THIS DOCUMENT IS A COPY OF THE FORM 10-KSB FILED ON APRIL 16, 1997
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-17776
LEAK-X ENVIRONMENTAL CORPORATION
(Name of small business issuer in its charter)
Delaware 23-2823596
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
790 E. Market Street, Suite 270, West Chester, PA 19382
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 610-344-3380
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days:
[ X ] Yes No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
The Issuers's revenues for the fiscal year ended December 31, 1996 were
$7,975,249.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of April 11, 1997 was approximately
$828,282. On such date, the closing prices of the Common Stock and Common
Stock Purchase Warrants, as quoted on the The NASDAQ Stock Market and the
NASD OTC Bulletin Board were $1.50 and $0.03125, respectively.
The Registrant had 1,219,645 shares of Common Stock outstanding as of
April 11, 1997.
Transitional Small Business Disclosure Format: Yes [ X ] No
LEAK-X
ENVIRONMENTAL CORPORATION
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
CROSS REFERENCE DIRECTORY
<TABLE>
<CAPTION>
ITEM
NUMBER (1) ITEM TITLE (1) REFERENCE (2)
<S> <C> <C>
1 Description of Business Form 10-KSB, Page 4
2 Description of Property Form 10-KSB, Page 8
3 Legal Proceedings 1996 Annual Report to Stockholders
Independent Auditor's Report
Note 11- Commitments and
Contingencies, Page 21
4 Submission of Matters to a
Vote of Security Holders Form 10-KSB, Page 9
5 Market for Common Equity 1996 Annual Report to
And Related Stockholder Stockholders
Matters Independent Auditor's Report
Note 7 - Stockholders'Equity,
Page 16
6 Management's Discussion and 1996 Annual Report to Stockholders
Analysis or Plan of Operation Financial Review, Page 3
7 Financial Statements 1996 Annual Report to Stockholders
Independent Auditor's Report,
Pages 6 through 24
8 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure Form 10-KSB, Page 9
9 Directors, Executive Officers,
Promoters and Control Persons:
Compliance with Section 16(a)
of the Exchange Act Form 10-KSB, Page 10
10 Executive Compensation: Form 10-KSB, Page 11 and
1996 Annual Report to Stockholders
Independent Auditor's Report
Note 11-Commitments and
Contingencies, Page 22
11 Security Ownership of
Certain Beneficial Owners
and Management Form 10-KSB, Page 13
12 Certain Relationships and
Related Transactions Form 10-KSB, Page 14
13 Exhibits and Reports
on Form 8-K Form 10K-SB, Page 16
</TABLE>
(1) Item Number and Title in Form 10-KSB for the year ended December 31, 1996
(2) Located in Form 10-KSB for the year ended December 31, 1996 or in the 1996
Annual Report to Stockholders attached as Exhibit 13.1 hereto.
PART I
Item 1. Description of Business
General
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in two related areas of business within the environmental industry. The
Company's environmental consulting business is conducted through Lexicon
Environmental Associates, Inc. ("Lexicon"). Lexicon provides environmental
engineering, hydrogeological and remedial consulting services, as well as
construction management services for storage tank related construction. The
Company's groundwater remediation business is conducted through Groundwater
Recovery Systems, Inc. ("GRS"). GRS provides a variety of groundwater
pollution control services including the design and manufacture of flexible,
modular and reusable site specific remediation systems. GRS also offers
installation and operation and maintenance services for its systems worldwide.
Prior to March 1995, Gaservice Maintenance Corporation ("Gaservice") operated
as a general contractor primarily involved in the installation and servicing of
petroleum storage and handling equipment. As of March 31, 1995, this area of
business was discontinued. Unless otherwise indicated, the discussions of the
business and operations of the Company described herein refer to Lexicon and
GRS, but do not reflect the business and operations of Gaservice.
Leak-X was incorporated in New York on October 3, 1988. On August 11,
1995, the Company changed its state of incorporation to Delaware through a
reverse merger with a wholly-owned subsidiary. Lexicon was formed in October
1989. In September 1995, the Company acquired GRS which resulted in GRS
becoming a wholly-owned subsidiary of the Company.
Operations
The Company offers a full spectrum of environmental engineering,
hydrogeological (ground water) and remedial services which include:
environmental assessments for property transfers; design, installation and
operation of groundwater remediation systems; and Underground Storage Tank
("UST") testing, assessment, abandonment, remediation and installation. The
Company's environmental consulting services are provided primarily in the
northeastern and mid-atlantic United States, however, many projects are
conducted nationally.
The Company provides professional services with a staff of chemical and
civil engineers, hydrogeologists, geologists, and environmental scientists.
In addition to engineering and scientific evaluations, the Company's
environmental consulting business also provides construction management
services to oversee general contractors performing storage tank closures,
upgrades, and installations, as well as soil loading and disposal. To
conduct geological and hydrogeological assessments, the Company provides field
management of drilling contractors. Analytical services are provided through
various contract laboratories.
In 1993, the Company signed a contract with NYNEX to provide ongoing
engineering, construction management, analytical and soil disposal services
for NYNEX's storage tank management program at NYNEX's New York City
facilities. In 1995, the NYNEX program was expanded to include NYNEX's Long
Island, NY facilities. The majority of the construction management portion
of the contract is provided by subcontractors under contract to the Company.
The Company's groundwater remediation business provides a variety of
remediation systems and equipment utilized for abating various types of
subsurface contaminants. The Company's systems are currently deployed at
airports, utilities, chemical, pharmaceutical and oil company facilities
throughout the United States. The Company has also supplied remediation
systems and assisted in deployment of that equipment in Canada, England,
Scotland, Italy, Korea and the Republic of China. The Company's groundwater
remediation business employs a staff of engineers, technicians and production
personnel in its manufacturing and service organization.
Source of Supply
There is no one supplier whose delivery of raw materials or other
products is material to the operations of the Company as a whole. The
Company has not experienced any difficulty in obtaining adequate supplies.
Marketing and Sales
The Company's marketing focuses on the needs of potential clients to
comply with Federal, state and local environmental regulations governing
underground storage tanks and protection of groundwater. In addition, there
are many states and lending institutions that require environmental
assessments to be performed when real property is transferred. These
assessments typically evaluate the financial impact of the environmental
liabilities associated with storage tanks, asbestos, PCBs, and hazardous
materials and wastes.
The Company's environmental consulting business has primarily targeted
industrial and commercial entities, including chemical, manufacturing and
petroleum companies, commercial real estate developers, lenders and law firms
for environmental consulting services. In addition, the Company performs
property transfer/ financing assessments and implements UST and aboveground
tank management programs. Since its inception, the Company's groundwater
remediation business has primarily focused on the petroleum industry.
However, the Company has recently expanded its customer base to include
industrial and governmental markets.
The Company's environmental consulting services are marketed by
disseminating descriptive literature to potential customers, advertising,
conducting seminars and on the basis of referrals and reputation. A majority
of the Company's consulting business is repeat business from existing
clients. The president of Lexicon is a recognized national expert on storage
tank management, has published two books and numerous articles on the
subject, and conducts seminars both nationally and internationally on various
environmental issues including storage tanks, hazardous waste management,
real estate assessments, and state laws and regulations.
The Company's groundwater remediation business markets its products and
services through the direct efforts of its sales force and its management.
The Company also sells its products through two independent representatives.
In addition, the Company uses direct advertising and promotional material to
market and sell the Company's products and related services.
Major Customers
During the years ended December 31, 1996 and 1995, one customer
accounted for in excess of 10% of the Company's net revenues. During 1996
and 1995, NYNEX accounted for approximately 69% and 63% of net revenues,
respectively. Dependence on a small number of large (in relation to total
sales) customers may cause the Company's revenues to fluctuate substantially
from year to year and the loss of any such customers may have an adverse effect
on revenues and income.
Research and Development
The Company's research and development efforts focus on the development
of advanced technology for use in the production of its remediation systems,
as well as new technology areas. During the year ended December 31, 1996 and
1995, the Company had expenditures of $57,000 and $23,112, respectively, for
research and development.
Patents and Trademarks
The Company has two patents which are registered in its name. While
patent protection is deemed important by the Company, it is not considered
essential to the success of its business.
Competition
Competition in the environmental consulting business is intense and is
generated from a combination of both large and small environmental consulting
firms which provide tank management services. In addition, the Company's
environmental consulting business encounters competition from UST remedial
service and construction firms which also provide equipment and tank
testing. Lexicon has developed a national reputation in the area of storage
tank management and niche markets in this area. In general, the Company's
environmental consulting competitors are larger and have greater resources
than the Company.
Competition in the construction management business is widespead and is
generated from large general contractors, as well as some specialized "tank
and pump" contractors. However, the Company provides its construction
management services in the specialized area of storage tanks and does not
confront significant competition from large general contractors which do not
possess the expertise in this area. Large contractors do, however, possess
greater resources than the Company.
The Company markets its groundwater remediation equipment and related
services nationally with the primary competition coming from six other
companies that offer a totally integrated product line. The majority of the
competition in the groundwater remediation field comes from comparably sized
companies. The Company competes on the basis of its high quality and
competitively priced products. The Company believes that its timely response
to customers' requests and numerous value-added features distinguish it from
other companies. Many of the end users, however, make decisions purely on
price and not quality or performance and consequently competition in this
business remains intense.
Government Regulation
The demand for the various products and services offered by the Company
is stimulated by Federal, state and local environmental and engineering laws
and regulations, including the regulations promulgated in December 1988 for
USTs by the United States Environmental Protection Agency. These regulations
required all UST owners to upgrade their existing tanks by the end of 1993
and to replace them with new state-of-the-art technology by the end of 1998.
Many states currently have reimbursement programs in place to assist tank
owners in recouping monies spent for UST remediation at their sites. These
programs are expected to continue through the term of the Federal program in
1998 and beyond.
As a result of the Federal and many state regulations, the Company must
be certified by the respective state agencies in order to perform services
related to storage tank abandonment, installation and remediation. These
certifications typically must be held both by the Company, as well as the
individuals performing the actual services. In addition, several of the
equipment manufacturers associated with storage tanks and related equipment
require individuals to be certified. The Company and their respective key
employees have obtained the necessary certifications from New Jersey,
Pennsylvania and Massachusetts (three of the four principal states where
services are performed; New York does not yet have a certification program)
and from the principal equipment manufacturers.
Insurance
The Company maintains a general liability insurance policy including
premises/operations, products/completed operations, pollution liability and
professional liability. In addition, property, automobile and employer's
liability policies are maintained on the Company's leased properties and
their contents and the Company vehicles.
In the ordinary course of business, the Company may be subject to
substantial claims and liabilities from its customers. The Company may not
be insured against losses or liabilities to third parties because the insurance
it may have at the time of an alleged or actual loss is inadequate in
amount. Accordingly, the Company's assets may not be protected against
potential claims by users of its products and services. The Company's
insurance coverage is consistent with amounts customarily maintained by
businesses in its industry. Currently, there are claims that are in excess
of the Company's insurance. See "Legal Proceedings."
Backlog, Seasonality
As of December 31, 1996, the Company had a backlog of orders of
approximately $6,800,000 which is higher than the level of $5,000,000 at
December 31, 1995. The major factor in the increase of the backlog from 1995
to 1996 is the continuation and expansion of the NYNEX work which accounts
for approximately $5,600,000 of the outstanding backlog at December 31, 1996.
A total of $5,000,000 of these services will be rendered by subcontractors
under contract to Lexicon.
Management believes that substantially all of the current backlog will
be completed during 1997, although no assurance of this can be given. Much of
the Company's backlog is subject to termination at will and rescheduling
without significant penalty. The Company's operations are not generally
subject to significant seasonal variations. However, the first calendar
quarter of each year tends to have less activity as a result of
weather-related reduced accessibility of USTs.
Employees
As of April 11, 1997, the Company employed 39 persons full-time and two
part-time: seven in executive management, 16 in environmental consulting, one
in sales, four in production, four in field/engineering, and nine in
administration. The Company believes that its relationship with its employees
is good.
Domestic and Foreign Sales
All of the Company's environmental consulting operations are conducted
within the United States. The majority of the Company's groundwater
remediation revenues are derived from sales throughout the United States.
However, historically, the Company has furnished remediation equipment and
services at various locations outside the Continental United States. Systems
have been installed in both Europe and East Asia. The Company had $10,000 of
export sales for the year ended December 31, 1996.
Item 2. DESCRIPTION OF PROPERTY
The Company utilizes the following principal facilities as of the date
hereof:
<TABLE>
<CAPTION>
Square Lease Current
Location Footage Expiration Purpose Annual Rent
<S> <C> <C> <C> <C>
West Chester, PA 4,680 May 31, 1998 Office/ $72,324
Storage
Long Beach, NY 1,000 June 30, 1997 Housing/ $24,000
Office
Portsmouth, NH 1,200 Aug. 31, 1997 Office $12,600
Franklin Square, NY 1,350 Dec. 31, 2001 Office $19,912
Exton, PA 12,000 June 30, 1998 Manufacturing/ $62,100
Office
</TABLE>
The Company believes that its present facilities are adequate for its
operations.
Item 3. LEGAL PROCEEDINGS
The information required by Item 3 is incorporated by reference from the
Company's 1996 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 30, 1996, the Board of Directors of the Company approved an
amendment to the Company's Certificate of Incorporation (the "Charter
Amendment") to effect a one-for-thirteen reverse split ("Reverse Split") of
the issued and outstanding shares of the Company's common stock, par value
$.001 per share ("Existing Common"). On December 30, 1996, 6 holders of
667,457 shares of Common Stock, which represented a majority of the
outstanding shares of Existing Common, consented to the Reverse Split and the
Charter Amendment, which became effective on January 28, 1997 (the "Effective
Date"). Pursuant to the Reverse Split, each share of Existing Common issued
and outstanding immediately prior to that Effective Date was reclassified as,
and exchanged for, one-thirteenth of one share of newly issued common stock,
par value $.001 ("New Common").
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated by reference from the
Company's 1996 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS ORPLAN OF OPERATION
The information required by Item 6 is incorporated by reference from the
Company's 1996 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated by reference from the
Company's 1996 Annual Report to Stockholders attached as Exhibit 13.1
hereto. All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore, have been
omitted.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported in the Company's Current Report on Form 8-K dated January 2,
1996, the Company has engaged Mazars and Company, LLP to audit the Company's
Fiscal 1995 financial statements included herein. The decision to change
accountants was approved by the Company's Board of Directors. At no time
were there any disagreements with the prior accountants, Feldman Radin & Co.,
P.C. on any matter of accounting principles or practices, financial statement
disclosures or auditing scope or procedures.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Directors and executive officers of the Company are:
NAME AGE POSITION
John S. Gelles 61 Chairman of the Board of Directors
Joyce A. Rizzo 48 Chief Executive Officer and Director of the
Company and President of
Lexicon Environmental Associates, Inc.
William H. Gelles, Jr. 55 President, Treasurer and Director
George A. Nolan 50 Director of the Company and President of
Groundwater Recovery Systems, Inc.
James G. Warburton 39 Director of the Company and Vice President
of Groundwater Recovery Systems, Inc.
Robert D. Goldman 40 Secretary and Director of the Company and
Vice President of Lexicon Environmental
Associates, Inc.
Eileen E. Bartoli 28 Chief Financial Officer
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors subject to any contracts of
employment. See "Executive Compensation." John S. Gelles and William H.
Gelles, Jr. are brothers.
Biographical Information
John S. Gelles co-founded and has been Chairman of the Board of
Directors of the Company since its inception. From inception until May 1992,
he was also Chief Executive Officer and until December 1995, the Secretary.
Mr. Gelles had been President of Gaservice for 28 years. Since the
discontinuation of Gaservice, Mr. Gelles has been serving in a sales and
marketing capacity for the Company.
Joyce A. Rizzo has been a Director of the Company since September 1989,
President and an employee of Lexicon since October 1989, and Chief Executive
Officer of the Company since May 1992. Prior thereto, Ms. Rizzo held executive
positions with environmental engineering companies for six years after having
spent twelve years as a chemical engineer and environmental manager in the
petroleum refining industry with Sun Company.
William H. Gelles, Jr. co-founded and has been President, Treasurer and
a Director of the Company since its inception. Mr. Gelles had been
Secretary-Treasurer of Gaservice for 28 years. Since the discontinuation of
Gaservice, Mr. Gelles has been serving in a sales and marketing capacity for
the Company.
George A. Nolan has been a Director of the Company since September 1995.
Mr. Nolan is co-founder and has been President of GRS since its inception in
1986. Mr. Nolan directs the administration of GRS, as well as its sales and
marketing efforts.
James G. Warburton has been a Director of the Company since September 1995.
Mr. Warburton is co-founder and has been Vice President of GRS since its
inception in 1986. Mr. Warburton has 20 years of experience in the design
and manufacture of remediation equipment and he is one of the inventors of
the Company's registered patents.
Robert D. Goldman has been Secretary of the Company since December 1995
and a Director since February 1997. Mr. Goldman has been Vice President of
Lexicon since November 1989. As a certified professional geologist, Mr.
Goldman has worked performing environmental and geologic consulting for the
past 18 years.
Eileen E. Bartoli has been Chief Financial Officer of the Company since
January 1997. Previously, Ms. Bartoli was Controller and Chief Accounting
Officer of the Company since February 1995. Prior thereto, from April 1994
to January 1995, Ms. Bartoli was Corporate Controller and Vice President of
Accounting for Global Spill Management, Inc., an environmental services company
specializing in spill-response and remediation. From October 1990 to
April 1994, Ms. Bartoli held positions at Coopers and Lybrand and Harper
Collins Publishers, Inc.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Officers, Directors and greater than ten-percent stockholders
are required by regulation to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review of the copies of
such forms received by it, or written representations from certain reporting
persons that no Form 5's were required for those persons, the Company
believes that, during the period from January 1, 1996 through December 31, 1996,
all filing requirements applicable to its Officers, Directors, and greater than
ten-percent beneficial owners were complied with.
Item 10. EXECUTIVE COMPENSATION
The following tables set forth all compensation awarded to, earned by,
or paid for all services rendered to the Company, for the fiscal years ended
December 31, 1994, 1995, and 1996, by the Chief Executive Officer and each
other executive officer whose total compensation exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Name and Principal Options/SARs
Position Year Salary Bonus ($) (#)
<S> <C> <C> <C> <C>
Joyce A. Rizzo, 1996 $150,000 -0- -0-
Chief Executive 1995 $136,000 -0- 31,923(1)
Officer 1994 $129,435 -0- 24,076(1)
Robert D. Goldman 1996 $107,000 $1,150 -0-
Secretary (2) 1995 $102,000 $1,000 11,615(3)
</TABLE>
(1) Represents 31,923 options exercisable at a range from $35.75 to $18.6875
which were originally granted in prior years (including the 24,076 listed for
1994), but which were subsequently canceled and regranted in 1995. Such
options were canceled by the Board of Directors because the Board believed
that the options as previously priced did not provide an adequate incentive
for Ms. Rizzo.
(2) Mr. Goldman became Secretary in December 1995.
(3) Represents 11,615 options exercisable at a range from $35.75 to $18.6875
which were originally granted in prior years, but were subsequently canceled
and regranted in 1995. Such options were canceled by the Board of Directors
because the Board believed that the options as previously priced did not
provide an adequate incentive for Mr. Goldman.
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options
Acquired FY-End (#) at FY-End ($)
Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable (1)
<S> <C> <C> <C> <C>
Joyce A. Rizzo -0- $ 0.00 21,576/10,346 $0.00/$0.00
Robert D. Goldman -0- $ 0.00 8,057/3,557 $0.00/$0.00
</TABLE>
(1) The closing price for the Company's Common Stock on December 31, 1996 was
$2.03 per share (post-reverse split price)
The Company has no long-term incentive plan awards.
Directors currently receive no cash compensation for serving on the
Board of Directors other than reimbursement of reasonable expenses incurred in
attending meetings.
Employment Agreements
The information required by Item 10 Employment Agreements is
incorporated by reference from the Company's 1996 Annual Report to Stockholders
attached as Exhibit 13.1 hereto.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of April 11, 1997, certain information
with respect to: i) those persons who owned, to the Company's knowledge,
beneficially (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) more than 5% of the Company's Common Stock; ii) each
Director of the Company and each Executive Officer named in the Summary
Compensation Table; and (iii) all Directors and Executive Officers as a
group:
<TABLE>
<CAPTION>
Percentage of
Name and Number of shares of Outstanding
Address of Common Stock Common Stock
Beneficial Owner Owned (1) Owned (2)
<S> <C> <C>
John S. Gelles (3) 226,083 (4) 18.3%
William H. Gelles, Jr. (5) 227,618 (6) 18.4%
Joyce A. Rizzo 22,947 (7) 1.8%
790 E. Market Street, Suite 270
West Chester, PA 19382
George A. Nolan 115,384 9.0%
299B National Road
Exton, PA 19341
James G. Warburton 115,384 9.0%
299B National Road
Exton, PA 19341
Robert D. Goldman 24,364 (8) 2.0%
790 E. Market Street, Suite 270
West Chester, PA 19382
All Executive Officers and 731,924 (9) 57.0%
Directors as a Group
(consisting of seven persons)
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common Stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of options. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants held by such
person (but not those held by any other person) and which are exercisable
within 60 days from the date hereof have been exercised.
(2) Based on 1,219,645 shares of common stock outstanding plus 60,545
exercisable options and 3,922 exercisable warrants outstanding.
(3) The address of this person is 75 Birchall Dr., Scarsdale, NY 10583.
(4) Includes 76 shares and 1,000 warrants to purchase 76 shares held of record
by Mr. Gelles' wife but excludes 153 shares held of record by Mr. Gelles's
adult children as to which Mr. Gelles disclaims beneficial ownership.
Includes 15,384 incentive stock options granted to Mr. Gelles on July 1, 1996
pursuant to the Company's 1995 Stock Option Plan at an exercise price of
$3.445.
(5) The address of this person is 15 Stornoway, Chappaqua, NY 10514.
(6) Excludes 153 shares owned of record by Mr. Gelles's adult children as to
which Mr. Gelles disclaims beneficial ownership. Includes 15,384 incentive
stock options granted to Mr. Gelles on July 1, 1996 pursuant to the Company's
1995 Stock Option Plan at an exercise price of $3.445.
(7) Includes 21,576 incentive stock options granted to Ms. Rizzo pursuant to
the Company's 1988 and 1992 Stock Option Plans at an exercise price of
$3.90. Excludes 20,346 incentive stock options which are not currently
exercisable.
(8) Includes 50,000 warrants to purchase 3,846 shares and 8,057 incentive
stock options granted to Mr. Goldman pursuant to the Company's 1992 Stock
Option Plans at an exercise price of $3.90. Excludes 3,557 incentive stock
options which are not currently exercisable.
(9) Includes an aggregate of 64,323 incentive stock options and warrants
described in Notes 4, 6, 7 and 8 above, and 144 incentive stock options owned
by Eileen E. Bartoli, CFO.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1995, the Company entered into an agreement with Messrs. John
S. Gelles and William H. Gelles, Jr. which provided for each to receive the
following through December 31, 1995 for their services to the Company: base
salary of $6,500 per month; reimbursement of reasonable business-related
expenses including operation of company automobiles; the option to purchase a
Company vehicle at fair market value at December 31, 1995; and medical
insurance equivalent to preexisting coverage.
Until December 31, 1995, the Company was a party to a lease with JWB
Associates, a partnership controlled by John S. Gelles and William H. Gelles,
Jr. for three separate premises located in the Bronx, New York. With the
discontinuation of Gaservice's operations as of March 31, 1995, the Company
required the use of the properties until December 31, 1995. The premises
were used to house the inventory and property, plant and equipment of Gaservice
until the liquidation process was completed. The rent was $5,833 per month,
net of all expenses, through December 31, 1995 under an agreement with JWB
Associates entered into in March 1995.
In connection with the acquisition of GRS, the Company signed two one
year promissory notes for $125,000 each bearing an interest rate of ten
percent (10%) per annum with Messrs. George A. Nolan and James G. Warburton.
The notes have subsequently been adjusted in accordance with their terms to a
total of $161,770. On September 29,1996, the Company converted the Old Notes
Payable to Messrs. Nolan and Warburton (the "Old Notes") in the aggregate of
$161,770 into long-term debt (the "New Notes"). The only changes in the
terms of the New Notes as compared to the terms of the Old Notes are:
extension of the maturity to March 31, 1998; addition of the requirement of
quarterly interest payments commencing December 31, 1996 (at the same
interest rate of ten percent (10%) per annum provided in the Old Notes); and
subordination of the New Notes, as to principal, to the Revolving Credit
Agreement with the Company's bank. On April 9, 1997, the Company received a
waiver from its bank for failing to meet the covenants of its Revolving Credit
Agreement and Term Loan Agreement as of December 31, 1996. Included in the
waiver are revised subordination agreements for the New Notes which allow the
payment of principal on the New Notes to Messrs. Nolan and Warburton according
to an agreed upon schedule. The subordination agreements do not allow for the
total subordinated debt to be reduced to less than an aggregate of $100,000.
On July 1, 1996, the Company entered into an agreement with John S.
Gelles and William H. Gelles, Jr., Officers and Directors of the Company, to
convert their 1,688,888 shares of Preferred Stock into 115,479 shares of
Common Stock in exchange for certain registration rights. In accordance with
the agreement, John and William Gelles irrevocably waived any and all rights
to dividends to which they may have been entitled in accordance with the
terms of the Preferred Stock.
See "Executive Compensation" for a description of certain options
granted to Joyce A. Rizzo, John S. Gelles, William H. Gelles, Jr. and Robert D.
Goldman, executive officers of the Company. In addition, see "Executive
Compensation" for employment contracts for Joyce A. Rizzo, Chief Executive
Officer, John S. Gelles, Chairman of the Board, William H. Gelles, Jr.,
President, George A. Nolan, a Director and James G. Warburton, a Director.
During the fiscal years ended December 31, 1996 and December 31, 1995
(Fiscal 1996 and Fiscal 1995, respectively), GRS had revenues of
approximately $60,092 and $1,883, respectively, from one entity that is
primarily owned by the President of GRS. In Fiscal 1996, GRS also had
purchases of $9,583 from the same entity. As of December 31, 1996 and 1995,
GRS had accounts receivable from this related entity of $50,612 and 11,105,
respectively. This entity competes in some of the same markets and geographic
areas as the Company's environmental consulting services business. The Company
has implemented certain procedures with regard to this entity to ensure that
there is no conflict of interest with the Company's businesses. The Chief
Executive Officer is now responsible for reviewing and negotiating terms with
this entity, as well as managing the credit limits and outstanding receivables
on an on-going basis.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Registrant (6)
3.2 By-Laws of the Registrant (6)
3.3 Certificate of Merger (6)
3.4 Agreement and Plan of Merger (6)
3.5 Amendment of Certificate of Incorporation filed January 28, 1997
4.1 Form of Warrant, as amended. (1)
4.2 Form of Warrant Agreement, as amended. (1)
10.1 1988 Stock Option Plan. (1)
10.2 1992 Stock Option Plan (2)
10.3 Lease between Lexicon Environmental Associates, Inc. (Lexicon) and
High V Limited Partnership dated March 31, 1993. (3)
10.4 Construction Manager's Agreement between New York Telephone
Company and Lexicon Environmental Associates, Inc.
dated December 31, 1993. (3)
10.5 Employment Agreement between Registrant and Joyce Rizzo
dated March 31, 1995. (4)
10.6 Letter Agreement between Registrant and Messrs. John S. Gelles
and William H. Gelles, Jr. dated March 31, 1995. (4)
10.7 Letter Agreement between Registrant and JWB Associates dated
March 31, 1995. (4)
10.8 Agreement and Plan of Merger dated September 29, 1995 among
Leak-X Environmental Corporation, Groundwater Recovery
Systems, Inc., GRS Acquisition Corp., and George A. Nolan
and James G. Warburton (5)
10.9 Employment Agreement among Leak-X Environmental Corporation,
GRS Acquisition Corp. and George A. Nolan, dated
September 29, 1995. (5)
10.10 Employment Agreement among Leak-X Environmental Corporation, GRS
Acquisition Corp. and James G. Warburton, dated
September 29, 1995. (5)
10.11 10% Non-Negotiable Promissory Note in the principal amount of
$125,000 made by GRS Acquisition Corp. payable to George A. Nolan,
dated September 29, 1995. (5)
10.12 10% Non-Negotiable Promissory Note in the principal amount of
$125,000 made by GRS Acquisition Corp. payable to
James G. Warburton, dated September 29, 1995. (5)
10.13 Lease between Lexicon Environmental Associates, Inc. (Lexicon) and
30 Maplewood Avenue Trust dated August 8, 1995. (6)
10.14 Lease between Lexicon Environmental Associates, Inc. (Lexicon) and
High V Limited Partnership dated December 1, 1995. (6)
10.15 Lease between Groundwater Recovery Systems, Inc. (GRS) and Roger
E. Meinhart and Werner Volkman dated July 1, 1995. (6)
10.16 1995 Stock Option Plan (6)
10.17 1995 Employee Stock Purchase Plan (6)
10.18 1996 Employee Stock Option Plan (7)
10.19 Long Term Installment Note between First Fidelity Bank, N.A. and
Groundwater Recovery Systems, Inc. dated October 1, 1995. (6)
10.20 General Security Agreement between First Fidelity Bank, N.A. and
Groundwater Recovery Systems, Inc. dated October 1, 1995. (6)
10.21 Employment Agreement between Leak-X Environmental Corporation and
John S. Gelles dated June 30, 1996.
10.22 Employment Agreement between Leak-X Environmental Corporation and
William H. Gelles, Jr. dated June 30, 1996.
10.23 Preferred Stock Conversion Agreement by and among Leak-X
Environmental Corporation, John S. Gelles and William H.
Gelles, Jr., dated July 1, 1996.
10.24 Stock Option Agreement between Leak-X Environmental Corporation
and William H. Gelles, Jr. dated June 30, 1996.
10.25 Stock Option Agreement between Leak-X Environmental Corporation
and John S. Gelles dated June 30, 1996.
10.26 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and George A. Nolan dated
November 13, 1996.
10.27 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and James G. Warburton dated
November 13, 1996.
10.28 Revolving Credit Note between First Union National Bank
dated June 27, 1996.
10.29 Revolving Credit Agreement between First Union National Bank
dated June 27, 1996.
10.30 Waiver of Covenants - Revolving Credit Agreement and Term Loan
Agreement between First Union National Bank and Leak-X
Environmental Corporation dated April 9, 1997.
13.1 1996 Annual Report to Stockholders
21.1 List of Subsidiaries of the Company. (6)
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
(1)Incorporated by reference from the initial filing of the Company's
Registration Statement on Form S-18 (File No. 33-25369-NY) declared effective
on February 14, 1989.
(2)Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 1992.
(3)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1993.
(4)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1994.
(5)Incorporated by reference from the Company's Form 8-K and Form
8-K/A-No. 1 dated September 29, 1995 filed on October 13, 1995 and October 27,
1995, respectively.
(6)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1995.
(7)Incorporated by reference from the Company's Proxy Statement for
Notice of Annual Meeting of Stockholders To Be Held on September 20, 1996.
(b)Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEAK-X ENVIRONMENTAL CORPORATION
By /s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
April 14, 1997
Date
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on this 14th day of April, 1997.
/s/ John S. Gelles
John S. Gelles
Chairman of the Board of Directors
/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer and Director
/s/ William H. Gelles, Jr.
William H. Gelles, Jr.
President, Treasurer and Director
/s/ George A. Nolan
George A. Nolan
Director
/s/ James G. Warburton
James G. Warburton
Director
/s/ Robert D. Goldman
Robert D. Goldman
Secretary and Director
/s/ Eileen E. Bartoli
Eileen E. Bartoli
Controller and Chief Financial Officer
EXHIBITS FILED
WITH LEAK-X ENVIRONMENTAL CORPORATION
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
EXHIBIT INDEX
No. Description
3.5 Amendment to Certificate of Incorporation filed
January 28, 1997
10.21 Employment Agreement between Leak-X
Environmental Corporation
and John S. Gelles dated June 30, 1996
10.22 Employment Agreement between Leak-X
Environmental Corporation
and William H. Gelles, Jr. dated June 30, 1996
10.23 Preferred Stock Conversion Agreement by and
among Leak-X Environmental Corporation,
John S. Gelles and William H. Gelles, Jr.,
dated July 1, 1996
10.24 Stock Option Agreement between Leak-X
Environmental Corporation and
William H. Gelles, Jr. dated June 30, 1996
10.25 Stock Option Agreement between Leak-X
Environmental Corporation and
John S. Gelles dated June 30, 1996
10.26 Amendment No. 1 to 10% Non-Negotiable
Promissory Note between Leak-X
Environmental Corporation and George A. Nolan,
dated November 13, 1996
10.27 Amendment No. 1 to 10% Non-Negotiable
Promissory Note between Leak-X
Environmental Corporation and
James G. Warburton,dated November 13, 1996
10.28 Revolving Credit Note between
First Union National Bank, dated June 27, 1996
10.29 Revolving Credit Agreement between
First Union National Bank, dated June 27, 1996
10.30 Waiver of Covenants - Revolving Credit Agreement
and Term Loan Agreement between
First Union National Bank and Leak-X
Environmental Corporation, dated April 9, 1997
13.1 1996 Annual Report to Stockholders
23.1 Consent of Independent Certified
Public Accountants
27.1 Financial Data Schedule
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LEAK-X ENVIRONMENTAL CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Leak-X Environmental Corporation.
2. The Certificate of Incorporation of the Corporation is hereby
amended by the addition of the following paragraph (a)(3) immediately following
paragraph (a) (2) of Article FIFTH:
"(3) On or about January 31, 1997 (the "Effective Date"), all
outstanding shares of Common Stock of the Corporation shall be automatically
combined at the rate of one-for-thirteen (the "Reverse Split") without the
necessity of any further action on the part of the holders thereof or the
Corporation, provided, however, that the Corporation shall, through its
transfer agent, exchange certificates representing Common Stock outstanding
immediately prior to the Reverse Split (the "Existing Common") into new
certificates (New Certificates") representing the appropriate number of
shares of Common Stock resulting from the combination ("New Common"). No
fractional shares, but only whole shares of New Common shall be issued to any
holder of less than thirteen (13) shares or any number of shares which, when
divided by thirteen (13), does not result in a whole number. In lieu of
fractional shares, the Corporation has arranged for its transfer agent
(the "Exchange Agent") to remit payment therefor on the following terms and
conditions and as set forth in the Corporation's Information Statement dated
January 10, 1997 with respect to the Reverse Split:
"The price payable by the Corporation for fractional shares of Existing
Common, certificates for which are surrendered to the Exchange Agent in
connection with the Reverse Split, shall be equal to the product of (a) the
number of such shares which cannot be exchanged for a whole number of shares
of New Common and (b) the average of either (i) the high bid and low asked
prices of one share of Existing Common, as reported on the NASD OTC Bulletin
Board, or (ii) the closing price of one share of Existing Common, as reported
on the Nasdaq SmallCap Market, whichever alternative is applicable, for the
ten business days immediately preceding the Effective Date for which
transactions in the Existing Common are reported. The par value and the
number of authorized shares of Common Stock shall remain as otherwise
provided in Article FIFTH of this Certificate of Incorporation and shall not be
modified in any way as the result of the Reverse Split. From and after the
Effective Date, certificates representing shares of Existing Common shall
represent only the right of the holders thereof to receive New Common and
payment as provided herein for any fractional shares of Existing Common.
"From and after the Effective Date, the term "New Common" as used in
this subparagraph (a) (3) of Article FIFTH shall mean Common Stock as provided
in this Certificate of Incorporation."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Signed on January 29, 1997.
/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 1st day of July, 1996, by and between Leak-X
Environmental Corporation, a Delaware Corporation (the "Company"), with its
principal place of business at 790 East Market Street, Suite 270, West
Chester, Pennsylvania 19382 and John S. Gelles, 75 Birchall Drive, Scarsdale,
New York 10583 (the "Employee").
WITNESSETH:
WHEREAS, the Employee is presently Chairman of the Board of Directors of
the Company and the Company previously employed the Employee;
WHEREAS, the Company desires to retain the services of the Employee upon
the terms and conditions contained herein;
WHEREAS, the Company provides environmental consulting services and
groundwater pollution control equipment and services that require technical
and management specialization;
WHEREAS, the compensation to be paid to the Employee by the Company is at
least in part dependent upon profits that may accrue to the Company through
its ownership and/or operation of inventions, including trade secrets and
patents involving or relating to their business;
WHEREAS, the Company is engaged in a highly competitive business; and
WHEREAS, the Company must maintain its competitive position by protecting
its inventions, trade secrets, patents, know-how, and proprietary information.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
1. Employment
The Company hereby employs the Employee and the Employee hereby accepts
employment upon the terms and conditions set forth herein.
2. Term
The term of this Agreement shall commence on June 30, 1996 and conclude
on December 31, 1998. Six months prior to the conclusion of the term
hereunder, if the parties should desire for Employee to continue to work for
the Company, a new agreement shall be negotiated at that time.
3. Services to be Rendered
(a) During the term of this Agreement, the Employee shall serve the
Company in a marketing capacity and shall perform such duties as are
determined from time to time by the Company. The Employee shall devote a
minimum of sixteen hours per week of his business time for the term of his
employment exclusively to the business and affairs of the Company, and shall
use his best efforts, skill and abilities to promote the Company's interests.
(b) The precise services of the Employee may be extended or curtailed
from time to time at the direction of the Company's Board of Directors.
Expanded or extended services of the Employee shall not, in any event, result
in less favorable conditions, terms, compensation or total understanding and
intent than contained in this Agreement. The Employee has been elected to
serve as the Chairman of the Company's Board of Directors until the Company's
next annual meeting or until his successor is duly elected and qualified. The
Company agrees to use its best efforts to have the Employee continue as
Chairman of the Board of Directors of the Company during the term of this
Agreement. The Employee shall be entitled to no additional compensation
hereunder for his service as Chairman of the Company's Board of Directors.
4. Compensation
For the services rendered hereunder, the Company shall pay and the
Employee shall accept the following compensation:
(a) From the commencement of the term hereof through December 31,
1996, the Employee shall receive a monthly salary of $6,250.00 per month.
(b) From January 1, 1997 through December 31, 1998, the Employee
shall receive a monthly salary of $4,166.67.
(c) If during the term hereof, the Company declares and pays any
discretionary bonuses to its senior executives, who are employed by the
Company and/or its subsidiaries in accordance with employment agreements, the
Employee shall be entitled to share, on a pro rata basis in proportion to the
Employee's salary hereunder, in such bonuses.
(d) If during the term hereof, the Company or its subsidiaries
achieve any gross sales less returns and discounts, determined on the cash
basis of accounting ("Net Sales") during calendar years 1996, 1997 and 1998 as
a result of direct introductions by Employee on and after the date hereof and
through the end of the term hereof, the Company will pay a three percent (3%)
commission to the Employee for any Net Sales made to the persons so
introduced. To qualify as Net Sales, such sales must be made to a client that
has been directly introduced by the Employee and that is not a client of the
Company as of the date hereof or a person that has previously been solicited
by the Company, unless the Company specifically requests the Employee to exert
a sales effort toward a pre-existing client or to a previously solicited
person. The Company shall make a good faith effort to keep the Employee
apprised of the status of any introductions made to the Company by the
Employee. In addition, the Company shall provide the Employee with monthly
statements indicating Net Sales made and commissions due to the Employee as a
result of introductions made by the Employee. The amount of any Net Sales
attributable to the introductions of the Employee shall be determined by the
Company's Chief Financial Officer.
(e) The Employee's salary shall be payable subject to such deductions
as are then required by law and such further deductions as may be agreed to by
the Employee, in accordance with the Company's prevailing salary payroll
practices.
(f) In addition to the compensation set forth in Sections 4(a) and
4(b), the Employee is eligible to receive incentive stock options as
determined by the Company's Board of Directors.
5. Expenses
During the term of this Agreement, the Company shall, upon presentation
of proper vouchers, reimburse the Employee for all reasonable expenses
incurred by him directly in connection with his performance of services under
this Agreement. Expenses in excess of $250.00 must be pre-approved by the
Company before they are incurred.
6. Disability and Death
If, during the term of this Agreement, the Employee becomes so
disabled or incapacitated by reason of any physical or mental illness as to be
unable to perform the services required of him pursuant to this Agreement for
a continuous period of three (3) months, then this Agreement shall terminate
at the end of such three (3) month period, provided that during such period,
the Employee shall be paid the full salary, benefits, and expenses otherwise
payable to him as set forth above, less the amount paid to the Employee from
applicable disability insurance for the period of such illness or incapacity.
This Agreement shall also terminate upon and as of the date of death of the
Employee at any time during the term of this Agreement.
7. Covenants and Restrictions
The Employee covenants that, except in carrying out his duties
hereunder, during the term of his employment and for a period of two (2) years
following the date of termination of employment hereunder (unless such longer
period of time is specifically set forth herein):
(a) Employee will not, directly or indirectly, participate or
engage in, assist, render any services (including advisory services) to,
become associated with, work for, serve (in any capacity whatsoever,
including, without limitation, as an employee, consultant, advisor, agent,
independent contractor, general partner, officer or director) or otherwise
become in any way or manner connected with the ownership, management,
operation, or control of, any business, firm, corporation, partnership or
other entity (collectively referred to herein as a "Person") that engages in,
or assists others in engaging in or conducting any business, which deals,
directly or indirectly, in products or services competitive with the existing
or future product lines or services of the Company in the United States
provided, however, the above shall not be deemed to exclude Employee from (i)
acting as director of a corporation for the benefit of the Company with the
consent of the Company's Board of Directors, (ii) serving as an officer and
employee of Paul's Electric, Inc. and Salomone Brothers of New York in order
to permit those entities to make use of certain of the Employee's professional
licenses and (iii) reviewing the accuracy of the apportionment of charges and
expenses in connection with real estate leases on behalf of Gallant
Consulting; provided, further, however, that the above shall not be deemed to
prohibit Employee from owning or acquiring securities issued by any
corporation which neither directly nor indirectly competes with the Company
and whose securities are listed with a national securities exchange or are
traded in the over-the-counter market, provided that Employee at no time owns,
directly or indirectly, beneficially or otherwise, five percent (5%) or more
of any class of any such corporation's outstanding capital stock. Such 5%
restriction shall not apply to any partnership, corporation or other entity of
which Employee is now an owner, investor, officer or director. In addition,
Employee shall not serve as an officer or director of any corporation which
competes directly or indirectly with the Company nor shall Employee own a
majority interest in any entity which competes directly or indirectly with the
Company.
(b) Employee will not knowingly provide or solicit to provide to
any Person or individual (i) any goods or services which are competitive,
directly or indirectly, with those provided by the Company or which would be
competitive with the goods or services that the Company has planned to
provide, or (ii) any goods or services to any customer of the Company. The
term "customer" shall mean any Person or individual to whom the Company has
provided goods or services within the twenty-four (24) month period prior to
the termination of Employee's employment hereunder. Notwithstanding anything
herein to the contrary, with respect to this subsection (b), no limitation
shall be imposed on Employee hereunder with respect to any goods and services
that the Company has planned to provide and which are not actually being
provided at the time of the termination of Employee's employment hereunder or
which are not actually provided within eighteen (18) months following the
termination of Employee's employment hereunder.
(c) Employee agrees that he shall not divulge to others, nor
shall he use to the detriment of the Company or in any business or process of
manufacture competitive with or similar to any business or process of
manufacture engaged in by the Company or any of its subsidiary or affiliated
companies, at any time during his employment with the Company or thereafter,
any confidential or trade secret information obtained by him during the course
of his employment with the Company relating to sales, salesmen, sales volume
or strategy, customers, formulas, processes, methods, machines, manufactures,
compositions, ideas, improvements or inventions belonging to or relating to
the business of the Company or its subsidiaries or affiliated companies.
(d) Employee will neither solicit, hire or seek to solicit or
hire any of the personnel of the Company in any capacity whatsoever nor shall
Employee induce or attempt to induce any of the personnel of the Company to
leave the employ of the Company to work for Employee or otherwise.
(e) Employee acknowledges that his breach of any of the
restrictive covenants contained in this Section 7 may cause irreparable damage
to the Company for which remedies at law would be inadequate. Accordingly, if
Employee breaches or threatens to breach any of the provisions of this Section
7, the Company shall be entitled to appropriate injunctive relief, including,
without limitation, preliminary and permanent injunctions, in any court of
competent jurisdiction, restraining Employee from taking any action prohibited
hereby. This remedy shall be in addition to all other remedies available to
the Company at law or equity. If any portion of this Section 7 is adjudicated
to be invalid or unenforceable, this Section 7 shall be deemed amended to
delete therefrom the portion so adjudicated, such deletion to apply only with
respect to the operation of this Section 7 in the jurisdiction in which such
adjudication is made.
8. Proprietary Property
(a) The Employee agrees that any and all inventions or
improvements as well as any and all ideas, creations, know-how and methods of
applying and putting into practice any inventions or improvements (all of the
foregoing being hereinafter called "Proprietary Property" and being more fully
defined in subparagraph (b) below) that are created, developed, conceived of
or discovered either (i) by the Employee (solely or jointly with others)
either in the course of his employment, on the Company's time, with the
Company's materials or facilities, relating to any subject matter with which
his work for the Company is or may be concerned, or relating to any business
in which the Company, or any of its subsidiaries or affiliated companies is
involved, or (ii) by or for the Company, or (iii) by any independent
individual or Person and thereafter acquired by the Company, and which are
within the Employee's knowledge or possession in the case of (i) above or that
come into the Employee's knowledge or possession during and in the course of
the Employee's employment hereunder in the case of (ii) or (iii) above, shall
be, if created, developed, conceived of or discovered by the Employee,
promptly disclosed to the Company, or shall be, if otherwise developed or
acquired by the Company, received by the Employee as an employee of the
Company and not in any way for his own benefit. Employee shall neither have
nor obtain any right, title or interest in or to such Proprietary Property
unless and until the Company shall expressly and in writing waive the rights
that either has therein and thereto under the provisions of this sentence.
With respect to any and all Proprietary Property that is invented, created,
written, developed, furnished or produced by the Employee, or suggested by the
Employee to the Company during the term of the Employee's employment under
this Agreement, Employee does hereby agree that all such Proprietary Property
shall be the exclusive property of the Company, and that the Employee shall
neither have nor retain any right, title or interest, of any kind therein and
thereto or in and to any results or proceeds therefrom. At any time, whether
during or after the term of this Agreement, the Employee will, upon the
request and at the expense of the Company (A) obtain patents or copyrights on,
or (B) permit the Company to patent or copyright, any such Proprietary
Property, whichever (A) or (B) is appropriate, and/or (C) execute, acknowledge
and deliver any and all assignments, instruments of transfer, or other
documents, that the Company deems necessary or appropriate to transfer to and
vest in the Company all right, title and interest in and to such Proprietary
Property and to evidence the Company's ownership of such Proprietary Property,
including, without limitation, taking all steps necessary to enable the
Company to publish or protect said Proprietary Property by patents or
otherwise in any and all countries and to render all such assistance as the
Company may require in any patent office proceeding or litigation involving
said Proprietary Property. The Employee shall not, without limitation as to
time or place, use any Proprietary Property except on the business of the
Company during or after his period of employment, nor disclose the same to
any other Person or individual except for disclosure on the business of the
Company or as may be required by law.
(b) As used in this Agreement, "Proprietary Property" means
proprietary technical information not generally known in the Company's
industry and which is disclosed to Employee or known or developed by Employee
as a consequence of or through his employment with the Company.
(c) During or subsequent to the Employee's employment by the
Company, Employee will never, directly or indirectly, lecture upon, publish
articles concerning, use, disseminate, disclose, sell or offer for sale any
Proprietary Property without the prior written permission of the Company.
9. Prior Agreements
Employee represents that he is not now under any written agreement, nor
has he previously, at any time, entered into any written agreement with any
person, firm or corporation, which would or could in any manner preclude or
prevent him from giving freely and the Company receiving the benefit of his
services.
10. Termination Provisions
(a) In addition to, and not in lieu of, the termination
provisions set forth in Section 6 hereof, the employment of the Employee
hereunder may be terminated by the Company prior to the termination date of
the term of this Agreement in the event that the Employee is guilty of (i)
reckless disregard in the performance of his duties as set forth in Section 3
herein, or (ii) willful misfeasance, or (iii) any act of dishonesty by the
Employee with respect to the Company. Termination of the Employee's employment
by the Company for either willful misfeasance or reckless disregard of his
duties to the Company hereunder shall constitute, and is referred to elsewhere
herein, as termination for "Cause". Such termination of the Employee's
employment hereunder for Cause shall be effective immediately upon delivery of
written notice to the Employee setting forth the reason or reasons for such
termination. Upon the termination of this Agreement in accordance with this
Section 10, the Company shall not be obligated to make any further payments
hereunder to the Employee.
(b) The Employee may terminate this Agreement at any time upon
thirty (30) days written notice to the Company. Upon any termination in
accordance with this Section 10 (b), the Company shall not be required to pay
any compensation to the Employee following the date of termination, unless
such compensation had been accrued prior to termination and had not been paid
as of such date.
11. Miscellaneous
(a) This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, and upon the Employee, his
heirs, executors, administrators, legatees and legal representatives.
(b) Should any part of this Agreement, for any reason
whatsoever, be declared invalid, illegal, or incapable of being enforced in
whole or in part, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including
therein any portion which may for any reason be declared invalid.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania applicable to agreements
made and performed in such State without application to the principles of
conflicts of laws.
(d) This Agreement and all rights hereunder are personal to the
Employee and shall not be assignable, and any purported assignment in
violation thereof shall be null and void. Any person, firm or corporation
succeeding to the business of the Company by merger, consolidation, purchase
of assets or otherwise, shall assume by contract or operation of law the
obligations of the Company hereunder; provided, however, that the Company
shall, notwithstanding such assumption and/or assignment, remain liable and
responsible for the fulfillment of the terms and conditions of the Agreement
on the part of the Company.
(e) This Agreement constitutes the entire agreement between the
parties hereto with respect to the terms and conditions of the Employee's
employment by the Company, as distinguished from any other contractual
arrangements between the parties pertaining to or arising out of their
relationship, and this Agreement supersedes and renders null and void any and
all other prior oral or written agreements, understandings, or commitments
pertaining to the Employee's employment by the Company. No variation hereof
shall be deemed valid unless in writing and signed by the parties hereto, and
no discharge of the terms hereof shall be deemed valid unless by full
performance by the parties hereto or by a writing signed by the parties
hereto. No waiver by either party of any provision or condition of this
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior or
subsequent time.
(f) Any notice, statement, report, request or demand required or
permitted to be given by this Agreement shall be in writing, and shall be
sufficient if delivered in person or if addressed and sent by certified mail,
return receipt requested, to the parties at the addresses set forth above, or
at such other place that either party may designate by notice in the foregoing
manner to the other.
(g) The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full
force and effect. No waiver of any term or any condition of this Agreement on
the part of either party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
(h) The heading of the paragraphs herein are inserted for
convenience and shall not affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
/s/ John S. Gelles
John S. Gelles
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 1st day of July, 1996, by and between Leak-X
Environmental Corporation, a Delaware Corporation (the "Company"), with its
principal place of business at 790 East Market Street, Suite 270, West
Chester, Pennsylvania 19382 and William H. Gelles, Jr., 15 Stornowaye,
Chappaqua, New York 10514 (the "Employee").
WITNESSETH:
WHEREAS, the Employee is presently President of the Company and a member
of the Company's Board of Directors and the Company previously employed the
Employee;
WHEREAS, the Company desires to retain the services of the Employee upon
the terms and conditions contained herein;
WHEREAS, the Company provides environmental consulting services and
groundwater pollution control equipment and services that require technical
and management specialization;
WHEREAS, the compensation to be paid to the Employee by the Company is at
least in part dependent upon profits that may accrue to the Company through
its ownership and/or operation of inventions, including trade secrets and
patents involving or relating to their business;
WHEREAS, the Company is engaged in a highly competitive business; and
WHEREAS, the Company must maintain its competitive position by protecting
its inventions, trade secrets, patents, know-how, and proprietary information.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
1. Employment
The Company hereby employs the Employee and the Employee hereby accepts
employment upon the terms and conditions set forth herein.
2. Term
The term of this Agreement shall commence on June 30, 1996 and conclude
on December 31, 1998. Six months prior to the conclusion of the term
hereunder, if the parties should desire for Employee to continue to work for
the Company, a new agreement shall be negotiated at that time.
3. Services to be Rendered
(a) During the term of this Agreement, the Employee shall serve the
Company in a marketing capacity and shall perform such duties as are
determined from time to time by the Company. The Employee shall devote a
minimum of sixteen hours per week of his business time for the term of his
employment exclusively to the business and affairs of the Company, and shall
use his best efforts, skill and abilities to promote the Company's interests.
(b) The precise services of the Employee may be extended or curtailed
from time to time at the direction of the Company's Board of Directors.
Expanded or extended services of the Employee shall not, in any event, result
in less favorable conditions, terms, compensation or total understanding and
intent than contained in this Agreement. The Employee has been elected to
serve as the Chairman of the Company's Board of Directors until the Company's
next annual meeting or until his successor is duly elected and qualified. The
Company agrees to use its best efforts to have the Employee continue as
Chairman of the Board of Directors of the Company during the term of this
Agreement. The Employee shall be entitled to no additional compensation
hereunder for his service as Chairman of the Company's Board of Directors.
4. Compensation
For the services rendered hereunder, the Company shall pay and the
Employee shall accept the following compensation:
(a) From the commencement of the term hereof through December 31,
1996, the Employee shall receive a monthly salary of $6,250.00 per month.
(b) From January 1, 1997 through December 31, 1998, the Employee
shall receive a monthly salary of $4,166.67.
(c) If during the term hereof, the Company declares and pays any
discretionary bonuses to its senior executives, who are employed by the
Company and/or its subsidiaries in accordance with employment agreements, the
Employee shall be entitled to share, on a pro rata basis in proportion to
Employee's salary hereunder, in such bonuses.
(d) If during the term hereof, the Company or its subsidiaries
achieve any gross sales less returns and discounts, determined on the cash
basis of accounting ("Net Sales") during calendar years 1996, 1997 and 1998 as
a result of direct introductions by Employee on and after the date hereof and
through the end of the term hereof, the Company will pay a three percent (3%)
commission to the Employee for any Net Sales made to the persons so
introduced. To qualify as Net Sales, such sales must be made to a client that
has been directly introduced by the Employee and that is not a client of the
Company as of the date hereof or a person that has previously been solicited
by the Company, unless the Company specifically requests the Employee to exert
a sales effort toward a pre-existing client or to a previously solicited
person. The Company shall make a good faith effort to keep the Employee
apprised of the status of any introductions made to the Company by the
Employee. In addition, the Company shall provide the Employee statements
indicating Net Sales made and commissions due to the Employee as a result of
introductions made by the Employee. The amount of any Net Sales attributable
to the introductions of the Employee shall be determined by the Company's
Chief Financial Officer.
(e) The Employee's salary shall be payable subject to such deductions
as are then required by law and such further deductions as may be agreed to by
the Employee, in accordance with the Company's prevailing salary payroll
practices.
(f) In addition to the compensation set forth in Sections 4(a) and
4(b), the Employee is eligible to receive incentive stock options as
determined by the Company's Board of Directors.
5. Expenses
During the term of this Agreement, the Company shall, upon presentation
of proper vouchers, reimburse the Employee for all reasonable expenses
incurred by him directly in connection with his performance of services under
this Agreement. Expenses in excess of $250.00 must be pre-approved by the
Company before they are incurred.
6. Disability and Death
If, during the term of this Agreement, the Employee becomes so
disabled or incapacitated by reason of any physical or mental illness as to be
unable to perform the services required of him pursuant to this Agreement for
a continuous period of three (3) months, then this Agreement shall terminate
at the end of such three (3) month period, provided that during such period,
the Employee shall be paid the full salary, benefits, and expenses otherwise
payable to him as set forth above, less the amount paid to the Employee from
applicable disability insurance for the period of such illness or incapacity.
This Agreement shall also terminate upon and as of the date of death of the
Employee at any time during the term of this Agreement.
7. Covenants and Restrictions
The Employee covenants that, except in carrying out his duties
hereunder, during the term of his employment and for a period of two (2) years
following the date of termination of employment hereunder (unless such longer
period of time is specifically set forth herein):
(a) Employee will not, directly or indirectly, participate or
engage in, assist, render any services (including advisory services) to,
become associated with, work for, serve (in any capacity whatsoever,
including, without limitation, as an employee, consultant, advisor, agent,
independent contractor, general partner, officer or director) or otherwise
become in any way or manner connected with the ownership, management,
operation, or control of, any business, firm, corporation, partnership or
other entity (collectively referred to herein as a "Person") that engages in,
or assists others in engaging in or conducting any business, which deals,
directly or indirectly, in products or services competitive with the existing
or future product lines or services of the Company in the United States
provided, however, the above shall not be deemed to exclude Employee from (i)
acting as director of a corporation for the benefit of the Company with the
consent of the Company's Board of Directors, (ii) serving as an officer and
employee of Paul's Electric, Inc. and Salomone Brothers of New York in order
to permit those entities to make use of certain of the Employee's professional
licenses and (iii) reviewing the accuracy of the apportionment of charges and
expenses in connection with real estate leases on behalf of Gallant
Consulting; provided, further, however, that the above shall not be deemed to
prohibit Employee from owning or acquiring securities issued by any
corporation which neither directly nor indirectly competes with the Company
and whose securities are listed with a national securities exchange or are
traded in the over-the-counter market, provided that Employee at no time owns,
directly or indirectly, beneficially or otherwise, five percent (5%) or more
of any class of any such corporation's outstanding capital stock. Such 5%
restriction shall not apply to any partnership, corporation or other entity of
which Employee is now an owner, investor, officer or director. In addition,
Employee shall not serve as an officer or director of any corporation which
competes directly or indirectly with the Company nor shall Employee own a
majority interest in any entity which competes directly or indirectly with the
Company.
(b) Employee will not knowingly provide or solicit to provide to
any Person or individual (i) any goods or services which are competitive,
directly or indirectly, with those provided by the Company or which would be
competitive with the goods or services that the Company has planned to
provide, or (ii) any goods or services to any customer of the Company. The
term "customer" shall mean any Person or individual to whom the Company has
provided goods or services within the twenty-four (24) month period prior to
the termination of Employee's employment hereunder. Notwithstanding anything
herein to the contrary, with respect to this subsection (b), no limitation
shall be imposed on Employee hereunder with respect to any goods and services
that the Company has planned to provide and which are not actually being
provided at the time of the termination of Employee's employment hereunder or
which are not actually provided within eighteen (18) months following the
termination of Employee's employment hereunder.
(c) Employee agrees that he shall not divulge to others, nor
shall he use to the detriment of the Company or in any business or process of
manufacture competitive with or similar to any business or process of
manufacture engaged in by the Company or any of its subsidiary or affiliated
companies, at any time during his employment with the Company or thereafter,
any confidential or trade secret information obtained by him during the course
of his employment with the Company relating to sales, salesmen, sales volume
or strategy, customers, formulas, processes, methods, machines, manufactures,
compositions, ideas, improvements or inventions belonging to or relating to
the business of the Company or its subsidiaries or affiliated companies.
(d) Employee will neither solicit, hire or seek to solicit or
hire any of the personnel of the Company in any capacity whatsoever nor shall
Employee induce or attempt to induce any of the personnel of the Company to
leave the employ of the Company to work for Employee or otherwise.
(e) Employee acknowledges that his breach of any of the
restrictive covenants contained in this Section 7 may cause irreparable damage
to the Company for which remedies at law would be inadequate. Accordingly, if
Employee breaches or threatens to breach any of the provisions of this Section
7, the Company shall be entitled to appropriate injunctive relief, including,
without limitation, preliminary and permanent injunctions, in any court of
competent jurisdiction, restraining Employee from taking any action prohibited
hereby. This remedy shall be in addition to all other remedies available to
the Company at law or equity. If any portion of this Section 7 is adjudicated
to be invalid or unenforceable, this Section 7 shall be deemed amended to
delete therefrom the portion so adjudicated, such deletion to apply only with
respect to the operation of this Section 7 in the jurisdiction in which such
adjudication is made.
8. Proprietary Property
(a) The Employee agrees that any and all inventions or
improvements as well as any and all ideas, creations, know-how and methods of
applying and putting into practice any inventions or improvements (all of the
foregoing being hereinafter called "Proprietary Property" and being more fully
defined in subparagraph (b) below) that are created, developed, conceived of
or discovered either (i) by the Employee (solely or jointly with others)
either in the course of his employment, on the Company's time, with the
Company's materials or facilities, relating to any subject matter with which
his work for the Company is or may be concerned, or relating to any business
in which the Company, or any of its subsidiaries or affiliated companies is
involved, or (ii) by or for the Company, or (iii) by any independent
individual or Person and thereafter acquired by the Company, and which are
within the Employee's knowledge or possession in the case of (i) above or that
come into the Employee's knowledge or possession during and in the course of
the Employee's employment hereunder in the case of (ii) or (iii) above, shall
be, if created, developed, conceived of or discovered by the Employee,
promptly disclosed to the Company, or shall be, if otherwise developed or
acquired by the Company, received by the Employee as an employee of the
Company and not in any way for his own benefit. Employee shall neither have
nor obtain any right, title or interest in or to such Proprietary Property
unless and until the Company shall expressly and in writing waive the rights
that either has therein and thereto under the provisions of this sentence.
With respect to any and all Proprietary Property that is invented, created,
written, developed, furnished or produced by the Employee, or suggested by the
Employee to the Company during the term of the Employee's employment under
this Agreement, Employee does hereby agree that all such Proprietary Property
shall be the exclusive property of the Company, and that the Employee shall
neither have nor retain any right, title or interest, of any kind therein and
thereto or in and to any results or proceeds therefrom. At any time, whether
during or after the term of this Agreement, the Employee will, upon the
request and at the expense of the Company (A) obtain patents or copyrights on,
or (B) permit the Company to patent or copyright, any such Proprietary
Property, whichever (A) or (B) is appropriate, and/or (C) execute, acknowledge
and deliver any and all assignments, instruments of transfer, or other
documents, that the Company deems necessary or appropriate to transfer to and
vest in the Company all right, title and interest in and to such Proprietary
Property and to evidence the Company's ownership of such Proprietary Property,
including, without limitation, taking all steps necessary to enable the
Company to publish or protect said Proprietary Property by patents or
otherwise in any and all countries and to render all such assistance as the
Company may require in any patent office proceeding or litigation involving
said Proprietary Property. The Employee shall not, without limitation as to
time or place, use any Proprietary Property except on the business of the
Company during or after his period of employment, nor disclose the same to
any other Person or individual except for disclosure on the business of the
Company or as may be required by law.
(b) As used in this Agreement, "Proprietary Property" means
proprietary technical information not generally known in the Company's
industry and which is disclosed to Employee or known or developed by Employee
as a consequence of or through his employment with the Company.
(c) During or subsequent to the Employee's employment by the
Company, Employee will never, directly or indirectly, lecture upon, publish
articles concerning, use, disseminate, disclose, sell or offer for sale any
Proprietary Property without the prior written permission of the Company.
9. Prior Agreements
Employee represents that he is not now under any written agreement, nor
has he previously, at any time, entered into any written agreement with any
person, firm or corporation, which would or could in any manner preclude or
prevent him from giving freely and the Company receiving the exclusive benefit
of his services.
10. Termination Provisions
(a) In addition to, and not in lieu of, the termination
provisions set forth in Section 6 hereof, the employment of the Employee
hereunder may be terminated by the Company prior to the termination date of
the term of this Agreement in the event that the Employee is guilty of (i)
reckless disregard in the performance of his duties as set forth in Section 3
herein, or (ii) willful misfeasance, or (iii) any act of dishonesty by the
Employee with respect to the Company. Termination of the Employee's employment
by the Company for either willful misfeasance or reckless disregard of his
duties to the Company hereunder shall constitute, and is referred to elsewhere
herein, as termination for "Cause". Such termination of the Employee's
employment hereunder for Cause shall be effective immediately upon delivery of
written notice to the Employee setting forth the reason or reasons for such
termination. Upon the termination of this Agreement in accordance with this
Section 10, the Company shall not be obligated to make any further payments
hereunder to the Employee.
(b) The Employee may terminate this Agreement at any time upon
thirty (30) days written notice to the Company. Upon any termination in
accordance with this Section 10 (b), the Company shall not be required to pay
any compensation to the Employee following the date of termination, unless
such compensation had been accrued prior to termination and had not been paid
as of such date.
11. Miscellaneous
(a) This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, and upon the Employee, his
heirs, executors, administrators, legatees and legal representatives.
(b) Should any part of this Agreement, for any reason
whatsoever, be declared invalid, illegal, or incapable of being enforced in
whole or in part, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including
therein any portion which may for any reason be declared invalid.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania applicable to agreements
made and performed in such State without application to the principles of
conflicts of laws.
(d) This Agreement and all rights hereunder are personal to the
Employee and shall not be assignable, and any purported assignment in
violation thereof shall be null and void. Any person, firm or corporation
succeeding to the business of the Company by merger, consolidation, purchase
of assets or otherwise, shall assume by contract or operation of law the
obligations of the Company hereunder; provided, however, that the Company
shall, notwithstanding such assumption and/or assignment, remain liable and
responsible for the fulfillment of the terms and conditions of the Agreement
on the part of the Company.
(e) This Agreement constitutes the entire agreement between the
parties hereto with respect to the terms and conditions of the Employee's
employment by the Company, as distinguished from any other contractual
arrangements between the parties pertaining to or arising out of their
relationship, and this Agreement supersedes and renders null and void any and
all other prior oral or written agreements, understandings, or commitments
pertaining to the Employee's employment by the Company. No variation hereof
shall be deemed valid unless in writing and signed by the parties hereto, and
no discharge of the terms hereof shall be deemed valid unless by full
performance by the parties hereto or by a writing signed by the parties
hereto. No waiver by either party of any provision or condition of this
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior or
subsequent time.
(f) Any notice, statement, report, request or demand required or
permitted to be given by this Agreement shall be in writing, and shall be
sufficient if delivered in person or if addressed and sent by certified mail,
return receipt requested, to the parties at the addresses set forth above, or
at such other place that either party may designate by notice in the foregoing
manner to the other.
(g) The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full
force and effect. No waiver of any term or any condition of this Agreement on
the part of either party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
(h) The heading of the paragraphs herein are inserted for
convenience and shall not affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
/s/ William H. Gelles, Jr.
William H. Gelles, Jr.
AGREEMENT
AGREEMENT (the "Agreement") dated as of July 1, 1996 by and among Leak-X
Environmental Corporation, a Delaware corporation (the "Company") with an
address at 790 East Market Street, West Chester, Pennsylvania, John S. Gelles,
with an address at 75 Birchall Drive, Scarsdale, New York ("JS Gelles")and
William H. Gelles, Jr., with an address at 15 Stornowaye, Chappaqua, New York
("WH Gelles")(JS Gelles and WH Gelles are hereinafter collectively referred to
as the "Holders").
W I T N E S S E T H:
WHEREAS, JS Gelles owns 1,937,710 shares of the Company's Common Stock,
$.001 par value (the "Common Stock") and 900,444 shares of the Company's
Series A Preferred Stock (the "Preferred Stock") which may be converted into
800,395 shares of Common Stock;
WHEREAS WH Gelles owns 2,058,210 shares of Common Stock and 788,444
shares of Preferred Stock which may be converted into 700,839 shares of Common
Stock (the Common Stock currently held by the Holders or which may be obtained
upon conversion of the Preferred Stock is hereinafter referred to as the
"Registrable Securities");
WHEREAS, the Holders have agreed to convert their Preferred Stock into
Common Stock and to provide the Company with a right of first refusal with
respect to future sales of Common Stock now owned by the Holders or hereafter
acquired upon conversion of the Preferred Stock; and
WHEREAS, the Company and the Holders desire that certain terms and
provisions be applicable to the registration of the Registrable Securities
held by the Holders.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereby agree as follows:
Section 1. Piggyback Registration Rights. The Company covenants
and agrees with the Holders of the Registrable Securities that if, at any time
within the 30 month period commencing from the date hereof, and ending
December 31, 1998, it proposes to file with the Securities and Exchange
Commission (the "SEC") a Registration Statement ( a "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), with respect to the
sale of any class of security (other than pursuant to a Registration Statement
on Forms S-4 or S-8 or any successor form or other than a post-effective
amendment to a Registration Statement that relates to the Company's publicly
traded warrants), in a primary registration on behalf of the Company and/or in
a secondary registration on behalf of holders of the Company's securities and
the registration form to be used may be used for registration of the
Registrable Securities, the Company will give prompt written notice (which, in
the case of a Registration Statement pursuant to the exercise of registration
rights, shall be within ten (10) business days after the Company's receipt of
notice of such exercise and, in any event, shall be at least twenty (20) days
prior to such filing) to the Holders of Registrable Securities at the
addresses appearing on the records of the Company of its intention to file a
Registration Statement, and will offer to include in such Registration
Statement, all or any portion of the Registrable Securities. The offer to
include the Registrable Securities is limited by subparagraphs (a) and (b) of
this Section 1. In any event, the maximum number of Registrable Securities
which shall be registered shall not exceed that number for which the Company
has received written requests for inclusion therein within fifteen (15) days
after the giving of notice by the Company. The Company will use its best
efforts, through its officers, directors, auditors and counsel in all matters
necessary or advisable, to cause to become effective such Registration
Statement as promptly as practicable. In that regard, the Company makes no
representations or warranties as to its ability to have the Registration
Statement declared effective. All registrations requested pursuant to this
Section 1 are referred to herein as "Piggyback Registrations." All Piggyback
Registrations pursuant to this Section 1 will be made solely at the Company's
expense, exclusive of any sales commissions incurred from the sale of the
Common Stock and any attorneys' fees incurred by the Holders resulting from
the hiring of their own attorneys, if any Registrable Securities are sold. In
the event the Company is advised by the staff of the SEC, Nasdaq, or any
self-regulatory or state securities agency that the inclusion of the
Registrable Securities will prevent, preclude or materially delay the
effectiveness of a Registration Statement filed, the Company, in good faith,
may amend such Registration Statement to exclude the Registrable Securities
without otherwise affecting the Holders rights to any other Registration
Statement herein.
(a) Priority on Primary Registrations. If a Piggyback Registration
includes an underwritten primary registration on behalf of the Company and if
the underwriter(s) for the offering being registered by the Company shall
determine in good faith and advise the Company in writing that in its/their
opinion the number of Registrable Securities requested to be included in such
registration exceeds the number that can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Company, then the Company will promptly furnish the Holders of the Registrable
Securities with a copy of such letter, and the Company will include in such
registration first, the securities that the Company proposes to sell and
second, the Registrable Securities requested to be included in such
registration, apportioned pro rata among the Holders of Registrable
Securities, with the securities of the holders of other securities requesting
registration.
(b) Priority on Secondary Registrations. If a Piggyback
Registration consists only of an underwritten secondary registration on behalf
of stockholders of securities of the Company, and the underwriter(s) for the
offering being registered by the Company advise the Company in writing that in
its/their opinion the number of Registrable Securities requested to be
included in such registration exceeds the number which can be sold in such
offering without materially adversely affecting the distribution of such
securities by the Company then the Company will promptly furnish the Holders
of the Registrable Securities with a copy of such letter and, the Company will
include in such registration first, the securities requested to be included
therein by the persons requesting such registration and second, the
Registrable Securities requested to be included in such registration above,
pro rata, among the Holders of Registrable Securities on the basis of the
number of shares requested to be included by each such stockholder, with other
securities requested to be included in such registration.
Notwithstanding the foregoing, if any such underwriter shall
determine in good faith and advise the Company in writing that the
distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company, then the Holders of such Registrable Securities shall delay their
offering and sale for such period ending on the earliest of (i) 90 days
following the effective date of the Company's registration statement, (ii) the
day upon which the underwriting syndicate, if any, for such offering shall
have been disbanded or, (iii) such date as the Company, managing underwriter
and Holders of Registrable Securities shall otherwise agree. In the event of
such delay, the Company shall file such supplements, post-effective amendments
and take any such other steps as may be necessary to permit such Holders to
make their proposed offering and sale for a period of ninety (90) days
immediately following the end of such period of delay. If any party
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company, the underwriter, and the Holders.
Notwithstanding the foregoing, the Company shall not be required to file a
Registration Statement to include Registrable Securities pursuant to this
Section 1 if an opinion of independent counsel, reasonably satisfactory to
counsel for the Company and counsel for the Holders, shall have been delivered
to counsel for the Company, stating that all of the Registrable Securities
proposed to be disposed of may be transferred pursuant to the provisions of
Rule 144 under the Act.
Section 2. Other Registration Rights. In addition to the rights above
provided, the Company will cooperate with the Holders of the Registrable
Securities in preparing and signing any Registration Statement, in addition to
the Registration Statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information required
therefor, but such additional Registration Statement shall be at the Holders'
cost and expense; provided, however, that if the Company elects to register
and qualify additional shares of Common Stock, the cost and expenses of such
Registration Statement will be pro rated, between the Company and the Holders
of the Registrable Securities according to the aggregate sales price of the
securities being registered.
Section 3. Certain Understandings. The Holders understand that the
Company makes no representations of any kind concerning its intent or ability
to offer or sell any of the Registrable Securities in a public offering or
otherwise and that their sole right to have the Registrable Securities
registered under the Act is contained in this Agreement. So long as there are
Registrable Securities outstanding and the Company is subject to the reporting
requirements of the Act and the Securities Exchange Act of 1934 (the "Exchange
Act"), the Company undertakes to file the reports required to be filed by it
under the Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, and will take such further action as the Holders of the
Registrable Securities may reasonably request, all to the extent required from
time to time to enable the Holders to sell Registrable Securities without
registration under the Act within the limitation of the exemptions provided by
(i) Rule 144 under the Act, as such Rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of the Holders, the Company will deliver to the Holders a written
statement as to whether it has complied with such information requirements.
Section 4. Company Obligations. In connection with the registration of
the Registrable Securities pursuant to this Agreement, the Company shall:
(a) furnish to the Holders and to the underwriter(s) thereof, if any,
such reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as the Holders and
underwriters may request in order to facilitate the public offering of such
securities;
(b) use its best efforts to register or qualify the Registrable
Securities under state securities laws of the jurisdictions which the Holders
thereof may reasonably request in writing within 20 days following the
original filing of such Registration Statement, and do any and all other acts
and things which may be necessary or advisable to enable the Holders to
consummate the disposition of Registrable Securities in such jurisdictions,
except that the Company shall not be required to execute a general consent to
service of process or to qualify to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified;
(c) notify the Holders of the Registrable Securities promptly when
such Registration Statement has become effective or a supplement to any
prospectus forming a part of such Registration Statement has been filed;
(d) advise the Holders of the Registrable Securities, promptly after
it shall receive notice or obtain knowledge of the issuance of any stop order
by the SEC suspending the effectiveness of such Registration Statement, or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(e) prepare and file with the SEC such amendments and supplements to
such Registration Statement, and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to
comply with the provisions of the Act with respect to the disposition of all
Registrable Securities and other securities covered by such Registration
Statement, until the earlier of (a) such time as all of such Registrable
Securities and securities have been disposed of in accordance with the
intended methods of disposition by the Holders or any other sellers thereof
set forth in such Registration Statement, or (b) the expiration of 90 days
after such Registration Statement becomes effective;
(f) promptly notify the Holders of the Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, would include an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the
reasonable request of the Holders of the Registrable Securities prepare and
furnish to them such number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
Holders of the Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(g) in connection with the preparation and filing of the Registration
Statement registering Registrable Securities under the Act, the Company will
give the Holders of Registrable Securities and their counsel and accountants,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the SEC, and each
amendment thereof or supplement thereto, and will give each of them such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be reasonably necessary, in the opinion of the holders of Registrable
Securities, or their counsel, to conduct a reasonable investigation within the
meaning of the Act;
(h) otherwise use all of its reasonable efforts to comply with all
applicable rules and regulations of the SEC and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning after the effective
date of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Act; and
(i) provide and cause to be maintained a transfer agent and
registrant for such Registrable Securities from and after a date not later
than the effective date of such registration statement.
Section 5. Expenses. The Company will bear all expenses attendant to
registering the Registrable Securities, including, without limitation, all
registration and filing fees, all listing fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses and the fees and
disbursements of counsel for the Company and its independent public
accountants, including the expenses of "cold comfort" letters and expenses of
any special audits required by or incident to such performance and compliance,
premiums and other costs of policies of insurance against liabilities arising
out of the public offering of the Registrable Securities being registered and
any fees and disbursements of underwriters customarily paid by issuers and
sellers of securities, but excluding underwriting discounts and commissions,
if any, applicable to the sale of such securities. Furthermore, the Company
shall not be required to pay the fees and disbursements of counsel and
accountants for either Holder of Registrable Securities or other expenses
incurred by either Holder thereof that are not customarily paid by an issuer
in response to the exercise of registration rights.
Section 6. Indemnification and Contribution. The Holders understand
that indemnification and contribution provisions such as the following are
customarily included in an underwriting agreement and agree that
notwithstanding their entering into this binding agreement, they will also
enter into an agreement containing such provisions or provisions substantially
similar thereto as a condition precedent to the registration by the Company
of any of their Registrable Securities in an underwritten offering:
(a) The Company will indemnify and hold harmless each Holder of
Registrable Securities which are included in a Registration Statement pursuant
to the provisions of this Agreement and any underwriter (as defined in the
Act) for such Holder, each officer, director, employee, agent and counsel, if
any, of each such Holder and underwriter, and each person, if any, who
controls such Holder or such underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act (each, a "person who controls" or
a "controlling person"), from and against, any and all loss, claim, damage,
liability, cost and expense (including, without limitation, reasonable legal
expenses) to which such Holder or any such underwriter, officer, director,
employee, agent, counsel or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages, liabilities, costs
or expenses (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in such Registration Statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage, liability, cost or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in reliance upon and in strict conformity with
information furnished by or on behalf of such Holder, underwriter, officer,
director, employee, agent, counsel or controlling person in writing
specifically for use in the preparation thereof.
(b) Each Holder of Registrable Securities included in a registration
statement pursuant to the provisions of this Agreement will indemnify and hold
harmless the Company, any underwriter, each officer, director, employee,
agent, counsel of and each person who controls the Company or such underwriter
from and against any and all losses, damages, liabilities, costs or expenses
to which the Company or such officer, director, employee, agent, counsel or
controlling person may become subject under the Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
Registration Statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict conformity with
written information furnished by or on behalf of such Holder specifically for
use in the preparation thereof.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party, promptly notify the indemnifying party of
the commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in, and,
to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants
in any action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or in addition to those available to the indemnifying party, or
if there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties shall have the right to select separate counsel
to participate in the defense of such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to
the provisions of Sections 6(a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the
provisions of the immediately preceding sentence, (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of the commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party.
(d) If the indemnification provided for in this Section 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages or liabilities referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of such indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action; provided, however, that either Holder of Registrable Securities shall
not be required to contribute in an amount greater than the dollar amount of
the proceeds received by such Holder of Registrable Securities with respect to
the sale of any securities. The amount paid or payable by a party as a result
of the losses, claims, damages and liabilities referred to above shall be
deemed to include, subject to the limitations set forth in this Section 6(d),
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Section 7. Conversion of Preferred Stock. The Holders hereby
immediately cause their Preferred Stock to be converted to an aggregate of
1,501,234 shares of Common Stock. In accordance with such conversion, the
Holders will tender the certificates evidencing their respective shares of
Preferred Stock to the Company within two weeks following the execution of
this Agreement. Upon receipt of such certificates, the Company shall
immediately cause 800,395 shares of Common Stock to be issued to JS Gelles and
700,839 shares of Common Stock to be issued to WH Gelles. The Holders hereby
irrevocably waive any and all rights to dividends to which they may have been
entitled in accordance with the terms of the Preferred Stock.
Section 8. Right of First Refusal on Rule 144 Sales. To the extent that
the Holders seek to avail themselves of the exemption from the registration
requirements of the Act by selling Common Stock in accordance with Rule 144 as
promulgated under the Act, the Holders hereby agree to notify the Company in
advance of any such proposed sales under Rule 144 and further agree to permit
the Company to purchase any or all of such shares which the Holders propose to
sell at a price which is consistent with the then prevailing market price for
the Company's Common Stock. The Company shall have three days from the
receipt of notice from either of the Holders of any proposed sales under Rule
144 to notify the Holder that the Company intends to exercise its right to
purchase some or all of such shares.
Section 9. No Inconsistent Agreements. The Company shall not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the provisi
ons hereof. The rights granted to the Holders of Registrable Securities
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the securities of the Company under any other
agreements.
Section 10. Miscellaneous.
(a) All notices or other communications given or made hereunder shall
be in writing and shall be delivered by hand, against written receipt, or
mailed by registered or certified mail, return receipt requested, postage
prepaid, to the Holders at their respective addresses set forth above and to
the Company at its address set forth above. Notices shall be deemed given on
the date of receipt or, if mailed, three business days after mailing, except
notices of change of address, which shall be deemed given when received.
(b) Notwithstanding the place where this Agreement may be executed by
the Holders or the Company, they agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of New York without regard to principles of conflict of laws.
(c) This Agreement constitutes the entire agreement between the
Holders and the Company with respect to the subject matter hereof and may be
amended only by a writing executed by each of them.
(d) This Agreement shall be binding upon and inure to the benefit of
each of the Holder's and the Company and their respective heirs, legal
representatives, successors and assigns.
(e) The Holders and the Company each hereby submit to the exclusive
jurisdiction of the courts of the State of New York located in New York, New
York and of the federal courts located in the Southern District of New York
with respect to any action or legal proceeding commenced by either of them
with respect to this Agreement or to the Registrable Securities. Each of them
irrevocably waives any objection they now have or hereafter may have
respecting the venue of any such action or proceeding brought in such a court
or respecting the fact that such court is an inconvenient forum and consents
to the service of process in any such action or proceeding by means of
registered or certified mail, return receipt requested, in care of the address
set forth above or below or at such other address as either of them shall
furnish in writing to the other.
(f) The parties hereto acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent or cure breaches of the provisions of this
Agreement, this being in addition to any other remedy to which they may be
entitled by law or equity.
(g) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(h) The waiver of a breach of any provision of this Agreement by
either the Holders or the Company shall not operate, or be construed, as a
waiver of any subsequent breach of any provision of this Agreement.
(i) The Purchasers and the Company agree to execute and deliver all
further documents, agreements and instruments and to take such other further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
(j) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
(k) References in this Agreement to the pronouns "him," "he" and
"his" are not intended to convey the masculine gender alone and are employed
in a generic sense and apply equally to the feminine gender or to an entity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo,
Chief Executive Officer
/s/ William H. Gelles, Jr. /s/ John S. Gelles
William H. Gelles, Jr. John S. Gelles
AGREEMENT, made as of this 1st day of July 1996, by and between Leak-X
Environmental Corporation, a corporation having its principal executive
offices at 790 East Market Street, Suite 270, West Chester, Pennsylvania 19382
("Grantor"), and William H. Gelles, Jr. residing at 15 Stornowaye, Chappaqua,
New York 10514 ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee is presently employed by Grantor; and
WHEREAS, Grantor is desirous of increasing the incentive of Optionee to
exert his utmost efforts to improve the business and increase the assets of
the Grantor.
NOW, THEREFORE, in consideration of the promises of the Optionee to
remain in the continuous service of the Grantor or any of its subsidiaries,
and for other good and valuable consideration, the Grantor hereby grants the
Optionee options to purchase Common Stock of the Grantor upon the following
terms and conditions:
1. OPTIONS. Pursuant to its 1995 Stock Option Plan, the Grantor
hereby grants to the Optionee incentive stock options ("Incentive Stock
Options"), as provided in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to purchase, at any time commencing as of the date
hereof, and terminating as of 5:00 P.M. New York City time, on December 31,
1998 ("Termination Date"), up to 200,000 fully paid and non-assessable shares
of the Common Stock of the Grantor, par value $.001 per share.
2. PURCHASE PRICE. The purchase price ("Purchase Price") shall be
$.265 per share. The Grantor shall pay all original issue or transfer taxes
on the exercise of the Incentive Stock Options and all other fees and expenses
necessarily incurred by the Grantor in connection therewith.
3. EXERCISE OF OPTION. (a) The Optionee shall notify the Grantor by
registered or certified mail, return receipt requested, addressed to its
principal office (Attn: Chief Executive Officer), as to the number of shares
of Common Stock which Optionee desires to purchase pursuant to the options
herein granted, which notice shall be accompanied by payment (by bank check,
certified check or by delivery of shares of the Grantor's Common Stock having
a fair market value equal to the purchase price) of the option price therefor
as specified in Paragraph 2 above. As soon as practicable thereafter, the
Grantor shall cause to be delivered to the Optionee certificates issued in the
Optionee's name evidencing the shares of Common Stock purchased by the
Optionee.
(b) If the aggregate fair market value of all the stock with respect
to which Incentive Stock Options are exercisable for the first time by the
Optionee during any calendar year and all Incentive Stock Option plans of the
Grantor, any predecessor of the Grantor, its parent or subsidiaries, exceeds
$100,000.00, the grant of the Incentive Stock Options hereunder shall not, to
the extent of such excess, be deemed a grant of Incentive Stock Options but
will instead be deemed the grant of Non-Qualified Stock Options under the
Plan. For purposes of this paragraph, the fair market value of the stock with
respect to which an Incentive Stock Option is exercisable shall be the value
of such stock at the time that specific option is granted as provided for in
Section 422(c)(7) of the Code.
(c) Subject to Paragraph 4 below, the Incentive Stock Options granted
hereunder may be exercised by the Optionee at any time after date hereof and
through the Termination Date.
4. OPTION CONDITIONED ON CONTINUED EMPLOYMENT.
(a) If the employment of the Optionee shall be terminated voluntarily
by the Optionee or for cause, the Incentive Stock Options granted to the
Optionee hereunder shall immediately expire. If such employment shall
terminate otherwise than by reason of death, disability, voluntarily by the
Optionee or for cause, such options may be exercised at any time within three
(3) months after such termination, subject to the provisions of subparagraph
(d) of this Paragraph 4.
(b) If the Optionee dies (i) while employed by the Grantor or a
subsidiary or parent corporation, or (ii) within three (3) months after the
termination of Optionee's employment other than voluntarily by the Optionee or
for cause, such Incentive Stock Options may be exercised by a legatee or
legatees of such Incentive Stock Options under such individual's last will or
by his personal representatives or distributees at any time within one year
after his death, subject to the provisions of subparagraph (d) of this
Paragraph 4.
(c) If the Optionee becomes disabled within the definition of Section
22(e) of the Code while employed by the Grantor or a subsidiary or parent
corporation, such Incentive Stock Options may, subject to the provisions of
subparagraph (d) of this Paragraph 4, be exercised at any time within one year
after Optionee's termination of employment due to the disability.
(d) Incentive Stock Options may not be exercised pursuant to this
Paragraph 4 except to the extent that the Optionee was entitled to exercise
the options at the time of termination of employment or death pursuant to
Paragraph 3, and in any event may not be exercised after the original
expiration date of the options.
5. DIVISIBILITY AND NON-ASSIGNABILITY OF THE OPTIONS.
(a) The Optionee may exercise the Incentive Stock Options herein
granted from time to time during the period of their effectiveness with
respect to any whole number of shares included therein.
(b) The Optionee may not give, grant, sell, exchange, transfer legal
title, pledge, assign or otherwise encumber or dispose of the Incentive Stock
Options herein granted or any interest therein, otherwise than by will or the
laws of descent and distribution, and the Incentive Stock Options herein
granted, or any of them, shall be exercisable during the Optionee's lifetime
only by the Optionee.
6. STOCK AS INVESTMENT. By accepting the Incentive Stock Options
herein granted, the Optionee agrees for himself, his heirs and legatees that
any and all shares of Common Stock purchased hereunder shall be acquired for
investment purposes only and not for sale or distribution, and upon the
issuance of any or all of the shares of Common Stock issuable under the
options granted hereunder, the Optionee, or his heirs or legatees receiving
such shares of Common Stock, shall deliver to the Grantor a representation in
writing, that such shares of Common Stock are being acquired in good faith for
investment purposes only and not for sale or distribution. Grantor may place
a "stop transfer" order with respect to such shares of Common Stock with its
transfer agent and place an appropriate restrictive legend on the stock
certificate evidencing such shares of Common Stock.
7. RESTRICTION ON ISSUANCE OF SHARES. The Grantor shall not be
required to issue or deliver any certificate for shares of Common Stock
purchased upon the exercise of any Incentive Stock Options granted hereunder
unless (a) the issuance of such shares of Common Stock has been registered
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, or counsel to the Grantor shall have given an opinion that such
registration is not required; (b) approval, to the extent required, shall have
been obtained from any state regulatory body having jurisdiction thereof; and
(c) permission for the listing of such shares of Common Stock, if required,
shall have been given by any national securities exchange on which the shares
of Common Stock of the Grantor are at the time of issuance listed.
8. NOTIFICATION OF TRANSFER FOR TAX PURPOSES. In the event that the
Optionee disposes (whether by sale, exchange, gift or any other transfer) of
any shares of Common Stock acquired pursuant to the exercise of the Incentive
Stock Options granted hereunder, either within two years after the effective
date of the grant of the Incentive Stock Options to the Optionee hereunder or
within one year of the purchase of the shares of Common Stock by the Optionee
upon the exercise of the Incentive Stock Options, the Optionee will notify the
Grantor in writing, within thirty days after such disposition.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Common Stock of the
Grantor by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, exchanges of shares, reorganizations or
liquidations, the number of shares of Common Stock as to which the options may
be exercised shall be correspondingly adjusted by the Grantor, and the
Purchase Price shall be adjusted so that the product of the Purchase Price
immediately after such event multiplied by the number of options subject to
this Agreement immediately after such event shall be equal to the product of
the Purchase Price multiplied by the number of shares subject to this
Agreement immediately prior to the occurrence of such event. No adjustment
shall be made with respect to stock dividends or splits which do not exceed 5%
in any fiscal year, cash dividends or the issuance to shareholders of the
Grantor of rights to subscribe for additional shares of Common Stock or other
securities. Anything to the contrary contained herein notwithstanding, the
Board of Directors of the Grantor shall have the discretionary power to take
any action necessary or appropriate to prevent these options from being
disqualified as "Incentive Stock Options" under the United States Income Tax
laws then in effect.
(b) Any adjustment in the number of shares of Common Stock shall
apply proportionately to only the unexercised portion of the Incentive Stock
Options granted hereunder. If fractions of a share of Common Stock would
result from any such adjustment, the adjustment shall be revised to the next
higher whole number of shares of Common Stock so long as such increase does
not result in the holder of the options being deemed to own more than 5% of
the total combined voting power or value of all classes of shares of capital
stock of the Grantor or subsidiaries.
10. NO RIGHTS IN OPTION STOCK. Optionee shall have no rights as a
shareholder in respect of shares of Common Stock as to which the options
granted hereunder shall not have been exercised and payment made as herein
provided.
11. EFFECT UPON EMPLOYMENT. This Agreement does not give the
Optionee any right to continued employment by the Grantor.
12. BINDING EFFECT. Except as herein otherwise expressly provided,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their legal representatives and assigns.
13. AGREEMENT SUBJECT TO PLAN. Notwithstanding anything contained
herein to the contrary, this Agreement is subject to, and shall be construed
in accordance with, the terms of the Grantor's 1995 Stock Option Plan, and in
the event of any inconsistency between the terms hereof and the terms of such
Plan, the terms of the Plan shall govern.
14. MISCELLANEOUS. This Agreement shall be construed under the laws
of the State of Delaware, without application to the principles of conflicts
of law. Headings have been included herein for convenience of reference only,
and shall not be deemed a part of this Agreement.
LEAK-X ENVIRONMENTAL CORPORATION
By:/s/ Joyce A. Rizzo
Joyce A. Rizzo
ACCEPTED AND AGREED TO:
/s/ William H. Gelles, Jr.
William H. Gelles, Jr.
AGREEMENT, made as of this 1st day of July 1996, by and between Leak-X
Environmental Corporation, a corporation having its principal executive
offices at 790 East Market Street, Suite 270, West Chester, Pennsylvania 19382
("Grantor"), and John S. Gelles, residing at 75 Birchall Drive, Scarsdale, New
York 10583 ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee is presently employed by Grantor; and
WHEREAS, Grantor is desirous of increasing the incentive of Optionee to
exert his utmost efforts to improve the business and increase the assets of
the Grantor.
NOW, THEREFORE, in consideration of the promises of the Optionee to
remain in the continuous service of the Grantor or any of its subsidiaries,
and for other good and valuable consideration, the Grantor hereby grants the
Optionee options to purchase Common Stock of the Grantor upon the following
terms and conditions:
1. OPTIONS. Pursuant to its 1995 Stock Option Plan, the Grantor
hereby grants to the Optionee incentive stock options ("Incentive Stock
Options"), as provided in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to purchase, at any time commencing as of the date
hereof, and terminating as of 5:00 P.M. New York City time, on December 31,
1998 ("Termination Date"), up to 200,000 fully paid and non-assessable shares
of the Common Stock of the Grantor, par value $.001 per share.
2. PURCHASE PRICE. The purchase price ("Purchase Price") shall be
$.265 per share. The Grantor shall pay all original issue or transfer taxes
on the exercise of the Incentive Stock Options and all other fees and expenses
necessarily incurred by the Grantor in connection therewith.
3. EXERCISE OF OPTION. (a) The Optionee shall notify the Grantor by
registered or certified mail, return receipt requested, addressed to its
principal office (Attn: Chief Executive Officer), as to the number of shares
of Common Stock which Optionee desires to purchase pursuant to the options
herein granted, which notice shall be accompanied by payment (by bank check,
certified check or by delivery of shares of the Grantor's Common Stock having
a fair market value equal to the purchase price) of the option price therefor
as specified in Paragraph 2 above. As soon as practicable thereafter, the
Grantor shall cause to be delivered to the Optionee certificates issued in the
Optionee's name evidencing the shares of Common Stock purchased by the
Optionee.
(b) If the aggregate fair market value of all the stock with respect
to which Incentive Stock Options are exercisable for the first time by the
Optionee during any calendar year and all Incentive Stock Option plans of the
Grantor, any predecessor of the Grantor, its parent or subsidiaries, exceeds
$100,000.00, the grant of the Incentive Stock Options hereunder shall not, to
the extent of such excess, be deemed a grant of Incentive Stock Options but
will instead be deemed the grant of Non-Qualified Stock Options under the
Plan. For purposes of this paragraph, the fair market value of the stock with
respect to which an Incentive Stock Option is exercisable shall be the value
of such stock at the time that specific option is granted as provided for in
Section 422(c)(7) of the Code.
(c) Subject to Paragraph 4 below, the Incentive Stock Options granted
hereunder may be exercised by the Optionee at any time after date hereof and
through the Termination Date.
4. OPTION CONDITIONED ON CONTINUED EMPLOYMENT.
(a) If the employment of the Optionee shall be terminated voluntarily
by the Optionee or for cause, the Incentive Stock Options granted to the
Optionee hereunder shall immediately expire. If such employment shall
terminate otherwise than by reason of death, disability, voluntarily by the
Optionee or for cause, such options may be exercised at any time within three
(3) months after such termination, subject to the provisions of subparagraph
(d) of this Paragraph 4.
(b) If the Optionee dies (i) while employed by the Grantor or a
subsidiary or parent corporation, or (ii) within three (3) months after the
termination of Optionee's employment other than voluntarily by the Optionee or
for cause, such Incentive Stock Options may be exercised by a legatee or
legatees of such Incentive Stock Options under such individual's last will or
by his personal representatives or distributees at any time within one year
after his death, subject to the provisions of subparagraph (d) of this
Paragraph 4.
(c) If the Optionee becomes disabled within the definition of Section
22(e) of the Code while employed by the Grantor or a subsidiary or parent
corporation, such Incentive Stock Options may, subject to the provisions of
subparagraph (d) of this Paragraph 4, be exercised at any time within one year
after Optionee's termination of employment due to the disability.
(d) Incentive Stock Options may not be exercised pursuant to this
Paragraph 4 except to the extent that the Optionee was entitled to exercise
the options at the time of termination of employment or death pursuant to
Paragraph 3, and in any event may not be exercised after the original
expiration date of the options.
5. DIVISIBILITY AND NON-ASSIGNABILITY OF THE OPTIONS.
(a) The Optionee may exercise the Incentive Stock Options herein
granted from time to time during the period of their effectiveness with
respect to any whole number of shares included therein.
(b) The Optionee may not give, grant, sell, exchange, transfer legal
title, pledge, assign or otherwise encumber or dispose of the Incentive Stock
Options herein granted or any interest therein, otherwise than by will or the
laws of descent and distribution, and the Incentive Stock Options herein
granted, or any of them, shall be exercisable during the Optionee's lifetime
only by the Optionee.
6. STOCK AS INVESTMENT. By accepting the Incentive Stock Options
herein granted, the Optionee agrees for himself, his heirs and legatees that
any and all shares of Common Stock purchased hereunder shall be acquired for
investment purposes only and not for sale or distribution, and upon the
issuance of any or all of the shares of Common Stock issuable under the
options granted hereunder, the Optionee, or his heirs or legatees receiving
such shares of Common Stock, shall deliver to the Grantor a representation in
writing, that such shares of Common Stock are being acquired in good faith for
investment purposes only and not for sale or distribution. Grantor may place
a "stop transfer" order with respect to such shares of Common Stock with its
transfer agent and place an appropriate restrictive legend on the stock
certificate evidencing such shares of Common Stock.
7. RESTRICTION ON ISSUANCE OF SHARES. The Grantor shall not be
required to issue or deliver any certificate for shares of Common Stock
purchased upon the exercise of any Incentive Stock Options granted hereunder
unless (a) the issuance of such shares of Common Stock has been registered
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, or counsel to the Grantor shall have given an opinion that such
registration is not required; (b) approval, to the extent required, shall have
been obtained from any state regulatory body having jurisdiction thereof; and
(c) permission for the listing of such shares of Common Stock, if required,
shall have been given by any national securities exchange on which the shares
of Common Stock of the Grantor are at the time of issuance listed.
8. NOTIFICATION OF TRANSFER FOR TAX PURPOSES. In the event that the
Optionee disposes (whether by sale, exchange, gift or any other transfer) of
any shares of Common Stock acquired pursuant to the exercise of the Incentive
Stock Options granted hereunder, either within two years after the effective
date of the grant of the Incentive Stock Options to the Optionee hereunder or
within one year of the purchase of the shares of Common Stock by the Optionee
upon the exercise of the Incentive Stock Options, the Optionee will notify the
Grantor in writing, within thirty days after such disposition.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Common Stock of the
Grantor by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, exchanges of shares, reorganizations or
liquidations, the number of shares of Common Stock as to which the options may
be exercised shall be correspondingly adjusted by the Grantor, and the
Purchase Price shall be adjusted so that the product of the Purchase Price
immediately after such event multiplied by the number of options subject to
this Agreement immediately after such event shall be equal to the product of
the Purchase Price multiplied by the number of shares subject to this
Agreement immediately prior to the occurrence of such event. No adjustment
shall be made with respect to stock dividends or splits which do not exceed 5%
in any fiscal year, cash dividends or the issuance to shareholders of the
Grantor of rights to subscribe for additional shares of Common Stock or other
securities. Anything to the contrary contained herein notwithstanding, the
Board of Directors of the Grantor shall have the discretionary power to take
any action necessary or appropriate to prevent these options from being
disqualified as "Incentive Stock Options" under the United States Income Tax
laws then in effect.
(b) Any adjustment in the number of shares of Common Stock shall
apply proportionately to only the unexercised portion of the Incentive Stock
Options granted hereunder. If fractions of a share of Common Stock would
result from any such adjustment, the adjustment shall be revised to the next
higher whole number of shares of Common Stock so long as such increase does
not result in the holder of the options being deemed to own more than 5% of
the total combined voting power or value of all classes of shares of capital
stock of the Grantor or subsidiaries.
10. NO RIGHTS IN OPTION STOCK. Optionee shall have no rights as a
shareholder in respect of shares of Common Stock as to which the options
granted hereunder shall not have been exercised and payment made as herein
provided.
11. EFFECT UPON EMPLOYMENT. This Agreement does not give the
Optionee any right to continued employment by the Grantor.
12. BINDING EFFECT. Except as herein otherwise expressly provided,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their legal representatives and assigns.
13. AGREEMENT SUBJECT TO PLAN. Notwithstanding anything contained
herein to the contrary, this Agreement is subject to, and shall be construed
in accordance with, the terms of the Grantor's 1995 Stock Option Plan, and in
the event of any inconsistency between the terms hereof and the terms of such
Plan, the terms of the Plan shall govern.
14. MISCELLANEOUS. This Agreement shall be construed under the laws
of the State of Delaware, without application to the principles of conflicts
of law. Headings have been included herein for convenience of reference only,
and shall not be deemed a part of this Agreement.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
ACCEPTED AND AGREED TO:
/s/ John S. Gelles
John S. Gelles
THE NOTE, AS AMENDED HEREBY, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL IN
FAVOR OF PAYEE TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
AMENDMENT NO. 1 TO 10% NON-NEGOTIABLE PROMISSARY NOTE
This Amendment No. 1, dated as of September 29, 1996, to 10%
Non-Negotiable Promissary Note (the "Note") made on September 29, 1995 by
Groundwater Recovery Systems, Inc., formerly GRS Acquisition Corp., in favor
of George A. Nolan ("Payee"), modifies and amends that certain 10%
Non-Negotiable Promissory Note dated September 29, 1995 in the original
principal amount of $125,000.00, which amount was subsequently reduced to
$80,885.00 pursuant to the terms of the Note, from GRS Acquisition Corp., now
known as Groundwater Recovery Systems, Inc. ("Maker"), to Payee. All
capitalized terms used but not defined in this Amendment shall have the
meanings ascribed to them in the Original Note.
Maker and Payee hereby agree that the Note shall be amended as follows:
1. The maturity date of the Note shall be extended to March 31, 1998
(the "Maturity Date").
2. Quarterly payments of interest only, computed at the rate of 10%
per annum on the then outstanding principal balance of the Note, shall be due
and payable on December 31, 1996 and on the last day of each calendar quarter
thereafter through the Maturity Date.
3. Obligations of Maker to make payments of principal under the Note,
as amended hereby, shall be subject and subordinate to the obligations of
Maker under that certain Revolving Credit Agreement, dated June 27, 1996, by
and among First Union National Bank, as payee, and Lexicon Environmental
Associates, Inc. and Groundwater Recovery Systems, Inc. and Maker hereunder,
as borrower.
4. All terms of the Original Note not amended, deleted or modified
hereby shall remain in full force and effect.
GROUNDWATER RECOVERY SYSTEMS, INC.
By: /s/ James G. Warburton
Name: James G. Warburton
Title: Vice President
Agreed to and accepted by:
/s/ George A. Nolan
George A. Nolan
CONSENT OF GUARANTOR AND MODIFICATION OF GUARANTY
Reference is hereby made to that certain Guaranty by Leak-X Environmental
Corporation, a Delaware Corporation ("Guarantor"), dated September 29, 1995
(the "Original Guaranty"), of payment under the terms of that certain 10%
Non-Negotiable Promissory Note dated September 29, 1995 in the original
principal amount of $125,000.00, as subsequently reduced to $80,885.00 (the
"Note"), from Groundwater Recovery Systems, Inc., formerly GRS Acquisition
Corp., as maker, in favor of George A. Nolan, as payee, as amended by that
certain Amendment No. 1 thereto dated as of September 29, 1996, a copy of
which Amendment is attached to this Consent. Guarantor hereby consents to
said Amendment No. 1 to the Note and agrees that the Original Guaranty shall
Constitute a guaranty of payment under the Note as so amended.
Except as otherwise expressly provided herein, all terms of the Original
Guaranty shall remain in full force and effect.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Name: Joyce A. Rizzo
Title: Chief Executive Officer
ATTEST:
By: /s/ Eileen E. Bartoli
Print Name: Eileen E. Bartoli
THE NOTE, AS AMENDED HEREBY, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL IN
FAVOR OF PAYEE TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
AMENDMENT NO. 1 TO 10% NON-NEGOTIABLE PROMISSARY NOTE
This Amendment No. 1, dated as of September 29, 1996, to 10%
Non-Negotiable Promissary Note (the "Note") made on September 29, 1995 by
Groundwater Recovery Systems, Inc., formerly GRS Acquisition Corp., in favor
of James G. Warburton ("Payee"), modifies and amends that certain 10%
Non-Negotiable Promissory Note dated September 29, 1995 in the original
principal amount of $125,000.00, which amount was subsequently reduced to
$80,885.00 pursuant to the terms of the Note, from GRS Acquisition Corp., now
known as Groundwater Recovery Systems, Inc. ("Maker"), to Payee. All
capitalized terms used but not defined in this Amendment shall have the
meanings ascribed to them in the Original Note.
Maker and Payee hereby agree that the Note shall be amended as follows:
1. The maturity date of the Note shall be extended to March 31, 1998
(the "Maturity Date").
2. Quarterly payments of interest only, computed at the rate of 10%
per annum on the then outstanding principal balance of the Note, shall be due
and payable on December 31, 1996 and on the last day of each calendar quarter
thereafter through the Maturity Date.
3. Obligations of Maker to make payments of principal under the Note,
as amended hereby, shall be subject and subordinate to the obligations of
Maker under that certain Revolving Credit Agreement, dated June 27, 1996, by
and among First Union National Bank, as payee, and Lexicon Environmental
Associates, Inc. and Groundwater Recovery Systems, Inc. and Maker hereunder,
as borrower.
4. All terms of the Original Note not amended, deleted or modified
hereby shall remain in full force and effect.
GROUNDWATER RECOVERY SYSTEMS, INC.
By: /s/ George A. Nolan
Name: George A. Nolan
Title: President
Agreed to and accepted by:
/s/ James G. Warburton
James G. Warburton
CONSENT OF GUARANTOR AND MODIFICATION OF GUARANTY
Reference is hereby made to that certain Guaranty by Leak-X Environmental
Corporation, a Delaware Corporation ("Guarantor"), dated September 29, 1995
(the "Original Guaranty"), of payment under the terms of that certain 10%
Non-Negotiable Promissory Note dated September 29, 1995 in the original
principal amount of $125,000.00, as subsequently reduced to $80,885.00 (the
"Note"), from Groundwater Recovery Systems, Inc., formerly GRS Acquisition
Corp., as maker, in favor of James G. Warburton, as payee, as amended by that
certain Amendment No. 1 thereto dated as of September 29, 1996, a copy of
which Amendment is attached to this Consent. Guarantor hereby consents to
said Amendment No. 1 to the Note and agrees that the Original Guaranty shall
Constitute a guaranty of payment under the Note as so amended.
Except as otherwise expressly provided herein, all terms of the Original
Guaranty shall remain in full force and effect.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Name: Joyce A. Rizzo
Title: Chief Executive Officer
ATTEST:
By: /s/ Eileen E. Bartoli
Print Name: Eileen E. Bartoli
FIRST UNION Revolving Credit Note
(Pennsylvania)
Obligor # 5299614375
Obligation #
West Chester, Pennsylvania
June 27 1996
$750,000.00
FOR VALUE RECEIVED, and intending to be legally bound hereby, the Borrower,
jointly and severally and unconditionally promise(s) to pay to the order of
First Union National Bank , (the "Bank"), the principal amount of all advances
that are now or may hereafter be made hereunder and that are then outstanding,
together with accrued, unpaid interest thereof and any unpaid costs and
expenses payable hereunder, on July 31 1997.
A.Terms of Note
1.Interest Payments. The principal amounts outstanding under this
Revolving Credit Note (together with any attachments hereto and any amendments
and modifications hereto in effect from time to time, the "Note") shall bear
interest at the Bank's Prime Rate plus Zero 750/1000 percent (0.750%).
Accrued interest shall be due and payable by the Borrower to the Bank monthly
commencing on July 1, 1996, and on the same day of each such consecutive
period thereafter, and upon payment in full of the outstanding principal
balance hereof.
2.Computation of Interest. Interest charged hereunder shall be computed
daily on the basis of a 360 day year for the actual number of days elapsed.
All payments hereunder shall be made in lawful currency of the United States
of America and in immediately available funds. All payments made hereunder
shall be made to the Bank at its offices set forth in this Note or at such
other address as the Bank shall notify the Borrower of in writing.
3.Incorporation by Reference. This Note is the note referred to in that
certain Revolving Credit Agreement dated June 27, 1996, between the Bank and
the Borrower (together with any exhibits thereto and amendments and
modifications thereto in effect from time to time, the "Loan Agreement") and
is subject to the terms and conditions thereof, which terms and conditions are
incorporated herein, including, without limitation, terms pertaining to
definitions, representations, warranties, covenants, events of default and
remedies. Any capitalized term used herein without definition shall have the
definition contained in the Loan Agreement.
4.Borrowing Requests; Crediting of Account. Any request for borrowing
pursuant to this Note shall be made by the Borrower in writing One (1)
Business Days prior to the date of such proposed advance in the form of a
"Notice of Borrowing under Revolving Credit" attached hereto as Exhibit "A" or
in accordance with the terms of the Loan Agreement. Notwithstanding the
foregoing, the Bank's records of any advance made pursuant to this Note shall,
in the absence of manifest error, be deemed correct and acceptable and binding
upon the Borrower. Each advance hereunder shall be made by crediting the
Account (hereinafter defined) with the amount of the advance. All advances
made by crediting the Account or any other account of the Borrower at the Bank
shall be conclusively presumed to have been properly authorized by the
Borrower.
5.Bank Records of Advance. The Bank may enter in its business records
the date and the amount of each advance made pursuant to this Note and the
Loan Agreement. The Bank's records of such advance shall, in the absence of
manifest error, be conclusively binding upon the Borrower. In the event the
Bank gives notice or renders a statement by mailing or telecopying such notice
or statement to the Borrower, concerning any such advance or the amount of
principal and interest due on this Note, the Borrower agrees that, unless the
Bank receives a written notification of exceptions to this statement within
ten (10) calendar days after such statement or notice is mailed or telecopied,
the statement or notice shall be an account stated, correct and acceptable and
binding upon the Borrower.
6.Advance Requests Exceeding Maximum Principal Amount. The Borrower
shall not request the Bank to make any advances under this Note or Loan
Agreement which, when added to the principal balance outstanding hereunder,
would cause the principal balance outstanding hereunder to exceed (*See
Schedule Attached to Revolving Credit Agreement) (the "Maximum Principal
Amount"). In the event that the principal balance outstanding under this Note
exceeds at any time the Maximum Principal Amount, the Borrower shall
immediately, and without demand from the Bank, pay to the Bank the amount in
excess of the Maximum Principal Amount (the "Excess") and the Borrower agrees
that until such Excess is paid to the Bank, this Note shall evidence and be
enforceable with respect to any and all amounts outstanding hereunder
including such Excess.
7.Debiting of Account. The Borrower agrees to maintain an account (the
"Account") at the Bank continuously until the Liabilities due hereunder are
paid in full. All advances made by crediting the Account or any other account
of the Borrower at the Bank shall be conclusively presumed to have been
properly authorized by the Borrower. The Bank may, and the Borrower
authorizes the Bank to, debit the Account or any other account of the Borrower
at the Bank for the amount of any payment as and when such payment becomes due
hereunder. If there are insufficient funds in the Account at the time the
Account is debited, and the debiting creates an overdraft, the Bank may charge
the Borrower, in addition to any overdraft fee, an administrative fee in an
amount established from time to time by the Bank. The foregoing rights of the
Bank to debit the Borrower's accounts shall be in addition to, and not in
limitation of, any rights of set-off which the Bank may have hereunder or
under any Loan Document, nor shall the rights hereunder limit the Bank's
recourse to any particular source of funds or monies.
8.Application of Payments. All payments received on this Note shall be
applied first to the Bank's fees, costs and expenses which the Borrower is
obligated to pay pursuant to the terms hereof and under any other Loan
Document, then to accrued and unpaid interest and then to principal.
9.Late Charge. If any payment hereunder is not paid in full when the
same is due, at the Bank's option exercisable at the time of any late payment,
the Bank may collect from the Borrower a fee on such unpaid amount equal to
five percent (5%) of such amount.
10.Default Rate. At the Bank's option, interest will be assessed on any
principal which remains unpaid at the maturity of this Note, whether by
acceleration or otherwise, or upon the occurrence of an Event of Default
arising from failure to pay any amount when due under any of the Loan
Documents, at a rate which is four percent (4%) higher than the rate otherwise
charged hereunder (the "Default Rate") provided that at no time shall the
Default Rate exceed the highest rate of interest allowed by law. Such Default
Rate of interest shall also be charged on the amounts owed by the Borrower to
the Bank pursuant to any judgment entered in favor of the Bank with respect to
this Note or any other Loan Document.
11.Prepayment. Prepayment of principal may be made at any time without
prepayment penalty or premium. All payments received on this Note may be
applied in such order as the Bank in its sole discretion shall determine.
B.Security. The Bank is hereby granted a continuing security interest in the
Collateral as security for the payment of this Note and any other Liabilities,
which security interest shall be enforceable and subject to all the provisions
of this Note. Upon and following an Event of Default hereunder, the
Collateral may be applied by the Bank at any time to the Liabilities in any
order deemed appropriate by the Bank, in its sole and absolute discretion,
without notice to the Borrower.
C.Confession of Judgment.
1.THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR ANY
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT
OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER, FOLLOWING
CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE
BORROWER AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY,
INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE
BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER
THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE
COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE. IT IS SPECIFICALLY ACKNOWLEDGED
BY THE BORROWER THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY IN
RECEIVING THIS NOTE AND AS AN INDUCEMENT TO GRANT FINANCIAL ACCOMMODATIONS TO
THE BORROWER.
2.Upon and following the occurrence of an Event of Default, the Borrower
hereby jointly and severally authorizes and empowers any attorney of
any court of record or the prothonotary or clerk of any county in the
Commonwealth of Pennsylvania, or in any jurisdiction where permitted by law or
the clerk of any United States District Court, to appear for the Borrower in
any and all actions which may be brought hereunder and enter and confess
judgment against the Borrower or any of them in favor of the Bank for such
sums as are due or may become due hereunder or under any other Loan
Document, together with costs of suit and actual collection costs including,
without limitation, reasonable attorneys' fees equal to five percent (5%) of
the Liabilities then due and owing but in no event less than $5000, with or
without declaration, without prior notice, without stay of execution and with
release of all procedural errors and the right to issue executions forthwith.
To the extent permitted by law, the Borrower waives the right of inquisition
on any real estate levied on, voluntarily condemns the same, authorizes the
prothonotary or clerk to enter upon the writ of execution this voluntary
condemnation and agrees that such real estate may be sold on a writ of
execution; and also waives any relief from any appraisement, stay or exemption
law of any state now in force or hereafter enacted. If a copy of this Note
verified by affidavit of any officer of the Bank shall have been filed in such
action, it shall not be necessary to file the original thereof as a warrant of
attorney, any practice or usage to the contrary notwithstanding. The
authority herein granted to confess judgment shall not be exhausted by any
single exercise thereof, but shall continue and may be exercised from time to
time as often as the Bank shall find it necessary and desirable and at all
times until full payment of all amounts due hereunder and under the other Loan
Documents. The Bank may confess one or more judgments in the same or
different jurisdictions for all or any part of the Borrower's obligations
arising hereunder or under any other Loan Document to which the Borrower is a
party, without regard to whether judgment has theretofore been confessed on
more than one occasion for the same obligations. In the event that any
judgment confessed against the Borrower is stricken or opened upon application
by or on behalf of the Borrower or any Obligor for any reason, the Bank is
hereby authorized and empowered to again appear for and confess judgment
against the Borrower for any part or all of the obligations due and owing
under this Note, as herein provided.
IN WITNESS WHEREOF, the Borrower, intending to be legally bound hereby, has
executed and delivered to the Bank this Note, as of the day and year first
above written.
Lexicon Environmental Associates, Inc.
Corporation, Partnership or Limited Liability Company Name
Address: 790 East Market Street
West Chester, PA 19382
By: /s/ Joyce A. Rizzo By: /s/ Robert D. Goldman
Name & Title: Joyce A. Rizzo, President Robert D. Goldman, Secretary
Address: 790 East Market Street
West Chester, PA 19382
Groundwater Recovery Systems Inc.
Corporation, Partnership or Limited Liabitity Company Name
Address: 299 B National Road
Exton, PA 19341
By: /s/ George A. Nolan By: /s/ James G. Warburton
Name & Title: George A. Nolan, President James G. Warburton, V.P.
Address: 299 B National Road
Exton, PA 19341
First Union National Bank
123 South Broad Street
Philadelphia, PA 19109
Revolving Credit Agreement
(Pennsylvania)
*See Schedule attached hereto and made a part thereof
THIS REVOLVING CREDIT AGREEMENT (together with all schedules and exhibits
hereto and any amendments and modifications hereto in effect from time to
time, the "Agreement") is made this 27th day of June, 1996, by and between
First Union National Bank, (the "Bank") and Lexicon Environmental Associates,
Inc. and Groundwater Recovery Systems, Inc.(the "Borrower").
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound
hereby, the Bank and the Borrower agree as follows:
A. Credit Accommodations. Subject to the terms and conditions hereinafter set
forth, the Bank agrees to extend to the Borrower the following credit
accommodation:
1.Revolver. A revolving credit facility (the "Revolver"), expiring on
July 31, 1997 (the "Expiration Date"), under which the Bank, subject to the
following terms and conditions, will make advances to the Borrower from time
to time and the Borrower may borrow, repay, and reborrow such amounts up to
the Maximum Principal Amount. Amounts outstanding under the Revolver shall be
evidenced by a Revolving Credit Note in the form provided to the Borrower by
the Bank (together with any attachments thereto and amendments or
modifications thereto in effect from time to time, the "Note").
2.Maximum Principal Amount. * See Schedule Attached.
3.Rate of Interest. Interest on the outstanding principal balance
hereunder shall accrue at the Bank's Prime Rate (as defined below) plus Zero
750/1000 percent (0.750%0, provided however, that following an Event of
Default, interest on the outstanding principal balance hereunder shall accrue
at the Default Rate (as defined in the Note).
4.Payment Terms.
a.Interest on the outstanding principal balance hereunder is due and
payable by the Borrower to the Bank each X month quarter commencing July 1,
1996 and on the first day of each such consecutive period thereafter; and
b.All unpaid principal and accrued, unpaid interest is due and
payable in full by the Borrower to the Bank on the Expiration Date.
5.Reduction of Revolver to Zero. The Borrower shall reduce the amount of
the outstanding principal under the Revolver to zero for one period of N/A
consecutive days during each year after the date hereof while the Revolver is
in effect.
6.Notice of Borrowing. The Borrower shall give the Bank either (i)
written notice of the amount and date of each advance requested under the
Revolver One Business Days (as defined below) prior to the date of such
proposed advance, in the form of the "Notice of Borrowing Under Revolving
Credit" attached to the Note as Exhibit A, or (ii) if the Bank permits, in its
sole and absolute discretion, an oral request of the amount and date of each
proposed advance, provided such oral request is confirmed promptly after the
oral request by such written Notice of Borrowing Under Revolving Credit. An
oral request for an advance may be made by (i) any officer of the Borrower
listed on any borrowing resolution supplied by the Borrower to the Bank;
and/or (ii) any employee of the Borrower who has been authorized, by oral or
written notice to the Bank, to act on behalf of the Borrower and/or who has
been stated in any oral or written confirmation by the Bank to the Borrower to
be an employee believed by the Bank to be authorized by the Borrower (the
"Authorized Representative"). Any advance made by the Bank based on a request
by anyone purporting to be an Authorized Representative shall be binding on
the Borrower. Notwithstanding the foregoing, the Bank's records of any
advance made pursuant to this Agreement shall, in the absence of manifest
error, be deemed correct and acceptable and binding upon the Borrower. Each
advance shall be in an amount equal to One Thousand and no/100 Dollars
($l,000.00) or any whole multiple thereof, provided, however, that the
outstanding principal balance under the Revolver shall not exceed, at any
time, the Maximum Principal Amount.
7.Reduction of Commitment. The Borrower shall have the right, upon not
less than N/A Business Day(s) prior written notice to the Bank, to terminate
all or part of the unused portion of the commitment under the Revolver. Any
partial reduction of such unused commitment shall be in an amount equal to N/A
Dollars ($ n/a ) or any whole multiple thereof.
B. Debiting of Account. The Borrower agrees to maintain an account (the
"Account") at the Bank continuously until the Liabilities due hereunder are
paid in full. All advances made by crediting the Account or any other account
of the Borrower at the Bank shall be conclusively presumed to have been
properly authorized by the Borrower. The Bank may, and the Borrower
authorizes the Bank to, debit the Account or any other account of the Borrower
at the Bank for the amount of any payment as and when such payment becomes due
hereunder. If there are insufficient funds in the Account at the time the
Account is debited, and the debiting creates an overdraft, the Bank may charge
the Borrower, in addition to any overdraft fee, an administrative fee in an
amount established from time to time by the Bank. The foregoing rights of the
Bank to debit the Borrower's accounts shall be in addition to, and not in
limitation of, any rights of set-off which the Bank may have hereunder or
under any Loan Document, nor shall the rights hereunder limit the Bank's
recourse to any particular source of funds or monies.
C. Definitions. The following terms used throughout this Agreement shall
have the meanings assigned below:
1.Affiliate. The term "Affiliate" means First Union Corporation and any
of its direct or indirect affiliates and subsidiaries.
2.Business Day. The term "Business Day" means any day other than a
Saturday, Sunday, or a day on which the Bank is authorized or obligated by law
or executive order to be closed.
3.Collateral. The term "Collateral" means any and all property of any
Obligor (as defined below) now or hereafter in the possession, custody or
control of the Bank or any Affiliate including, but not limited to, any
balance or share of any deposit, trust or agency account and all collateral
described in any and all Loan Documents (as defined below), the additional
collateral described in Section I of this Agreement, any additional collateral
more fully described in the Schedule (as defined below) and any other property
of any Obligor now or hereafter subject to a security agreement, mortgage,
pledge agreement, assignment, hypothecation or other document granting the
Bank or any Affiliate a security interest or other lien or encumbrance.
4.Consolidated. The term "Consolidated" shall mean an accounting
presentation which includes any consolidated subsidiaries of the Borrower.
5.GAAP. The term "GAAP" means generally accepted accounting principles
in effect from time to time in the United States.
6.Liabilities. The term "Liabilities" means any and all obligations and
indebtedness of every kind and description of the Borrower owing to the Bank
or to any Affiliate, whether or not under the Loan Documents, and whether such
debts or obligations are primary or secondary, direct or indirect, absolute or
contingent, sole, joint or several, secured or unsecured, due or to become
due, contractual or tortious, arising by operation of law, by overdraft, or
otherwise, or now or hereafter existing, including, without limitation,
principal, interest, fees, late fees, expenses, attorneys' fees and costs,
and/or allocated fees and costs of the Bank's in-house counsel, that have been
or may hereafter be contracted or incurred.
7.Loan Documents. The term "Loan Documents" means this Agreement and any
and all credit accommodations, notes, loan agreements, and any other
agreements and documents, now or hereafter existing, creating, evidencing,
guarantying, securing or relating to any or all of the Liabilities, together
with all amendments, modifications, renewals, or extensions thereof.
8.Obligor. The term "Obligor" means the Borrower, and each and every
maker, endorser, guarantor or surety of or for the Liabilities.
9.Prime Rate. The term "Prime Rate" means the rate of interest
established by the Bank as its reference rate in making loans, and is not tied
to any external rate of interest or index. The rate of interest charged
hereunder shall change automatically and immediately as of the date of any
change in the Prime Rate, without notice to the Borrower.
10.Schedule. The term "Schedule" means the Schedule of Additional Terms
which is attached hereto.
D. Fees. The Borrower shall pay the following nonrefundable fees to the
Bank with respect to the Revolver:
1.Facility Fee. A one-time facility fee ("Facility Fee") equal to zero
250/l000 percent (0.250%) of the Maximum Principal Amount or One Thousand
Eight Hundred Seventy Five and no/100 Dollars ($1,875.00) which is payable on
or before the date of this Agreement. Notwithstanding anything to the
contrary in this Agreement, the Bank may, in its sole discretion, charge the
Borrower an additional Facility Fee in the event that the Revolver is ever
modified, renewed or extended;
2.Unused Commitment Fee. An unused commitment fee ("Commitment Fee") of
N/A percent (N/A %) on the average undrawn amount of the Revolver will be
payable by the Borrower to the Bank quarterly in arrears on or prior to the
fifth Business Day following the Borrower's receipt of a statement therefor;
and
3.Computation. Interest and the unused Commitment Fee, if any, shall be
calculated on the basis of a 360 day year for the actual number of days
elapsed.
E.Representations and Warranties. The Borrower represents and warrants with
respect to itself and, to the extent applicable, each of its consolidated
subsidiaries, and agrees that each such representation and warranty shall be
deemed to be restated at the time of each borrowing hereunder, that:
1.Organization; Authority. If not an individual, the Borrower is a X
corporation ~ partnership ~ limited liability company ~ sole proprietorship,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization or formation, is duly qualified as a foreign
corporation, limited partnership, or limited liability company, and is in good
standing under the laws of each jurisdiction in which it is required to be
qualified because of the business it conducts or the property it owns, and has
the necessary power and authority to enter into and perform its obligations
under the Loan Documents and all other documents required by the Bank in
connection therewith. If an individual, the Borrower is an adult and is
legally competent. The execution and performance of the Loan Documents have
been duly authorized by all necessary proceedings on the part of the Borrower,
and, upon their execution and delivery, they will be valid, binding, and
enforceable in accordance with their terms; the Borrower's execution and
performance of the Loan Documents will not violate any orders, laws or
regulations applicable to the Borrower, any organizational documents of the
Borrower, or any instruments, indentures or agreements (including any
provisions pertaining to subordinated debt) to which the Borrower is a party
or by which the Borrower or any of its properties are bound; and all consents,
approvals, licenses, franchises, patents, trademarks and other general
intangibles required in connection with this Agreement, the other Loan
Documents or the operation of the Borrower's business have been obtained and
are in full force and effect. The Borrower's subsidiaries and affiliates, if
any, are duly organized, validly existing, and in good standing under the laws
of the jurisdictions of their organization;
2.Use of Proceeds; No Purchases of Margin Stock. The proceeds of the
Revolver will be used only in connection with the Borrower's business, for the
following purposes: To finance accounts receivable. None of the proceeds of
the Revolver will be used to purchase or carry any "margin security" or extend
credit for such purpose within the meaning of Regulations G or U of the Board
of Governers of the Federal Reserve System;
3.Financial Statements. All financial statements, statements as to
ownership of the Borrower and its assets, and other statements and information
delivered to the Bank were prepared in accordance with GAAP, consistently
applied, are true and correct, and disclose a presently outstanding
indebtedness or obligations of the Borrower, including contingent obligations,
obligations under leases of property from others, and all liens and
encumbrances, including tax liens, against its properties and assets; and
there have been no adverse changes in the Borrower's financial condition or
business since the date of such statements;
4.Suits. There are no actions, suits, proceedings, or claims pending or
threatened against the Borrower or any of its property; and the Borrower's
business is in compliance with all applicable orders, laws and regulations;
5.Defaults. The Borrower is not in default under any agreement to which
the Borrower is a party or by which the Borrower or any of its property is
bound, or under any indenture or instrument evidencing any indebtedness of the
Borrower, and neither the Borrower's execution of nor performance under the
Loan Documents will create a default or any lien or encumbrance under any such
agreement indenture or instrument other than a lien or encumbrance in favor of
the Bank:
6.ERISA. No employee benefit plan established or maintained by the
Borrower which is subject to the Employee Retirement Income Security Act, 29
U.S.C. 1001 et seq. ("ERISA") has an accumulated funding deficiency (as such
term is defined in ERISA). No material liability to the Pension Benefit
Guaranty Corporation (or any successor thereto under ERISA) has been incurred
by the Borrower with respect to any such plan and no Reportable Event under
ERISA has occurred. The Borrower has no actual or anticipated liability under
Section 4971 of the Internal Revenue Code ("Code") (relating to tax on failure
to meet the minimum funding standard of Section 412 of the Code) with respect
to any employee benefit plan to which it contributes but which is not
maintained or established by it;
7.Tax Returns and Taxes. The Borrower has filed all federal, state and
local tax returns required to be filed and has paid all taxes assessments and
governmental charges and levies thereon, including interest and penalties,
except where the same are being contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside, and no liens
for taxes have been filed and no claims are being assessed by a governmental
authority with respect to any taxes. The charges, accruals and reserves on
the books of the Borrower with respect to taxes or other governmental charges
are adequate;
8.Compliance with Laws. The Borrower has complied with all requirements
of foreign, federal, state and local law in connection with the acquisition,
ownership and operation of the Borrower's business and property including,
without limitation, any and all applicable requirements of environmental
protection laws;
9.Environmental Compliance. To the best of the Borrower's knowledge,
after due inquiry and investigation, the Borrower and all previous owners
and/or operators of the real and/or personal property of the Borrower have not
engaged in any conduct resulting in the discharging of hazardous substances or
wastes into the atmosphere or waters, or onto lands. The Borrower has not
received a summons, citation, directive, letter, or other communication,
written or oral, from any jurisdiction, political subdivision, agency, or
instrumentality thereof, concerning any intentional or unintentional act or
omission on the Borrower's part resulting in the discharging of hazardous
substances or wastes into the atmosphere or waters, or onto lands; and
10.Affirmation of Additional Representations and Warranties. The
Borrower hereby makes and affirms, for itself and if applicable, for its
consolidated subsidiaries, any additional representations and warranties set
forth in the Schedule.
F. Conditions.
1.Documents Required for Initial Advance. The obligation of the Bank to
make the initial advance under the Revolver is subject to the payment of fees
due to the Bank under Sections D.1 . and L.3. of this Agreement and to the
Bank's receipt of the following documents, duly executed and delivered by the
Obligor thereunder, and in form and substance satisfactory to the Bank:
a.The Note(s) and this Agreement;
b.If the Borrower is a corporation, certified resolutions of the
Board of Directors of the Borrower authorizing the Borrower to borrow under
the Revolver and to execute, deliver and perform its obligations under the
Loan Documents. If the Borrower is a partnership or limited liability
company, the Borrower shall deliver to the Bank a certified document executed
by all general partners and limited partners of the Borrower or members of the
Borrower, as the case may be, authorizing the Borrower to borrow under the
Revolver and authorizing the Borrower's execution, delivery and performance of
the Loan Documents. Such resolution or document shall contain such other
provisions as shall be required by the Bank;
c.The following security, subordination, and/or guaranty documents,
and related instruments necessary to perfect any interest in the Collateral
described therein: General Security Agreement, Guaranty and Suretyship
Agreement, UCCs on Accounts Receivable and Inventory; and
d.Such other documents as the Bank may reasonably require,
including, without limitation, proof of insurance, appraisals of real and/or
personal property, environmental analysis, other agreements, instruments, or
indentures to which an Obligor is a party, including, without limitation,
financing statements, proofs, opinions of the Borrower's counsel and/or other
professionals, guaranties and other written assurances.
2.Requirements for Any Advance. The obligation of the Bank to make any
advance under the Revolver is subject to the payment of the fees due to the
Bank under Sections D.1., D.2. and L.3. of this Agreement and is conditioned
upon the following:
a.The representations and warranties contained in Section E hereof
are true and correct on and as of the date of each such advance, and the
Authorized Representatives previously notified and/or confirmed are the same
and have the same authority to bind the Borrower;
b.No Event of Default described in Section J hereof, and no event
which, with the giving of notice, or the passage of time, or both, would
become an Event of Default, has occurred and is continuing; and
c.All of the Loan Documents remain in full force and effect.
G.Affirmative Covenants. The Borrower covenants and agrees that so long as
there are any outstanding Liabilities hereunder or otherwise or the Bank shall
have any obligation hereunder, the Borrower and each of its consolidated
subsidiaries (except that if this box X is checked, these covenants shall not
apply to such consolidated subsidiaries) shall:
1.Financial Statements. Furnish to the Bank the following financial
information: (i) not later than ninety (90) days after the end of each fiscal
year, consolidated and consolidating ~ audited ~ reviewed ~ compiled
year-end financial statements for the Borrower (if the boxes herein are left
blank, then the type of financial statement shall be determined by the Bank at
its sole discretion), and if applicable, for each of its consolidated
subsidiaries, including, but not limited to, statements of financial
condition, income and cash flows, a reconciliation of net worth, notes to
financial statements (all of the above prepared in accordance with GAAP,
consistently applied, by an independent certified public accountant acceptable
to the Bank, and certified as true, correct, and complete by the Borrower's
chief financial officer) and any other information that may assist the Bank in
assessing the Borrower's financial condition; (ii) not later than forty-five
(45) days after the end of each interim fiscal quarter, the Borrower's
consolidated and consolidating financial statements, including, but not
limited to, statements of financial condition, income and cash flows, and a
reconciliation of net worth (all of the above prepared in a format acceptable
to the Bank, certified as true, correct, and complete by the Borrower's chief
financial officer); (iii) the following statements and schedules relating to
the Borrower's business, X monthly ~ quarterly or at such other times as may
be requested by the Bank:
X accounts receivable agings* accounts payable agings
inventory schedules X other Borrowing Base
Certificates within 15 days of
month end
and/or (iv) such information respecting the operations, financial or
otherwise, of the Borrower or any of its subsidiaries, as the Bank may from
time to time reasonably request; *within 15 days of month end
2.Compliance Certificate. Furnish to the Bank, together with each set of
financial statements described in Paragraphs G.l. (i) and (ii) above, a
compliance certificate signed, in the form attached hereto as Exhibit "A,"
signed by the Borrower's chief financial officer, certifying that: (i) all
representations and warranties set forth in this Agreement and in any other
Loan Document are true and correct as of the date thereof; (ii) none of the
covenants in this Agreement or in any other Loan Document has been breached;
(iii) no event has occurred which, alone, or with the giving of notice or the
passage of time, or both, would constitute an Event of Default under this
Agreement or under the other Loan Documents; and (iv) no material adverse
change has occurred in the Borrower's financial condition;
3.Notice of Certain Events. Promptly give written notice to the Bank of
(i) the details of any Reportable Events (as defined in ERISA) which have
occurred (ii) the occurrence of any event which alone or with notice, the
passage of time, or both, would constitute an Event of Default; (iii) the
commencement of any proceeding or litigation which, if adversely determined,
would adversely affect its financial condition or ability to conduct business;
and (iv) the formation of any subsidiary of the Borrower after the date of
this Agreement, which notice shall be accompanied by the resolution of the
Board of Directors of such subsidiary authorizing such subsidiary to execute a
guaranty of the Liabilities, satisfactory in form and substance to the Bank,
together with such guaranty duly executed by such subsidiary;
4.Preservation of Property; Insurance. Keep and maintain, and require
its subsidiaries to keep and maintain, all of its and their properties
and assets in good order and repair; maintain extended coverage, general
liability, hazard, business interruption, property and other
insurance in amounts deemed satisfactory to the Bank and as is customary for
businesses similar to the Borrower's business and deliver to the Bank
certificates of all such insurance in effect; and cause all such policies
covering any Collateral and covering business interruption to contain loss
payee endorsements in favor of the Bank and to be subject to cancellation or
reduction in coverage only upon thirty (30) days prior written notice thereof
to the Bank at its address set forth in this Agreement.
5.Taxes. Pay and discharge, and require its subsidiaries to pay and
discharge, when due, all taxes, assessments or other governmental
charges imposed on them or any of their respective properties, unless the same
are currently being contested in good faith by appropriate proceedings and
adequate reserves are maintained therefor;
6.Operation of Properties. Operate its properties, and cause those of
its subsidiaries to be operated in compliance with all applicable orders,
rules and regulations promulgated by the jurisdictions and agencies thereof
where such properties are located, and duly file or cause to be filed such
reports and/or information returns as may be required or appropriate under
applicable orders, regulations or law;
7.Access to Properties, Books and Records. Permit the Bank's
representatives and/or agents full and complete access to any or all of the
Borrower's and its subsidiaries' properties and financial records, to make
extracts from and/or audit such records and to examine and discuss the
Borrower's properties, business, finances and affairs with the Borrower's
officers and outside accountants;
8.Environmental Liens. In the event that there shall be filed a lien
against any property of the Borrower by any jurisdiction, political
subdivision, agency, or instrumentality thereof, arising from an intentional
or unintentional act or omission of the Borrower, resulting in the discharging
of hazardous substance or wastes into the atmosphere or waters, or onto lands,
then, within thirty (30) days from the date that the Borrower is given notice
that the lien has been placed against such property, or within such shorter
period of time in the event that such jurisdiction, political subdivision,
agency, or instrumentality thereof has commenced steps to cause such property
to be sold pursuant to the lien, the Borrower shall either (i) pay the claim
and remove the lien from the applicable property or (ii) furnish to such
jurisdiction, political subdivision, agency, or instrumentality thereof that
imposed the lien one of the following: (a) a bond satisfactory to such
jurisdiction, political subdivision, agency, or instrumentality thereof in the
amount of the claim out of which the lien arises, (b) a cash deposit in the
amount of the claim out of which the lien arises; or (c) other security
reasonably satisfactory to such jurisdiction, political subdivision, agency or
instrumentality thereof in an amount sufficient to discharge the claim out of
which the lien arises;
9.Removal of Hazardous Substances. Should the Borrower cause or permit
any intentional or unintentional act or omission resulting in the discharging
of hazardous substances or wastes into the atmosphere or waters, or onto
lands, resulting in damage to the natural resources without having obtained a
permit issued by the appropriate governmental authorities, the Borrower shall
promptly clean up same in accordance with all applicable federal, state, and
local orders, statutes, laws, ordinances, rules, and regulations; and
10.Additional Affirmative Covenants. The Borrower further affirmatively
covenants and agrees that it shall perform any other affirmative covenants set
forth in the Schedule and in the Loan Documents to which the Borrower is a
party.
H.Negative Covenants. So long as any Liabilities are outstanding, or the Bank
has any commitment to make advances hereunder, the Borrower and its
consolidated subsidiaries (except that if this box is checked, these
covenants shall not apply to such consolidated subsidiaries) shall not,
without the prior written consent of the Bank (in this section only, if a
blank in any of the following paragraphs is completed with the letters NA or
N/A, that paragraph in this section only is not applicable):
1.Incur Indebtedness; Creation of Lien. Incur, create, or assume any
indebtedness including, without limitation, obligations under capitalized
leases, except indebtedness owing to the Bank, indebtedness existing on the
date hereof and previously reported in writing to and permitted by the Bank,
indebtedness incurred for normal consumer purposes, and trade indebtedness
arising in the ordinary course of the Borrower's business; make any loans or
advances to others including, without limitation, officers, directors,
shareholders, principals, partners, members, managers, or affiliates of the
Borrower or any Obligor; or create, permit, or suffer the creation of any
liens, security interests or other encumbrances on any of its property, real
or personal, except liens, security interests or encumbrances in favor of the
Bank or existing on the date hereof and previously reported in writing to and
permitted by the Bank;
2.Sale of Assets; Liquidation; Merger; Acquisitions. Convey, lease,
sell, transfer or assign any assets except in the ordinary course of the
Borrower's business for value received; liquidate or discontinue its normal
operations with intent to liquidate; enter into any merger or consolidation;
or acquire all or substantially all of the assets, stock or other equity
interests of another entity;
3.Payment of Dividends; Redemption of Stock. Pay any dividends, make any
withdrawal from its capital, make any other distributions and/or repurchase,
redeem, or otherwise acquire or set aside reserves to acquire, any of its
outstanding stock, partnership, member, or other equity interests, except for
such actions by any subsidiaries in favor of the Borrower;
4.Accounts. Sell, assign, transfer or dispose of any of its accounts or
notes receivable, with or without recourse, except to the Bank;
5.Guaranty Obligations. Become a guarantor, surety, Obligor or otherwise
become directly, indirectly or contingently liable for the debts or
obligations of others, except for the benefit of the Bank or its Affiliates,
and except as an endorser of checks or drafts negotiated in the ordinary
course of the Borrower's business;
6.Lease Obligations. Incur, create, or assume any commitment to make any
Lease Payments if the aggregate amount payable thereunder in any one fiscal
year would exceed $ N/A , "Lease Payments" shall mean any direct or indirect
payment or payments, whether as rent or otherwise, including fees or service
or finance charges, under any lease, rental or other agreement for the use of
the property of any person and/or entity other than the Borrower whether or
not such agreement contains an option to purchase;
7.Sale-Leaseback Transactions. Enter into any sale-leaseback transaction
or any transaction howsoever termed which would have the same or substantially
the same result or effect as a sale-leaseback;
8.Prepayment of Other Indebtedness. Prepay any amounts not required to
be prepaid, except to the Bank or any Affiliate, or cause or permit to be
accelerated any amounts on any outstanding indebtedness now existing or
hereafter arising;
9.Compensation. Permit salaries, withdrawals, bonuses or other
compensation to officers, directors, shareholders, principals, partners,
members, managers, or affiliates of the Borrower to exceed the aggregate
amount of $ N/A per year;
10.Expenses for Fixed Assets. Expend for fixed assets during any one
fiscal year of the Borrower an aggregate amount exceeding $ N/A;
11.Sale or Issuance of Equity Interest. If the Borrower is a
corporation, sell, issue, or agree to sell or issue, any equity interest
(voting, non-voting, preferred or common) of the Borrower, or purchase any
such equity interest;
12.Investments. Purchase or make any investment in the stock, securities
or evidences of indebtedness of or loan to any other person or entity
(including, without limitation, entities owned or controlled by any officers,
directors, shareholders, principals, partners, members, managers, or
affiliates of the Borrower) except (i) the United States Government or its
agencies, or (ii) certificates of deposit of United States domestic banks
having a ratio of qualifying total capital to weighted risk assets of not less
than eight (8%) percent, at least four (4%) percent of which is Tier I
capital, and total capital and surplus in excess of $50,000,000. "Qualifying
total capital" and "Tier I capital" shall be defined from time to time
pursuant to regulations published by the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation;
13.Hazardous Substances. Cause or permit to exist a discharging of
hazardous substances or wastes into the atmosphere or waters, or onto lands,
unless the discharging is pursuant to and in compliance with the conditions of
a permit issued by the appropriate federal, state, or local governmental
authorities;
14.Consolidated Working Capital. Permit Consolidated Working Capital of
the Borrower and its consolidated subsidiaries (if any) at any time to be less
than $ N/A until and including N/A, and $ N/A at all times thereafter;
"Working Capital" is defined, at any date, as the excess of Current Assets
over Current Liabilities; "Current Assets" and "Current Liabilities" shall
mean all assets and liabilities which, in accordance with GAAP, should be
classified as current assets and current liabilities, respectively;
15.Consolidated Debt Service Coverage Ratio. Permit the ratio of net
income minus dividends plus interest expense plus income tax expense plus
depreciation and amortization of the Borrower and its consolidated
subsidiaries for any period of four consecutive fiscal quarters ("current
period") to interest expense of the Borrower and its consolidated subsidiaries
for such current period plus the current portion of long term debt
and capital leases of the Borrower and its consolidated subsidiaries (as
reflected on the Borrower's consolidated financial statement as of the end of
the most recent fiscal quarter immediately preceding such current period) to
be less than $ N/A;
16.Consolidated Tangible Net Worth. Permit Consolidated Tangible Net
Worth at any time to be less than $ N/A; "Tangible Net Worth" is defined, at
any date, as (i) the aggregate amount at which all assets of the Borrower
would be shown on a balance sheet at such date after deducting capitalized
research and development costs, capitalized interest, debt discount and
expense, goodwill, patents, trademarks, copyrights, franchises, licenses,
amounts owing from officers, directors, shareholders, principals, partners,
members, managers, or affiliates of the Borrower and any investments in any
entities owned or controlled by any of the foregoing, and such other assets as
are properly classified as "intangible assets" less (ii) the aggregate amount
of indebtedness, liabilities (including tax and other proper accruals) and
reserves of the Borrower and its consolidated subsidiaries (excluding
Approved Subordinated Debt); "Approved Subordinated Debt" means any
indebtedness for borrowed money that is permitted by this Agreement and that
is owing on the date hereof or is subordinated to the Liabilities on terms
approved in writing by the Bank;
17.Debt to Equity Ratio Requirements. Permit the ratio of Consolidated
Total Liabilities to Consolidated Tangible Net Worth at any time to exceed N/A
until and including N/A, and N/A thereafter; "Total Liabilities" is defined,
at any date, as all liabilities of the Borrower which would properly appear on
the liabilities side of a balance sheet, other than capital stock, capital
surplus, retained earnings, minority interests, deferred credit, Approved
Subordinated Debt and contingency reserves under GAAP; and
18.Additional Negative Covenants. The Borrower and its subsidiaries
shall not undertake any activities prohibited by any other negative covenants
set forth on the Schedule.
I.Additional Collateral. As additional collateral security for the payment of
the Borrower's indebtedness and obligations to the Bank hereunder, under the
other Loan Documents, and/or otherwise, the Borrower hereby grants to the Bank
a continuing security interest in and lien of the first priority upon and
hereby assigns to the Bank all funds, balances, deposits, accounts,
certificates of deposit, securities and/or other property of any kind of the
Borrower and in which the Borrower has an interest, and the proceeds of the
foregoing, now or hereafter in the possession, custody, or control of the Bank
or any Affiliate.
J.Events of Default. Each of the following shall constitute an event of
default ("Event of Default") hereunder:
1.Breach. A breach by any Obligor of any term, provision, obligation,
covenant, representation, or warranty arising under (i) this Agreement or any
other Loan Document, including, without limitation, failure to make any
payment when due hereunder or under any other Loan Document; (ii) any present
or future agreement or instrument with or in favor of the Bank and/or any
Affiliate, including the failure to make any payment when due; or (iii) any
present or future agreement or instrument for borrowed money or other
financial accommodations in any other person or entity;
2.Bankruptcy; Insolvency. (i) Any Obligor commences any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under the United
States Bankruptcy Code or under any similar foreign, federal, state, or local
statute, or any dissolution or liquidation proceeding, or makes a general
assignment for the benefit of creditors, or takes any action for the purpose
of effecting any of the foregoing; (ii) any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under the United States Bankruptcy
Code or under any similar foreign, federal, state, or local statute, or any
dissolution or liquidation proceeding, is involuntarily commenced against or
in respect of any Obligor or an order for relief is entered in any such
proceeding; (iii) the appointment, or the filing, of a petition seeking the
appointment, of a custodian, receiver, trustee, or liquidator for any Obligor
or any of its property, or the taking of possession of any part of the
property of any Obligor at the instance of any governmental authority; or (iv)
any Obligor becomes insolvent (however defined), is generally not paying its
debts as they become due, or has suspended transaction of its usual business;
3.Death; Reorganization. The death, dissolution, merger, consolidation,
or reorganization of any Obligor;
4.Material Misstatement. Any statement, representation or warranty made
in or pursuant to this Agreement or any other Loan Document or to induce the
Bank to enter into this Agreement shall prove to be untrue or misleading in
any material respect;
5.Material Adverse Change. The occurrence of a material adverse change
in the financial condition of any Obligor or the occurrence of any event
which, in the sole opinion of the Bank, impairs the financial responsibility
of any Obligor, including, without limitation, a change in management or
ownership of any Obligor;
6.Insecure. The Bank deems itself insecure;
7.Debt, Liens, Loans, Lease Payments. Any Obligor: (i) incurs or assumes
additional debt other than debt incurred for normal consumer purposes, debt to
the Bank and/or an Affiliate and/or trade debt in the ordinary course of
Obligor's business; (ii) makes any loans or advances to officers, directors,
shareholders, principals, partners, members, managers, or affiliates of the
Borrower or any Obligor; (iii) creates, permits or grants any lien or security
interest in or transfers any of its property on which the Bank and/or an
Affiliate has a lien and/or security interest; or (iv) incurs, creates or
assumes any commitment, either directly or indirectly, for rent, service fees
or charges or finance charges under any lease, rental, sale-leaseback, or
other agreement for use of the property of any person and/or entity other than
the Borrower;
8.Entry of Judgment. The filing, entry, or issuance of any judgment,
execution, garnishment, attachment, distraint, or lien against any Obligor or
its property; or the entry of any order enjoining or restraining any Obligor
and/or restraining or seizing any property of any Obligor;
9.Transfer of Assets. Any Obligor transfers or sells all or
substantially all of its assets, without the prior written consent of the
Bank; or
10.Loan Documents. The validity or enforceability of any of the Loan
Documents is contested by an Obligor or any representative thereof.
K. Remedies.
1.Acceleration of Liabilities; Rights of Bank. Upon and following the
occurrence of an Event of Default described in Section J hereof(other than the
Events of Default described in Paragraph J.2.), at the Bank's sole option, the
Bank's commitment, if any, to make any further advances or loans to the
Borrower hereunder shall terminate, and all Liabilities shall immediately
become due and payable in full all without protest, presentment, demand or
further notice of any kind to the Borrower or any other Obligor, all of which ar
e expressly waived. Upon the occurrence of any Event of Default described in
Paragraph J.2., immediately and automatically, the Bank's commitment, if any,
to make any further advances or loans to the Borrower hereunder, shall
terminate and all Liabilities shall immediately become due and payable in
full, all without protest, presentment, demand or further notice of any kind
to the Borrower or any other Obligor, all of which are expressly waived. Upon
and following an Event of Default, the Bank may, at its option, exercise any
and all rights and remedies it has under this Agreement, the other Loan
Documents and under applicable law, including, without limitation, the right
to charge and collect interest on the principal portion of the Liabilities at
the Default Rate, which rate shall, at the Bank's option, apply upon and after
an Event of Default arising from failure to pay any amount when due under any
of the Loan Documents, maturity, whether by acceleration or otherwise, and the
entry of judgment with respect to any or all of the Liabilities Upon and
following an Event of Default hereunder, the Bank may proceed to protect and
enforce the Bank's rights under any Loan Document and/or under applicable law
by action at law, in equity, or other appropriate proceedings, including,
without limitation, an action for specific performance to enforce or aid in
the enforcement of any provision contained herein or in any other Loan
Document.
2.Right of Set-off. If any of the Liabilities shall be due and payable
or any one or more Events of Default shall have occurred, whether or not the
Bank shall have made demand under any Loan Document and regardless of the
adequacy of any Collateral for the Liabilities or other means of obtaining
repayment of the Liabilities, the Bank shall have the right, without notice to
the Borrower or any other Obligor and is specifically authorized hereby to set-o
ff against and apply to the then unpaid balance of the Liabilities any items
or funds of the Borrower and/or any Obligor held by the Bank or any Affiliate,
any and all deposits (whether general or special, time or demand matured or
unmatured) or any other property of the Borrower and/or any Obligor,
including, without limitation, securities and/or certificates of deposit, now
or hereafter maintained by the Borrower and/or any Obligor for its or their
own account with the Bank or any Affiliate, and any other indebtedness at any
time held or owing by the Bank or any Affiliate to or for the credit or the
account of the Borrower and/or any Obligor, even if effecting such set-off
results in a loss or reduction of interest or the imposition of a penalty
applicable to the early withdrawal of time deposits. For such purpose, the
Bank shall have, and the Borrower hereby grants to the Bank a first lien on
and security interest in such deposits, property, funds, and accounts, and the
proceeds thereof. The Borrower further authorizes any Affiliate, upon and
following the occurrence of an Event of Default, at the request of the Bank,
and without notice to the Borrower, to turn over to the Bank any property of
the Borrower, including, without limitation, funds and securities, held by the
Affiliate for the Borrower's account and to debit, for the benefit of the
Bank, any deposit account maintained by the Borrower with such Affiliate (even
if such deposit account is not then due or there results a loss or reduction
of interest or the imposition of a penalty in accordance with law applicable
to the early withdrawal of time deposits), in the amount requested by the Bank
up to the amount of the Liabilities, and to pay or transfer such amount or
property to the Bank for application to the Liabilities.
3.Confession of Judgment.
a.THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR ANY
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER, FOLLOWING
CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE
BORROWER AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY,
INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE
BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER
THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE
COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE. IT IS SPECIFICALLY ACKNOWLEDGED BY
THE BORROWER THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY IN RECEIVING
THIS AGREEMENT AND AS AN INDUCEMENT TO GRANT FINANCIAL ACCOMMODATIONS
CONTAINED HEREIN.
b.Upon and following the occurrence of an Event of Default, the
Borrower hereby jointly and severally authorizes and empowers any attorney of
any court of record or the prothonotary or clerk of any county in the
Commonwealth of Pennsylvania, or in any jurisdiction where permitted by law or
the clerk of any United States District Court, to appear for the Borrower or
any of them in any and all actions which may be brought hereunder and enter
and confess judgment against the Borrower or any of them in favor of the Bank
for such sums as are due or may become due hereunder or under any other Loan
Document, together with costs of suit and actual collection costs including,
without limitation, reasonable attorneys' fees equal to five percent (5%) of
the Liabilities then due and owing but in no event less than $5,000, with or
without declaration, without prior notice, without stay of execution and with
release of all procedural errors and the right to issue executions forthwith.
To the extent permitted by law, the Borrower waives the right of inquisition
on any real estate levied on, voluntarily condemns the same, authorizes the
prothonotary or clerk to enter upon the writ of execution this voluntary
condemnation and agrees that such real estate may be sold on a writ of
execution; and also waives any relief from any appraisement, stay or exemption
law of any state now in force or hereafter enacted. If a copy of this
Agreement verified by affidavit of any officer of the Bank shall have been
filed in such action, it shall not be necessary to file the original thereof
as a warrant of attorney, any practice or usage to the contrary
notwithstanding. The authority herein granted to confess judgment shall not be
exhausted by any single exercise thereof, but shall continue and may be
exercised from time to time as often as the Bank shall find it necessary and
desirable and at all times until full payment of all amounts due hereunder and
under the other Loan Documents. The Bank may confess one or more judgments in
the same or different jurisdictions for all or any part of the obligations
arising hereunder or under any other Loan Document, without regard to whether
judgment has theretofore been confessed on more than one occasion for the same
obligations. In the event that any judgment confessed against the Borrower is
stricken or opened upon application by or on behalf of the Borrower or any
Obligor for any reason, the Bank is hereby authorized and empowered to again
appear for and confess judgment against the Borrower for any part or all of
the obligations due and owing under this Note, as herein provided.
4.Remedies Cumulative; No Waiver. The rights, powers and remedies of the
Bank provided in this Agreement and any of the Loan Documents are cumulative
and not exclusive of any right, power or remedy provided by law or equity. No
failure or delay on the part of the Bank in the exercise of any right, power
or remedy shall operate as a waiver thereof, nor shall any single or partial
exercise preclude any other or further exercise thereof, or the exercise of
any other right, power or remedy.
5.Continuing Enforcement of the Loan Documents. If, after receipt of any
payment of all or any part of the Liabilities, the Bank is compelled or
agrees, for settlement purposes, to surrender such payment to any person or
entity for any reason, then this Agreement and the other Loan Documents shall
continue in full force and effect or be reinstated, as the case may be. The
provisions of this Paragraph shall survive the termination of this Agreement
and the other Loan Documents and shall be and remain effective notwithstanding
the payment of the Liabilities, the cancellation of the Agreement, the release
of any security interest, lien or encumbrance securing the Liabilities or any
other action which the Bank may have taken in reliance upon its receipt of
such payment.
L. Miscellaneous.
1.Waiver of Demand. The Borrower (i)waives demand, presentment, protest,
notice of protest, and notice of dishonor of this Agreement; (ii) consents to
any and all extensions of time, renewals, waivers, or modifications that may
be granted by the Bank with respect to the payment or other provisions of this
Agreement; and (iii) agrees that makers, endorsers, guarantors, and sureties
for the indebtedness evidenced hereby may be added or released without notice
to the Borrower and without affecting the Borrower's liability hereunder. The
liability of the Borrower hereunder shall be absolute and unconditional.
2.Notices. Notices and communications under this Agreement shall be in
writing and shall be given by (i) hand-delivery, (ii) first class mail
(postage prepaid), (iii) reliable overnight commercial courier (charges
prepaid) or (iv) telecopy to the addresses and telecopier numbers
listed in this Agreement (provided that if no telecopier numbers appear on
this Agreement, to the telecopier numbers that the parties notify one another
of from time to time). Notice given by telecopy shall be deemed to have been
given and received when sent. Notice by overnight courier shall be deemed to
have been given and received on the date scheduled for delivery. Notice by
mail shall be deemed to have been given and received three (3) calendar days
after the date first deposited in the United States Mail. Notice by
hand-delivery shall be deemed to have been given and received upon delivery. A
party may change its address and/or telecopier number by giving written
notice to the other party as specified herein.
3.Costs and Expenses. Whether or not the transactions contemplated by the
Loan Documents are fully consummated, the Borrower shall promptly pay (or
reimburse, as the Bank may elect) all costs and expenses which the Bank has
incurred or may hereafter incur in connection with the negotiation,
preparation, reproduction, interpretation, perfection, protection of
collateral, administration and enforcement of this Agreement and the other
Loan Documents, the collection of all amounts due under this Agreement and the
other Loan Documents, and all amendments, modifications, consents or waivers,
if any, to the Loan Documents. The Borrower's reimbursement obligations under
this Paragraph shall survive any termination of this Agreement or any other
Loan Document.
4.Payment Due on a Day Other than a Business Day. If any payment due or
action to be taken under this Agreement or any other Loan Document falls due
or is required to be taken on a day that is not a Business Day, such payment
or action shall be made or taken on the next succeeding Business Day when the
Bank is open for business and such extended time shall be included in the
computation of interest.
5.Governing Law. This Agreement and the Note shall be construed in
accordance with and governed by the substantive laws of the Commonwealth of
Pennsylvania without reference to conflict of laws principles.
6.Integration; Amendment. This Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the subject
matter hereof and thereof and supersede all oral negotiations and prior
writings with respect to the subject matter hereof and thereof. No amendment
of this Agreement, and no waiver of any one or more of the provisions hereof
shall be effective unless set forth in writing and signed by the parties
hereto.
7.Successors and Assigns. This Agreement (i) shall be binding upon the
Borrower and the Bank and, where applicable, their respective heirs,
executors, administrators, successors and assigns, and (ii) shall inure to the
benefit of the Borrower and the Bank and, where applicable, their respective
heirs, executors, administrators, successors and permitted assigns; provided,
however, that the Borrower may not assign its rights or obligations hereunder
or any interest herein without the prior written consent of the Bank, and any
such assignment or attempted assignment by the Borrower shall be void and of
no effect with respect to the Bank. The Bank may from time to time sell or
assign, in whole or in part, or grant participations in the Loan and/or the
Agreement and/or the obligations evidenced thereby. The Borrower authorizes
the Bank to provide information concerning the Borrower to any prospective
purchaser, assignee or participant.
8.Severability and Consistency. The illegality, unenforceability or
inconsistency of any provision of this Agreement or any instrument or
agreement required hereunder shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of this
Agreement or any instrument or agreement required hereunder. The Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among any of the Loan Documents, such inconsistency shall not
affect the validity or enforceability of any Loan Document. The Borrower agrees
that in the event of any inconsistency or ambiguity in any of the Loan
Documents, the Loan Documents shall not be construed against any one party but
shall be interpreted consistent with the Bank's policies and procedures.
9.Consent to Jurisdiction and Service of Process. The Borrower
irrevocably appoints each and every owner, partner, member, manager, and/or
officer of the Borrower as its attorneys upon whom may be served, by regular
or certified mail at the address set forth in this Agreement, any notice,
process or pleading in any action or proceeding against it arising out of or
in connection with this Agreement or any of the other Loan Documents. The
Borrower hereby consents and agrees that (i) any action or proceeding against
it may be commenced and maintained in any court within the Commonwealth of
Pennsylvania or in the United States District Court for any District of
Pennsylvania by service of process on any such owner, partner, member,
manager, and/or officer and (ii) the courts of the Commonwealth of
Pennsylvania and the United States District Court for any District of
Pennsylvania shall have jurisdiction with respect to the subject matter hereof
and the person of the Borrower and all collateral for the Liabilities. The
Borrower agrees that any action brought by the Borrower shall be
commenced and maintained only in a court in the Federal Judicial District or
county in which the Bank has its principal place of business in
Pennsylvania.
10.Joint and Several Liability. In the event that the Borrower consists
of more than one person or entity, the Liabilities of each such person or
entity shall be joint and several and the word "Borrower" means each of them,
any of them and/or all of them.
11.Judicial Proceedings; Waivers.
THE BORROWER AND THE BANK ACKNOWLEDGE AND AGREE THAT (i) ANY SUIT, ACTION
OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE
BANK OR THE BORROWER OR ANY SUCCESSOR OR ASSIGN OF THE BANK OF THE BORROWER,
ON OR WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
DEALINGS OF THE PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY
BY A COURT AND NOT BY A JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY;
(ii) EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND
(iii) THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE
BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS
SECTION WERE NOT A PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the Borrower and the Bank, intending to be Legally bound
hereby, have executed this Agreement, as of the day and year first above
written.
Lexicon Environmental Associates. Inc.
Corporation, Partnership or Limited Liability Company Name
Address: 790 East Market Street
West Chester, PA 19382
By: /s/ Joyce A. Rizzo BY: /s/ Robert D. Goldman
Name & Title: Joyce A. Rizzo, President Robert D. Goldman,
Secretary
Address: 790 East Market Street
West Chester, PA 19382
Groundwater Recovery Systems, Inc.
Corporation, Partnership or Limited Liability Company Name
Address: 299 B National Road
Exton, Pa 19341
By: /s/ George A. Nolan
Name & Title: George A. Nolan, President
Address: 299 B National Road
Exton, PA 19341
By: /s/ James G. Warburton
James G. Warburton - V.P.
First Union National Bank
By: /s/ Ken Goddu
Name & Title: Ken Goddu, Vice President
123 South Broad Street
Philadelphia, PA 19109
Schedule of Additional Terms to Revolving Credit Agreement
and Revolving Credit Note, dated June 27, 1996
by and between the Bank and the Borrower
A.Paragraph A.2. of the Agreement and Paragraph A.6. of the Note are
hereby each deleted in their entirety and the following provision is
substituted in each of their places:
Maximum Principal Amount. The maximum aggregate principal amount of
advances outstanding at any time hereunder (the "Maximum Principal Amount")
shall be the lesser of Seven Hundred Fifty Thousand Dollars ($750,000.00) or
60% of Borrower's Eligible Accounts. For the purpose hereof, "Eligible
Accounts" shall mean the combined accounts of the Borrower and the Co-Borrower
less any intercompany receivable which; (i) arise in the ordinary course of
the Borrower's business; (ii) are based on enforceable orders or contracts for
goods shipped or services rendered; (iii) are not more than 90 days past
invoice date; and (iv) meet such other conditions as the Bank, in its sole
discretion, shall require from time to time.
B.The following definitions are hereby added in alphabetical order to Section C.
of the Agreement:
Borrowing Base Certificate. The term "Borrowing Base Certificate" means
the Borrowing Base Certificate submitted to the Bank each month in the form
attached hereto as Exhibit B.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered to the
Bank this Schedule of Additional Terms, as of the day and year first above
written.
Lexicon Environmental Associates, Inc.
BY: /s/ Robert D. Goldman By: /s/ Joyce A. Rizzo
Robert D. Goldman - Secty. Joyce A. Rizzo, President
Groundwater Recovery Systems, Inc.
BY: /s/ James G. Warburton By: /s/ George A. Nolan
James G. Warburton - V.P. George A. Nolan, President
First Union National Bank
By: /s/ Ken Goddu
Ken Goddu, Vice President
First Union National Bank
Portfolio Management
123 South Broad Street PA1310
Philadelphia. Pennsylvania 19109-1199
Fax 215 985-3143
April 9, 1997
Leak-X Environmental Corporation
Groundwater Recovery Systems, Inc.
Lexicon Environmental Associates, Inc.
790 E. Market Street, Suite 270
West Chester, PA. 19382-4806
Attn: Joyce A. Rizzo
Attn: George A. Nolan
Re: Revolving Credit Agreement and Term Loan Agreement
- Covenant Defaults
Dear Ms. Rizzo and Mr. Nolan:
Reference is made to (i) that certain Revolving Credit Agreement dated June
27, 1996 between Lexicon Environmental Associates, Inc. ("Lexicon") and
Groundwater Recovery Systems, Inc. ("Groundwater") (Lexicon and Groundwater to
be referred to collectively as "Co-Borrowers"), and First Union National Bank,
formerly known as First Fidelity Bank, N.A. (the "Bank"); (ii) that certain
Term Loan Agreement dated as of September 29, 1995 between Groundwater and the
Bank; (iii) that certain Guaranty and Suretyship Agreement dated June 27, 1996
between Leak-X Environmental Corporation ("Leak-X") and the Bank (the "Leak-X
Guaranty"); and (iv) that certain Guaranty and Suretyship Agreement dated
September 25, 1995 between Leak-X, Lexicon and the Bank (the "Lexicon/Leak-X
Guaranty"). The Revolving Credit Agreement, the Term Loan Agreement, the
Leak-X Guaranty, the Lexicon/Leak-X Guaranty, and all other documents and
instruments executed and delivered in connection therewith are collectively
referred to herein as the "Loan Documents". All capitalized terms used but
not defined herein shall have the meanings assigned in the Loan Documents.
The Leak-X Guaranty provides, inter alia, that:
Leak-X must maintain Consolidated Tangible Net Worth of not less than
$450,000.00 at December 31, 1996.
Leak-X must maintain Consolidated Working Capital of not less than $275,000.00
at December 31, 1996.
The Term Loan Agreement provides, inter alia, that:
Groundwater must maintain a Minimum Tangible Net Worth of not less than
$275,000.00 at December 31, 1996.
Groundwater must maintain a Maximum Total Liabilities to Tangible Net Worth of
not more than 3.5:1 at December 31 , 1996.
April 9, 1997
Page Two (Revised)
Groundwater must maintain a Minimum Current Ratio of not less than 1.5:1 at
December 31, 1996.
Groundwater must maintain Minimum Debt Service Coverage of not less than 1.4:1
at December 31, 1996.
As of December 31, 1996, the Bank has been informed that Leak-X has violated
the above-referenced provisions of the Leak-X Guaranty. Additionally,
Groundwater was in violation of all of the above-referenced provisions of the
Term Loan Agreement.
Leak-X and the Co-Borrowers have requested the Bank's waiver of these
defaults, and in consideration of the receipt of Subordination Agreements in
form and substance acceptable to the Bank, executed by George A. Nolan and
James G. Warburton, respectively, as Creditors, the Bank does hereby waive the
defaults under these provisions. Further, the Bank has agreed to modify the
covenants under the Leak-X Guaranty as follows:
Consolidated Minimum Tangible Net Worth, measured quarterly: Shall not be less
than $1.00 at March 31, 1997 and at June 30, 1997. For purposes of measuring
this covenant at March 31, 1997 only, amounts permanently subordinated by
Messrs. Nolan and Warburton under the Subordination Agreement (that is to say
$100,000.00) may be included in the calculation of Minimum Tangible Net Worth.
The Consolidated Minimum Working Capital covenant will be permanently waived
up to and including the expiration of the Revolving Credit Agreement on
7/31/97.
With respect to the Term Loan Agreement, the Bank has agreed to waive all of
the covenants through the maturity of this Agreement on December 1, 1998. The
Bank will, however, reserve its right to substitute new covenants at a later
date.
This waiver is limited to the defaults recited above and shall not be
construed to be a waiver of any subsequent default under the referenced
provisions, or of any defaults that may exist under any other provision of any
of the Loan Documents. Except as described in this letter, the Bank reserves
all of its rights under the Agreements, the other Loan Documents, and
applicable law.
The Co-Borrowers and Leak-X, by signature below, represent and warrant that
there exist no defaults or events of default under the Loan Documents other
than those specifically waived herein. Please evidence your acceptance of the
terms of this letter by having each party listed below sign and return to the
Bank a copy of this letter bearing original signature.<PAGE>April 2, 1997
Page Three
Very truly yours,
FIRST UNION NATIONAL BANK
BY: /s/ Suzanne Storm
Suzanne Storm
Senior Vice President
ACCEPTED AND AGREED TO:
Leak-X Environmental Corporation
Witness: /s/ Eileen E. Bartoli BY: /s/ Joyce A. Rizzo
Name: Joyce A. Rizzo
Title: President
Date: 4/14/97
Lexicon Environmental Associates, Inc.
Witness: /s/ Eileen E. Bartoli By: /s/ Joyce A. Rizzo
Name: Joyce A. Rizzo
Title: President
Date: 4/14/97
Groundwater Recovery Systems, Inc.
Witness: /s/ Eileen E. Bartoli BY: /s/ George A. Nolan
Name: George A. Nolan
Title: President
Date: 4/14/97
FIRST UNION
SUBORDINATION AGREEMENT
This Subordination Agreement is entered into , April 14th 1997, by FIRST
UNION NATIONAL BANK, whose address is 123 South Broad Street, Philadelphia,
Pennsylvania ("Bank"), George A. Nolan ("Creditor") whose address is 13 Ardmoor
Lane, Chadds Ford, Pennsylvania 19317, and Lexicon Environmental Associates,
Inc., ("Obligor") whose address is 790 E. Market Street, #270, West Chester,
Pennsylvania 19382 and Groundwater Recovery Systems, Inc., ("Obligor") whose
address is 299B National Road, Exton, Pennsylvania 19341 ("Borrowers") and
LEAK-X Environmental Corporation, ("Guarantor") whose address is 790 E. Market
Street, #270, West Chester, Pennsylvania 19382.
Bank has extended credit to Obligors under that certain Revolving Credit
Note dated June 27, 1996, in an original amount of $750,000.00, ("Bank Debt")
which Note Obligors have requested Bank extend or modify; Guarantor guaranteed
said Note to Bank under Guaranty dated June 27, 1996; Groundwater Recovery
Systems, Inc. owes Creditor $80,885.00 under that certain Promissory Note
described below. Guarantor has guaranteed payment to the Creditor of
$80,885.00 under said Promissory Note, under its Guaranty dated September 29,
1995.
Bank has agreed to modify the terms of existing credit to the Obligors on
the condition that Creditor fully subordinate repayment of that certain
Promissory Note from Groundwater Recovery Systems, Inc. to creditor in an
amount of $80,885.00 dated September 29, 1995, the ("LEAK-X Note") to
guarantors obligation to Bank under its Guaranty and to repayment in full of
obligors' Note to Bank.
In consideration of Bank's modification of credit to Obligors, Bank,
Creditor, Obligors and Guarantor agree as follows:
Subordinated Debt: debt obligations described in the attached Schedule
"A" and all renewals, extensions and modifications thereof owing by obligor,
Groundwater Recovery Systems, Inc. to and by Guarantor under its guaranty,
thereof Creditor are herein after referred to as Subordinated Debt.
Agreement to Subordinate: Creditor and Obligors agree that Bank Debt
shall be superior to and, except as otherwise provided herein, shall be fully
paid before any part of the Subordinated Debt is paid.
Payment of Subordinated Debt Prohibited: Obligors and Guarantor shall
not, directly or indirectly, make or permit any payment or transfer of
property or release any collateral for credit in reduction of Subordinated
Debt; Creditor shall not demand, accept or receive any payment in reduction of
Subordinated Debt or additional collateral for Subordinated Debt nor act to
collect (including but not limited to, making demand or commencing litigation,
bankruptcy, reorganization or liquidation proceedings against the Obligors),
cancel, set-off, forgive, release, or otherwise discharge any Subordinated
Debt. Creditor agrees that any sums or property received in reduction of the
Subordinated Debt shall be received in trust for Bank and delivered
immediately to Bank.
Scheduled Payments Excepted: Notwithstanding the foregoing, Groundwater
Recovery Systems, Inc. may make and Creditor may receive regularly scheduled
interest payments and principal payments in the maximum amounts set forth on
Schedule B in reduction of Subordinated Debt, so long as, at the time of each
payment, all sums then due and payable under the Bank Debt shall have been
fully paid in full, and no event or condition which constitutes or which, with
notice or the lapse of time, or both, would constitute an event of default
with respect to the Bank Debt shall be continuing. In no event shall
Subordinated Debt be reduced to a principal amount of less than $50,000.00.
Assignment of Subordinated Debt and Collateral: Creditor hereby grants
Bank a security interest in and assigns to Bank all Subordinated Debt and all
collateral of any kind and guarantees therefor including all instruments
evidencing Subordinated Debt. Bank may file financing statements concerning
the security interest hereby created.
Bank appointed attorney-in-fact: Bank is hereby irrevocably appointed
attorney-in-fact for Creditor with full power to act instead of Creditor to
sign financing statements reflecting the assignment of Subordinated Debt and
collateral and guarantees therefor and to act in all matters concerning the
Subordinated Debt including the right to make, present, file and vote proofs
of claim against Obligors on account of all or part of the Subordinated Debt
and receive and collect any dividends thereon, foreclose under any mortgage or
security agreements or otherwise take possession of and sell collateral and
collect against any guarantees and apply proceeds of such dividends, sale or
collection to reduction of Subordinated Debt and to compromise or settle any
claim related thereto.
Subordinated Legend: The parties hereto will cause any note and any
other instrument which may evidence Subordinated Debt from time to time to be
endorsed with the following legend:
The indebtedness evidenced by this instrument is subordinated to the
prior payment of the Bank Debt (as defined in the Subordination Agreement
hereinafter referred to) pursuant to, and to the extent provided in, the
Subordination Agreement dated April 14, 1997, in favor of FIRST UNION
NATIONAL BANK."
The parties hereto each will further mark the appropriate books of
account to reflect the effect of this Agreement. Creditor agrees to deliver
to Bank, upon written request, all instruments evidencing Subordinated Debt or
collateral or guarantees therefor endorsed in blank.
Subordinated Instrument to Bank: Creditor shall deliver any note and any
other instrument which may evidence Subordinated Debt or collateral or
guarantees therefor to Bank to hold in its possession under the assignment
granted herein. Such instruments shall be returned to Creditor when the
subordination granted herein terminates.
Limitation on Modification of Subordinated Debt: Groundwater Recovery
Systems, Inc. and Creditor shall not, without the prior written consent of
Bank, modify, extend, supplement or increase Subordinated Debt.
Further Assurance: Creditor, Obligors and Guarantor shall execute and
deliver to Bank such further instruments and shall take such further action as
Bank may from time to time reasonably request in order to carry out the
provisions and intent of this Agreement and to confirm that Bank Debt is
entitled to the benefits of this Agreement and shall not act or permit any
action prejudicial to or inconsistent with the priority position of Bank Debt
over Subordinated Debt created by this Agreement.
Rights of Subrogation: Creditor agrees that no payment or distribution to
Bank pursuant to the provisions of this Agreement shall entitle the Creditor
to exercise any rights of subrogation in respect thereof until Bank Debt is
finally and unavoidably paid in full.
Representations, Warranties and Covenants: Creditor represents, warrants
and covenants that now and until all Bank Debt is fully paid, the Subordinated
Debt is owned solely by Creditor and shall not be subject to any set off,
security interests, liens, charges, subordinations other than this Agreement,
assignments or encumbrances; is payable solely to the Creditor; is not and
shall not be subject to any guaranty or surety; and is not in default.
Creditor covenants that Creditor shall not sell, assign or otherwise transfer
Subordinated Debt. Groundwater Recovery Systems, Inc. represents and warrants
that the Subordinated Debt is due and payable according to its terms.
Termination of Subordination: This Agreement and the subordination
granted herein shall terminate when Bank Debt is finally and unavoidably
paid. Bank Debt shall be deemed not to be paid in full, for purposes of this
Agreement, so long as the Bank has any obligation with respect to the Bank
Debt, to make further advances to Obligors. However, this Agreement and the
subordination granted herein shall continue to be effective or be reinstated
if any payment of Bank Debt is rescinded, avoided, or for any reason returned
by Bank because of any adverse claim or threatened action as though such
payment had not been made.
Remedies: Upon violation of this Agreement by Creditor, Guarantor or
Obligors, the Bank may accelerate the maturity of Bank Debt and Subordinated
Debt so that all Bank Debt and Subordinated Debt is immediately due and
payable. Creditor shall pay to Bank all sums received by Creditor paid in
violation of this agreement and Bank shall have all remedies of Creditor
against collateral for Subordinated Debt. Bank is entitled to specific
performance of this Agreement and Obligors and Creditor waive any defense
based upon adequacy of remedy at law which may be asserted as a bar to the
remedy of specific performance. No failure on the part of Bank to exercise or
delay in exercising any right or remedy hereunder shall operate as a waiver
thereof nor shall any partial exercise of any rights or remedies hereunder
preclude any other or further exercise of such or additional rights or
remedies. The remedies provided herein are cumulative of any other remedies
provided by law or otherwise held against Creditor, Obligors or Guarantor.
Miscellaneous: Waiver of Notice: Creditor waives notice of the
acceptance of this Agreement by Bank. Severability: If any provision of this
Agreement is found to be invalid or unenforceable, the remainder of such
provision and all other provisions of this Agreement shall be valid and
enforceable as if such unenforceable provision were not written. Notices: Any
notices, demands or requests shall be sufficiently given Creditor or Bank if
in writing and mailed or delivered to the address shown above or to another
address as provided herein and in the event either party hereto changes its
address at prior to the date Bank Debt paid in full, that party shall promptly
give written notice to the other party of such change of address by registered
or certified mail, return receipt requested, all charges prepaid. Continuing
Agreement: This Agreement shall be binding upon the parties and their
respective successors and assigns. Assignment: Bank may assign or transfer
its rights with respect to any Bank Debt to any person or entity, and such
transferee shall thereupon become vested with all the rights in respect
thereof granted to Bank herein. Modification: This Agreement is irrevocable
and no waiver or modification of any provision of this Agreement shall be
valid unless in writing and signed by all parties hereto.
WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW OBLIGORS,
GUARANTOR AND CREDITOR BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH
RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS
NOTE.
OBLIGORS, GUARANTOR, CREDITOR AND BANK AGREE THAT THEY SHALL NOT HAVE A
REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN ANY DISPUTE AND
HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW
OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE WHETHER THE
DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY.
IN WITNESS WHEREOF, Bank, Creditor, Guarantor and Obligors have signed
and sealed this instrument as of the day and year first above written.
/s/ George A. Nolan
Name: George A. Nolan, Creditor
Address: 13 Ardmoor Lane
Chadds Ford Pennsylvania 19317
LEAK-X Environmental Corporation, Guarantor
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, Chief Executive Officer
Lexicon Environmental Associates Inc., Obligor
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, President
Groundwater Recovery Systems, Inc., Obligor
BY: /s/ George A. Nolan
George A. Nolan, President
FIRST UNION NATIONAL BANK
By: /s/ Suzanne Storm
Suzanne S. Storm, Senior Vice President
SCHEDULE A
SUBORDINATED DEBT
George A. Nolan in the amount of $80,885.00
SCHEDULE B
PRINCIPAL AND INTEREST PAYMENTS
George A. Nolan
<TABLE>
<CAPTION>
Month Principal Interest Balance on Note
<S> <C> <C> <C>
March 1997 $4,412.14 $2,022.13 $80,885.00
April 1997 4,412.14 0.00 76,472.86
May 1997 4,412.14 0.00 72,060.72
June 1997 4,412.14 1,801.52 67,648.58
July 1997 4,412.14 0.00 63,236.44
August 1997 4,412.14 0.00 58,824.30
September 1997 4,412.14 1,470.61 54,412.16
Total $30,884.98 $5,294.26 $50,000.02
</TABLE>
FIRST UNION
SUBORDINATION AGREEMENT
This Subordination Agreement is entered into April 14, 1997, by FIRST
UNION NATIONAL BANK, whose address is 123 South Broad Street, Philadelphia,
Pennsylvania ("Bank"), James G. Warburton ("Creditor") whose address is P. O.
Box 37, Unionville, Pennsylvania 19375, and Lexicon Environmental
Associates, Inc., ("Obligor") whose address is 790 E. Market Street, #270,
West Chester, Pennsylvania 19382 and Groundwater Recovery Systems, Inc.,
("Obligor") whose address is 299B National Road, Exton, Pennsylvania 19341
("Borrowers") and LEAK-X Environmental Corporation, ("Guarantor") whose
address is 790 E. Market Street, #270, West Chester, Pennsylvania 19382.
Bank has extended credit to Obligors under that certain Revolving Credit
Note dated June 27, 1996, in an original amount of $750,000.00, ("Bank Debt")
which Note Obligors have requested Bank extend or modify; Guarantor guaranteed
said Note to Bank under Guaranty dated June 27, 1996; Groundwater Recovery
Systems, Inc. owes Creditor $80,885.00 under that certain Promissory Note
described below. Guarantor has guaranteed payment to the Creditor of
$80,885.00 under said Promissory Note, under its Guaranty dated September 29,
1995.
Bank has agreed to modify the terms of existing credit to the Obligors on
the condition that Creditor fully subordinate repayment of that certain
Promissory Note from Groundwater Recovery Systems, Inc. to creditor in an
amount of $80,885.00 dated September 29, 1995, the ("LEAK-X Note") to
guarantors obligation to Bank under its Guaranty and to repayment in full of
obligors' Note to Bank.
In consideration of Bank's modification of credit to Obligors, Bank,
Creditor, Obligors and Guarantor agree as follows:
Subordinated Debt: debt obligations described in the attached Schedule
"A" and all renewals, extensions and modifications thereof owing by obligor,
Groundwater Recovery Systems, Inc. to and by Guarantor under its guaranty,
thereof Creditor are herein after referred to as Subordinated Debt.
Agreement to Subordinate: Creditor and Obligors agree that Bank Debt
shall be superior to and, except as otherwise provided herein, shall be fully
paid before any part of the Subordinated Debt is paid.
Payment of Subordinated Debt Prohibited: Obligors and Guarantor shall
not, directly or indirectly, make or permit any payment or transfer of
property or release any collateral for credit in reduction of Subordinated
Debt; Creditor shall not demand, accept or receive any payment in reduction of
Subordinated Debt or additional collateral for Subordinated Debt nor act to
collect (including but not limited to, making demand or commencing litigation,
bankruptcy, reorganization or liquidation proceedings against the Obligors),
cancel, set-off, forgive, release, or otherwise discharge any Subordinated
Debt. Creditor agrees that any sums or property received in reduction of the
Subordinated Debt shall be received in trust for Bank and delivered
immediately to Bank.
Scheduled Payments Excepted: Notwithstanding the foregoing, Groundwater
Recovery Systems, Inc. may make and Creditor may receive regularly scheduled
interest payments and principal payments in the maximum amounts set forth on
Schedule B in reduction of Subordinated Debt, so long as, at the time of each
payment, all sums then due and payable under the Bank Debt shall have been
fully paid in full, and no event or condition which constitutes or which, with
notice or the lapse of time, or both, would constitute an event of default
with respect to the Bank Debt shall be continuing. In no event shall
Subordinated Debt be reduced to a principal amount of less than $50,000.00.
Assignment of Subordinated Debt and Collateral: Creditor hereby grants
Bank a security interest in and assigns to Bank all Subordinated Debt and all
collateral of any kind and guarantees therefor including all instruments
evidencing Subordinated Debt. Bank may file financing statements concerning
the security interest hereby created.
Bank appointed attorney-in-fact: Bank is hereby irrevocably appointed
attorney-in-fact for Creditor with full power to act instead of Creditor to
sign financing statements reflecting the assignment of Subordinated Debt and
collateral and guarantees therefor and to act in all matters concerning the
Subordinated Debt including the right to make, present, file and vote proofs
of claim against Obligors on account of all or part of the Subordinated Debt
and receive and collect any dividends thereon, foreclose under any mortgage or
security agreements or otherwise take possession of and sell collateral and
collect against any guarantees and apply proceeds of such dividends, sale or
collection to reduction of Subordinated Debt and to compromise or settle any
claim related thereto.
Subordinated Legend: The parties hereto will cause any note and any
other instrument which may evidence Subordinated Debt from time to time to be
endorsed with the following legend:
The indebtedness evidenced by this instrument is subordinated to the
prior payment of the Bank Debt (as defined in the Subordination Agreement
hereinafter referred to) pursuant to, and to the extent provided in, the
Subordination Agreement dated April 14, 1997, in favor of FIRST UNION
NATIONAL BANK."
The parties hereto each will further mark the appropriate books of
account to reflect the effect of this Agreement. Creditor agrees to deliver
to Bank, upon written request, all instruments evidencing Subordinated Debt or
collateral or guarantees therefor endorsed in blank.
Subordinated Instrument to Bank: Creditor shall deliver any note and any
other instrument which may evidence Subordinated Debt or collateral or
guarantees therefor to Bank to hold in its possession under the assignment
granted herein. Such instruments shall be returned to Creditor when the
subordination granted herein terminates.
Limitation on Modification of Subordinated Debt: Groundwater Recovery
Systems, Inc. and Creditor shall not, without the prior written consent of
Bank, modify, extend, supplement or increase Subordinated Debt.
Further Assurance: Creditor, Obligors and Guarantor shall execute and
deliver to Bank such further instruments and shall take such further action as
Bank may from time to time reasonably request in order to carry out the
provisions and intent of this Agreement and to confirm that Bank Debt is
entitled to the benefits of this Agreement and shall not act or permit any
action prejudicial to or inconsistent with the priority position of Bank Debt
over Subordinated Debt created by this Agreement.
Rights of Subrogation: Creditor agrees that no payment or distribution to
Bank pursuant to the provisions of this Agreement shall entitle the Creditor
to exercise any rights of subrogation in respect thereof until Bank Debt is
finally and unavoidably paid in full.
Representations, Warranties and Covenants: Creditor represents, warrants
and covenants that now and until all Bank Debt is fully paid, the Subordinated
Debt is owned solely by Creditor and shall not be subject to any set off,
security interests, liens, charges, subordinations other than this Agreement,
assignments or encumbrances; is payable solely to the Creditor; is not and
shall not be subject to any guaranty or surety; and is not in default.
Creditor covenants that Creditor shall not sell, assign or otherwise transfer
Subordinated Debt. Groundwater Recovery Systems, Inc. represents and warrants
that the Subordinated Debt is due and payable according to its terms.
Termination of Subordination: This Agreement and the subordination
granted herein shall terminate when Bank Debt is finally and unavoidably
paid. Bank Debt shall be deemed not to be paid in full, for purposes of this
Agreement, so long as the Bank has any obligation with respect to the Bank
Debt, to make further advances to Obligors. However, this Agreement and the
subordination granted herein shall continue to be effective or be reinstated
if any payment of Bank Debt is rescinded, avoided, or for any reason returned
by Bank because of any adverse claim or threatened action as though such
payment had not been made.
Remedies: Upon violation of this Agreement by Creditor, Guarantor or
Obligors, the Bank may accelerate the maturity of Bank Debt and Subordinated
Debt so that all Bank Debt and Subordinated Debt is immediately due and
payable. Creditor shall pay to Bank all sums received by Creditor paid in
violation of this agreement and Bank shall have all remedies of Creditor
against collateral for Subordinated Debt. Bank is entitled to specific
performance of this Agreement and Obligors and Creditor waive any defense
based upon adequacy of remedy at law which may be asserted as a bar to the
remedy of specific performance. No failure on the part of Bank to exercise or
delay in exercising any right or remedy hereunder shall operate as a waiver
thereof nor shall any partial exercise of any rights or remedies hereunder
preclude any other or further exercise of such or additional rights or
remedies. The remedies provided herein are cumulative of any other remedies
provided by law or otherwise held against Creditor, Obligors or Guarantor.
Miscellaneous: Waiver of Notice: Creditor waives notice of the
acceptance of this Agreement by Bank. Severability: If any provision of this
Agreement is found to be invalid or unenforceable, the remainder of such
provision and all other provisions of this Agreement shall be valid and
enforceable as if such unenforceable provision were not written. Notices: Any
notices, demands or requests shall be sufficiently given Creditor or Bank if
in writing and mailed or delivered to the address shown above or to another
address as provided herein and in the event either party hereto changes its
address at prior to the date Bank Debt paid in full, that party shall promptly
give written notice to the other party of such change of address by registered
or certified mail, return receipt requested, all charges prepaid. Continuing
Agreement: This Agreement shall be binding upon the parties and their
respective successors and assigns. Assignment: Bank may assign or transfer
its rights with respect to any Bank Debt to any person or entity, and such
transferee shall thereupon become vested with all the rights in respect
thereof granted to Bank herein. Modification: This Agreement is irrevocable
and no waiver or modification of any provision of this Agreement shall be
valid unless in writing and signed by all parties hereto.
WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW OBLIGORS,
GUARANTOR AND CREDITOR BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH
RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS
NOTE.
OBLIGORS, GUARANTOR, CREDITOR AND BANK AGREE THAT THEY SHALL NOT HAVE A
REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN ANY DISPUTE AND
HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW
OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE WHETHER THE
DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY.
IN WITNESS WHEREOF, Bank, Creditor, Guarantor and Obligors have signed
and sealed this instrument as of the day and year first above written.
/s/ James G. Warburton
Name: James G. Warburton, Creditor
Address: P. O. Box 37
Unionville, Pennsylvania 19375
LEAK-X Environmental Corporation, Guarantor
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, Chief Executive Officer
Lexicon Environmental Associates Inc., Obligor
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, President
Groundwater Recovery Systems, Inc., Obligor
BY: /s/ George A. Nolan
George A. Nolan, President
FIRST UNION NATIONAL BANK
By: /s/ Suzanne Storm
Suzanne S. Storm, Senior Vice President
SCHEDULE A
SUBORDINATED DEBT
James G. Warburton in the amount of $80,885.00
SCHEDULE B
PRINCIPAL AND INTEREST PAYMENTS
James G. Warburton
<TABLE>
<CAPTION>
Month Principal Interest Balance on Note
<S> <C> <C> <C>
March 1997 $4,412.14 $2,022.13 $80,885.00
April 1997 4,412.14 0.00 76,472.86
May 1997 4,412.14 0.00 72,060.72
June 1997 4,412.14 1,801.52 67,648.58
July 1997 4,412.14 0.00 63,236.44
August 1997 4,412.14 0.00 58,824.30
September 1997 4,412.14 1,470.61 54,412.16
Total $30,884.98 $5,294.26 $50,000.02
</TABLE>
LEAK-X ENVIRONMENTAL CORPORATION
FORM 10-KSB
EXHIBIT 13.1
1996 ANNUAL REPORT TO STOCKHOLDERS
LEAK-X ENVIRONMENTAL CORPORATION
ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
CONTENTS
To Our Shareholders Page 1
About the Company Page 2
Highlights Page 2
Financial Review: December 31, 1996 Page 3
Liquidity and Capital Resources Page 3
Results of Operations 1996 vs. 1995 Page 4
Independent Auditor's Report Page 6
Consolidated Balance Sheet - December 31, 1996 Page 7
Consolidated Statements of Operations
Years ended December 31, 1996 and December 31, 1995 Page 8
Consolidated Statement of Shareholders' Equity
Years ended December 31, 1996 and December 31, 1995 Page 9
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and December 31, 1995 Page 10
Notes to Consolidated Financial Statements Page 12
Principal Market or Markets Page 25
Directors and Executive Officers Page 25
To Our Shareholders:
The Company is pleased to report that we have weathered a storm that has
impacted the environmental industry as a whole over the past twelve months.
Over the course of 1996, the environmental industry was severely affected by
two factors: a lack of enforcement of environmental regulations in the areas
in which the Company provides services and a presidential election year in
which no government officials took a stand on the environment. The result of
these factors was dramatic, especially with respect to the Company's
groundwater remediation services. However, with the presidential elections
behind us, a renewed interest in the environment, and enforcement of
environmental actions, the Company looks forward to positive changes in the
coming year.
In spite of the negative regulatory and political impact in 1996, the
Company's environmental consulting business thrived in 1996 with record sales
which helped to offset the downturn in the Company's other businesses. In
addition, over the past eighteen months, two new offices were opened in New
England and Metropolitan New York City to provide a local base for new
business development, as well as to serve existing clients. Net revenues
increased 29% to $7,975,249 in the year ended December 31, 1996 (Fiscal 1996)
as compared to $6,181,322 in the year ended December 31, 1995 (Fiscal 1995).
However, the Company reported a net loss of $799,312 or $0.69 per share in
Fiscal 1996 as compared to a net loss of $453,204 or $0.61 per share in
Fiscal 1995 primarily as a result of unfavorable margins in the groundwater
remediation business.
Our backlog of orders at December 31, 1996 increased to $6.8 million as
compared to $5.1 million at December 31, 1995. The contract for
environmental engineering and construction manage-ment services between the
Company and NYNEX that was signed in 1993 continues to generate substantial
revenues with projects scheduled through 1999. In the period from 1992 through
1996, the contract has resulted in more than $17.2 million in revenues to the
Company.
The outlook for storage tank management services is excellent, with the
marketplace growing rapidly as the deadline approaches for final compliance
with the federal regulations. These regula-tions require all tank owners to
upgrade or replace their tanks to comply with "state-of-the-art" technology
by year end 1998. The Company has established itself as a national authority
in storage tank engineering, management and remediation. Marketing efforts are
targeted toward these areas, as well as the environmental assessment and
risk-based corrective action markets.
The Company continues to seek compatible businesses for both geographic
and strategic business area expansion. We thank you, our shareholders, for
your continued support as we thank our many loyal employees for their hard
work and diligent efforts.
Very truly yours,
/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
ABOUT THE COMPANY
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in two related areas of business within the environmental industry. The
Company's environmental consulting business is conducted through Lexicon
Environmental Associates, Inc. ("Lexicon"). Lexicon provides environmental
engineering, hydrogeological and remedial consulting services, as well as
construction management services for storage tank related construction. The
Company's groundwater remediation business is conducted through Groundwater
Recovery Systems, Inc. ("GRS"). GRS is primarily engaged in the design and
manufacture of flexible, module and reusable site specific remediation
systems. GRS also offers installation and operation and maintenance services
for its systems worldwide. Prior to March 1995, Gaservice Maintenance
Corporation ("Gaservice") operated as a general contractor primarily involved
in the installation and servicing of petroleum storage and handling
equipment. As of March 31, 1995, this area of business was discontinued.
Unless otherwise indicated, the discussions of the business and operations of
the Company described herein do not reflect the business and operations of
Gaservice.
The Company offers a full spectrum of environmental engineering,
hydrogeological (ground water) and remedial services which include:
environmental assessments for property transfers; design, installation and
operation of ground water remediation systems; and Underground Storage Tank
("UST") testing, assessment, abandonment, remediation and installation. The
Company's environmental consulting services are provided primarily in the
Northeastern and Mid-Atlantic United States, however, many projects are
conducted nationally.
In addition to engineering and scientific evaluations, the Company's
environmental consulting business also provides construction management
services to oversee general contractors performing storage tank closures,
upgrades, and installations, as well as soil loading and disposal. To
conduct geological and hydrogeological assessments, the Company provide field
management of drilling contractors. Analytical services are provided through
various contract laboratories.
The Company's groundwater remediation business provides a variety of
remediation systems and equipment utilized for abating various types of
subsurface contaminants. The Company's systems are currently deployed at
airports, utilities, chemical, pharmaceutical and oil company facilities
throughout the United States. The Company has also supplied remediation
systems and assisted in the deployment of its equipment in several foreign
countries.
HIGHLIGHTS
Increase in revenues of 29% over the prior year.
Opening of a metro New York City office enhancing the continued growth and
development of the environmental engineering and construction management
business areas.
FINANCIAL REVIEW: DECEMBER 31, 1996
Liquidity and Capital Resources
The Company experienced a net use of cash from operating activities in
the year ended December 31, 1996 ("Fiscal 1996") of $56,403 as compared to
$221,777 used by operating activities in the year ended December 31, 1995
( " Fiscal 1995"). The Company incurred a net loss of $799,312 in Fiscal 1996
as compared to a net loss of $453,204 in Fiscal 1995. This was offset,
in part, by a decrease in accounts receivable and accounts payable of $979,912
and $358,788, respectively, in Fiscal 1996 as compared to an increase in
accounts receivable and accounts payable of $776,284 and $586,667,
respectively, in Fiscal 1995. These changes are primarily a result of the
decline in sales at the Company's groundwater remediation business.
Investing activities utilized $96,945 of cash in Fiscal 1996 as compared
to utilizing $338,840 of cash in Fiscal 1995. The primary use of cash in
Fiscal 1995 was $307,067 for the acquisition of GRS, including a cash payment
of $250,000 to the sellers, as compared to $32,730 for acquisition costs paid
out in Fiscal 1996. The Company had capital expenditures of $59,004 and
$39,009 in Fiscal 1996 and Fiscal 1995, respectively, primarily for computers
and field equipment.
Financing activities utilized $132,976 of cash in Fiscal 1996 as
compared to providing $278,894 of cash in Fiscal 1995. In December 1995, the
Company commenced a private placement of its Common Stock and Warrants to raise
$500,000. As of December 31, 1995, the Company had received $270,000 of the
net proceeds of this private placement. The remaining $150,040 was received
in Fiscal 1996. The net proceeds of this offering totaling $420,040 were
used to fund the acquisition of GRS, as well as ongoing operations. The
Company also utilized $228,000 and $55,016 in Fiscal 1996 to pay down its
line of credit and long-term debt, respectively as compared to providing
$20,000 and utilizing $12,486 from its line of credit and long-term debt,
respectively, in Fiscal 1995.
The Company's working capital decreased to $31,530 at December 31, 1996
as compared to $623,884 at December 31, 1995. This decrease was primarily
due to the $799,312 loss incurred by the Company in Fiscal 1996. The Company
utilized working capital to manage accounts payable, make required loan
payments and to fund ongoing operations.
Backlog at December 31, 1996 of $6,800,000 was substantially higher than
the level at December 31, 1995 of $5,100,000, primarily as a result of the
increase in the NYNEX work. The Company has several contracts with NYNEX to
provide construction management, engineering, analytical and soil disposal
services for NYNEX 's storage tank management program at its New York City,
Long Island and New England facilities. A portion of the construction
management contract is provided by subcontractors under contract to the
Company. The construction management agreements represent $4,300,000 of the
December 31, 1996 backlog. Much of the Company's backlog is subject to
termination at will and rescheduling without significant penalty. The
Company believes that substantially all of the current backlog will be
completed during 1997, however, no assurance of this can be given.
The Company renewed its Credit Agreement with First Union National Bank
(the "Bank") on June 27, 1996. The Credit Agreement permits the Company to
borrow up to $750,000. Borrowings under the Credit Agreement are limited to
60% of eligible accounts receivable, as defined and bears interest at the
prime rate plus three-quarter (3/4) percent. Borrowings under this facility
are collateralized by a security interest in substantially all of the assets
of the Company, require the Company to meet specified ratios, and, among
other things, impose restrictions on the payment of dividends, stock
redemptions and the sale of property. As of March 14, 1997, the Company
had $428,000 of available borrowings. The Company has received a waiver from
the bank with respect to failure to meet some of the terms of the financial
covenants of the agreement at December 31, 1996. The Company has renegotiated
the covenants for the remainder of the term of the Credit Agreement which
expires on July 31, 1997.
In an effort to improve working capital, George A. Nolan and James G.
Warburton, Directors of the Company and Officers of GRS, each waived a total
of $8,633 in salary and $2,275 in office expense reimbursement for the year
ended December 31, 1996. The Company is currently negotiating salary waivers
with Messrs. Nolan and Warburton for Fiscal 1997.
In order to minimize the effects of the sales downturn at the
groundwater remediation business, GRS reduced expenses during Fiscal 1996 by
approximately $250,000 per annum primarily through the layoff of employees.
Management has maintained control of overhead expenses and operating
margins. However, there is no assurance that the cost controlling measures
will be sufficient to permit the Company to meet its financial obligations
while providing capital for ongoing operations.
The Company deems its present facilities and equipment adequate for its
immediate needs and it has no material commitments for capital expenditures.
The Company believes its present liquidity and cash flow are adequate for its
current needs. There can be no assurance, however, that additional
financing, whether from debt or equity, will be available to the Company when
needed on commercially reasonable terms, or at all.
The Company's management believes that inflation has not had a significant
impact on its business during the past three years.
The statements contained herein include forward looking statements that
involve a number of risks and uncertainties. In addition to the facts
discussed, among the other factors that could cause actual results to differ
materially are the following: business conditions and growth in the industry
and general economy; competitive factors, such as rival designs and prices;
inventory risks due to shifts in market demand; changes in sales mix; and the
risk factors listed from time to time in the Company's SEC reports.
Results of Operations 1996 vs. 1995
Net revenues increased 29% to $7,975,249 in Fiscal 1996 as compared to
$6,181,322 in Fiscal 1995. The increase is primarily attributable to
approximately $1,235,255 from the Company's environmental consulting
business, which achieved its highest sales since its inception. An increase
of $635,715 is attributable to the Company's groundwater remediation business
which was acquired by the Company in September 1995. Fiscal 1996 includes a
whole year of GRS operations as compared to Fiscal 1995 which includes only
three months of GRS operations. The Company reported higher costs of revenues
as a percentage of revenues of 77.3% for Fiscal 1996 as compared to 74.4% for
Fiscal 1995. This increase is primarily due the Company's groundwater
remediation business which attained lower margins in Fiscal 1996, as compared
to Fiscal 1995, due to a weak market and low sales volume. Excluding the
results of the groundwater remediation business, the costs of revenue would
have remained virtually unchanged due to a similar mix of business in Fiscal
1996 as compared to Fiscal 1995.
Selling, general and administrative expenses increased $1,050,413 or
69%, in Fiscal 1996 as compared to Fiscal 1995. The Company's groundwater
remediation business accounted for approximately $746,786, or 71%, of the
increase since the operations of GRS were only included for three months in
Fiscal 1995. Excluding the expenses attributable to the groundwater
remediation business, selling, general and administrative expenses would have
increased only $276,626, or 23%. This increase included $105,979 in corporate
expenses consisting of the addition of employment contracts for two of the
Company officers, the amortization of goodwill related to the GRS acquisition
and the addition of Directors & Officers insurance in Fiscal 1996. In
addition, the Company's environmental consulting business' expenses increased
by $170,647 due to the addition of new employees to complete the increased
sales, expanded marketing efforts and the investment in new offices located
in Portsmouth, NH and Franklin Square, NY.
Other income increased to $19,830 in Fiscal 1996 from $10,323 in Fiscal
1995 due to higher interest income attributed to a full year of interest
earned on cash balances. Interest expense increased to $56,288 in Fiscal
1996 from $29,801 in Fiscal 1995 due to higher debt levels at GRS, as well as
interest expense related to the financing of the GRS acquisition.
Fiscal 1995 includes a loss of $492,610 on the disposal of discontinued
operations for additional write-downs of assets. As a result, the Company
reported a net loss of $453,204, including discontinued operations in Fiscal
1995, as compared to a net loss of $799,312 in Fiscal 1996 primarily as a
result of lower sales and margins in the groundwater remediation
business.
INDEPENDENT AUDITOR'S REPORT
Shareholders and Directors
Leak-X Environmental Corporation
West Chester, Pennsylvania
We have audited the accompanying consolidated balance sheet of Leak-X
Environmental Corporation and subsidiaries as of December 31, 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the two years ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also included assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statement referred to above present
fairly, in all material respects, the financial position of Leak-X Environmental
Corporation and subsidiaries as of December 31, 1996 and the results of its
operations and its cash flows for the two years then ended in conformity with
generally accepted accounting principles.
/s/ Mazars and Guerard, LLP
Mazars and Guerard, LLP
Certified Public Accountants
New York, New York
February 28, 1997 and
April 9, 1997 as to Note 5
CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 156,617
Accounts receivable, net of allowance for
doubtful accounts of $35,000 1,383,857
Estimated earnings in excess of billings 20,357
Inventory 398,848
Other current assets 84,765
Net assets of discontinued operations 499,234
TOTAL CURRENT ASSETS $ 2,543,678
PROPERTY AND EQUIPMENT
Leasehold improvements $ 44,758
Machinery and equipment 285,206
Furniture and fixtures 127,717
Less: Accumulated depreciation (259,830)
NET PROPERTY AND EQUIPMENT $ 197,851
OTHER ASSETS
Goodwill, net of accumulated amortization of $75,666 $ 1,750,325
Patents and other assets, net of accumulated
amortization of $2,982 20,329
TOTAL OTHER ASSETS $ 1,770,654
TOTAL ASSETS $ 4,512,183
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,514,446
Accrued expenses 111,386
Unearned revenue 112,272
Line of credit 222,000
Current portion of long term debt 50,337
Net liabilities of discontinued operations 501,707
TOTAL CURRENT LIABILITIES $ 2,512,148
LONG TERM DEBT 215,176
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
30,000,000 shares authorized,
1,219,645 issued and outstanding in 1996 1,220
Additional paid-in capital 8,308,015
Deficit (6,524,376)
TOTAL STOCKHOLDERS' EQUITY 1,784,859
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,512,183
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Revenues:
Service $6,266,768 $5,031,513
Product 1,708,481 1,149,809
7,975,249 6,181,322
Cost of Revenues:
Service 4,713,292 3,825,235
Product 1,448,213 772,885
6,161,505 4,598,120
Selling, general and
administrative expenses 2,575,760 1,525,347
Operating income/(loss) (762,016) 57,855
Other inome (19,830) (10,323)
Interest expense 56,288 29,801
Income/(loss) from continuing operations
before income taxes (798,474) 38,377
Income tax expense(credit) 838 (1,029)
Income/(loss) from continuing operations (799,312) 39,406
Discontinued Operation (Note 3)
Loss on discontinued operations
(less applicable income
taxes of $0 and $0, respectively) -------- --------
Loss on disposal of discontinued ops -------- (492,610)
Net loss ($799,312) ($453,204)
Weighted average common
shares outstanding 1,162,221 737,917
Income/(loss) per common share
Continuing operations ($0.69) $0.05
Discontinued operation $0.00 $0.00
Disposal of discontinued operations $0.00 ($0.67)
Net loss per share ($0.69) ($0.61)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Retained
Common Stock Preferred Stock Paid in Earnings
Shares Amount Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 670,473 671 1,688,888 1,900,000 4,401,888 (5,271,860)
Valuation of Stock Options 31,250
Exercise of Stock Options 10,615 11 1,369
Acquisition Of GRS (Note 2) 230,769 231 1,499,770
Issuance of Stock (Note 5) 192,308 192 433,515
Net Loss ---- ---- ---- ---- ---- (453,204)
December 31, 1995 1,104,165 1,105 1,688,888 1,900,000 6,367,792 (5,725,064)
Valuation of Stock Options 54,000
Conversion of Preferred Stock 115,480 115 (1,688,888) (1,900,000) 1,896,412
Issuance of Stock (Note 5) (10,189)
Net Loss ---- ---- ---- ---- ---- (799,312)
December 31, 1996 1,219,645 1,220 0 0 8,308,015 (6,524,376)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
CASH FLOW FROM
OPERATING ACTIVITIES:
Net loss ($799,312) (453,204)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 72,629 36,817
Goodwill amortization 60,041 15,625
Unrealized loss on disposal of
discontinued operations ----- 165,823
Valuation of stock options 54,000 31,250
Gain on sale of asset ----- (4,647)
(Increase) decrease in accounts receivable 979,912 (776,284)
(Increase) decrease in costs and estimated
earnings in excess of billings 53,686 (74,043)
Increase in inventories (36,066) (7,068)
(Increase) decrease in other current assets 16,684 (18,405)
Increase (decrease) in
accounts payable (358,788) 586,667
Increase (decrease) in billings in excess of cost (71,052) 168,206
Decrease in accrued
expenses and other liabilities (25,398) (42,738)
(Increase)/decrease in net assets of
discontinued operations (2,744) 150,224
NET CASH USED BY OPERATIONS (56,408) (221,777)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of asset ----- 9,809
Capital expenditures (59,004) (39,009)
Merger with GRS (Note 2) (32,730) (307,067)
Increase in other assets, net (5,211) (2,573)
NET CASH USED BY INVESTING ACTIVITIES (96,945) (338,840)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments)/borrowings on line of credit (228,000) 20,000
Payments on long-term debt (55,016) (12,486)
Issuance of common stock, net of expenses 150,040 270,000
Exercise of stock options ----- 1,380
NET CASH (USED)/PROVIDED BY
FINANCING ACTIVITIES (132,976) 278,894
NET DECREASE IN CASH (286,329) (281,723)
CASH, beginning of the year 442,946 724,669
CASH, end of the year 156,617 442,946
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest 58,494 21,952
Taxes 838 26,971
Merger with Groundwater Recovery Systems, Inc.
(Note 2)
Non cash assets (liabilities)
Accounts receivable, net ----- 847,145
Inventory ----- 355,714
Other current assets ----- 53,554
Property, plant & equipment ----- 99,862
Other assets ----- 6,030
Accounts payable, accrued expenses and
other current liabilities ----- (585,485)
Line of credit ----- (430,000)
Current portion of long-term debt ----- (56,382)
Long-term debt ----- (114,862)
Net worth ----- (191,526)
Net cash acquired through acquisition ----- (15,950)
</TABLE>
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Two Years Ended December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in two related areas of business within the environmental industry. The
Company's environmental consulting business is conducted through Lexicon
Environmental Associates, Inc. ("Lexicon"). Lexicon provides environmental
engineering, hydrogeological and remedial consulting services, as well as
construction management services for storage tank related construction. The
Company's groundwater remediation business is conducted through Groundwater
Recovery Systems, Inc. ("GRS"). GRS is primarily engaged in the design and
manufacture of flexible, module and reusable site specific remediation
systems. GRS also offers installation and operation and maintenance services
for its systems worldwide. Prior to March 1995, Gaservice Maintenance
Corporation ("Gaservice"), operated as a general contractor primarily
involved in the installation and servicing of petroleum storage and handling
equipment. As of March 31, 1995, this area of business was discontinued.
Unless otherwise indicated, the discussions of the business and operations of
the Company described herein refer to Lexicon and GRS, but do not reflect the
business and operations of Gaservice.
The Company operates primarily in the Northeastern United States in the
single industry which offers customers solutions that incorporate
environmental consulting and installation and remedial work for underground
storage tanks. In this industry, the Company has had three classes of
products: (1) environmental services, (2) equipment manufacturer and (3) UST
contractor (discontinued).
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. Intercompany
items and transactions have been eliminated in consolidation.
Accounting 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
The Company's raw materials are valued at the lower of cost (moving
average method) or market. The remainder of the work in process is valued at
the pro rata billing value of work completed.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided by the straight-line method over the estimated
useful lives of the assets (ranging from 5 to 10 years, and for leasehold
improvements, the shorter of the term of the lease or the life of the asset).
Goodwill
Goodwill resulting from the acquisition of GRS represents the excess of
the purchase price plus acquisition costs over net assets acquired. Goodwill
is being amortized on a straight line basis over 30 years. The Company
assesses the recoverability of this intangible asset by determining whether
the amortization of the goodwill balance over its remaining useful life can
be recovered through projected undiscounted future cash flows of the acquired
companies.
Patents
The Company capitalizes costs associated with products under development
to be patented. The capitalized costs associated with each patent is
amortized utilizing the straight-line method over the statutory period
covered by the patents.
Revenue Recognition
Service revenues are recognized as the services are performed. Such
revenues also include the cost of services subcontracted to third parties.
Product revenues are recognized on the basis of production activity at pro
rata billing value of work completed.
Earnings Per Share
Per share data is based upon the weighted average number of shares
outstanding. Common stock equivalents have not been included in the
computations as they would be anti-dilutive.
Reverse Stock Split
The Company approved an amendment to effect a one-for-thirteen reverse
stock split of all the outstanding shares of the Company's Common Stock on
December 30, 1996. The effective date of such split was January 31, 1997.
The financial statements have been adjusted retroactively to account for such
split.
Stock Based Compensation
The Company accounts for stock transactions in accordance with APB
Opinion No. 25, "Accounting For Stock Issued To Employees." In accordance
with Statement of Financial Accounting Standards No. 123, "Accounting For
Stock-Based Compensation," the Company intends to adopt the pro forma
disclosure requirements of Statement No. 123 in Fiscal 1997. If the
accounting provision of the new Statement had been adopted as of the
beginning of Fiscal 1995, the effects on 1995 and 1996 net losses would have
been immaterial.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting For The Impairment Of Long-Lived Assets And For Long-Lived
Assets To Be Disposed Of" as of January 1, 1996. Such adoption had no
material effect on the financial position of the Company.
NOTE 2 - MERGER WITH GROUNDWATER RECOVERY SYSTEMS, INC.
On September 29, 1995, the Company entered into an Agreement and Plan of
Merger ("the Agreement") with GRS Acquisition Corp., a wholly-owned
subsidiary of the Company ("New GRS"), Groundwater Recovery Systems, Inc.
("GRS") and George A. Nolan and James G. Warburton, the sole stockholders of
GRS (the "Sellers"). Contemporaneously with the execution of the Agreement,
GRS was merged into New GRS (the "Merger"), thereby becoming a wholly-owned
subsidiary of the Company. New GRS subsequently changed its name to GRS. In
connection with the Merger, the Company provided the following consideration
to the Sellers: (a) $250,000 in cash; (b) one year promissory notes (the
"Promissory Notes") in the aggregate amount of $250,000 bearing interest at
the rate of ten percent (10%) per annum; and c) 230,769 shares of the
Company's Common Stock. Payment of the Promissory Notes is guaranteed by the
Company. The principal amount of the Promissory Notes was subsequently
adjusted when it was determined upon audit, in accordance with Generally
Accepted Accounting Principles, that the net worth of GRS did not meet
certain predetermined criterion. The Note is currently valued at $161,770
(see Note 6). Consequently, such purchase price reduction of $88,230 resulted
in a reduction in goodwill for the same amount.
The Company financed the cash paid in connection with the Merger by
borrowing under its Revolving Credit Agreement (the "Credit Agreement") with
First Union National Bank (See Note 5). The Credit Agreement permits the
Company to borrow up to $750,000. However, the Company was required to repay
the $250,000 used in the Merger by December 15, 1995 under the Credit
Agreement.
In Fiscal 1995, the net cash paid for this transaction was as
follows:
<TABLE>
<S> <C>
Cash paid to sellers ($250,000)
Acquisition costs ( 95,151)
Acquisition payables 22,134
Cash acquired 15,950
Net cash paid in Fiscal 1995 ($307,067)
</TABLE>
The unaudited consolidated results of operations of the Company, on a
pro forma basis, as though the GRS acquisition had been consummated as of the
beginning of the respective period are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
<S> <C>
Revenues $9,395,497
Operating Income 34,935
Net loss from continuing operations (26,701)
Net loss per share $0.00
</TABLE>
NOTE 3 - DISCONTINUED OPERATIONS
The Company discontinued the operations of its Gaservice subsidiary as
of March 31, 1995. The Company has liquidated all assets of Gaservice, except
for several outstanding receivables (See Note 11 - Litigation) . Fiscal 1995
discontinued operations resulted in additional losses due to further
write-downs of assets.
Net assets of discontinued operations consist of accounts receivable of
$499,234. Net liabilities of discontinued operations include accounts
payable of $346,314 and accrued liabilities of $155,393.
NOTE 4 - INVENTORY
<TABLE>
<CAPTION>
Inventory consists of the following: December 31,
1996
<S> <C>
Raw Materials $178,057
Work-in-process 220,791
$398,848
</TABLE>
NOTE 5 - LINE OF CREDIT
The Company renewed its Credit Agreement with First Union National Bank
(the "Bank") on June 27, 1996. The Credit Agreement permits the Company to
borrow up to $750,000. Borrowings under the Credit Agreement are limited to
60% of eligible accounts receivable, as defined and bears interest at the
prime rate plus three-quarter (3/4) percent. The eligible accounts
receivable as defined by the terms of the Credit Agreement were $1,427,172 at
December 31, 1996. The calculated borrowing base of 60% of eligible accounts
recievable was $809,874, for which the Company has utilized $222,000 of this
eligible borrowing base as of December 31, 1996. Borrowings under this
facility are also collateralized by a security interest in substantially all
of the assets of the Company, require the Company to meet specified ratios,
and, among other things, impose restrictions on the payment of dividends,
stock redemptions and the sale of property.
On April 9, 1997, the Company received a waiver from the Bank with
respect to failure to meet some of the terms of the financial covenants of
the Credit Agreement at December 31, 1996. In April 1997, the Company
renegotiated new covenants with the Bank under the Credit Agreement for the
remainder of the term which expires on July 31, 1997.
NOTE 6 - LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
<S> <C>
Notes Payable to Directors, interest at 10%,
maturing in March 1998, with quarterly interest
payments of $4,044 $161,770
Note payable to a bank, secured by inventory,
accounts receivable, interest at 7.25%, maturing in
December 1998, with monthly payments of $4,352 97,420
Term note on equipment, secured by the equipment,
interest at 8%, maturating in 1998, with monthly
payments of $324 6,323
$ 265,513
Less: Current Portion ( 50,337)
$ 215,176
Long-term debt will mature as follows:
1997 50,337
1998 215,176
$265,513
</TABLE>
On September 29,1996, the Company converted two Notes Payable to
Directors (the "Old Notes") in the aggregate of $161,770 into long-term debt
(the "New Notes"). The only changes in the terms of the New Notes as
compared to the terms of the Old Notes are: extension of the maturity to
March 31, 1998; addition of the requirement of quarterly interest payments
commencing December 31, 1996 (at the same interest rate of ten percent (10%)
per annum provided in the Old Notes); and subordination of the New Notes, as to
principal, to the Revolving Credit Agreement with the Bank (see Note 5).
NOTE 7-STOCKHOLDER'S EQUITY
At December 31, 1996, the Company had Common Stock Purchase Warrants
outstanding for an aggregate of 2,668,000 Common Shares exercisable at $1.25
per share. Due to transactions that have occurred since the original
issuance date of the Warrants, the exercise price has been recalculated to
$0.84 to purchase 1.49 shares of Common Stock to account for anti-dilution
effects. The number of outstanding warrants did not change as a result of the
reverse stock split. However, the new exercise price is $10.92 to purchase
0.11 share of Common Stock. These Warrants expire on December 31, 1997.
The Company was notified by Nasdaq that the Company's Warrants (LEAKW) were
delisted from the Nasdaq SmallCap Market, effective with the close of business
on November 6, 1996, due to the Nasdaq requirement to maintain a minimum of
two active market makers in the Company's warrants.
During 1992 and 1993, $1,900,000 due to two principal shareholders was
converted into 1,688,888 shares of Series A Convertible Preferred Stock. On
July 1, 1996, the Company entered into an agreement with John S. Gelles and
William H. Gelles, Jr., Officers and Directors of the Company, to convert
their 1,688,888 shares of Preferred Stock into 115,478 shares of Common Stock
in exchange for certain registration rights. In accordance with the
agreement, John and William Gelles irrevocably waived any and all rights to
dividends to which they may have been entitled in accordance with the terms
of the Preferred Stock.
The Company issued 230,768 shares of Common Stock for the acquisition of
GRS which occurred in September 1995 (See Note 2).
In February 1996, the Company issued 192,308 shares of Common Stock and
1,250,000 Warrants to purchase 96,153 shares Common Stock at a price of $5.20
per share for a period of five years with respect to the private placement of
its Common Stock commenced in December 1995.
The Company issued 200,000 Warrants to purchase 15,384 shares of Common
Stock at a price of $5.28 per share for a period of five years to an outside
consultant as compensation for assisting in the completion of the private
placement of the Company's Common Stock and Warrants.
Stock Option Plan
The Company's 1988 Stock Option Plan was adopted by the Board of
Directors and approved by the shareholders in October, 1988. A total of
52,885 common shares are reserved for issuance under the Plan. The Plan
provides for the Board, or a committee thereof, to grant either Incentive
Stock Options ("ISO's"), Non-Qualified Stock Options ("NQSO's") and/or Stock
Appreciation Rights (SAR's) (collectively referred to as the "Options") to
qualified employees (including officers, directors and advisors) of the
Company.
The Board of Directors or its Committee will determine the time periods
during which options granted under the Plan may be exercised, although in no
event shall any option granted under the Plan have an expiration date later
than ten (10) years from the date of its grant. ISO's granted to ten (10%)
percent shareholders may not have a term of more than five (5) years.
The option price is determined by the Board of Directors or its
Committee but, in the grant of an ISO, in no event may the option price be
less than the fair market value. Shareholders of the Company which own
(directly or through attribution) more than 10% of the total voting power of
all classes of capital stock, are subject to the additional restriction that
the option price must be equal to at least one hundred ten (110%) percent of
the fair market value of the Company's common stock on the date of grant.
The Plan (but not options previously granted under the Plan) shall terminate in
October 1998 or sooner, if the Board of Directors of the Company should so deem.
On May 22, 1992, the Stockholders approved the adoption of the 1992
Stock Option Plan. A total of 57,692 shares of Common Stock are reserved for
issuance under the 1992 Plan. The terms of the 1992 Plan are similar to
those of the 1988 Plan.
On July 12, 1995, the Stockholders approved the adoption of the 1995
Stock Option Plan. A total of 57,692 shares of Common Stock are reserved for
issuance under the 1995 Plan. The terms of the 1995 Plan are similar to
those of the 1988 Plan.
On September 20, 1996, the Stockholders approved the adoption of the
1996 Stock Option Plan. A total of 57,692 shares of Common Stock are reserved
for issuance under the 1996 Plan. The terms of the 1996 Plan are similar to
those of all the other Plans.
Summary of 1988, 1992, 1995 and 1996 Stock Option Plans
<TABLE>
<CAPTION>
Options Options Outstanding
Available Number Price
For grant Of Shares Per Share
<S> <C> <C> <C>
Outstanding at December 31, 1994 5,364 70,463 $18.6875 - $35.75
Canceled 77,384 (77,384) $35.75 - $4.6722
Granted (75,269) 75,269 $26.00 - $3.90
Exercised ------ ------
1995 Plan 57,692
Outstanding at December 31, 1995 65,171 68,348
1996 Plan 57,692 ------
Granted (32,306) 32,306 $3.25 - $2.4375
Expired 1,923 ( 1,923) $26.00
Outstanding at December 31, 1996 92,480 98,731 $3.90 - $2.4375
</TABLE>
At the beginning of Fiscal 1995, the Company had 70,463 incentive stock
options out-standing. During 1995, 3,077 options expired and 8,654 options
issued to terminated employees were canceled. In addition, the Company
canceled 65,653 options with exercise prices ranging from $35.75 to $18.6875,
including 31,923 options granted to Joyce A. Rizzo. A total of 66,423
options were regranted at $3.90 per share to eight employees, including 31,923
options to Joyce A. Rizzo.
In July 1996, a total of 30,768 options were granted at $3.445 per share
to John Gelles and William Gelles in consideration of conversion of their
preferred stock to common stock.
In February 1997, a total of 32,000 options were granted at $1.63 per
share to eight employees, including 10,000 options to Joyce A. Rizzo based
upon the performance of the Lexicon subsidiary.
In 1990, 19,230 non-qualified stock options were granted to an
ex-officer with a five year vesting period. These options were valued at
$243,750 and were being expensed over the vesting term at $48,750 per annum.
In 1992, these options were canceled and 38,461 new non-qualified stock options
were issued at a higher exercise price than the original stock options canceled.
The remaining unamortized balance of $179,000 has been amortized as of
December 31, 1996.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under
the liability method specified by SFAS No. 109, a deferred tax asset or
liability is determined based on the difference between the financial statement
and tax basis of assets and liabilities as measured by the enacted rates
which will be in effect when these differences reverse.
The net operating loss carry forwards are subject to limitation in any
given year in the event of certain events, including significant changes in
ownership. The Company has not given recognition to these tax benefits in
the accompanying financial statements. At December 31, 1996, the Company had
available net operating loss carry forwards of approximately $5,000,000
expiring throughout 2016, and research and development credits of
approximately $26,000. The net operating loss carry forwards result in an
estimated $1,625,000 deferred tax assets which the Company has taken a
valuation reserve against for the same amount due to the lack of established
taxable income.
NOTE 9 - RELATED PARTY TRANSACTIONS
During fiscal 1996 and 1995, GRS had revenues of approximately $60,092
and $1,883, respectively, from one entity that is primarily owned by the
President of GRS. In Fiscal 1996, GRS also had purchases of $9,583 from the
same entity. As of December 31, 1996 and 1995, GRS had accounts receivable
from this related entity of $50,612 and 11,105, respectively.
NOTE 10 - OTHER INFORMATION
The Company has a profit-sharing plan (the "Profit-Sharing Plan")
pursuant to Section 401(k) of the Internal Revenue Code. Eligible employees
may defer a portion of their total compensation through contributions to the
Plan. The Company matches 25% of the first 4% of employee contributions,
subject to certain limitations. The Company's contributions under the
Profit-Sharing Plan for the year ended December 31, 1996 and 1995 were
$15,418 and $7,136, respectively.
At the 1995 Annual Meeting of Stockholders, the Company received
approval of the Company's Employee Stock Option Plan (the "Purchase Plan").
The purpose of the Purchase Plan is to provide all the employees of the Company
and its subsidiaries with a convenient way to become shareholders of the
Company. The Purchase Plan can be continued from year to year, but may be
modified or discontinued by the Company, at any time. The Company has not
yet implemented the Purchase Plan.
Customer Concentration
Major customers of the environmental services segment, and the total
amount of sales and the percent of total sales are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Number of major customers 1 1
Aggregate sales to major customers $5,520 $3,863
Percent of total revenues
to major customers 69% 63%
</TABLE>
Segment Information
The following table sets forth, for each of, and as of, the last two
years, information concerning the Company's industry segments (dollars in
thousands):
<TABLE>
<CAPTION>
Sales 1996 1995
<S> <C> <C>
Environmental services $ 6,267 $ 5,031
Equipment manufacturer 1,802 1,167
UST contractor ---- 351
Corporate and eliminations ( 94) ( 17)
$ 7,975 $ 6,532
Operating Profit (Loss)
Environmental services $ 342 $ 243
Equipment manufacturer ( 724) 62
Corporate and eliminations ( 353) ( 247)
($ 735) $ 58
Identifiable Assets
Environmental services $ 1,511 $ 2,182
Equipment manufacturer 747 1,384
Corporate and Disc Ops 2,254 2,558
$ 4,512 $ 6,124
Depreciation Expense
Environmental services $ 39 $ 28
Equipment manufacturer 34 4
Corporate and Disc Ops --- 4
$ 73 $ 36
Capital Expenditures
Environmental services $ 34 $ 37
Equipment manufacturer 25 2
$ 59 $ 39
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases equipment and office space under various operating
leases expiring through 2001. Future minimum lease payments are as follows:
1997 $ 194,185
1998 $ 100,234
1999 $ 30,942
2000 $ 21,759
2001 $ 22,412
Rent expense amounted to approximately $166,976 in 1996 and $184,139 in
1995.
Litigation
A legal proceeding was settled in February 1997 for a total of
$400,000. The Company's contribution of $162,500, which was within the
limits of the coverage, was paid by the Company's insurance carrier.
The settlement was made with respect to the proceeding captioned James Fenley
and Sandra Fenley, Plaintiffs against New York Telephone Company, Lexicon
Environmental of Pennsylvania and Mid Island Masonry Corp., Defendants,
which was commenced in February 1994 in the Supreme Court of the State of
New York, County of New York.
Pursuant to a third party complaint served on Gaservice in May 1995,
Exxon Corporation brought Gaservice into an action captioned Conor Donellon,
Plaintiff against Exxon Corporation, defendant, Supreme Court of New York,
County of Kings. The plaintiff in this action seeks $20 million in damages
for injuries allegedly sustained as a result of falling while working as an
employee of the Company at an Exxon service station under construction in
October 1994. Responsibility for the defense of this lawsuit has been
assumed by the Company's insurance carrier.
A legal proceeding captioned Steve Simon, Plaintiff against Cord Meyer
Development Co., Exxon Company, USA and Gaservice Maintenance Corporation,
Defendants, Supreme Court of the State of New York, County of Queens was
commenced in April 1995. The Plaintiff in this action seeks $2 million in
damages for injuries allegedly sustained when he tripped and fell on a metal
plate while walking on a sidewalk area of an Exxon service station under
construction in February 1995. Responsibility for the defense of this
lawsuit has been assumed by the Company's insurance carrier.
A civil action captioned Westland Properties, Inc.; Westland Garden
State Plaza Limited, Partnership; and Westfield Corporation, Inc. Vs. Exxon
Company, USA; OXYUSA, Inc.; Richard Bertola; Carol Bertola; Lawrence Bertola;
Gaservice Corporation; Gaservice Maintenance Corporation; Gaservice Acquisition
Corporation; and John Does 1-70; and ABC Corporations 1-70, Superior Court of
new Jersey, Law Division - Bergen Count was filed on June 12, 1995. The
plaintiffs in this action claim that a release of hazardous substances
occurred on their property and that it was allegedly caused by the
defendants. The amount of alleged damages is undetermined. Responsibility
for the defense of this lawsuit has been assumed by the Company's previous
insurance carrier.
A lawsuit captioned Exxon Corporation, Plaintiff against Gaservice
Maintenance Corporation and Leak-X Environmental Corporation, Defendants,
Supreme Court of the State of New York, County of Kings, was commenced in
October 1995. The plaintiff in this action seeks $135,000 in damages
allegedly sustained as a result of breach of contract by Gaservice. The
Company believes these allegations are without foundation and is vigorously
defending itself against such claims. Another lawsuit captioned Exxon
Corporation, Plaintiff against Gaservice Maintenance Corporation and Leak-X
Environmental Corporation, Defendants, Supreme Court of the State of New
York, County of Queens, was commenced in October 1995. The plaintiff in this
action seeks $104,500 in damages allegedly sustained as a result of breach of
contract by Gaservice, as well as alleged negligence in retrofitting of tanks
which resulted in the escape of vapors. The Company believes these
allegations are without foundation and is vigorously defending itself against
such claims. The Company's insurance carrier has indicated that the
allegations contained in the Queens case regarding alleged vapors falls
within the terms and conditions of the Company's general liability policy. The
Company has filed counterclaims aggregating approximately $450,000 which
allege that (a) Exxon interfered with Gaservice's completion of all the
contracts; and (b) Exxon failed to pay for the actual work completed by
Gaservice. Certain subcontractors on the projects have been joined into the
actions or have filed separate claims because Exxon also failed to provide
payments which would enable the subcontractors to be paid by Gaservice.
A legal proceeding captioned Christine Bruno and Riccardo Bruno,
Plaintiff against Lexicon Environmental Associates, Inc. and Y.R.I.
Environmental, a Subdivision of Yellowstone, Inc., Defendant, Supreme Court
of the State of New York, County of Suffolk was commenced in May 1996. The
plaintiff in this action seeks $1.25 million in damages for injuries
allegedly sustained as a result of the inhalation of noxious fumes which
resulted from work being performed by the Defendant. Responsibility for the
defense of this lawsuit has been assumed by the Company's insurance carrier.
Pursuant to two third party complaints served on Gaservice Maintenance
Corporation ("Gaservice"), a wholly-owned subsidiary of the Company, in
August 1996, Exxon Corporation and Gordon Supply Company brought Gaservice
into an action captioned Martino Ricciardi and Mary Ricciardi, Plaintiffs
against Gordon's Supply Company, Inc., Cord Meyer Development Company and Exxon
Corporation, Defendants, Supreme Court of the State of New York, County of
Queens. The plaintiff in this action seeks $2.1 million in damages for
injuries allegedly sustained as a result of materials falling on him while
working on an Exxon construction site as an employee of Gaservice.
Responsibility for the defense of this lawsuit has been assumed by the
Company's insurance carrier.
A legal proceeding captioned Douglas B. Tom and Joane Tom, Plaintiffs
against New York Telephone Company, Inc., Lexicon Environmental Associates,
Inc. and Cranes, Inc., Defendants, was commenced in December 1996 in the
Supreme Court of the State of New York, County of Nassau. The lawsuit
alleged personal injuries suffered by the Plaintiff while in the employ of a
general contractor which was providing services to NYNEX. The Company is the
construction manager with respect to the project. The Plaintiff and his wife
are seeking damages of $10.5 million in damages. This matter is being
handled by the Company's insurance carrier. The Company believes that the
allegations contained in the complaint are erroneous and it has meritorious
defenses to the claims and intends, through its insurance carrier, to
vigorously oppose the allegations. There can be no assurance, however, that
the outcome of this action will be favorable to the Company, and an unfavorable
outcome could have a material adverse effect upon the Company's overall business
and financial condition.
Employment Agreements
In March 1995, the Company entered into an agreement with Messrs. John
S. Gelles and William H. Gelles, Jr. which provided that each of such persons
would receive the following through December 31, 1995 for their services to
the Company: base salary of $6,500 per month; reimbursement of reasonable
business-related expenses including operation of company automobiles; the
option to purchase a Company vehicle at fair market value at December 31,
1995; and medical insurance equivalent to preexisting coverage.
The Company entered into a five-year employment contract with Joyce A.
Rizzo on March 31, 1995 to serve as Chief Executive Officer of the Company
and President of Lexicon. Under the agreement, Ms. Rizzo's annual salary was
$150,000 until December 31, 1996 and she is entitled to receive minimum
annual increases in base salary of three percent (3%) over the preceding year's
salary and maximum increases of ten percent (10%) depending on whether the
Company attains certain pre-tax income levels. Effective January 1, 1997,
Ms. Rizzo's annual salary was increased to $154,500. Under the agreement, Ms.
Rizzo is entitled to receive incentive stock options if the Company attains
pre-tax income goals, as established by the Board of Directors. Under this
contract, Ms. Rizzo received 31,923 stock options at $3.90 in December
1995(former options totaling 31,923 were canceled on December 18, 1995) and
10,000 stock options at $1.63 in February 1997. The Company has agreed to
provide Ms. Rizzo with an automobile allowance or in lieu thereof, will pay
her an equal monthly cash stipend. If Ms. Rizzo's employment is terminated
without cause, the agreement provides that she will be entitled to receive
her then current compensation for the lesser of two years or the remainder of
the term. The agreement provides that Ms. Rizzo will not compete with the
Company during the term of the agreement, nor for a period of two years
thereafter. The agreement also provides that if Ms. Rizzo, as both a director
and shareholder of the Company, opposes a "change of control" (as defined
below) of the Company and such change of control shall occur at any time during
full-time employment, Ms. Rizzo shall within six months of such change of
control be entitled to terminate her employment agreement and the Company
shall promptly pay either 2.9 times her then current compensation, if a
majority of the Company's Board opposed the change of control, or 2.5 times
the then current compensation if a majority of the Board voted in favor of
the change of control. The agreement defines a "change of control" to occur
when any person, corporation, partnership, association or entity, directly or
indirectly (through a subsidiary or otherwise), (I) acquires or is granted
the right to acquire, directly through a merger or similar transaction, a
majority of the Company's outstanding voting securities, or (ii) acquires all
or substantially all of the Company's assets.
On September 29, 1995, the Company entered into five year employment
agreements with George A. Nolan to serve as President and James G. Warburton
to serve as Vice President of GRS each at an annual salary of $148,000. Such
salary is subject to automatic annual increases commencing January 1, 1997 of
between three percent (3%) and ten (10%) dependent upon achievement of net
income targets to be established. Under the agreement, each is entitled to
receive incentive stock options if the Company attains pretax income goals,
as established by the Board of Directors. The Company has agreed to provide an
automobile allowance or in lieu thereof, will pay an equal monthly cash
stipend and will provide other fringe benefits that the Company makes
available to its executives. If employment is terminated without cause, the
agreement provides that the then current compensation will be paid for the
lessor of two years or the remainder of the term. The agreement provides for
no competition with the Company during the term of the agreement nor for a
period of two years thereafter. For the year ended December 31, 1996, George
A. Nolan and James G. Warburton each waived a total of $8,633 in salary and
$2,275 of home office allowance to which they were entitled to under these
agreements.
On July 1, 1996, the Company entered into thirty-month employment
agreements with John S. Gelles and William H. Gelles, Jr. to serve as
employees of the Company, each at an monthly salary of $6,250 through
December 31, 1996 and $4,167 thereafter. The Company also granted 200,000
incentive stock options each to John and William Gelles pursuant to the
Company's 1995 Stock Option Plan to purchase 15,384 shares of Common Stock at
an exercise price of $3.445.
NOTE 12 - SUBSEQUENT EVENTS
In January 1997, the Company entered into an agreement with its
investment banker ("Investment Banker") for certain consulting advice,
including, but not limited to evaluating potential merger and acquisition
candidates. If a merger or acquisition candidate is located by the
Investment Banker, additional fees based on a pre-determined formula would be
due upon consummation of such merger. Pursuant to the terms of the agreement,
the Investment Banker is to receive $5,000 per month plus reasonable expenses
during the term plus warrants to purchase 30,500 shares of the Company's
common stock at $1.63 per share expiring on December 31, 2001. The agreement
is for a term of 12 months automatically renewable for four 12-month periods,
unless terminated by either party upon 30 days notice.
In January 1997, the Company entered into a consulting agreement with
Dictor Capital Corporation ("DCC") to render consulting services in an effort
to acquire and effect the purchase or merger of one or more companies. The
term of the agreement is up to twelve months. The retainer fee for this
agreement included an initial fee of $3,500 and $500 per month thereafter.
If DCC is successful in identifying a target company for acquisition or merger,
additional fees would be due based on a pre-determined formula.
PRINCIPAL MARKET OR MARKETS
The Company's Common Stock is traded in the over-the-counter market and
is quoted through The NASDAQ SmallCap Stock Market, Inc. under the symbol,
LEAK. The Company's Warrants are traded in the OTC Bulletin Board under the
symbol, LEAKW.
The following table sets forth the quarterly range of actual high and
low closing bid prices of the Company's Common Stock for the two years
indicated, as reported by NASDAQ inter-dealer quotations, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. This table represents post 1:13 reverse stock split prices:
<TABLE>
<CAPTION>
High Low High Low
Period Bid Bid Period Bid Bid
<S> <C> <C> <S> <C> <C>
1995 First Quarter $29.25 $8.13 1996 First Quarter $4.88 $1.22
1995 Second Quarter $12.19 $4.06 1996 Second Quarter $4.48 $2.44
1995 Third Quarter $ 7.31 $4.87 1996 Third Quarter $3.66 $1.63
1995 Fourth Quarter $ 8.94 $3.66 1996 Fourth Quarter $3.55 $1.22
</TABLE>
The dividend policy of the Company is to retain earnings, if any, to
finance operations and to expand the Company's business. Accordingly, it is
anticipated that cash dividends will not be paid in the foreseeable future.
As of April 11, 1997, there were 162 holders of record of the Company's
Common Stock and approximately 2,200 beneficial owners of its Common Stock.
DIRECTORS AND EXECUTIVE OFFICERS
John S. Gelles Chairman of the Board of Directors
Joyce A. Rizzo Chief Executive Officer and Director of the
Company and President of Lexicon Environmental
Associates, Inc.
William H. Gelles, Jr. President, Treasurer and Director
George A. Nolan Director of the Company and President of
Groundwater Recovery Systems, Inc.
James G. Warburton Director of the Company and Vice President of
Groundwater Recovery Systems, Inc.
Robert D. Goldman Secretary and Director of the Company and Vice
President of Lexicon Environmental Associates, Inc.
Eileen E. Bartoli Chief Financial Officer
GENERAL COUNSEL
Snow Becker Krauss P.C., 605 Third Avenue, New York, NY 10158
AUDITOR
Mazars and Guerard LLP, 52 Vanderbilt Avenue, New York, NY 10017
TRANSFER AGENT/REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005
CONSENT TO INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 28,
1997 and April 9, 1997 as to Note 5 of Leak-X Environmental Corporation
included in this Form 10-KSB into the Company's previously filed registration
statements on Form S-8, file numbers 33-63232 and 33-63064.
/s/ Mazars and Guerard LLP
Certified Public Accountants
April 14, 1997
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996,
AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1996, AND THE ACCOMPANYING NOTES, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 156617
<SECURITIES> 0
<RECEIVABLES> 1418857
<ALLOWANCES> 35000
<INVENTORY> 398848
<CURRENT-ASSETS> 2543678
<PP&E> 457681
<DEPRECIATION> 259830
<TOTAL-ASSETS> 4512183
<CURRENT-LIABILITIES> 2512148
<BONDS> 215176
0
0
<COMMON> 1220
<OTHER-SE> 1783639
<TOTAL-LIABILITY-AND-EQUITY> 4512183
<SALES> 7975249
<TOTAL-REVENUES> 7975249
<CGS> 6161505
<TOTAL-COSTS> 6161505
<OTHER-EXPENSES> 2575760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56288
<INCOME-PRETAX> (798474)
<INCOME-TAX> 838
<INCOME-CONTINUING> (799312)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (799312)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
