants at even a single site. Results obtained indicate
only the amount of contaminant at the time of the test. To assess the
probability of future hazards or the degree of correction of the pollutants
also requires several tests at relatively constant intervals. There is also
the possibility that the hazardous waste may have migrated from its initial
site. Additional analysis and remedial action away from the original test
site may be required where the migration of hazardous waste is a possibility.
Samples of the material to be tested are taken by either ETSAS's clients or
its own personnel and forwarded to the laboratory for analysis. ETSAS is
required to establish the authenticity of the test samples and therefore each
container supplied by clients is accompanied by its chain of custody form.
ETSAS's technical staff utilizes mobile sampling equipment for the sampling
and testing of hazardous waste sites, monitoring wells or industrial
discharges.
Sample Management. All incoming samples, whether they are shipped via
courier service or dropped off by local customers, are received by this
section and logged into the ETSAS Laboratory Information Management System
("LIMS") which tracks analyses and reports laboratory data. The ETSAS LIMS
is an internally developed software system that has received wide recognition
from industry and government. The Sample Custodian is responsible for all
receiving, storaging, and tracking functions. All samples must be signed out
by laboratory analysts for processing, thus maintaining a complete chain of
custody within ETSAS.
Atomic Spectroscopy ("AS"). The Atomic Spectroscopy section analyzes all
samples requiring elemental analysis by atomic spectroscopy. Among the
techniques the AS section employs are the following:
Graphite Furnace AAS determines low levels of toxic elements such as arsenic,
selenium, and thallium. It can detect and quantify levels less than 1 part
per billion.
Cold Vapor Mercury AAS tests for low level mercury analysis (0.2 parts per
billion in water) in a variety of sample types.
<PAGE>
Air Analysis of multi-metal air trains by Microwave Digestion and AAS
techniques. Analysis of metals and elements by Inductively Coupled Plasma
Emission ("ICP").
Organics. The Organics section provides laboratory services relating to the
detection and measurement of various organic substances in a variety of
sample types, such as groundwater, RCRA sludges, tissue, oils/waste oils, and
others. Examples of these include pesticide, herbicide, and fungicide
residues such as chlordane, endrin, toxaphene, silvex, and Ethylene Dibromide
("EDB"). ETSI can detect PCBs (polychlorinated biphenyls) in dielectric
fluids, oils, waste oils, wastewater, and soils, performs high pressure
liquid chromatography for the analysis of explosives and other high molecular
compounds, detects total organic halide ("TOX") and purgable organic halide
("POX") in groundwater and other liquid media; total organic carbon ("TOC")
and purgable organic carbon ("POC") in aqueous samples. It "fingerprints" by
gas chromatography to identify unknowns and finds benzene, toluene,
ethylbenzene, xylenes ("BTEX") in groundwater by gas chromatography and
photoionization detector ("PID"). Finally it performs analyses of trace
organics by gas chromatography and mass spectrometer ("GC/MS") for volatile
organic compounds ("VOA" or "VOC") and semi-volatile organic compounds in
accounts with certain ETA methods.
Inductively Coupled Plasma Laboratory. ICP laboratory is used for rapid
analysis of metals/elements. The ICP laboratory is fully automated and
computerized and is capable of analyzing up to 69 elements per sample in
approximately 5 minutes. Much of the analysis on the USEPA Superfund and
Office of Water contracts is performed on this instrument. Raw data is
transferred into the ETSAS LIMS for processing and reporting. The ICP
laboratory uses "SuperScan," a low cost qualitative scan developed by ETSI
for 69 elements per sample.
Gas Chromatograph/Mass Spectrometry ("GC/MS") involves a three-step process.
First, a test sample is introduced into the gas chromatograph portion of the
system which separates the individual chemical compounds. The separated
compound then elutes into the mass spectrometer are often subject to multiple
regulatory requirements.
Quality Assurance/Quality Control. ETSAS maintains an ongoing QA/QC Program
that is designed to give data of the highest documented quality. The QA/QC
Program is a continuing system of internal and external checks of data
validity. The entire program is contained in a 150 page manual which is
available to clients upon request.
ETSAS maintains strict quality control in all facets of testing and analysis
to insure accuracy of results. Internal quality assurance procedures,
formulated within USEPA guidelines, govern how samples and controls are
handled and are monitored daily. Standards are used to calibrate the
equipment on a daily basis. Samples are periodically issued by both the
quality control manager and various federal, state and local certifying
licensing agencies, to determine whether test results from samples furnished
by the agencies fall within acceptable limits.
ETS and ETSAS maintain a network of more than 30 computers for sample log-in,
sample tracking, data handling, data reporting and accounting activities.
The computers are linked together through a Novell Netware System, and many
of the analytical instruments are on-line to this system which allows for
computerized raw data transfer. Data reporting can therefore be customized
to a clients individual needs, including the reporting of quality assurance.
The total hard disk data storage capacity of the Novell system exceeds one
gigabyte.
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Significant ETS and ETSAS Contracts
Examples of some significant environmental contracts executed by ETS and
ETSAS are:
Successfully Completed:
USEPA award for the analysis of multimedia, multi-concentration samples for
selected metals for a one year base period and three additional one year
options (total contract value, $770,000), completed 1995;
USEPA award for source testing and method evaluation for stationary source
emissions for a one year base period with a contract value of $637,629 and
two additional one year options (total base contract value in the event the
options are exercised, $2,300,000), completed 1992; USEPA award for chemical
analytical services for multimedia multi- concentration inorganic (maximum
contract value, $663,000), completed 1995;
KVB/Analect - CEMS certification at major power utilities for equipment
vendor; (contract value, $940,000), completed in fiscal 1996;
Inland Steel Company - designing emissions control system for pulverized coal
facility; (contract value, $291,000), completed May, 1996; and
USEPA Office of Water - analysis of industrial discharges across the United
States, (contract value, $160,000), completed September, 1995.
US NAVY - analysis of water discharges from naval vessels, (contract price
$55,000), completed 1997.
Ongoing:
Westinghouse certification and compliance testing of facilities; multi-year
continuous contract started in 1987 (estimated contract value,
$200,000/year);
Pine Bluff Arsenal field services to test control equipment, five year task
order contract, 13 test schedules in a year; started March 1994, one year
with five option years (maximum contract value, $ 150,000 per year);
Title V permit contracts for various industrial clients; 60% completed as of
the end of fiscal 1996; scheduled completion December, 1997 (estimated value,
$150,000);
Gas Compressor Stations - analysis of PCB's from several stations; ongoing
continuous series of analyses without a determined completion date (estimated
contract value, $150,000);
Ironton Iron, subsidiary of Intermet Corporation - various environmental
engineering and emission control system design projects; 85% completed at end
of fiscal 1997 (estimated contract value, $750,000);
USEPA Engineering and Analysis Division - analysis of trace metals and
elements in wastewater, sludges and hazardous wastes; one year with four one
year option period; contract value $1,594,000 if fully exercised; and
USEPA Engineering and Analysis Division - wet chemistry analysis of
wastewaters and sludges from the same sites for cyanides, phenols, fluorides
and other substances; one year with four one year option period; contract
value $1,026,000 if fully exercised; and
<PAGE>
China Steel, Taiwan - Letter of Intent to design and install three LEC
systems to be completed in fiscal 2000 (estimated contract value,
$7,000,000); contingent upon successful negotiations and ETS posting a
performance bond.
See discussion under "Completion of Contracts by Subsidiaries of ETSI" below.
Sales And Marketing
ETS and ETSAS presently market their services through their sales personnel,
and utilize direct mail, trade exhibitions and promotional literature.
75-90% of their revenues are realized from commercial clients and 10-25% from
the USEPA and other government agencies. However, this ratio is anticipated
to change as a result of the receipt by ETS and ETSAS of awards of U.S.
Government contracts under the CAAA. ETS's extensive sponsorship of seminars
and training programs has resulted in recognition and has secured clients.
ETS is negotiating with major industry partners for the development,
licensing and sale of its products. ETS has entered into license agreements
for several of its products. ETS has begun receiving license fees, but there
is no assurance that substantial license fees will be received in the future.
Representative Clients
Clients of ETS and ETSAS represent the following industries: power generation
(utilities), petrochemical, chemical, tobacco, iron and steel, non-ferrous
metals, gas utilities, heavy manufacturing, engineering, government agent
contractors, municipalities and regional and federal government agencies.
Representative clients are those in the industrial segments to which ETS and
ETSAS supplies services. Such clients of ETS and ETSAS include: Kentucky
Power Company and Pennsylvania Power & Light (power generation), EXXON
(petrochemical), Dupont and National Paint and Coating (chemical), Philip
Morris (tobacco), Inland Steel (iron and steel), Reynolds Metals (non-ferrous
metals), Columbia Gas (gas utilities), Westinghouse (heavy manufacturing),
Dames & Moore (engineering), Draper Aden (environmental engineering
consulting); Smith Environmental (environmental engineering); Phillips
Environmental (environmental engineering); Ironton Iron (iron foundry); KVB
(government agency contractors), County of Roanoke, City of Richmond
(municipalities) and USEPA (regional and federal government agencies).
Competition
Although the pollution control industry in general is growing rapidly,
competition is intense. Marketing resources and expertise are increasingly
important to success. In addition, the pollution control markets are subject
to rapid change. Unforeseen technological, legislative and business
developments relating to pollution control outside the scope of ETS and
ETSAS' business may have significant adverse effects upon ETS and ETSAS'
business. Many of ETS and ETSAS' competitors have substantially greater
resources than ETSI, and the size and reputation of many of these companies
may give them a competitive advantage over ETSI. However, ETSI has
successfully competed for USEPA contracts against large firms such as General
Electric Company and Bechtel Power Corporation. Likewise, ETSI has won
utility contracts in competition with firms as Research Cottrell, Inc. and
Gilbert Commonwealth Engineering.
<PAGE>
Major competition for the LEC and Dry Reactor markets come from the U.S.,
Japan and Europe. In the U.S., primary competitors include Babcock and
Wilcox, General Electric Environmental Service and Research Cottrell.
Foreign competitors include Chiyoda, Hatachi-Zosen, Mitsui and Fuyikasui
Engineering Co. from Japan and Lurgi, Flakt/ABB, Steinmuller, FLS Miljo,
Snamproqette and Tampella from Europe. Most of these companies offer both
semi-dry and wet systems. However, it is management's opinion that the LEC
is the lowest cost, most efficient acid gas removal system.
ETSI is aware of at least two companies that are developing smokestack
chemical removal products which reduce nitrous, as well as sulfur, oxides
which are removed by ETS's LEC process. In management's opinion, the ETSI's
LEC device is smaller, less complex, simpler to operate and easier to
retrofit than one of the competing products and has a lower waste disposal
cost and its waste is nonhazardous compared to the second competing process.
In the event the REP technology is developed so that a commercial product
results, the REP's competition is expected to come from the major suppliers
of precipitators and baghouses. The REP, as proposed, has no present direct
competition as no other firm presently offers a combination of electrostatic
and filtration technologies. However, it may be possible for competitors to
develop technologies to achieve the same end.
ETS is presently not aware of any competitors offering products directly
competitive with the BPM.
ETS also has competition in every area of its service market. The stack
testing service market is sensitive to location. Over one hundred companies
offer such services in the United States. The top four companies are
believed to be Entropy (North Carolina), Clean Air Engineering (Chicago,
Pittsburgh, St. Louis), Mullins (Texas) and Engineering Science (North
Carolina).
Fabric testing presents a smaller market, in which location is less
important. ETS has a well - equipped independent testing laboratory. The
majority of customers of the fabric testing market is shared by fewer than
six firms, including Filter Lab Services, Environmental Consulting Company
and Grubb Filtration.
Competition for analytical laboratory services comes from local concerns for
regional business. National and government services require more
sophisticated analytical techniques for which many laboratories lack
equipment and personnel. The USEPA has indicated that it will institute a
national certification program. If and when it does, management believes
that many competing firms may leave this aspect of the business.
ETS competes with universities, equipment manufacturers and other consultants
in the area of contract research and development. ETSI believes that the key
criteria considered by potential purchasers of its services and products are
service and product quality, the quality of support, the consistency of
marketing and promotion programs, the financial stability of ETSI and
pricing.
<PAGE>
Government Regulation
The USEPA is the principal federal agency responsible for environmental
matters, including the disposal and discharge of hazardous substances. State
and local governments are involved in implementing environmental programs on
a state and local level. USEPA, state and local policies can adversely
affect the demand for ETS and ETSAS' services by relaxing regulations
requiring tests, by delaying the effective date of regulations which require
tests and by relaxing its enforcement efforts. Furthermore, to the extent
that the budgets of administrating agencies are reduced, or funds are not
made available to them, the demand for ETS and ETSAS' services can also be
adversely affected. Applicable federal legislation includes the Resource
Conservation Recovery Act ("RCRA"), the Clean Water Act, the Safe Drinking
Water Act, the Clean Air Act and amendments, the Toxic Substances Control
Act, the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"), and the Superfund Amendments and Reauthorization Act of 1986
("SARA"), which authorized the appropriation of $8.5 billion for Superfund
for the five-year period beginning October 17, 1986 and was refunded in 1990
for an additional five years for $5.1 billion. Funding for SARA was not
renewed at the termination of the extension of the act. ETSAS suffered some
loss of revenue as a result. However, the laboratory has diversified into
serving industrial and commercial clients and receives Federal contracts
which were not funded through SARA.
ETSAS generates small quantities of hazardous waste in processing, certain
samples. Such hazardous waste is segregated in special containers and
disposed of by licensed waste transporters. ETSAS reserves the right to
return the unused portions of samples received. ETSAS is also licensed with
the USEPA and the State of Virginia to generate and properly store small
quantities of hazardous waste. Such waste may not be stored longer than six
months and must be disposed of through a licensed hazardous waste transporter
to an approved treatment/disposal site. ETSI believes that its operations
have at all times been in compliance with all federal, state and local
environmental laws and regulations. ETSW, in its remediation projects, often
removes hazardous waste.
ETS and ETSAS' activities and its facilities are subject to regulation under
federal, state and local laws, ordinances and rules and regulations relating
to the environment, environmental quality and occupational health and safety
including RCRA, the federal Occupational Safety and Health Act ("OSHA") and
similar state laws and regulations promulgated thereunder. In connection
with ETSAS's business of waste analysis and management, ETSAS believes it is
acting in compliance with applicable environmental laws.
ETSI has obtained certifications from all jurisdictions in which it does
business as required to conduct its laboratory testing. ETSAS is required to
pass proficiency tests and evaluations which are given on a periodic basis to
retain its certification and to participate in contracts under the Superfund
Program. ETSAS has never failed a proficiency test and believes, but there
can be no assurances, that it will be able to obtain the required
certifications and approvals in all jurisdictions where it plans to do
business in the future. The inability of ETSI to retain present, or obtain
new, certifications or approvals where required, would adversely affect its
business.
<PAGE>
Markets
ETSI has targeted utilities, industrial boilers and incinerators as the most
likely users of its air pollution control equipment. Customers for air
pollution control services and equipment include any organizations which
operate a process that emits pollutants. Examples of potential customers
include industries that utilize burning processes such as coal-fired utility
and industrial boilers, incinerators for hazardous and municipal wastes,
chemical processes such as printing, paint manufacturing, petrochemical
refining and production, pulp and paper making and dust creating processes
such as cement manufacture, mining and grain handling. In addition,
governmental agencies are purchasers of the products and services of ETSI.
The utility industry and users of municipal and hazardous waste incinerators
and resource recovery facilities comprise ETS's principal potential
customers.
Customers for analytical laboratory services include local concerns,
government agencies, resource recovery facilities and national companies.
ETSAS contacts potential clients through advertising, direct mail and
telephone and competitive bid.
Employees
ETS and ETSAS have a total of approximately 17 management and supervisory, 55
field and technical and 17 administrative employees. Employees are not
represented by labor unions and relations are considered good.
Insurance
ETSI, for itself and its subsidiaries, ETS and ETSAS, currently carries
general liability insurance with an aggregate limit of $1,000,000, and
automobile liability insurance with $1,000,000 for each occurrence and
professional liability insurance of $1,000,000. It also carries excess
liability insurance of $1,000,000, as well as workers' compensation and
liability insurance in statutory amounts.
ETS Water & Waste Management, Inc.
History and Overview
Stamie E. Lyttle Co., Inc. was established by Stamie Lyttle in 1947 as a
partnership originally known as Lyttle & Barnes. With two employees, it
installed septic systems for new homes. In succeeding years, it expanded
into other related environmental and construction areas. Lyttle Utilities,
Inc. was formed in 1982. Lyttle Utilities, Inc. contracted water and sewer
installations for municipalities, while Stamie E. Lyttle Co., Inc.
concentrated on residential construction. In 1985, LPS Corp. was formed as a
leasing company for the affiliated companies. Stamie E. Lyttle Co. Inc.,
Lyttle Utilities, Inc. and LPS Corp. were merged in June, 1994 into ETSW, a
subsidiary of ETSI. Business previously conducted individually by the three
companies is now conducted by ETSW under the trade name "Stamie E. Lyttle
Company." ETSW provides infrastructure services to municipalities throughout
the Commonwealth of Virginia, including the state government, encompassing
installation of water, sewer and storm sewer mains, installation of gas lines
and environmental clean-up. For the private sector, ETSW provides services
to industrial, commercial and residential developers. Industrial and
commercial services include installation of and disposal of nonhazardous
waste. Residential services include hookup of development projects to
<PAGE>
municipal water and waste disposal systems. ETSW also operates ETSL under
the trade name "Pipe-Liner Installers." Pipe-Liner Installers is primarily
involved in the trenchless rehabilitation of sewer and water lines under
a license from Ultraliner, Inc. ("Ultraliner") covering most of the State
of Florida. ETSW also has a license from Ultraliner covering Northern
Virginia. ETSW also has agreed to be a licensee with TRS, Limited, Canada,
for pipe bursting technology for Virginia, Maryland and Florida.
Municipal Activities
Municipalities, particularly in the area surrounding Richmond, Virginia
traditionally serviced by ETSW, have been growing at an annualized rate of
approximately 5%. This growth has strained the ability of towns and counties
to deliver water to its industrial and residential base and to handle waste.
In addition, these same municipalities have had to upgrade their decaying and
inefficient water and waste handling systems though construction, remediation
and clean-up. The process of installing and upgrading water and waste
disposal facilities is continuous because of on-going population and
industrial growth, aging infrastructure and compliance with federal and state
environmental regulations.
In order to bid for municipal water, sewer and storm sewer main contracts,
ETSW must "prequalify" for each job (as in the City of Richmond) or annually
prequalify for each community which it serves. Prequalification requirements
include a proven track record of successfully completing similar projects,
necessary manpower and equipment to commence and complete the project and
bonding capacity to support the technical and manpower needs. The bond
required is a "performance and payment bond" issued by a surety company based
on contractor competence and financial backing. ETSW has successfully
prequalified for every job for which it has bid and is prequalified by all
the municipalities in which it works.
Municipalities and the state governments must, by law, advertise in local
newspapers and public bulletin boards and through the Dodge Report. The
Dodge Report is distributed weekly to subscribers and contains all material
information on municipal construction projects, including description, scope
of work, requirements for the contractor, estimated amount of bid and
availability of plans and specifications, thus enabling contractors to decide
which projects to pursue and to formulate bids. ETSW not only bids on the
basis of the specifications contained in the Dodge Report, but is also often
invited by the municipalities themselves to bid on specific projects. ETSW
selects the projects that it desires to bid based on its computer analyses of
present and future work requirements and its anticipation of profitability of
the project based on the cost of past similar projects. It then prepares and
submits bids on appropriate projects. Bidding is generally closed. Bids are
opened in a public place and the low qualified bidder is awarded the
contract. In some instances, specifically projects for the City of Richmond,
Virginia and the Commonwealth of Virginia, minority participation is required
to complete the project and is set forth in the requirements and in the bid.
Because of its size and experience, ETSW has developed an excellent
relationship with qualified minority contractors who ably perform their tasks
as part of the contracting team.
The municipality notifies the low bidder contract awards in writing, stating
the time frame in which the project must be completed. If ETSW is the low
bidder, ETSW must submit a profile called the "Critical Path Method" or "CPM"
setting forth the time frame in which it intends to complete the project so
that the designated representative of the municipality can follow the project
as outlined in the CPM. Projects generally run in phases with progress
billing on a monthly basis until completion.
<PAGE>
Typical Recent Municipal Projects:
City of Richmond, awarded September, 1995, estimated completion in October,
1997 represents construction of a concrete drainage channel and the
reconstruction of a storm drain system and related work. Total award is
approximately $1,900,000.
York County, awarded June, 1995, involved installation of 16" water;
completed in February, 1996. Total award was $625,000.
County of Henrico, awarded in August, 1996 is a contract valued at $268,696
to furnish two water lines. Completion is expected in October, 1996
VDOT, awarded July, 1997, is a contract valued at $1,168,492 for the
installation of water and gas main lines. Completion is expected by June 30,
1998.
Commercial Construction
ETSW performs services for developers, corporations and homeowners. For
residential and commercial developers, ETSW provides the interface between
the developer and the local zoning authorities for site development plan,
sewer and water main hookup and soil conditions. For commercial and
industrial customers, ETSW provides the technical expertise required to
maintain the plant conditions in an environmentally safe fashion. For
example, a factory or office building owner often will establish its own
sewer system but will later discover that the installation does not meet the
needs for adequate holding tank capacity. ETSW, in such a situation, will
design and modify the equipment to meet legal and environment requirements.
It also maintains such equipment.
Thus, it can uniquely provide reliable and timely service without the
problems of job overload which afflict smaller competitive firms. ETSW was
often the original installer of the equipment for the developer and maintains
records of each facility indefinitely and thus knows which equipment was
installed and when so that it can often assess problems before arrival of its
employees on site.
Typical ETSW Commercial Projects
The following is representative of commercial projects undertaken by ETSW:
Stonehouse, Inc., a wholly-owned subsidiary of Chesapeake Corporation,
involved the installation of 36" water line; this contract was the first
phase of a 20-year development project. The first phase was successfully
completed in March, 1996. Total contract amount was $770,000.
In December, 1996, ETSW was awarded a major contract with DPR Construction
Corporation for construction of water and sanitary server lines at The White
Oak Semiconductor facility in Henrico County, Virginia for $1,800,000, which
was subsequently increased to $3,600,000 with an expected completion date of
October 1997.
Ultraliner
In February, 1996, ETSI acquired certain assets of Olympic Industries, Inc.,
Pompano Beach, Florida, for 539,130 Shares of Common Stock. The assets were
placed in a newly-formed corporation, ETSL, a Virginia corporation, and a
wholly-owned subsidiary of ETSW.
<PAGE>
Through the purchase of these assets, ETSW entered the trenchless
rehabilitation business throughout Florida (except the "Panhandle" area) and
in Northern Virginia. ETSW believes that the trenchless rehabilitation
market will be a major growth area as the sewer and water lines in most urban
areas throughout the world are wearing out. Over time, pipes get old and
brittle causing breaks which lead inevitably to water leaks and the seepage
of ground water into the pipes. In many cases, roots grow into pipes and
entire sections of pipe are frequently missing.
The traditional method of repairing such pipe is by digging a trench above
the pipe, removing the old pipe and replacing it with new pipe. The cost and
time spent in avoiding environmental damage is great; and the disruption
caused by digging up the old damaged lines and replacing them can be major.
Since most older pipe is found in downtown areas, the adverse effects on
traffic, air quality and the creation of ear splitting noise from jack
hammers and earth moving equipment are exacerbated by the surrounding foot
and vehicular traffic.
The "Ultraliner" technology used by ETSW and ETSL is expected to permit
rehabilitation of such lines on a faster, cheaper and cleaner basis without
the necessity of digging trenches. First, a robotic vehicle with lights and
video cameras traverses the damaged lines to detect blockage, offset joints
or other impediments. Then, any remedial work is performed within the
existing lines either through a point repair from the surface or through a
remote device. Installation of Ultraliner requires only one insertion point.
At the job site, liner which is constructed specifically for the job and
which is folded to fit within the existing sewer or water line is inserted so
that it extends through the damaged length. The length of each pipe is at
least the distance from manhole to manhole. Insertion is made with a power
winch and steel cable connected to the end of the liner. Then, through
application of heat and pressure, the liner expands to fit within the
existing line. The fit is so tight that it leaves no annular space for
unwanted water migration between the Ultraliner and the old pipe. The new
smooth interior maintains peak flow and inhibits buildup of foreign material.
The life of the replacement liner is the same as new pipe.
ETSL has been awarded a contract with an estimated value of $650,000 by the
City of Fort Lauderdale to install 8" Ultraliner for rehabilitation of old
sewer lines. Installation under the contract commenced in March, 1996;
estimated completion in September, 1996. The City of Orlando has awarded ETS
Liner, Inc. a one-year maintenance contract with a value up to $500,000.
In October, 1996, ETSW received over $2.3 millon in new contracts, on which
work commenced in the second quarter of fiscal year 1997. These contracts
include: two Ultraliner projects with the County of Henrico which are valued
at a combined total of $455,255 for the installation of 5315 linear feet of
8" Ultraliner PVC alloy TM pipeliner and related repairs and new line work;
additional Ultraliner work totaling $215,000, including a City of Richmond
Demonstration Project; the Little Tomahawk Creek Project awarded by the
County of Chesterfield, Virginia for $989,412 to furnish and install
approximately 15,113 Linear Feet of 24, 21, 18, 16, 15 and 10 inch sanitary
sewer; and orders for installation of new water, sewer and irrigation
projects with a combined value of $715,884.
In July, 1997, ETSL received five contracts totaling close to $1,000,000, of
four of which contracts required the Ultraliner to be used for storm lines
and sanitary sewer repairs in the cities of Ft. Lauderdale, Hollywood and
Orlando, Florida and the Hurlhurt Air Force Base in Cocoa, Florida. ETSL's
slipliner will be implemented for use in the replacement of sewer lines in
Melbourne, Florida.
<PAGE>
ETSW has successfully completed two demonstration projects in Virginia. The
first one was in Fairfax County, Virginia, in November, 1995 of lining 1,438
linear feet of existing eight inch concrete sewer pipe, including
reinstatement of 22 sewer services for existing homes, which was witnessed by
personnel from the engineering community and municipalities from the Richmond
and Northern Virginia areas. The other project is located in Stafford
County, Virginia involving the lining of 390 linear feet of eight inch sewer
pipe and the reinstatement of five sewer laterals which was completed in
June, 1996. Although both of these projects were small, they demonstrated
both the effectiveness of the Ultraliner technology and the ability of ETSW
to implement the technology. During the first part of fiscal 1997, ETSL
encountered some minor technical problems associated with new materials from
the manufacturer, which materials were experimental. However, with
improvement of the product, ETSL currently believes that the technical
problems have been resolved.
ETSW Future Plans
ETSW began in the Spring of 1995 and continued in fiscal 1997 to expand the
services it offers into Northern and Western Virginia in the areas of
plumbing, sprinkler irrigation and fencing. ETSW also has begun to bid for
projects through Virginia and into Maryland and New Jersey. It plans to
increase its geographical reach through steady and organized growth.
ETSW has begun to tap the growth of Northern Virginia by providing similar
municipal services there as it does in the Richmond area. In April, 1994, it
opened an office in Fairfax, Virginia, from which it is bidding on municipal
construction projects. It was awarded a major contract with the Fairfax
County Water Authority as a subcontractor to Branch Highways which is
presently under construction. It desires to acquire companies in similar
businesses, although no such acquisition candidates have been located and
there is no assurance that any will be found. ETSW intends to focus on
commercial construction projects and on projects involving the Ultraliner
technology or other technology-based construction techniques.
ETSW is working with ETS and ETSAS to provide turnkey construction projects
utilizing its construction expertise and ETS's LEC and Dry Reactor
technologies and ETSAS's chemical and water analyses of pollutants. The
advantage of proposed joint ventures with the other ETSI subsidiaries is that
previously ETS could only offer its technologies on a royalty only basis,
whereas with ETSW it can now offer both the technology and the construction
of devices employing a given technology or clean up of environmental
problems. Thus, ETS need not market its technologies through contractors,
but directly to end-users, specifically, hospitals for Dry Reactor and
utilities and manufacturing companies for the LEC system.
ETSW Personnel
In fiscal 1997, ETSW had approximately 160 employees, 30 in residential
service, 100 in construction and 30 in supervisory and administration
service. ETSW employees are not represented by any union. Management
considers its relationship with its employees to be good. Some of its
personnel are third generation employees.
ETSW Insurance
ETSW carries $2,000,000 of general liability, $1,000,000 of product
liability, $1,000,000 per occurrence of bodily injury and automobile and a
$5,000,000 umbrella insurance policy. ETSW also is covered by a surety bond.
<PAGE>
ETSW Government Regulation
ETSW's activities are regulated by Federal and state statutes. In general,
Federal statutes are enforced on the state level by the Virginia Department
of Labor and Safety for OSHA safety standards and by the Department of Health
or Department of Public Works for sewer, septic and water systems. ETSW has
never been cited for a safety violation.
ETSW Competition
ETSW's competition comes from many smaller and narrowly focused companies in
its geographical region. ETSW's market share of each of its business
activities exceeds 50% in the Richmond, Virginia area. In the trenchless
sewer and water main rehabilitation business, its major competitor is
Insituform, Inc. ETSW believes that its technology is superior and that it
can underbid Instituform on projects and still provide adequate margins.
However, Insituform has been completing projects for municipalities for over
a decade and Ultraliner must first prove itself to municipalities through
successful completion of small contracts before it could be chosen on larger
programs. Progress in these areas has been achieved in fiscal 1997.
Completion of Contracts by Subsidiaries of ETSI
Most of ETSI's subsidiaries' contracts are of a short-term duration and are
completed within a few months of the order or award. Certain contracts, such
as those from utilities, are annual and are completed in stages against task
orders. Government agencies often issue open orders for which task orders
are issued. There are no conditions precedent to the issuance of task
orders, and they are issued pursuant to the specific orders of the client for
the services. The Company's backlog consists of contracts and task orders,
already given but not yet completed and does not include open orders which
may or may not result in task orders. In general, it has been ETSI's
experience over the past three fiscal years that substantially all open
orders ultimately result in task orders. Task orders have, from time to
time, exceeded the amount of open orders due to needs of the client which
developed subsequent to the contract date. However, the dates when open
orders result in task orders, subject to the length of the contract and the
possibility that certain open orders will not result in task orders, depends
on both the needs of the client throughout the contract period and, in the
case of federal agencies, the availability of funding. There can be no
assurance that existing contracts or future contracts containing open orders
will result in task orders covering the entire contractual amounts. In
addition, ETSI is not aware of any significant unrecognized cost to complete
any open contract.
Unfavorable weather conditions can cause postponement and delays in executing
contracts, which may adversely affect the profitability of such contracts.
ETSI's construction activities, in particular, are materially affected by
adverse weather conditions.
Item 2. Properties
ETSI occupies approximately 45,000 square feet of office and laboratory space
in a modern commercial building in Roanoke, Virginia, under lease agreements
of its subsidiaries, ETS and ETSAS, effective as of February 1, 1991, which
expire on December 31, 2000, from PDJ Associates, a partnership in which John
D. McKenna, President of ETSI and Roberta Greiner, widow of Gary P. Greiner,
formerly an officer and director of ETSI, are partners. ETSI believes that
the leases with PDJ Associates are on terms as favorable as those which would
have been available from a non-affiliated third party.
<PAGE>
The analytical capabilities of ETS and ETSAS consist of three entities: a) a
fixed-location state of the art automated and computerized comprehensive
analytical laboratory for the analysis of contaminated air, water and solid
waste samples; b) mobile laboratories which provide the capability for field
analysis of toxic air emissions; and c) a fixed location fabric testing
laboratory which provides specialized filter bag (fabric) testing and
evaluations. Management believes that the laboratory and office premises are
adequate for ETS and ETSAS' present and anticipated needs.
On June 1, 1994, ETSW entered into a lease of its premises which are owned by
the estate of Stamie E. Lyttle at $10,500 per month for two years. On June
1, 1997, the lease was renewed for a one-year term with three one-year
renewal options. 11,500 square feet is allocated for office space; 20,000
square feet for warehouse and 10,000 for service and maintenance. Outside
storage exists for materials storage and for parking of vehicles. The
premises are located on 13 acres on the south side of Richmond, two miles
from Interstate 95. ETSW maintains its own fleet of vehicles and equipment.
The premises and equipment are considered adequate for the needs of ETSW. In
addition, subsidiaries of ETSI lease regional office and/or laboratory space
in Orlando, Florida, Fairfax, Richmond, Norfolk and Chesapeake, Virginia and
Huntington Valley, Pennsylvania.
Item 3. Legal Proceedings.
No material legal proceedings are pending to which the Company or any of its
property is subject, nor to the knowledge of the Company are any such legal
proceedings threatened.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers and Significant Employees of the Registrant
- --------------------------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on October 24, 1997.
The names, ages and position of all of the executive officers and significant
employees of ETSI as of May 31, 1997 are listed below with their business
experience for the past five years. Officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the
Annual Meeting of Shareholders. There are no family relationships among
these officers, nor any agreement nor any understandings between any officer
and any other person pursuant to which the officer was selected.
John D. McKenna (57 years old) has been President of ETSI since 1988, and
serves as Chief Executive Officer of ETS and ETSAS. He was President of ETS
from 1978 to 1991 and has been a Director of ETS since its incorporation in
1973. Dr. McKenna received his B.S. in Chemical Engineering from Manhattan
College in 1961 and undertook graduate studies in mechanical engineering at
the University of Bridgeport in 1962 and 1963. He received his M.S. in
Chemical Engineering from Newark College of Engineering in 1968 and his
M.B.A. from Rider College in 1974. In 1991, Dr. McKenna received his Ph.D.
from Walden University, Minneapolis, MN. Dr. McKenna's expertise in air and
<PAGE>
water pollution control applications includes economic evaluation
applications, pilot plant and fall scale studies of alternative pollution
control techniques. He has written a textbook on air pollution technology
and has authored or co-authored 31 publications on the subject of air
pollution control. On May 1, 1992, Dr. McKenna was chosen by the Centennial
Committee to Select Outstanding Engineering Graduates of Manhattan College
School of Engineering as one of Manhattan College's Outstanding Engineering
Graduates. He is a member of Tau Beta Pi, the National Honor Society of
Engineering; the National Association of Environmental Professionals; and is
listed in Who's Who in Engineering, Environmental Registry, Finance and
Industry, the World and Science and Engineering. He is Past Chairman of the
State of Virginia Advisory Board on Air Pollution.
John C. Mycock (58 years old) has been an Officer and Director of ETSI since
1988 and serves as Secretary/Treasurer of ETS and Secretary of ETSAS. He has
been an Officer and Director of ETS since 1979. He has had over twenty years
experience in the field of air pollution control. Mr. Mycock currently is
responsible for all preorder sales and marketing activities of ETS. He has
been involved in start-up and testing of scrubbers, precipitators and fabric
filters. His experience has been heavily oriented to utility boiler control
systems for both particulate and sulfur oxide emissions. He is the author of
a handbook of air pollution control, engineering and technology and the
author or co-author of fifteen publications, primarily on the subject of
fabric filters and baghouses. Mr. Mycock attended Mercer County Junior
College and Trenton State College.
Coleman S. Lyttle (44 years old) has served as President of Lyttle since
June, 1994. From 1982 to 1994, he was President of Stamie E. Lyttle Company,
Inc. and Lyttle Utilities, Inc. From 1975 to 1982, he was Senior Estimator
and Project Manager of Stamie E. Lyttle Company, Inc. Mr. Lyttle received
his B.S. in Business Administration from Virginia Polytechnic and State
University in 1975.
Navin D. Sheth (51 years old) has served as Executive Vice-President of
Lyttle since June, 1994 and, since May, 1996, also served as Chief Operating
Officer. From 1972 to May, 1994, he was associated with Stamie E. Lyttle
Company, Inc. in the following capacities: from 1982 to 1994 - Vice
President-Finance; from 1979 to 1982 - Controller; from 1972 to 1979 -
Operations Analyst. Mr. Sheth was Assistant Professor, Virginia College,
Lynchburg, Virginia from 1971 to 1972. He received his B.S. in Chemistry in
1967 from Bombay University and his MBA in 1971 from Atlanta University,
Atlanta, Georgia.
Arthur B. Nunn (45 years old), President of ETS, served as President of Air
Compliance, Inc. until the acquisition of its assets by ETS in April, 1995.
From 1981 to 1991, he was Vice-President of Scott Environmental Technology,
Inc.; from 1978 to 1981, Department Manager, Environmental Engineering
Division of TRW, Inc.; from 1977 to 1978, Monitoring Engineer for the Fairfax
County Air Pollution Control Board; and from 1976 to 1977, Regional Chemist,
Northern Virginia for the Virginia State Air Pollution Control Board. Mr.
Nunn served in the Air Force from 1975 to 1976. His experience in the fields
of air pollution control include consulting, modeling, engineering,
permitting, regulatory development, sampling, analysis and impact evaluation.
He is the author of numerous articles in the field of air toxics management
and monitoring. Mr. Nunn received his B.S. in Chemistry from the Virginia
Military Institute in 1975 and his M.S. in Environmental Science from George
Washington University in 1978.
<PAGE>
David F. Tompkins (49 years old) has been President of ETSAS since its
formation in 1990. Form 1978 to 1990, he was employed by Centec, for which
he served as President from 1985. In his positions with ETSAS and,
previously with Centec since 1985, he has been responsible for technical
administration of the Inorganic Analytical section, as well as strategy,
policy and financial planning and control of business operations. From 1978
to 1985, his responsibilities included technical and administration of the
laboratory operations as well as strategy, policy and financial operations.
Mr. Tompkins received his B.S. in Geology from Kent State University in 1971,
his B.A. in Chemistry from Kent State University in 1973 and his M.Ad. from
Lynchburg College in 1985. He holds a patent and was the recipient of an IR
100 Award for 1984 on the PCB Field Test Kit of which he was a co-inventor.
Significant Employees
James B. Quarles (44 years old), Senior Vice President ETSI, was formerly
employed as Chief Executive Officer of ENVIROS, Inc., Seattle, Washington, a
position he held for ten years as founder until the company's recent sale to
a British firm. Mr. Quarles began his career twenty-five years ago with the
U.S. Navy in Panama and was appointed by former Chief of Naval Operations,
Admiral Elmo Zumwalt, Jr. After building a solid science and engineering
foundation for the research, development and commercialization of
biotechnology-based pollution control products and services, Quarles expanded
his former organization to include a network of subsidiaries, allowing for
the successful delivery of the systems to the public and private sectors in
the U.S., Mexico, Canada and France.
James W. Raulston (69 years old), President ETSL, has extensive project
management and broad construction expertise, as well as experience and a keen
interest in the sewer relining and rehabilitation field. He is a graduate of
Auburn University where he studied both Building Technology and Civil
Engineering. His foreign experience has included project engineering in
Pakistan and cost engineering management of a $250 million project in West
Africa. His domestic experience includes executive management of firms
engaged in construction of sewer, water and gas pipeline facilities. His
career also includes working as an independent consultant in Sewer System
Evaluation Survey work and conducting seminars in Infiltration and Inflow
Management.
Edward D. Handel, Ph.D. (47 years old) has, since 1990, served as Manager,
Regulatory Assistance. He received his B.A. in Chemistry from Youngstown
(Ohio) State University in 1972 and his Ph.D. in Chemistry from North Dakota
State University in 1977. From 1981 to 1990, he was employed by Centec where
he was responsible for the technical administration of the Organic Analytical
and research and development section. From 1979 to 1981, he was an Assistant
Professor at Virginia Polytechnic Institute on the Faculty of Chemistry. Dr.
Handel directs activities related to environmental permitting, including
performing air dispersion modeling using both measurement and computer
techniques and the establishment of meteorological stations on plant sites
required to collect data for modeling purposes. Dr. Handel also directs
environmental audits and risk assessments.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity an Related Stockholder
Matters.
ETSI' s common stock trades on the American Stock Exchange - Emerging
Company Marketplace ("AMEX-ECM") under the symbol "ETS.EC." The following
table summarizes the market price information for ETSI's Shares on the AMEX-
ECM during fiscal 1996 and 1997.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended May 31, 1997
First Quarter $1.19 $0.69
Second Quarter $1.00 $0.69
Third Quarter $1.06 $0.63
Fourth Quarter $0.81 $0.50
Year ended May 31, 1996
First Quarter $2.06 $1.50
Second Quarter $1.81 $1.25
Third Quarter $1.56 $1.31
Fourth Quarter $1.38 $0.94
</TABLE>
As of May 31, 1997, there were approximately 1,600 stockholders of
record of ETSI.
No dividends have been declared or paid by ETSI and it is anticipated
that, for the foreseeable future that all profits will be reinvested in the
business of ETSI.
<PAGE>
In addition to the registrant's shares of common stock, there were issued and
outstanding as of May 31, 1997 warrants and options to purchase shares of
common stock as follows:
<TABLE>
<CAPTION>
Number Type Exercise Termination
Price Date
<S> <C> <C> <C>
5,000 Warrants $2.20 December 28, 1999
10,000 Warrants $2.20 December 31, 1999
1,000 Warrants $2.20 January 3, 2000
25,000 Warrants $2.20 January 17, 2000
10,000 Warrants $2.20 March 31, 2000
33,350 Warrants $1.00 November 27, 2002
142,858 Warrants $1.00 February 10, 1999
142,858 Warrants $1.00 February 9, 1999
175,809 Warrants $1.00 February 23, 1999
1,000,000 Warrants $ .76 February 27, 2002
258,000 Options $2.35* November 4, 1997
350,000 Options $1.50 July 13, 1998
100,000 Options $1.37 July 19, 1998
23,200 Options $1.38 August 20, 1998
15,000 Options $1.75 October 28, 1998
147,200 Options $1.06 April 11, 1999
355,000 Options $1.69 June, 17, 1999
75,000 Options $1.81 September 29, 1999
14,000 Options $1.88 January 12, 2000
4,000 Options $1.88 January 16, 2000
31,000 Options $1.75 January 31, 2000
8,000 Options $2.06 March 1, 2000
160,000 Options $1.75 May 8, 2000
22,000 Options $1.68 August 10, 2000
10,000 Options $1.06 May 20, 2001
200,000 Options $1.06 May 24, 2001
4,000 Options $1.00 May 24, 2001
31,000 Options $1.00 May 24, 2001
10,000 Options $1.00 May 24, 2001
14,000 Options $1.00 May 24, 2001
6,000 Options $1.00 May 24, 2001
77,000 Options $1.00 May 24, 2001
135,000 Options $ .75 July 25, 2001
47,000 Options $ .75 July 25, 2001
30,500 Options $ .75 July 24, 2001
93,000 Options $ .75 July 24, 2001
82,000 Options $ .75 July 24, 2001
31,000 Options $ .75 July 24, 2001
20,000 Options $ .75 July 24, 2001
20,000 Options $ .75 July 24, 2001
50,000 Options $ .75 October 14, 2001
15,000 Options $ .75 October 14, 2001
10,000 Options $ .75 October 20, 2001
10,000 Options $ .75 October 20, 2001
20,000 Options $ .75 October 20, 2001
10,000 Options $ .75 October 20, 2001
100,000 Options $ .75 February 4, 2002
20,000 Options $ .75 February 4, 2002
25,000 Options $ .75 February 4, 2002
50,000 Options $ .75 February 4, 2002
700,000 Options $ .75 February 4, 2002
</TABLE>
*Canadian dollars<PAGE>
The table below sets out a summary of all securities of ETSI sold by ETSI
within the past three fiscal years which were not registered under the
Securities Act of 1933. Securities are shares of common stock of ETSI unless
otherwise indicated. Price is cash consideration in United States dollars
received by ETSI unless otherwise indicated.
<TABLE>
<CAPTION>
ETS INTERNATIONAL INC. STOCK TRANSACTIONS
DATE PURCHASER EXEMPTION SHARES PRICE
---- --------- --------- ------ -----
<S> <C> <C> <C> <C>
6/01/94 Stamie E. Lyttle Estate 450,000
Coleman S. Lyttle 109,334
Navin D. Sheth 532,208
David C. Paulette 532,208
Mitchell A. Thomas 124,250
Total Statutory Merger 2,730,000 251,613
9/27/94 Navin T. Parekh Private Placement 32,680 50,000
Francis A. & Christine DeSio Private Placement 8,571 12,000
Gilbert LeDesma Private Placement 6,428 9,000
1/19/95 Steven R. Pond 200,000
Charles W. Albertson 2,000
William R. Anderson 2,000
Total Merger 204,000 55,350
2/01/95 Ruth H. Zelitch Private Placement 10,000 20,000
Eugene M. Downs Private Placement 5,000 10,000
Samuel N. Malkind Private Placement 1,000 2,000
Dr. Allen Kahn Private Placement 25,000 50,000
4/03/95 Air Compliance Asset Purchase 113,000 219,220
4/12/95 Euro Securities, Ltd. Private Placement 10,000 20,000
1/30/96 Olympic Industries Asset Purchase 539,130 775,000
- Olympic Industries - 226,087 Shares
- R. Snyder - 313,043 Shares
8/22/96 Watergaard Publishing Conf. Services involved 7,500 6,000
with Advertising/Public
Relations
11/22/96 Thomas W. Marmon Payment of Notes Payable 833,333 500,000
2/07/97 Dr. Allen Kahn Private Placement 142,858 100,000
2/07/97 Jonathan & Salley Kahn Private Placement 142,858 100,000
2/20/97 Chih-Ting Kuo (Marketing International) Regulation S/Services 20,000 10,000
for raising capital
2/24/97 Dr. Allen Kahn Private Placement 175,809 100,000
5/21/97 Lionhart Investments Regulation S 145,335 50,776
</TABLE>
<PAGE>
Item 6. Selected Financial Data
Selected Financial Data as of and for the Years Ended May 31
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total Revenue $24,125,260 $20,539,261 $19,911,906 $17,090,109 $17,408,201
Gross Profit 4,519,763 1,983,500 3,535,181 2,383,846 2,550,313
Operating
Income (Loss) 557,410 (1,638,564) 496,616 (588,525) (767,711)
Net Income
(Loss) 148,435 (1,998,791) 502,666 (701,392) (865,419)
Total Assets 12,304,549 9,835,016 9,658,611 7,672,962 6,987,982
Long-term Debt, net
of current portion 1,063,131 1,260,133 867,817 1,002,234 243,667
Total Stock-
holders' Equity 3,162,635 1,488,306 3,329,664 2,436,151 2,974,101
Earnings (Loss) Per Share:
Primary $.01 $(0.16) $0.04 $(0.06) $(0.07)
Fully Diluted $.01 $(0.16) $0.04 $(0.06) $(0.07)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This document contains, and the Company may from time to time publish,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the safe harbor,
the Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include the following: (i)
changes in legislative enforcement and direction, (ii) unusually bad weather
conditions, (iii) unanticipated delays in contract execution, and (iv) abrupt
changes in market opportunities.
<PAGE>
Result of Operations
Introduction
A few relatively large contracts in any one business segment in any
fiscal year can make any segment generate relatively large revenues in that
year. Because disproportionate generation of income has occurred
periodically throughout the existence of ETSI, the Company's strategy has
been to offer a variety of services and maintain a flexible staff capable of
executing different tasks. Services are tied to different markets, such as
new pollution control equipment expenditures by industry, government funding
or legislative enforcement. In addition, ETSI continually markets its
services through brochures, seminars and attendance to trade shows and
conferences and by telemarketing. ETSI attempts to increase its business in
the aggregate. As the United States experiences economic and legislative
cycles, the demand for each of the Company's services fluctuates accordingly.
Likewise economic cycles in countries such as Taiwan and South Korea can
influence the foreign demand for ETSI's products and services.
On June 1, 1994, ETSI merged with three related Richmond, Virginia
firms, Stamie E. Lyttle Company, Inc., Lyttle Utilities, Inc. And LPS
corporation, and consolidated them into ETSW, a wholly owned subsidiary of
ETSI. The combination was effected through the issuance of 2,730,000 shares
of ETSI common stock and has been accounted for as a pooling of interest. On
January 19, 1995, ETSI merged a Richmond, Virginia firm, Environmental
Laboratories, Inc., with its subsidiary, ETSAS, which increased ETSAS size by
about 50% and makes ETSAS the largest environmental contract laboratory in
the state of Virginia. This combination was effected through the issuance of
183,600 shares of ETSI common stock and has also been accounted for as a
pooling of interests. On April 3, 1995, ETSI purchased, through the issuance
of 113,000 shares of ETSI common stock, the assets of Air Compliance, Inc., a
Pennsylvania Corporation, and incorporated these assets into the business of
ETS. On February 5, 1996, ETSI acquired certain assets of Olympic
Industries, Inc. in exchange for 539,130 shares of ETSI's common stock and
incorporated these assets into a new wholly owned subsidiary of ETSW, ETS
Liner, Inc. On April 18, 1996, ETSI acquired certain laboratory assets of
Dewberry and Davis, Inc. in exchange of 65,617 shares of ETSI's common stock
and incorporated these assets into ETSAS. These transactions are discussed
further in Note 2 to the audited consolidated financial statements for the
year ended May 31, 1997 (fiscal 1997"). The transactions are anticipated to
broaden the revenues and asset base of ETSI in coming years. The results of
operations for the fiscal years presented include the pooling of interests
transactions as if they had been consummated at the beginning of the earliest
period presented while purchase transactions are reflected since the date of
acquisition.
ETSI has divided its revenues into four meaningful categories; (a)
services - encompassing field and analytical testing, regulatory assistance
and monitoring; (b) consulting /engineering - encompassing consulting and
engineering services and educational areas; (c) products; and
(d) construction.
<PAGE>
Fiscal Year 1997 Compared to Fiscal Year 1996
Revenues for fiscal year 1997 were $24,125,260 compared to $20,539,261
for the year ended May 31, 1996 ("fiscal 1996") for a 17% increase.
Total testing service revenues were $4,733,727 compared to $5,957,008
for fiscal 1996 for a 20% decrease. Decreases were experienced in the stack
field testing, regulatory assistance, monitoring, and the laboratory market
areas during fiscal 1997 mainly due to market dynamics. Intense competition
and reduce pricing played a role in the reduced revenues, however the primary
factor has been the reduction in the quantity of services contracted out by
industrial clients. This is largely related to significantly relaxed
environmental enforcement in the geographic area serviced by ETS. Although
revenues during fiscal 1997 were down from fiscal 1996, income was
significantly increased because of cost reductions that were put into place
at the end of fiscal 1996 and increased margins generated from engineering
services. With the expansion of the engineering service, ETS has several long
term projects that will carry throughout all or most of fiscal year 1998
which includes the proposed China Steel LEC design and installation project,
as well as an air pollution control system upgrade design and an installation
program for a medical waste incineration facility.
Field testing service revenues for fiscal 1997 were $1,905,206 compared
to $2,356,553 for the prior year for a 19% decrease. Competitive pricing
pressures resulted in reduced stack testing whereas the overall customer base
was broad and consisted primarily of private industries. Major customers
included three municipal waste incinerator plants, a petroleum refinery, an
electric utility power plant and the Department of Defense Government Agency.
Efforts are underway to increase the business base for stack testing services
to compensate the loss of revenue related to the withdrawal of services from
a fortune 500 company from the municipal waste-to-energy business.
Regulatory assistance revenues for fiscal 1997 were $175,688 compared
to $534,889 for fiscal 1996. Due to an overall weakness in the market and a
significant reduction in enforcement of environmental regulations, regulatory
assistance revenues continued to be very soft as was expected. The market is
extremely flat, with very little opportunity for new work. Major customers
for fiscal 1997 included a waste-to-energy facility, an electronic testing
equipment manufacturer, a limestone manufacturer, a railroad company and a
paper manufacturer for 56% of the regulatory assistance revenues.
Revenues for monitoring services were $91,018 compared to $160,914 for
the prior year for a decrease in revenues of 43% which was mainly due to
decrease in services for a printing company. The single largest customer
included a chemical plant for ongoing services, accounting for 87% of the
monitoring revenues.
Revenues for analytical laboratory services were $2,561,815 compared to
$2,904,652 for fiscal 1996 for a 12% decrease. The environmental laboratory
market continued to decline during fiscal 1997 and prices continued to fall.
The winter season decline in remediation activities was extremely severe and
this, coupled with the general market decline, resulted in a reduction in
revenues from the prior year sales. The major source of revenues for fiscal
1997 continue to be sample analysis of contaminated soils and waters at
remediation sites. No single area of service significantly changed in terms
of relative proportion, and overall revenues were down in comparison to the
prior fiscal year. The major customers continued to be the USEPA Office of
Water, and several well established remediation and environmental companies.
<PAGE>
Consulting/engineering revenues, which included the sale of books and
training seminars, for the current year were $665,915 compared to $354,484
for the prior year for a 88% increase. The consulting portion of these
foregoing revenues were $242,454 compared to $112,033 for fiscal 1996 for an
increase of 116%. A significant portion of this revenue was derived from
reimbursement of cost expended on contracts with the U.S. Environmental
Protection Agency as a result of the completion of an audit performed on
these contracts. Revenues for engineering services portion for fiscal 1997
were $353,748 compared to $116,278 for fiscal 1996 for an increase of 204%.
An increase in sales effort has been placed in the engineering area because
it is believed to be the single most attractive option for increasing sales
to offset the reduction in regulatory assistance and stack testing. The
single largest customer for engineering services was an iron foundry which
made up 62% of the total engineering revenues.
In-house projects revenues for fiscal 1997 which consist of sales of
books were $21,219 compared to $38,213 for fiscal 1996. Seminar revenues
were $48,494 for the current year compared to $87,960 for the prior year.
The current year seminars included a contract for the development and
performance of an air pollution control technology training program in
Brazil and a stack testing training program for attendees from Singapore.
These seminars represented 70% of the seminar revenues.
Revenues for products for fiscal 1997 were $64,782 compared to $8,430
for fiscal 1996 for an increase of 668%. This increase include BPM equipment
sold to a bag house supplier for 26% of the total products and a licensing
fee paid by E & C Engineering for licensing agreement associated with the
Limestone Emission Control (LEC) equipment in the amount of $40,000.
Revenues for construction services for the current year were
$18,660,836 compared to fiscal 1996 revenues of $14,219,339 for a 31%
increase. The Company showed a substantial increase in revenues and an
increase in income for the current year as a result of an increase in the
construction division with a greater activity in the Richmond, Virginia area
compared to the previous year. The major customer was DPR Construction,
Inc., the general contractor for the White Oak Semiconductor project. The
Company expects to replace this work for fiscal 1998 with similar projects.
The service area revenues remain the same as fiscal 1996 while the irrigation
business was lower than the previous year due to a changed focus from
residential irrigation to commercial irrigation. The major area of
improvement was the rehabilitation work where the market is getting stronger
and the Company sees the opportunity to increase the overall profit margin.
Cost of goods and services were $19,605,497 or 81% of total revenues
for the current year compared to $18,555,761 or 90% of total revenues for the
prior year. This decrease in cost as a percentage of revenues were due to
1) an effort of cutting cost, 2) an effort to sell contracts that are more
profitable and 3) the reimbursements of approximately $225,000 of cost
expended for engineering service as a result of completion of an audit by EPA
on completed contracts.
Gross profits for the year were $4,519,763 or 19% of revenues compared
to $1,983,500 or 10% of revenues. This increase in gross profits reflects
the increase in sales and the lower cost of those sales plus the additional
revenues from the EPA.
<PAGE>
Selling, general and administrative expenses for fiscal 1997 were
$3,962,353 or 16% of the revenues compared to $3,622,064 or 18% of the fiscal
1996 revenues. This decrease in cost as a percentage of revenues was the
result of controlling cost.
Interest income from savings on deposit for fiscal 1997 was $20,024
compared to $21,107 for fiscal 1996. Interest expense for the current year
of $572,829 compared to $392,131 for fiscal 1996. The increase is due to
interest costs associated with the convertible debentures. Other income was
$143,830 for fiscal 1997 compared to $10,797 for fiscal 1996 and consisted of
gain on the sale of equipment and scrap.
Net income for the current year was $148,435 compared to a loss of
$1,998,791 for fiscal 1996. In 1997, the construction company experienced a
substantial increase in revenues of $4,441,497 which resulted in net income
of $760,666 which was enough to overcome the substantial loss of $612,231
created by the environmental operations. In 1996, the construction company
experienced a net loss of $1,370,844 and the environmental operations
experienced a net loss of $627,947.
Fiscal Year 1996 Compared To Fiscal Year 1995
Revenues for fiscal 1996 were $20,539,261 compared to $19,911,906 for
the year ended May 31, 1995 ("fiscal 1995") for a 3% increase.
Total testing service revenues were $5,957,008 for the current year
compared to 6,122,207 for fiscal 1995 for a 3% decrease. This decrease was
due to several factors. The unfavorable weather conditions caused
postponements and delays in executing contracts. There was also a decline in
bidding opportunities for the testing service area as a number of customers
had budget constraints and the state and federal government still at odds in
the pollution control area led to the delay of awarding and state-up of
government contracts for the analytical laboratory.
Field testing service revenues were $2,356,553 compared to $2,778,032
for fiscal 1995 for a 15% decrease. This decrease was due in part to the
decrease in services for a pollution control monitoring system supplier for
stack testing particularly related to continuous emission monitors for
electric utilities which was a major part of the fiscal 1995 field testing
services. Although the number of contracts serviced in fiscal 1996 were
about the same as the previous year, the dollar amounts of the contracts were
somewhat lower. Major customers for fiscal 1996 included two electric power
utility plants, an air pollution control product manufacturer and two
municipal waste incinerator plants representing 31% of field testing
services.
Revenues for analytical laboratory services were $2,904,652 for the
year compared to $2,769,169 for fiscal 1995 for an increase of 5%.
Commercial revenues were up 10% and included increases in groundwater
monitoring and CERCLA soil remedition activities. Government revenues were
down 56% for the current year due to the U.S. congressional budget impasse.
This not only caused delays in the incremental funding of existing contracts
but produced delays in awarding several new contracts for which the
laboratory had negotiated a best and final status. Because of the severe
winter weather the commercial and government projects scheduled during the
third quarter were delayed and re-scheduled up to three months later.
<PAGE>
Regulatory assistance revenues were $534,889 compared to $490,531 for
an increase of 9% over the fiscal 1995 revenues. Major customers comprising
59% of the total included a paper manufacturer, a chemical manufacturer, an
iron foundry and a railroad company. Revenues for monitoring services were
$160,914 for fiscal 1996 compared to $84,475 for fiscal 1995 for an increase
of 91%. Two customers, a printing company and a chemical plant, accounted
for 93% of the total monitoring service revenues.
Revenues for consulting/engineering services for fiscal 1996 were
$354,484 compared to $492,490 for fiscal 1995 for a 28% decrease. Consulting
services revenues were $112,033 which was an increase of 58% over the prior
years' revenues of $70,761 with major customers being a government contractor
consultant and research firm for 54% and an electric utility plant for 27% of
the total consulting revenues. The increase was due largely to the increased
services for the same government contractor over fiscal 1995. Revenues for
engineering were $116,278 for fiscal 1996 compared to $349,395 for fiscal
1995 for a 67% decrease. Major customers for the current year consisted of
two steel manufacturers for 89% of the total engineering. The decrease in
revenues was due to a decrease in services from fiscal 1995 for one of these
steel manufacturers.
Revenues for in-house projects which consist of sale of books were
$38,213 compared to $17,916 for fiscal 1995 for an increase of 113%.
Additional tutorials have been added to the line of books. To educate the
public on the availability of our books, promotional material is being
included with the seminar materials and some promotional mailings are been
made. Seminar revenues were $87,960 compared to $54,418 a year ago for a 62%
increase. The current year included revenues from a seminar sponsored by the
United States Agency for International Development (USAID) for an Air
Pollution Control Technologies course which commenced in the third quarter
and provided 76% of fiscal 1996 seminar revenues and the increase for the
year.
Product revenues were $8,430 for fiscal 1996 compared to $17,737 for a
decrease of 52% and included both the Baghouse Performance Monitoring (BPM)
hardware and software products. Anew clear air regulation includes a section
that will require baghouse operators to provide more exact monitoring with a
record of the problems and the corrective actions taken. ETS has proposed to
the Environmental Protection Agency (EPA) that the BPM be considered as an
acceptable protocol for logging and monitoring this information.
Construction revenues for fiscal 1996 were $14,219,339 compared to
$13,279,472 for fiscal 1995 for a 7% increase. The current year experienced
growth in some areas of business while some areas showed a decline in the
sales. Construction activities in general were slow due to higher interest
rate and a severe winter. Irrigation showed a significant growth and this
growth pattern is expected to continue in fiscal 1997. However, the utility
and septic construction experienced a decline in overall activities in terms
of sales and bidding. Fortunately, toward the end of year, both of these
areas showed improvements in bidding inquiries which will result in sales
growth for the future. Even with the increase in sales for fiscal 1996, the
construction business had a large loss for the year. The nature and cost of
projects during the fiscal 1996 were heavily weighted toward materials rather
than labor and equipment components. The local area economy was slow and
market competitive pressures kept prices of projects at lower levels thereby
further reducing gross profit margins. Adverse weather conditions brought
construction to a standstill during the third quarter and the first part of
fourth quarter, thereby delaying work until late fourth quarter of fiscal
1996.
<PAGE>
Cost of goods and services for fiscal 1996 were $18,555,761 or 90% of
revenues compared to $16,376,725 or 82% of revenues during fiscal 1995. This
increase was attributed to price erosions due to competitive pricing
resulting in higher cost in executing the work, the delays experienced with
the unfavorable weather conditions and the nature and cost of projects
heavily weighted toward materials rather than labor and equipment.
With a 3% increase in revenues and an increase of 13% in the cost of
goods and services, the gross profit for the year ended at $1,983,500 or 10%
of revenues for the current year compared to a gross profit of $3,535,181 or
18% of revenues for fiscal 1995.
Selling, general and administrative expenses for the current year were
$3,622,064 or 18% of revenues compared to $3,038,565 or 15% of revenues for
fiscal 1995. The increase is the result of additional legal expense and added
facilities relating to acquisitions and an overall general increase in office
operations.
Interest income from savings on deposit for fiscal 1996 was $21,107
compared to $26,610 for fiscal 1995. Interest expense representing the
interest for utilization of the credit line and interest paid in financing of
capital equipment was $392,131 for the current year compared to $348,870 for
fiscal 1995. Other income representing the sale of miscellaneous scrap
materials was $10,797 compared to $22,266 for fiscal 1995.
Net loss for fiscal 1996 was $1,998,791 compared to net income of
$502,666 for fiscal 1995. The current year loss was a result of several
factors. All the subsidiaries were affected by the unfavorable weather
conditions causing delay, a decline in bidding opportunities due to budget
constraints of customers, competition pressure keeping margins low, and the
state and federal government still at odds delaying awarding of contracts.
Liquidity And Capital Resources As Of The end of Fiscal Year 1997
During fiscal 1997, the Company issued $160,881 of common stock and
options for services ($131,440 in prepaid expenses at May 31, 1997). As of
May 31, 1997, there were 3,382,900 stock options outstanding to employees,
directors and consultants with expiration dates of November 4, 1997 through
February 4, 2002 and 1,545,875 outstanding warrants to various persons with
expiration dates of December 28, 1999 through February 27, 2002.
In the second quarter of fiscal 1997, the Company sold shares of its
common stock, no par value, to Thomas W. Marmon, a member of the Company's
Board of Directors, in connection with the conversion by Mr. Marmon of
$500,000 of ETS debt securities. The sale was made pursuant to a private
placement under Section 4(2) of the Securities Act of 1933, and the shares
acquired are deemed "restricted securities" subject to the holding period and
other requirements of Rule 144 under the Securities Act.
In the third quarter, the Company's bank line of credit was replaced
with a secured note of up to $2,500,000. The initial advance under the note
was $2,000,000. The note which establishes the facility calls for a fixed
monthly interest of $25,000 over a two year term, subject to call by the
holder upon 60 days notice and is secured by the assets of the Company and it
subsidiaries. The $2,000,000 was used to payoff the bank credit line, a note
with a bank and a note due Mr. Thomas W. Marmon, a member of the Company's
Board of Directors. The $25,000 fixed interest is equivalent to a 15% annual
interest rate. The Company may repay the note at any time without penalty
<PAGE>
upon 60 days notice and the lender may call the note at any time upon 60 days
notice. The Company may borrow an additional $500,000 at the lender's
discretion upon review of the Company's financial condition and the value of
the collateral. The credit facility is provided by a trust for the benefit
of an ETSI investor and director, Thomas W. Marmon.
Pursuant to a Regulation S Convertible Debentures Purchase Agreement
dated as of February 28, 1997, and a Regulation S Warrants Purchase Agreement
dated as of February 28, 1997, the Company placed $750,000 of its 7%
Convertible Debentures due February 27, 2002 and issued warrants to purchase
1,000,000 shares of the Company's common stock, no par value. The debentures
are convertible into the Company's common stock at the lower of $.76 or 65
percent of the average closing bid price of the common stock for the five
trading days immediately preceding the conversion date. The offering was made
under the Securities registration set forth in Regulation S under the 1933
Act to a foreign institutional investor and/or agents associated with the
transaction. The holder of the Debentures is entitled to convert the
Debentures initially issued to such holder beginning forty-five days after
the closing date into that number of fully paid and nonassessable shares of
the Company's common stock.
Major components of cash flow used in operating activities included an
increase in accounts receivable of $1,235,534, an increase in costs and
estimated earnings in excess of billings on uncompleted contracts of $447,606
and an increase in amortization of deferred gain on sale/leaseback of
$304,308 which was offset by depreciation and amortization and increase in
accounts payable resulting in net cash used in operating activities of
$1,064,865. Net cash used in investing activities of $995,928 included
purchases of property, plant and equipment of $820,374. Net cash provided by
financing activities included the following major components: notes payable
to stockholder of $1,900,000, proceeds from convertible debentures of
$750,000, proceeds from long-term debt of $507,382 and proceeds from
issuance of common stock of $304,993 which was offset by decrease in notes
payable to banks and payments on long-term debt resulting in net cash
provided of $2,033,814. Net cash and cash equivalents at May 31, 1997 was
$94,734 compared to $121,713 at May 31, 1996.
The Company had net income of $148,435 from operations in 1997, a
substantial improvement from a loss of $1,998,791 in 1996. The Company
currently anticipates continued profitable operations in 1998. At May 31,
1997, the Company had current assets of $7,814,274 and current liabilities of
$6,955,871. Subsequent to May 31, 1997, the Company obtained $500,000 of
loans with a one-year maturity for working capital purposes and a commitment
for financing with a one-year maturity for $426,250. The Company has
earmarked these funds to pay off the debt of $426,250 to repurchase 269,565
shares of common stock under a repurchase agreement. The Company has
received a proposal from an asset based lender outlining parameters for
proposed financing of up to $5,000,000 to enable the Company to pay off
certain existing debt and to provide future working capital. The proposal is
not a commitment to fund and any funding is subject to final negotiations,
execution and delivery of legal documentation in form and substance
satisfactory to the lender and its legal counsel, completion of the lender's
due diligence, meeting required terms outlined in the proposal, and
documentation including provisions customary to asset based lending. The
Company has a letter of understanding based upon the Company's receipt of a
future contract that $600,000 of funds will be provided through an offering
of Regulation S 7% preferred stock and the Company will grant warrants to
<PAGE>
purchase 750,000 shares of its common stock, no par value, for $.80 per share
for a period of three years. In addition, as part of the letter of
understanding the 1,000,000 of warrants for common stock issued with the 7%
convertible debentures will have a strike price of $.50. As stated above the
proposal for additional debt financing of up to $5,000,000 is subject to a
number of future conditions the Company will need to comply with to
successfully complete the financing. The letter of understanding relating to
the $600,000 of equity financing is subject to the Company receiving the
China Steel LEC contract. There can be no assurance that such conditions
will be satisfied or that such financing will be obtained.
Stockholders' equity has increased to $3,162,635 in 1997 from
$1,488,306 in 1996. This increase has resulted from net income of $148,435,
proceeds from sale of stock of $304,989, issuance of common stock for
services of $160,881, conversion of debt to stock of $550,776, issuance of
warrants of $173,334 and discount on issuance of convertible debentures of
$410,914. Repurchase of common stock amounted to $75,000.
Backlog at May 31, 1997 was $7,983,921 compared to $6,844,851 at May
31, 1996. ETS and ETSAS held open orders from various clients, including
commercial clients as well as federal and state government agencies. If all
the work under these open orders is authorized, the Company estimates that
its backlog would increase by $662,966 to a total of $8,646,887 compared to
open orders at May 31, 1996 of $1,181,866 to a total backlog of $8,026,717.
This increase in total backlog reflects increase in the construction and
rehabilitation areas of the construction company.
Most of ETSI's contracts are of short-term duration and are completed
within a few months of the order or award. Certain contracts such as those
from utilities are annual and are completed in stages against task orders.
Government agencies often issue open orders for which subsequent task orders
are issued. There are no conditions precedent to the issuance of task orders
and they are issued pursuant to the specific orders of the client for the
services. Experience shows that substantially all open orders ultimately
result in task orders and at times have exceeded the amount of the open
order. There can be no assurance that existing contracts or future contracts
containing open orders will result in task orders covering the entire
contractual amounts. ETSI is not aware of any significant unrecognized cost
to complete any open contract.
New orders received for fiscal 1997 amount to $24,919,489. Since the
close of the fiscal year, ETS was selected by China Steel in Taiwan to supply
three of the Company's LEC systems for a value of approximately $7,000,000.
In fiscal 1997, ETSI consummated a license agreement with E & C Engineering,
a subsidiary of one of Taiwan's largest and most prominent engineering firms.
They provide full range engineering and construction services to utility and
industrial power users throughout Asia. This agreement enables E & C to
exclusively market and supply the LEC to those end-users in Taiwan. ETSW,
since the close of the fiscal year, received two major contracts for
installing water mains. One from the Virginia Department of Transportation
totaling $1,168,492 and one from the City of Petersburg in the amount of
$635,000.
Preliminary proposals for the LEC have also been submitted in Poland,
Czech Republic and India. LEC licensing activities continue in Korea and
separate confidentiality agreements have been signed with Jindo and Hyundai
Heavy Industries. A letter of intent from Hyundai is expected in September,
1997 and a memorandum of understanding with Jindo for ETSI air pollution
<PAGE>
control services is anticipated during fiscal 1998. Marketing efforts for
ETSI air pollution control products and services continue in the Pacific Rim,
Asia, Eastern Europe and Mexico. Similar activities are scheduled for Brazil
and other select South American countries in fiscal 1998.
Recent Accounting Developments
Recently, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 Earnings Per Share, Statement of
Financial Accounting Standards No. 129 Disclosure of Information about
Capital Disclosure, Statement of Financial Accounting Standards No. 130
Reporting Comprehensive Income, and Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information. These statements are effective for fiscal years beginning after
December 15, 1997. The Company does not anticipate the adoption of these
statements to have a material effect on its financial position or it results
of operations.
Item 8. Financial Statements and Supplementary Data.
See Financial Statements starting on page F-1 for this
information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
No disagreements exist with respect to accounting and financial
disclosure.
Part III
Item 10. Directors and Executive Officers of the Registrant.
For information with respect to the executive officers and significant
employees of the registrant, see "Executive Officers and Significant
Employees of the Registrant" at the end of Part I of this Report. For
information with respect to the directors of the registrant, see "Election of
Directors" in the Proxy Statement for the Annual Meeting of Shareholders to
be held on October 24, 1997, which is incorporated herein by reference.
Information with respect to Section 16 compliance is incorporated herein by
reference to "Section 16(a) Beneficial Ownership Compliance" in the Proxy
Statement for the Annual Meeting of Shareholders to be held on October 24,
1997.
Item 11. Executive Compensation.
The information set forth under the caption "Executive Compensation" of the
Proxy Statement for the Annual Meeting of Shareholders to be held on October
24, 1997, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information pertaining to stockholders beneficially owning more than 5%
of registrant's common stock and the security ownership of management, which
is included in registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on October 24, 1997 under the headings "Voting
Securities" and "Election of Directors," is incorporated herein by reference.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
For information with respect to certain transactions with directors of the
registrant, see "Transactions with Management" in the Proxy Statement for the
Annual Meeting of Shareholders to be held on October 24, 1997, which is
incorporated herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this Annual Report on Form 10-K:
(1) Financial Statements.
See "Index to Consolidated Financial Statements" on page F-Index herein.
(2) Financial Statement Schedules Required to be Filed by Item 8 on
this Form.
None.
(3) Exhibits
Exhibit No. Description
----------- -----------
3 (a) Articles of Incorporation as amended (incorporated by
reference to Exhibit 3(a) to the Registration
Statement on Form S-18 filed 9-18-97 File No. 33-
17326 (the "Registration Statement"))
3 (b) Articles of Amendment to the Articles of
Incorporation dated as of December 24, 1996
3 (c) Restated By-Laws (incorporated by reference to
Exhibit 3(d) to the Registration Statement on Form
10, filed 11-22-91, File Number 0-19678 ("Form 10"))
4 (a) Stock Certificate (incorporated by reference to
Exhibit 4(b) to the Registration Statement on Form
S-18 filed 9-18-87 File No. 33-17326)
10 (a) Lease between ETS, Inc. and PDJ Associates re: 1401
Municipal Road, NW, Roanoke, VA 24012 (incorporated
by reference to Exhibit 28(y) to the Form 10)
10 (b) Lease between ETS Analytical Services, Inc. and PDJ
Associates re: 1401 Municipal Road, NW, Roanoke, VA
24012 (incorporated by reference to Exhibit 28(z) to
the Form 10)
10 (c) Lease between ETS Water and Waste Management, Inc.
and the Estate of Stamie E. Lyttle (incorporated by
reference Exhibit 10(g) of the Company's Form 10-K
filed for the fiscal year ending 1996 (the "1996 Form
10-K))
10 (d) U.S. Patent No. 4,481,017 and assignment to ETS, Inc.
(incorporated by reference to the Registration
Statement on Form S-18 filed 9-18-87 File No. 33-
17326)
<PAGE>
10 (e) U.S. Patent No. 4,273,750 (incorporated by reference
to the Registration Statement on Form S-18 filed 9-
18-87 File No. 33-17326)
10 (f) U.S. Patent No. 4,2663,136 and assignment to ETS,
Inc. (incorporated by reference to the Registration
Statement on Form S-18 filed 9-18-87 File No. 33-
17326)
10 (g) License Agreement with Addenda, between ETS, Inc. and
Louis Theodore, for U.S. Patent No. 4,297,113
(incorporated by reference to the Registration
Statement on Form S-18 filed 9-18-87 File No. 33-
17326)
10 (h) U. S. Patent No. 4,719,791 (incorporated by reference
to Post Effective Amendment No. 1 to Registration
Statement on Form S-18 filed November 4, 1987 File
No. 33-17326)
10 (i) U. S. Patent No. 4,764,348 (incorporated by reference
to Post Effective Amendment No. 1 to Registration
Statement on Form S-18 filed November 4, 1987 File
No. 33-17326)
10 (j) Employment Agreement dated as of April 3, 1995,
between ETS, Inc. and Arthur B. Nunn
10 (k) Contract License Agreement dated September 14, 1995,
between Uniliner, Inc. and ETS Water and Waste
Management, Inc.
10 (l) Contract License Agreement dated July 12, 1995,
between Ultraliner, Inc. and Richard H. Snyder
10 (m) Agreement to Transfer License dated February 5, 1996,
among Olympic Industries, Inc., Richard H. Snyder,
ETS Liner, Inc. and Ultraliner, Inc.
10 (n) Repurchase Agreement dated February 5, 1996, among
Olympic Industries, Inc., Richard H. Snyder and ETS
International, Inc.
10 (o) Contract dated as of January 13, 1997 between DPR
Construction Corporation, Stamie E. Lyttle Co. (ETS
Liner, Inc.) and White Oak Semiconductor
10 (p) Purchase order dated as of November 18, 1996 from
Chesterfield County to Stamie E. Lyttle Co. Inc.
(ETS Liner, Inc.)
10 (q) Promissory Note dated March 17, 1997 from ETS
International, Inc. to Thomas W. Marmon as trustee of
the Thomas W. Marmon Trust in the original face
amount of $2,500,000
<PAGE>
10 (r) Guaranty Agreement dated as of March 17, 1997 by ETS
Water and Waste Management, Inc., ETS Analytical
Services, Inc., ETS, Inc. and ETS Liner, Inc. in
favor of Thomas W. Marmon, Trustee of the Thomas W.
Marmon Trust
10 (s) License Agreement dated as of November, 1996 by and
between E & C Engineering Corporation and ETS
International, Inc.
10 (t) Letter of Intent dated as of July 8, 1997 by and
between China Steel Corporation and ETS
International, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated February 28, 1997,
filed with the Commission on March 13, 1997, relating
to the sale under Regulation S of convertible
debentures and warrants
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
May 31, 1997
============================================================================
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets as of May 31, 1997 and 1996 F-2 and F-3
Consolidated Statements of Income (Loss) - Years Ended May 31,
1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity - Years Ended
May 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows - Years Ended May 31,
1997, 1996 and 1995 F-6 and F-7
Notes to Consolidated Financial Statements - May 31, 1997, 1996
and 1995 F-8 to F-22
============================================================================
F-Index
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
ETS International, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of ETS
International, Inc. and subsidiaries as of May 31, 1997 and 1996, and the
related consolidated statements of income (loss), stockholders' equity and
cash flows for each of the years in the three-year period ended May 31, 1997.
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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ETS
International, Inc. and subsidiaries as of May 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
August 4, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 1997 and 1996
========================================================================================
Assets 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 94,734 121,713
Accounts receivable:
Trade (net of allowance of $119,424 in 1997 and
$95,100 in 1996) 4,809,128 3,749,040
U.S. Government agencies 79,661 48,299
Other 151,341 82,564
- ----------------------------------------------------------------------------------------
5,040,130 3,879,903
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,325,954 878,348
Notes receivable from officers 64,694 65,222
Inventories 771,788 550,728
Prepaid expenses 516,974 225,943
- ----------------------------------------------------------------------------------------
Total current assets 7,814,274 5,721,857
Property, plant and equipment:
Furniture and fixtures 984,463 943,685
Laboratory equipment 2,829,277 2,651,970
Tools and equipment 3,138,372 2,773,615
Vehicles 1,845,518 1,539,868
Leasehold improvements 788,051 757,555
- ----------------------------------------------------------------------------------------
9,585,681 8,666,693
Less accumulated depreciation and amortization 6,505,254 5,753,152
- ----------------------------------------------------------------------------------------
Property, plant and equipment, net 3,080,427 2,913,541
Other assets:
Goodwill (net of accumulated amortization of $28,091
in 1997 and $11,048 in 1996) 227,155 244,198
Notes receivable from officers 344,152 326,577
Prepublication costs (net of accumulated amortization
of $322,646 in 1997 and $296,008 in 1996) 208,890 129,615
Cash surrender value of life insurance, net 142,728 116,283
Patents granted (net of accumulated amortization of
$33,190 in 1997 and $26,319 in 1996) 77,546 74,107
Patents pending 65,905 21,870
Other 343,472 286,968
- ----------------------------------------------------------------------------------------
1,409,848 1,199,618
- ----------------------------------------------------------------------------------------
$ 12,304,549 9,835,016
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2<PAGE>
<TABLE>
<CAPTION>
========================================================================================
Liabilities and Stockholders' Equity 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Bank overdraft $ 44,560 8,746
Notes payable to banks 89,837 1,071,427
Note payable to stockholder 2,000,000 -
Notes payable to affiliates 289,159 348,625
Current portion of long-term debt 493,012 378,779
Accounts payable 3,198,194 2,837,386
Accrued expenses and other liabilities 431,467 626,894
Common stock to be repurchased (including
interest of $22,142), 269,565 shares;
issued and outstanding 409,642 -
- ----------------------------------------------------------------------------------------
Total current liabilities 6,955,871 5,271,857
Long-term debt 861,673 660,133
Note payable to stockholder - 600,000
Notes payable to affiliates 201,458 -
Deferred gain on sale/leaseback 735,412 1,039,720
- -----------------------------------------------------------------------------------------
Total liabilities 8,754,414 7,571,710
- -----------------------------------------------------------------------------------------
Common stock subject to repurchase agreement,
269,565 shares; issued and outstanding 387,500 775,000
Stockholders' equity:
Preferred stock, no par value; authorized
5,000,000 shares; none issued and outstanding - -
Common stock, no par value; authorized
30,000,000 shares; issued and outstanding
14,215,823 and 12,580,733 at May 31,
1997 and 1996, respectively 5,002,129 3,476,235
Retained earnings (accumulated deficit) (1,839,494) (1,987,929)
- ----------------------------------------------------------------------------------------
Total stockholders' equity 3,162,635 1,488,306
Commitments and contingencies
- ----------------------------------------------------------------------------------------
$ 12,304,549 9,835,016
========================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years Ended May 31, 1997, 1996 and 1995
========================================================================================
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract revenues:
U.S. Government agencies $ 480,080 487,257 520,037
Commercial 23,645,180 20,052,004 19,391,869
- ----------------------------------------------------------------------------------------
24,125,260 20,539,261 19,911,906
Cost of goods and services 19,605,497 18,555,761 16,376,725
Selling, general and administrative expenses 3,962,353 3,622,064 3,038,565
- ----------------------------------------------------------------------------------------
557,410 (1,638,564) 496,616
Interest income 20,024 21,107 28,610
Interest expense (572,829) (392,131) (348,870)
Gain (loss) on sale of equipment 101,037 (13,474) -
Insurance proceeds - - 304,044
Other, net 42,793 24,271 22,266
- ----------------------------------------------------------------------------------------
Income (loss) before income taxes 148,435 (1,998,791) 502,666
Income tax expense - - -
- ----------------------------------------------------------------------------------------
Net income (loss) $ 148,435 (1,998,791) 502,666
========================================================================================
Net income (loss) per common share:
Primary $ .01 (.16) .04
Fully diluted .01 (.16) .04
Average shares of common stock used for above
computation:
Primary 13,279,039 12,479,167 12,841,256
Fully diluted 13,695,706 12,479,167 12,841,256
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended May 31, 1997, 1996 and 1995
============================================================================================
Retained
Common Stock Earnings
------------------------ (Accumulated
Shares Amount Deficit)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at May 31, 1994 11,989,123 $ 2,927,955 (491,804)
Proceeds from issuance of common stock 98,679 167,390 -
Repurchase of common stock (216,809) (437,000) -
Issuance of common stock in connection with
asset acquisition 113,000 219,220 -
Proceeds from exercise of employee stock options 185,629 219,650 -
Proceeds from exercise of stock warrants 267,794 221,587 -
Net income - - 502,666
- --------------------------------------------------------------------------------------------
Balances at May 31, 1995 12,437,416 3,318,802 10,862
Issuance of common stock in connection with
asset acquisition 65,617 75,000 -
Proceeds from exercise of employee stock options 77,700 82,433 -
Net loss - - (1,998,791)
- --------------------------------------------------------------------------------------------
Balances at May 31, 1996 12,580,733 3,476,235 (1,987,929)
Proceeds from issuance of common stock 461,525 300,000 -
Proceeds from exercise of vendor options 212,000 1,060 -
Proceeds from exercise of employee stock options 5,014 3,929 -
Repurchase of common stock (65,617) (75,000) -
Issuance of common stock and options for services 43,500 160,881 -
Issuance of common stock for payment of note
payable to stockholder 833,333 500,000 -
Issuance of warrants with convertible debentures to
acquire 1,000,000 shares of common stock - 173,334 -
Discount on issuance of convertible debentures - 410,914 -
Conversion of convertible debentures 145,335 50,776 -
Net income - - 148,435
- --------------------------------------------------------------------------------------------
Balances at May 31, 1997 14,215,823 $ 5,002,129 (1,839,494)
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 1997, 1996 and 1995
==============================================================================================
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 148,435 (1,998,791) 502,666
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 830,687 873,214 892,960
Provision for bad debts 75,307 56,350 8,000
Amortization of convertible debentures discount 139,152 - -
Professional services received in exchange for
common stock 29,437 - -
Amortization of deferred gain on
sale/leaseback (304,308) (177,512) -
(Gain) loss on sale of equipment (101,037) 13,474 -
Other 7,844 - -
Increase or decrease in operating assets and
liabilities:
Accounts receivable (1,235,534) (310,839) (714,591)
Costs and estimated earnings in excess of
billings on uncompleted contracts (447,606) 153,528 (546,400)
Inventories (221,060) 2,095 (155,871)
Prepaid expenses (159,591) 2,235 (97,862)
Cash surrender value of life insurance, net (26,445) (20,596) (14,139)
Accounts payable 360,808 1,078,599 (117,020)
Accrued expenses and other liabilities (193,441) 41,790 (17,178)
Other 32,487 (65,000) 20,926
- ----------------------------------------------------------------------------------------------
Net cash used in operating activities (1,064,865) (351,453) (238,509)
Cash flows from investing activities:
Purchases of property, plant and equipment (820,374) (334,065) (940,898)
Prepublication costs (105,913) - (7,490)
Patent costs incurred (54,345) (16,417) (15,649)
Cash received in acquisitions - - 915
Proceeds from sale/leaseback of equipment - 1,660,900 -
Proceeds from sale of equipment 1,751 36,940 -
Notes receivable from officers (increase) decrease (17,047) 83,815 (1,188)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (995,928) 1,431,173 (964,310)
</TABLE>
(Continued)
F-6
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
==============================================================================================
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Bank overdraft increase (decrease) $ 35,814 (48,520) 57,266
Notes payable to banks increase (decrease) (981,590) (179,237) 197,901
Notes payable to affiliates increase 140,006 47,466 101,347
Proceeds from note payable to stockholder 1,900,000 600,000 -
Proceeds from convertible debentures 750,000 - -
Proceeds from long-term debt 507,382 344,465 1,731,291
Principal payments on long-term debt (547,791) (1,869,789) (1,301,056)
Proceeds from issuance of common stock 304,993 82,433 608,627
Repurchase of common stock (75,000) - (437,000)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,033,814 (1,023,182) 958,376
- ----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (26,979) 56,538 (244,443)
Cash and cash equivalents at beginning of year 121,713 65,175 309,618
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 94,734 121,713 65,175
==============================================================================================
Supplemental disclosures of cash flow information and noncash investing activities:
Interest paid on notes payable and long-term debt was $392,126, $382,233 and
$361,794 for the years 1997, 1996 and 1995, respectively. Capital lease obligations
of $94,210, $88,269 and $399,572 were incurred during 1997, 1996 and 1995,
respectively, under leases entered into for vehicles, furniture and fixtures, and
laboratory equipment.
During 1997, the Company issued $160,881 of common stock and options for services
($131,440 in prepaid expenses at May 31, 1997), issued $500,000 in common stock in
repayment of note payable to stockholder, issued $173,334 of warrants for common
stock with convertible debentures, recognized a discount of $410,914 on issuance of
convertible debentures and converted 50,776 of convertible debentures to common
stock (see note 5).
During 1996, the Company acquired certain assets of two entities (see note 2) in
exchange for 604,747 shares of its common stock.
During 1995, the Company acquired the net assets of Air Compliance, Inc. (see note
2) in exchange for 113,000 shares of its common stock.
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1997, 1996 and 1995
=============================================================================
(1) Significant Accounting Policies
Currency
All references to dollars ($) are United States dollars unless
otherwise denoted as Canadian (CDN).
Principles of Consolidation
The consolidated financial statements include the accounts of ETS
International, Inc. and its wholly-owned subsidiaries, ETS, Inc., ETS
Analytical Services, Inc. and ETS Water and Waste Management, Inc.
("the Company"). Significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories, consisting of raw materials ($351,856 in 1997 and $330,754
in 1996) and supplies ($419,932 in 1997 and $219,975 in 1996), are
stated at the lower of cost (first-in, first-out method) or market.
Long-term Contracts
Revenues on uncompleted long-term contracts are recorded using the
percentage-of-completion method. Provisions are made for estimated
losses at the time the losses are determinable. Revenues related to
certain government contracts are subject to adjustments upon audit of
costs by the government, with any such adjustments reflected in the
accounting period in which determined. For the year ended May 31,
1997, the Company recognized approximately $225,000 in income from
adjustments to prior year contracts. Billings are prepared according
to specific terms of individual contracts. Contracts will generally
provide for periodic payments as work is completed with final amounts
due upon completion and acceptance of the project by the customer.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost.
Property and equipment under capital leases are stated at the present
value of minimum lease payments at the inception of the lease.
(Continued)
F-8
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(1) (Continued)
Provisions for depreciation and amortization have been calculated using
the straight-line method over the following estimated useful lives of
the assets:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures 5 - 10 years
Laboratory equipment 5 - 10 years
Tools and equipment 5 - 10 years
Vehicles 3 - 5 years
Leasehold improvements 5 - 10 years
</TABLE>
Property and equipment under capital leases are amortized on the
straight-line basis over the shorter of the lease term or the estimated
useful life of the asset. Leasehold improvements are amortized on the
straight-line basis over the shorter of the lease term or the estimated
useful life of the improvement.
Patents
The Company has incurred costs related to patent applications which
have been or will be made. Costs related to patents granted are being
amortized over a period of 17 years using the straight-line method.
Costs relating to patents pending are deferred until the patent is
granted.
Prepublication Costs
Prepublication costs related to the Company's production of textbooks
and other training materials are stated at the lower of cost or market.
These deferred costs are amortized over a period of 5 years from
publication date using the straight-line method.
Goodwill
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over
periods not exceeding 15 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operations. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds.
Research and Development
Research and development costs are charged to operations as incurred.
<PAGE>
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
(Continued)
F-9
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(1) (Continued)
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per share have been computed on the basis of weighted average
number of shares outstanding. Stock options and warrants have been
excluded for the years ended May 31, 1997, 1996 and 1995, due to their
antidilutive effect on earnings per share.
Licensing Agreements
The Company has licensing agreements with certain customers to sell
proprietary products developed by the Company, including the Limestone
Emission Control (LEC) System and the Dry Reactor. The Company is to
receive amounts ranging from five percent to eight percent of gross
sales as royalties for the sale of these proprietary products. Minimum
royalty fees are recognized when due from the licensee based on product
sales, training completion and terms of the license agreements. These
agreements contain certain restrictive clauses requiring the licensees
to meet minimum sales targets or the license agreement may be revoked
at the Company's option. The LEC system incorporates some claims of a
patent issued to the U.S. Department of Energy (DOE). Under terms of
an agreement with the DOE, the Company is required to pay the DOE a
royalty fee of one percent. No royalty fees or expenses were
recognized by the Company for the years ended May 31, 1997, 1996 and
1995.
Stock Options and Warrants
Prior to June 1, 1996, the Company accounted for its stock options and
warrants in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense was
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On June 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (Statement 123), which permits
entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively,
Statement 123 also allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income or loss and pro
forma net income or loss per common share disclosures for stock option
and warrant grants made in 1996 and future years as if the
fair-value-based method defined in Statement 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of Statement
123.
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
(Continued)
F-10
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(1) (Continued)
Reclassifications
Certain reclassifications have been made to the 1996 financial
statements to conform to classifications used in 1997.
(2) Business Combinations
On June 1, 1994, ETS International, Inc. acquired the common stock of
Stamie E. Lyttle, Inc., Lyttle Utilities, Inc. and LPS, Inc. (the
"Lyttle Companies") in exchange for 2,730,000 shares of ETS
International, Inc.'s common stock. On January 19, 1995, ETS
International, Inc. acquired the common stock of Environmental
Laboratories Incorporated (ELI) in exchange for 183,600 shares of ETS
International, Inc.'s common stock. These acquisitions were accounted
for by the pooling-of-interests method and, accordingly, the
consolidated financial statements include the operations of the Lyttle
Companies and ELI for all periods presented. There were no material
adjustments of the net assets of the Lyttle Companies or ELI as a
result of adopting the same accounting practices as ETS International,
Inc. and its subsidiaries.
On April 3, 1995, ETS International, Inc. acquired the net assets of
Air Compliance, Inc. in exchange for 113,000 shares of ETS
International, Inc.'s common stock. On February 5, 1996, ETS
International, Inc. acquired certain assets of Olympic Industries, Inc.
in exchange for 539,130 shares of ETS International, Inc.'s common
stock (see note 8). On April 18, 1996, ETS International, Inc.
acquired certain laboratory assets of Dewberry and Davis, Inc. in
exchange for 65,617 shares of ETS International, Inc. common stock.
These acquisitions were accounted for as purchases; accordingly, the
results of operations of the acquired entities are included in the
consolidated financial statements only from the date of acquisition.
Proforma results of operations are not presented because the effect is
not material to the consolidated financial statements. The goodwill
arising as a result of the excess of the purchase price over the fair
value of net assets acquired is being amortized on a straight-line
basis over periods not exceeding 15 years.
<PAGE>
The following table summarizes these acquisitions:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Purchase price (604,747 and 113,000 shares of
stock issued in 1996 and 1995, respectively) $ 850,000 219,220
============================================================================
Accounts receivable 2,000 130,230
Equipment 529,200 16,397
Franchise fee 200,000 -
Other assets 72,816 3,344
Accounts payable and other liabilities (100,000) (40,013)
- -----------------------------------------------------------------------------
Net assets acquired (estimated fair value) $ 704,016 109,958
=============================================================================
Excess of purchase price over fair value of net
assets acquired (goodwill) $ 145,984 109,262
=============================================================================
</TABLE>
(Continued)
F-11
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(3) Business Segment Information
ETS International, Inc. and its wholly-owned subsidiaries provide
environmental and infrastructure products and services. The Company
specializes in toxic emission measurement and control as well as
infrastructure design, construction and maintenance.
The Company currently derives its primary contract revenues from
domestic customers. During 1997, 1996 and 1995, there were a limited
number of customers in Mexico, Canada and Taiwan. The Company is
currently expanding its international sales efforts.
For the year ended May 31, 1997, the Company had contract revenues from
one customer, which accounted for more than 5 percent of contract
revenues, aggregating approximately $2,337,000 or 10 percent of
contract revenues. At May 31, 1997, four customers had accounts
receivable balances which exceed 5 percent of total stockholders'
equity. The accounts receivable balances of these customers totaled
approximately $1,326,000.
No single customer accounted for more than 5 percent of contract
revenues for the year ended May 31, 1996. At May 31, 1996, one
customer had an accounts receivable balance which exceeded 5 percent of
total stockholders' equity. The accounts receivable balance of this
customer was $273,562.
For the year ended May 31, 1995, the Company had contract revenues from
two customers, each of which accounted for more than 5 percent of
contract revenues, aggregating approximately $3,479,000 or 17 percent
of contract revenues. These two customers had accounts receivable
balances which exceeded 5 percent of total stockholders' equity. The
accounts receivable balances for these customers totaled $755,004.
<PAGE>
Information related to the environmental and infrastructure operations
follows:
<TABLE>
<CAPTION>
Environmental Infrastructure
Operations Operations Eliminations Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Total assets $ 4,660,039 7,644,510 - 12,304,549
Total liabilities 3,361,085 5,393,329 - 8,754,414
Contract revenues 5,607,133 18,660,836 (142,709) 24,125,260
Depreciation and amortization 537,373 293,314 - 830,687
Interest income - 20,024 - 20,024
Interest expense 296,711 276,118 - 572,829
Net income (loss) (612,231) 760,666 - 148,435
Capital expenditures 156,605 663,769 - 820,374
1996:
Total assets 3,981,132 5,853,884 - 9,835,016
Total liabilities 2,068,784 5,502,926 - 7,571,710
Contract revenues 6,496,457 14,219,339 (176,535) 20,539,261
Depreciation and amortization 639,357 233,857 - 873,214
Interest income - 21,107 - 21,107
Interest expense 178,197 213,934 - 392,131
Net loss (627,947) (1,370,844) - (1,998,791)
Capital expenditures 107,568 226,497 - 334,065
</TABLE>
(Continued)
F-12
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(3) (Continued)
<TABLE>
<CAPTION>
Environmental Infrastructure
Operations Operations Eliminations Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
Total assets $ 5,003,603 4,655,008 - 9,658,611
Total liabilities 2,328,711 4,000,236 - 6,328,947
Contract revenues 6,739,764 13,279,286 (107,144) 19,911,906
Depreciation and amortization 602,858 290,102 - 892,960
Interest income - 28,610 - 28,610
Interest expense 145,541 203,329 - 348,870
Insurance proceeds 304,044 - - 304,044
Net income 390,551 112,115 - 502,666
Capital expenditures 555,624 385,274 - 940,898
- -----------------------------------------------------------------------------------------------------
</TABLE>
(4) Accounts Receivable
A summary of the changes in the allowance for doubtful accounts
follows:
<TABLE>
<CAPTION>
Years Ended May 31,
----------------------------------
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balances, beginning of year $ 95,100 99,500 91,500
Provision for bad debts 75,307 56,350 8,000
Accounts written off (50,983) (60,750) -
- ------------------------------------------------------------------
Balances, end of year $ 119,424 95,100 99,500
==================================================================
</TABLE>
<PAGE>
(5) Notes Payable to Banks and Long-term Debt
Notes payable to banks consists of the following:
<TABLE>
<CAPTION>
May 31,
------------------------
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
$1,500,000 revolving line of credit, due on demand,
bearing interest at the bank's prime rate plus 1/4%,
paid in full during 1997 $ - 981,590
$90,000 line of credit, due on demand, bearing interest
at prime plus 2%, which approximated 10.25% at May 31,
1997, secured by certain equipment 89,837 89,837
- -----------------------------------------------------------------------------------------
$ 89,837 1,071,427
=========================================================================================
</TABLE>
(Continued)
F-13
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(5) (Continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
-----------------------------
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
7% convertible debentures due February 2002, net of
unamortized discount of $438,028 $ 261,972 -
$400,000 term note payable to bank, due February 2001,
bearing interest at 11%, payable in monthly
installments of $10,322 including interest, secured
by certain vehicles 379,851 -
$250,000 term note payable to bank, due February 1998,
bearing interest at prime plus 1%, paid in full
during 1997 - 154,889
$185,806 term note payable to finance company, due
December 1999, bearing interest at 19.47%, payable
in monthly installments of $6,350 including interest,
secured by certain vehicles and equipment 103,133 153,761
$100,000 term note payable to finance company, due
February 2001, bearing interest at 12.5%, payable
in monthly installments of $2,658 including interest,
secured by certain vehicles 73,906 95,100
Installment loans with maturities to 1999, bearing
interest at varying interest rates from 6.65% to 9.25%,
payable in varying monthly installments of $402 to
$3,397 including interest, secured by vehicles and
equipment 197,312 175,175
Capital lease obligations, with maturities to 2001
(see note 6) 338,511 459,987
- -----------------------------------------------------------------------------------------
1,354,685 1,038,912
Less current maturities 493,012 378,779
- -----------------------------------------------------------------------------------------
$ 861,673 660,133
=========================================================================================
</TABLE>
Aggregate debt maturities for each of the next four years ending on May
31 is as follows: 1998, $493,012; 1999, $315,054; 2000, $189,358; and
2001, $95,289, respectively. The $700,000 of 7 percent convertible
debentures due February 2002 are automatically converted into common
stock at maturity. See following paragraph for additional information.
<PAGE>
On February 28, 1997, the Company issued $750,000 of 7 percent
convertible debentures due February 27, 2002. The holder of the
debentures is entitled to convert them into common stock at his option.
The Company may at its option force conversion after one year from
February 28, 1997. The Company is not required to pay cash to retire
the debentures and the accrued interest. The debentures are
convertible into the Company's common stock at the lower of $.76 or 65
percent of the average closing bid price of the common stock for the
five trading days immediately preceding the conversion date. Since the
conversion rate was lower than the market price of the common stock on
the date of issuance, a discount of $403,846 was recognized on the
debentures. In addition, 1,000,000 warrants for common stock were
issued with the convertible debentures. The fair value of these
warrants, $173,334, was recorded as part of the discount. The total
discount of $577,180 is being amortized as interest expense over a year
using the interest rate method.
On May 20, 1997, the Company issued 145,335 shares of common stock upon
the conversion of $50,776 of the convertible debentures, which includes
$776 of accrued interest.
(Continued)
F-14
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(6) Leases
Property, plant and equipment included the following amounts of assets
under capital lease obligations:
<TABLE>
<CAPTION>
May 31,
---------------------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $ 221,057 221,057
Laboratory equipment 987,960 987,960
Tools and equipment 94,210 -
Vehicles 68,727 68,727
Leasehold improvements 30,437 30,437
- ---------------------------------------------------------------
1,402,391 1,308,181
Less accumulated amortization (823,178) (640,925)
- ---------------------------------------------------------------
$ 579,213 667,256
===============================================================
</TABLE>
The capital lease payments were $243,536 in 1997, $246,527 in 1996 and
$219,418 in 1995. Lease amortization is included in depreciation
expense ($182,252 in 1997, $171,125 in 1996 and $129,146 in 1995).
Future minimum payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- -----------------------------------------------------------------------------
<S> <C> <C>
1998 $ 198,397 1,104,481
1999 118,212 970,068
2000 57,292 668,631
2001 6,321 377,989
2002 - 8,560
- -----------------------------------------------------------------------------
380,222 $ 3,129,729
==========
Less amounts representing interest (rates
9.6% - 16.5%) 41,711
- -------------------------------------------------------------
Present value of lease payments (including
$192,700 classified as current) $ 338,511
=============================================================
</TABLE>
<PAGE>
Rent expense for operating leases of approximately $1,302,000,
$1,407,000 and $682,000 was recognized for the years ended May 31,
1997, 1996 and 1995, respectively.
On October 25, 1995, the Company entered into a sale/leaseback
agreement which provided for the sale and leaseback of certain
equipment. This equipment, with a net book value of $443,668, was sold
for $1,660,900 and was leased back to the Company for a 48-month period
at $39,015 per month. The resulting gain of $1,217,232 on the sale of
equipment is being amortized over the life of the operating lease and
has a remaining balance of $735,412 at May 31, 1997.
(Continued)
F-15
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(7) Income Taxes
The Company is in a net operating loss position, accordingly, no income
tax expense has been recognized for the years ended May 31, 1997, 1996
and 1995.
Income tax expense differs from the amount computed by applying the
statutory corporate tax rate of 34 percent to income (loss) before
income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax expense (benefit) $ 50,468 (679,588) 170,906
Increase (decrease) resulting from:
State income tax, net of federal income tax impact 8,588 (75,939) 12,112
Life insurance proceeds - - (103,375)
Meals and entertainment 12,897 22,075 30,104
Utilization of net operating loss carryforwards - - (105,085)
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets (60,482) 736,696 (89,150)
Other (11,471) (3,244) 84,488
- -----------------------------------------------------------------------------------------
Income tax expense $ - - -
=========================================================================================
</TABLE>
The significant components of deferred income tax expense (benefit) for
the years ended May 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit) exclusive of the
components listed below $ 82,395 (727,936) 11,021
Utilization of net operating loss carryforwards - - 105,085
Expiration of investment tax credit carryforwards (21,913) (8,760) (26,956)
Increase (decrease) in beginning of the year
balance of the valuation allowance for deferred
tax assets (60,482) 736,696 (89,150)
- -----------------------------------------------------------------------------------------
$ - - -
=========================================================================================
</TABLE>
(Continued)
F-16
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(7) (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May
31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 883,791 887,260
Deferred gain on sale/leaseback transaction due
to accrual versus cash basis of accounting
for financial reporting and tax purposes 279,162 394,678
Other 176,069 164,478
- -----------------------------------------------------------------------------------
Total gross deferred tax assets 1,339,022 1,446,416
Less valuation allowance (1,063,264) (1,123,746)
- -----------------------------------------------------------------------------------
Net deferred tax asset 275,758 322,670
- -----------------------------------------------------------------------------------
Deferred tax liabilities:
Accounts receivable and accounts payable,
principally due to accrual versus cash
basis of accounting for financial reporting
and tax purposes 157,110 209,480
Property, plant and equipment, principally due
to difference in depreciation for financial
reporting and tax purposes 101,801 94,800
Other 16,847 18,390
- -----------------------------------------------------------------------------------
Total gross deferred tax liabilities 275,758 322,670
- -----------------------------------------------------------------------------------
Net deferred tax $ - -
===================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the
level of historical taxable losses and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not
realize the benefits of these deductible differences and loss
carryforwards in excess of the amount which can be offset by the
reversal of future taxable items.
(Continued)
F-17<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(7) (Continued)
At May 31, 1997, the Company has loss carryforwards for income tax
purposes of 2,254,455 available to offset future taxable income.
If not utilized, these loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
Expiration
Date
-------------------------------
<S> <C>
2003 $ 555,174
2008 1,000,451
2011 582,048
2012 116,782
-------------------------------
$ 2,254,455
===============================
</TABLE>
In addition, the Company has various tax credit carryforwards of
approximately $28,000 which will expire between the years 1997 and
2000.
(8) Common Stock Subject to Repurchase Agreement
In connection with the Olympic Industries, Inc. asset acquisition (see
note 2), the Company entered into a common stock repurchase agreement
(the "repurchase agreement"). Under the repurchase agreement, the
Company is obligated to repurchase at the stock price set forth in the
Asset Purchase Agreement ($1.43 per share) up to one-half of the issued
shares on the first anniversary of the acquisition and up to one-half
of the issued shares on the second anniversary of the acquisition.
Accordingly, the 539,130 shares issued in connection with the asset
acquisition have been classified as common stock subject to repurchase
at their aggregate repurchase price of $775,000. As security for the
Company's obligation to repurchase the shares, the Company granted the
seller a security interest in the assets purchased. The Company may
satisfy its obligation related to the shares (269,565 shares) subject
to repurchase on the second anniversary in February 1998 upon the
successful registration of the issued shares with the Securities and
Exchange Commission (SEC). It is the Company's intention to complete
this registration; however, upon completion, it will be subject to
final SEC approval. If the stock is not registered and the Company is
requested to repurchase the stock on the second anniversary, the
Company can pay a fee of $38,750 and extend the repurchase date until
September 1998.
In February 1997, Olympic Industries, Inc. elected to have the Company
repurchase one-half of the issued shares (269,565 shares) at the first
anniversary of the acquisition. Accordingly, this obligation of
$409,642 including interest of $22,142 is shown as current. The
Company elected to defer the repurchase until September 1997.
<PAGE>
(9) Stock Options and Warrants
Pursuant to various stock option and stock warrant agreements, the
Company has granted nontransferable options and warrants to acquire the
Company's common stock to certain officers, directors, investors,
vendors and employees of the Company and its subsidiaries.
(Continued)
F-18
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(9) (Continued)
Options and warrants are generally granted at approximate fair market
value based on the higher of the most recent ten-day average price of
the stock or the last day's closing price of the stock on the date of
the grant.
The aggregate amount of shares under option pursuant to these
agreements were as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
- -----------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at May 31, 1994 1,495,068 $ 1.88 CDN and 1.32 US
Granted 972,000 $ 1.72 US
Exercised (185,629) $ .79 CDN and 1.25 US
Expired (3,350) $ 2.35 CDN and 1.37 US
- ------------------------------------------------------
Options outstanding at May 31, 1995 2,278,089 $ 1.91 CDN and 1.56 US
Granted 448,000 $ 1.07 US
Exercised (77,700) $ 1.30 CDN and 1.07 US
Expired (178,816) $ 2.34 CDN and 1.66 US
- ------------------------------------------------------
Options outstanding at May 31, 1996 2,469,573 $ 1.90 CDN and 1.46 US
Granted 1,716,000 $ .66 US
Exercised (217,014) $ 1.05 CDN and .005 US
Expired (585,659) $ 1.50 CDN and .42 US
- ------------------------------------------------------
Options outstanding at May 31, 1997 3,382,900 $ 2.35 CDN and 1.12 US
======================================================
</TABLE>
In 1997, 212,000 options were granted and exercised at $.005. At the
time the options were granted the common stock of the Company had a
fair value of $.63. These options were granted in exchange for
services. The services were recorded at the difference between the
option price and fair value of the common stock.
<PAGE>
Options exercisable at May 31, 1997 and 1996 approximated 2,998,000 and
1,800,000, respectively. At May 31, 1997, the range of exercise prices
for options was $2.35 CDN and $.75 to 2.06 US. Options generally
become exercisable over a period not exceeding five years from the date
of grant and warrants are exercisable upon issuance.
(Continued)
F-19
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(9) (Continued)
The aggregate amount of shares under warrant pursuant to these
agreements were as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
- -----------------------------------------------------------------------------------
<S> <C> <C>
Warrants outstanding at May 31, 1994 310,223 $ 1.62 US and 1.13 CDN
Granted 98,679 $ 2.04 US
Exercised (267,794) $ 1.13 CDN
- ------------------------------------------------------
Warrants outstanding at May 31, 1995 141,108 $ 1.92 US
Expired (42,429) $ 1.62 US
- ------------------------------------------------------
Warrants outstanding at May 31, 1996 98,679 $ 2.04 US
Granted 1,494,875 $ 0.84 US
Expired (47,679) $ 1.87 US
- ------------------------------------------------------
Warrants outstanding at May 31, 1997 1,545,875 $ .88 US
======================================================
</TABLE>
The per share weighted-average fair values of stock options and
warrants granted during 1997 and 1996 were $.29 and $.18 on the various
dates of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1997 - expected dividend yield
of 0 percent, risk-free interest rate of 6.29 percent, expected
volatility of 20 percent and an expected life of 2 to 4 years; 1996 -
expected dividend yield of 0 percent, risk-free interest rate of 6.36
percent, expected volatility of 20 percent and an expected life of 4
years.
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the financial statements. Had
the Company determined compensation cost based on the fair value at the
grant date for its stock options and warrants under the provisions of
Statement 123, the Company's net income (loss) and net income (loss)
per common share would have been increased to the pro forma amounts
indicated below:
<PAGE>
<TABLE>
<CAPTION>
Years Ended May 31,
----------------------------
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Net income (loss):
As reported $ 148,435 (1,998,791)
Pro forma (340,489) (2,032,923)
Net income (loss) per common share:
Primary, as reported 0.01 (0.16)
Primary, pro forma (0.03) (0.16)
Fully diluted, as reported 0.01 (0.16)
Fully diluted, proforma (0.02) (0.16)
- ------------------------------------------------------------------------
</TABLE>
(Continued)
F-20
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(9) (Continued)
Pro forma net income (loss) reflects only options granted in 1997 and
1996. Therefore, the full impact of calculating compensation cost for
stock options under Statement 123 is not reflected in the pro forma net
income (loss) amounts presented above because compensation cost is
reflected over the options' vesting periods and compensation cost for
options granted prior to June 1, 1995 is not considered.
(10) Related Party Transactions
The Company and its subsidiaries lease various office space and
laboratories from entities whose members include certain officers and
directors of the Company. Rent expense under these operating leases
approximated $417,000, $405,000 and $399,000 for 1997, 1996 and 1995,
respectively.
Other accounts receivable consists primarily of advances to officers,
directors and other employees. At May 31, 1997 and 1996, $91,381 and
$76,265, respectively, were the result of these advances.
The Company has notes receivable from officers of $408,846 and $391,799
as of May 31, 1997 and 1996, respectively. The notes bear interest at
six percent. As of May 31, 1997, $64,694 is due on demand and $344,152
is due in July 1998.
The Company has notes payable to affiliates of $490,617 and $348,625 as
of May 31, 1997 and 1996, respectively. These affiliates include
certain partnerships and individuals whose members are officers and
directors of the Company. The balance at May 31, 1997 includes
$289,159 classified as current. The remaining balance of $201,458 is
due in fiscal 1999. The notes bear interest at rates between six and
twenty percent.
In March 1997, the Company borrowed $2,000,000 from a stockholder. The
note is due March 17, 1999, however, the stockholder has the option to
accelerate the entire principal and interest owed and demand payment in
full upon sixty days notice. Due to this acceleration clause, the
entire amount is shown as current. The note bears interest at fifteen
percent which is payable monthly. The Company may borrow an additional
$500,000 from the stockholder at his discretion upon review of the
Company's financial condition and the value of the collateral. The
note is collateralized by accounts receivable, inventories and property
and equipment. At May 31, 1996, the Company had a note payable to
stockholder of $600,000, which was paid in full during 1997.
During 1995, the Company received $304,044 of life insurance proceeds
as a result of the death of one of its officers. Subsequent to the
officer's death, the Company repurchased 216,809 shares from the estate
of the officer. The shares repurchased included 100,000 shares
exercisable under available options. The shares were repurchased at
their approximate fair market value at the date of the officer's death.
<PAGE>
(11) Other Matters
The Company does not receive hazardous waste during the normal course
of business. The Company does receive environmental samples for
analysis; and, occasionally, in the process of analysis, small
quantities of hazardous waste are generated. Such waste is stored in
designated
(Continued)
F-21
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=============================================================================
(11) (Continued)
areas, lab packed for disposal, picked up by licensed hazardous waste
contractors and transported to licensed disposal facilities. In
addition to its laboratory activities, the Company is engaged in field
testing. It is the Company's intention to conduct its operations in an
effective, safe and prudent manner, and to ensure against potential
risks. The Company carries workers' compensation insurance for its
employees and insurance for any personal liability and injury which
could occur to nonemployees and/or the property of others.
The Company is involved from time to time in litigation and
environmental matters; however, it is the opinion of management that
there are no matters currently existing which would have a material
impact on the financial position or results of operations of the
Company.
(12) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107), requires the Company to
disclose estimated fair values of its financial instruments. SFAS 107
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between
willing parties.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments: The carrying amounts
reported in the consolidated balance sheets for cash and cash
equivalents, notes receivable, notes payable and long-term debt
approximate fair value. The fair value of notes receivable is
estimated by discounting the future cash flows at rates the Company
would currently receive for similar notes receivable. The fair values
of notes payable and long-term debt is estimated by discounting the
future cash flows of each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities by the
Company's bank.
(13) Fourth Quarter Adjustments
Significant adjustments to the fourth quarter for the year ended May
31, 1997 included a charge of approximately $75,000 as a provision for
bad debts based on specific reviews of customer accounts and a $95,000
charge to correctly state costs and earnings in excess of billings.
<PAGE>
(14) New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share. The Company is required to adopt this
statement in fiscal 1998. The adoption of this statement by the
Company is not anticipated to have a material effect on earnings per
share presented in the current or prior years.
=============================================================================
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
ETS INTERNATIONAL, INC.
(Registrant)
By: s/John D. McKenna
John D. McKenna
President and Principal
Executive Officer
By: s/John C. Mycock
John C. Mycock
Secretary/Treasurer and
Principal Financial Officer
Dated: September 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated as of September 12,
1997.
s/John D. McKenna
- ------------------------
John D. McKenna Director
s/John C. Mycock
- ------------------------
John C. Mycock Director
s/David F. Tompkins
- -----------------------
David F. Tompkins Director
s/Coleman S. Lyttle
- -----------------------
Coleman S. Lyttle Director
s/Navin D. Sheth
- -----------------------
Navin D. Sheth Director
s/Lee A. Raver
- -----------------------
Lee A. Raver Director
s/Thomas W. Marmon
- -----------------------
Thomas W. Marmon Director
s/Arthur B. Nunn
- -----------------------
Arthur B. Nunn Director
<PAGE>
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
ETS INTERNATIONAL, INC.
ARTICLE I
The name of the corporation is ETS International, Inc.
ARTICLE II
Article III of the Articles of Incorporation of ETS International, Inc.
are hereby amended by deleting Article III in its entirety and substituting
in place thereof the following:
ARTICLE III - AUTHORIZED STOCK
(a) The aggregate number of shares which the Corporation is
authorized to issue is as follows:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
<S> <C> <C>
Common 30,000,000 No Par Value
Preferred 5,000,000 No Par Value
</TABLE>
(b) The Board of Directors of the Corporation (the "Board of
Directors") may, by amending these Articles of Incorporation (the "Articles")
by filing Articles of Amendment with the Virginia State Corporation
Commission, fix in whole or in part the preferences, limitations and rights,
within the limits set by law, of (i) any class of shares, before the issuance
of any shares of that class, or (ii) one or more series within a class,
before the issuance of any shares within that series.
(c) The preferred stock (including any shares of preferred
stock restored to the status of authorized but unissued preferred stock
undesignated as to series pursuant to this Article III(c)) may be divided
into one or more series and issued from time to time with such preferences,
privileges, limitations, and relative rights as shall be fixed and determined
by the Board of Directors. Without limiting the generality of the foregoing,
the Board of Directors is expressly authorized to the fullest extent
permitted from time to time by law to fix:
(i) the distinctive serial designations and the division
of shares of preferred stock into one or more series and the number of shares
of a particular series, which may be increased or decreased (but not below
the number of shares thereof then outstanding);
(ii) the rate or amount (or the method of determining the
rate or amount) and times at which, the form in which, and the preferences
and conditions under which, dividends shall be payable on shares of a
particular series, the status of such dividends as cumulative, partially
cumulative, or noncumulative, the date or dates from which dividends, if
cumulative, shall accumulate, and the status of such series as participating
or nonparticipating with shares of other classes or series;
<PAGE>
(iii) the price or prices at which, the consideration for
which, the period or periods within which and the terms and conditions, if
any, upon which the shares of a particular series may be redeemed, in whole
or in part, at the option of the Corporation or otherwise;
(iv) the amount or amounts and rights and preferences, if
any, to which the holders of shares of a particular series are entitled or
shall have upon any involuntary or voluntary liquidation, dissolution or
winding up of the Corporation;
(v) the rights and preferences over or otherwise in
relation to any other class or series (including other series of preferred
stock), as to the right to receive dividends and/or the right to receive
payments out of the net assets of the Corporation upon any involuntary or
voluntary liquidation, dissolution or winding up of the Corporation;
(vi) the right, if any, of the holders of a particular
series, the Corporation or another person to convert or cause conversion of
shares of such series into shares of other classes or series or into other
securities, cash, indebtedness or other property, or to exchange or cause
exchange of such shares for shares of other classes or series or other
securities, cash, indebtedness or other property, and the terms and
conditions, if any, including the price or prices or the rate or rates of
conversion and exchange, and the terms and conditions or adjustments, if any,
at which such conversion or exchange may be made or caused;
(vii) the obligation, if any, of the Corporation to redeem,
purchase or otherwise acquire, in whole or in part, shares of a particular
series for a sinking fund or otherwise, the terms and conditions thereof, if
any, including the price or prices and the nature of the consideration
payable for such shares so redeemed, purchased or otherwise acquired;
(viii) the voting rights, if any, including special,
conditional or limited voting rights, of the shares of a particular series in
addition to those required by law, including the number of votes per share
and any requirement for the approval by the holders of shares of all series
of preferred stock, or of the shares of one or more series thereof, or of
both, in an amount greater than a majority up to such amount as is in
accordance with applicable law or these Articles, as a condition to specified
corporate action or amendments to the Articles; and
(ix) any other preferences, limitations and relative
rights which may be so determined by resolution or resolutions of the Board
of Directors. Shares of preferred stock shall rank prior or superior to the
common stock in respect of the right to receive dividends and/or the right to
receive payments out of the net assets of the Corporation upon any
involuntary or voluntary liquidation, dissolution or winding up of the
Corporation. All shares of preferred stock redeemed, purchased or otherwise
acquired by the Corporation (including shares surrendered for conversion or
exchange) shall be canceled and thereupon restored to the status of
authorized but unissued shares of preferred stock undesignated as to series.
(d) The holders of common stock, to the exclusion of any other
class of stock of the Corporation, have sole power to vote for the election
of directors except as (i) otherwise expressly provided in the serial
designation of any series of preferred stock, (ii) otherwise expressly
provided in these Articles and (iii) otherwise expressly provided by the then
existing laws of the Commonwealth of Virginia. The holders of common stock
will have one vote for each share of common stock held by them.
<PAGE>
(e) No holder of shares of stock of any class of the
Corporation will have any preemptive or preferential right of subscription to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, or to any obligations of the Corporation convertible into stock
of the Corporation, issued or sold, nor any right of subscription to any
thereof.
ARTICLE III
The foregoing amendment was approved by the Board of Directors and
recommended to the shareholders for approval at the annual meeting pursuant
to Section 13.1-710 of the Code of Virginia. The number of outstanding
shares of common stock (the only outstanding class of stock) voting for the
amendment on the record date for the annual meeting was 12,558,233. The
number cast for the amendment was sufficient for approval by the shareholders
entitled to vote.
Executed as of the 24th day of December, 1996, by John D. McKenna,
President of the Corporation.
ETS INTERNATIONAL, INC.
By s/John D. McKenna
-------------------------
Its President
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 3, 1995,
between ETS, INC., a Virginia corporation (the "Company") and ARTHUR B. NUNN,
III (the "Executive"), provides,
Section 1. Background. The Executive heretofore has been an
----------
employee, president and sole shareholder of Air Compliance, Inc. which has
been engaged in the field of air pollution control and emission testing in
the Pennsylvania, New Jersey, New York area and Mid-Atlantic region. The
Company is acquiring all of the assets of Air Compliance, Inc. (the "Asset
Purchase Transaction"), and, in connection with that acquisition, desires to
employ the Executive on the terms and conditions contained herein. The
Executive desires to be employed by the Company on the terms and conditions
contained herein.
Section 2. Employment and Term.
-------------------
(a) The Company hereby employs the Executive and the
Executive hereby agrees to serve as an executive employee of the Company with
the duties set forth in Section 3 for a term of two years (the "Term of
Employment") beginning on the Effective Date of the Asset Purchase
Transaction. The parties hereto agree that the Executive shall have the
ability to relocate from the Philadelphia area to either North Carolina or
Virginia, on or after June 30, 1996, if Executive so elects by giving Company
120 days prior written notice. At the end of the Term of Employment, the
parties contemplate a renewal term of two years on such terms and conditions
as the parties may mutually agree in writing. Should the parties fail to
renew the Term of Employment for such additional two year period, then the
Term of Employment shall be automatically extended from month to month
thereafter on the same terms and conditions until either party gives the
other notice that it or he has opted to terminate the employment at the
expiration of the Term of Employment or at the end of any month, as the case
may be.
(b) Notwithstanding the foregoing, Executive's employment
hereunder shall be immediately terminated by the first to occur of the
following: (i) death, (ii) the incapacity of Executive by reason of bodily
injury or physical disease or mental illness, which prevents Executive from
performing his duties with the Company and in the opinion of the Company will
continue to prevent him from performing such duties for the remainder of the
Term of Employment or (iii) for "cause."
(c) For purposes of this Agreement, "cause" shall mean
Executive's failure to perform the material obligations hereunder, willful
misconduct, unreasonable neglect or refusal to perform his duties,
dishonesty, or excessive absences.
(d) In the event Executive's employment shall be terminated
for "cause," no further compensation shall accrue or benefits of any kind
shall be payable to Executive hereunder, and the Executive shall continue to
be bound by the terms and conditions of Paragraphs 5 and 6 of this Agreement.
<PAGE>
Section 3. Duties.
------
(a) During the Term of Employment, and thereafter so long as
he is employed by the Company, the Executive agrees to use his best efforts
to hold such offices and to perform such duties and assignments relating to
the business of the Company as the Company directs, except that the Executive
shall not be required to hold any office or to perform any duties or
assignment inconsistent with the Executive's experience and qualification.
(b) During the Term of Employment, and thereafter so long as
he is employed by the Company, the Executive shall, except during customary
vacation periods and periods of illness, devote his full time, attention and
energies to the diligent performance of his duties hereunder and will not
accept employment with any other individual, corporation, partnership,
limited partnership, governmental authority or other entity, or engage in any
venture for profit which the Company may consider to be in conflict with its
best interests or to be in competition with its business or which may
interfere with the Executive's performance of his duties hereunder.
Executive will use his best efforts (i) to obtain for the Company any and all
business opportunities that come to his attention during the course of his
employment and (ii) protect, sustain and enhance all present business
positions and prospects of the Company. Further, Executive will train such
persons as the Board of Directors of the Company and Executive shall mutually
select to back-up Executive in the performance of Executive's duties and
responsibilities hereunder.
Section 4. Base Salary and Fringe Benefits.
-------------------------------
(a) Base Salary. The Company shall pay to Executive as
-----------
compensation for his services during the term of employment hereunder an
annual salary of $65,000.00, payable in accordance with the normal pay
practice of Company. The annual salary will be subject to cost of living
adjustments on each annual anniversary of this Agreement in accordance with
Company policy.
(b) Fringe Benefits. During the Term of Employment, the
---------------
Executive shall be entitled to receive or participate in all "fringe
benefits" and employee benefit plans now or hereafter provided or made
available to the Company's executives or management personnel generally, but
only if and to the extent provided in such employee benefit plans.
(c) Vacation. The Executive shall be entitled each year to
--------
vacation in accordance with the then existing policies of the Company. The
Company shall not pay the Executive any additional compensation for any
vacation time not used by the Executive.
(d) Reimbursement of Expenses. The Executive shall be
-------------------------
entitled to reimbursement for all expenses, including travel, promotion and
entertainment expenses, which are reasonably incurred by the Executive in
furtherance of the Company's business in accordance with policies from time
to time adopted by the Company.
<PAGE>
Section 5. Trade Secrets and Confidential Information. The
------------------------------------------
Executive shall not, either directly or indirectly, except as required in the
course of employment by the Company, disclose or use at any time, whether
during or subsequent to his employment, any information of a proprietary
nature owned by the Company including, but not limited to, records, client
and customer lists, and data which are acquired in the performance of duties
for the Company. All records, files and documents relating to the Company's
business which the Executive prepares or uses shall be and remain the
Company's sole property. Upon termination of employment, the Executive shall
return to the possession of the Company all such materials or copies.
Section 6. Prohibited Competition. Executive recognizes and
----------------------
acknowledges that (i) the types of employment which are prohibited by the
noncompetition conditions imposed under this Paragraph 6 are narrow and
reasonable in relation to the general executive, managerial and professional
skills which represent Executive's principal asset to the Company and to
other prospective future employers of the Executive, and (ii) the scope of
the noncompetition provisions hereunder is reasonable, legitimate and fair to
the Executive. Accordingly, Executive agrees that during his employment with
the Company, and for a period of two years after termination of this
Agreement, the Executive shall not, within the territory described below,
without the Company's prior written consent:
(a) For himself or on behalf of any other, engage in, manage,
control, own, operate, or participate in the management, operation,
ownership, or control of any entity which engages in the business of the
Company.
(b) Either individually or on behalf of or through any third
party, solicit, divert or appropriate or attempt to solicit, divert or
appropriate, for the purpose of competing with the Company or any present or
future parent, subsidiary or other affiliate of the Company which is engaged
in the same business as the Company, any customers of the Company located
within the territory described below.
(c) Solicit, entice or persuade any other employees of the
Company or any present or future parent of affiliate of the Company to leave
the services of the Company or parent or affiliate for any reason.
The territory referred to above shall be the Pennsylvania, New Jersey,
New York area. In addition, if Executive elects to relocate as provided in
2(a) above, then Executive agrees not to compete directly or indirectly in
any way with the business of the Company. For the purpose of this Agreement,
"compete directly or indirectly in any way with the business of the Company"
means to enter into or attempt to enter into (on Executive's behalf or on
behalf of any other person or entity) any business relationship similar to
the relationship which exists with the Company to provide air pollution
control and emission testing services and related services for any
individual, partnership, corporation, association or other entity which was a
client or customer of the Company or its predecessor, Air Compliance, Inc.,
within forty-eight (48) calendar months immediately proceeding the end of the
employment. "Client" or "customer" means any entity listed on the books of
the Company as such.
<PAGE>
Section 7. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Virginia. It is
specifically understood and agreed that any cause of action hereunder shall
be deemed to have arisen in the City of Roanoke, Virginia and that the
exclusive venue for any matter arising out of this Agreement or the breach
thereof shall be the Circuit Court for the City of Roanoke, Virginia or the
United States District Court for the Western District of Virginia, Roanoke
Division. The parties hereto waive objections to jurisdiction and venue.
(b) Invalidity. This Agreement is intended to be performed
----------
in accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or
the application thereof to any person or circumstance, shall, for any reason
and to any extent, be invalid or unenforceable, the remainder of this
Agreement and the application of such provisions to other persons or
circumstances shall not be affected thereby, but rather shall be enforced to
the greatest extent permitted by law.
(c) Remedies. Should the Executive be in breach of this
--------
Agreement, in addition to all other remedies available at law or in equity,
the Company may withhold amounts otherwise due hereunder until such breach is
cured. Further, the Executive expressly acknowledges that any breach or
threatened breach of any of the terms set forth in Sections 3, 5 and 6 of
this Agreement may result in significant and continuing injury to the
Company, the monetary value of which would be difficult to establish.
Therefore, the Executive agrees that the Company shall be entitled to
injunctive relief by a court of appropriate jurisdiction in the event of any
breach or threatened breach of the terms of Sections 3, 5 and 6 of this
Agreement.
(d) Expenses. Should any party breach this Agreement, in
--------
addition to all other remedies available at law or in equity, such party
shall pay all of any other party's costs and expenses resulting therefrom
and/or incurred in enforcing this Agreement, including legal fees.
(e) Binding Upon Successors. This Agreement shall be binding
-----------------------
on the parties, their assigns and successors in interest.
(f) Entire Agreement. This instrument contains the entire
----------------
Agreement of the parties. No modification or revocation hereof shall be
effective unless in writing, referring to this Agreement and signed by both
parties hereto.
(g) Notices. All notices given hereunder shall be in writing
-------
and shall be sent by registered or certified mail or delivered by hand and,
if intended for the Company, shall be addressed to it or delivered to it at
its principal office for the attention of the Chairman of the Board of the
Company. If intended for the Executive, notices shall be delivered
personally or shall be addressed (if sent by mail) to the Executive's then
<PAGE>
current residence address, or to such other address as the Executive directs
in a notice to the Company. All notices shall be deemed to be given on the
date received at the address of the addresses or, if delivered personally, on
the date delivered.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date and year first above written.
ETS, INC.
By s/ John D. McKenna
--------------------------------
Its s/CEO
----------------------------
s/Arthur B. Nunn, III
-----------------------------------
Arthur B. Nunn, III
<PAGE>
CONTRACTOR LICENSE AGREEMENT
This CONTRACTOR LICENSE AGREEMENT is made and entered into as of the
14th day of September 1995 by and between ULTRALINER, INC., a corporation
organized and existing under the laws of the State of Alabama (hereinafter
referred to as the "Licensor"), and ETS WATER AND WASTE MANAGEMENT, INC. dba
STAMIE E. LYTTLE COMPANY, a Virginia corporation, doing business under the
laws of Virginia (hereinafter referred to as the "Contractor").
RECITALS:
WHEREAS, the Licensor has conducted research and development with
respect to certain methods, apparatus and materials used in the
rehabilitation of water and sewer pipelines by the insertion of a folded PVC
alloy pipe liner into the pipeline to be rehabilitated; and
WHEREAS, the foregoing research and development have resulted in
substantial and valuable know-how, inventions and techniques proprietary to
the Licensor; and the possession by the Licensor of valuable information with
respect thereto; and
WHEREAS, the Contractor is desirous of gaining knowledge of such
inventions, know-how, techniques, and information and an exclusive right and
license within and throughout the Territory to use the same together with any
Patent Rights, Trademark Rights, and Copyrights relating thereto;
NOW THEREFORE, in consideration of these recitals and the mutual
covenants and undertakings set forth herein, the parties hereto do enter into
this agreement.
ARTICLE I - DEFINITIONS
As employed herein:
1.01 "Affiliate" shall mean any person or entity controlling,
controlled by or under common control with the person or entity referenced.
1.02 "Apparatus" shall mean and include, but not be limited to, any
and all tools, equipment, instruments, machines, and devices, other than the
Materials, whether patented or unpatented, developed for use in the practice
of the Subject Matter.
1.03 "Change in Control" shall mean a change in control of the
Contractor occurring after the date of execution of this Agreement of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of
1914, whether or not the Contractor is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if any "person" (as defined in Rule
13d-3 under said Act), directly or indirectly, of more than 50% of the
outstanding shares of any class or series of securities entitled to elect
more than one-half of the board of directors or other governing body of the
Contractor.
1.04 "Commencement Date" means the first day when the Products are
received from the manufacturer.
1.05 "Confidential Material" shall mean the information furnished to a
Receiving Party, whether before or after the date hereof, by a Disclosing
Party, or acquired, received, developed or learned by a Receiving Party in
the course of its relations with a Disclosing Party, or relating to the
Subject Matter, the Know-How, the Copyrights or the proprietary plans,
policies, business or affairs of a Disclosing Party, including, without
limitation, data, drawings, materials and other communications concerning any
<PAGE>
manufacturing or production or other process or any research and development
or marketing and/or sales plans or results related to the business of a
Disclosing Party; provided, however, that the term "Confidential Material"
shall not include information which: (i) becomes or has become generally
available to the public other than as a result of a disclosure by a Receiving
Party, (ii) was available to a Receiving Party on a non-confidential basis
prior to its disclosure to the Receiving Party by a Disclosing Party, or
(iii) becomes available to a Receiving Party on a non-confidential basis from
a source other than a Disclosing Party, provided that such source is not
bound by a confidentiality agreement with a Disclosing Party.
1.06 "Contract Year" means the calendar year with the exception of the
first year, which shall commence on 1st of February, 1996, and shall end on
the 1st of February, 1997.
1.07 "Contractor" means ETS WATER AND WASTE MANAGEMENT, INC. dba
STAMIE E. LYTTLE COMPANY.
1.08 "Copyrights" shall mean and include any and all copyrights at
common and/or statutory law within the Territory which relate to plans,
brochures, instructions or other means of expression, including, but not
limited to, photographs, software, firmware, diagrams and other visual
presentations, having to do with the Subject Matter or useful in connection
with the commercialization thereof, which the Licensor has, or hereinafter
acquires the right to license others.
1.09 "Cross-over Payment" shall mean the amounts, payable by the
Contractor to the Licensor under Sections 3.03 and 3.04 hereof, at the times
hereinafter set forth, equivalent to twenty-five percent (25%) of the Gross
Product Price of all ULTRALINER, INC. materials shipped outside of the
Territory.
1.10 "Customer(s)" means any public, private, corporate or other legal
entity that has been contacted by Contractor, has expressed an interest in
the System, Process or Know-how, or that has utilized or benefitted from the
use of the System, Process or Know-how.
1.11 "Disclosing Party" shall mean a party hereto, together with its
Affiliates and their respective officers, directors, employees, agents and
representatives, disclosing Confidential Material.
1.12 "Effective Date" means the date of execution of this Agreement.
1.13 "Gross Product Price" shall mean the price published by Licensor
from time-to-time for Product.
1.14 "Know-how" means any and all most up-to-date confidential,
valuable and proprietary information, whether technical, economic or
commercial experiences, operating and/or executing techniques and other
knowledge and all physical matters such as drawings, specifications,
computations, analyses, data, designs, pipe lining installation procedures
and the like relating to or in respect of the Process, Equipment, Tools and
Material herein defined which are substantially or relevant necessary to
enable the Contractor to practice the Process hereinafter defined properly
and efficiently to a standard and quality similar to the standard and quality
of the internal pipe log specified by the Licensor and which Licensor now
possesses or may possess hereafter during the term of this Agreement.
1.15 "Licensor" means ULTRALINER, INC. a corporation created under the
laws of the State of Alabama, United States of America.
1.16 "License Fee" shall mean the non-refundable amount as set forth
under Section 3.02 hereof, payable by the Contractor to the Licensor upon the
execution and delivery of this agreement.
1.17 "Materials" shall mean and include any and all compositions,
products, components and other materials, without limitation, whether
patented or unpatented, developed for use in the practice of the Subject
Matter and supplied to the Contractor.
<PAGE>
1.18 "Patent Rights" shall mean and include all patents and patent
applications relating to the Subject Matter whether owned now or hereafter
acquired or controlled by the Licensor.
1.19 "Performance Objectives" shall mean the minimum lengths of
pipeline, identified and segregated by reference to size, proposed to be
rehabilitated by the Contractor during the Term, as determined pursuant to
Section 4.03 hereof.
1.20 "Permitted Uses" shall mean the application, in accordance with
the specifications of the Licensor, of Product in connection with the repair,
rehabilitation or reconstruction of water and sewer pipelines. The Licensor
and the Contractor hereby acknowledge and agree that, notwithstanding any
other provision of this Agreement, neither the right and license granted
under Section 2.01 hereof, nor the Permitted Uses, shall extend to any
utilization of the Know-how or the Patent Rights or practice of any
inventions relating to the Subject Matter in the manufacture of any
Materials.
1.21 "Process" means the deformed pipe lining technology and process
developed by ULTRALINER, INC. for the restoration of repair and
rehabilitation of water and sewer (sewerage & storm) pipelines through the
application of pipe lining material manufactured of PVC Alloy materials with
all its modifications. The words Process or ULTRALINER PVC ALLOY PIPELINER
SYSTEMS (Trade Mark) shall also mean and include any and all methods, Know-
how, methodology and technology which have application to the System and are
deemed proprietary and confidential by Licensor.
1.22 "Product" means deformed pipe lining made or designed in
accordance with the system.
1.23 "Project(s)" means pipe restoration construction projects where
the System, Process or Know-how are, or will be used.
1.24 "System" means ULTRALINER PVC ALLOY (Trade Mark) deformed pipe
lining using the Process developed by ULTRALINER, INC.
1.25 "Receiving Party" shall mean a party hereto, together with its
Affiliates and their respective officers, directors, employees, agents and
representatives, receiving Confidential Material.
1.26 "Restoration" means lining and reopening of pipe at lateral by
remote control internal cutter.
1.27 "Subject Matter" shall mean and include all presently existing
and subsequently acquired methods. Apparatus and Materials used in the
repair, rehabilitation or reconstruction of water and sewer pipelines by
using the PRODUCT.
1.28 "Term" shall mean the period commencing on the date hereof and
shall continue for 5 years or the expiration of the last extension, unless
sooner terminated as hereinafter provided. For the purposes of the agreement
between these parties, the Contractor is hereby granted the right to extend
the term for 5 additional years, on the terms and conditions set out in
ARTICLE 11 hereof.
1.29 "Territory'" shall mean that geographical area lying within the
political boundaries of the Counties of Frederick, Clarke, Loudoun,
Alexandria, Warren, Fauquier, Prince William, Page, Rappahannock, Madison,
Culpepper, Stafford, King George, Orange, Spotsylvania, Caroline, Essex,
Westmoreland, Richmond, Louisa, Hanover, King William, King and Queen,
Fluvanna, Goochland, Henrico, New Kent, Cumberland, Powhatan, Amelia,
Shenandoah, and Chesterfield, and the cities of Hopewell, Colonial Heights,
Richmond, Winchester, and any other cities lying within the geographic
boundaries of this territory being a political sub-division of Virginia.
1.30 "Tools" means any and all special equipment, apparatus or
materials used in the Process.
1.31 "Trademark" means ULTRALINER and ULTRALINER PVC ALLOY PIPELINER
and ULTRALINER PVC ALLOY PIPELINER SYSTEM and such other trademarks as may be
adopted by Licensor.
<PAGE>
1.32 "Trademark Rights" means certain trademarks, service marks and
trade names including, without limitation, the Trademark, which have been
adopted and used by ULTRALINER, INC. and which have been promoted and are
becoming favorably known to recognized by the pipe lining industry.
1.33 "ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark) means a
deformed pipe lining system developed by ULTRALINER, INC. for installation in
accordance with the specifications of the Process.
ARTICLE II - GRANT OF LICENSE, TERM AND EXTENSION
2.01 Grant of License
(a) In consideration of the License Fee and the other covenants
and agreements of the Contractor hereunder the Licensor hereby grants the
Contractor an exclusive right and license within and throughout the Territory
during the Term:
(i) to utilize in the Territory, the Know-how,
Equipment, Materials, Tools and the Products to practice the inventions of
the Patent Rights relating to the Subject Matter, and to sell and to install
products incorporating the Subject Matter to customers of its choice, in each
case solely in and for the Permitted Uses but only by Contractor through
Contractor's direct employees and not through or by any other entity (such as
non-owned installers), unless expressly authorized by Licensor;
(ii) to use any and all Copyrights only as an adjunct to
the practice of such methods and the commercialization thereof as permitted
by this Agreement; and
(iii) subject to Sections 2.02 and 4.04 hereof, to use and
display ULTRALINER PVC ALLOY PIPELINER (Trade Mark) and ULTRALINER PVC ALLOY
PIPELINER SYSTEM (Trade Mark) as a service mark and trademark in connection
with each and every aspect of the commercial exploitation of the Subject
Matter in the Permitted Uses.
(b) The exclusivity of the license is subject to and limited by
the right heretofore granted by Licensor to John Boatman, personally, acting
solely through his company, as long as he owns 100% of Boatman Construction
Company, to sell and install Product within the Territory.
(c) In the event the Licensor, in its sole but reasonable
discretion, determines that the Subject Matter may be commercialized in the
Territory in connection with the repair, rehabilitation or reconstruction of
pipelines and other passageways, the Licensor and the Contractor may agree to
enter into an agreement to license Contractor to sell and install the Subject
Matter for such uses. Without this subsequent agreement, the Licensor and
Contractor hereby agree and acknowledge that, notwithstanding any other
provision of this Agreement, neither the right and license granted under
Section 2.01 hereof, nor the Permitted uses, shall extend to any utilization
of the Know-how or the Patent Rights or practice of any inventions relating
to the Subject Matter in the use, manufacture or promotion of any materials.
Notwithstanding any other provision contained in this paragraph (b),
the Licensor shall not be obligated to commercialize the Subject Matter in
any application described under this paragraph.
2.02 Use of Service Mark and Trademark
(a) The Contractor hereby acknowledges that, except as
described in 2.01(b), only the Licensor or its designated licensees have the
right within the Territory to use the name ULTRALINER PVC ALLOY PIPELINER
(Trade Mark) and ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark) as a
service mark or trademark, and such other trademarks, service marks, trade
names and copyrights as may presently exist or be acquired by the Licensor
and licensed for use by the Contractor, along with all ancillary signs,
symbols or other indicia used in connection or conjunction with said marks.
The Contractor further acknowledges that valuable goodwill is attached to all
such trademarks, service marks, trade names, and copyrights, and that it will
<PAGE>
use same in the manner and to the extent specifically licensed by this
Agreement. The Licensor, in its sole discretion, has the right itself to
operate businesses under said trademarks, service marks, trade names and
copyrights and (subject to paragraph (a),(b), and (c) of Section 2.01 hereof)
to grant other licenses in, to and under such trademarks, service marks,
trade names and copyrights, on any terms the Licensor deems fit; except for
the Permitted Uses in the Territory (and subject, in all respects, to the
final sentence of Section 2.03). The Contractor expressly recognizes that
any and all goodwill associated with said trademarks, service marks, trade
names, and copyrights, including any goodwill which might be deemed to have
arisen through the Contractor's activities, inures directly and exclusively
to the benefit of the Licensor, except as otherwise provided herein. The
Licensor covenants that any subsequent license to a third party (which may be
an Affiliate of the Licensor) for ULTRALINER PVC ALLOY PIPELINER (Trade Mark)
application of the Subject Matter in the Territory other than in the
Permitted Uses shall provide that any trademarks, service marks, tradenames
and copyright covered by such license (which may include ULTRALINER PVC ALLOY
PIPELINER (Trade Mark)) shall be adequately distinctive in form from the
trademarks, service marks, tradenames and copyrights licensed hereunder.
(b) All Apparatus, Materials, letterheads, invoices,
advertising signs of all types and printed material utilized by the
Contractor in the exercise of its rights under this Agreement shall bear
appropriate insignia acknowledging such products, Materials or Apparatus as
under exclusive license from the Licensor.
2.03 Rights Reserved to Licensor.
It is specifically understood and agreed that the grant of this
exclusive license for the Territory during the Term is based upon the size
and ability of the Contractor to provide and/or exploit the demand for the
Subject Matter within the Territory in the Permitted Uses, and the nature and
scope of the Territory has been determined accordingly. The Contractor
further understands and agrees that the Licensor retains the right to grant
exclusive licenses to other Contractors in other territories and to grant
exclusive licenses to other parties in the Territory to utilize the Subject
Matter for purposes other than in the Permitted Uses. The Licensor reserves
the right to vary or otherwise modify the nature and scope of subsequent
licenses granted to subsequent licensees to accommodate specific
applications, territories, population considerations and other factors. The
Contractor acknowledges and agrees that the Licensor shall not be obligated
to prevent other of its licensees for the Permitted Uses from exploiting the
Subject Matter in the Territory in the Permitted Uses.
2.04 TERM AND EXTENSIONS.
(a) The Term of this Agreement shall commence on the date of
this set out in the opening paragraph hereof and shall terminate at midnight
on the 1st day of February, 2001, unless the termination date is extended in
accordance with the following paragraph.
(b) Contractor is granted the right to extend the termination
date for five (5) years provided that the Contractor is not in default on any
of its obligations to Licensor under the terms hereof or otherwise created
and the financial condition of the Contractor, to maintain a bonding
capacity, is adequate to allow Contractor to perform its obligations
hereunder during the extended term.
ARTICLE III - LICENSE FEE AND CROSS-OVER PAYMENT
3.01 ADEQUACY OF CONSIDERATION.
It is specifically understood and agreed that the License Fee, and the
other terms and conditions hereinafter described shall be deemed adequate
consideration for the exclusive license defined in Article II above relating
to the Territory during the Term.
<PAGE>
3.02 License Fee.
Concurrently with the execution and delivery of this Agreement, the
Contractor shall pay to the Licensor the amount of $65,000.00 US (Sixty-Five
Thousand Dollars US), which shall not be refundable in part or whole at any
time after execution of this Agreement.
3.03 Purchases.
All orders by Contractor for Product shall be only on the terms set out
in the Licensor's written acceptance of Contractor's written order.
3.04 Cross-Over Payment.
(a) The Contractor shall, during the Term, exploit the Subject
Matter in the Territory in the Permitted Uses for the mutual benefit of the
Contractor, the Licensor, and the customers and potential customers of the
Contractor, in order to fulfill the Contractor's obligations under Section
4.03 hereof, and the Contractor shall ensure that the customers of the
Contractor are provided such information, warranties, and services by the
Contractor as shall assure that such obligations are met. In so exploiting
the Subject Matter in the Permitted Uses, the Contractor shall be required to
make significant financial investments, necessary for market development, in
capital and equipment, in marketing and promotion, and in providing
information and services.
(b) In order to compensate the Licensor's licensees in other
territories for the making of such investments, and to induce them to do so,
should the Contractor seek to exploit the Subject Matter outside of the
Territory in any of the Permitted Uses, whether or not in an area where an
exclusive license for such Permitted Uses has been granted by the Licensor,
the Contractor shall make an immediate Cross-Over Payment of twenty-five
percent (25%) of the Gross Product Price of all Product so exploited outside
the Territory. All Cross-Over Payments shall be paid by the Contractor to
the Licensor, as agent for the Contractor, who shall in turn promptly pay
twenty percent (20%) of such Cross-Over Payment to the Licensee in whose
territory the installation was performed, if any. Should the Contractor fail
to make a Cross-Over Payment to the Licensor within the time applicable for
payment, no further Product will be shipped to the Cross-Over Contractor and
such failure shall be a material breach of this Agreement; it being
understood and agreed that nothing contained in this Agreement shall obligate
the Licensor to take any collection action with respect to any Cross-Over
Payment.
(c) All licenses governing the commercialization of the Subject
Matter for the Permitted Uses within the United States of America shall
provide for a similar cross-over payment, in the amount of twenty-five
percent (25%) of the Gross Product Price for installations utilizing the
Subject Matter for any of the Permitted Uses within the Territory, to be paid
by the Licensee who commits the cross-over thereunder to the Licensor, as
agent for such licensee, who shall in turn promptly pay such cross-over
payment to the Contractor into whose Territory the cross-over has been
committed, if any, less five percent (5%) deduction.
(d) Notwithstanding any other provision contained in this
Agreement, any utilization of the Subject Matter within the Territory for the
Permitted Uses by another licensee of the Licensor shall be attributable to
the Contractor for purposes of determining achievement by the Contractor of
its Performance Objectives.
(e) In addition to all other obligations of the Contractor
hereinafter set forth, in order to assure top product quality and to meet all
products liability and health and safety requirements it shall be the
responsibility of the Contractor, should it perform work outside the
Territory to assure that satisfactory arrangements are made to provide full
and complete after-sales service and warranty protection for the job
involved, including specifically, but not limited to, the ability to rapidly
deploy a repair crew to the site of any such job.
<PAGE>
3.05 Reports and Payments. The Contractor shall submit and deliver to
the Licensor separate written reports at the times hereinafter set forth and
in such form as may be reasonably required and as may be amended, from time
to time, by the Licensor as follows:
(a) No later than one month prior to the commencement of each
calendar quarter of the Term, the Contractor shall deliver to the Licensor a
report containing the Contractor's forecast of product requirements, in
linear feet by diameter, for each month of the immediately following calendar
quarter and each of the next two (2) calendar quarters.
(b) Within three (3) weeks after the end of each calendar
quarter of the Term, the Contractor shall deliver to the Licensor a report of
work performed by the Contractor utilizing the Subject Matter for the
Permitted Uses during such calendar quarter, whether or not invoiced or paid,
the total amount invoiced, the Gross Contract Price and terms for the work
performed, and any Cross-Over Payment due to the Licensor, as agent for the
Contractor, and such other information as the Licensor may reasonably require
to enable the Licensor to evaluate computation of any Cross-Over Payments and
the Contractor's achievement of the Performance Objectives. Such report
shall be accompanied by payment in full of all Cross-Over Payments not paid
and due the Licensor, as agent for the Contractor, with respect to such
calendar quarter.
3.06 Default in Payment.
Should the Contractor fail to pay the License Fee or any Cross-Over
Payment as aforesaid, or fail to pay for Materials, to the Licensor, arising
from or in connection with this Agreement, when validly due, or fail to
deliver any report due under Section 3.04 hereof, this Agreement shall,
pursuant to Article VI hereof (and subject, without limitation, to the
applicable notice and cure periods therein) terminate.
3.07 PLACE AND METHOD OF PAYMENT.
All payments required under this Agreement shall be made in Oxford,
Alabama or such other location within the United States as shall be
identified by the Licensor. Payments are to be paid in U.S. Dollars or Gold.
ARTICLE IV - GENERAL COVENANTS
4.01 Information Sharing.
With a view to avoiding unnecessary duplication of research and
development work in relation to the System and/or the Products as far as
possible, both the Licensor and the Contractor shall have the right to
discuss with each other fully and openly at half-year intervals relevant
research and development projects which they have in hand or which are
planned.
4.02 Financial Covenants.
To assure the financial ability of the Contractor to meet obligations
hereunder, the Contractor shall provide a semi-annual balance sheet to the
Licensor with an officer's certificate, notarized, certifying that such
balance sheet has been prepared in accordance with generally accepted
accounting principles applied consistently with the prior six months and
presents fairly the financial position of such party for the six months then
ended. The Contractor's obligation under this Section 4.02 shall be deemed
met in the event guaranteed by an Affiliate of the Contractor which itself
also complies with this Section 4.02
4.03 Performance Objectives. Performance objectives are the minimum
quantities of Product that the Contractor is required to order from Licensor
within the time period specified. The parties recognize and agree that the
covenant of the Contractor that it will achieve these Performance Objectives
is a material term of this agreement and its representation that it has and
will dedicate the necessary financial and manpower resources, to this
<PAGE>
specific obligation, as well as its other duties hereunder, have been and
will continue to be relied upon by Licensor in entering into this agreement
and performing thereunder.
(a) For the first contract year, Contractor shall not be
assigned any performance objective.
(b) For the contract year beginning 2/1997, Contractor shall
order (only valid order is that accepted and paid for) not less than twenty
thousand feet (20,000') of Product.
(c) Contract Years subsequent to 1997, Performance Objectives
shall be established by the Licensor and Contractor taking into consideration
the following factors:
(i) reconstruction budget line items of major
municipalities in the territory;
(ii) major projects planned in the Territory for the
performance period;
(iii) the Contractor's actual performance in prior years;
(iv) distorting impact of major programs, Acts of God and
events beyond the Contractor's control in prior year's performance;
(v) territory population;
(vi) population of realistic potential markets in the
territory;
(vii) Contractor forecasts;
(viii) Contractor backlogs;
(ix) sales activities of competitive methods and volume
of work lost or delayed due to competitor's activities;
(x) political and economic conditions in the territory;
(xi) new markets and applications and diameters for which
products will be available and compatible;
(xii) environmental concerns;
(xiii) product availability and price; and
(xiv) maintenance of product exclusivity.
(d) Contractor shall develop and provide Licensor such
information as is described above and such other data and information which
the Contractor believes to be pertinent and relevant to establishment of
Performance Objectives.
(e) Within 90 days prior to the end of a Contract Year, and
following good faith negotiations with the Contractor on the basis of the
foregoing criteria. Performance Objectives applicable to, shall be announced
by Licensor and Contractor as agreed upon, for next Contract Year.
(f) Commencing February 1, 1997, and on a quarterly basis
thereafter the Contractor and the Licensor shall consult to determine the
Contractor's progress during the preceding calendar quarter in achieving the
Performance objectives then applicable. Licensor shall consider the criteria
set out in the foregoing section and the following criteria when conducting
its evaluation of Contractor's performance to determine if the Contractor has
failed to achieve its Performance Objectives:
(i) major governmental agency or industrial buyer
decisions relating to the Subject Matter, as well as delays in releasing
contracts for bids;
(ii) Contractor's overall satisfactory business
performance in all diameters;
(iii) competitor's adverse activities in the Territory;
(iv) Contractor's long-term investment in business under
the License, both capital and human resources;
(v) sales activity and effort to promote the product.
(g) The Licensor hereby agrees that, subject to the notices and
for the period hereinafter specified, the Contractor shall not be deemed to
have failed to achieve any Performance Objective for a particular year if
prevented by a material failure of performance by the Licensor that is not
<PAGE>
caused by the fault of the Contractor (including those excuses for
nonperformance as are herein afforded to Contractor); by federal, state or
municipal action or regulations; by strikes or other labor trouble or
stoppage; by fire, damage to, or destruction in whole or in part of
merchandise or plant; by lack of, or inability to obtain, raw materials,
labor, fuel or supplies; by war, riot or revolution; by Acts of God; by
perils of the sea; by shortage of cars; or by any other unavoidable cause
beyond the control of Contractor, in each case, under this sentence, except
if caused by the negligence or design of the Contractor. In the occurrence
of any such event, and after receiving written notice from the Contractor
thereof, Licensor shall, for as long as such event shall continue to prevent
such achievement, reduce any Performance Objective so affected by a
proportion that reasonably accounts for such event. The Contractor shall
promptly deliver written notice to the Licensor that such event shall have
ceased.
(h) The parties understand and agree that the provisions of
this Section 4.03 shall in no manner operate to limit any obligation of the
Contractor contained elsewhere in this Agreement.
(i) It is specifically understood and agreed that nothing
herein provided shall be construed as requiring the Operator to operate in
accordance with any designated marketing plan or system, which, except for
the maintenance of high standards of quality with respect to the Subject
Matter and its usage, the exercise of diligence and the performance in
accordance with the terms and conditions hereof, are left to the
determination of the Operator.
4.04 Disclosure and Training.
Promptly upon execution of this Agreement, and continuing throughout
the Term, the Licensor thereupon shall fully disclose to the Contractor all
Know-how, and any Patent Rights and Copyrights, intended to be utilized in
the practice of the methods of the Subject Matter for the Permitted Uses.
Promptly after the commencement of the Term, the Contractor, at its expense,
but with no fee or payment to the Licensor, shall require its principal sales
personnel to attend an installation demonstration and training session
conducted by the Licensor. Further, promptly after the commencement of the
Term (and in all events prior to any application by the Contractor of the
Subject Matter), the Contractor, at its expense, shall require an adequate
number of supervisory personnel who will be involved in installations
utilizing the Subject Matter to be trained by the Licensor specifically in
the utilization of the Subject Matter; and no such installations shall be
initiated by the Contractor unless and until such supervisory personnel are
certified by the Licensor as qualified to utilize the Subject Matter for the
Permitted Uses. The Licensor shall thereafter provide an adequate continuing
technical and engineering support capability to support the efforts of the
Contractor, the content, extent, and frequency of which shall be solely at
the discretion of the Licensor; except that the Licensor will conduct an
annual training seminar with respect to application of the Subject Matter in
the Permitted Uses, and the Contractor agrees to have, at its expense, at
least one supervisory representative in attendance. The Contractor shall not
be obligated to pay any fees or other charges to the Licensor in exchange for
the foregoing training. At the request of the Contractor and subject to
availability, the Licensor will provide a technician experienced in the
operation of the Subject Matter to assist and render advice to the Contractor
subject to payment by the Contractor of all reasonable direct traveling and
hotel expenses and a reasonable per diem rate which shall be agreed upon
between the parties at a location agreed upon by both parties.
4.05 Insurance.
The Contractor agrees to procure at its expense, a policy or policies
of insurance from an insurance company or companies reasonably satisfactory
to the Licensor and Contractor's customers, providing coverage for the
operations of the Contractor, including product and completed operations,
<PAGE>
with amounts not less than $1,000,000 single limit liability for injury to
persons and damage to property. The Contractor also agrees to have the
Licensor named as an additional named insured under the above described
policy or policies and to cause the Licensor to be furnished with a
Certificate of Insurance which shall contain a requirement that the Licensor
be notified 30 days prior to any cancellation or any reduction in coverage or
limits. The insurance required above shall commence prior to the time the
Contractor commences operations under this Agreement and shall continue in
force throughout the Term.
4.06 Taxes; Compliance with Laws.
The Contractor shall promptly pay when due all taxes and assessments
against the premises or the equipment used in connection with the
Contractor's business, and all liens or encumbrances of every kind or
character created or placed upon or against any of said property, and all
accounts and other indebtedness of every kind incurred by the Contractor in
the conduct of said business, the failure to pay which would have a
materially adverse effect on the ability of the Contractor to perform its
obligations hereunder. The Contractor shall have the right to contest the
validity or amount of any assessment, tax, lien or encumbrance, provided that
the Contractor shall: (1) give the Licensor notice of its intention to
contest; (2) diligently prosecute such contest; and (3) at all times
effectively stay or prevent any official or judicial sale of such property or
any thereof by reason of the non-payment of any lien, encumbrance, tax, or
assessment. The Contractor shall comply with all applicable federal, state,
county and municipal laws and regulations, now in effect or hereinafter
enacted, including, without limitation, all environmental laws and all
occupational safety and health laws, the failure to comply with which would
have a materially adverse effect on the ability of the Contractor to perform
its obligations hereunder, and shall timely obtain any and all permits,
certificates, or licenses necessary for the full and proper conduct of its
business.
4.07 Standards and Inspection.
The Contractor shall maintain a high standard of quality in all
installations made and in all other activities under the Service Mark or
Trademark. To ensure the maintenance of such standards, the Licensor may
periodically inspect the Contractor's practice of the methods of the Subject
Matter at the Licensor's own expense and without unreasonable inconvenience
to the Contractor. The Contractor shall cooperate fully with the Licensor in
any such inspections in its practices of the methods of the Subject Matter
made by the Licensor. At all times the Contractor shall exert diligent
effort to practice the methods and techniques included in the Subject Matter
in accordance with the best available technical information and advice
received from the Licensor. The Contractor hereby agrees that failure by the
Licensor to exercise any right of inspection or any other right under this
Section 4.08 shall not operate subsequently to preclude exercise by the
Licensor of this right, and that failure of the Contractor to permit such
inspections or to maintain such standards shall constitute a material breach
of this Agreement and shall form the basis of termination hereof, but solely
in accordance with the notice and cure provisions of Article VI hereof.
ARTICLE V - IMPROVEMENTS; SECRECY
5.01 Commercialization of Improvements.
The Contractor recognizes and agrees that from time to time hereafter
the Licensor may, in its discretion, change or modify the Subject Matter
and/or adopt and use new or modified trade names, trademarks, service marks
or copyrighted materials with respect thereto, and that the Contractor, at
the election of the Licensor, will accept, use and display for the purpose of
this Agreement any such changes and such new or modified trade names,
<PAGE>
trademarks, servicemarks or copyrighted materials, as if they were part of
this Agreement at the time of execution hereof. The Contractor shall finnish
such cooperation as such changes or modifications may reasonably require, and
do so within a reasonable time.
5.02 Title to Improvements.
(a) The Contractor hereby assigns, and shall cause its
officers, directors, agents, employees and representatives to assign, to the
Licensor the entire right, title and interest in and to any and all
inventions, trade secrets, improvements, plans and specifications (I) which
the Contractor, or its officers, directors, agents, employees or
representatives, alone or in conjunction with others, may make, conceive or
develop during the Term; and (ii) which constitute or derive from the Subject
Matter. The Contractor further agrees that it will promptly disclose, and
cause its officers, directors, agents employees and representatives promptly
to disclose, fully to the Licensor the aforesaid inventions, trade secrets,
improvements, plans and specifications and will at any time render, and cause
its officers, directors, agents, employees and representatives to render, to
the Licensor such cooperation and assistance (excluding financial assistance)
as the latter may reasonably deem to be advisable in order to obtain
copyrights or patents, as the case may be, on or otherwise perfect or defend
the Licensor's rights in each such invention, trade secret, improvement, plan
or specification, including, but not limited to, the execution of any and all
applications for copyrights or patents, assignments of copyrights or patents
and other instruments in writing which the Licensor, its officers or
attorneys may deem necessary or desirable, and the aforesaid obligation shall
be binding on the assigns, executors, administrators and other legal
representatives of the Contractor.
(b) Without prejudice to any right or remedy available to the
Contractor against third parties, which shall be exercised in consultation
with and subject to the Licensor's approval, which approval shall not
unreasonably be withheld, the Contractor hereby constitutes and appoints the
Licensor the attorney for the Contractor, with full power of substitution,
for it and in its name and stead or otherwise, but at the sole expense and on
behalf of and for the benefit of the Licensor, to institute and
representatives which are not within the scope of their employment.
ARTICLE VI - TERMINATION
6.01 Termination by Contractor.
The Contractor may terminate this Agreement at any time by service of
written notice to such effect on the Licensor 30 days in advance of the
effective date thereof and by complying with the applicable terms and
conditions of this Article VI. During such period after notice but prior to
actual termination, the Contractor shall not bid or accept any additional
jobs (except those outstanding bids with bid bonds that have not been
awarded) which will require the utilization of the Subject Matter from the
Licensor under the Patent Rights or the Know-How without the written consent
of the Licensor, which consent shall not unreasonably be withheld.
6.02 Termination by Licensor.
(a) This Agreement and the rights of the Contractor hereunder
may be terminated by the Licensor in the event the Contractor:
(i) becomes insolvent or a petition in bankruptcy is
filed by or against the Contractor and not removed within 20 days thereafter,
or a receiver is appointed for the Contractor; or
(ii) utilizes the Subject Matter in any application
outside of the Permitted Uses; or
(iii) fails to achieve the Performance Objectives
described in Section 4.03 hereof in a particular Contract Year, without an
excuse provided by this agreement.
<PAGE>
(iv) fails to pay when validly due any sum owed to the
Licensor or any of its Affiliates arising from or in connection with this
Agreement and such failure shall continue for a period of 30 days after
written notice the Licensor to the Contractor; or
(v) fails to perform any other material term or
condition of this Agreement and fails to correct the same within 30 days
after written notice from the Licensor to the Contractor, or if not
reasonably capable of correction within such period, fails to commence such
correction within such period and thereafter fails to diligently proceed to
make such correction; or
(vi) fails to submit and deliver to the Licensor any
written report required under paragraph (a) of Section 3.05 hereof when due
and such failure shall continue for a period of 30 days after written notice
from the Licensor to the Contractor.
(b) In the event the Contractor fails to pay the License Fee or
any Cross-Over Payment in accordance with Article III hereof, or fails to
provide any written report required under paragraph (b) of Section 3.05
hereof in accordance with such provision and, in the case of the first such
breach in any calendar year, such failure shall continue for a period of 30
days after written notice from the Licensor to the Contractor, then in any
such event, this Agreement shall automatically terminate.
(c) No termination under this Section 6.02 shall limit or
affect any other right or remedy of the Licensor, including the right to
damages resulting from the Contractor's breach.
6.03 Consequences of Expiration or Termination.
(a) Upon expiration or termination of this Agreement, the
Contractor shall promptly pay the Licensor all amounts then due under this
Agreement, terminate all use by it of any service mark, tradename, trademark
certification mark or corporate name that includes any of the foregoing
words: avoid all subsequent use of all service marks, tradenames, trademarks,
certification marks or corporate names likely to be confused with ULTRALINER
as well as all stationery, invoices, signs or other visual devices displaying
or otherwise associated with ULTRALINER; terminate all use of the Subject
Matter and the Licensor's Confidential Material, as well as the use and sale
of any products under any Patent Rights or Copyrights or the Know-how; and
assign to the Licensor free of charge, any and all rights and claims to any
and all rights arising from the use of ULTRALINER, or any combination
involving ULTRALINER, the above mentioned Corporate rights in the Territory;
and return to the Licensor all Confidential Material in its possession, and
any copies which it has made of the same. Following termination, the
Contractor shall continue to be obligated to provide all after sales services
for which it has theretofore contracted, including the honoring of all
contract warranties. Should the Contractor fail to fulfill such obligations,
and should the Licensor, in its reasonable discretion after notice to the
Contractor, whether for reason of preserving product goodwill or otherwise,
choose to perform any such obligations (this paragraph in no way to be
construed as an assumption by the Licensor of any obligations for which it is
not specifically contractually responsible), then the Contractor shall
promptly reimburse the Licensor the reasonable charges issued by the Licensor
to the Contractor of performing such obligations of the Contractor. If the
Contractor is a corporation having the word ULTRALINER as a part of its
corporate name, the Contractor shall, within 60 days of termination, amend
its corporate name to remove the word ULTRALINER therefrom.
(b) Each party hereto shall promptly pay to the other party all
damages, costs and expenses, including reasonable attorney's fees, incurred
by such other party by reason of default on the part of such party hereto,
whether or not such default occurred prior to or subsequent to the
termination or expiration of this Agreement, and said sum shall include all
<PAGE>
costs and expenses, including reasonable attorney's fees, incurred by such
other non-defaulting party in obtaining injunctive or other relief to enforce
the provisions of this Agreement. Notwithstanding the foregoing, in any
dispute under this agreement, the ultimate prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees. No right or
remedy herein conferred upon or reserved to either party is exclusive of any
other right or remedy herein or by law or equity provided or permitted; but
each shall be cumulative of every right or remedy given hereunder. In
addition to whatever remedy or remedies a party may have by way of damages
for violation of the provisions of this Agreement and/or expiration or
termination of the same, such party shall also have the right to injunctive
relief to enforce the provisions of this Agreement.
(c) In the event of the termination of this Agreement by the
Licensor or Contractor as a consequence of any event described under sub-
paragraphs (i), (iii), or (vi) of Paragraph (a) of Section 6.02 or 6.01
hereof, the Licensor shall thereafter assist the Contractor in disposing of
any Materials or Apparatus then in the possession of the Contractor,
including but not limited to the sale of excess inventory to other qualified
Licensees, subject in such case to the constraints of the Licensor's business
and its other obligations.
(d) Licensor shall supply to the Contractor, at the current
rates and prices, any and all materials or apparatus Contractor may need to
complete any outstanding projects or projects that may have been bid prior to
the termination, but not awarded, and a bid bond was provided by the
Contractor, provided the Contractor is not in default of any provision of
Section 6.02.
ARTICLE VII - WARRANTIES; INDEMNIFICATION
7.01 Limited Subject Matter Warranty.
(a) The Licensor represents and warrants that the Product can
successfully rehabilitate many types of sewer (sewerage and storm) and water
pipelines within the Permitted Uses when installation is properly performed.
Every reasonable precaution will be taken by the Licensor in compiling all
data, and offering instructions in the methods of use of the Product
purchased from the Licensor for operation hereunder, to assure compliance
with the Licensor's exacting standards and that the use of the Subject Matter
for the Permitted Uses in accordance with the terms and conditions of this
Agreement maintains a high standard of quality. To the best of the
Licensor's knowledge, all information given will be correct in all material
respects. However, it is impossible to anticipate every possible variation
in the manner of use or the conditions under which the Contractor will apply
the Product and Licensor makes no warranty or representation of results which
the Contractor will attain, and, except as stated above, shall under no
circumstances be held responsible for any such results that occur as a
consequence of a departure from the instructions provided by the Licensor or
from negligence or malfeasance on the part of the Contractor.
(b) Licensor does warrant that the Product will comply with
Licensor's standard specifications and will perform in the Permitted Uses as
described herein and for a period of one year, or as may be required by
customers for a particular project, from the date of sale will not fail in
the performance in such uses on account of manufacturing defects. In the
event of any such failure, the liability of the Licensor shall be limited to
the replacement of the product that has failed.
THE FOREGOING WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER WARRANTIES
NOT EXPRESSLY SET FORTH HEREIN, WHETHER EXPRESSED OR IMPLIED BY OPERATION OF
LAW OR OTHERWISE, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OF
FITNESS FOR ANY PURPOSE OTHER THAN AS IS CONTEMPLATED BY THIS AGREEMENT.
<PAGE>
LICENSOR SHALL NOT BE LIABLE FOR EXEMPLARY, PUNITIVE, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF
PROFITS OR REVENUES, LOSS OF USE OF GOODS OR EQUIPMENT, DAMAGE TO PROPERTY,
COST OF CAPITAL, COST OF SUBSTITUTION OF GOODS OR COVER, LIQUIDATED DAMAGES,
CLAIMS BY PURCHASERS FROM CONTRACTOR LICENSOR'S LIABILITY TO CONTRACTOR IS
LIMITED TO REPLACEMENT OF GOODS NOT COMPLYING WITH THE AGREEMENT, OR, AT
LICENSOR'S ELECTION, TO THE REFUNDING OR CREDITING OF THE PRICE PAID FOR THE
GOODS, WHETHER THE CLAIM ASSERTED IS IN CONTRACT OR TORT.
The Licensor makes no representation nor warranty that ULTRALINER PVC
ALLOY (Trade Mark) or ULTRALINER PVC ALLOY PIPELINER (Trade Mark) or
ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark) is available for use as a
service mark, tradename, trademark, and/or certificate mark in the United
States.
Further, except as expressly set forth in this Article VII, the
Licensor shall not be held responsible for use by the Contractor of any
Product, Materials, Apparatus, Know-how, Patents Rights or Confidential
Material in such manner as to infringe any patent, trademark or copyright
owned by another. The Licensor warrants that it has rights to the patents
pertaining to the Materials subject to no lien, encumbrance or charge
whatsoever.
7.02 Forbearance by Contractor.
The Contractor expressly covenants that during the Term and after the
expiration or termination thereof, the Contractor shall not, directly or in-
directly, contest or aid in contesting the validity, or the ownership or
licensing by the Licensor, of the Subject Matter, the Know-how, any Patent
Rights and any Copyrights, as well as any trademarks, service marks, trade
names, and copyrights described under Section 2.02, or the limitation of the
Contractor's right with respect to the Subject Matter by the terms and
provisions of this Agreement. The Contractor agrees promptly to notify the
Licensor of any claim, demand, suit or litigation based upon or arising from,
or of any attempt by any other person, firm or corporation, to use the
Subject Matter, the Know-how, the Patent Rights, any Copyrights or any such
other service and/or trademarks, trade names, copyrights licenses hereunder
without the consent of the Licensor, or any other Confidential Material or
trademark, servicemark, symbol, trade name, copyright or variation thereof,
in which the Licensor has a proprietary interest. The Contractor agrees also
promptly to notify the Licensor of any material litigation instituted by the
Contractor, or by any person, firm, corporation or governmental agency
against the Contractor. In the event the Licensor, pursuant to the terms of
this Agreement hereinafter set forth, undertakes the defense or prosecution
of any litigation except in the case of the Contractor, the Contractor agrees
to execute any and all documents and do such acts and things which may, in
the opinion of counsel for the Licensor, be necessary or of assistance to
carry out such defense or prosecution, either in the name of the Licensor or
in the name of the Contractor, as the Licensor shall elect and to cooperate
with the Licensor in its efforts to protect the Copyrights, as well as any
trademarks, service marks, trade names, and copyrights described under
Section 2.02.
7.03 Defense of Patent Rights and Trademarks.
Notwithstanding any other provision herein, the Licensor does hereby
agree, at its expense, to defend Patent Rights, if any, and the servicemarks
and trademarks herein described by such means as it in its sole discretion
may determine appropriate, including but not limited to, patent or trademark
infringement suits, as the case may be.
The Licensor reserves, however, the exclusive right to determine
whether a patent arrangement has occurred, and whether a trademark
infringement has occurred, and whether litigation or other action is
appropriate or feasible. Subject to approval by the Licensor and control by
the Licensor of any and all proceedings initiated as a result thereof, the
Contractor, with its own counsel reasonably acceptable to the Licensor, may,
<PAGE>
at its option and expense, take steps to defend the Patent Rights, any
service mark or trademark and the Contractor's rights thereunder.
7.04 Indemnification by Contractor
The Contractor agrees to indemnify, defend and hold the Licensor
harmless from any and all claims, including, without limitation, for bodily
injury (including death), personal injury and damage to property of the
Contractor, the Licensor and/or others, which arise from the alleged
negligence or malfeasance of the Contractor or from the existence or use of
Materials and/or Apparatus acquired from sources other than the Licensor or
which are produced by the Contractor.
ARTICLE VIII - LIMITED ARBITRATION PROCEDURES
8.00 Limited Arbitration Procedures
Any controversy or claim arising out of or relating to the subject
matter of this contract, or the breach thereof, shall be submitted to
arbitration in accordance with the rules of the American Arbitration
Association, and the results thereof shall be binding on the parties.
ARTICLE IX - INDEPENDENT CONTRACTORS
9.00 Independent Contractors.
This Agreement does not constitute either party as an agent, legal
representative, joint venturer, partner, employee, or servant of the other
party for any purpose whatsoever; and it is understood between the parties
hereto that each party is an independent contractor and is in no way
authorized to make any contract, agreement, warranty or representation on
behalf of the other party, or to create any obligation, express or implied,
on behalf of the other party. The Contractor shall prominently display in
its place of business a certificate from the Licensor stating that said
business is operated by the Contractor as a licensee of the Licensor, and not
as an agent thereof.
ARTICLE X - TRANSFER OR ASSIGNMENT OF LICENSE.
10.00 Transfer or Assignment of License
Subject to the requirements of the immediately succeeding sentence, the
Contractor, if not in default under this Agreement, shall have the right to
sell and assign its rights hereunder.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, with the specific
understanding and requirement that the Contractor, without the Licensor's
prior written consent, which consent shall not unreasonably be withheld,
shall not, by operation of law or otherwise, sell, assign, transfer, convey,
subcontract, give away, or encumber to any person, firm or corporation, its
interest in this Agreement, or its interest in the license granted hereby,
nor offer, permit, or suffer the same. Any such assignment permitted by the
Licensor to any Affiliate of the Contractor shall be made on the express
condition that the assignor guarantees the performance of its assignee
strictly in accordance with the terms and provisions hereof. In the event
that the Contractor is a corporation or partnership, should beneficial
ownership of an amount of the outstanding capital stock or other interest, as
the case may be, or other indicia of ownership in the Contractor be conveyed
so as to effect a Change in Control of the Contractor, whether by sale,
conveyance, operation of law or otherwise, without having first obtained the
written consent of the Licensor to transfer the license, which consent shall
not unreasonably be withheld, the Licensor shall at its option have the right
to immediately terminate this Agreement or enter into a new Agreement with
the Change in Control. Any purported assignment, transfer, conveyance or
<PAGE>
subcontract of this Agreement not having the aforesaid consent shall be null
and void and shall constitute a material default hereunder. If any event has
occurred or fact or circumstances exists which, but for the giving of notice
passage of time or otherwise, would constitute a default hereunder, the
Contractor shall so advise any proposed transferee hereunder.
Upon approval of any assignment, transfer, or conveyance of the
Agreement by the Licensor, the assignment, transfer, or conveyance shall be
completed without additional License fees or other costs being assessed to
the Contractor.
ARTICLE XI - MISCELLANEOUS
11.1 Notices.
Any notice required or permitted to be given or served upon either
party hereto pursuant to this Agreement shall be sufficiently given or served
if sent to such party by United States registered mail, postage prepaid
addressed to such party as set forth below is signature at the foot hereof
and/or to such other address as it shall designate by written notice to the
other party.
11.02 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to the
terms set out in Article X.
11.03 Exclusivity of License.
If, despite the Licensor's efforts to maintain the exclusivity of the
license granted hereunder, such exclusivity should be terminated for any
reason whatsoever, and the Agreement is continued, but amended, the
Contractor is nevertheless obligated to comply in full with each and every
term and condition of this Agreement, including, but not limited to, the
maintenance of high standards of quality and service.
11.04 Exclusions.
It is the intention of the Licensor and the Contractor that the
provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in which
enforcement is sought, but that the unenforceability of any provisions of
this Agreement shall not render unenforceable, or impair, the remainder of
this Agreement. In the event that any one or more of the provisions of this
Agreement is, or are, held to be invalid, it is agreed between the parties
that, if legally practical said provision or provisions shall be considered
never to have been contained herein and this Agreement shall otherwise
continue in force and effect. To the extent that the provisions of this
Agreement provide for periods of notice less than those required by
applicable law, or provide for termination, cancellation, non-renewal or the
like other than in accordance with applicable law, such provisions shall, to
the extent such are not in accordance with applicable law, not be effective,
and the Licensor shall comply with applicable law in connection with each of
these matters. References in this Agreement to the materiality of any terms
hereof are not intended to be exhaustive of all such material terms, and
shall not preclude any other provision from construction as or constituting a
material provision hereof.
11.05 Entire Agreement.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the Subject Matter hereof and supersedes all prior
oral and written understandings and agreements between the parties hereto
concerning the Subject Matter. The article headings of this Agreement are
for convenience only and have no other significance. The Provisions of this
Agreement shall not be waived, modified or amended, except by a subsequent
writing signed by both parties.
<PAGE>
11.06 Gender
Words of the neuter gender utilized in this Agreement shall be deemed
to be of the masculine or feminine gender where the context requires. Words
of the singular number utilized in this Agreement shall be deemed to be
plural where the context requires and vice versa.
11.07 Applicable Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
11.08 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original and both of which or a photocopy thereof shall constitute
one and the same agreement.
11.09 Standard of Dealing.
The parties shall perform such further acts and deeds as shall be
necessary to effectuate the purposes of this Agreement and shall, in their
respective performance hereunder, at all times deal in the utmost good faith
with each other.
11.10 Most Favored Licensee.
In the event the Licensor subsequently enters into any license
agreement for the Subject Matter in the Permitted Uses within the United
States or its territories, and such license contains terms materially more
favorable to the licensee thereunder than are contained herein with respect
to the Contractor, then at the option of the Contractor, this agreement shall
be amended to incorporate such more favorable terms.
IN WITNESS HEREOF, THE PARTIES HERETO HAVE CAUSED THIS CONTRACTOR
LICENSE AGREEMENT TO BE SIGNED AND DELIVERED BY THEIR AUTHORIZED
REPRESENTATIVES ON THE DATE SET OUT IN THE OPENING PARAGRAPH.
ATTEST: ETS WATER AND WASTE MANAGEMENT,
INC. dba STAMIE E. LYTTLE COMPANY
By: s/Navin D. Sheth By: s/Coleman S. Lyttle
---------------------- -----------------------
Navin D. Sheth Coleman S. Lyttle
Its: Executive V.P. Its: President
---------------------- -----------------------
ATTEST: ULTRALINER, INC.
By: s/Richard H. Cater By: s/Luther D. Whittle
---------------------- -----------------------
Richard H. Cater Luther D. Whittle
Its: Its: President
---------------------- -------------------
Secretary President
<PAGE>
STATE OF VIRGINIA
CITY OF RICHMOND
I, the undersigned Notary Public, do hereby certify that on this 5th day
of February, 1996, personally appeared before me Coleman S. Lyttle, who,
being by me first duly sworn, declared that he is the President that he
signed the foregoing CONTRACTOR LICENSE AGREEMENT as President of ETS Water
and Waste Management, Inc. dba Stamie F. Lyttle, Co., and with full
authority, executed same voluntarily for and as the act of said Corporation.
s/Verna L. Wells
----------------------------------
Notary Public
(SEAL) My Commission Expires: May 31, 1997
STATE OF ALABAMA
CALHOUN COUNTY
I, the undersigned Notary Public, do hereby certify that on this 10th
day of February, 1996, personally appeared before me, Luther D. Whittle and
Richard H. Cater who, being by me first duly sworn, declared that they are
the President and Secretary of ULTRALINER, Inc. that they signed the
foregoing CONTRACTOR LICENSE AGREEMENT as President and Secretary of the
corporation, and with full authority, executed same voluntarily for and as
the act of said Corporation.
s/Linda E. O'Becholtzer
------------------------------
Notary Public
(SEAL) My Commission Expires: 8-23-99
<PAGE>
ADDENDUM TO
CONTRACTOR LICENSE AGREEMENT
THIS ADDENDUM TO CONTRACTOR LICENSE AGREEMENT is made and entered into
as of the date set out at the foot hereof, by and between ULTRALINE, INC.
(Licensor), and ETS WATER and WASTE MANAGEMENT, INC. dba STAMIE E. LYTTLE
COMPANY (Contractor).
RECITALS
1. The parties hereto have entered into a CONTRACTOR LICENSE AGREEMENT of
even date herewith, which is hereinafter described by the term "Agreement."
2. The parties have agreed to modify certain of the terms and conditions of
the Agreement and desire to memorialize those changes in writing.
3. For the consideration described in theAgreement and in the following
provisions, the parties hereto do enter into this ADDENDUM TO CONTRACTOR
LICENSE AGREEMENT.
AMENDMENTS AND ADDITIONAL TERMS AND CONDITIONS
1. Section 1.20 is amended to add as additional Permitted Uses, to repair,
rehabilitation, or reconstruction of liquid carrying conduits and/or other
use to which the Licenser and Contractor might agree.
2. Section 1.28 is amended to change to term of the Agreement from three
years to five yearn.
3. Section 2.04(b) is amended to read as follows, italics indicating the
added or amended language:
(b) The Contractor is granted the right to extend the
termination date for five years provided that the Contractor is not
in default on any of its obligations to Licensor under the terms
hereof or otherwise created and the financial condition of the
Contractor, as interpreted in good faith by the Licensor under the
Contract and as indicated by Contractor's then current bonding
capacity, is adequate to allow Contractor to perform its obligations
hereunder during the extended term.
4. Section 4.05 is amended to read as follows, italics indicating amended
or added language:
4.05 Insurance. The Contractor agrees to Procure at its
expense, a policy or policies of insurance from an insurance company
or companies reasonably satisfactory to the Licensor, providing
coverage for the operations of the Contractor, including product and
completed operations, with amounts not less than $1,000,000 single
limit liability for injury to persons and damage to property. The
Contractor also agrees to have the Licensor named as an additional
named insured under the above described policy or policies and to
cause the Licensor to be furnished with a Certificate of Insurance
which shall contain a requirement that the Licensor be notified 30
days prior to any cancellation or any reduction in coverage or
limits. The insurance required above shall commence prior to the
time the Contract commences operations under this Agreement and
<PAGE>
shall continue in force throughout the Term. This requirement may
be satisfied in part by any insurance procured by Contractor in
compliance with its contract with the owner of any project that
utilizes Product.
5. Section 6.01 is amended to reduce the time for prior notice of
termination by the Contractor from 180 days to 30 days.
6. The terms of this ADDENDUM TO CONTRACTOR LICENSE AGREEMENT are to be
effective as of the effective date of the CONTRACTOR LICENSE AGREEMENT.
7. All terms and conditions of the CONTRACTOR LICENSE AGREEMENT that are
not specifically amended herein, remain in full force and effect.
IN WITNESS HEREOF, ULTRALINER, INC. and ETS WATER AND WASTE MANAGEMENT, INC.
dba STAMIE E. LYTTLE COMPANY have caused this ADDENDUM TO CONTRACTOR LICENSE
AGREEMENT to be executed and deliver by their authorized representatives on
the 31st day of January, 1996.
WITNESS ULTRALINER, INC.
s/Richard H. Cater BY s/Luther D. Whittle
- -------------------------- ----------------------------------
LUTHER D. WHITTLE, ITS PRESIDENT
WITNESS ETS WATER AND WASTE MANAGEMENT, INC. dba
STAMIE E. LYTTLE COMPANY
s/Donna J. Eatsey BY s/Coleman S. Lyttle
- -------------------------- ----------------------------------
Coleman S. Lyttle
ITS President
----------------------------------
<PAGE>
CONTRACTOR LICENSE AGREEMENT
This CONTRACTOR LICENSE AGREEMENT is made and entered into as of the
12th day of July 1995 by and between ULTRALINER, INC., a corporation
organized and existing under the laws of the State of Alabama (hereinafter
referred to as the "Licensor"), and Richard H. Snyder, (hereinafter referred
to as the "Contractor").
RECITALS:
WHEREAS, the Licensor has conducted research and development with
respect to certain methods, apparatus and materials used in the
rehabilitation of water and sewer pipelines by the insertion of a folded PVC
alloy pipe liner into the pipeline to be rehabilitated; and
WHEREAS, the foregoing research and development has resulted in
Substantial and valuable know-how, inventions and techniques proprietary to
the Licensor, and the possession by the Licensor of valuable information with
respect thereto; and
WHEREAS, the Contractor is desirous of gaining knowledge of such
inventions, know-how, techniques, and information and an exclusive right and
license within and throughout the Territory to use the same together with any
Patent Rights, Trademark Rights, and Copyrights relating thereto;
NOW THEREFORE, in consideration of these recitals and the mutual
covenants and undertakings set forth herein, the parties hereto do enter into
this agreement.
ARTICLE I - DEFINITIONS
As employed herein:
1.01 "Affiliate" shall mean any person or entity controlling,
controlled by or under common control with the person or entity referenced.
1.02 "Apparatus" shall mean and include, but not be limited to, any
and all tools, equipment, instruments, machines, and devices, other than the
Materials, whether patented or unpatented, developed for use in the practice
of the Subject Matter.
1.03 "Change in Control" shall mean a change in control of the
Contractor occurring after the date of execution of this Agreement of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of
1914, whether or not the Contractor is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if any "person" (as defined in Rule
13d-3 under said Act), directly or indirectly, of more than 50% of the out-
standing shares of any class or series of securities entitled to elect more
than one-half of the board of directors or other governing body of the
Contractor.
1.04 "Commencement Date" means the first day when the Products are
received from the manufacturer.
<PAGE>
1.05 "Confidential Material" shall mean the information furnished to a
Receiving Party, whether before or after the date hereof, by a Disclosing
Party, or acquired, received, developed or learned by a Receiving Party in
the course of its relations with a Disclosing Party, or relating to the
Subject Matter, the Know-How, the Copyrights or the proprietary plans,
policies, business or affairs of a Disclosing Party, including, without
limitation, data, drawings, materials and other communications concerning any
manufacturing or production or other process or any research and development
or marketing and/or sales plans or results related to the business of a
Disclosing Party; provided, however, that the term "Confidential Material"
shall not include information which: (i) becomes or has become generally
available to the public other than as a result of a disclosure by a Receiving
Party, (ii) was available to a Receiving Party on a non-confidential basis
prior to its disclosure to the Receiving Party by a Disclosing Party, or
(iii) becomes available to a Receiving Party on a non-confidential basis from
a source other than a Disclosing Party, provided that such source is not
bound by a confidentiality agreement with a Disclosing Party.
1.06 "Contract Year" means the calendar year with the exception of the
first year, which shall commence on July 11, 1995, and shall end on December
31, 1996.
1.07 "Contractor" means Unknown Entity or Person.
1.08 "Copyrights" shall mean and include any and all copyrights at
common and/or statutory law within the Territory which relate to plans,
brochures, instructions or other means of expression, including, but not
limited to, photographs, software, firmware, diagrams and other visual
presentations, having to do with the Subject Matter or useful in connection
with the commercialization thereof, which the Licensor has, or hereinafter
acquires the right to license others.
1.09 "Cross-over Payment" shall mean the amounts, payable by the
Contractor to the Licensor under Sections 3.03 and 3.04 hereof, at the times
hereinafter set forth, equivalent to twenty-five percent (25%) of the Gross
Product Price of all ULTRALINER, INC. materials shipped outside of the
Territory.
1.10 "Customer(s)" means any public, private, corporate or other legal
entity that has been contacted by Contractor, has expressed an interest in
the System, Process or Know-how, or that has utilized or benefitted from the
use of the System, Process or Know-how.
1.11 "Disclosing Party" shall mean a party hereto, together with its
Affiliates and their respective officers, directors, employees, agents and
representatives, disclosing Confidential Material.
1.12 "Effective Date" means the date of execution of this Agreement.
1.13 "Gross Product Price" shall mean the price published by Licensor
from time-to-time for Product.
1.14 "Know-how" means any and all most up-to-date confidential,
valuable and proprietary information, whether technical, economic or
commercial experiences, operating and/or executing techniques and other
knowledge and all physical matters such as drawings, specifications,
computations, analyses, data, designs, pipe lining installation procedures
and the like relating to or in respect of the Process, Equipment, Tools and
Material herein defined which are substantially or relevant necessary to
enable the Contractor to practice the Process hereinafter defined properly
and efficiently to a standard and quality similar to the standard and quality
of the internal pipe lining specified by the Licensor and which Licensor now
possesses or may possess hereafter during the term of this Agreement.
1.15 "Licensor" means ULTRALINER, INC. a corporation created under the
laws of the State of Alabama, United States of America.
1.16 "License Fee" shall mean the non-refundable amount as set forth
under Section 3.02 hereof, payable by the Contractor to the Licensor upon the
execution and delivery of this agreement.
<PAGE>
1.17 "Materials" shall mean and include any and all compositions,
products, components and other materials, without limitation, whether
patented or unpatented, developed or useD in the practice of the Subject
Matter and supplied to the Contractor.
1.18 "Patent Rights" shall mean and include all patents and patent
applications relating to the Subject Matter whether owned now or hereafter
acquired or controlled by the Licensor.
1.19 "Performance Objectives" shall mean the minimum lengths of
pipeline, identified and segregated by reference to size, proposed to be
rehabilitated by the Contractor during the Term, as determined pursuant to
Section 4.03 hereof.
1.20 "Permitted Uses" shall mean the application, in accordance with
the specifications of the Licensor, of Product in connection with the repair,
rehabilitation or reconstruction of water and sewer pipelines. The Licensor
and the Contractor hereby acknowledge and agree that, notwithstanding any
other provision of this Agreement, neither the right and license granted
under Section 2.01 hereof, nor the Permitted Uses, shall extend to any
utilization of the Know-how or the Patent Rights or practice of any
inventions relating to the Subject Matter in the manufacture of any
Materials.
1.21 "Process" means the deformed pipe lining technology and process
developed by ULTRALINER, INC. for the restoration of repair and
rehabilitation of water and sewer (sewerage & storm) pipelines through the
application of pipe lining material manufactured of PVC Alloy materials with
all its modifications. The words Process or ULTRALINER PVC ALLOY PIPELINER
SYSTEMS (Trade Mark) shall also mean and include any and all methods, Know-
how, methodology and technology which have application to the System and are
deemed proprietary and confidential by Licensor.
1.22 "Product" means deformed pipe lining made or designed in
accordance with the system.
1.23 "Project(s)" means pipe restoration construction projects where
the System, Process or Know-how are, or will be used.
1.24 "System" means ULTRALINER PVC ALLOY (Trade Mark) deformed pipe
lining using the Process developed by ULTRALINER, INC.
1.25 "Receiving Party" shall mean a party hereto, together with its
Affiliates and their respective officers, directors, employees, agents and
representatives, receiving Confidential Material.
1.26 "Restoration" means lining and reopening of pipe at lateral by
remote control internal cutter.
1.27 "Subject Matter" shall mean and include all presently existing
and subsequently acquired methods, Apparatus and Materials used in the
repair, rehabilitation or reconstruction of water and sewer pipelines by
using the Product.
1.28 "Term" shall mean the period commencing on the date hereof and
shall continue for 5 years or the expiration of the last extension, unless
sooner terminated as hereinafter provided. For the purposes of the agreement
between these parties, the Contractor is hereby granted the right to extend
the term for 5 additional years, on the terms and conditions set out in
ARTICLE II hereof.
1.29 "Territory" shall mean that geographical area lying within the
political boundaries of the state of FLORIDA, with the exception of that part
of the State that is West of the Apalachicola river.
1.30 "Tools" means any and all special equipment, apparatus or
materials used in the Process.
1.31 "Trademark" means ULTRALINER and ULTRALINER PVC ALLOY PIPELINER
and ULTRALINER PVC ALLOY PIPELINER SYSTEM and such other trademarks as may be
adopted by Licensor.
<PAGE>
1.32 "Trademark Rights" means certain trademarks, service marks and
trade names including, without limitation, the Trademark, which have been
adopted and used by ULTRALINER, INC. and which have been promoted and are
becoming favorably known to and recognized by the pipe lining industry.
1.33 "ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark)" means a
deformed pipe lining system developed by ULTRALINER, INC. for installation in
accordance with the specifications of the Process.
ARTICLE II - GRANT OF LICENSE, TERM AND EXTENSION
2.01 Grant of License.
(a) In consideration of the License Fee and the other covenants
and agreements of the Contractor hereunder, the Licensor hereby grants the
Contractor an exclusive right and license within and throughout the Territory
during the Term:
(i) to utilize in the Territory, the Know-how,
Equipment, Materials; Tools and the Products to practice the
inventions of the Patent Rights relating to the Subject Matter,
and to sell and to install products incorporating the Subject
Matter to customers of its choice, in each case solely in and for
the Permitted Uses but only by Contractor through Contractor's
direct employees and not through or by any other entity (such as
non-owned installers), unless expressly authorized by Licensor;
(ii) to use any and all Copyrights only as an adjunct to
the practice of such methods and the commercialization thereof as
permitted by this Agreement; and
(iii) subject to Sections 2.02 and 4.04 hereof, to use and
display ULTRALINER PVC ALLOY PIPELINER (Trade Mark) and
ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark) as a service
mark and trademark in connection with each and every aspect of
the commercial exploitation of the Subject Matter in the
Permitted Uses.
(b) The exclusivity of the license is subject to and limited by
the right heretofore granted by Licensor to John Boatman, personally, acting
solely through his company, as long as he owns 100% of Boatman Construction
Company, to sell and install Product within the Territory.
(c) In the event the Licensor, in its sole but reasonable
discretion, determines that the Subject Matter may be commercialized in the
Territory in connection with the repair, rehabilitation or reconstruction of
pipelines and other passageways, the Licensor and the Contractor may agree to
enter into an agreement to license Contractor to sell and install the Subject
Matter for such uses. Without this subsequent agreement, the Licensor and
Contractor hereby agree and acknowledge that, notwithstanding any other
provision of this Agreement, neither the right and license granted under
Section 2.01 hereof, nor the Permitted uses, shall extend to any utilization
of the Know-how or the Patent Rights or practice of any inventions relating
to the Subject Matter in the use, manufacture or promotion of any materials.
Notwithstanding any other provision contained in this paragraph (b),
the Licensor shall not be obligated to commercialize the Subject Matter in
any application described under this paragraph.
2.02 Use of Service Mark and Trademark. The Contractor hereby
acknowledges that, except as described in 2.01(b), only the Licensor or its
designated licensees have the right within the Territory to use the name
ULTRALINER PVC ALLOY PIPELINES (Trade Mark) and ULTRALINER PVC ALLOY
PIPELINER SYSTEM (Trade Mark) as a service mark or trademark, and such other
trademarks, service marks, trade names and copyrights as may presently exist
or be acquired by the Licensor and licensed for use by the Contractor, along
<PAGE>
with all ancillary signs, symbols or other indicia used in connection or
conjunction with said marks. The Contractor further acknowledges that
valuable goodwill is attached to all such trademarks, service marks, trade
names, and copyrights, and that it will use same in the manner and to the
extent specifically licensed by this Agreement. The Licensor, in its sole
discretion, has the right itself to operate businesses under said trademarks,
service marks, trade names and copyrights, and (subject to paragraph (a) (b)
and (c) of Section 2.01 hereof) to grant other licenses in, to and under such
trademarks, service marks, trade names and copyrights, on any terms the
Licensor deems fit; except for the Permitted Uses in the Territory (and
subject, in all respects, to the final sentence of Section 2.03). The
Contractor expressly recognizes that any and all goodwill associated with
said trademarks, service marks, trade names, and copyrights, including any
goodwill which might be deemed to have arisen through the Contractor's
activities, inures directly and exclusively to the benefit of the Licensor,
except as otherwise provided herein. The Licensor covenants that any
subsequent license to a third party (which may be an Affiliate of the
Licensor) for ULTRALINER PVC ALLOY PIPELINER (Trade Mark) application of the
Subject Matter in the Territory other than in the Permitted Uses shall
provide that any trademarks, service marks, tradenames and copyright covered
by such license (which may include ULTRALINER PVC ALLOY PIPELINER (Trade
Mark)) shall be adequately distinctive in form from the trademarks, service
marks, tradenames and copyrights licensed hereunder.
(b) All Apparatus, Materials, letterheads, invoices,
advertising signs of all types and printed material utilized by the
Contractor in the exercise of its rights under this Agreement shall bear
appropriate insignia acknowledging such products, Materials or Apparatus as
under exclusive license from the Licensor.
2.03 Rights Reserved to Licensor. It is specifically understood and
agreed that the grant of this exclusive license for the Territory during the
Term is based upon the size and ability of the Contractor to provide and/or
exploit the demand for the Subject Matter within the Territory in the
Permitted Uses, and the nature and scope of the Territory has been determined
accordingly. The Contractor further understands and agrees that the Licensor
retains the right to grant exclusive licenses to other Contractors in other
territories and to grant exclusive licenses to other parties in the Territory
to utilize the Subject Matter for purposes other than in the Permitted Uses.
The Licensor reserves the right to vary or otherwise modify the nature and
scope of subsequent licenses granted to subsequent licensees to accommodate
specific applications, territories, population considerations and other
factors. The Contractor acknowledges and agrees that the Licensor shall not
be obligated to prevent other of its licensees for the Permitted Uses from
exploiting the Subject Matter in the Territory in the Permitted Uses.
2.04 TERM AND EXTENSIONS.
(a) The Term of this Agreement shall commence on the date of
this set out in the opening paragraph hereof and shall terminate at midnight
on the 31st day of July, 2001, unless the termination date is extended in
accordance with the following paragraph.
(b) The Contractor is granted the right to extend the
termination date for five (5) years provided that the Contractor is not in
default on any of its obligations to Licensor under the terms hereof or
created and the financial condition of the Contractor is adequate to allow
Contractor to maintain a bonding capacity to perform its obligations
hereunder during the extended term.
<PAGE>
ARTICLE III - LICENSE FEE AND CROSS-OVER PAYMENT
3.01 ADEQUACY OF CONSIDERATION. It is specifically understood and
agreed that the License Fee, and the other terms and conditions hereinafter
described shall be deemed adequate consideration for the exclusive license
defined in Article II above relating to the Territory during the Term.
3.02 License Fee. Concurrently with the execution and delivery of
this Agreement, the Contractor shall pay to the Licensor the amount of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00), less the previously paid non-
refundable earnest money of TEN THOUSAND DOLLARS ($10,000.00) and an
additional ONE HUNDRED THOUSAND DOLLARS ($100,000.00) payable in payments not
less than TWENTY FIVE THOUSAND DOLLARS ($25,000.00) will be due each quarter
of 1996 and 1997 commencing July 1, 1996 and the final payment April 1, 1997,
which shall not be refundable in part or whole at any time after execution of
this Agreement.
3.03 PURCHASES. All orders by Contractor for Product shall be only on
the terms set out in the Licensor's written acceptance of Contractor's
written order.
3.04 Cross-Over Payment.
(a) The Contractor shall, during the Term, exploit the Subject
Matter in the Territory in the Permitted Uses for the mutual benefit of the
Contractor, the Licensor, and the customers and potential customers of the
Contractor, in order to fulfill the Contractor's obligations under Section
4.03 hereof, and the Contractor shall ensure that the customers of the
Contractor are provided such information, warranties, and services by the
Contractor as shall assure that such obligations are met. In so exploiting
the Subject Matter in the Permitted Uses, the Contractor shall be required to
make significant financial investments, necessary for market development, in
capital and equipment, in marketing and promotion, and in providing
information and services.
(b) In order to compensate the Licensor's licensees in other
territories for the making of such investments, and to induce them to do so,
should the Contractor seek to exploit the Subject Matter outside of the
Territory in any of the Permitted Uses, whether or not in an area where an
exclusive license for such Permitted Uses has been granted by the Licensor,
the Contractor shall make an immediate Cross-Over Payment of twenty-five
percent (25%) of the Gross Product Price of all Product so exploited outside
the Territory. All Cross-Over Payments shall be paid by the Contractor to
the Licensor, as agent for the Contractor, who shall in turn promptly pay
twenty percent (20%) of such Cross-Over Payment to the Licensee in whose
territory the installation was performed, if any. Should the Contractor fail
to make a Cross-Over Payment to the Licensor within the time applicable for
payment, no further Product will be shipped to the Cross-Over Contractor and
such failure shall be a material breach of this Agreement; it being
understood and agreed that nothing contained in this Agreement shall obligate
the Licensor to take any collection action with respect to any Cross-Over
Payment.
(c) All licenses governing the commercialization of the Subject
Matter for the Permitted Uses within the United States of America shall
provide for a similar cross-over payment, in the amount of twenty-five
percent (25%) of the Gross Product Price for installations utilizing the
Subject Matter for any of the Permitted Uses within the Territory, to be paid
by the Licensee who commits the cross-over thereunder to the Licensor, as
agent for such licensee, who shall in turn promptly pay such cross-over
payment to the Contractor into whose Territory the cross-over has been
committed, if any, less five percent (5%) deduction.
<PAGE>
(d) Notwithstanding any other provision contained in this
Agreement, any utilization of the Subject Matter within the Territory for the
Permitted Uses by another licensee of the Licensor shall be attributable to
the Contractor for purposes of determining achievement by the Contractor of
its Performance Objectives.
(e) In addition to all other obligations of the Contractor
hereinafter set forth, in order to assure top product quality and to meet all
products liability and health and safety requirements it shall be the
responsibility of the Contractor, should it perform work outside the
Territory to assure that satisfactory arrangements are made to provide full
and complete after-sales service and warranty protection for the job
involved, including specifically, but not limited to, the ability to rapidly
deploy a repair crew to the site of any such job.
3.05 Reports and Payments. The Contractor shall submit and deliver to
the Licensor separate written reports at the times hereinafter set forth and
in such form as may be reasonably required and as may be amended, from time
to time, by the Licensor as follows:
(a) No later than one month prior to the commencement of each
calendar quarter of the Term, the Contractor shall deliver to the Licensor a
report containing the Contractor's forecast of product requirements, in
linear feet by diameter, for each month of the immediately following calendar
quarter and each of the next two (2) calendar quarters.
(b) Within three (3) weeks after the end of each calendar
quarter of the Term, the Contractor shall deliver to the Licensor a report of
work performed by the Contractor utilizing the Subject Matter for the
Permitted Uses during such calendar quarter, whether or not invoiced or paid,
the total amount invoiced, the Gross Contract Price and terms for the work
performed, and any Cross-Over Payment due to the Licensor, as agent for the
Contractor, and such other information as the Licensor may reasonably require
to enable the Licensor to evaluate computation of any Cross-Over Payments and
the Contractor's achievement of the Performance Objectives. Such report
shall be accompanied by payment in full of all Cross-over Payments not paid
and due the Licensor, as agent for the Contractor, with respect to such
calendar quarter.
3.06 Default in Payment. Should the Contractor fail to pay the
License Fee or any Cross-Over Payment as aforesaid, or fail to pay for
Materials, to the Licensor, arising from or in connection with this
Agreement, when validly due, or fail to deliver any report due under Section
3.04 hereof, this Agreement shall, pursuant to Article VI hereof (and
subject, without limitation, to the applicable notice and cure periods
therein) terminate.
3.07 PLACE AND METHOD OF PAYMENT. All payments required under this
Agreement shall be made in Oxford, Alabama or such other location within the
United States as shall be identified by the Licensor. Payments are to be
paid in U.S. Dollars or Gold.
ARTICLE IV - GENERAL COVENANTS
4.01 Information Sharing. With a view to avoiding unnecessary
duplication of research and development work in relation to the System and/or
the Products as far as possible, both the Licensor and the Contractor shall
have the right to discuss with each other fully and openly at half-year
intervals relevant research and development projects which they have in hand
or which are planned.
<PAGE>
4.02 Financial Covenants. To assure the financial ability of the
Contractor to meet obligations hereunder, the Contractor shall provide a
semi-annual balance sheet to the Licensor with an officer's certificate,
notarized, certifying that such balance sheet has been prepared in accordance
with generally accepted accounting principles applied consistently with the
prior six months and presents fairly the financial position of such party for
the six months then ended. The Contractor's obligation under this Section
4.02 shall be deemed met in the event guaranteed by an Affiliate of the
Contractor which itself also complies with this Section 4.02.
4.03 Performance Objectives. Performance objectives are the minimum
quantities of Product that the Contractor is required to order from Licensor
within the time period specified. The parties recognize and agree that the
covenant of the Contractor that it will achieve these Performance Objectives
is a material term of this agreement and its representation that it has and
will dedicate the necessary financial and manpower resources, to this
specific obligation, as well as its other duties hereunder, have been and
will continue to be relied upon by Licensor in entering into this agreement
and performing thereunder.
(a) For the first contract year, Contractor shall not be
assigned any performance objective.
(b) For the contract year beginning Dec. 1, 1996, Contractor
shall order (only valid order is that accepted and paid for) not less than
Thirty-five thousand feet (35,000) of Product.
(c) For Contract Years subsequent to 1996, Performance
Objectives shall be established by the Licensor and Contractor taking into
consideration the following factors:
(i) reconstruction budget line items of major
municipalities in the territory;
(ii) major projects planned in the Territory for the
performance period;
(iii) the Contractor's actual performance in prior years;
(iv) distorting impact of major programs, Acts of God and
events beyond the Contractor's control in prior year's performance;
(v) territory population;
(vi) population of realistic potential markets in the
territory;
(vii) Contractor forecasts;
(viii)Contractor backlogs;
(ix) sales activities of competitive methods and volume
of work lost or delayed due to competitor's activities;
(x) political and economic conditions in the territory;
(xi) new markets and applications and diameters for which
products will be available and compatible;
(xii) environmental concerns;
(xiii)product availability and price; and
(xiv) maintenance of product exclusivity.
(d) Contractor shall develop and provide Licensor such
information as is described above and such other data and information which
the Contractor believes to be pertinent and relevant to establishment of
Performance Objectives.
(e) Within 90 days prior to the end of a Contract Year, and
following good faith negotiations with the Contractor on the basis of the
foregoing criteria, Performance Objectives applicable to, shall be announced
by Licensor and Contractor as agreed upon, for next Contract Year.
<PAGE>
(f) Commencing March 31, 1997, and on a quarterly basis
thereafter the Contractor and the Licensor shall consult to determine the
Contractor's progress during the preceding calendar quarter in achieving the
Performance objectives then applicable. Licensor shall consider the criteria
set out in the foregoing section and the following criteria when conducting
its evaluation of Contractor's performance to determine if the Contractor's
failure to achieve its the Performance Objectives:
(i) major governmental agency or industrial buyer
decisions relating to the Subject Matter, as well as delays in releasing
contracts for bids;
(ii) Contractor's overall satisfactory business
performance in all diameters;
(iii) competitor's adverse activities in the Territory;
(iv) Contractor's long-term investment in business under
the License, both capital and human resources;
(v) sales activity and effort to promote the product.
(g) The Licensor hereby agrees that, subject to the notices and
for the period hereinafter specified, the Contractor shall not be deemed to
have failed to achieve any Performance Objective for a particular year if
prevented by a material failure of performance by the Licensor that is not
caused by the fault of the Contractor (including those excuses for
nonperformance as are herein afforded to Contractor); by federal, state or
municipal action or regulations; by strikes or other labor trouble or
stoppage; by fire, damage to, or destruction in whole or in part of
merchandise or plant; by lack of, or inability to obtain, raw materials,
labor, fuel or supplies; by war, riot or revolution; by Acts of God; by
perils of the sea; by shortage of cars; or by any other unavoidable cause
beyond the control of Contractor, in each case, under this sentence, except
if caused by the negligence or design of the Contractor. In the occurrence
of any such event, and after receiving written notice from the Contractor
thereof, Licensor shall, for as long as such event shall continue to prevent
such achievement, reduce any Performance Objective so affected by a
proportion that reasonably accounts for such event. The Contractor shall
promptly deliver written notice to the Licensor that such event shall have
ceased.
(h) The parties understand and agree that the provisions of
this Section 4.03 shall in no manner operate to limit any obligation of the
Contractor contained elsewhere in this Agreement.
(i) It is specifically understood and agreed that nothing
herein provided shall be construed as requiring the Operator to operate in
accordance with any designated marketing plan or system, which, except for
the maintenance of high standards of quality with respect to the Subject
Matter and its usage, the exercise of diligence and the performance in
accordance with the terms and conditions hereof, are left to the
determination of the Operator.
4.04 Disclosure and Training. Promptly upon execution of this
Agreement, and continuing throughout the Term, the Licensor thereupon shall
fully disclose to the Contractor all Know-how, and any Patent Rights and
Copyrights, intended to be utilized in the practice of the methods of the
Subject Matter for the Permitted Uses. Promptly after the commencement of
the Term, the Contractor, at its expense, but with no fee or payment to the
Licensor, shall require its principal sales personnel to attend an
installation demonstration and training session conducted by the Licensor.
Further, promptly after the commencement of the Term (and in all events prior
to any application by the Contractor of the Subject Matter), the Contractor,
at its expense, shall require an adequate number of supervisory personnel who
will be involved in installations utilizing the Subject Matter to be trained
by the Licensor specifically in the utilization of the Subject Matter; and no
such installations shall be initiated by the Contractor unless and until such
<PAGE>
supervisory personnel are certified by the Licensor as qualified to utilize
the Subject Matter for the Permitted Uses. The Licensor shall thereafter
provide an adequate continuing technical and engineering support capability
to support the efforts of the Contractor, the content, extent, and
frequency.of which shall be solely at the discretion of the Licensor; except
that the Licensor will conduct an annual training seminar with respect to
application of the Subject Matter in the Permitted Uses, and the Contractor
agrees to have, at its expense, at least one supervisory representative in
attendance. The Contractor shall not be obligated to pay any fees or other
charges to the Licensor in exchange for the foregoing training. At the
request of the Contractor and subject to availability, the Licensor will
provide a technician experienced in the operation of the Subject Matter to
assist and render advice to the Contractor subject to payment by the
Contractor of all reasonable direct traveling and hotel expenses and a
reasonable per diem rate which shall be agreed upon between the parties at a
location agreed upon by both parties.
4.05 Insurance. The Contractor agrees to procure at its expense, a
policy or policies of insurance from an insurance company or companies
reasonably satisfactory to the Licensor and Contractor's customers, providing
coverage for the operations of the Contractor, including product and
completed operations, with amounts not less than $1,000,000 single limit
liability for injury to persons and damage to property. The Contractor also
agrees to have the Licensor named as an additional named insured under the
above described policy or policies and to cause the Licensor to be furnished
with a Certificate of Insurance which shall contain a requirement that the
Licensor be notified 30 days prior to any cancellation or any reduction in
coverage or limits. The insurance requirements above shall commence prior to
the time the Contractor commences operations under this Agreement and shall
continue in force throughout the Term.
4.06 Taxes; Compliance with Laws. The Contractor shall promptly pay
when due all taxes and assessments against the premises or the equipment used
in connection with the Contractor's business, and all liens or encumbrances
of every kind or character created or placed upon or against any of said
property, and all accounts and other indebtedness of every kind incurred by
the Contractor in the conduct of said business, the failure to pay which
would have a materially adverse effect on the ability of the Contractor to
perform its obligations hereunder. The Contractor shall have the right to
contest the validity or amount of any assessment, tax, lien or encumbrance,
provided that the Contractor shall: (1) give the Licensor notice of its
intention to contest; (2) diligently prosecute such contest; and (3) at all
times effectively stay or prevent any official or judicial sale of such
property or any thereof by reason of the non-payment of any lien,
encumbrance, tax, or assessment. The Contractor shall comply with all
applicable federal, state, county and municipal laws and regulations, now in
effect or hereinafter enacted, including, without limitation, all
environmental laws and all occupational safety and health laws, the failure
to comply with which would have a materially adverse effect on the ability of
the Contractor to perform its obligations hereunder, and shall timely obtain
any and all permits, certificates, or licenses necessary for the full and
proper conduct of its business.
4.07 Standards and Inspection. The Contractor shall maintain a high
standard of quality in all installations made and in all other activities
under the Service Mark or Trademark. To ensure the maintenance of such
standards, the Licensor may periodically inspect the Contractor's practice of
the methods of the Subject Matter at the Licensor's own expense and without
unreasonable inconvenience to the Contractor. The Contractor shall cooperate
fully with the Licensor in any such inspections in its practices of the
methods of the Subject Matter made by the Licensor. At all times the
Contractor shall exert diligent effort to practice the methods and techniques
<PAGE>
included in the Subject Matter in accordance with the best available
technical information and advice received from the Licensor. The Contractor
hereby agrees that failure by the Licensor to exercise any right of
inspection or any other right under this Section 4.08 shall not operate
subsequently to preclude exercise by the Licensor of this right, and that
failure of the Contractor to permit such inspections or to maintain such
standards shall constitute a material breach of this Agreement and shall form
the basis of termination hereof, but solely in accordance with the notice and
cure provisions of Article VI hereof.
ARTICLE V - IMPROVEMENTS; SECRECY
5.01 Commercialization of Improvements. The Contractor recognizes and
agrees that from time to time hereafter the Licensor may, in its discretion,
change or modify the Subject Matter and/or adopt and use new or modified
trade names, trademarks, service marks or copyrighted materials with respect
thereto, and that the Contractor, at the election of the Licensor, will
accept, use and display for the purpose of this Agreement any such changes
and such new or modified trade names, trademarks, servicemarks or copyrighted
materials, as if they were part of this Agreement at the time of execution
hereof. The Contractor shall furnish such cooperation as such changes or
modifications may reasonably require, and do so within a reasonable time.
5.02 Title to Improvements.
(a) The Contractor hereby assigns, and shall cause its
officers, directors, agents, employees and representatives to assign, to the
Licensor the entire right, title and interest in and to any and all
inventions, trade secrets, improvements, plans and specifications (i) which
the Contractor, or its officers, directors, agents, employees or
representatives, alone or in conjunction with others, may make, conceive or
develop during the Term; and (ii) which constitute or derive from the Subject
Matter. The Contractor further agrees that it will promptly disclose, and
cause its officers, directors, agents employees and representatives promptly
to disclose, fully to the Licensor the aforesaid inventions, trade secrets,
improvements, plans and specifications and will at any time render, and cause
its officers, directors, agents, employees and representatives to render, to
the Licensor such cooperation and assistance (excluding financial assistance)
as the latter may reasonably deem to be advisable in order to obtain
copyrights or patents, as the case may be, on or otherwise perfect or defend
the Licensor's rights in each such invention, trade secret, improvement, plan
or specification, including, but not limited to, the execution of any and all
applications for copyrights or patents, assignments of copyrights or patents
and other instruments in writing which the Licensor, its officers or
attorneys may deem necessary or desirable, and the aforesaid obligation shall
be binding on the assigns, executors, administrators and other legal
representatives of the Contractor.
(b) Without prejudice to any right or remedy available to the
Contractor against third parties, which shall be exercised in consultation
with and subject to the Licensor's approval, which approval shall not
unreasonably be withheld, the Contractor hereby constitutes and appoints the
Licensor the attorney for the Contractor, with full power of substitution,
for it and in its name and stead or otherwise, but at the sole expense and on
behalf of and for the benefit of the Licensor, to institute and prosecute
from time to time, any proceedings at law, in equity or otherwise, that the
Licensor may deem proper in order to assert or enforce any claim, right or
title of any kind in and to the inventions, trade secrets and improvements
described under paragraph (a) immediately preceding, to defend and compromise
any and all actions, suits or proceedings in respect of any said inventions,
trade secrets and improvements, and, generally to do any and all such acts
<PAGE>
and things in relation thereto as the Licensor shall deem advisable,
including, but not limited to, the execution of any and all applications,
assignments and instruments contemplated under such paragraph. The
Contractor declares that the appointment hereby made and the powers hereby
granted are coupled with an interest and shall be irrevocable by the
undersigned.
(c) The Licensor hereby agrees that, during the Term, it shall
be obliged to disseminate at no charge to all of its licensees, for their
mutual benefit to be used subject to the terms of their respective license
agreements, such of its inventions, trade secrets, plans, specifications,
improvements or modifications which are necessary to utilize the System.
5.03 Secrecy. Each Receiving Party shall, and shall instruct all of
its officers, directors, employees, agents or representatives to, hold in
absolute secrecy and treat confidentially all Confidential Material of a
Disclosing Party, and not disclose, reproduce, publish, distribute or by any
other means disseminate, in whole or in part, any such Confidential Material,
except as shall be specifically necessary for the Receiving Party to disclose
such Confidential Material to its employees in order to exercise its rights
under this Agreement. Neither the Receiving Party nor any of its employees,
agents or representatives may in any manner use for its benefit or for the
benefit of others any such Confidential Material except as shall be
specifically necessary for the Receiving Party to exercise its rights
authorized under this Agreement.
5.04 Remedies.
(a) Without in any manner limiting the obligation of either
party to cause its officers, directors, agents, employees and representatives
to comply with the provisions of Section 5.02 and 5.03 hereof, as applicable,
each party shall cause each of its officers, directors and key employees to
execute an agreement in a form prescribed by Licensor and, except as set
forth in the next succeeding sentence, all other employees which have access
to Confidential Material or information constituting or derived from the
Subject Matter to execute an agreement in any form prescribed by Licensor.
(b) In view of the irreparable harm and damage which would be
incurred by a party in the event of any violation by the other party or any
of its officers, directors, employees, agents or representatives of any of
the provisions of Sections 5.02 or 5.03 hereof, as applicable, each party
hereby consents and agrees that, if it or any of its officers, directors,
employees, agents or representatives violate any such provision, the other
party shall be entitled to an injunction or similar equitable relief to be
issued by any court of competent jurisdiction restraining the said party and
its employees, agents and representatives from committing or continuing any
such violation.
(c) The provisions of Sections 5.02 and 5.03 and 5.04 shall, in
accordance with their respective terms, survive the Term and this Agreement,
notwithstanding any termination or expiration thereof. Without limiting the
generality of any other provision hereof, each party shall enforce the
provisions of such sections insofar as they relate to its employees, agents
and representatives; provided, however, that neither party shall be liable
for the acts of its employees, agents and representatives which are not
within the scope of their employment.
ARTICLE VI - TERMINATION
6.01 Termination by Contractor. The Contractor may terminate this
Agreement at any time by service of written notice to such effect on the
Licensor 30 days in advance of the effective date thereof and by complying
with the applicable terms and conditions of this Article VI. During such
period after notice but prior to actual termination, the Contractor shall not
<PAGE>
bid or accept any additional jobs (except those outstanding bids with bid
bonds that have not been awarded) which will require the utilization of the
Subject Matter from the Licensor under the Patent Rights or the Know-How
without the written consent of the Licensor, which consent shall not
unreasonably be withheld.
6.02 Termination by Licensor.
(a) This Agreement and the rights of the Contractor hereunder
may be terminated by the Licensor in the event the Contractor:
(i) becomes insolvent or a petition in bankruptcy is
filed by or against the Contractor and not removed within 20 days thereafter,
or a receiver is appointed for the Contractor; or
(ii) utilizes the Subject Matter in any application
outside of the Permitted Uses; or
(iii) fails to achieve the Performance Objectives
described in Section 4.03 hereof in a particular Contract Year, without an
excuse provided by this agreement.
(iv) fails to pay when validly due any sum owed to
Licensor or any of its Affiliates arising from or in connection with this
Agreement and such failure shall continue for a period of 30 days after
written notice from the Licensor to the Contractor; or
(v) fails to perform any other material term or
condition of this Agreement and fails to correct the same within 30 days
after written notice from the Licensor to the Contractor, or if not
reasonably capable of correction within such period, fails to commence such
correction within such period and thereafter fails to diligently proceed to
make such correction; or
(vi) fails to submit and deliver to the Licensor any
written report required under paragraph (a) of Section 3.05 hereof when due
and such failure shall continue for a period of 30 days after written notice
from the Licensor to the Contractor.
(b) In the event the Contractor fails to pay the License Fee or
any Cross-Over Payment in accordance with Article III hereof, or fails to
provide any written report required under paragraph (b) of Section 3.05
hereof in accordance with such provision and, in the case of the first such
breach in any calendar year, such failure shall continue for a period of 30
days after written notice from the Licensor to the Contractor, then in any
such event, this Agreement shall automatically terminate.
(c) No termination under this Section 6.02 shall limit or
affect any other right or remedy of the Licensor, including the right to
damages resulting from the Contractor's breach.
6.03 Consequences of Expiration or Termination.
(a) Upon expiration or termination of this Agreement, the
Contractor shall promptly pay the Licensor all amounts then due under this
Agreement, terminate all use by it of any service mark, tradename, trademark,
certification mark or corporate name that includes any of the foregoing
words; avoid all subsequent use of all service marks, tradenames, trademarks,
certification marks or corporate names likely to be confused with ULTRALINER
as well as all stationery, invoices, signs or other visual devices displaying
or otherwise associated with ULTRALINER; terminate all use of the Subject
Matter and the Licensor's Confidential Material, as well as the use and sale
of any products under any Patent Rights or Copyrights or the Know-how; and
assign to the Licensor free of charge, any and all rights and claims to any
and all rights arising from the use of ULTRALINER, or any combination
involving ULTRALINER, the above mentioned Corporate rights in the Territory;
and return to the Licensor all Confidential Material in its possession, and
any copies which it has made of the same. Following termination, the
Contractor shall continue to be obligated to provide all after sales services
for which it has theretofore contracted, including the honoring of all
<PAGE>
contract warranties. Should the Contractor fail to fulfill such obligations,
and should the Licensor, in its reasonable discretion after notice to the
Contractor, whether for reason of preserving product goodwill or otherwise,
choose to perform any such obligations (this paragraph in no way to be
construed as an assumption by the Licensor of any obligations for which it is
not specifically contractually responsible), then the Contractor shall
promptly reimburse the Licensor the reasonable charges issued by the Licensor
to the Contractor of performing such obligations of the Contractor. If the
Contractor is a corporation having the word ULTRALINER as a part of its
corporate name, the Contractor shall, within 60 days of termination, amend
its corporate name to remove the word ULTRALINER therefrom.
(b) Each party hereto shall promptly pay to the other party all
damages, costs and expenses, including reasonable attorney's fees, incurred
by such other party by reason of default on the part of such party hereto,
whether or not such default occurred prior to or subsequent to the
termination or expiration of this Agreement, and said sum shall include all
costs and expenses, including reasonable attorney's fees, incurred by such
other non-defaulting party in obtaining injunctive or other relief to enforce
the provisions of this Agreement. Notwithstanding the foregoing, in any
dispute under this agreement, the ultimate prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees. No right or
remedy herein conferred upon or reserved to either party is exclusive of any
other right or remedy herein or by law or equity provided or permitted; but
each shall be cumulative of every right or remedy given hereunder. In
addition to whatever remedy or remedies a party may have by way of damages
for violation of the provisions of this Agreement and/or expiration or
termination of the same, such party shall also have the right to injunctive
relief to enforce the provisions of this Agreement.
(c) In the event of the termination of this Agreement by the
Licensor or Contractor as a consequence of any event described under sub-
paragraphs (i), (iii), or (vi) of Paragraph (a) of Section 6.02 or 6.01
hereof, the Licensor shall thereafter assist the Contractor in disposing of
any Materials or Apparatus then in the possession of the Contractor,
including but not limited to the sale of excess inventory to other qualified
Licensees, subject in such case to the constraints of the Licensor's business
and its other obligations.
(d) Licensor shall supply to the Contractor, at the current
rates and prices, any and all materials or apparatus Contractor may need to
complete any outstanding projects or projects that may have been bid prior to
the termination, but not awarded, and a bid bond was provided by the
Contractor, provided the Contractor is not in default of any provision of
Section 6.02.
ARTICLE VII - WARRANTIES; INDEMNIFICATION
7.01 Limited Subject Matter Warranty.
(a) The Licensor represents and warrants that the Product can
successfully rehabilitate many types of sewer (sewerage and storm) and water
pipelines within the Permitted Uses when installation is properly performed.
Every reasonable precaution will be taken by the Licensor in compiling all
data, and offering instructions in the methods of use of the Product
purchased from the Licensor for operation hereunder, to assure compliance
with the Licensor's exacting standards and that the use of the Subject Matter
for the Permitted Uses in accordance with the terms and conditions of this
Agreement maintains a high standard of quality. To the best of the
Licensor's knowledge, all information given will be correct in all material
respects. However, it is impossible to anticipate every possible variation
in the manner of use or the conditions under which the Contractor will apply
the Product and Licensor makes no warranty or representation of results which
<PAGE>
the Contractor will attain, and, except as stated above, shall under no
circumstances be held responsible for any such results that occur as a
consequence of a departure from the instructions provided by the Licensor or
from negligence or malfeasance on the part of the Contractor.
(b) Licensor does warrant that the Product will comply with
Licensor's standard specifications and will perform in the Permitted Uses as
described herein and for a period of one year, or as may be required by
customers for a particular project, from the date of sale will not fail in
the performance in such uses on account of manufacturing defects. In the
event of any such failure, the liability of the Licensor shall be limited to
the replacement of the product that has failed.
THE FOREGOING WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER WARRANTIES NOT
EXPRESSLY SET FORTH HEREIN, WHETHER EXPRESSED OR IMPLIED BY OPERATION OF LAW
OR OTHERWISE, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OF FITNESS
FOR ANY PURPOSE OTHER THAN AS IS CONTEMPLATED BY THIS AGREEMENT.
LICENSOR SHALL NOT BE LIABLE FOR EXEMPLARY, PUNITIVE, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF
PROFITS OR REVENUES, LOSS OF USE OF GOODS OR EQUIPMENT, DAMAGE TO PROPERTY,
COST OF CAPITAL, COST OF SUBSTITUTION OF GOODS OR COVER, LIQUIDATED DAMAGES,
CLAIMS BY PURCHASERS FROM CONTRACTOR. LICENSOR'S LIABILITY TO CONTRACTOR IS
LIMITED TO REPLACEMENT OF GOODS NOT COMPLYING WITH THE AGREEMENT, OR, AT
LICENSOR'S ELECTION, TO THE REFUNDING OR CREDITING OF THE PRICE PAID FOR THE
GOODS, WHETHER THE CLAIM ASSERTED IS IN CONTRACT OR TORT.
(c) The Licensor makes no representation nor warranty that
ULTRALINER PVC ALLOY (Trade Mark) or ULTRALINER PVC ALLOY PIPELINER (Trade
Mark) or ULTRALINER PVC ALLOY PIPELINER SYSTEM (Trade Mark) is available for
use as a service mark, tradename, trademark, and/or certificate mark in the
United States.
Further, except as expressly set forth in this Article VII, the
Licensor shall not be held responsible for use by the Contractor of any
Product, Materials, Apparatus, Know-how, Patents Rights or Confidential
Material in such manner as to infringe any patent, trademark or copyright
owned by another. The Licensor warrants that it has rights to the patents
pertaining to the Materials subject to no lien, encumbrance or charge
whatsoever.
7.02 Forbearance by Contractor. The Contractor expressly covenants
that during the Term and after the expiration or termination thereof, the
Contractor shall not, directly or indirectly, contest or aid in contesting
the validity, or the ownership or licensing by the Licensor, of the Subject
Matter, the Know-how, any Patent Rights and any Copyrights, as well as any
trademarks, service marks, trade names, and copyrights described under
Section 2.02, or the limitation of the Contractor's right with respect to the
Subject Matter by the terms and provisions of this Agreement. The Contractor
agrees promptly to notify the Licensor of any claim, demand, suit or
litigation based upon or arising from, or of any attempt by any other person,
firm or corporation, to use the Subject Matter, the Know-how, the Patent
Rights, any Copyrights or any such other service and/or trademarks, trade
names, copyrights licenses hereunder without the consent of the Licensor, or
any other Confidential Material or trademark, servicemark, symbol, trade
name, copyright or variation thereof, in which the Licensor has a proprietary
interest. The Contractor agrees also promptly to notify the Licensor of any
material litigation instituted by the Contractor, or by any person, firm,
corporation or governmental agency against the Contractor. In the event the
Licensor, pursuant to the terms of this Agreement hereinafter set forth,
undertakes the defense or prosecution of any litigation except in the case of
the Contractor, the Contractor agrees to execute any and all documents and do
such acts and things which may, in the opinion of counsel for the Licensor,
<PAGE>
be necessary or of assistance to carry out such defense or prosecution,
either in the name of the Licensor or in the name of the Contractor, as the
Licensor shall elect and to cooperate with the Licensor in its efforts to
protect the Copyrights, as well as any trademarks, service marks, trade
names, and copyrights described under Section 2.02.
7.03 Defense of Patent Rights and Trademarks. Notwithstanding any
other provision herein, the Licensor does hereby agree, at its expense, to
defend Patent Rights, if any, and the servicemarks and trademarks herein
described by such means as it in its sole discretion may determine
appropriate, including but not limited to, patent or trademark infringement
suits, as the case may be.
The Licensor reserves, however, the exclusive right to determine
whether a patent infringement has occurred, and whether a trademark
infringement has occurred, and whether litigation or other action is
appropriate or feasible. Subject to approval by the Licensor and control by
the Licensor of any and all proceedings initiated as a result thereof, the
Contractor, with its own counsel reasonably acceptable to the Licensor, may,
at its option and expense, take steps to defend the Patent Rights, any
service mark or trademark and the Contractor's rights thereunder.
7.04 Indemnification by Contractor. The Contractor agrees to
indemnify, defend and hold the Licensor harmless from any and all claims,
including, without limitation, for bodily injury (including death), personal
injury and damage to property of the Contractor, the Licensor and/or others,
which arise from the alleged negligence or malfeasance of the Contractor or
from the existence or use of Materials and/or Apparatus acquired from sources
other than the Licensor or which are produced by the Contractor
ARTICLE VIII - LIMITED ARBITRATION PROCEDURES
8.00 Any controversy or claim arising out of or relating to the
subject matter of this contract, or the breach thereof; shall be submitted to
arbitration in accordance with the rules of the American Arbitration
Association, and the results thereof shall be binding on the parties.
ARTICLE IX - INDEPENDENT CONTRACTORS
9.00 Independent Contractors. This Agreement does not constitute
either party as an agent, legal representative, joint venturer, partner,
employee, or servant of the other party for any purpose whatsoever; and it is
understood between the parties hereto that each party is an independent
contractor and is in no way authorized to make any contract, agreement,
warranty or representation on behalf of the other party, or to create any
obligation, express or implied, on behalf of the other party. The Contractor
shall prominently display in its place of business a certificate from the
Licensor stating that said business is operated by the Contractor as a
licensee of the Licensor, and not as an agent thereof.
ARTICLE X - TRANSFER OR ASSIGNMENT OR LICENSE.
10.00 Subject to the requirements of the immediately succeeding
sentence, the Contractor, if not in default under this Agreement, shall have
the right to sell and assign its rights hereunder.
<PAGE>
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, with the specific
understanding and requirement that the Contractor, without the Licensor's
prior written consent, which consent shall not unreasonably be withheld,
shall not, by operation of law or otherwise, sell, assign, transfer, conveys
subcontract, give away, or encumber to any person, firm or corporation, its
interest in this Agreement, or its interest in the license granted hereby,
nor offer, permit, or suffer the same. Any such assignment permitted by the
Licensor to any Affiliate of the Contractor shall be made on the express
condition that the assignor guarantees the performance of its assignee
strictly in accordance with the terms and provisions hereof. In the event
that the Contractor is a corporation or partnership, should beneficial
ownership of an amount of the outstanding capital stock or other interest, as
the case may be, or other indicia of ownership in the Contractor be conveyed
so as to effect a Change in Control of the Contractor, whether by sale,
conveyance, operation of law or otherwise, without having first obtained the
written consent of the Licensor to transfer the license, which consent shall
not unreasonably be withheld, the Licensor shall at its option have the right
to immediately terminate this Agreement or enter into a new Agreement with
the Change in Control. Any purported assignment, transfer, conveyance or
subcontract of this Agreement not having the aforesaid consent shall be null
and void and shall constitute a material default hereunder. If any event has
occurred or fact or circumstance exists which, but for the giving of notice
passage of time or otherwise, would constitute a default hereunder, the
Contractor shall so advise any proposed transferee hereunder. Upon approval
of any assignment, transfer, or conveyance of the Agreement by the Licensor,
the assignment, transfer, or conveyance shall be completed without additional
License fees or other costs being assessed to the Contractor.
ARTICLE XI - MISCELLANEOUS
11.1 Notices. Any notice required or permitted to be given or served
upon either party hereto pursuant to this Agreement shall be sufficiently
given or served if sent to such party by United States registered mail,
postage prepaid addressed to such party as set forth below is signature at
the foot hereof and/or to such other address as it shall designate by written
notice to the other party.
11.02 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns, subject to the term set out in Article X.
11.03 Exclusivity of License. If, despite the Licensor's efforts to
maintain the exclusivity of the license granted hereunder, such exclusivity
should be terminated for any reason whatsoever, and the Agreement is
continued, but amended, the Contractor is nevertheless obligated to comply in
full with each and every term and condition of this Agreement, including, but
not limited to, the maintenance of high standards of quality and service.
11.04 Exclusions. It is the intention of the Licensor and the
Contractor that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought, but that the unenforceability of
any provisions of this Agreement shall not render unenforceable, or impair,
the remainder of this Agreement. In the event that any one or more of the
provisions of this Agreement is, or are, held to be invalid, it is agreed
between the parties that, if legally practical said provision or provisions
shall be considered never to have been contained herein and this Agreement
shall otherwise continue in force and effect. To the extent that the
provisions of this Agreement provide for periods of notice less than those
required by applicable law, or provide for termination, cancellation, non-
<PAGE>
renewal or the like other than in accordance with applicable law, such
provisions shall, to the extent such are not in accordance with applicable
law, not be effective, and the Licensor shall comply with applicable law in
connection with each of these matters. References in this Agreement to the
materiality of any terms hereof are not intended to be exhaustive of all such
material terms, and shall not preclude any other provision from construction
as or constituting a material provision hereof.
11.05 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the Subject Matter
hereof and supersedes all prior oral and written understandings and
agreements between the parties hereto concerning the Subject Matter. The
article headings of this Agreement are for convenience only and have no other
significance. The Provisions of this Agreement shall not be waived, modified
or amended, except by a subsequent writing signed by both parties.
11.06 Gender. Words of the neuter gender utilized in this Agreement
shall be deemed to be of the masculine or feminine gender where the context
requires. Words of the singular number utilized in this Agreement shall be
deemed to be plural where the context requires and vice versa.
11.07 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Alabama.
11.08 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and both of which or a photocopy
thereof shall constitute one and the same agreement.
11.09 Standard of Dealing. The parties shall perform such further acts
and deeds as shall be necessary to effectuate the purposes of this Agreement
and shall, in their respective performance hereunder, at all times deal in
the utmost good faith with each other.
11.10 Most Favored Licensee. In the event the Licensor subsequently
enters into any license agreement for the Subject Matter in the Permitted
Uses within the United States or its territories, and such license contains
terms materially more favorable to the licensee thereunder than are contained
herein with respect to the Contractor, the, at the option of the Contractor,
this agreement shall be amended to incorporate such more favorable terms.
IN WITNESS HEREOF, THE PARTIES HERETO HAVE CAUSED THIS CONTRACTOR
LICENSE AGREEMENT TO BE SIGNED AND DELIVERED BY THEIR AUTHORIZED
REPRESENTATIVES ON THE DATE SET OUT IN THE OPENING PARAGRAPH.
ATTEST:
s/Nancy E. Snyder By: Unknown Entity or Person
- ------------------------ -------------------------
Its: Assistant Secretary Its: s/R. H. Snyder
------------------- -------------------------
President
ATTEST: ULTRALINER, INC.
s/Richard H. Carter By: s/Luther D. Whittle
- ------------------------ -------------------------
Richard H. Cater Luther D. Whittle
Its: Its:
------------------- -------------------------
Secretary President
<PAGE>
STATE OF FLORIDA
MARTIN COUNTY
I, the undersigned Notary Public, do hereby certify that on this 12th
day of July, 1995, personally appeared before me R. H. Snyder and Nancy
Snyder, who, being by me first duly sworn, declared that they are the
President and Assistant Secretary of Unknown Entity or Person, that they
signed the foregoing CONTRACTOR LICENSE AGREEMENT as President and Assistant
Secretary of the corporation, and with full authority, executed same
voluntarily for and as the act of said Corporation.
s/Sally Hakes
--------------------------------
Notary Public
My Commission Expires:
(SEAL)
Sally Hakes
My Commission #CC 364036
Expires: April 3, 1998
BONDED THRU NOTARY PUBLIC UNDERWRITTERS
STATE OF ALABAMA
CALHOUN COUNTY
I, the undersigned Notary Public, do hereby certify that on this14
day of August, 1995, personally appeared before me Luther D. Whittle and
Richard H. Cater, who, being by me first duly sworn, declared that they are
the President and Secretary of ULTRALINER, INC., that they signed the
foregoing CONTRACTOR LICENSE AGREEMENT as President and Secretary of the
corporation, and with full authority, executed same voluntarily for and as
the act of said Corporation.
s/Elaine G. Stephens
---------------------------------
Notary Public
(SEAL) My Commission Expires:6-3-97
--------
<PAGE>
AGREEMENT
---------
THIS AGREEMENT is made as of this 5th day of February, 1996, by and
among OLYMPIC INDUSTRIES, INC. ("Olympic"), RICHARD H. SNYDER ("Snyder"), ETS
LINER, INC. ("ETS") and ULTRALINER, INC. ("Ultraliner"), provides
W I T N E S S E T H :
WHEREAS, Snyder and Ultraliner are parties to a Contractor License
Agreement dated July 12, 1995 (the "License Agreement"), pursuant to which
Ultraliner granted Snyder a license to use the Ultraliner PVC Alloy (Trade
Mark) Pipeliner System in the Territory (as defined in the License
Agreement);
WHEREAS, ETS, Snyder and Olympic have entered into an Asset Purchase
Agreement of even date herewith pursuant to which ETS is purchasing
substantially all of the assets of Snyder and Olympic that are used or useful
in the business of Pipe-Liner Installers;
WHEREAS, a condition of Closing of the Asset Purchase Agreement is the
transfer of the License Agreement to ETS and the consent of Ultraliner to
such transfer;
WHEREAS, Ultraliner is willing to consent to the transfer provided ETS
agrees to be bound by the terms of the License Agreement; and
WHEREAS, Snyder desires to obtain the right to reacquire the License
Agreement without paying a transfer fee in the event Ultraliner terminates
the License Agreement with ETS and Ultraliner is willing to give Snyder the
right to reacquire the License Agreement in the event of such termination
upon conditions herein stated.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Transfer of License Agreement. Olympic and Snyder do hereby
-----------------------------
assign, convey and transfer to ETS, subject to the Closing of the Asset
Purchase Agreement and effective as of the Closing Date, all of its right,
title and interest in and to the License Agreement.
2. Assumption of License Agreement. ETS does hereby accept, subject
-------------------------------
to the Closing of the Asset Purchase Agreement and effective as of the
Closing Date, such assignment and transfer and agrees to perform and
discharge the duties and obligations of Snyder and Olympic under the License
Agreement for the remainder of the term, and any renewals thereof.
3. Consent of Ultraliner. Ultraliner hereby consents to the
---------------------
assignment and transfer set forth above.
4. Retransfer Upon Termination. In the event of termination of the
---------------------------
License Agreement by Ultraliner or ETS after the Closing Date (as defined in
the Asset Purchase Agreement), Ultraliner grants to Snyder a right of first
refusal to assume the License Agreement without any transfer fee. As a
condition to such assumption, Snyder agrees to pay Ultraliner any past due
license fees at the time of retransfer and all other license fees as they
become due. Ultraliner agrees to provide Snyder written notice of any
<PAGE>
default and termination. In the event of termination Snyder shall have 30
days to exercise his right of first refusal. Such notice shall be sent to
Snyder at the address set out below his signature at the foot of this
agreement. Snyder shall exercise such right of first refusal by providing
Ultraliner with written notice thereof within said thirty day period. Such
notice shall be sent to Ultraliner at the address set out below the signature
at the foot of this agreement of its authorized representative. In the event
Snyder exercises his right of first refusal, ETS agrees to assign, convey and
transfer all of its rights and interest to Snyder. This option is limited in
time to twenty-four months from the date of this agreement, and is
conditioned upon Snyder meeting all qualifications of a licensee, as of the
date the option is exercised.
5. Closing. In the event that the Closing does not occur, this
-------
Agreement shall be null and void and of no force and effect.
6. Condition Precedent. Ultraliner's consent to the transfer
-------------------
provided for herein is conditioned upon the execution and delivery by ETS of
the CONTRACTOR LICENSE AGREEMENT between it and Ultraliner dated as of
September 14, 1995.
WITNESS the following signatures as of the date first above written.
OLYMPIC INDUSTRIES, INC.
BY: s/R. H. Snyder
----------------------------
ITS President
----------------------------
s/Richard H. Snyder
----------------------------
Richard H. Snyder
ADDRESS: Box 770
-----------------
Palm City, FL. 34990
----------------------------
ETS LINER, INC.
BY: s/John D. McKenna
-----------------------------
ITS CEO
-----------------------------
ULTRALINER, INC.
BY: s/Luther D. Whittle, President
-----------------------------
ITS
ADDRESS: POST OFFICE DRAWER 3260
OXFORD AL 36203
<PAGE>
REPURCHASE AGREEMENT
THIS REPURCHASE AGREEMENT dated as of February 5, 1996, by and among
OLYMPIC INDUSTRIES, INC., an Ohio corporation ("Olympic"), RICHARD H. SNYDER
("Snyder") (Olympic and Snyder collectively referred to as "Sellers"), ETS
LINER, INC., a Virginia corporation ("Buyer") and ETS INTERNATIONAL, INC., a
Virginia corporation ("ETS"), provides,
Section 1. Background. Buyer is acquiring substantially all of the
----------
assets of Sellers used in or related to the business known as Pipe-Liner
Installers pursuant to an Asset Purchase Agreement of even date herewith
(the "Asset Purchase Agreement"). All capitalized terms used but not
defined herein shall have the meanings assigned to them under the Asset
Purchase Agreement. As payment of the Purchase Price, Sellers received
Acquisition Shares. Sellers and Buyer desire to provide for a mechanism
whereby ETS, the parent of Buyer, will repurchase, at the option of Sellers,
up to one-half of the Acquisition Shares one year from the date hereof (the
"First Anniversary Date") and, at the option of Sellers, up to one-half of
the Acquisition Shares two years from the date hereof (the "Second
Anniversary Date").
Section 2. Repurchase of Shares. ETS grants to Sellers the option to
--------------------
sell to ETS, or its designee, all of the Acquisition Shares (the "Repurchase
Shares") and ETS agrees to purchase the Repurchase Shares, pursuant to the
terms and conditions contained herein and in the amounts set forth below:
<TABLE>
<CAPTION>
Option Date Number of Shares
------ ---- ----------------
<S> <C> <C>
First Option First Anniversary Date up to 1/2 of
Acquisition Shares
Second Option Second Anniversary Date up to 1/2 of
Acquisition Shares
</TABLE>
Section 3. Exercise of Option. The option granted in Section 2 may
------------------
be exercised with respect to the Repurchase Shares during the period
beginning 30 days prior to the First Anniversary Date and ending on the
First Anniversary Date (the "First Option Period")and during the period
beginning 30 days prior to the Second Anniversary Date and ending on the
Second Anniversary Date (the "Second Option Period"). The option must be
exercised, if at all, in a writing delivered to ETS, its successors and
assigns, as the case may be, during the First Option Period or during the
Second Option Period. The notice shall contain the number of shares to be
repurchased. The first option shall expire if not exercised by the First
Anniversary Date and the second option shall expire if not exercised by the
Second Anniversary Date.
<PAGE>
Section 4. Repurchase Price. The purchase price per share for the
----------------
Repurchase Shares will be the Stock Price set forth in the Asset Purchase
Agreement (the "Repurchase Price").
Section 5. Payment of Repurchase Price. The Repurchase Price shall
---------------------------
be payable in full at Closing and shall be paid in cash, or by certified or
cashier's check. ETS will use its reasonable best efforts to purchase the
Repurchase Shares at Closing. However, if ETS is unable to purchase all of
the Repurchase Shares at Closing, then ETS shall have the option to continue
the Closing for a period not to exceed one hundred eighty (180) days. In
the event ETS elects to continue the Closing, the Repurchase Price shall be
increased by 10%.
Section 6. Closing. Closing on the first option shall take place
-------
thirty (30) days after the First Anniversary Date and closing on the second
option shall take place thirty (30) days after the Second Anniversary Date
(the "Closing").
Section 7. Security Interest. As security for ETS' obligation to
-----------------
repurchase and Buyer's indemnity obligations, Buyer hereby grants to Sellers
a first lien security interest in all of the assets of Buyer (the "Assets"),
pursuant to the Security Agreement and UCC-1 financing statements signed by
the parties.
Section 8. Sales During Option Period. Any sale of Acquisition
--------------------------
Shares by Sellers during the Option Period or shares used to satisfy
indemnification claims under the Asset Purchase Agreement shall reduce the
number of Repurchase Shares to be purchased by ETS.
Section 9. Ownership of Shares. ETS' obligations hereunder are
-------------------
conditioned upon the Sellers holding good title to the Repurchase Shares and
delivery of such shares free and clear of all mortgages, liens,
encumbrances, and other restrictions.
Section 10. Assignment. Sellers, collectively and individually, shall
----------
not assign this Repurchase Agreement without the express written permission
of ETS and Buyer. ETS and Buyer may withhold their permission for any
reason.
Section 11. Notices. Any notice required to be sent pursuant to the
-------
terms of this Repurchase Agreement shall be deemed given when hand-delivered
or sent postage prepaid by registered or certified mail, addressed to the
following addresses or such other address designated in a writing delivered
to the appropriate party:
To ETS or BUYER: John D. McKenna
ETS International, Inc.
1401 Municipal Road, NW
Roanoke, Virginia 24012-1309
<PAGE>
To SELLERS: Richard H. Snyder
4390 SW Thistle Terrace
Palm City, Florida 34990
Section 12. Entire Agreement. This Repurchase Agreement constitutes
----------------
the entire agreement between the parties with respect to the subject matter.
This Repurchase Agreement may be modified or amended by a writing executed
by all of the parties.
Section 13. Construction. The interpretation, construction and
------------
performance of this Repurchase Agreement shall be governed by the laws of
the Commonwealth of Virginia.
Section 14. Benefits. This Repurchase Agreement shall inure to the
--------
benefit of, and bind the heirs, successors and assigns of the respective
parties.
Section 15. Registration of Acquisition Shares. In the event the
----------------------------------
Acquisition Shares are included on the pending registration statement as
outlined in Section 3.16 of the Asset Purchase Agreement, the second option
exercisable on the Second Anniversary Date shall be null and void.
WITNESS the following signatures as of the date first above written.
OLYMPIC INDUSTRIES, INC.
By s/R. H. Snyder
------------------------------
Richard H. Snyder, President
s/Richard H. Snyder
-------------------------------
Richard H. Snyder, Individually
ETS INTERNATIONAL, INC.
By s/John D. McKenna
-------------------------------
Its s/President
---------------------------
ETS LINER, INC.
By s/John D. McKenna
-------------------------------
Its s/CEO
---------------------------
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-96001-00
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
BONDS REQUIRED:
YES X
NO
--------
STANDARD SUBCONTRACT
This Agreement is made at Henrico Co., VA this 13th day of January,
1997, between:
CONTRACTOR: DPR CONSTRUCTION, INC.
---------------------
6061 Elko Tract Road
--------------------
Sandston, VA 23150
------------------
and
SUBCONTRACTOR: Stamie E. Lyttle Co.
-------------------
P.O. Box 24205
--------------
Richmond, VA 23224
------------------
On or about the 9th day of September, 1996 Contractor entered into a prime
contract with:
OWNER: White Oak Semiconductor
-----------------------
6061 Elko Tract Road
--------------------
Sandston, VA 23150
------------------
to perform the following work:
Construction Management services to construct the White Oak
Semiconductor Initial Phase.
Said work is to be performed in accordance with the prime contract by and
between White Oak Semiconductor and DPR Construction, Inc., copy available
upon request, and the plans and specifications. Said plans and
specifications have been prepared by:
ARCHITECT: Industrial Design Corporation
-----------------------------
2020 SW Fourth Avenue
---------------------
PORTLAND, OR 97201
------------------
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 1. ENTIRE CONTRACT
---------------
The phrase "Contract Documents" is defined to mean and include:
See Attachment I dated, for a list of Contract Documents which is
attached hereto and made a part hereof.
Subcontractor certifies that it is fully familiar with all of the terms
of the Contract Documents, the location of the job site, and the
conditions under which the work is to be performed and that it enters
into this Agreement based upon its investigation of all such matters
and is not relying on any opinions or representations of Contractor.
This Agreement represents the entire agreement. The Contract Documents
are incorporated in this Agreement by reference, and Subcontractor and
its subcontractors will be and are bound by the Contract Documents
insofar as they relate in any way, directly or indirectly, to the work
covered by this Agreement. Subcontractor agrees to be bound to
Contractor in the same manner and to the same extent as Contractor is
bound to Owner under the Contract Documents, to the extent of the work
provided for in this Agreement, and that where, in the Contract
Documents reference is made to Contractor, and the work or
specifications therein pertains to Subcontractor's trade, craft, or
type of work, then such work or specification shall be interpreted to
apply to Subcontractor instead of Contractor.
SECTION 2. SCOPE
-----
Except as otherwise expressly provided herein. Subcontractor shall
supply all labor, supervision, tools, equipment, installed and
consumable materials, services, testing devices and warehousing and
each and every item of expense necessary for the supply, fabrication,
handling, hauling, unloading and receiving, installation, construction,
assembly, testing (excluding soils and concrete testing), evaluation,
and quality assurance including as-built drawings of the Underground
Mechanical Utilities as identified in the Drawings, Specifications and
Amendment A.
In the event of any dispute between Contractor and Subcontractor over
the scope of Subcontractors work under the Contract Documents,
Subcontractor will not stop work but will prosecute the work diligently
to completion, the dispute to be submitted for resolution in accordance
with Section 17 below.
SECTION 3. CONTRACT PRICE
--------------
Contractor agrees to pay Subcontractor for the strict performance of
its work, the TOTAL LUMP SUM of: ONE MILLION SEVEN HUNDRED NINETY-EIGHT
THOUSAND DOLLARS AND NO CENTS ($ 1,798,000.00) which includes the dual
obligee: payment and performance bond, subject to additions and
deductions for changes in the work as may be directed in writing by
Contractor, and to make payment in accordance with the Payment
Schedule, Section 4.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
See SECTION 26 for continuation of CONTRACT PRICE.
SECTION 4. PAYMENT SCHEDULE
----------------
Contractor agrees to pay to Subcontractor, in monthly progress
payments, Ninety Percent of all engineering and detailing completed
during the period and, materials fabricated and delivered to the
construction site; and, Ninety Percent of all labor expended for
materials which have been placed in position or erected, with funds
received by Contractor from Owner for work performed by Subcontractor
as reflected in Contractor's applications for payment. The balance of
any payments due shall he considered retention. Retention shall be the
ten percent of all payment applications processed. Monthly progress
payments shall be made ten (10) days after receipt of payment from the
Owner by Contractor. Final payment to Subcontractor shall be made ten
(10) days after the entire work required by the Subcontract has been
fully completed in conformity with the Contract Documents and has been
delivered to and accepted by Owner, Architect, and Contractor, with
funds received by Contractor from Owner in final payment for work under
the prime contract. Neither monthly progress payments not final
payment shall be due and payable to the subcontractor until and unless
the corresponding funds are received by Contractor from the Owner. The
Owner's payment to the Contractor is a condition precedent to the
Contractor's duty to make corresponding payments to Subcontractor.
Subcontractor agrees to furnish, if and when required by Contractor,
payroll affidavits, receipts, vouchers, releases of claims for
material, and from its subcontractors performing work or finishing
materials under this Agreement, all in a form satisfactory to
Contractor, and it is agreed that no payment hereunder shall be made,
except at Contractor's option, until and unless such documents have
been furnished. Contractor, at its option, may make any payment due
hereunder by check made payable jointly to Subcontractor and any of its
subcontractors, suppliers and materialmen who have performed work or
furnished materials under this Agreement. Any payment made hereunder
prior to completion and acceptance of the work, as referred to above,
shall not be construed as evidence of acceptance or acknowledgment of
completion of any part of any Subcontractor's work.
See SECTION 26 for continuation of PAYMENT SCHEDULE.
SECTION 5. TIME
----
Time is of the essence of this Agreement. Subcontractor shall provide
Contractor with scheduling information and a proposed schedule for
performance of its work in a form acceptable to Contractor.
Subcontractor shall conform to Contractor's progress schedule and all
revisions or changes made thereto. Subcontractor shall prosecute its
work in a prompt and diligent manner in accordance with Contractor's
progress schedule, without delaying or hindering Contractor's work or
the work of other contractors or subcontractors. Subcontractor shall
coordinate the work covered by this Agreement with that of all other
contractors, subcontractors, and of the Contractor, in a manner that
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
will facilitate the efficient completion of the entire work. In the
event Subcontractor fails to maintain its part of the Contractor's
schedule, it shall, without additional compensation, accelerate the
work as Contractor may direct until Subcontractor's work is in
accordance with such schedule. Contractor shall have complete control
of the premises on which the work is to be performed and shall have the
right to decide the time and order in which various portions of the
work shall be installed and the relative priority of the work of
Subcontractor and other subcontractors, and, in general, all other
matters pertaining to the timely and orderly conduct of the work of
Subcontractor on the premises. Should Subcontractor be delayed in the
prosecution or completion of the work by the act, neglect or default of
Owner, Architect or Contractor; or should Subcontractor be delayed
waiting for materials, if required by this Contract to be furnished by
Owner or Contractor; or by damage caused by fire or other casualty for
which Subcontractor is not responsible; or by the combined action of
the workmen, in no way caused by or resulting from fault or collusion
on the part of Subcontractor; or in the event of a lock-out by
Contractor; then the time herein fixed for the completion of the work
shall be extended by the number of days that Subcontractor has thus
been delayed. But no allowance or extension shall be made unless a
claim therefor is presented in writing to Contractor within 48 hours of
the commencement of such delay, and under no circumstances shall the
time of completion be extended to a date which will prevent Contractor
from completing the entire project within the time allowed Contractor
by Owner for such completion.
No claims for additional compensation or damages for delays, whether
caused in whole or in part by any conduct on the part of Contractor,
including, but not limited to, conduct amounting to a breach of this
Agreement, or delays by other subcontractors or Owner shall be
recoverable from Contractor, and the above-mentioned extension of time
for completion shall be the sole remedy of Subcontractor; provided,
however that in the event Contractor obtains additional compensation
from Owner on account of such delays, and in the event Subcontractor
shall have satisfied all subcontract and contract requirements with
respect to timely notification and assertion of claims and with respect
to cooperation with Contractor in the prosecution therewith,
Subcontractor shall be entitled to such portion of the additional
compensation so received by Contractor from Owner as is deemed by the
Contractor to be equitable under all of the existing and applicable
circumstances. In no event shall compensation to Subcontractor for
delay damages exceed that which Contractor receives from Owner on
Subcontractor's behalf. In the event that Contractor prosecutes a
claim against Owner for additional compensation for any delay,
Subcontractor shall cooperate fully with Contractor in the prosecution
thereof and shall pay costs and expenses incurred in connection
therewith, including actual attorneys' fees, to the extent that said
claim is made by Contractor at the request of Subcontractor.
Subcontractor shall prepare and obtain approval as required by the
Contract Documents for all shop drawings details, samples, and do all
other things necessary and incidental to the prosecution of its work in
conformance with Contractor's progress schedule.
See SECTION 26 for additional TIME provisions.<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 6. CHANGES IN THE WORK
-------------------
Subcontractor shall make any and all changes in the work described in
the Contract Documents and this Agreement as directed by Contractor in
writing. Such change or written direction shall not invalidate this
Agreement.
If necessary, the contract price stated in Section 3 and the time for
Subcontractor's performance shall be adjusted by appropriate additions
or deductions mutually agreed upon before Subcontractor performs the
changed work. Subcontractor shall supply Contractor with all
documentation necessary to substantiate the amount of the addition to
or deduction from the price or time. If Contractor and Subcontractor
cannot agree on the amount of the addition or deletion. Subcontractor
shall nonetheless timely perform the work as changed by Contractor's
written direction. Once Subcontractor receives Contractor's written
direction, Subcontractor is solely responsible for timely performance
of the work as changed by the written direction. In any event,
Subcontractor's compensation for changes in the work shall be limited
to that which Contractor receives from Owner on Subcontractor's behalf.
Payment for changed work shall be made in accordance with Section 4.
Subcontractor shall not make any changes in the work described in
Section 2 or in any way cause or allow that work to deviate from the
Contract Documents without written direction from Contractor. If
Subcontractor makes any changes in the work described in Section 2
without written direction from Contractor, such change constitutes an
agreement by Subcontractor that it will not be paid for that changed
work, even if it received verbal direction from Contractor or any form
of direction, written or otherwise, from Owner or any other person or
entity. In addition, Subcontractor shall be liable for any and all
losses, costs, expenses, damages, and liability of any nature
whatsoever associated with or in any way arising out of any such change
it makes without written direction from Contractor.
If a dispute arises between Contractor and Subcontractor about whether
particular work is a change in the work described in Section 2,
Subcontractor shall timely perform the disputed work and may give
written notice of a claim for additional compensation for that work.
Such written notice of claim must be given within ten (10) days after
such work is performed. Subcontractor's failure to give written notice
within the ten (10) days constitutes an agreement by it that it will
not be paid for the disputed work.
No change, alteration, or modification to or deviation from this
Agreement, the Contract Documents, prime contract, plans, or
specifications, whether made in the manner provided in this provision
or not, shall release or exonerate, in whole or in part, any bond or
any surety on any bond given in connection with this Agreement, and no
notice is required to be given to such surety of any such change,
alteration, modification, or deviation.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 7. DAMAGES CAUSED BY DELAYS OF SUBCONTRACTOR
-----------------------------------------
If Subcontractor should default in performance of the work described in
Section 2 or should otherwise commit any act which causes delay to the
prime contract work, Subcontractor shall be liable for all losses,
costs, expenses, liabilities and damages, including consequential
damages and liquidated damages, sustained by Contractor, or for which
Contractor may be liable to Owner or any other party because of
Subcontractor's default.
SECTION 8. BONDING OF SUBCONTRACTOR
------------------------
Concurrently with the execution of this Agreement, Subcontractor shall,
if required by Contractor, execute a labor and material bond and
performance bond, in an amount equal to one hundred percent (100%) of
the Contract Price. Said bonds shall be executed by a corporate surety
acceptable to Contractor and shall be in a form satisfactory to
Contractor. Contractor shall pay the premium on said bonds unless
otherwise provided herein or in the Contract Documents.
SECTION 9. LIENS
-----
In case suit is brought on any claim or liens for labor performed or
material used on or furnished to the project, Subcontractor shall pay
and satisfy any such lien or judgment as may be established by the
decision of the court in said suit Subcontractor agrees within ten (10)
days after written demand to cause the effect of any such suit or lien
to be removed from the premises, and in the event Subcontractor shall
fail so to do. Contractor is authorized to use whatever means in its
discretion it may deem appropriate to cause said lien or suit to be
removed or dismissed and the cost thereof, together with actual
attorneys' fees, shall be immediately due and payable to Contractor by
Subcontractor. Subcontractor may litigate any such lien or suit
provided it causes the effect thereof to be removed, promptly in
advance, from the premises, and shall further do such things as may be
necessary to cause Owner not to withhold any monies due to Contractor
from Owner by reason of such liens or suits.
It is understood and agreed that the full and faithful performance of
this Agreement on the part of Subcontractor including the payment of
any obligations due from Subcontractor to Contractor, and any amounts
due to labor or materialmen finishing labor or material for said work)
is a condition precedent to Subcontractor's right to receive payment
for the work performed, and any monies paid by Contractor to
Subcontractor under the terms of this Agreement shall be impressed with
a trust in favor of labor and materialmen furnishing labor and material
to Subcontractor on the work herein subcontracted.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 10. PROVISIONS FOR INSPECTION
-------------------------
Subcontractor shall at all times furnish to Contractor and its
representatives safe and ample facilities for inspecting materials at
the site of construction, shops, factories or any place of business of
Subcontractor and its subcontractors and materialman where materials
under this Agreement may be in course of preparation, process,
manufacture or treatment. Subcontractor shall furnish to Contractor as
often as required by Contractor, full reports of the progress of the
work at any place where materials under this Agreement may be in the
course of preparation or manufacture. Such reports shall show the
progress of such preparation and manufacture in such details as may be
required by Contractor, including, but not limited to, any plans,
drawings or diagrams in the course of preparation.
SECTION 11. MATERIALS AND WORK FURNISHED BY OTHERS
---------------------------------------
In the event the scope of work includes installation of materials or
equipment furnished by others or work to be performed in areas to be
constructed or prepared by others, it shall be the responsibility of
Subcontractor to examine and accept, at the time of delivery or first
access, the items so provided and thereupon handle, store and install
the items with such skill and care as to insure a satisfactory
completion of the work. Use of such items or commencement of work by
Subcontractor in such areas shall be deemed to constitute acceptance
thereof by Subcontractor. Loss or damage due to acts of Subcontractor
shall be charged to the account of Subcontractor and deducted from
monies otherwise due under this Agreement.
SECTION 12. PROTECTION OF WORK
------------------
Subcontractor shall effectually secure and protect the work done
hereunder and assume all responsibility for the condition thereof until
full acceptance by Architect, Owner and Contractor. Subcontractor
further agrees to provide such protection as is necessary to protect
the work and the workmen of Contractor, Owner and other subcontractors
from its operations.
Subcontractor shall be liable for any loss or damage to any work in
place or to any equipment and materials on the job site caused by it or
its agents, employees or guests.
SECTION 13. LABOR RELATIONS
13.1 Subcontractor shall keep a representative at the job site during all
times when Subcontractor's work is in progress, and such representative
shall be authorized to represent Subcontractor as to all phases of the
work. Prior to commencement of the work, Subcontractor shall notify
Contractor who Subcontractor's representative is to be, and in the
event of any change of representative Subcontractor shall notify
Contractor who the new representative is to be prior to such change
becoming effective.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
Should there be picketing on Contractor's job site, and Contractor
establishes a reserved gate for Subcontractor's purpose, it shall be
the obligation of Subcontractor to continue the proper performance of
its work without interruption or delay.
13.2 Subcontractor shall comply with all equal employment opportunity and
affirmative action requirements promulgated by any "governmental
authority", including, without limitation, the requirements of the
Civil Rights Act of 1964.
13.3 Subcontractor shall comply with and agrees to be bound by all
applicable Federal, State and local laws and regulations covering the
work. Upon request, Subcontractor agrees to submit certified payroll
reports to Contractor no later than three (3) working days after labor
has been paid.
SECTION 14. RECOURSE BY CONTRACTOR
----------------------
14.1 Failure of Performance
14.1.1 Notice to Cure. If Subcontractor at any time refuses or neglects to
supply enough properly skilled workers and proper materials, or fails
to properly and diligently prosecute the work covered by this
Agreement, or fails to make prompt payment to its workers, sub-
subcontractors or suppliers, or becomes delinquent with respect to
contributions or payments required to be made to any health and
welfare, pension, vacation, apprenticeship or other employee benefit
program or trust, or is otherwise guilty of a material breach of a
provision of this Agreement, and fails within forty-eight (48) hours
after receipt of written notice to commence and continue satisfactory
correction of such default with diligence and promptness, then
Contractor, without prejudice to any debts or remedies, shall have the
right to any or all of the following remedies:
(a) supply such number of workers and quantity of materials,
equipment and other facilities as Contractor deems necessary for
the completion of Subcontractor's work, or any part thereof which
Subcontractor has failed to complete or perform, and charge the
cost thereof to Subcontractor, who shall be liable for the
payment of same including reasonable overhead, profit and actual
attorneys' fees incurred as a result of Subcontractor's failure
of performance;
(b) contract with one or more additional contractors to perform such
part of Subcontractor's work as Contractor shall determine will
provide the most expeditious completion of the total work and
charge the cost thereof to Subcontractor; and
(c) withhold payment of any monies due Subcontractor pending
corrective action to the extent required by and to the
satisfaction of Contractor.
In the event of an emergency affecting the safety of persons or
property. Contractor may proceed as above without notice.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
14.1.2 Termination for Default. If Subcontractor fails to commence and
satisfactorily continue correction of a default within forty-eight
(48) hours after receipt by Subcontractor of the notice issued under
Section 14.1.1., then Contractor may terminate Subcontractor's right
to perform under this Agreement and use any materials, implements,
equipment, appliances or tools furnished by or belonging to
Subcontractor to complete Subcontractor's work without any further
compensation to Subcontractor for such use. Contractor also may
furnish those materials and equipment, and/or employ such workers or
subcontractors as Contractor deems necessary to maintain the orderly
progress of the work.
In such case. Subcontractor shall be entitled to no further payment
until the balance of Subcontractor's work has been completed. At that
time, all of the costs incurred by Contractor in performing
Subcontractor's work, including a markup of fifteen percent (15%) for
overhead and profit on such expenses, plus actual attorneys' fees as
provided above, shall be deducted from any monies due or to become due
Subcontractor. Subcontractor shall be liable for the payment of any
amount by which such expenses may exceed the unpaid balance of the
Contract Price.
14.1.3 Termination for Convenience. Contractor may at any time and for any
reason terminate Subcontractor's services and work at Contractor's
convenience. Cancellation shall be by service of written notice to
Subcontractor's place of business.
Upon receipt of such notice, Subcontractor shall, unless the notice
directs otherwise, immediately discontinue the work and placing of
orders for materials, facilities and supplies in connection with the
performance of this Agreement, and shall, if requested, make every
reasonable effort to procure cancellation of all existing orders or
contracts upon terms satisfactory to Contractor or at the option of
Contractor, give Contractor the right to assume those obligations
directly, including all benefits to be derived therefrom.
Subcontractor shall thereafter do only such work as may be necessary
to preserve and protect the work already in progress and to protect
material and equipment on the job site or in transit thereto.
Upon such termination, Subcontractor shall be compensated only as
follows, subject to deduction for previous payments: (1) for the
actual cost of the work completed in conformity with this Agreement
and having been approved by Contractor as having been made or incurred
in performing under this subcontract; and, (2) such other costs
actually included by Subcontractor as are permitted by the prime
contract and approved by Owner in settling or discharging outstanding
commitments entered into by Subcontractor in performing under this
Subcontract; and (3) profit, insofar as a profit is actually realized
hereunder, and in an amount equal to the profit on the entire
Subcontract estimated, based on actual cost performance, at the time
of termination, multiplied by the percentage of completion of the
work. In no event, however, will the compensation to Subcontractor
exceed the total Subcontract price less payments previously made and
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
less the contract price of work not terminated. Subcontractor shall
not be entitled to any claim or claim of lien against Contractor or
Owner for any additional compensation or damages in the event of such
termination and payment.
14.1.4 Grounds for Withholding Payment. Contractor may withhold, or on
account of subsequently discovered evidence, nullify the whole or part
of any payment to the extent necessary to protect Contractor from
loss, including costs and attorneys' fees, on account of (1) defective
work not remedied; (2) claims filed or reasonable evidence indicating
probable filing of claim; (3) failure of Subcontractor to make
payments properly to its subcontractors or for material, labor or
fringe benefits; (4) a reasonable doubt that this Agreement can be
completed for the balance then unpaid; (5) damage to another
subcontractor; (6) penalties assessed against Contractor or
Subcontractor for failure of Subcontractor to comply with State,
Federal or local laws and regulations; or (7) any other ground for
withholding payment allowed by State or Federal law, or as otherwise
provided in this Agreement. When the above matters are rectified,
such amounts as then due and owing shall be paid or credited to
Subcontractor.
14.2 Bankruptcy
14.2.1 Termination Absent Cure. Upon the appointment of a receiver for
Subcontractor or upon Subcontractor making an assignment for the
benefit of creditors or if Subcontractor seeks protection under the
Bankruptcy Code or commits any other act of insolvency, Contractor may
terminate this Agreement upon giving forty-eight (48) hours written
notice, by certified mail, to Subcontractor and its surety, if any.
If an order for relief is entered under the Bankruptcy Code with
respect to Subcontractor, Contractor may terminate this Agreement by
giving forty-eight (48) hours written notice, by certified mail, to
Subcontractor, its trustee, and its surety, if any, unless
Subcontractor, the surety, or the trustee:
(a) promptly cures all defaults;
(b) provides adequate assurance of future performance;
(c) compensates Contractor for actual pecuniary loss resulting from
such defaults; and
(d) assumes the obligations of Subcontractor within the statutory
time limits.
14.2.2 Interim Remedies. If Subcontractor is not performing in accordance
with the schedule of work at the time of entering an order for relief,
or at any subsequent time, Contractor, while awaiting the decision of
Subcontractor or its trustee to reject or to accept this Agreement and
provide adequate assurance of its ability to perform hereunder, may
avail itself of such remedies under this Section as are reasonably
necessary to maintain the schedule of work.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
Contractor may offset against any sums due or to become due
Subcontractor all costs incurred in pursuing any of the remedies
provided hereunder including, but not limited to, reasonable overhead,
profit and actual attorneys' fees incurred as a result of
Subcontractor's non-performance;
Subcontractor shall be liable for the payment of any amount by which
such expense may exceed the unpaid balance of the Contract Price.
SECTION 15. INDEMNIFICATION
---------------
15.1.1 Subcontractor's Performance. With the exception that this Section 15
shall in no event be construed to require indemnification by
Subcontractor to a greater extent than permitted under the public
policy of the Commonwealth of Virginia, Subcontractor shall indemnify
and save harmless Owner and Contractor including their officers,
agents, employees, affiliates, parents and subsidiaries, and each of
them, of and from any and all claims, demands, causes of action,
damages, costs, expenses, actual attorneys' fees, losses or liability,
in law or in equity, of every kind and nature whatsoever ("Claims")
arising out of or in connection with Subcontractor's operations to be
performed under this Agreement for, but not limited to:
(a) Personal injury, including, but not limited to, bodily injury,
emotional injury, sickness or disease, or death to persons,
including, but not limited to, any employees or agents of
Subcontractor, Owner, Contractor or any other subcontractor
and/or damage to property of anyone (including loss of use
thereof), caused or alleged to be caused in whole or in part by
any negligent act or omission of Subcontractor or anyone directly
or indirectly employed by Subcontractor or anyone for whose acts
Subcontractor may be liable regardless of whether such personal
injury or damage is caused by a party indemnified hereunder.
(b) Penalties imposed on account of the violation of any law, order,
citation, rule, regulation, standard, ordinance or statute,
caused by the action or inaction of Subcontractor.
(c) Infringement of any patent rights which may be brought against
the Contractor or Owner arising out of Subcontractor's Work.
(d) Claims and liens (see Section 9) for labor performed or materials
used or furnished to be used on the job, including all incidental
or consequential damages resulting to Contractor or Owner from
such claims or liens.
(e) Subcontractor's failure to fulfill the covenants set forth in
each subpart of Section 13, Labor Relations.
(f) Failure of Subcontractor to comply with the provisions of Section
16.1, Casualty Insurance.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
(g) Any violation or infraction by Subcontractor of any law, order,
citation, rule, regulation, standard, ordinance or statute in any
way relating to the occupational health or safety of employees,
including, but not limited to, the use of Contractor's or other's
equipment, hoist, elevators, or scaffolds (See Sections 16 and
20).
The indemnification provisions of (a) through (g) above shall extend
to Claims occurring after this Agreement is terminated as well as
while it is in force. Such indemnity provisions apply regardless of
any active and/or passive negligent act or omission of Owner or
Contractor or their agents or employees. Subcontractor, however,
shall not be obligated under this Agreement to indemnify Owner or
Contractor for Claims arising from the sole negligence or willful
misconduct of Owner or Contractor or their agents, employees or
independent contractors who are directly responsible to Owner or
Contractor, or for defects in design finished by such persons.
15.1.2 Subcontractor shall:
(a) At Subcontractor's own cost, expense and risk, defend all Claims
as defined in Section 15.1.1 that may be brought or instituted by
third persons, including, but not limited to, governmental
agencies or employees of Subcontractor, against Contractor or
Owner or their agents or employees or any of them;
(b) Pay and satisfy any judgment or decree that may be rendered
against Contractor or Owner or their agents or employees, or any
of them, arising out of any such Claim; and/or
(c) Reimburse Contractor or Owner or their agents or employees for
any and all legal expense incurred by any of them in connection
herewith or in enforcing the indemnity granted in this Section
15.
15.2 Risk of Loss
All work covered by this Agreement done at the site or in preparing or
delivering materials or equipment, or any or all of them, to the site
shall be at the risk of Subcontractor exclusively until the completed
work is accepted by Contractor.
15.3 No Limitation of Liability
The indemnities set forth in this Section 15 shall not be limited by
the insurance requirements set forth in Section 16.
SECTION 16. INSURANCE
---------
16.1 SEE ATTACHMENT 3 for PROJECT INSURANCE REQUIREMENTS.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
16.2 Property Insurance
Contractor and Subcontractor waive all rights against each other and
against all other subcontractors and Owner for loss or damage to the
extent reimbursed by Builder's Risk or any other property or equipment
insurance applicable to the work, except such rights as they may have
to the proceeds of such insurance. If the policies of insurance
refereed to in this Section require an endorsement or consent of the
insurance company to provide for continued coverage where there is a
waiver of subrogation, the owners of such policies will cause them to
be so endorsed or obtain such consent.
Upon written request of Subcontractor, Contractor shall provide
Subcontractor with a copy of the Builders Risk policy of insurance or
any other property or equipment insurance in force for the project and
procured by Contractor. Subcontractor shall satisfy himself as to the
existence and extent of such insurance prior to commencement of
Subcontractors work.
If Builders Risk insurance purchased by Owner or Contractor provides
coverage for Subcontractor for loss or damage to Subcontractor's work,
Subcontractor shall be responsible for the insurance policy deductible
amount ($10,000) applicable to damage to Subcontractor's work and/or
damage to other work caused by Subcontractor.
If not covered under the Builder's Risk policy of insurance or any
other property or equipment insurance required by the Contract
Documents, Subcontractor shall procure and maintain at its own expense
property and equipment insurance for portions of Subcontractor's work
stored off the site or in transit.
SECTION 17. CLAIMS RESOLUTION PROCEDURE
---------------------------
17.1 Agreement to Arbitrate
All claims, disputes and matters in question arising out of, or
relating to this Agreement or the breach thereof, except for claims
which have been waived by the making or acceptance of final payment,
shall be decided by the claims procedure, including any arbitration
clause, specified in the prime contract between Contractor and Owner.
In the absence of an agreement to arbitrate in the prime contract, no
claims or disputes shall be arbitrated unless in this Agreement or
mutually agreed upon in writing by Contractor, Subcontractor and
Owner.
17.2 Arbitration Procedures (if applicable)
In the event the prime contract contains an arbitration provision or
if arbitration is provided for in this Agreement, the following shall
apply:
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
17.2.1 Notice of Demand. Notice of the demand for arbitration shall be filed
in writing with the other party to this Agreement and shall conform to
the requirements of the arbitration provision set forth in the prime
contract. The demand for arbitration shall be made within a
reasonable time after written notice of the claim, dispute or other
matter in question has been given, and in no event shall it be made
after the date when institution of legal or equitable proceedings
based on such claim dispute or other matter in question would be
barred by the applicable statute of limitations.
17.2.2 Award. The award rendered by the arbitrator(s) shall be final and
judgment may be entered upon it in accordance with applicable law in
any court having jurisdiction.
17.2.3 Work Continuation and Payment. Unless otherwise agreed in writing,
Subcontractor shall carry on the work and maintain the schedule of
work pending arbitration, and, if so, Contractor shall continue to
make payments in accordance with this Agreement.
17.2.4 Consolidated Arbitration Proceedings. To the extent not prohibited by
their contracts with others, the claims and disputes of Owner,
Contractor. Subcontractor and other subcontractors involving a common
question of fact or law shall be heard by the same arbitrator(s) in a
single proceeding. In this event, it shall be the responsibility of
Subcontractor to prepare and present Contractor's case, to the extent
the proceedings are related to this Agreement. Should Contractor
enter into arbitration with the Owner or others regarding matters
relating to this Agreement, Subcontractor shall be bound by the result
of the arbitration to the same degree as the Contractor.
17.2.5 No Limitation of Rights or Remedies. This Section shall not be deemed
a limitation of any rights or remedies which Subcontractor may have
under any Federal or State mechanics' lien laws or under any
applicable labor and material payment bonds unless such rights or
remedies are expressly waived by it.
SECTION 18. SAFETY PRACTICES
----------------
Subcontractor shall comply fully with all laws, orders, citations,
rules, regulations, standards and statutes with respect to
occupational health and safety, the handling and storage of hazardous
materials, accident prevention, safety equipment and practices
including the accident prevention and safety program of Owner and
Contractor. Subcontractor shall conduct inspections to determine that
safe working conditions and equipment exist and accepts sole
responsibility for providing a safe place to work for its employees
and for employees of its subcontractors and suppliers of material and
equipment, for adequacy of and required use of all safety equipment
and for full compliance with the aforesaid laws, orders, citations,
rules, regulations, standards and statutes.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
Immediately upon execution of the Subcontract, in accordance with GISO
5194, Subcontractor is required to submit Material Safety Data Sheets
(MSDS) to DPR Construction, Inc. for all materials to be utilized in
the execution of, or incorporated into this scope of work.
SECTION 19. WARRANTY
--------
Subcontractor warrants to Owner, Architect and Contractor that all
materials and equipment furnished shall be new unless otherwise
specified and that all work under this Agreement shall be of good
quality, free from faults and defects and in conformance with the
Contract Documents. All work not conforming to these requirements,
including substitutions not properly approved and authorized, may be
considered defective. The warranty provided in this Section 19 shall
be in addition to and not in limitation of any other warranty or
remedy required by law or by the Contract Documents.
SECTION 20. USE OF CONTRACTOR'S EQUIPMENT
-----------------------------
In the event Subcontractor shall use Contractor's equipment,
materials, labor, supplies or facilities, Subcontractor shall
reimburse Contractor at a predetermined rate, except as provided in
Section 14.1.2 or as otherwise stated herein. Further, Subcontractor
assumes all responsibility for physical damage to such equipment,
materials, labor, supplies, or facilities used by Subcontractor or its
agents, employees, or permittees. In the event that Contractor's
employees are used by Subcontractor, Subcontractor shall have full
responsibility for all acts or omissions of Contractor's employees
with regard to Subcontractor's use or employment of them.
Subcontractor accepts any and all of Contractor's equipment,
materials, labor, supplies or facilities as furnished.
SECTION 21. ASSIGNMENT OF CONTRACT
----------------------
Subcontractor shall not, without written consent of Contractor,
assign, transfer, or sublet any portion or part of the work required
by this Agreement, nor assign any payment hereunder to others.
SECTION 22. INDEPENDENT CONTRACTOR
----------------------
Subcontractor is an independent contractor and shall, at its sole cost
and expense, and without increase in the Contract Price, comply with
all laws, rules, ordinances and regulations of all governing bodies
having jurisdiction over the work; obtain all necessary permits and
licenses therefor, pay all manufacturers' taxes, sales taxes, use
taxes, processing taxes, and all federal and state taxes, insurance
and contributions for social security and unemployment which are
measured by wages, salaries, or other remuneration paid to
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
Subcontractor's employees, whether levied under existing or
subsequently enacted laws, rules or regulations. Subcontractor upon
request, shall furnish evidence satisfactory to Contractor that any or
all of the foregoing obligations have been fulfilled.
SECTION 23. CLEAN-UP
--------
At all times during the course of construction. Subcontractor shall
perform its work so as to maintain the site in a clean, safe and
orderly condition. Upon completion of the work under this Agreement.
Subcontractor shall remove from the site all hazardous materials,
temporary structures, debris and waste incident to its operation and
clean all surfaces, fixtures, equipment, etc., relative to the
performance of this Agreement. Subcontractor acknowledges that it is
aware that this project is a "Build Clean" site and, that it will
comply with all requirements of the Project Protocol for staging of
cleanliness throughout its work on the site.
SECTION 24. ATTORNEYS' FEES
---------------
In the event the parties become involved in litigation or arbitration
with each other arising out of this Agreement or other performance
thereof in which the services of an attorney or other expert are
reasonably required, the prevailing party shall be fully compensated
for the cost of its participation in such proceedings, including the
cost incurred for attorneys' fees and experts' fees. Unless judgment
goes by default, the attorneys' fee award shall not be computed in
accordance with any court schedule, but shall be such as to fully
reimburse all attorneys' fees actually incurred in good faith,
regardless of the size of a judgment, it being the intention of the
parties to fully compensate for all attorneys' fees and experts' fees
paid or incurred in good faith, at hearing, trial, or on appeal.
SECTION 25. LABOR AGREEMENTS
----------------
Presently, DPR Construction has no labor agreements in the
Commonwealth of Virginia.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 26. SPECIAL PROVISIONS (Including unit pricing, if applicable)
------------------
SECTION 3: CONTRACT PRICE, continued:
--------------
Cost Codes for the Underground Mechanical Utilities
<TABLE>
<CAPTION>
BLDG WBS UNIQUE
CODE CODE ALPHA TITLE $ VALUE
---- ---- ----- ----- -------
<S> <C> <C> <C> <C>
S 014020 A Water-utility $ 222,787.00
S 014520 B Fire Protection $ 425,944.00
S 015520 A Sanitary Sewer $ 729,093.00
S 017540 B Irrigation Sleeving $ 65,682.00
S * Manholes $ 91,250.00
S * Other $ 263.244.00
--------------
TOTAL $ 1,798,000.00
==============
</TABLE>
* Cost codes for these items will be sent under separate cover
within two weeks
The Subcontract price shall include all taxes, (including applicable
Commonwealth of Virginia sales and use, and other applicable state and
local taxes), fees and similar charges.
SECTION 4: PAYMENT SCHEDULE continued:
----------------
Attachment 4, Subcontractor Billing Package, attached hereto is made a
part of this Subcontract. Additionally, DPR's billing procedures are
amended as follows: DPR Construction, Inc.'s standard Billing
Procedures will be used by Subcontractors for all payment
applications. ADDITIONALLY, the Subcontractor is notified that all
Payment Applications submitted must be accompanied by the
Subcontractor's Certified Payroll and a schedule of values for the pay
period covered by the payment application. The Certified Payroll must
be attested to by a principal of the firm, the Subcontractor's
accountant or other authorized representative. The Subcontractor is
made aware that all certified payrolls are subject to audit at such
frequency as may be determined by DPR. Further, the Subcontractor
will be required to configure and code all schedules of values,
payment requests and invoices as may be directed by DPR prior to their
submittal for payment. Payment for all materials stored offsite is
solely at the discretion of DPR and, if allowed, requires the
execution by the Subcontractor of DPR's "Agreement for the Payment of
Stored Materials/Bill of Sale & Agreement to Protect", without
exception.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 5: TIME, continued:
----
THE SUBCONTRACT COMPLETION DATE IS: MAY 9, 1997
SECTION 6: CHANGES IN THE WORK, continued:
-------------------
In the event of changes (additions or deletion) to the Scope of Work,
the following Unit Prices shall apply. The Unit Prices below are
inclusive of all costs required for the supply and installation of
complete units of the specified components of the Work.
<TABLE>
<CAPTION>
Unit Rates
----------
Description Unit Rates
----------- ---- -----
<S> <C> <C>
Trench Excavation CY* TO 5' DEEP 8.00
Trench Excavation to Embankment (Fill) CY 2.00
Unsuitable Material to Stockpile CY 2.00
Offhaul Unsuitable Material (Offsite From Stockpile CY 10.00
Off-Site Borrow (SP, SM, GP, GM OR GC) CY 12.00
Non-woven Geotextile (VDOT Sec 245-Drainage Fabric SF .17
Inlet/Culvert Protection EA 100.00
Rock Excavation in Trenches W/Hoe-Ram CY 200.00
Rock Excavation in Trenches - Blasting CY 70.00
Backfill Trenches W/Select on-site Material & Compact CY 2.50
Backfill Trenches W/Off-Site Borrow & Compact CY 12.00
Backfill Trenches W/Stone ( ) & Compact TON 10.00
Backfill Trenches W/Stone (#57) Compaction not Req'd. TON 12.00
</TABLE>
Subcontractor shall submit change order pricing in the form and format
required by Contractor, and using labor, tools and equipment rates
detailed in Subcontractor's Underground Mechanical utilities Proposal.
Further, Subcontractor's mark ups on direct costs in change order
proposals shall be limited to the following:
<TABLE>
<CAPTION>
Description Overhead Profit
----------- -------- ------
<S> <C> <C>
Labor Costs 10% 5%
Material Costs 10% 5%
Purchased Equipment Costs 10% 5%
Sub-Subcontractor Costs 10% 5%
</TABLE>
Overhead shall include all detailing, engineering, purchasing, shop
burden, tools, equipment, trucks, trucking costs, nonproductive labor.
Project Management costs (onsite and offsite) and any other indirect
costs. No multipliers for any soft costs shall be allowed in
calculation of the direct costs of the work.
<PAGE>
DPR Construction, Inc.
DPR Job No.: 09-9600140
Subcontract No. 09-96001-00-048-S
Cost Code: See Section 26
SECTION 16: INSURANCE, continued:
---------
If applicable, participation in the Owner Controlled Insurance Program
by all Subcontractors will be mandatory. The OCIP Insurance Manual
(Attachment 3) dated January 16, 1997, is hereby made part of this
subcontract.
26.1 NOTICE TO CONTRACTOR OF LABOR DISPUTES. Whenever Subcontractor has
any knowledge that any actual or potential labor dispute is delaying
or threatens to delay the timely performance of this contract,
Subcontractor shall immediately notice thereof including all relevant
information with respect thereto, to Contractor.
Subcontractor shall insert this clause 26.1, in its entirety, in any
subcontract hereunder as to which a labor dispute may delay the timely
performance of this contract, except that each subcontract shall
provide that in the event its timely performance is delayed or
threatened by delay by any actual or potential labor dispute, the
subcontractor shall immediately notify Subcontractor of all relevant
information with respect to such dispute.
SUBCONTRACTORS AND SUB-SUBCONTRACTORS ARE REQUIRED BY LAW TO BE LICENSED WITH
THE STATE CORPORATION COMMISSION TO DO BUSINESS IN THE COMMONWEALTH OF
VIRGINIA, AND SHALL BE LICENSED CONTRACTORS BY THE COMMONWEALTH OF VIRGINIA
BOARD OF CONTRACTORS. ANY QUESTIONS CONCERNING CONTRACTORS LICENSING SHALL
BE DIRECTED TO:
Board of Contractors
Department of Professional and Occupational Regulation
3600 West Broad Street
Richmond, Virginia 23230-4917
(804) 367-8500
Dated: 3/6/97 Dated: 2/25/97
---------------------------- -----------------------------
CONTRACTOR DPR Construction, Inc. SUBCONTRACTOR
By s/James E. Linden Bys/Coleman S. Lyttle, President
-------------------------------- --------------------------------
(Name) (Name)
James E. Linden Area Manager Coleman S. Lyttle, President
- ----------------------------------- -----------------------------------
2210 E. Belt Blvd.
6061 Elko Tract Road P.O. Box 24205
- ----------------------------------- -----------------------------------
Sandston, VA 23150 Richmond, VA 23224
- ----------------------------------- -----------------------------------
(Address) (Address)
2705-035043A 2701-008430A
- ----------------------------------- -----------------------------------
(Contractor's License No.) (Contractors License No.)
<PAGE>
CHESTERFIELD COUNTY DATE: PURCHASE ORDER NUMBER: PAGE:
(804) 748-1617 11/18/96 0000207970 1
THE PURCHASE ORDER NUMBER AND, IF APPLICABLE, THE SERIAL NUMBER MUST APPEAR
ON ALL PACKAGES, INVOICES, AND SHIPPING PAPERS.
INVOICES: ITEMIZED DETAIL INVOICES IN DUPLICATE TO BE SUBMITTED DIRECTLY TO
CHESTERFIELD COUNTY ACCOUNTING DEPT., P.O. BOX 40, CHESTERFIELD, VIRGINIA
23832
CORRESPOND TO: PURCHASING DEPT., P.O. BOX 40, CHESTERFIELD, VA 23832
VENDOR: VENDOR NUMBER: SHIP TO:
STAMIE E. LYTTLE CO INC 685 UTILITIES ADMINISTRATION &
2210 BELT BLVD BILLING
P O BOX 24205 GOVERNMENT COMPLEX
RICHMOND VA 23224 6710 W. KRAUSE ROAD
CHESTERFIELD, VA 23832
804-748-1401
PLEASE ENTER THE FOLLOWING ORDER SUBJECT TO TERMS AND CONDITIONS HEREON AND
ON REVERSE SIDE.
SHIP VIA: F.O.B.: FREIGHT TERMS: TERMS OF SALE: DUE DATE: REQUISITION NO.
- -------- ------ ------------- ------------- -------- ---------------
BESTWAY DESTINATION PREPAID NET 30 11/18/96 SEE REMARKS
LINE ITEM: QUANTITY: UOP: COUNTY, ITEM NUMBER AND DESCRIPTION:
- --------- -------- --- -----------------------------------
0001 1 LT 250-01
PROVIDE ALL LABOR, TOOLS, EQUIPMENT
AND MATERIALS NECESSARY TO
CONSTRUCT THE LITTLE TOMAHAWK
CREEK SANITARY SEWER, PROJECT
#95-0094
UNIT PRICE: AMOUNT:
- ---------- ------
989,412.70000 989,412.70
REMARKS: REQUISITION NUMBER 1690 989,412.70
----------
TOTAL:
CONTAINERS SHALL BE LABELED AND MATERIAL SAFETY DATA SHEETS PROVIDED AS
APPLICABLE.
s/H. Edward James
-------------------------
PURCHASING DIRECTOR,
CHESTERFIELD COUNTY
VENDOR COPY
<PAGE>
TERMS AND CONDITIONS
1. SUBMIT ALL CLAIMS FOR PAYMENT BY DETAILED ITEMIZED INVOICE IN DUPLICATE.
2. MAIL OR DELIVER ALL INVOICES TO ACCOUNTING DEPARTMENT; P.O. BOX 40;
CHESTERFIELD, VIRGINIA 23832.
3. INVOICES FOR PARTIAL DELIVERY MUST BE INDICATED.
4. THIS IS A LEGAL BINDING CONTRACT. THE CONDITIONS OF THIS ORDER ARE NOT TO
BE MODIFIED BY ANY VERBAL UNDERSTANDING. ANY CHANGES MUST BE IN WRITING OR
BY "CORRECTION ORDER", WHICH HAS BEEN APPROVED BY THE PURCHASING AGENT.
5. INVOICES AND PACKAGES MUST BEAR THIS PURCHASE ORDER NUMBER ON OUTSIDE OF
PACKAGE OR SHIPPING CONTAINERS.
6. CHESTERFIELD COUNTY IS EXEMPT FROM FEDERAL EXCISE AND STATE SALES TAX. IF
ANY SUCH TAX IS BILLED ON THE INVOICE, IT MUST BE SHOWN AS A SEPARATE ITEM.
TAX EXEMPTION CERTIFICATES WILL BE FURNISHED UPON REQUEST.
7. REJECTED MATERIALS WILL BE RETURNED TO THE VENDOR AT THE VENDOR'S RISK AND
EXPENSE.
8. IT IS AGREED THAT THE GOODS, MATERIALS, EQUIPMENT OR SERVICES RENDERED
SHALL COMPLY WITH ALL FEDERAL, STATE OR LOCAL LAWS RELATIVE THERETO AND THAT
THE VENDOR SHALL DEFEND ACTIONS OR CLAIMS BROUGHT AND SAVE HARMLESS THE
COUNTY OR ITS OFFICIALS OR EMPLOYEES FROM LOST COSTS OR DAMAGE BY REASON OF
ACTUAL OR ALLEGED INFRINGEMENT OF LETTERS PATENT OR ANY OTHER REASON.
9. ALL PRICES MUST BE FOB DELIVERED TO POINT AS INDICATED ON THE FRONT OF
THIS ORDER WHEN SPECIFIC PURCHASE IS QUOTED OR NEGOTIATED FOB SHIPPING POINT
THE VENDOR IS TO PREPAY SHIPPING CHARGES AND ADD TO INVOICE.
10. CASH DISCOUNTS WILL BE DEDUCTED AS PROVIDED FOR ON THE FRONT OF THIS
PURCHASE ORDER OR IN ACCORDANCE WITH THE TERMS OF YOUR OFFICIAL QUOTATION OR
BID. NET PURCHASES WILL BE PAID THIRTY DAYS UPON DATE OF YOUR INVOICE.
11. IN CASE OF DEFAULT OF THE CONTRACTOR, THE COUNTY MAY PROCURE THE ARTICLES
OR SERVICES FROM OTHER SOURCES AND CHARGE THE CONTRACTOR AS LIQUIDATED
DAMAGES. ANY EXCESS COSTS OR DAMAGES OCCASION THEREBY.
12. ACCEPTANCE OF THE ORDER INCLUDES ACCEPTANCE OF ALL TERMS, CONDITIONS,
PRICES, DELIVERY INSTRUCTIONS AND SPECIFICATIONS AS SHOWN ON THE ORDER OR
ATTACHED TO AND MADE A PART OF THIS ORDER.
13. EVERY CONTRACT FOR GOODS OR SERVICES OVER $10,000, SHALL COMPLY WITH THE
PROVISIONS OF SECTION 2-48 CODE OF CHESTERFIELD AND SECTION 11-51 CODE OF
VIRGINIA PROHIBITING EMPLOYMENT, DISCRIMINATION BY CONTRACTOR.
<PAGE>
PROMISSORY NOTE
March 17, 1997
$2,500,000 Maximum Roanoke, Virginia
FOR VALUE RECEIVED, the undersigned, ETS INTERNATIONAL, INC., a
Virginia corporation ("Maker"), promises to pay to the order of THOMAS W.
MARMON, as Trustee of the THOMAS W. MARMON TRUST ("Payee"), the principal
amount equal to the aggregate amount of advances made by Payee to Maker
hereunder, which advances shall not exceed Two Million Five Hundred Thousand
Dollars ($2,500,000), together with interest at the rate of Twenty-Five
Thousand Dollars ($25,000) per month, regardless of the principal balance
from time to time outstanding.
Maker shall make monthly interest payments to Payee of $25,000 in
installments commencing April 17, 1997, and on the 17th day of each month
thereafter until March 17, 1999, at which time the remaining balance of
principal and interest shall be paid in full; provided, however, that Payee
shall have the option to call this Note in full at any time upon sixty (60)
days written notice (i.e., Payee has the option to accelerate the entire
principal and interest owing and demand payment in full upon sixty (60) days
written notice). The Maker reserves the right to pre-pay this Note at any
time upon sixty (60) days written notice to Payee.
Late Charge. If any installment of principal or interest is not paid
within ten (10) days of its due date, Maker will forthwith pay to the holder
of this Note a late charge in an amount equal to five percent (5%) of the
past due payment. This is in addition to the holder's other rights and
remedies for default in payment of an installment of interest when due.
Maker will pay this late charge promptly, but only once on each late payment.
Security. This Note and all obligations of Maker hereunder are secured
by certain security agreements and a guaranty of even date herewith, and any
and all security agreements, guaranties, mortgages, pledge agreements,
assignments, and all other agreements and instruments heretofore or hereafter
given by Maker or any third party to Payee ("Security Documents"), including,
but not limited to, Security Documents given in connection with or referred
to in any prior promissory notes given to Payee by any Maker and Security
Documents that secure any present or future guaranty of all or part of the
indebtedness evidenced by this Note. Payee shall have all of the rights and
powers set forth in the Security Documents and in any other written
agreements heretofore or hereafter given to Payee by Maker, as though they
were fully set forth herein. As additional security for the payment of
Maker's obligations under this Note, Maker grants to Payee a security
interest in all tangible and intangible property of Maker now or hereafter in
the possession of Payee.
Default and Acceleration. Each of the following shall be an event of
default under this Note: (a) if default occurs in the payment of any
installment of principal or interest hereunder or of any late charge or out-
of-pocket expense at any time owing to Payee under this Note or in the
payment of any other indebtedness or obligation now or hereafter owing by
Maker to Payee, as and when the same shall be or become due and payable and
such failure shall continue unremedied for a period of ten (10) days; (b) if
default occurs in the performance of any other obligation to Payee under this
Note or any Security Document or any other agreement heretofore or hereafter
entered into between Maker and Payee or if there occurs any other event of
<PAGE>
default under any Security Document or any such other agreement, and any such
default shall continue unremedied for a period of ten (10) days after the
sending of written notice of such default to Maker; (c) if any warranty or
representation heretofore or hereafter made to Payee by Maker or any
guarantor of all or part of the Indebtedness evidenced by this Note
("Guarantor"), in any Security Document or in any financial statement or
other document given to Payee in connection with this Note, shall have been
false in any material respect; (d) if Maker or any Guarantor, shall dissolve,
become insolvent, or make an assignment for the benefit of creditors; (e) if
any guaranty that now or hereafter secures payment of all or any part of the
indebtedness evidenced by this Note shall be terminated or limited for any
reason without the written consent or agreement of the holder of this Note;
(f) if any part of the principal or interest of, or any other payment of
money due under, any indebtedness for borrowed money of the Maker, including
without limitation any indebtedness to banks or other financial institutions,
is not paid when due or within any grace period; (g) if any indebtedness of
Maker (including without limitation any indebtedness to banks or other
financial institutions) becomes or is declared to be due and payable prior to
the stated maturity thereof as a result of any default or event of default
occurring with respect thereto; or (h) if at any time the holder of this Note
for any reason shall in good faith believe that the prospect of payment or
performance of this Note or any other indebtedness or obligation of Maker to
the holder is impaired. Upon the occurrence of any event of default, all or
any part of the indebtedness evidenced hereby and all or any part of all
other indebtedness and obligations then owing by Maker to the holder shall,
at the option of the holder, become immediately due and payable without
notice or demand. If a voluntary or involuntary case in bankruptcy,
receivership, or insolvency shall at any time be instituted by or against
Maker or any Guarantor and, in the case of an involuntary action, such action
is not discharged within thirty (30) days thereafter, or if any levy, writ of
attachment, garnishment, execution, or similar process shall be issued
against or placed upon any property of Maker or Guarantor, then all such
indebtedness shall automatically become immediately due and payable. All or
any part of the indebtedness' evidenced hereby also may become, or may be
declared to be, immediately due and payable under the terms and conditions
contained in any Security Document.
Place and Application of Payments. Each payment upon this Note shall
be made to Payee at the following address: Thomas W. Marmon as Trustee of the
Thomas W. Marmon Trust, c/o Ceres Corporation, 4390 Airwest Drive SE, Grand
Rapids, Michigan 49512 or at such other place as the holder hereof may direct
in writing. Any payment upon this Note shall be applied first to any
expenses (including expenses of collection) then due and payable to Payee
hereunder, then to any unpaid late charges, then to any accrued and unpaid
interest hereunder, and then to the unpaid principal balance. If Maker at
any time owes the holder of this Note any indebtedness or obligation in
addition to the indebtedness evidenced by this Note, and if any indebtedness
owed by Maker to the holder is then in default, Maker shall have no right to
direct or designate the particular indebtedness or obligation upon which any
payment made by, or collected from, Maker or from any Guarantor or other
security shall be applied. Maker hereby waives any such right and agrees
that the manner of application of any such payment, as between or among such
indebtedness and obligations, shall be determined solely by the holder.
Setoff. The holder of this Note shall have the right at any time to
set off any indebtedness that the holder then owes to Maker against any
indebtedness evidenced by this Note that is then due and payable.
<PAGE>
Remedies. The holder of this Note shall have all rights and remedies
provided by law and by agreement of Maker. Any requirement of reasonable
notice with respect to any sale or other disposition of collateral shall be
met if the holder sends the notice at least 5 days prior to the date of sale
or other disposition. Maker agrees to pay any and all expenses, including
reasonable attorney fees and legal expenses, paid or incurred by the holder
in protecting and enforcing the rights of and obligations to the holder under
any provision of this Note or any Security Document.
Environmental Compliance. Maker represents and warrants to, and agrees
with, Payee that: (a) none of Maker's real or personal property is, and Maker
will not permit it to become, unlawfully contaminated by any substance that
is now or hereafter regulated by or subject to any present or future law or
regulation that establishes liability for the removal or clean-up of, or
damage caused by, any environmental contamination; (b) Maker's operations,
activities, and real and personal properties are, and Maker shall cause them
to continue to be, in compliance with each such law and regulation in all
material respects; (c) if the indebtedness evidenced by this Note is not paid
at maturity, then at any time thereafter the holder of this Note may, but
shall not be obligated to, conduct or obtain an environmental investigation
or audit of any or all of Maker's properties, and Maker shall reimburse the
holder for all costs and expenses incurred by the holder in connection with
the investigation or audit, and (d) Maker shall indemnify and hold harmless
the holder with respect to all claims, damages, losses, liabilities, and
expenses (including reasonable attorney fees) asserted against or incurred by
the holder by reason of any failure to comply with, or any inaccuracy in, any
of the agreements, representations, and warranties contained in this
paragraph.
Waivers. No delay by the holder of this Note in the exercise of any
right or remedy shall operate as a waiver thereof. No single or partial
exercise by the holder of any right or remedy shall preclude any other or
future exercise thereof or the exercise of any other fight or remedy. No
waiver by the holder of any default or of any provision hereof shall be
effective unless in writing and signed by the holder. No waiver of any right
or remedy on one occasion shall be a waiver of that right or remedy on any
future occasion.
Maker waives demand for payment, presentment, notice of dishonor, and
protest of this Note and consents to any extension or postponement of time of
its payment, to any substitution, exchange, or release of all or any part of
any security given to secure this Note, to the addition of any party hereto,
and to the release, discharge, waiver, modification, or suspension of any
rights and remedies against any person who may be liable for the indebtedness
evidenced by this Note.
Maker agrees that the interest rate on this Note is not usurious, and
Maker waives any defense or cause of action related to usury.
Advances. Payee will advance $2,000,000 to Maker upon execution of
this Note. Maker from time to time may request additional advances (up to
$2,500,000 outstanding at anytime). Any such additional advances shall be
made by Payee in his sole and unlimited discretion upon review of Maker's
financial condition and the value of collateral securing this Note.
General. In this Note, "maturity" means such time as the entire
remaining unpaid principal balance shall be or shall become due and payable
for any reason, including acceleration as provided above.
<PAGE>
Applicable Law and Jurisdiction. This Note shall be governed by and
interpreted according to the laws of the Commonwealth of Virginia, without
giving effect to principles of conflict of laws. Maker irrevocably agrees
and consents that any action against Maker for collection or enforcement of
this Note may be brought in any state or federal court that has subject
matter jurisdiction and is located in, or whose district includes, Kent
County, Michigan, and that any such court shall have personal jurisdiction
over Maker for purposes of such action.
ETS INTERNATIONAL, INC.
By s/John D. McKenna
---------------------------------
Its CEO
-----------------------------
Address: 1401 Municipal Road, N.W.
Roanoke, Virginia 24012
<PAGE>
GUARANTY
THIS GUARANTY is given as of the 17th day of March, 1997, by
GUARANTORS, as hereafter defined, in favor of THOMAS W. MARMON, as Trustee of
the THOMAS W. MARMON TRUST, with a mailing address of Thomas W. Marmon,
Trustee of the Thomas W. Marmon Trust, c/o Ceres Corporation, 4390 Airwest
Drive SE, Grand Rapids, Michigan 49512 ("Marmon"), pursuant to a loan made by
Marmon to ETS INTERNATIONAL, INC., a Virginia corporation ("Borrower").
Guarantors are wholly-owned direct or indirect a subsidiaries of Borrower.
1. Guarantors. As used in this Guaranty, "Guarantors" means,
collectively, the undersigned corporations, and every reference to
"Guarantors" in this Guaranty shall mean each such corporation individually.
Each of the undersigned corporations is jointly and severally liable for the
payment of the Indebtedness (as defined below) under this Guaranty.
2. Guaranty. In consideration of any credit heretofore or hereafter
extended by Marmon to Borrower, Guarantors hereby absolutely,
unconditionally, and irrevocably guarantee prompt payment when due, and at
all times thereafter, of (i) any and all existing and future indebtedness,
obligations, and liabilities of Borrower to Marmon under a certain note of
even date herewith executed by Borrower in favor of Marmon, and (ii) any and
all renewals, extensions, replacements and modifications of that note and all
interest, late charges and reasonable expenses accrued thereon (collectively
the "Indebtedness"). The Indebtedness also includes any and all indebtedness
and obligations now or hereafter owing to Marmon by Borrower, regardless of
whether any such indebtedness or obligation is (i) not presently intended or
contemplated by Borrower, Marmon or Guarantors; (ii) indirect, contingent or
secondary; or (iii) unrelated to, or of a different kind of class from, any
indebtedness or obligations of Borrower to Marmon that are now owing or are
committed or contemplated.
3. Unlimited Liability. Except as provided by Paragraph 12, each
Guarantor's liability for the payment of the Indebtedness under this Guaranty
is unlimited.
4. Expenses. Guarantors shall reimburse Marmon for all costs,
reasonable attorney fees, and other expenses at any time expended or incurred
by Marmon in the collection or attempted collection of the Indebtedness or in
the enforcement of this Guaranty or the realization upon any security now or
hereafter granted for this Guaranty.
5. Unconditional. The effectiveness of this Guaranty is not subject
to the satisfaction of any conditions, including, without limitation, the
signing of this or another guaranty, or the granting of any other security,
by any person, firm or corporation. Marmon may grant or continue credit from
time to time to Borrower without notice to or authorization from Guarantors,
regardless of Borrower's financial or other condition at the time of any such
grant or continuation. Marmon shall have no obligation to disclose or
discuss with Guarantors his assessment of Borrower's financial condition.
The execution of this Guaranty by Guarantors, however, shall create no
obligation or duty of Marmon to grant or continue credit to Borrower.
<PAGE>
6. Application of Payments. Marmon in its sole discretion may,
without affecting, impairing, or reducing Guarantors' obligations under this
Guaranty, (i) apply payments or collections received from any source to the
payment of indebtedness other than the Indebtedness, even though Marmon could
have applied those payments to the Indebtedness; and (ii) apply payments or
collections received from Guarantors or from any present or future security
for this Guaranty to any liability of Guarantors under this Guaranty or to
any liability of Guarantors for payment to Marmon of any other indebtedness.
Any payments or collections that Marmon applies to the liability of
Guarantors under this Guaranty shall be applied to costs or expenses
described in Paragraph 4 above and to the components of the Indebtedness, all
in such manner as Marmon in its sole discretion shall determine.
7. Rights Against Debtor. Guarantors will not exercise or enforce,
and hereby waive, any right of contribution, reimbursement, recourse, or
subrogation available to Guarantors against Borrower or any other person
liable for payment of all or part of the Indebtedness, or as to any security
therefor, unless and until all of the Indebtedness is paid in full and
discharged.
8. Warranties and Representations. Each Guarantor warrants and
represents to Marmon that (i) all financial statements and other information
concerning such Guarantor furnished to Marmon are true and correct in all
material respects; (ii) the execution, delivery, and performance of this
Guaranty by such Guarantor has been validly authorized by all necessary
corporate action of its board of directors and/or shareholders and will not
violate its articles of incorporation or bylaws or any law, rule, judgment,
order, agreement, or instrument binding it, nor require the approval of any
public authority or other third party; and (iii) this Guaranty constitutes
the valid and binding obligation of such Guarantor and is enforceable in
accordance with its terms.
9. Waivers. Guarantors waive (i) notice of the acceptance of this
Guaranty and of the extension or continuation of all or any part of the
Indebtedness; (ii) presentment, protest, notice, demand, or action with
respect to any default in payment of all or any part of the Indebtedness and
with respect to any default by any Guarantor in its obligations under this
Guaranty; and (iii) any right to require Marmon to sue Borrower, any other
Guarantor or any other person obligated with respect to all or any part of
the Indebtedness or to foreclose or realize upon any security for all or any
part of the Indebtedness. Guarantors waive any and all defenses, claims, and
discharges of Borrower or any other obligor with respect to the Indebtedness,
except the defense of discharge by payment. Without limiting the generality
of the foregoing, Guarantors will not assert, plead, or enforce against
Marmon any defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity minority, usury, ultra vires, lack of authorization, illegality,
or unenforceability that may be available to Borrower or any other person
liable in respect of any Indebtedness or any setoff available against Marmon
to Borrower or any such other person, whether or not on account of a related
transaction. Guarantors shall be liable for any deficiency remaining after
foreclosure of or realization upon any security for all or part of the
Indebtedness, whether or not the liability of Borrower or any other obligor
for the deficiency is discharged pursuant to statute or judicial decision.
<PAGE>
10. Termination or Revocation. This Guaranty shall continue in
effect until receipt by Marmon of written notice of its termination or
revocation and, notwithstanding that receipt, thereafter as to Indebtedness
incurred, arising, or committed for prior to receipt by Marmon of notice of
termination or revocation. A notice of revocation or termination must be in
writing, shall not be effective until received by Marmon and shall be
effective only as to the Guarantor giving the notice, and this Guaranty shall
remain in effect as to the other Guarantors not giving the notice.
11. No Impairment of Guaranty. The validity and enforceability of
this Guaranty shall not be impaired or affected by any of the following
(whether occurring before or after receipt by Marmon of notice of termination
of this Guaranty) with respect to all or part of the Indebtedness or any
agreement relating thereto or with respect to any present or future guaranty
or other security for all or part of the Indebtedness: (i) any extension,
modification, renewal, indulgence or substitution; (ii) any failure or
omission to enforce any right, power, or remedy; (iii) any waiver of any
right, power, or remedy or of any default; (iv) any release, surrender,
compromise, settlement, subordination, or modification, with or without
consideration; (v) the unenforceability or invalidity of the Indebtedness or
of any present or future guaranty for all or part of the Indebtedness; (vi)
any failure by Marmon to perfect or secure any priority of its rights with
respect to any security; or (vii) any consent by Marmon to any sale or
transfer of any security; all whether or not the undersigned shall have had
notice or knowledge of any act, omission, or circumstance referred to in this
Paragraph.
12. Enforceability. If any one or more provisions of this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein
shall not in any way be affected, impaired, prejudiced or disturbed thereby.
If at any time any portion of the obligations of any Guarantor under this
Guaranty shall be determined by a court of competent jurisdiction to be
invalid, unenforceable or avoidable, the remaining portion of the obligations
of that Guarantor under this Guaranty shall not in any way be affected,
impaired, prejudiced or disturbed thereby and shall remain valid and
enforceable to the fullest extent permitted by applicable law. If at any
time all or any portion of the obligations of any Guarantor under this
Guaranty would otherwise be determined by a court of competent jurisdiction
to be invalid, unenforceable or avoidable under Section 548 of the U.S.
Bankruptcy Code or under a similar applicable law of any jurisdiction
(including without limitation laws relating to fraudulent conveyances or
fraudulent transfers), then notwithstanding any other provisions of this
Guaranty to the contrary that obligation or portion thereof of that Guarantor
under this Guaranty shall not exceed (a) the maximum amount which could be
incurred hereunder by that Guarantor without rendering this Guaranty void or
unenforceable under applicable law relating to fraudulent conveyance,
fraudulent transfer or the like after taking into account the probability of
that Guarantor making any payment pursuant to this Guaranty, the amount of
such probable payment, and all consideration and value directly or indirectly
received by that Guarantor from Marmon or the Borrower as a result of Marmon
making loans and other financial accommodations to the Borrower now or
hereafter, less (b) one dollar. If any Guarantor claims that its liability
hereunder is subject to the foregoing limitation, then that Guarantor agrees
that it has the burden of proof as to all matters pertaining to that
limitation in light of the fact that it has possession of all the financial
information needed to determine the amount of such limitation.
<PAGE>
13. Independence of Obligations. The liability of Guarantors
hereunder is independent of any other guaranties or obligations at any time
in effect with respect to all or any part of the Indebtedness and may be
enforced regardless of the existence, validity, enforcement, or
nonenforcement of any such other guaranties or other obligations. Marmon is
authorized to release or modify the obligations of or surrender any security
given by or waive any rights against Borrower or any Guarantor, without in
any manner affecting or impairing the liability of the other Guarantors.
14. Return of Payments. If any payment applied by Marmon to the
Indebtedness is set aside, recovered, rescinded, or required to be returned
for any reason (including, without limitation, the bankruptcy, insolvency, or
reorganization of Borrower, any Guarantor, or any other person liable in
respect of any Indebtedness), the Indebtedness to which the payment was
applied shall for the purposes of this Guaranty be deemed to have continued
in existence, notwithstanding the application, and this Guaranty shall be
enforceable as to such Indebtedness as fully as if Marmon had not made the
application.
15. Applicable Law, Venue, Jurisdiction. This Guaranty and the
rights and obligations of the parties shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Virginia, without giving
effect to principles of conflicts of laws. Guarantors irrevocably agree and
consent that any action against Guarantors for collection or enforcement of
this Guaranty may be brought in any state or federal court that is located in
or whose jurisdiction includes Kent County, Michigan, and that any such court
shall have jurisdiction over Guarantors for that action.
16. Complete Agreement. This Guaranty contains the entire agreement
between Guarantors and Marmon with respect to the subject matter hereof.
There are no promises, terms, conditions, or obligations other than those
contained herein. This Guaranty may not be modified except by writing signed
by the party to be charged.
17. Notices. Any notices or communications required or permitted
under this Guaranty shall be in writing and shall be deemed given when served
either personally or by certified United States mail (postage prepaid), or by
overnight express courier, addressed to Guarantors at their respective
addresses set forth below, and to Marmon at its address set forth on the
first page of this Guaranty, or to such other place as a party shall
designate by notice served upon the other parties in accordance with this
Paragraph.
18. Binding Effect. This Guaranty shall be binding upon and shall
inure to the benefit of Marmon and Guarantors and their respective successors
and assigns. Marmon may assign this Guaranty in connection with an
assignment of all or any portion of the Indebtedness.
19. Security. Guarantors acknowledge that their obligations under
this Guaranty are secured by those security agreements of even date herewith
between each Guarantor and Marmon.
20. Corporate Benefit. Each Guarantor is a wholly-owned direct or
indirect subsidiary of Borrower and will therefore derive substantial direct
and indirect benefits from the extensions of credit by Marmon to Borrower.
Accordingly, this Guaranty is necessary and convenient to the conduct,
promotion and attainment of the business of Borrower and is in furtherance of
the corporate purposes of each Guarantor.
<PAGE>
IN WITNESS WHEREOF, Guarantors have executed and delivered this
Guaranty as of the date first above written.
WITNESSES: GUARANTORS:
ETS WATER AND WASTE MANAGEMENT,
INC. (d/b/a Stamie E. Lyttle
s/R. Neal Keesee, Jr. Company)
- -----------------------
s/Jennifer A. Perdue By s/John D. McKenna
- ----------------------- ----------------------------
Its CEO
-----------------------
Address:
2210 Belt Blvd. at Hopkins Road
Richmond, Virginia 23224
ETS ANALYTICAL SERVICES, INC.
s/R. Neal Keesee, Jr.
- -----------------------
s/Jennifer A. Perdue By s/John D. McKenna
- ----------------------- ----------------------------
Its CEO
-----------------------
Address:
1401 Municipal Road, NW
Roanoke, Virginia 24012
<PAGE>
WITNESSES: ETS, INC.
s/R. Neal Keesee, Jr.
- -----------------------
s/Jennifer A. Perdue By s/John D. McKenna
- ----------------------- ----------------------------
Its CEO
-----------------------
Address:
1401 Municipal Road, NW
Roanoke, Virginia 24012
WITNESSES: ETS LINER, INC.
(d/b/a/ Pipeliner Installers)
s/R. Neal Keesee, Jr.
- -----------------------
s/Jennifer A. Perdue By s/John D. McKenna
- ----------------------- ----------------------------
Its CEO
-----------------------
Address:
2551 N.W. 15th Court
Pompano Beach, Florida 33069
<PAGE>
LEC
- -----------------------------------------------------------------------------
ETS INTERNATIONAL, INC.
- and -
E & C ENGINEERING CORPORATION
- -----------------------------------------------------------------------------
LICENSE AGREEMENT
- -----------------------------------------------------------------------------
<PAGE>
A LICENSE AGREEMENT made the ______ day of _________ 1996
- -------------------
BETWEEN:
- -------
(1) ETS INTERNATIONAL, Inc., whose address is
1401 Municipal Road
Roanoke, VA 24012-1309 U.S.A.
("Licensor")
(2) E & C ENGINEERING CORPORATION
19F, No. 77, Section 2, Tun Hwa South Road
Taipei, Taiwan, R.O.C.
("Licensee")
RECITALS:
- --------
A. Licensor carries on business as ETS INTERNATIONAL, Inc., and possesses
the Systems Rights in, and the Know-How relating to, the System and is
the proprietor of the Patents.
B. Licensee carries on business as E & C ENGINEERING CORPORATION, has the
ability to use and develop the System, the System Rights, and the
Know-How in connection with such business in the Territory.
C. Licensor has agreed to grant to Licensee the licenses with respect to
the System Rights and the Know-How as set forth below.
D. Words used in these recitals shall have the meaning as described in the
following pages:
<PAGE>
1.0 DEFINITIONS
-----------
1.1 In this Agreement, unless otherwise indicated in the text,
"Commencement shall mean the _________ of ______________
Date"
"Date of Sale" shall mean the date on which there is an agreement
between Licensee, or any of its sublicensees, to
contract with any third party for the purchase of a
System;
"Know-How" shall mean the technical information, manufacturing
techniques, specifications, drawings and all other
information appertaining or relating to the System
and the Patents, and including the System Rights;
"License Fee" shall mean the fees payable by Licensee to Licensor
in accordance with the provisions of Part 2 of the
Schedule hereto;
"Nonexclusive shall mean all parts of the world other than as
Area" included in the Territory;
"Patents" shall mean the Patents and applications for such
concerning the System and improvements thereto, and
all rights and benefits thereof accruing to Licensor;
<PAGE>
"Person" shall mean natural person, business entity, or
government;
"Royalty Fee" shall mean the fees payable by Licensee to Licensor
calculated in accordance with the provisions of
Section 8 herein;
"Sale Price" shall mean the price charged to a customer for each
individual System including, but not limited to,
detail and design engineering, materials and
fabrication costs, and installation, but excluding
training, shipping, insurance and taxes;
"Schedule" shall mean the multipart appendix attached hereto and
incorporated herein by reference;
"System" shall mean Licensor's system, LEC deSOx system, U. S.
Patent #4,663,136 and #4,764,348 for cleaning air and
other gases including the design and component parts
thereof. Taiwan patent no. not included. ETS will
inform E&C later when this patent right no. obtained.
System components include reactor, material handling
equipment, auxiliary equipment and connections. All
as shown in Figure 1.
"Systems Rights" shall mean the rights and benefits conferred by
Licensor arising from Licensor's patents, copyrights,
and proprietary trade secrets concerning the System;
"Territory" shall mean the named industries within regions,
countries or states listed in Part 1 of the Schedule
hereto.
"Currency" all upfront payments, royalty fees, system sale
price, Licensor engineering hourly rates and
applicable refunds are to be calculated on the basis
of United States dollars (USD). The exchange rate
used will be that in effect on the day of transaction
and/or order received.
<PAGE>
2.0 TERM
----
2.1 This Agreement shall begin on the Commencement Date and shall continue
thereafter for a period of five (5) year. (unless terminated earlier in
accordance with the provisions hereof).
2.2 The term of this Agreement is set for five (5) years, however at the
end of the third year, both parties shall have the right to evaluate
the progress and status of this agreement and determine whether the
cooperation shall be continued or terminated, termination of the
cooperation must be served with written notice to the other party 90
(ninety) days prior to the end of the third year of the cooperation
period.
3.0 EXCLUSIVE LICENSES
------------------
3.1 Licensor hereby grants to Licensee the exclusive license under the
Patents for the unexpired term of this Agreement thereof, and any
extension thereto, to manufacture, adapt and sell the System and any
parts thereof, or processes or designs relating thereto, within the
Territory and to use and exercise the System Rights within the
Territory.
3.2 Licensor also hereby grants to Licensee the exclusive license to use,
adapt and develop the Know-How within the Territory without any
increase in the License Fee set forth in Part 2 of the Schedule or the
Royalty Fee set forth in Section 8 herein.
3.3 Licensor also hereby grants to Licensee the exclusive license to
distribute, market and sell the System and all developments and
improvements thereto (whether made, discovered or developed by Licensor
or Licensee) within the Territory.
<PAGE>
3.4 The expression "Exclusive Licensee" in this Section 3 shall mean that
the grant of such license is to the exclusion of not only all third
parties, but also the exclusion of Licensor's actively soliciting
business in Licensee's Territory. This does not apply when a sale is
made by Licensor outside the Territory for shipment to, or fabrication
within, the Territory. Fees calculated the same as the royalty fee
mentioned in paragraph 8.0 to be shared such that E&C and ETS each
receive one half of whatever royalty is received. An inquiry from the
Territory shall be directed to Licensee.
4.0 NONEXCLUSIVE LICENSES
---------------------
4.1 Licensor hereby grants to Licensee the nonexclusive license under the
Patents for the unexpired term thereof, and any extension thereto, to
distribute, market, manufacture, adapt and sell the System, and any
parts thereof or process or designs relating thereto, as well as
improvements thereto, in any part of the Nonexclusive Area where no
exclusive license granted by Licensor to any other person subsists at
that time. Licensee shall be informed by Licensor of its exclusive
licensee arrangement elsewhere for reference.
5.0 SUBLICENSES
-----------
5.1 Licensee shall be entitled to grant sublicenses out of the licenses
hereby granted by Licensor, provided that each proposed Sublicensee
shall have the prior written approval of Licensor and that the area to
which any such sublicense applies shall be within the Territory only.
Such written approval shall not be unreasonably withheld.
5.2 Sublicenses granted by Licensee shall be in similar form to the License
Agreement between the parties hereto. Immediately upon execution of
each sublicense agreement, and amendments thereof, Licensee shall
forward a fully executed copy of same to Licensor.
<PAGE>
6.0 PREVIOUS AGREEMENTS
-------------------
6.1 This Agreement shall be in substitution for all other and previous
agreements between the parties hereto.
6.2 Both parties undertake that they shall, at their own expense, terminate
prior to the Commencement Date any prior agreements entered into by
either party with third parties, the terms of which conflict with this
Agreement.
7.0 LICENSE FEE
-----------
7.1 At the time of signing, Licensee will be obligated to pay a license fee
of $50,000. The payment will be made in three installments. The
installment and payment schedule is shown in "The Schedule," part 2,
License fee, page 15 of this agreement.
8.0 ROYALTY FEES
------------
8.1 In consideration of the grant of the licenses referred to above and of
the Licensor's obligations and undertakings herein contained, Licensee
shall pay to Licensor the Royalty Fees.
8.2 The Royalty Fees shall be payable by Licensee for each System or
component part thereof falling within the Patents or the System Rights
or covered by Know-How which is still subject to confidentiality under
Section 12, sold by Licensee or its Sublicensees, and shall be paid to
Licensor within thirty (30) days after final payment by the customer.
In the event customer pays by installment payment, Licensee shall pay
to Licensor the same proportional percentage of the Royalty Fee within
thirty (30) days of receipt of customer's payment.
8.3 A Royalty Fee shall be of five percent (5%) computed On the Sale Price
for each System or component part thereof described as shown in Figure
1 and described in Part 5 of the Schedule.
<PAGE>
8.4 Royalty Fee shall be calculated and paid in terms of United States
dollars.
9.0 ACCOUNTS INFORMATION
--------------------
9.1 Licensee shall within thirty (30) days after the sale of a System
render to Licensor a statement showing details of the sale and the
calculation of the sum for Royalty Fees due.
9.2 Licensee shall keep proper books of account showing all matters
connected with the manufacture, sale and disposition of Systems and the
amount due in respect of Royalty Fees and shall allow Licensor by its
designated officer or accountant during business hours to inspect same
at Licensee's place of business for the purpose of verifying the
amounts due Licensor. Such inspection may be made notwithstanding
termination of this Agreement while any outstanding claim remains
unsettled in the view of either party. Licensor shall keep all
information confidential.
10.0 LICENSOR'S OBLIGATIONS
----------------------
10.1 Licensor shall maintain the Patents and renewals thereof in effect
during the term of this Agreement, and all extensions thereof, for the
maximum period(s) allowed by law.
10.2 Licensor shall provide and make available to Licensee on demand the
Know-How during the life of this Agreement.
10.3 It is intended that Licensor shall provide Licensee, according to the
terms hereof, sufficient information concerning the System and Know-How
to enable Licensee to itself design applications of the System to each
project that Licensee obtains.
10.4 Licensor shall have available at Licensor's premises employees fully
qualified and competent to deal with and perform the obligations of
Licensor as to the provision of technical advice and design services
during the term of this Agreement.
<PAGE>
10.5 Licensor shall make available to Licensee, on reasonable demand, all
technical information, techniques, applications and references relating
to the System or any component part thereof. Any improvements
resulting from presently ongoing work or future work performed under
the direction of the Licensor shall become a part of this Agreement and
will be granted to the Licensee at no additional costs. This will
include mechanical or chemical changes. All material will be held
confidential by Licensee pursuant to Section 12, infra.
10.6 Licensor shall provide, at Licensor's premises, engineering and sales
support in the form of engineers, scientists and technicians in
accordance with the following schedule and given reasonable notice (2
weeks) by Licensee:
a. System process engineering, sales training and system detail
design training will be conducted at Licensors headquarters,
Roanoke, Virginia, USA. Training shall take one (1) to two (2)
weeks.
b. Total number of hours provided by Licensor during first year of
agreement for training and engineering assistance: 150. The rate
is calculated based on 70 U.S.D./hr.
c. If Licensee requests more than 150 hours, the rate of additional
assistance will be U.S.$70/hr. If Licensee receives first
purchase order before using up 150 hours, Licensor will refund
part of upfront payment. The amount of refund will be calculated
based on the un-used hours x $70 USD/hr.
d. Licensor will take care of trainee's meals, lodging and
transportation after Licensee's engineers arrive at Roanoke
airport. The international phone calls and private expenses are
not included.
e. If Licensee requests sales assistance from Licensor requiring
travel to Taiwan, Licensor will pay the first two round trip
economic air tickets. Licensee will be responsible for Licensor
employee's meals, lodging and transportation in Taiwan.
f. The maximum number of trainees from Licensee is 4 persons.
<PAGE>
11.0 LICENSEE'S OBLIGATIONS
----------------------
11.1 Licensee shall exercise diligence and exert its best efforts to
promote, develop and extend sales of Systems within the Territory.
11.2 Licensee shall forthwith inform Licensor in writing of any infringement
or threatened infringement of any of the patents, the System Rights, or
the Know-How, or the exclusivity of the exclusive licenses hereby
granted which may at any time come to Licensee's knowledge.
11.3 With the respective differences between Licensor and Licensee having
been considered, Licensee shall make available to Licensor, on
reasonable demand, all technical information, techniques, applications
and references relating to the System or any component part thereof.
Any improvements resulting from presently ongoing work or future work
performed under the direction of the Licensee shall become a part of
this Agreement and will be granted to the Licensor at no additional
costs. This will include mechanical or chemical changes. All material
will be held confidential by both parties pursuant to Section 12,
infra.
12.0 CONFIDENTIALITY
---------------
12.1 Licensee covenants that it shall not divulge to third parties
information received from, or on behalf of, Licensor which relates to
technological or proprietary information concerning the System, System
Rights, Patents, or Know-How of Licensor (hereinafter "Information"),
whether received prior to or after execution of this Agreement.
12.2 Excluded from Licensee's obligations imposed under this Section 12 are
the following:
(a) Information in the public domain at the time of its disclosure to
Licensee by Licensor;
(b) Information which thereafter falls into the public domain through
acts other than unauthorized acts of Licensee, its employees and
agents;
(c) Information already legally possessed as a matter of right by
Licensee at the time of its disclosure to Licensee by Licensor;
and
(d) Information which is thereafter disclosed to Licensee by a third
party having the right to do so.
<PAGE>
13.0 TERMINATION
-----------
13.1 Notwithstanding any other provisions of this Agreement, this License
Agreement may be terminated forthwith by the aggrieved party if:
(a) The other party is in material breach of any provision of this
Agreement; or
(b) The other party becomes insolvent or has a receiver, liquidator
or trustee in bankruptcy appointed, or otherwise enters into
liquidations, or it makes any composition with its creditors, and
such proceedings have not been dissolved within sixty (60) days;
or
(c) The effect of any current or future governmental regulations,
statutes, or treaties under applicable and enforceable national
or international law would be to prevent or impair in any way the
legal protection or financial benefits provided under this
Agreement.
13.2 Demonstration Unit and Special right of Termination
a. Licensor and Licensee agrees to equally contribute resource and
equally assume the potential risks and profits to build the first
commercialized demo unit.
b. In order to quickly complete the first commercialized demo unit,
the demo unit might have to be built first and collect money
after the system is accepted by the potential client.
c. The size of the first demo unit should be close to 10 MW scale
and the budget of the total cost should be under US$400,000.
Licensor and Licensee shall work out details on how to build the
first demo unit and set all the terms and conditions in another
separate agreement.
d. Selling price and terms of the first demo unit will be determined
according to the negotiation with the potential clients.
e. Once the demo unit is accepted by the client and money is
collected, the profits will be shared equally by Licensor and
Licensee.
f. In case the demo system fails and the money cannot be collected,
Licensor and Licensee shall assume their own loss&
g. If the plan of building first demo unit cannot be executed
because of Licensor's withdraw, Licensee has the right to
terminate the License agreement and Licensor shall return the
total up-front payment paid by Licensee to Licensor within 30
days after receiving Licensee's terminating notice if Licensee
chooses to terminate the agreement.
<PAGE>
h. If the plan of building first demo unit cannot be executed not
because of Licensor's faults, Licensee cannot ask Licensor to
return any up-front payment paid by Licensee to Licensor
regardless whether Licensee chooses to continue or terminate the
agreement.
i. Either ETS or E&C has the right to ask the opposite side for
reconsidering whether the proceeding of the Demo-unit project is
necessary or not if an LEC system (8MW or larger) is sold and
proved effective operation in Taiwan before the demonstration
project is initiated.
j. If until the end of the third year after this agreement is
signed, the Demo unit project still cannot be executed because of
faults of neither the Licensor nor the Licensee, then both sides
have the right to ask the opposite side for terminating this
agreement three months before this agreement expired, and the
Licensee cannot ask the Licensor for returning the up-front
payment of this agreement.
k. The sales guarantee includes all the sales conducted by Licensee
regardless the sales destination.
l. The agreement is a five year base, and will be evaluated by both
parties each year from the end of the third year after the
agreement signed.
13.3 Termination pursuant to this Section shall not be exclusive to other
rights in law and equity of either party hereto.
14.0 NON-WAIVER OF ENFORCEMENT
-------------------------
14.1 Any failure of either party to require strict enforcement of any
provision hereof shall not be deemed a waiver of any rights granted
hereunder, and shall not prevent nor impair either party's right to
enforce every covenant and provision of this Agreement at any time.
14.2 The headings and titles of the parts of this Agreement are for
convenience only, and shall not govern interpretation hereof, nor
prevent enforcement of any provision in this Agreement.
15.0 NOTICES
-------
15.1 Any notice, agreement, request or consent hereunder may be serviced by
first class certified mail - return receipt requested; or by tested
telex addressed to the other party at the address given herein or at
such other address as may from time to time hereafter be given in
writing by either party to the other. Any such communications shall be
deemed to have been served upon expiration of seventy-two (72) hours
(in the case of notices sent by post), or forty-eight (48) hours (in
the case of notices sent by telex), or upon actual receipt, whichever
is earlier.
<PAGE>
16.0 ASSIGNMENT
----------
16.1 The licenses herein contained are personal to Licensee.
16.2 Neither Licensor nor Licensee shall assign or purport to assign their
rights or obligations under this agreement, or any part of it, without
the prior written consent of Licensee or Licensor (as the case may be).
16.3 Where the context so admits, the expressions "Licensor" and "Licensee"
shall include their respective successors in title.
17.0 NON-COMPETITION
---------------
During the term of this Agreement, and for the period of three years
following the termination of this Agreement for whatever cause or by
whichever party, the licensee and/or any of its affiliates, shall not
sell, distribute or otherwise deal in Specified Products which are
manufactured or distributed by others and which are substantially
similar in design, structure or function.
Neither shall licensee or any of its affiliates, during the term of
this Agreement, and for the period of five years following the
termination of this Agreement for whatever cause or by whichever party,
manufacture products which are duplicates or copies of ETS's Products
or otherwise manufacture and/or distribute products which are
substantially similar in design, structure or function to any of ETS's
Products.
18.0 GOVERNING LAW
-------------
18.1 This agreement shall be governed by and construed in accordance with
the laws applicable in Singapore.
<PAGE>
IN WITNESS whereof, the duly authorized representatives of the parties have
signed this Agreement the day and year first above written, and the
undersigned represent that they have actual authority to bind their
respective named principals hereto.
SIGNED by the duly authorized)
representative of ETS, Inc. )
) s/John D. McKenna
---------------------------------
John D. McKenna
C.E.O.
---------------------------------
Title
October 22, 1996
---------------------------------
Date
SIGNED by the duly authorized
representative of E & C ENGINEERING
CORPORATION s/Henry Jen Kuo
---------------------------------
President
---------------------------------
Title
November 20, 1996
---------------------------------
Date
<PAGE>
THE SCHEDULE
------------
PART 1: "Territory"
---------
Licensee is granted the exclusive right of manufacturing and sales of
the system for gas volumes above 16,500 Nm3/hr. in Taiwan.
<PAGE>
PART 2: "LICENSE FEE"
-----------
Licensee shall pay Licensor a License Fee of Fifty Thousand Dollars ($50,000
U.S.) The Licensee Fee will be made in the following three installments:
1. $20,000 U.S. upon signing agreement.
2. $20,000 U.S. before sending engineers to Licensor's headquarters for
training.
3. $10,000 U.S. when Licensee receives first system purchase order.
<PAGE>
PART 3: "LICENSOR'S OBLIGATIONS"
----------------------
1. Licensor provides the following after receiving the first license fee
installment payment.
a. LEC design parameters and other necessary engineering information
and equipment specification.
b. Sales information and presentation packages
c. System layout.
d. Pilot plant test reports.
The above material will be sent out from Licensor within 30 days from
commencement date of agreement.
2. Patents
a. Licensor shall maintain the patents and renewals thereof in
effect during the term of this Agreement, and all extensions
thereof, for the maximum period(s) allowed by law.
<PAGE>
PART 4: "GUARANTEES"
----------
1. Licensors:
a. Licensor guarantees 90% SO2 removal based on design and operation
conditions predetermined by Licensor.
b. Licensor reserves the right of guaranteeing more than 90% 502
removal. Licensor will only make such guarantees on a project by
project basis.
c. Licensor will take responsibility for the amount of up to royalty
limit (5%) for the faults caused by Licensor.
2. Licensees:
a. Licensor and Licensee agrees to equally contribute resource and
equally assume the potential risks and profits to build the first
commercialized demo unit.
b. In order to quickly complete the first commercialized demo unit,
the demo unit might have to be built first and collect money
after the system is accepted by the potential client.
c. The size of the first demo unit should be close to 10 MW scale
and the budget of the total cost should be under US$400,000.
Licensor and Licensee shall work out details on how to build the
first demo unit and set all the terms and conditions in another
separate agreement.
d. Selling price and terms of the first demo unit will be determined
according to the negotiation with the potential clients.
e. Once the demo unit is accepted by the client and money is
collected, the profits will be shared equally by licensor and
licensee.
f. In case the demo system fails and the money cannot be collected,
Licensor and Licensee shall assume their own loss.
g. If the plan of building first demo unit cannot be executed
because of Licensor's withdraw, Licensee has the right to
terminate the License agreement and Licensor shall return the
total up-front payment paid by Licensee to Licensor within 30
days after receiving Licensee's terminating notice if Licensee
chooses to terminate the agreement.
<PAGE>
h. If the plan of building first demo unit cannot be executed not
because of Licensor's faults, Licensee cannot ask Licensor to
return any up-front payment paid by Licensee to Licensor
regardless whether Licensee chooses to continue or terminate the
agreement.
i. Either ETS or E&C has the right to ask the opposite side for
reconsidering whether the proceeding of the Demo-unit project is
necessary or not if an LEC system (8MW or larger) is sold and
proved effective operation in Taiwan before the demonstration
project is initiated.
j. If until the third year after this agreement is signed, the Demo
unit project still cannot be executed because of faults of
neither the Licensor nor the Licensee, then both sides have the
right to ask the opposite side for terminating this agreement
three months before this agreement expired, and the Licensee
cannot ask the Licensor for returning the up-front payment of
this agreement.
k. The sales guarantee includes all the sales conducted by Licensee
regardless the sales destination.
l. The agreement is a five year base, and will be evaluated by both
parties each year from the end of the third year after the
agreement signed.
<PAGE>
PART 5: "ROYALTY FEES"
------------
Licensee shall pay Licensor a five percent (5%) Royalty roe of the
system price charged to the Licensee's customer including, but not
limited to, detail and design engineering, materials and fabrication
costs, and installation, but excluding training, shipping, insurance
and taxes. The system is described in Figure 1.
PART 6: "TERM OF AGREEMENT"
-----------------
The agreement is a five year base, and will be evaluated by both
parties each year.
<PAGE>
Figure 1
Plan View
(Figure shows plan view of the LEC deSOx system)
ETS, Inc.
Roanoke, Virginia
Lime Stone Emission Control
FGD System
<PAGE>
Figure 1 (continued)
ETS, Inc.
Roanoke, Virginia
Lime Stone Emission Control
FGD System
(Figure shows plan view of the LEC deSOx system)
List of Equipment
<TABLE>
<CAPTION>
ITEM DESCRIPTION
<S> <C>
1 Unloading Hopper
2 Feeder to Bucket Elevator
3 Pit & Sump Pump
4 Bucket Elevator
5 Storage Silo
6 Feeder to Belt Conveyor
*7 Belt Conveyor
*8 Bucket Elevator
*9 Belt Conveyor with Tripper
*10 Reactor
*11 Outlet Plenum
*12 Inlet Plenum
13 Duct to Fan
14 Fan and Inlet Damper
15 Fan Stack
16 Reactor Support and Foundation
17 Reactor Inlet Damper
18 Inlet Duct
*19 Twin Screw Conveyors (Series)
*20 Collecting Belt Conveyor
*21 Bucket Elevator
*22 Enclosure
*23 Screen
*24 Recycle Belt
*25 Recycle Belt
*26 Waste Stone Belt
27 Waste Bin
*28 Enclosure for Screen
29 Stairs
*30 Overhead Sprays
</TABLE>
* ETS standard scope of supply.
Elevation A-A
Scale
<PAGE>
CHINA STEEL CORPORATION
CABLE ADDRESS: LIN HAI INDUSTRIAL DISTRICT
STEEL MILL KAOHSIUNG P.O. BOX 47-29
TELEX :71108 STLMILL HSIAO KANG, KAOHSIUNG TELEPHONE
TELEFAX :(07)8022511 TAIWAN, REPUBLIC OF CHINA (07) 8021111
ETS INTERNATIONAL, INC. Date: July 8, 1997
1401 Municipal Road, NW Ref: 86-C14-000893
Roanoke, Virginia 24012-1309
U.S.A.
Letter of Intent
----------------
Reference: CSC Job No. 86CTQ-0019 for 3 Sets of Flue Gas Desulfurization
(FGD) System and Auxiliaries.
Dear Sir,
As a result of final price comparison held on July 7, 1997, we hereby confirm
that we will sign a contract with your esteemed company based on the terms
and conditions as specified in the Minutes of Meetings signed by both parties
on July 2, 1997. The final contract price shall be US$2,006,000.-plus
NT$113,042,500.-
We appreciate your effort in preparing a proposal and clarifying prices and
specifications, and hope to have your continued cooperation.
Sincerely yours,
CHINA STEEL CORPORATION
s/Jo. Chi. Tsou
-----------------------------------
J.C. Tsou
Vice President - Commercial
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 95
<SECURITIES> 0
<RECEIVABLES> 5,008
<ALLOWANCES> 119
<INVENTORY> 772
<CURRENT-ASSETS> 7,814
<PP&E> 9,586
<DEPRECIATION> (6,505)
<TOTAL-ASSETS> 12,305
<CURRENT-LIABILITIES> 6,956
<BONDS> 1,355
0
0
<COMMON> 5,002
<OTHER-SE> (1,839)
<TOTAL-LIABILITY-AND-EQUITY> 12,305
<SALES> 0
<TOTAL-REVENUES> 24,125
<CGS> 0
<TOTAL-COSTS> 23,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 573
<INCOME-PRETAX> 148
<INCOME-TAX> 0
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
