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, 1997
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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, 1997 were
$10,094,456.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 20, 1998 was approximately
$897,305. On such date, the closing price of the Common Stock as quoted on
the The NASDAQ Stock Market was $1.625.
The Registrant had 1,219,645 shares of Common Stock outstanding as of March
20, 1998.
Transitional Small Business Disclosure Format: Yes X No
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"), a subsidiary of the Company, 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 in October 1988. In August 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 (groundwater) 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 (now known as Bell
Atlantic ("Bell")) to provide ongoing engineering, construction management,
analytical and soil disposal services for Bell's storage tank management
program at its New York City facilities. In 1995, the Bell program was
expanded to include Bell's Long Island, New York facilities. The majority of
the construction management portion of the contract is provided by
subcontractors under contract to the Company.
In 1997, the Company developed and began offering a new state-of-the-art
telecommunications software as part of its Protocol Environmental Compliance
Program ("Protocol"). The Company developed Protocol in response to the
market demand for centralized electronic monitoring services for storage tank
facilities. The telemonitoring program entitled, "OnPatrol Remote Monitoring"
has been developed as an outsourced electronic surveillance service provided
to tank owners. Data from individual facilities is telecommunicated to the
Company's centralized control center where the Company analyzes the
information, responds to alarms, and generates the reports that are necessary
for environmental compliance. Another aspect of the Protocol program is
"InControl," a comprehensive facility inspection and maintenance program.
Both Protocol programs work together to assist clients in their ongoing
compliance needs.
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 Protocol program targets industrial,
retail petroleum and commercial companies.
The Company's environmental consulting and Protocol 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 Chief Executive Officer 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, 1997 and 1996, Bell accounted for
approximately 68% and 69% 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. As
of late 1997, the Company significantly expanded its client base to include
other major customers.
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, 1997 and
1996, the Company had expenditures of $31,707 and $57,000, 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 for the Company's Protocol services consists primarily of
computer software and equipment manufacturers. The Company believes that its
approach and expertise in storage tank management provides an advantage over
the competition which does not provide a "complete service" that includes the
broad spectrum of environmental engineering services.
Competition in the construction management business is widespread 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 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, as well as many state and local regulations,
the Company must be certified by the respective state agencies in order to perfo
rm 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's 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, 1997, the Company had a backlog of orders of
approximately $5,800,000 as compared to $6,800,000 at December 31, 1996. The
backlog at the end of Fiscal 1997 is lower primarily because appropriations
for additional work to be completed on existing projects in 1998 were not
received until after December 31, 1997.
Management believes that substantially all of the current backlog will be
completed during 1998, 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 March 20, 1998, the Company employed 40 persons full-time and five
part-time: seven in executive management, 18 in environmental consulting, two
in sales, six in production, three 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 no export
sales for the year ended December 31, 1997.
Item 2. DESCRIPTION OF PROPERTY
The Company utilizes the following principal facilities as of the date
hereof:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Location Square Footage Lease Expiration Purpose Current
Annual Rent
West Chester, PA 4,680 May 31, 1998 Office/ $72,324
Storage
Long Beach, NY 1,000 June 30, 1998 Housing/ $24,000
Office
Portsmouth, NH 1,200 August 31, 1998 Office $13,800
Franklin Square, NY 1,350 December 31, 2001 Office $19,912
Exton, PA 12,000 June 30, 1998 Manufacturing/ $60,000
Office
</TABLE>
The Company believes that its present facilities are adequate for its
operations, however, the Company may consider other options as its leases
terminate.
Item 3. LEGAL PROCEEDINGS
The information required by Item 3 is incorporated by reference from the
Company's 1997 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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 1997 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The information required by Item 6 is incorporated by reference from the
Company's 1997 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 1997 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
None.
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:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
John S. Gelles 62 Chairman of the Board of Directors
Joyce A. Rizzo 49 Chief Executive Officer and Director of
the Company and Chief Executive Officer
of Lexicon Environmental Associates, Inc.
William H. Gelles, Jr. 56 President, Treasurer and Director
George A. Nolan 51 Director of the Company and President of
Groundwater Recovery Systems, Inc.
James G. Warburton 40 Director of the Company and Vice
President of Groundwater Recovery Systems, Inc.
Robert D. Goldman 41 Secretary and Director of the Company
and President of Lexicon Environmental
Associates, Inc.
Eileen E. Bartoli 29 Chief Financial Officer
Timothy J. Mayette 37 Director
Raymond W. Kane 53 Director
</TABLE>
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. Since
1996, Mr. Gelles has been serving in a sales and marketing capacity for the
Company. Prior to the Company's discontinuation of Gaservice, Mr. Gelles had
served as President of Gaservice for 28 years.
Joyce A. Rizzo has been a Director of the Company since September 1989
and Chief Executive Officer of the Company since May 1992. Ms. Rizzo has also
served as Chief Executive Officer of Lexicon since September 1997 and prior
thereto as its President from October 1989 to September 1997. Prior to
joining the Company, 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. Since 1996, Mr. Gelles has been
serving in a sales and marketing capacity for the Company. Prior to the
Company's discontinuation of Gaservice, Mr. Gelles had served as
Secretary-Treasurer of Gaservice for 28 years.
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 President of Lexicon
since September 1997 and prior thereto, was Vice President of Lexicon from
November 1989 to September 1997. 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 and prior thereto, had served as the Company's Controller and
Chief Accounting Officer from February 1995 to January 1997. 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.
Timothy J. Mayette has been a Director of the Company since February
1998. Mr. Mayette is the Chief Financial Officer of PMCC Financial
Corporation, a position that he has held since October 1997. Prior thereto,
Mr. Mayette was Chief Financial Officer of Mortgage Plus Equity and Loan
Corporation from October 1996 to October 1997 and Vice President, Controller
of BankAmerica Mortgage from 1991 through September 1996.
Raymond A. Kane has been a Director of the Company since February 1998.
Mr. Kane is an independent consultant based in Wayne, Pennsylvania who is a
leading national expert in the field of environmental compliance management,
auditing and program development with more than 20 years of experience. Prior
to becoming an independent consultant, Mr. Kane held various positions with
Booz Allen Hamilton, Roy F. Weston and McLaren/Hart Environmental Engineering.
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, 1997 through December 31, 1997, 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, 1995, 1996, and 1997, by the Chief Executive Officer, and each
other executive officer and executive officers of one of the Company's
subsidiaries whose total compensation exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation Awards
Name and Options/SARs
Principal Position Year Salary Bonus ($) (#)
Joyce A. Rizzo, 1997 $154,500 -0- 10,000
Chief Executive 1996 $150,000 -0- -0-
Officer 1995 $136,000 -0- 31,923(1)
Robert D. Goldman 1997 $109,850 $1,250 5,000
Secretary 1996 $107,000 $1,150 -0-
1995 $102,000 $1,000 11,615(2)
George A. Nolan 1997 $104,575 -0- 15,000
President, GRS (3) 1996 $139,367 -0- -0-
James G. Warburton 1997 $104,575 -0- 15,000
Vice President, GRS (4) 1996 $139,367 -0- -0-
</TABLE>
(1) Represents 31,923 options exercisable at a range from $35.75 to $18.6875
which were originally granted in prior years, but which were subsequently
canceled and regranted in 1995 and 1997.
(2) Represents 11,615 options exercisable at a range from $35.75 to
$18.6875 which were originally granted in prior years, but were subsequently
canceled and regranted in 1995 and 1997.
(3) Mr. Nolan joined the Company in September 1995.
(4) Mr. Warburton joined the Company in September 1995.
Individualized Option/SAR grants in Last Fiscal Year
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
% of Total
Options/SARs Exercise
Options/ Granted to or Sale
SARs Employees in Price Expiration
Name Granted Fiscal Year ($/SH) Date
Joyce Rizzo 41,924 24.9% $1.56 05-22-02
Robert Goldman 16,615 9.9% $1.56 05-22-02
George Nolan 15,000 8.9% $1.50 09-01-01
James Warburton 15,000 8.9% $1.50 09-01-01
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Value of Unexercised
Unexercised In-The-Money
Shares Options at Options
Acquired FY-End (#) at FY-End ($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized Unexercisable Unexercisable (1)
Joyce A. Rizzo -0- $ 0.00 21,577/20,347 $14,888/$14,039
Robert D. Goldman -0- $ 0.00 8,058/8,557 $ 8,057/$ 5,904
George A. Nolan -0- $ 0.00 15,000/0 $ 0/$11,250
James G. Warburton -0- $ 0.00 15,000/0 $ 0/$11,250
</TABLE>
(1) The closing price for the Company's Common Stock on December 31, 1997 was
$2.25 per share.
The Company has no long-term incentive plan awards.
Directors who are employees of the Company currently receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. For serving on the Board
of Directors, the Company's non-employee directors receive $2,500 in annual
compensation plus 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 1997 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 March 20, 1998, 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>
<S> <C> <C>
Percentage of
Name and Number of shares Outstanding
Address of of Common Stock Common Stock
Beneficial Owner Owned (1) Owned (2)
John S. Gelles (3) 226,008 (4) 18.3%
William H. Gelles, Jr. (3) 227,619 (5) 18.4%
Joyce A. Rizzo (6) 22,948 (7) 1.8%
George A. Nolan (8) 115,384 (9) 9.5%
James G. Warburton (8) 115,384 (10) 9.5%
Robert D. Goldman (6) 24,364 (11) 2.0%
Timothy J. Mayette (12) 0 (13) 0.0%
Raymond W. Kane (14) 0 (15) 0.0%
All Executive Officers and 731,853 (16) 57.2%
Directors as a Group
(consisting of nine 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.
(3) The address of this person is c/o Lexicon Environmental Associates, Inc.,
925 Hempstead Turnpike, Suite 200, Franklin Square, New York 11010.
(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 15,385 incentive stock options granted to Mr. Gelles on July 1, 1996
at an exercise price of $3.445, which were reissued in May 1997 at an exercise
price of $1.56.
(5) Excludes 153 shares owned of record by Mr. Gelles's adult children as to
which Mr. Gelles disclaims beneficial ownership. Includes 15,385 incentive
stock options granted to Mr. Gelles on July 1, 1996 at an exercise price of
$3.445, which were reissued in May 1997 at an exercise price of $1.56.
(6) The address of this person is c/o Leak-X Environmental Corporation, 790 E.
Market Street, Suite 270, West Chester, PA 19382
(7) Includes 21,577 incentive stock options granted to Ms. Rizzo at an exercise
price of $3.90, which were reissued in May 1997 at an exercise price of
$1.56. Excludes 20,347 incentive stock options which are not currently
exercisable.
(8) The address of this person is c/o GRS, 299B National Road, Exton, PA 19341
(9) Excludes 15,000 incentive stock options at an exercise price of $1.50 which
are not currently exercisable.
(10) Excludes 15,000 incentive stock options at an exercise price of $1.50
which are not currently exercisable.
(11) Includes 3,846 warrants to purchase 3,846 shares and 8,058 incentive stock
options granted to Mr. Goldman at an exercise price of $3.90, which were
reissued in May 1997 at an exercise price of $1.56. Excludes 3,557 incentive
stock options which are not currently exercisable.
(12) The address of this person is c/o PMCC Financial Corporation, 66
Powerhouse Road , Roslyn Heights, New York 11577.
(13) Excludes 10,000 stock options granted to Mr. Mayette at an exercise price
of $2.125 which are not currently exercisable.
(14) The address of this person is 175 Strafford Ave., Suite One, Wayne, PA
19087
(15) Excludes 10,000 stock options granted to Mr. Mayette at an exercise price
of $2.125 which are not currently exercisable.
(16) Includes an aggregate of 64,395 incentive stock options and warrants
described in Notes 4, 6, 7, and 8 above, and 144 incentive stock options held
by Eileen E. Bartoli, Chief Financial Officer.
Report on Repricing of Outstanding Options
In view of the Company's efforts to contain costs, the Board of Directors
(the "Board") has sought to balance the objectives of providing competitive
compensation to the Company's executives with the goal of conserving its cash
resources by emphasizing stock-based compensation arrangements which the Board
believes should provide an incentive for executives to remain with the Company
and to increase share value over the long term. Accordingly, in May 1997, the
Board lowered the exercise price for certain outstanding stock options with
exercise prices of $3.90 per share held by executive officers and senior
management to an exercise price of $1.56 per share, the fair market value per
share on the date of repricing. The Board believes that the grant of new
options will serve the purposes of providing an incentive to management to
increase share value over the long term and conserving the Company's cash
resources. An aggregate of 98,731 options were repriced.
Submitted by the following members of the Board who served on the Board
at the time of repricing: John S. Gelles, William H. Gelles, Joyce A. Rizzo,
George A. Nolan, James G. Warburton and Robert D. Goldman.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of GRS, the Company signed two
one-year promissory notes (the "1995 Notes") for $125,000 each bearing an
interest rate of ten percent (10%) per annum payable to Messrs. George A.
Nolan and James G. Warburton. The principal amount of the 1995 Notes was
subsequently adjusted in accordance with their terms to a total of $161,770.
On September 29,1996, the Company converted the 1995 Notes into long-term debt
(the "1996 Notes"). The 1996 Notes mature on March 31, 1998 and require
quarterly interest payments at an interest rate of ten percent (10%) per
annum. In addition, the 1996 Notes have been subordinated, as to principal,
to the Revolving Credit Agreement with the Company's bank. The Revolving
Credit Agreement prohibits payment of principal under the 1996 Notes to the
extent that the Company's tangible net worth is less than $100,000.
On May 12, 1997, the Company entered into two agreements with George A.
Nolan and James G. Warburton, Directors of the Company and Officers of GRS, to
waive a total of $52,005 each in salary and expense payments for the period
January 1, 1997 through September 30, 1997. The agreements required aggregate
principal payments of $61,770 to be made on the 1996 Notes for the same
period. Through December 31, 1997, Messrs. Nolan and Warburton waived a total
of $95,730 in salary and $7,800 in home office expense reimbursement and
received an aggregate amount of $61,770 in payment on the 1996 Notes. Under
the agreements, the Company also granted 15,000 incentive stock options each
to George Nolan and James Warburton at an exercise price of $1.50 per share.
In addition, the agreements provided for the granting of 5,000 options each if
certain operating profits were met for the fiscal year ended December 31,
1997. Such additional options have not been granted since the operating
profits have not been met.
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.
During the fiscal years ended December 31, 1997 and December 31, 1996
(Fiscal 1997 and Fiscal 1996, respectively), GRS had revenues of approximately
$239,929 and $60,092, respectively, from sales to an entity that is primarily
owned by the George A. Nolan, Director of the Company and President of GRS.
In Fiscal 1997 and Fiscal 1996, GRS also had purchases of $36,536 and $9,583,
respectively, from the same entity. As of December 31, 1997 and 1996, GRS had
accounts receivable from this related entity of $142,616 and $50,612,
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.
During 1997, GRS signed a two-year licensing agreement with the same
entity for two of this entity's proprietary products. The licensing agreement
provides for the exclusive rights of GRS to market and sell these products,
superceded only by the entity's own rights to sell its own product. In
addition, the entity is required to purchase certain products exclusively from
GRS in its own sale of these products to third parties. GRS is required to
pay certain agreed upon royalty fees for each product which it sells directly
to customers. As of December 31, 1997, no royalty payments were made to this
entity under this licensing agreement from GRS.
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 (8)
3.6 Amendment of Certificate of Incorporation filed August 22, 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. 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. and
30 Maplewood Avenue Trust dated August 8, 1995. (6)
10.14 Lease between Lexicon Environmental Associates, Inc. and High V
Limited Partnership dated December 1, 1995. (6)
10.15 Lease between Groundwater Recovery Systems, Inc. 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. (8)
10.22 Employment Agreement between Leak-X Environmental Corporation and
William H. Gelles, Jr. dated June 30, 1996. (8)
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. (8)
10.24 Stock Option Agreement between Leak-X Environmental Corporation and
William H. Gelles, Jr. dated June 30, 1996. (8)
10.25 Stock Option Agreement between Leak-X Environmental Corporation
and John S. Gelles dated June 30, 1996. (8)
10.26 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and George A. Nolan
dated November 13, 1996. (8)
10.27 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and James G. Warburton
dated November 13, 1996. (8)
10.28 Revolving Credit Note between First Union National Bank and
Leak-X Environmental Corporation dated June 27, 1996. (8)
10.29 Revolving Credit Agreement between First Union National Bank and
Leak-X Environmental Corporation dated June 27, 1996. (8)
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. (8)
10.31 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and George A. Nolan.
10.32 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and James G. Warburton.
10.33 Lease between Lexicon Environmental Associates, Inc. and European
American Bank dated September 1996.
10.34 Financial Advisory Services Agreement between Leak-X Environmental
Corporation and Andrew, Alexander Wise & Company
dated January 1, 1997.
10.35 Loan Modification Agreement between Leak-X Environmental
Corporation and First Union National Bank dated January 5, 1998.
10.36 Promissory Note from Lexicon Environmental Associates, Inc. and
Groundwater Recovery Systems, Inc. payable to First Union
National Bank dated January 5, 1998.
10.37 1997 Employee Stock Option Plan (9)
13.1 1997 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.
(8) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the Fiscal Year ended December 31, 1996.
(9) Incorporated by reference from the Company's Proxy Statement for Notice of
Annual Meeting of Stockholders To Be Held on August 21, 1997.
(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
March 30, 1998
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 30th day of March, 1998.
/s/ John S. Gelles /s/ Joyce A. Rizzo
John S. Gelles Joyce A. Rizzo
Chairman of the Board of Directors Chief Executive Officer and Director
/s/ William H. Gelles, Jr. /s/ Robert D. Goldman
William H. Gelles, Jr. Robert D. Goldman
President, Treasurer and Director Secretary and Director
/s/ James G. Warburton /s/ George A. Nolan
James G. Warburton George A. Nolan
Director Director
/s/ Timothy J. Mayette /s/ Raymond W. Kane
Timothy J. Mayette Raymond W. Kane
Director 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, 1997
EXHIBIT INDEX
No. Description
3.6 Amendment of Certificate of Incorporation filed August 22, 1997
10.31 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and George A. Nolan.
10.32 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and James G. Warburton.
10.33 Lease between Lexicon Environmental Associates, Inc. and
European American Bank dated September 1996.
10.34 Financial Advisory Services Agreement between Leak-X
Environmental Corporation and Andrew, Alexander Wise & Company
dated January 1, 1997.
10.35 Loan Modification Agreement between Leak-X Environmental
Corporation and First Union National Bank dated January 5, 1998.
10.36 Promissory Note from Lexicon Environmental Associates, Inc. and
Groundwater Recovery Systems, Inc. payable to First Union
National Bank dated January 5, 1998.
13.1 1997 Annual Report to Stockholders
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997,
AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 240769
<SECURITIES> 0
<RECEIVABLES> 2126682
<ALLOWANCES> 15000
<INVENTORY> 267733
<CURRENT-ASSETS> 3315621
<PP&E> 464050
<DEPRECIATION> 306026
<TOTAL-ASSETS> 3556133
<CURRENT-LIABILITIES> 3611976
<BONDS> 0
0
0
<COMMON> 1220
<OTHER-SE> (57063)
<TOTAL-LIABILITY-AND-EQUITY> 3611976
<SALES> 10094456
<TOTAL-REVENUES> 10094456
<CGS> 7713951
<TOTAL-COSTS> 7713951
<OTHER-EXPENSES> 2421844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61663
<INCOME-PRETAX> (1837169)
<INCOME-TAX> 3533
<INCOME-CONTINUING> (1840702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1840702)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LEAK-X ENVIRONMENTAL CORPORATION
It is hereby certified that:
l. 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 changing paragraphs (a), (a) 1 and (a) 2 of
Article FIFTH to read as follows:
"(a)The total number of shares of all classes of stock
which the Corporation has the authority to issue is 5,500,000
shares, consisting of :
(1) 5,000,000 shares of Common Stock, par value, $.001
per share ("Common Stock"); and
(2) 500,000 shares of Preferred Stock, par value, $.01
per share ("Preferred Stock")."
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 August 21, 1997.
/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, Edward J. Freel, Secretary of State of the State of Delaware, do hereby
certify the attached is a true and correct copy of the certificate of
amendment of "Leak-X Environmental Corporation", filed in this office on the
twenty-second day of August, A.D. 1997, at 9 o'clock a.m.
A certified copy of this certificate has been forwarded to the New
Castle County Recorder of Deeds for recording.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
Authentication: 8620961
Date: 08-25-97
May 12, 1997
Board of Directors
Leak-X Environmental Corporation
790 East Market Street, Suite 270
West Chester, PA 19382
RE:Salary Waiver as per Employment Agreement, September 29, 1995
George A. Nolan
1.During the period of January 1, 1997 and through September 30, 1997, I
hereby waive and forego all interest in and to $52,005.00 in salary and
expense payments to which I am entitled pursuant to my Employment Agreement.
In consideration of this waiver, Leak-X Environmental Corporation (the
Company) agrees to make payments of principal and interest on my Note Payable
outstanding during this period as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Interest
3/31/97 $ 4,412.15 $2,022.13
4/30/97 4,412.14
5/31/97 4,412.14
6/30/97 4,412.14 1,801.52
7/31/97 4,412.14
8/31/97 4,412.14
9/30/97 4,412.14 1,470.61
Totals $30,884.99 $5,294.26
</TABLE>
2.a.The Company will grant 15,000 stock options from the Leak-X Environmental
Corporation (Leak-X) Employee Stock Option Plan on the date of signing of this
agreement. The vesting schedule for the options will be one-third vested
twelve months after grant, two-thirds vested twenty four months after grant
and 100% vested thirty six months after grant.
b.If the total annual net income after tax after audit of GRS meets its
budgeted goal of $165,213.00 for the year ended December 31, 1997, an
additional 5,000 stock options will be granted from the Leak-X Employee Stock
Option Plan. The date of grant will be determined by the Leak-X Board of
Directors at the first meeting scheduled after completion of the audit for the
year ended December 31, 1997. The vesting schedule for the options will be
one-third vested twelve months after grant, two-thirds vested twenty four
months after grant and 100% vested at September 1, 2000.
Agreed to:Agreed to:
/s/ George A. Nolan 5-12-97 /s/ Joyce A. Rizzo 5/12/97
George A. Nolan Date Joyce A. Rizzo, CEO Date
Leak-X Environmental Corporation
March 29, 1998
Board of Directors
Leak-X Environmental Corporation
790 East Market Street, Suite 270
West Chester, PA 19382
RE: Salary Waiver as per Employment Agreement, September 29, 1995
James G. Warburton
1.During the period of January 1, 1997 and through September 30, 1997, I
hereby waive and forego all interest in and to $52,005.00 in salary and
expense payments to which I am entitled pursuant to my Employment Agreement.
In consideration of this waiver, Leak-X Environmental Corporation (the
Company) agrees to make payments of principal and interest on my Note Payable
outstanding during this period as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Interest
3/31/97 $ 4,412.15 $2,022.13
4/30/97 4,412.14
5/31/97 4,412.14
6/30/97 4,412.14 1,801.52
7/31/97 4,412.14
8/31/97 4,412.14
9/30/97 4,412.14 1,470.61
Totals $30,884.99 $5,294.26
</TABLE>
2.a.The Company will grant 15,000 stock options from the Leak-X Environmental
Corporation (Leak-X) Employee Stock Option Plan on the date of signing of this
agreement. The vesting schedule for the options will be one-third vested
twelve months after grant, two-thirds vested twenty four months after grant
and 100% vested thirty six months after grant.
b.If the total annual net income after tax after audit of GRS meets its
budgeted goal of $165,213.00 for the year ended December 31, 1997, an
additional 5,000 stock options will be granted from the Leak-X Employee Stock
Option Plan. The date of grant will be determined by the Leak-X Board of
Directors at the first meeting scheduled after completion of the audit for the
year ended December 31, 1997. The vesting schedule for the options will be
one-third vested twelve months after grant, two-thirds vested twenty four
months after grant and 100% vested at September 1, 2000.
Agreed to: Agreed to:
/s/ James G. Warburton 5-12-97 /s/ Joyce A. Rizzo 5/12/97
James G. Warburton Date Joyce A. Rizzo, CEO Date
Leak-X Environmental Corporation
THIS LEASE, dated the day of September 1996 Between European American
Bank,
hereinafter referred to as the Landlord, and Lexicon Environmental
Associates,
Inc., hereinafter referred to as the Tenant.
Witnesseth: That the Landlord hereby demises and leases unto the Tenant, and
the Tenant hereby hires and takes from the Landlord for the term and upon the
rentals hereinafter specified, the premises described as follows, situated in
the Village of Franklin Square, County of Nassau, and the State of New York:
1,350 square feet on the south west corner of the second floor of 925
Hempstead Turnpike, Franklin Square, New York.
The term of this demise shall be for five (5) years beginning January 1, 1997
and ending December 31, 2001.
The rent for the demised term shall be,
Year 1 $19,912.44
Year 2 $20,509.92
Year 3 $21,125.16
Year 4 $21,758.88
Year 5 $22,411.68
which shall accrue at the yearly rate of.
The said rent is to be payable monthly in advance on the first day of each
calendar month for the term hereof, in installments as follows:
Year 1 $1,659.37
Year 2 $1,709.16
Year 3 $1,760.43
Year 4 $1,813.24
Year 5 $1,867.64
at the office of European American Bank, One EAB Plaza, Uniondale, NY
11555-2673, Attn: Accounting & Control, or as may be otherwise by the
Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
First - The Landlord covenants that the Tenant, on paying the said rental and
performing the covenants and conditions in this Lease contained, shall and
may peaceably and quietly have, hold and enjoy the demised premises for the
term aforesaid.
Second - The Tenant covenants and agrees to use the demised premises as a
general business office and agrees not to use or permit the premises to be
used for any other purpose without the prior written consent of the Landlord
endorsed hereon.
Third - The Tenant shall, without any previous demand therefor, pay to the
Landlord, or its agent, the said rent at the times and in the manner above
provided. In the event of the non-payment of said rent, or any instalment
thereof, at the times and in the manner above provided, and if the same shall
remain in default for ten days after becoming due, or if the Tenant shall be
dispossessed for non-payment of rent, or if the leased premises shall be
deserted or vacated, the Landlord or its agents shall have the right to and
may enter the said premises as the agent of the Tenant, either by force or
otherwise, without being liable for any prosecution or damages therefor, and
may relet the premises as the agent of the Tenant, and receive the rent
therefor, upon such terms as shall be satisfactory to the Landlord, and all
rights of the Tenant to repossess the premises under this lease shall be
forfeited. Such re-entry by the Landlord shall not operate to release the
Tenant from any rent to be paid or covenants to be performed hereunder during
the full term of this lease. For the purpose of reletting, the Landlord
shall be authorized to make such repairs or alterations in or to the leased
premises as may be necessary to place the same in good order and condition.
The Tenant shall be liable to the Landlord for the cost of such repairs or
alterations, and all expenses of such reletting. If the sum realized or to
be realized from the reletting is insufficient to satisfy the monthly or term
rent provided in this lease, the Landlord, at its option, may require the
Tenant to pay such deficiency month by month, or may hold the Tenant in advance
for the entire deficiency to be realized during the term of the reletting.
The Tenant shall not be entitled to any surplus accruing as a result of the
reletting. The Landlord is hereby granted a lien, in addition to any statutory
lien or right to distrain that may exist, on all personal property of the
Tenant in or upon the demised premises, to secure payment of the rent and
performance of the covenants and conditions of this lease. The Landlord shall
have the right, as agent of the Tenant, to take possession of any furniture,
fixtures or other personal property of the Tenant found in or about the
premises, and sell the same at public or private sale and to apply the proceeds
thereof to the payment of any monies becoming due under this lease, the Tenant
hereby waiving the benefit of all laws exempting property from execution, levy
and sale on distress or judgment. The Tenant agrees to pay, as additional rent,
all attorney's fees and other expenses incurred by the Landlord in enforcing
any of the obligations under this lease.
Fourth - The Tenant shall not sub-let the demised premises nor any portion
thereof, nor shall this lease be assigned by the Tenant without the prior
written consent of the Landlord endorsed hereon.
Fifth - The Tenant has examined the demised premises, and accepts them in
their present condition (except as otherwise expressly provided herein and
without any representations on the part of the Landlord or its agents as to
the present or future condition of the said premises. The Tenant shall keep
the demised premises in good condition, and shall redecorate, paint and
renovate the said premises as may be necessary to keep them in repair and
good appearance. The Tenant shall quit and surrender the premises at the end of
the demised term in as good condition as the reasonable use thereof will
permit. The Tenant shall not make any alterations, additions, or
improvements to said premises without the prior written consent of the Landlord.
All erections, alterations, additions and improvements, whether temporary or
permanent in character, which may be made upon the premises either by the
Landlord or the Tenant, except furniture or movable trade fixtures installed
at the expense of the Tenant, shall be the property of the Landlord and shall
remain upon and be surrendered with the premises as a part thereof at the
termination of this Lease, without compensation to the Tenant. The Tenant
further agrees to keep said premises and all parts thereof in a clean and
sanitary condition and free from trash, inflammable material and other
objectionable matter. If this lease covers premises, all or a part of which
are on the ground floor, the Tenant further agrees to keep the sidewalks in
front of such ground floor portion of the demised premises clean and free of
obstructions, snow and ice.
Sixth - In the event that any mechanics' lien is filed against the premises
as a result of alterations, additions or improvements made by the Tenant, the
Landlord, at its option, after thirty days' notice to the Tenant, may
terminate this lease and may pay the said lien, without inquiring into the
validity thereof, and the Tenant shall forthwith reimburse the Landlord the
total expense incurred by the Landlord in discharging the said lien, as
additional rent thereunder.
Seventh - The Tenant agrees to replace at the Tenant's expense any and all
glass which may become broken in and on the demised premises. Plate glass
and mirrors, if any, shall be insured by the Tenant at their full insurable
value in a company satisfactory to the Landlord. Said policy shall be of the
full premium type, and shall be deposited with the Landlord or its agent.
Eighth - The Landlord shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the demised premises,
by reason of any existing or future condition, defect, matter or thing in said
demised premises or the property of which the premises are a part, or for the
acts, omissions or negligence of other persons or tenants in and about the
said property. The Tenant agrees to indemnify and save the Landlord harmless
from all claims and liability for losses of or damage to property, or
injuries to persons occurring in or about the demised premises.
Ninth - Utilities and services furnished to the demised premises for the
benefit of the Tenant shall be provided and paid for as follows: water by
the Landlord; gas by the N/A; electricity by the Landlord; heat by the
Landlord; refrigeration by the Landlord; hot water by the Landlord. The
Landlord shall not be liable for any interruption or delay in any of the
above services for any reason.
Tenth - The Landlord, or its agents, shall have the right to enter the
demised premises at reasonable hours in the day or night to examine the same,
or to run telephone or other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants or users thereof (there being no obligation, however, on the part
of the Landlord to make any such repairs, additions or alterations), or to
exhibit the same to prospective purchasers and put upon the premises a
suitable "For Sale" sign. For three months prior to the expiration of the
demised term, the Landlord, or its agents, may similarly exhibit the premises
to prospective tenants, and may place the usual "To Let" signs thereon.
Eleventh - In the event of the destruction of the demised premises or the
building containing the said premises by fire, explosion, the elements or
otherwise during the term hereby created, or previous thereto, or such
partial destruction thereof as to render the premises wholly untenantable or
unfit for occupancy, or should the demised premises be so badly injured that
the same cannot be repaired within ninety days from the happening of such
injury, then and in such case the term hereby created shall, at the option of
the Landlord, cease and become null and void from the date of such damage or
destruction, and the Tenant shall immediately surrender said premises and all
the Tenant's interest therein to the landlord, and shall pay rent only to the
time of such surrender, in which event the Landlord may reenter and re-posses
the premises thus discharged from this lease and may remove all parties
therefrom. Should the demised premises be rendered untenantable and unfit for
occupancy, but yet repairable within ninety days from the happening of said
injury, the Landlord may enter and repair the same with reasonable speed, and
the rent shall not accrue after said injury or while repairs are being made,
but shall recommence immediately after said repairs shall be completed. But if
the premises shall be so slightly injured as not to be rendered untenantable
and unfit for occupancy, then the Landlord agrees to repair the same with
reasonable promptness and in that case the rent accrued and accruing shall not
cease or determine. The Tenant shall immediately notify the Landlord in case
of fire or other damage to the premises.
Twelfth - The Tenant agrees to observe and comply with all laws, ordinances,
rules and regulations of the Federal, State, County and Municipal authorities
applicable to the business to be conducted by the Tenant in the demised
premises. The Tenant agrees not to do or permit anything to be done in said
premises, or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on property
kept therein, or which will obstruct or interfere with the rights of other
tenants, or conflict with the regulations of the Fire Department or with any
insurance policy upon said improvements or any part thereof. In the event of
any increase in insurance premiums resulting from the Tenant's occupancy of
the premises, or from any act or omission on the part of the Tenant, the
Tenant agrees to pay said increase in insurance premiums on the improvements
or contents thereof as additional rent.
Thirteenth - No sign, advertisement or notice shall be affixed to or placed
upon any part of the demised premises by the Tenant, except in such manner,
and of such size, design and color as shall be approved in advance in writing
by the Landlord.
Fourteenth - This lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust and other encumbrances affecting the
demised premises or the property of which said premises are a part. The
Tenant agrees to execute, at no expense to the Landlord, any instrument which
may be deemed necessary or desirable by the Landlord to further effect the
subordination of this lease to any such mortgage, deed of trust or
encumbrance.
Fifteenth - In the event of the sale by the Landlord of the demised premises,
or the property of which said premises are a part, the Landlord or the
purchaser may terminate this lease on the thirtieth day of April in any year
upon giving the Tenant notice of such termination prior to the first day of
January in the same year.
Sixteenth - The rules and regulations regarding the demised premises, affixed
to this lease, if any, as well as any other and further reasonable rules and
regulations which shall be made by the Landlord, shall be observed by the
Tenant and by the Tenant's employees, agents and customers. The Landlord
reserves the right to rescind any presently existing rules applicable to the
demised premises, and to make such other and further reasonable rules and
regulations as, in its judgement, may from time to time be desirable for the
safety, care and cleanliness of the premises, and for the preservation of
good order therein, which rules when so made and notice thereof given to the
Tenant, shall have the same force and effect as if originally made a part of
this lease. Such other and further rules shall not, however, be inconsistent
with the proper and rightful enjoyment by the Tenant of the demised premises.
Seventeenth - In case of violation by the Tenant of any of the covenants,
agreements and conditions of this lease, or of the rules and regulations now
or hereafter to be reasonably established by the Landlord, and upon failure
to discontinue such violation within ten days after notice thereof given to the
Tenant, this lease shall thenceforth, at the option of the Landlord, become
null and void, and the Landlord may re-enter without further notice or
demand. The rent in such case shall become due, be apportioned and paid on
and up to the day of such re-entry, and the Tenant shall be liable for all
loss or damage resulting from such violation as aforesaid. No waiver by the
Landlord of any violation or breach of condition by the Tenant shall
constitute or be construed as a waiver of any other violation or breach of
condition, nor shall lapse of time after breach of condition by the Tenant
before the Landlord shall exercise its option under this paragraph operate to
defeat the right of the Landlord to declare this lease null and void and to
re-enter upon the demised premises after the said breath or violation.
Eighteenth -....premises shall be in writing. If the Landlord or its agent
desires to give or serve upon the Tenant any notice or demand, it shall be
sufficient to send a copy thereof by registered mail, addressed to the Tenant
at the demised premises, or to leave a copy thereof with a person of suitable
age found on the premises, or to post a copy thereof upon the door to said
premises. Notices from the Tenant to the Landlord shall be sent by
registered mail or delivered to the Landlord at the place hereinbefore
designated for the payment of rent, or to such party or place as the Landlord
may from time to time designate in writing.
Nineteenth - It is further agreed that if at any time during the term of this
lease the Tenant shall make any assignment for the benefit of creditors, or
be decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may, at is option, terminate this
lease, exercise of such option to be evidenced by notice to that effect
served upon the assignee, receiver, trustee or other person in charge of the
liquidation of the property of the Tenant or the Tenant's estate, but such
termination shall not release or discharge any payment of rent payable
hereunder and then accrued, or any liability then accrued by reason of any
agreement or covenant herein contained on the part of the Tenant, or the
Tenant's legal representatives.
Twentieth - In the event that the Tenant shall remain in the demised premises
after the expiration of the term of this lease without having executed a new
written lease with the Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord may, at its option, elect
to treat the Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant provided by law
in that situation, or the Landlord may elect, at its option, to construe such
holding over as a tenancy from month to month, subject to all the terms and
conditions of this lease, except as to duration thereof, and in the event the
Tenant shall pay monthly rent in advance at the rate provided therein as
effective during the last month of the demised term.
Twenty-first - If the property or any part thereof wherein the demised
premises are located shall be taken by public or quasi-public authority under
any power of eminent domain or condemnation, this lease, at the option of the
Landlord, shall forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
Twenty-second - The Tenant has this day deposited with the Landlord the sum
of $ (*equivalent to two month's rent) as security for the full and faithful
performance by the Tenant of all the terms, covenants and conditions of this
lease upon the Tenant's part to be performed, which said sum shall be
returned to the Tenant after the time fixed as the expiration of the term
herein, provided the Tenant has fully and faithfully carried out all of said
terms, covenants and conditions on Tenant's part to be performed. In the event
of a bona fide sale, subject to this lease, the Landlord shall have the right to
transfer the security to vendee for the benefit of the Tenant and the
Landlord shall be considered released by the Tenant from all liability for the
return of such security; and the Tenant agrees to look to the new Landlord
solely for the return of the said security, and it is agreed that this shall
apply to every transfer or assignment made of the security to a new Landlord.
The security deposited under this lease shall not be mortgaged, assigned or
encumbered by the Tenant without the written consent of the Landlord.
Twenty-third - Any dispute arising under this lease shall be settled by
arbitration. Then Landlord and Tenant shall each choose an arbitrator, and
the two arbitrators thus chosen shall select a third arbitrator. The
findings and award of the three arbitrators thus chosen shall be final and
binding on the parties hereto.
Twenty-fourth - No rights are to be conferred upon the Tenant until this
lease has been signed by the Landlord, and an executed copy of the lease has
been delivered to the Tenant.
Twenty-fifty - The foregoing rights and remedies are not intended to be
exclusive but as additional to all rights and remedies the Landlord would
otherwise have by law.
Twenty-sixth - All of the terms, covenants and conditions of this lease shall
inure to the benefit of and be binding upon the respective heirs, executors,
administrators, successors and assigns of the parties hereto. However, in
the event of the death of the Tenant, if an individual, the Landlord may, at
its option, terminate this lease by notifying the executor or administrator of
the Tenant at the demised premises.
Twenty-seventh - This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or in unable to
supply or is delayed in supplying any equipment or fixtures if Landlord is
prevented or delayed from so doing by reason of governmental preemption in
connection with the National Emergency declared by the President of the
United States or in connection with any rule, order or regulation of any
department or subdivision thereof of any government agency or by reason of the
conditions of supply and demand which have been or are affected by the war.
Twenty-eighth - This instrument may not be changed orally.
See attached rider.
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and seals
the day and year first above written.
Witness:
By: /s/ Folger P. Gifford
Folger P. Gifford
Landlord
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
President
Tenant
RIDER TO LEASE DATED SEPTEMBER , 1996
BETWEEN EUROPEAN AMERICAN BANK, LANDLORD
AND LEXICON ENVIRONMENTAL ASSOCIATES, INC., TENANT
Twenty-ninth. -- Possession shall be upon completion of build out
which is anticipated to happen between November 1 and November
15, 1996. Build out specifications are referenced as Clement
Carpentry estimate and Ken Sondo Design drawing and attached as
Exhibit A. Rent Commencement shall be sixty (60) days from
Possession. If Rent Commencement is other than the first day of
the month, a proportional monthly share shall be applicable.
Term shall expire on the last day of the sixtieth (60) month from
Possession.
Thirtieth. -- Upon execution of this Lease, Tenant shall provide
Landlord with the following:
$1,659.37 which shall be for the first full month following
Rent Commencement.
$3,318.74 which shall be security deposit. This will be in
an interest bearing account subject to Landlord's administrative
fee and shall be returnable to Tenant upon Term expiration
provided Tenant is not in default of any term and condition of
this Lease, including damage to demised premises or building
caused by Tenant.
$8,000.00 which shall be applied to the build out account
and is not returnable under any condition.
Thirty-first. -- Tenant shall pay as Additional Rent its pro-rata
share of real estate taxes and electricity over Base Period.
Pro-rata share is 4.4%. Base Period is the twelve (12) month
period following Possession.
Thirty-second. -- Tenant shall be responsible for cleaning of
demised premises. Tenant shall place normal office refuse,
bagged, in the designated area at a designated time for pick-up
by the Town of Hempstead. A document titled, "Rules for Trash",
is attached as Exhibit B and made a part of this Lease.
Thirty-third. -- Tenant shall have its name posted on the
Directory Board in the lobby of the building and be supplied with
a mail box in the lobby. Landlord will install temporary
carpeting in the portion of the hallway between the
stairway/elevator and premises entrance. No signage shall be
permitted on the outside of the building or in the windows of the
demised premises without prior written approval of the Landlord.
Thirty-fourth. -- Tenant shall have an option to extend this
Lease for three (3) additional years provided Tenant is not in
default of any term or condition of this Lease and Tenant is in
good standing. Notification of option shall be not earlier than
the last day of the 54th month nor later than the last day of the
57th month of the original Term.
Thirty-fifth. -- Tenant shall have right of first refusal for
adjacent office space on the second floor of the building,
provided Tenant is not in default of any term or condition of the
Lease and Tenant is a Tenant in good standing. Landlord will
provide a build out similar to demised premises and Rental and
Additional Rental shall be at the same rates Tenant is then
paying, increasing proportionately with the increased space.
Notice of first refusal request must be delivered by certified
mail to the Property Management Department and is subject to
approval by Landlord's management. Landlord shall notify Tenant
by certified mail to the demised premises of its approval or
disapproval and Tenant shall have five (5) days to accept or
decline the additional office space.
Thirty-sixth. -- If adjacent office space on the second floor is
not available, Landlord will use its best efforts to provide
additional space in the building. If Landlord's management
approves the build out, the space shall be added to this Lease by
Amendment to Lease.
Thirty-seventh. -- Tenant shall carry comprehensive liability
insurance with a minimum of $1,000,000 for personal injury and
$100,000 for property damage. Landlord shall be a named insured
and provided with a certificate of insurance.
Thirty-eighth. -- Rental and Additional Rental shall be in
default if not paid within ten (10) days of due date. Upon
default, amounts due shall be subject to a late fee of six
percent (6%) and shall bear interest of ten percent (10%) from
due date.
Thirty-ninth. -- The parties represent and warrant that American
Corporate Real Estate and Douglas, Payton & Company acted as
co-brokers for the space. Landlord shall pay the brokerage fee
pursuant to a separate agreement.
Fortieth. -- Tenant shall have the option to terminate the Lease
at any time after three (3) years provided that ninety (90) days
prior written notice be provided to Landlord. Furthermore,
tenant shall not be subject to any penalty for exercising this
option, inclusive of security deposit.
Forty-first. -- Tenant shall be entitled to a credit of $1,760.43
to be applied against the installment representing the
twenty-fifth (25th) month of Lease Term.
CLEMENT CARPENTRY
P.O. Box 287
Washington Ave 516 548-8603
Jamesport, N.Y. 11947
Date 9/6/96
To:Lexicon Environmental Assoc. Inc.
790 East Market Street - Suite 270
West Chester, PA 19382-4806 Estimate #CC 9652
Atn:Marc S. Godick
Re:Build-out at EAB Franklin Square
Dear Sir:
We propose to furnish the labor and material to do the following:
1.CARPENTRY
a. Construct approx. 170' lineal ft. of two-ply 2 1/2"
steel stud partition. Tape and spackle ready for
paint.
b. Furnish and install seven hollow core luaun doors on
metal frames.
c.Patch all existing ceilings after lighting removals.
d.Install seven lever handle locksets.
e.Fabricate coat rack in future conference room.
2.ELECTRICAL
a. Furnish and install 21 power receptacles.
b. Furnish and install 10 phone receptacles.
c. Pull all phone cable and terminate onto cut board.
d. Remove all old recessed lighting fixtures and dispose
of.
e. Furnish and install 20 new 2 x 4 surface mount
flourescent light fixtures.
f. Furnish and install nine light switches.
g. Furnish and install two Exit signs.
h. Furnish and install three Emergency lighting heads.
3.HVAC
a. Supplied by EAB bank all necessary drops.
4.PAINT
a. Paint entire interior of new space including walls and
ceilings with standard Benjamin Moore paint.
5.FLOORING
a. Furnish and install new 20 oz. carpeting, color to be
chosen, with the direct glue down method. Install 4"
vinyl cove base.
EXHIBIT B
925 HEMPSTEAD TURNPIKE
FRANKLlN SQUARE
RULES FOR TRASH
6th Sanitation District. Town of Hempstead.
Trash must be bagged or in a container.
Broken glass must be boxed and clearly marked as such.
Cardboard must be flattened. It may be tied or placed in a
reasonable sized container.
Trash must be placed in the fenced area for trash. It must not
be thrown in.
This is your area. Treat it with respect. Town employees are
human beings to be treated with dignity. If there is a problem
the Inspector will determine the source and that entity will be
fined. Town requirements mandate that an attorney must appear
with the offender at a hearing.
FINANCIAL ADVISORY SERVICES AGREEMENT
FINANCIAL ADVISORY SERVICES AGREEMENT, made as of the 1st day of January,
1997, by and between Leak-X Environmental Corporation having an address at 790
East Market Street, Suite 270, West Chester, Pennsylvania 19382-4806 (the
"Company"), and Andrew, Alexander, Wise & Company, Incorporated having an
address at 17 State Street, New York, New York 10004 (the "Consultant").
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Purpose. The Company hereby engages the Consultant for the term
specified in 2 hereof to (a) render consulting advice to the Company as an
investment banker relating to financial and similar matters and (b) to act as
a market maker for the Company's common stock, par value, $.001 per share (the
"Common Stock"), each on the terms and conditions set forth herein.
2. Term; Termination. Except as otherwise provided herein, the initial
term of this Agreement shall be for a period of 24 months, commencing with the
month of January 1997 and ending on the last day of December 1998 (the
"Initial Term"), and shall be automatically renewable, unless canceled with 90
days written notice prior to the expiration of the respective term, for two,
successive 24-month periods (the "Additional Term"). This Agreement may not
be terminated by any party prior to the end of the Initial Term, or during any
Additional Term, except for cause. The Initial term and any Additional term
shall be referred to herein collectively, as the "Term". For purposes of this
Agreement, Cause is defined as (i) reckless disregard by any party with
respect to the performance of its duties as set forth herein, (ii) wilful
misfeasance, or (iii) any act of dishonesty by either the Consultant, on the
one hand, or any member of the Company Group, or the other hand, with respect
to the other.
3. Duties of the Consultant.
a. During the Term, the Consultant shall seek out and structure
Transactions (as hereinafter defined) on behalf of the Company and its
affiliates, as defined in the Securities Act of 1933, as amended (the
"Securities Act"), in connection with any such Transactions. The Company and
its affiliates, and their respective control persons are sometimes referred to
herein as the "Company Group."
b. During the Term, the Consultant shall also use its best efforts to
make a market for the Common Stock. In connection with such undertaking, the
Consultant acknowledges, agrees and represents that: (i) it shall conduct such
market-making activities in strict compliance with all requirements of
applicable law and regulations, including, but not limited to, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, the rules and regulations of the National
Association of Securities Dealers (the "NASD") and those of any other
self-regulatory bodies governing the conduct of the Consultant; and (ii) in no
event shall the Consultant, in the conduct of its consulting services
hereunder, provide information to its personnel conducting market-making
activities pursuant hereto in any manner whatsoever that would violate any of
the aforesaid laws, rules or regulations or any provision of this Agreement.
c. As used in this Agreement, the term "Offering" shall mean any
transaction in which the Company or any of its affiliates raises capital upon
the issuance of any of its or their equity or debt securities and for which
the Consultant acts as placement agent or broker-dealer during the Term.
d. As used in this Agreement, the term "Transaction" shall mean any
transaction originated by the Consultant during the Term, other than in the
ordinary course of trade or business of the Company or any of its affiliates
(i) whereby (A) directly or indirectly, control of, or a material interest in,
the Company, any of its affiliates or any of their respective businesses or
assets is transferred for Consideration (as hereinafter defined), (B) the
Company or any of its affiliates acquires any other company, or the assets of
or any equity interest in any other company, or (ii) involving an Offering.
Any Transaction covered by clause (A) or clause (B) of this Section 3(d)(i) is
hereinafter referred to as an "Acquisition."
e. The term "Consideration," as used in this Agreement in connection
with any Acquisition, shall mean the total market value, on the day of closing
of such acquisition, of any stock, cash, assets and all other property, real,
personal, tangible or intangible, exchanged or received, directly or
indirectly, by the Company or any of its affiliates or any of its or their
security holders in connection with such Acquisition. The term
"Consideration," as used in this Agreement in connection with any Offering
shall mean the compensation provided pursuant to Sections 4(a) through 4(c)
hereof. The Consultant shall have sole and exclusive responsibility for
payment of any compensation due to any co-broker in connection with any
Transaction or other party that assists the Consultant in initiating such
Transaction other than any such party engaged directly by the Company.
4. Compensation.
a. The Company shall pay to the Consultant a fee of $5,000 per month,
for each month during the Term, payable monthly in advance; provided, however,
that in the event that the Consultant shall initiate and assist in any
Offering, the Company shall receive a credit equal to six monthly payments, or
the sum of $30,000, against commissions or other compensation otherwise due
and payable by the Company hereunder to the Consultant.
b. The Company shall reimburse the Consultant for reasonable expenses
incurred by the Consultant in the performance of its duties hereunder. All
expenses of the Consultant which the Company is obligated to pay hereunder
shall be paid by the Company within 30 days after the Company's receipt of
invoices and appropriate accounting therefor.
c. In the event that any Offering is consummated during the Term, the
Company shall pay the Consultant commissions for its service as the placement
agent or broker-dealer in connection with such Offering equal to ten percent
(10%) of the capital raised thereby and shall reimburse the Consultant for the
reasonable out-of-pocket expenses it incurs in connection with any Offering in
an amount not to exceed three percent (3%) of the gross proceeds thereof.
d. In the event that any Acquisition is either consummated or a
definitive stock or asset acquisition agreement is executed by all parties
with respect to an Acquisition during the Term, the Company shall pay fees to
the Consultant as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration Fee
0 to First $1,000,000 5%
Second $1,000,000 4%
Third $1,000,000 3%
Fourth $1,000,000 2%
Consideration in excess
of Fourth $1,000,000 1%
</TABLE>
e. Effective February 3, 1997, the Company shall issue to the Consultant
warrants to purchase up to 30,500 shares of Common Stock, at a purchase price
per share equal to the average of the bid and asked price thereof on February
3, 1997, exercisable for a period commencing on such date and extending
through December 31, 2001 (the "Warrants"), pursuant to the terms of a
separate Warrant Certificate in the form of Exhibit A attached hereto, to be
issued by the Company effective February 3, 1997 (the "Warrant Certificate").
In the event that the Company files a registration statement, other than one
on Form S-4, S-8 or any successor Forms thereto, at any time from the date
hereof through and including December 31, 1998, the Consultant, as the holder
of the Warrants, shall have the right to require that the Company include the
Warrants and/or the shares of Common Stock issuable pursuant thereto in such
registration statement. Thereafter, for a period of three years commencing on
January 1, 1999 through and including December 31, 2001, the Consultant shall
have the right to require that the Company file a registration statement
pursuant to the Securities Act, which registration statement shall include the
Warrants, by giving written notice thereof to the Company. The Consultant
shall be entitled to so require the Company to file a registration statement
pursuant to this Section 4(e) on only one (1) occasion. The Company shall
file such a registration statement within ninety (90) days of receipt of such
notice, and shall thereafter use its best efforts to: process such
registration statement to effectiveness and; cause such registration statement
to become effective as promptly as practicable. The Company shall promptly
file all such supplements and post-effective amendments to such registration
statement and take such other further actions as may be necessary and
appropriate to make available to the Consultant, on as continuous a basis as
is practicable, a prospectus meeting the requirements of the Securities Act
through the earliest of (i) the date on which all of the shares issuable upon
exercise of the Warrants shall have been sold and distributed by the
Consultant, (ii) the date on which, in the opinion of counsel to the Company,
all such shares and all other shares of Common Stock held by the Consultant on
the date hereof may be immediately transferred pursuant to the provisions of
Rule 144 promulgated under the Securities Act, and (iii) December 31, 2001.
The Consultant acknowledges and agrees that the Company cannot, and does
not hereby, make any representations or warranties whatsoever, express or
implied, as to the ability of the Company to have any registration statement
or post-effective amendment thereto declared effective.
f. Except as otherwise provided herein, all fees payable to the
Consultant hereunder in connection with any Transaction shall be due and
payable to the Consultant in readily available funds at the closing of such
Transaction.
g. Nothing contained in this Agreement shall in any way obligate any
member of the Company Group to enter into any Transaction.
h. Nothing contained in this Agreement shall in any way prohibit any
member of the Company Group from using any other consultant or financial
advisor, including, but not limited to, Dictor Capital Corporation, to seek
out Transactions, other than Offerings, and no compensation shall be due
hereunder to the Consultant for any Transaction initiated by any other party.
5. Confidentiality.
a. The Company acknowledges that all opinions and advice, written or
oral, given by the Consultant to any member of the Company Group or any of its
affiliates in connection with the Consultant's engagement hereunder are
intended solely for the benefit and use of members of the Company Group in
considering the Transaction to which they relate, and the Company agrees that
no person or entity other than the members of the Company Group shall be
entitled to make use of or rely upon the advice of the Consultant to be given
hereunder, and no such opinion or advice shall be used for any other purpose
or reproduced, disseminated, quoted or referred to at any time, in any manner
or for any purpose, nor may the Company or any of its affiliates use the
Consultant's name in any annual reports or any other reports or releases,
except as required by applicable law or regulations, without the Consultant's
prior written consent.
b. The Consultant shall hold in confidence any confidential information
which the Company or any of its affiliates provides to the Consultant pursuant
to this Agreement unless the Company otherwise consents in writing, and then
only with respect to the information which the Company specifies in such
writing and only with respect to any third party specified therein.
Notwithstanding the foregoing, the Consultant shall not be required to
maintain confidentiality with respect to any information (i) which is or
becomes part of the public domain through the conduct of any party other than
the Consultant; (ii) of which the Consultant had independent knowledge, other
than through its conduct as a market maker prior to disclosure; (iii) which
comes into the possession of the Consultant in the normal and routine course
of its own business from and through independent non-confidential sources,
except as may be required in order to comply with the provisions of Section
3(b) hereof; or (iv) which is required to be disclosed by the Consultant by
law or any governmental process. If the Consultant is requested or required
(by oral questions, interrogatories, requests for information or document
subpoenas, civil investigative demands, or similar process) to disclose any
confidential information supplied to it by any member of the Company Group, or
the existence of other negotiations in the course of its dealing with any of
them or any of their respective representatives, the Consultant shall, unless
prohibited by law or the requirement of any regulatory body, promptly notify
the Company of such request(s) so that the Company may seek an appropriate
protective order.
c. The obligations of the parties under this Section 5 shall survive
termination of this Agreement.
6. Consultant's Services to Others. The Company acknowledges and agrees
that:
a. The Consultant and its affiliates, if any, are in the business of
providing financial and market making services and consulting advice to
others, and that except with respect to the provisions of Section 5(b) hereof,
nothing contained herein shall be construed to limit or restrict the
Consultant in conducting such business with respect to others, or in rendering
such advice to others; and
b. Except as provided in Section 3(b) hereof, nothing contained in this
Agreement shall limit or restrict the right of the Consultant or of any
partner, employee, agent or representative of the Consultant, to be a partner,
director, officer, employee, agent or representative of, or to engage in, any
other business, whether of a similar nature or not.
7. Indemnification.
a. The Company shall indemnify and hold the Consultant and its partners,
stockholders, officers, directors, control persons and employees harmless from
and against any and all liabilities, claims, lawsuits, including any and all
awards and/or judgments to which it may become subject under the Securities
Act, the Exchange Act or any other federal or state statute, at common law or
otherwise or any regulations promulgated thereunder, insofar as said
liabilities, claims and lawsuits (including reasonable costs and expenses,
awards and/or judgments) arise out of or are in connection with the services
rendered by the Consultant or any Transactions subject of this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of the acts or omissions of the Consultant. In
addition, the Company shall also indemnify and hold the Consultant harmless
from and against any and all costs and expenses, including reasonable counsel
fees, incurred by the Consultant and relating to the foregoing.
The Consultant shall give the Company prompt notice of any such
liability, claim or lawsuit which the Consultant may contend is the subject
matter of the Company's indemnification, and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
b. In order to provide for just and equitable contribution under the
Securities Act or Exchange Act in any case in which (i) any person entitled to
indemnification under this Section 7 makes claim for indemnification pursuant
hereto, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 7
provides for indemnification in such cases, or (ii) contribution under the
Securities Act or the Exchange Act may be required on the part of any such
person in circumstances for which indemnification is provided under this
Section 7, then, and in each such case, the Company and the Consultant shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after any contribution from others) in such proportion
taking into consideration the relative benefits received by each party from
the Transactions covered by any prospectus, offering memorandum or acquisition
documents with respect to any Transactions in connection with this Agreement
(taking into account the portion of the proceeds of the Transaction realized
by each), the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was assessed, the opportunity to
correct and prevent any statement or omission and other equitable
considerations appropriate under the circumstances; provided, however, that
notwithstanding the above, in no such case shall any person guilty of a
fraudulent misrepresentation (within the meaning of Section ll(f) of the
Exchange Act) be entitled to contribution from any person that was not guilty
of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this Agreement (or
such party's representative) of notice of the commencement of any action, suit
or proceeding, such party will, if a claim for contribution in respect thereof
is to be made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to notify
the Contributing Party will not relieve it from any liability which it may
have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a Contributing Party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified. Any such Contributing Party shall not
be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of the Contributing Party. The indemnification
provisions contained in this Section 7 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
c. The obligations of the parties under of this Section 7 shall survive
termination of this Agreement.
8. Independent Contractor Status of Consultant. The Consultant shall
perform its services hereunder as an independent contractor and not as an
employee of the Company or any affiliate thereof. It is expressly understood
and agreed to by the parties hereto that the Consultant shall have no authority
to act for, represent or bind the Company or any affiliate thereof in any
manner, except as may be agreed to expressly by the Company in writing.
9. Notices. Any notice or communication permitted or required hereunder
shall be in writing and shall be deemed sufficiently given if hand-delivered
or sent (a) postage prepaid by overnight courier, or by registered mail,
return receipt requested, or (b) by facsimile, to the respective parties as
set forth below, or to such other address as either party may designate by
notice given to the other party or parties in writing as provided in this
Section 9:
If to the Company or any of its affiliates, to:
Leak-X Environmental Corporation
790 East Market Street, Suite 270
West Chester, Pennsylvania 19382
Attention: Joyce A. Rizzo
Chief Executive Officer
Telecopy No.: (610) 344-3388
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
25th Floor
New York, New York 10158
Attention: Jack Becker, Esq.
Telecopy No.: (212) 949-7052
If to the Consultant, to:
Andrew, Alexander, Wise & Company, Incorporated
17 State Street
New York, New York 10004
Attention: Andreas Zigouras, President
Telecopy No.: (212) 809-7383
10. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to
the provisions thereof relating to the conflict of laws.
11. Venue. The parties hereby agree that any dispute which may arise
between or among them arising out of or in connection with this Agreement
shall be adjudicated before a court located in New York City, and they hereby
submit to the exclusive personal jurisdiction of the courts of the State of
New York located in New York, New York and of the Federal District Court for
the Southern District of New York with respect to any action or legal
proceeding commenced by any party, and they irrevocably waive any objection
they now 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, relating to or arising out of this Agreement, and
consent to the service of process in any such action or legal proceeding by
means of registered or certified mail, return receipt requested, in care of
the address set forth in 9 hereof.
12. Assignment. This Agreement may not be assigned or otherwise
transferred and the obligations of any party hereunder may not be delegated
without the prior written consent of the other parties hereto.
13. No Waiver. The failure or neglect of any party hereto to insist, in
any one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or waiver by any party of strict performance of
any of the terms or conditions of this Agreement, shall not be construed as a
waiver or relinquishment in the future of such term or condition, but the same
shall continue in full force and effect.
14. Entire Agreement; Modification. This Agreement, including any
Exhibits hereto, constitutes the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof and supersedes any
and all prior agreements and understandings, whether oral or written, between
or among the parties with respect to the matters set forth herein.
15. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors, legal representatives and assigns.
16. Counterparts. This Agreement may be executed in any number of
counterparts, which together shall constitute one and the same original
document.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
ANDREW, ALEXANDER, WISE & COMPANY,
INCORPORATED
by: /s/ Andreas Zigouras
Andreas Zigouras
President
FIRST UNION
LOAN AGREEMENT
First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
(Hereinafter referred to as the "Bank")
Lexicon Environmental Associates, Inc.
790 East Market Street
West Chester, Pennsylvania 19382
Groundwater Recovery Systems, Inc.
299 B National Road
Exton, Pennsylvania 19341
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into 1/5, 1998, by and between
Bank and Borrower, a Corporation (For profit) organized under the laws of
Pennsylvania.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by one or more promissory notes (whether
one or more, the "Note") as follows:
Line of Credit - in the principal amount of $750,000.00 which is evidenced by
the Promissory Note dated 1-5, 1998 ("Line of Credit Note"), under which
Borrower may borrow, repay, and reborrow, from time to time, so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount. The Loan proceeds are to be used by Borrower solely for financing
accounts receivable. Bank's obligation to advance or readvance under the Line
of Credit Note shall terminate if Borrower is in Default under the Line of
Credit Note.
This Agreement also amends and restates in its entirety that certain Revolving
Credit Agreement dated June 27, 1996 and applies to govern all of the loans
thereby.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As
used in this Agreement as to Borrower, "Subsidiary" shall mean any corporation
of which more than 50% of the issued and outstanding voting stock is owned
directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have the
meaning as defined in 11 U.S.C. 101, except that the term "debtor" therein
shall be substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower upon
the terms and subject to the conditions set forth herein, and Bank and
Borrower agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct
and complete. Any such information relating to Borrower's financial condition
will accurately reflect Borrower's financial condition as of the date(s)
thereof, (including all contingent liabilities of every type), and Borrower
further represents that its financial condition has not changed materially or
adversely since the date(s) of such documents. Authorization;
Non-Contravention. The execution, delivery and performance by Borrower and any
534991 (Rev 02) guarantor, as applicable, of this Agreement and other Loan
Documents to which it is a party are within its power, have been duly
authorized by all necessary action taken by the duly authorized officers of
Borrower and any guarantors and, if necessary, by making appropriate filings
with any governmental agency or unit and are the legal, binding, valid and
enforceable obligations of Borrower and any guarantors; and do not (i)
contravene, or constitute (with or without the giving of notice or lapse of
time or both) a violation of any provision of applicable law, a violation of
the organizational documents of Borrower or any guarantor, or a default under
any agreement, judgment, injunction, order, decree or other instrument binding
upon or affecting Borrower or any guarantor, (ii) result in the creation or
imposition of any lien (other than the lien(s) created by the Loan Documents)
on any of Borrower's or guarantor's assets, or (iii) give cause for the
acceleration of any obligations of Borrower or any guarantor to any other
creditor. Asset Ownership. Borrower has good and marketable title to all of
the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in
writing ("Permitted Liens"). To Borrower's knowledge, no default has occurred
under any Permitted Liens and no claims or interests adverse to Borrower's
present rights in its properties and assets have arisen. Discharge of Liens
and Taxes. Borrower has duly filed, paid and/or discharged all taxes or other
claims which may become a lien on any of its property or assets, except to the
extent that such items are being appropriately contested in good faith and an
adequate reserve for the payment thereof is being maintained. Sufficiency of
Capital. Borrower is not, and after consummation of this Agreement and after
giving effect to all indebtedness incurred and liens created by Borrower in
connection with the Loan, will not be, insolvent within the meaning of 11
U.S.C. 101(32). Compliance with Laws. Borrower is in compliance in all
respects with all federal, state and local laws, rules and regulations
applicable to its properties, operations, business, and finances, including,
without limitation, any federal or state laws relating to liquor (including 18
U.S.C. 3617, et seq.) or narcotics (including 21 U.S.C. 801, et seq.) and/or
any commercial crimes; all applicable federal, state and local laws and
regulations intended to protect the environment; and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), if applicable.
Organization and Authority. Each corporate or limited liability company
Borrower and any guarantor, as applicable, is duly created, validly existing
and in good standing under the laws of the state of its organization; and has
all powers, governmental licenses, authorizations, consents and approvals
required to operate its business as now conducted. Each corporate or limited
liability company Borrower and any guarantor, if any, is duly qualified,
licensed and in good standing in each jurisdiction where qualification or
licensing is required by the nature of its business or the character and
location of its property, business or customers, and in which the failure to
so qualify or be licensed, as the case may be, in the aggregate, could have a
material adverse effect on the business, financial position, results of
operations, properties or prospects of Borrower or any such guarantor. No
Litigation. There are no pending or threatened suits, claims or demands
against Borrower or any guarantor that have not been disclosed to Bank by
Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement
and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower will: Business Continuity. Conduct its
business in substantially the same manner and locations as such business is
now and has previously been conducted. Maintain Properties. Maintain, preserve
and keep its property in good repair, working order and condition, making all
needed replacements, additions and improvements thereto, to the extent allowed
by this Agreement. Access to Books & Records. Allow Bank, or its agents,
during normal business hours, access to the books, records and such other
documents of Borrower as Bank shall reasonably require, and allow Bank to make
copies thereof at Bank's expense. Insurance, Maintain adequate insurance
coverage with respect to its properties and business against loss or damage of
the kinds and in the amounts customarily insured against by companies of
established reputation engaged in the same or similar businesses including,
without limitation, commercial general liability insurance, workers
compensation insurance, and business interruption insurance; all acquired in
such amounts and from such companies as Bank may reasonably require. Notice of
Default and Other Notices. (a) Notice of Default. Furnish to Bank immediately
upon becoming aware of the existence of any condition or event which
constitutes a Default (as defined in the Loan Documents) or any event which,
upon the giving of notice or lapse of time or both, may become a Default,
written notice specifying the nature and period of existence thereof and the
action which Borrower is taking or proposes to take with respect thereto. (b)
Other Notices. Promptly notify Bank in writing of (i) any material adverse
change in its financial condition or its business; (ii) any default under any
material agreement, contract or other instrument to which it is a party or by
which any of its properties are bound, or any acceleration of the maturity of
any indebtedness owing by Borrower; (iii) any material adverse claim against
or affecting Borrower or any part of its properties; (iv) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any governmental agency or unit affecting Borrower; and (v)
at least 30 days prior thereto, any change in Borrower's name or address as
shown above, and/or any change in Borrower's structure. Compliance with Other
Agreements. Comply with all terms and conditions contained in this Agreement,
and any other Loan Documents, and swap agreements, if applicable, as defined
in the Note. Payment of Debts. Pay and discharge when due, and before subject
to penalty or further charge, and otherwise satisfy before maturity or
delinquency, all obligations, debts, taxes, and liabilities of whatever nature
or amount, except those which Borrower in good faith disputes. Reports and
Proxies. Deliver to Bank, promptly, a copy of all financial statements,
reports, notices, and proxy statements, sent by Borrower to stockholders, and
all regular or periodic reports required to be filed by Borrower with any
governmental agency or authority. Other Financial Information. Deliver
promptly such other information regarding the operation, business affairs, and
financial condition of Borrower which Bank may reasonably request. Non-Default
Certificate From Borrower. Deliver to Bank, with the Financial Statements
required herein, a certificate signed by Borrower, if Borrower is an
individual, or by a principal financial officer of Borrower warranting that no
"Default" as specified in the Loan Documents nor any event which, upon the
giving of notice or lapse of time or both, would constitute such a Default,
has occurred. Estoppel Certificate. Furnish, within 15 days after request by
Bank, a written statement duly acknowledged of the amount due under the Loan
and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: Default on Other Contracts or
Obligations. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed. Judgment Entered. Permit the entry of any
monetary judgment or the assessment against, the filing of any tax lien
against, or the issuance of any writ of garnishment or attachment against any
property of or debts due Borrower. Government Intervention. Permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or any
guarantor is displaced of its authority in the conduct of its respective
business or such business is curtailed or materially impaired. Prepayment of
Other Debt. Retire any long-term debt entered into prior to the date of this
Agreement at a date in advance of its legal obligation to do so. Retire or
Repurchase Capital Stock. Retire or otherwise acquire any of its capital
stock. Encumbrances. Create, assume, or permit to exist any mortgage, security
deed, deed of trust, pledge, lien, charge or other encumbrance on any of its
assets, whether now owned or hereafter acquired, other than: (i) security
interests required by the Loan Documents; (ii) liens for taxes contested in
good faith; (iii) liens accruing by law for employee benefits; or (iv)
Permitted Liens.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days
after the close of each fiscal year, management prepared financial statements
reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules; all on a consolidated and consolidating
basis and in reasonable detail, prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the
preceding year. All such statements shall be examined by an independent
certified public accountant acceptable to Bank. The opinion of such
independent certified public accountant shall not be acceptable to Bank if
qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank management
prepared quarterly financial statements, including, without limitation, a
balance sheet, profit and loss statement and statement of cash flows, with
supporting schedules, as soon as available and in any event within 60 days
after the close of each such period; all in reasonable detail and prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year. Such statements shall be certified
as to their correctness by a principal financial officer of Borrower and in
each case, if audited statements are required, subject to audit and year-end
adjustments.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such
information as Bank may reasonably request from time to time, including
without limitation, financial statements and information pertaining to
Borrower's financial condition. Such information shall be true, complete, and
accurate. Accounts Receivable Aging. Borrower shall, from time to time
hereafter but not less than monthly, deliver to First Union within 20 days of
the end of each such period, a detailed aging of accounts by total, a summary
aging of accounts by customer and customer address, and a reconciliation
statement. Said aging should also include the original date of each invoice.
BORROWING BASE. As to the Line of Credit Note in the principal amount of
5750,000.00, the following provisions shall apply:
Borrowing Limitation. The maximum principal amount that Borrower may borrow
shall be the lesser of the principal amount stated in the Line of Credit Note
or the maximum principal amount allowed under this addendum (the "Maximum
Principal Amount").
The Maximum Principal Amount shall be an amount equal to 60% of the net amount
of Eligible Accounts, less the amount of any Reserve required by Bank.
"Eligible Account" refers to an account receivable not more than 90 days from
the date of the original invoice that arises in the ordinary course of
Borrower's business and meets the following eligibility requirements: (a) the
sale of goods or services reflected in such account is final and such goods
and services have been delivered or provided and accepted by the account
debtor and payment for such is owing; (b) the invoices comprising an account
are not subject to any claims, returns or disputes of any kind; (c) the
account debtor is not insolvent; (d) the account debtor has its principal
place of business in the United States; (e) the account debtor is not an
affiliate of Borrower and is not a supplier to Borrower and the account is not
otherwise exposed to risk of set-off; (f) not more than thirty percent of the
original invoices owing Borrower by the account debtor are more than ninety
days from the date of the original invoice.
"Reserves" may be required at any time and from time to time by Bank without
prior notice to Borrower in amounts deemed by Bank to be adequate to reserve
against outstanding letter of credit, outstanding bankers acceptances,
Borrower's obligations to Bank or its affiliates or any guaranties or other
contingent debt of Borrower.
Required Reports. Borrower shall certify to Bank by the twentieth day of each
month, the amount of Eligible Accounts as of the first day of each month, on
forms required by Bank together with all detail and supporting documents
requested by Bank. Bank may at any time and from time to time, during Bank's
normal business hours, enter upon any business premises of Borrower and audit
Borrower's accounts. Bank's determination of the amount of Eligible Accounts
shall at all times be indisputable and deemed correct. The Borrower, at all
times, shall cooperate with Bank without limitation by providing Bank
information and access to Borrower's premises and business records and shall
be courteous to Bank's agents.
Continuing Representations. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess of
the Borrowing Limit immediately upon receipt by Borrower of written notice
that the Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any
advances pursuant to this Agreement are subject to the following conditions
precedent: Additional Documents. Receipt by Bank of such additional supporting
documents as Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written
above, have caused this Agreement to be executed under seal.
Lexicon Environmental Associates, Inc.
Taxpayer Identification Number: 23-3000443
CORPORATE SEAL By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, CEO
Groundwater Recovery Systems, Inc.
Taxpayer Identification Number: 23-2824062
CORPORATE SEAL By: /s George A. Nolan
George,/A: Nolan, President
First Union National Bank
CORPORATE SEAL /s/ Suzanne Storm
Suzanne Storm, Senior Vice President
FIRST UNION
PROMISSORY NOTE
$750,000.00 1-5, 1998
Lexicon Environmental Associates, Inc.
790 East Market Street
West Chester, Pennsylvania 19382
Groundwater Recovery Systems, Inc.
299 B National Road
Exton, Pennsylvania 19341
(Individually and collectively "Borrower")
First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
(Hereinafter referred to as the "Bank")
RENEWALIMODIFICATION. This Promissory Note renews, extends and/or
modifies that certain Revolving Credit Note dated June 27, 1996,
evidencing an original principal indebtedness of $750,000.00.
This Promissory Note is not a novation.
Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, at its office indicated above or
wherever else Bank may specify, the sum of Seven Hundred Fifty
Thousand and No/100 Dollars ($750,000.00) or such sum as may be
advanced and outstanding from time to time with interest on the
unpaid principal balance at the rate and on the terms provided in
this Promissory Note (including all renewals, extensions or
modifications hereof, this "Note").
SECURITY. Borrower has granted Bank a security interest in the
collateral described in the Loan Documents, including, but not
limited to, personal property collateral described in those
certain Security Agreements of even date herewith.
INTEREST RATE. Interest shall accrue on the unpaid principal
balance of this Note from the date hereof at the rate of Bank's
Prime Rate plus .75% as that rate may change from time to time in
accordance with changes in the Bank's Prime Rate ("Interest
Rate"). Bank's Prime Rate shall be that rate announced by Bank
from time to time as its Prime Rate and is one of several
interest rate bases used by Bank. Bank lends at rates both above
and below Bank's Prime Rate, and Borrower acknowledges that
Bank's Prime Rate is not represented or intended to be the lowest
or most favorable rate of interest offered by Bank.
DEFAULT RATE. In addition to all other rights contained in this
Note, if a Defauit (defined herein) occurs and as long as a
Default continues, all outstanding Obligations shall bear
interest at the Interest Rate plus 3% ("Default Rate"). The
Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION. (Actual/360). Interest and fees,
if any, shall be computed on the basis of a 360-day year for the
actual number of days in the applicable period ("Actual/360
Computation"). The Actual/360 Computation determines the annual
effective yield by taking the stated Inominal) rate for a year's
period and then dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the applicable
period. Application of the Actual/360 Computation produces an
annualized effective rate exceeding that of the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in
consecutive monthly payments of accrued interest only commencing
on 2-1, 1998, and on the same day of each month thereafter until
fully paid. In any event, all principal and accrued interest
shall be due and payable on June 30, 1998.
APPLICATION OF PAYMENTS. Monies received by Bank from any source
for application toward payment of the Obligations shall be
applied to accrued interest and then to principal. If a Default
occurs, monies may be applied to the Obligations in any manner or
order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan
Documents is rescinded, avoided or for any reason returned by
Bank because of any adverse claim or threatened action, the
returned payment shall remain payable as an obligation of all
persons liable under this Note or other Loan Documents as though
such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in
this Note and other Loan Documents refers to all documents
executed in connection with the loan evidenced by this Note and
any prior notes which evidence all or any portion of the loan
evidenced by this Note, and may include, without limitation, a
commitment letter that survives closing, a loan agreement, this
Note, guaranty agreements, security agreements, security
instruments, financing statements, mortgage instruments, letters
of credit and any renewals or modifications, whenever any of the
foregoing are executed, but does not include swap agreements (as
defined in 11 U.S.C. 101).
The term "Obligations" used in this Note refers to any and all
indebtedness and other obligations under this Note, all other
obligations under any other Loan Document(s), and all obligations
under any swap agreements as defined in 11 U.S.C. 101 between
Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall
also pay to Bank a late charge equal to 5% of each payment past
due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying
late charge shall not be deemed a waiver of Bank's right to
collect such late charge or to collect a late charge for any
subsequent late payment received.
If this Note is secured by owner-occupied residential real
property located outside the state in which the office of Bank
first shown above is located, the late charge laws of the state
where the real property is located shall apply to this Note and
the late charge shall be the highest amount allowable under such
laws. If no amount is stated thereunder, the late charge shall be
5% of each payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay
all of Bank's reasonable expenses incurred to enforce or collect
any of the Obligations, including, without limitation, reasonable
arbitration, paralegals', attorneys' and experts' fees and
expenses, whether incurred without the commencement of a suit, in
any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other
Loan Documents, if for any reason the effective interest should
exceed the maximum lawful interest, the effective interest shall
be deemed reduced to, and shall be, such maximum lawful interest,
and (i) the amount which would be excessive interest shall be
deemed applied to the reduction of the principal balance of this
Note and not to the payment of interest, and (ii) if the loan
evidenced by this Note has been or is thereby paid in full, the
excess shall be returned to the party paying same, such
application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance
thereof.
DEFAULT. If any of the following occurs, a default ("Default")
under this Note shall exist: Nonpayment; Nonperformance. The
failure of timely payment or performance of the Obligations or
Default under this Note or any other Loan Documents. False
Warranty. A warranty or representation made or deemed made in the
Loan Documents or furnished Bank in connection with the loan
evidenced by this Note proves materially false, or if of a
continuing nature, becomes materially false. Cross Default. At
Bank's option, any default in payment or performance of any
obligation under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general
partner of or the holder(s) of the majority ownership interests
of Borrower with Bank or its affiliates ("Affiliate" shail have
the meaning as defined in 11 U.S.C. 101, except that the term
"debtor" therein shall be substituted by the term "Borrower"
herein; "Subsidiary" shall mean any corporation of which more
than 50% of the issued and outstanding voting stock is owned
directly or indirectly by Borrower). Cessation; Bankruptcy. The
death of, appointment of guardian for, dissolution of,
termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of
creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against the Borrower, its Subsidiaries or
Affiliates, if any, or any general partner of or the holder(s) of
the majority ownership interests of Borrower, or any party to the
Loan Documents. Material Capital Structure or Business
Alteration. Without prior written consent of Bank, (i) a material
alteration in the kind or type of Borrower's business or that of
Borrower's Subsidiaries or Affiliates, if any; (ii) the sale of
substantially all of the business or assets of Borrower, any of
Borrower's Subsidiaries or Affiliates or guarantor or a material
portion (10% or morel of such business or assets if such a sale
is outside the ordinary course of business of Borrower, or any of
Borrower's Subsidiaries or Affiliates or any guarantor or more
than 50% of the outstanding stock or voting power of or in any
such entity in a single transaction or a series of transactions;
(iii) the acquisition of substantially all of the business or
assets or more than 50% of the outstanding stock or voting power
of any other entity; or (iv) should any Borrower, or any of
Borrower's Subsidiaries or Affiliates or guarantor enter into any
merger or consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any
Loan Documents, Bank may at any time thereafter, take the
following actions: Bank Lien. Foreclose its security interest or
lien against Borrower's accounts without notice. Acceleration
Upon Default. Accelerate the maturity of this Note and all other
Obligations, and all of the Obligations shall be immediately due
and payable. Cumulative. Exercise any rights and remedies as
provided under the Note and other Loan Documents, or as provided
by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank
such information as Bank may reasonably request from time to
time, including without limitation, financial statements and
information pertaining to Borrower's financial condition. Such
information shall be true, complete, and accurate.
CONFESSION OF JUDGMENT. THE FOLLOWlNG PARAGRAPH SETS FORTH A
POWER OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST
BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS
JUDGMENT AGAINST BORROWER, THE BORROWER, FOLLOWING CONSULTATlON
WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR BORROWER
AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY,
INTENTIONALLY, VOLUNTARILY, INTELLIGENTLY AND UNCONDlTIONALLY
WAIVES ANY AND ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR
NOTlCE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE
CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA,
COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE INCLUDING, WITHOUT
LIMITATION, A HEARING PRIOR TO GARNISHMENT AND ATTACHMENT
OF THE BORROWER'S BANK ACCOUNT AND OTHER ASSETS. BORROWER
ACKNOWLEDGES AND UNDERSTANDS THAT BY ENTERING INTO THIS NOTE
CONTAINING A CONFESSION OF JUDGMENT CLAUSE THAT BORROWER IS
VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY GIVING UP ANY AND ALL
RIGHTS, INCLUDING CONSTlTUTIONAL RIGHTS, THAT BORROWER HAS OR MAY
HAVE TO NOTlCE AND A HEARING BEFORE JUDGMENT CAN BE ENTERED
AGAINST BORROWER AND BEFORE THE BORROWER'S ASSETS, INCLUDING,
WITHOUT LIMITATION, ITS BANK ACCOUNTS, MAY BE GARNISHED, LEVIED,
EXECUTED UPON AND/OR ATTACHED. BORROWER UNDERSTANDS THAT ANY SUCH
GARNISHMENT, LEVY, EXECUTION AND/OR ATTACHMENT SHALL RENDER THE
PROPERTY GARNISHED, LEVIED, EXECUTED UPON OR ATTACHED IMMEDIATELY
UNAVAILABLE TO BORROWER. IT IS SPECIFICALLY ACKNOWLEDGED BY
BORROWER THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY AND
THE RIGHTS WAIVED BY BORROWER HEREIN IN RECEIVING THIS NOTE AND
AS AN INDUCEMENT TO GRANT FINANCIAL ACCOMMODATIONS TO THE
BORROWER.
If a Default occurs under this Note or any other Loan Documents,
each 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 Borrower in any and
all actions which may be bought 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 Documents, together with costs of suit and actual
collection costs including, without limitation, reasonable
attorneys' fees equal to 5% of the Obligations then due and owing
but in no event less than $5,000.00, 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, 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. Borrower
further waives the right to any notice and hearing prior to the
execution, levy, attachment or other type of enforcement of any
judgment obtained hereunder, including, without limitation, the
right to be notified and heard prior to the garnishment, levy,
execution upon and attachment of Borrower's bank accounts and
other property. 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 any 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 Documents
to which 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 Borrower or any obligor for any reason, the Bank is
hereby authorized and empowered to again appear for and confess
judgment against Borrower for any part or all of the Obligations
owing under this Note and/or for any other liabilities, as herein
provided.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower
authorizes Bank to debit its demand deposit account number
203015087572 or any other account with Bank (routing number
021200025) designated in writing by Borrower, beginning 2-1, 1998
for any payments due under this Note. Borrower further certifies
that Borrower holds legitimate ownership of this account and
preauthorizes this periodic debit as part of its right under said
ownership.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow,
and Bank may advance and readvance under this Note respectively
from time to time until the maturity hereof (each an "Advance"
and together the "Advances"), so long as the total indebtedness
outstanding at any one time does not exceed the principal amount
stated on the face of this Note. Bank's obligation to make
Advances under this Note shall terminate if Borrower is in
Default or a representation in any of the Loan Documents is false
or has become false. As of the date of each proposed Advance,
Borrower shall be deemed to represent that each representation
made in the Loan Documents is true as of such date.
LOAN AGREEMENT. This Note is subject to the provisions of that
certain Loan Agreement between Bank and Borrower dated l-5, 1998,
as modified from time to time.
wAIVERS AND AMENDMENTS. No waivers, amendments or modifications
of this Note and other Loan Documents shall be valid unless in
writing and signed by an officer of Bank. No waiver by Bank of
any Default shall operate as a waiver of any other Default or the
same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or
remedy under this Note and other Loan Documents shall operate as
a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.
Each Borrower or any person liable under this Note waives
presentment, protest, notice of dishonor, demand for payment,
notice of intention to accelerate maturity, notice of
acceleration of maturity, notice of sale and all other notices of
any kind. Further, each agrees that Bank may extend, modify or
renew this Note or make a novation of the loan evidenced by this
Note for any period and grant any releases, compromises or
indulgences with respect to any collateral securing this Note, or
with respect to any other Borrower or any other person liable
under this Note or other Loan Documents, all without notice to or
consent of each Borrower or each person who may be liable under
this Note or other Loan Documents and without affecting the
liability of Borrower or any person who may be liable under this
Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan
Documents shall inure to the benefit of and be binding upon the
parties and their respective heirs, legal representatives,
successors and assigns. Bank's interests in and rights under this
Note and other Loan Documents are freely assignable, in whole or
in part, by Bank. In addition, nothing in this Note or any of the
Loan Documents shall prohibit Bank from pledging or assigning
this Note or any of the Loan Documents or any interest therein to
any Federal Reserve Bank. Borrower shall not assign its rights
and interest hereunder without the prior written consent of Bank,
and any attempt by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not
release Borrower from the Obligations. Applicable Law; Conflict
Between Documents. This Note and other Loan Documents shall be
governed by and construed under the laws of the state named in
Bank's address shown above without regard to that state's
conflict of laws principles. If the terms of this Note should
conflict with the terms of the loan agreement or any commitment
letter that survives closing, the terms of this Note shall
control. Borrower's Accounts. Except as prohibited by law,
Borrower grants Bank a security interest in all of Borrower's
accounts with Bank and any of its affiliates. Jurisdiction.
Borrower irrevocably agrees to non-exclusive personal
jurisdiction in the state named in Bank's address shown above.
Severability. If any provision of this Note or of the other Loan
Documents shall be prohibited or invalid under applicable law,
such provision shall be ineffective but only to the extent of
such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Note or other such document. Notices. Any notices to Borrower
shall be sufficiently given, if in writing and mailed or
delivered to the Borrower's address shown above or such other
address as provided hereunder, and to Bank, if in writing and
mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time.
In the event that Borrower changes Borrower's address at any time
prior to the date the Obligations are paid in full, Borrower
agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all
charges prepaid. Plural; Captions. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns
of reference mean both the singular and plural form, as the case
may be, and the term "person" shall mean any individuai, person
or entity. The captions contained in the Loan Documents are
inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents. Binding Contract. Borrower
by execution of and Bank by acceptance of this Note agree that
each party is bound to all terms and provisions of this Note.
Advances. Bank in its sole discretion may make other Advances
under this Note pursuant hereto. Posting of Payments. All
payments received during normal banking hours after 2:00 p.m.
local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day. Joint and
Several Obligations. Each Borrower is jointly and severally
obligated under this Note. Fees and Taxes. Borrower shall
promptly pay all documentary, intangible recordation and/or
similar taxes on this transaction whether assessed at closing or
arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any dispute,
claim or controversy arising out of, connected with or relating
to this Note and other Loan Documents ("Disputes") between or
among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to
demand arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, disputes as to whether a
matter is subject to arbitration, claims brought as class
actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the
transaction reflected by this Note.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration
Rules") of the American Arbitration Association (the "AAA") and
Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in the city in which the office of Bank first stated
above is located. The expedited procedures set forth in Rule 51
et seq. of the Arbitration Rules shall be applicable to claims of
less than S 1,000,000.00. All applicable statutes of limitation
shall apply to any Dispute. A judgment upon the award may be
entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure
shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing
will be conducted or if such person is not available to serve,
the single arbitrator may be a licensed attorney. Notwithstanding
the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the
preceding binding arbitration provisions, Bank and Borrower agree
to preserve, without diminution, certain remedies that any party
hereto may employ or exercise freely, independently or in
connection with an arbitration proceeding or after an arbitration
action is brought. Bank and Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted under Loan
Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights
of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or anciilary remedies
including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that
may be requested by a party in a Dispute.
Borrower 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, Borrower, on the day and year first above
written, has caused this Note to be executed under seal.
Lexicon Environmental Associates, Inc.
Taxpayer Identification Number: 22-3000443
CORPORATE SEAL By: /s/ Joyce A. Rizzo
Joyce A. Rizzo, CEO
Groundwater Recovery Systems, Inc.
Taxpayer Identification Number: 23-2824062
CORPORATE SEAL By: /s/ George A. Nolan
George A. Nolan, President
LEAK-X ENVIRONMENTAL CORPORATION
FORM 10-KSB
EXHIBIT 13.1
1997 ANNUAL REPORT TO STOCKHOLDERS
LEAK-X ENVIRONMENTAL CORPORATION
ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
To Our Stockholders:
The Company is pleased to report that we were successful in achieving our
goals for both increased revenues and improved performance for the year ended
December 31, 1997 (Fiscal 1997). Net revenues increased 27% to $10,094,456 in
Fiscal 1997 as compared to $7,975,249 in the year ended December 31, 1996
(Fiscal 1996). Excluding a one-time write-off of $1,750,325 in the goodwill
associated with the Groundwater Recovery Systems, Inc. ("GRS") acquisition in
1995, the Company reported a net operating loss of only $86,844 or $0.07 per
share in Fiscal 1997 as compared to a net loss of $799,312 or $0.69 per share
in Fiscal 1996. This significant improvement in performance is primarily a
result of the higher sales, improved margins and continuation of the
Company's cost control program. Including the goodwill, the Company incurred
a loss of $1,840,702 or $1.51 per share in Fiscal 1997.
The Company's environmental consulting business once again thrived in
Fiscal 1997 with record sales of more than $7.5 million with a 6% net
operating profit. In addition, revenues increased more than 39% to $2.5
million in Fiscal 1997 in the Company's groundwater remediation business with
significantly improved performance. The Company's backlog of orders at
December 31, 1997 was $5.8 million with many additional appropriations
received in the first quarter of 1998 for work to be completed in 1998.
As we enter Fiscal 1998, the Company is very excited about two new
products that were developed in Fiscal 1997 as part of its Protocol
Environmental Compliance Program. Protocol was developed in response to the
demand for centralized electronic monitoring services for storage tank
facilities, as well as ongoing inspection services for various
industrial/commercial facilities. Protocol's telemonitoring program entitled,
OnPatrol Remote Monitoring," includes state-of-the-art telecommunications
software developed as an outsourced electronic surveillance service provided
to tank owners. Data from individual facilities is telecommunicated to the
Company's centralized control center where the information is analyzed for
response to alarms and then correlated for generation of the reports that are
necessary for environmental compliance. Protocol's facility inspection
program entitled, InControl Inspection and Maintenance Services," provides
pre-packaged outsourced programs to assist facilities in maintaining ongoing
compliance with a full spectrum of environmental regulations. The Company
began offering both programs in the last quarter of Fiscal 1997 and is now
actively advertising and selling the services.
The outlook for storage tank management services continues to be
excellent, with the marketplace growing rapidly as the December 1998 deadline
approaches for final compliance with federal underground storage tank
regulations. 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 market for groundwater remediation
systems has improved this past fiscal year and the Company is marketing new
products to address the state-of-the-art technology in this area as well.
We thank you, our stockholders, 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.
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 27% over the prior year.
Development of innovative technology to provide centralized
telemonitoring services to storage tank owners on a national basis.
FINANCIAL REVIEW: DECEMBER 31, 1997
Liquidity and Capital Resources
The Company experienced a net increase of cash from operating activities
in the year ended December 31, 1997 ("Fiscal 1997") of $82,618 as compared to
a net decrease of cash from operating activities in the year ended December
31, 1996 ( " Fiscal 1996") of $56,408. The Company incurred a net loss of
$1,840,702 in Fiscal 1997 as compared to a net loss of $799,312 in Fiscal
1996. The net loss in Fiscal 1997 includes the one-time write-off of
goodwill of $1,750,325 which resulted from the acquisition of GRS in 1995.
There was an increase in accounts receivable and accounts payable of $751,056
and $662,702, respectively, in Fiscal 1997 as compared to a decrease in accounts
receivable and accounts payable of $979,912 and $358,788, respectively, in
Fiscal 1996. These changes are primarily a result of increasing sales at the
Company in Fiscal 1997, as compared to the decline in sales experienced at
the Company's equipment manufacturing business in Fiscal 1996.
Investing activities utilized $83,267 of cash in Fiscal 1997 as compared
to utilizing $96,945 of cash in Fiscal 1996. The Company sold assets
resulting in $14,079 of cash during Fiscal 1997. The Company had capital
expenditures of $35,187 and $59,004 in Fiscal 1997 and Fiscal 1996,
respectively, primarily for computers and field equipment. The Company
utilized $62,159 of cash primarily to invest in a new business line in Fiscal
1997 and utilized $32,730 related to the payment of acquisition costs of GRS
in Fiscal 1996.
Financing activities provided $85,296 of cash in Fiscal 1997 as compared
to utilizing $132,976 of cash in Fiscal 1996. In December 1995, the Company
commenced a private placement of its Common Stock and Warrants to raise
$500,000. Proceeds of $150,040 were 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 borrowing $200,000 from the Company's line of
credit and paying down $52,934 of long-term debt in Fiscal 1997.
The Company's working capital decreased to ($296,355) at December 31,
1997 as compared to $31,530 at December 31, 1996. This decrease was
primarily due to increases in debt. The Company utilized working capital to
manage accounts payable, make required loan payments and to fund ongoing
operations.
Backlog at December 31, 1997 was $5,800,000 as compared to the level at
December 31, 1996 of $6,800,000. The backlog at the end of Fiscal 1997 is
lower primarily because appropriations for additional work to be completed on
existing projects in 1998 were not received until after December 31, 1997.
The Company has several contracts with Bell Atlantic to provide construction
management, engineering, analytical and soil disposal services for Bell
Atlantic'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 $3,300,000 and $5,600,000,
respectively, of the December 31, 1997 and 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 1998, however, no assurance of
this can be given.
On December 29, 1997, the Company signed a Promissory Note (the "Note")
extending the Company's Revolving Credit Agreement (the "Credit Agreement")
dated June 26, 1996 with First Union National Bank (the "Bank"). The Note
extends the Company's Credit Agreement to June 30, 1998. 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 $2,049,013 at December 31, 1997. The calculated borrowing base of 60%
of eligible accounts receivable was $1,229,408, for which the Company has
utilized $422,000 of this eligible borrowing base as of December 31, 1997.
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 subordinated debt, dividends, stock redemptions and the sale of
property.
The Company expects to renew this facility upon expiration but there can be
no assurance that the Company will be successful in doing so.
On May 12, 1997, the Company entered into two agreements with George A.
Nolan and James G. Warburton, Directors of the Company and Officers of GRS, a
wholly-owned subsidiary of the Company, to waive a total of $52,005 each in
salary and expense payments for the period January 1, 1997 through September
30, 1997. The agreements require aggregate payments of $61,770 to be made on
notes due to Messrs. Nolan and Warburton for the same period. Through
December 31, 1997, Messrs. Nolan and Warburton waived a total of $95,730 in
salary and $7,800 in home office expense reimbursement and received an
aggregate amount of $61,770 in payment on the 1996 Notes. Under the
agreements, the Company also granted 15,000 incentive stock options each to
George Nolan and James Warburton at an exercise price of $1.50 per share. In
addition, the agreements provided for the granting of 5,000 options each if
certain operating profits were met for the fiscal year ended December 31,
1997. Such additional options have not been granted since the operating
profits have not been met.
On February 26, 1998, the Company received a notice from The Nasdaq
Stock Market, Inc. stating that the Company was not in compliance with the new
tangible net worth requirement, pursuant to the NASD Marketplace Rules, which
became effective on February 23, 1998. The Company is seeking a temporary
exception to the new requirements by requesting a hearing which requires a
written submission. If the Company's written submission supporting the
argument in favor of an exception is not satisfactory, the Company's common
stock will be scheduled for delisting from the Nasdaq Stock Market subject to
the Company's opportunity to request an oral hearing.
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: enforcement of environmental regulations,
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 1997 vs. 1996
Net revenues increased 27% to $10,094,456 in Fiscal 1997 as compared to
$7,975,249 in Fiscal 1996. An increase of $1,283,057 is attributable to the
Company's environmental consulting business. An additional increase of
$746,240 is attributable to the Company's groundwater remediation business
which experienced a favorable increase in demand in Fiscal 1997. The Company
reported slightly lower costs of revenues as a percentage of revenues of
76.4% for Fiscal 1997 as compared to 77.2% for Fiscal 1996. This decrease is
primarily due the Company's groundwater remediation business which attained
higher margins in Fiscal 1997, as compared to Fiscal 1996, due to a stronger
market and higher sales volume.
Selling, general and administrative expenses decreased $93,916 or 4%, in
Fiscal 1997 as compared to Fiscal 1996. The Company's groundwater
remediation business accounted for approximately $310,457 of the decrease
primarily due to $95,730 of salary waivers by two officers, as well as the
continuation of a cost-cutting program which began in Fiscal 1996. Excluding
the expenses attributable to the groundwater remediation business, selling,
general and administrative expenses would have increased $214,703, or 14%.
This increase included $98,085 in corporate expenses consisting of a new
investment banking agreement, increased labor and expenses incurred for the
Company's strategic planning and the addition of Directors & Officers insurance.
In addition, the Company's environmental consulting business' expenses increased
by $118,455 due to the addition of new employees to fulfill the increased sales
volume, expanded marketing efforts, the addition of new products and services,
investment in a new business venture, and the continued investment in branch
offices located in Portsmouth, NH and Franklin Square, NY.
Other expense in Fiscal 1997 includes the one-time write-off of
$1,750,325 in goodwill remaining from the acquisition of GRS in Fiscal 1995.
The Company elected to write-off this goodwill because the value of GRS is
lower than the associated goodwill. In addition, the annual amortization of
the goodwill will be eliminated. Other income was $16,158 in Fiscal 1997, as
compared to $19,830 in Fiscal 1996 due to lower interest income earned on
smaller cash balances. Interest expense increased to $61,663 in Fiscal 1997
from $56,288 in Fiscal 1996 due to higher debt levels at the Company.
Excluding the one-time write-off of goodwill, the Company would have
reported a net loss of $86,844 for Fiscal 1997, as compared to a net loss of
$799,312 in Fiscal 1996. The improvement in performance is primarily as a
result of higher sales, improved margins and the continuation of a cost
control program at the Company.
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, 1997 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the two years ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Leak-X
Environmental Corporation and subsidiaries as of December 31, 997, and the
results of its operations and its cash flows for the two years ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Mazars & Guerard, LLP
Mazars & Guerard, LLP
Certified Public Accountants
New York, New York
March 2, 1998
CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997
<TABLE>
<CAPTION<
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 240,769
Accounts receivable, net of allowance for
doubtful accounts of $15,000 2,111,682
Estimated earnings in excess of billings 117,749
Inventory 267,733
Other current assets 78,454
Net assets of discontinued operations 499,234
TOTAL CURRENT ASSETS 3,315,621
PROPERTY AND EQUIPMENT
Leasehold improvements 44,758
Machinery and equipment 291,575
Furniture and fixtures 127,717
Less: Accumulated depreciation (306,026)
NET PROPERTY AND EQUIPMENT 158,024
OTHER ASSETS
Patents and other assets, net of accumulated
amortization of $3,408 82,488
TOTAL OTHER ASSETS 82,488
TOTAL ASSETS $ 3,556,133
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,177,149
Accrued expenses 114,863
Unearned revenue 307,041
Line of credit 422,000
Current portion of long term debt 50,809
Notes payable - Directors 100,000
Net liabilities of discontinued operations 440,114
TOTAL CURRENT LIABILITIES 3,611,976
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
5,000,000 shares authorized,
1,219,645 issued and outstanding in 1997 1,220
Additional paid-in capital 8,308,015
Deficit (8,365,078)
TOTAL STOCKHOLDERS' EQUITY (55,843)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,556,133
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31,
1997 1996
Revenues:
Service $7,549,825 $6,266,768
Product 2,544,631 1,708,481
10,094,456 7,975,249
Cost of Revenues:
Service 5,911,263 4,713,292
Product 1,802,688 1,448,213
7,713,951 6,161,505
Selling, general and
administrative expenses 2,421,844 2,575,760
Operating loss (41,339) (762,016)
Other income (16,158) (19,830)
Interest expense 61,663 56,288
One time write-off of goodwill 1,750,325 --------
Loss before taxes (1,837,169) (798,474)
Income tax expense 3,533 838
Net loss ($1,840,702) ($799,312)
Weighted average common
shares outstanding 1,219,645 1,162,221
Net loss per share ($1.51) ($0.69)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additional Retained
Common Stock Preferred Paid in Earnings
Shares Amount Shares Amount Capital (Deficit)
December 31, 1995 1,104,166 $1,104 1,688,888 $1,900,000 $6,367,792 ($5,725,064)
Valuation of Stock Options $54,000
Conversion of Preferred Stock (Note 6) 115,480 $115 (1,688,888) ($1,900,000) $1,896,412
Discontinuation of Business (Note 6) ($6,600)
Issuance of Stock (Note 6) ($3,589)
Net Loss ---- ---- ---- ---- ---- ($799,312)
December 31, 1996 1,219,645 $1,220 0 $0 $8,308,015 ($6,524,376)
Net Loss ---- ---- ---- ---- ($1,840,702)
December 31, 1997 1,219,645 $1,220 0 0 $8,308,015 ($8,365,078)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31,
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss ($1,840,702) ($799,312)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 65,766 72,629
Goodwill amortization ------- 60,041
Write-off of goodwill 1,750,325 -------
Valuation of stock options ------- 54,000
Gain on sale of asset (4,831) -------
(Increase) decrease in accounts receivable (751,056) 979,912
(Increase) decrease in costs and estimated
earnings in excess of billings (97,392) 53,686
(Increase) decrease in inventories 154,346 (36,066)
Decrease in other current assets 6,311 16,684
Increase (decrease) in
accounts payable 662,702 (358,788)
Increase (decrease) in billings in excess of cost 194,769 (71,052)
Decrease in accrued
expenses and other liabilities 3,477 (25,398)
(Increase)/decrease in net assets of
discontinued operations (61,097) (2,744)
NET CASH PROVIDED (USED) BY OPERATIONS 82,618 (56,408)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of asset 14,079 -------
Capital expenditures (35,187) (59,004)
Merger with GRS -------- (32,730)
Increase in other assets, net (62,159) (5,211)
NET CASH USED BY INVESTING ACTIVITIES (83,267) (96,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on line of credit 200,000 (228,000)
Payments on long-term debt (52,934) (55,016)
Payments on Directors' Notes Payable (61,770) -------
Issuance of common stock, net of expenses ------- 150,040
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 85,296 (132,976)
NET INCREASE (DECREASE) IN CASH 84,647 (286,329)
CASH, beginning of the year 156,617 442,946
CASH, end of the year $241,264 $156,617
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $65,708 $58,494
Taxes 3533 838
</TABLE>
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Two Years Ended December 31, 1997
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.
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 two classes of products:
(1) environmental services and (2) equipment manufacturer.
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).
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.
Stock Based Compensation
The Company accounts for stock transactions in accordance with APB
Opinion No. 25, "Accounting For Stock Issued to Employees" and has adopted
the disclosure-only option under SFAS No. 123, as of December 31, 1995.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS No. 128"), which became effective for both the interim and annual
financial statements for periods ending after December 15, 1997. FAS No. 128
requires a presentation of "Basic" and (where applicable) "Diluted" earnings
per share. Generally, Basic earnings per share are computed on only the
weighted average number of common shares actually outstanding during the
period, and the Diluted computation considers potential shares issuable upon
exercise or conversion of other outstanding instruments where dilution would
result. Furthermore, FAS No. 128 requires the restatement of prior period
reported earnings per share to conform to the new standard.
Per share data is presented 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, therefore, the diluted per share
data has not been presented.
Segment Information
In June 1997, the Financial Accounting Standards Board issued FAS No.
131 "Disclosures About Segments of an Enterprise and Related Information"
effective for periods after December 15, 1997. Accordingly, the Company has
incorporated the required disclosure.
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.
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, 1997.
NOTE 2 - 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).
Net assets of discontinued operations consist of accounts receivable of
$499,234. Net liabilities of discontinued operations include accounts
payable of $346,251 and accrued liabilities of $94,863.
NOTE 3 - INVENTORY
Inventory consists of the following:
December 31,
1997
Raw Materials $198,040
Work-in-process 69,693
$267,733
NOTE 4 - LINE OF CREDIT
On December 29, 1997, the Company signed a Promissory Note (the "Note")
extending the Company's Revolving Credit Agreement (the "Credit Agreement")
dated June 26, 1996 with First Union National Bank (the "Bank"). The Note
extends the Company's Credit Agreement to June 30, 1998. 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 $2,049,013 at December 31, 1997. The calculated borrowing base of 60%
of eligible accounts recievable was $1,229,408, for which the Company has
utilized $422,000 of this eligible borrowing base as of December 31, 1997.
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 subordinated debt, dividends, stock redemptions and the sale of property.
NOTE 5 - LONG-TERM DEBT - Current Portion
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
December 31,
1997
Notes Payable to Directors, interest at 10%,
maturing in March 1998, with quarterly
interest payments of $2,500 $100,000
Note payable to a bank, secured by inventory,
accounts receivable, interest at 7.25%,
maturing in December 1998, with monthly
payments of $4,352 50,809
$ 150,809
Less: Current Portion ( 150,809)
$ -0-
</TABLE>
On September 29,1996, the Company converted certain outstanding notes
into long-term notes (the "1996 Notes"). The 1996 Notes mature on March 31,
1998 and require quarterly interest payments at an interest rate of ten
percent (10%) per annum. In addition, the 1996 Notes have been subordinated,
as to principal, to the Revolving Credit Agreement with the Company's bank.
The Revolving Credit Agreement prohibits payment of principal under the 1996
Notes to the extent that the Company's tangible net worth is less than
$100,000 (see Note 4). The Company made payments in the amount of $61,770
during Fiscal 1997 in accordance with an agreement signed between the Company
and the two directors. See Note 11 for additional information regarding this
agreement.
NOTE 6-STOCKHOLDER'S EQUITY
The Company had 2,668,000 Common Stock Purchase Warrants outstanding to
purchase a like number of Common Shares originally exercisable at $1.25 per
share. These Warrants expired on December 31, 1997. Due to transactions
that have occurred since the original issuance date of the Warrants, the
exercise price had 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 was $10.92 to purchase 0.11 share of Common Stock.
In 1995, $1,900,000 due to two principal shareholders was converted into
1,688,888 shares of Series A Convertible Preferred Stock (129,914 shares
after the January 31, 1997 1:13 reverse split). 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 129,914 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.
In February 1996, the Company issued 192,308 shares of Common Stock and
96,153 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.
In June 1995, the Company issued 15,385 Warrants to purchase 15,385
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 financial consulting
services.
In January 1997, the Company issued Warrants to purchase up to 30,500
shares of Common Stock at a price of $1.69 per share for a period extending
through December 31, 2001 as part of an Financial Advisory Services Agreement
between the Company and its investment banker.
In August 1997, the Company reduced the authorized number of shares of
Common Stock from 30,000,000 to 5,000,000 and the authorized number of shares
of preferred Stock from 5,000,000 to 500,000.
Stock Option Plans
The Company has adopted five stock option plans (1988, 1992, 1995, 1996,
and 1997 (the "Plan)) with an aggregate of 651,922 originally reserved for
issuance and 120,480 available for future grant.
The Plans provide 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 Plans 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 1988 Plan (but
not options previously granted under the Plans) shall terminate in October 1998
or sooner, if the Board of Directors of the Company should so deem.
Summary of 1988, 1992, 1995, 1996 and 1997 Stock Option Plans
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Options Outstanding
Available Number Price
For grant Of Shares Per Share
Outstanding at December 31, 1995 65,171 68,348 $26.00 - $3.90
1996 Plan 57,692 ------
Granted (32,306) 32,306 $3.45 - $1.63
Expired 1,923 (1,923) $26.00
Outstanding at December 31, 1996 92,480 98,731 $3.90 - $1.63
1997 Plan 100,000 ------
Canceled 98,731 (98,731) $3.90 - $2.4375
Reissued (98,731) 98,731 $1.56
Granted (72,000) 72,000 $1.50 - $1.56
Outstanding at December 31, 1997 120,480 170,731 $1.50 - $1.56
</TABLE>
At the beginning of Fiscal 1996, the Company had 68,348 incentive stock
options outstanding. In July 1996, a total of 30,770 options were granted at
$3.445 per share to John Gelles and William Gelles, Officers and Directors of
the Company, in consideration of conversion of their preferred stock to
common stock.
On May 12, 1997, a total of 30,000 incentive stock options were granted
at $1.50 per share to George A. Nolan and James G. Warburton, Directors and
Employees of the Company, as part of a salary waiver agreement. See Note 11
for additional information.
On May 22, 1997, the Company canceled 98,731 options with exercise
prices ranging from $3.90-$2.4375, including 31,924 options granted to Joyce A.
Rizzo and 11,615 options granted to Robert D. Goldman, Officers and Directors of
the Company. A total of 98,731 options were regranted at an exercise price of
$1.56 per share to eight employees, including 31,924 to Joyce A. Rizzo 11,615
to Robert D. Goldman. In addition, a total of 42,000 new options were
granted at an exercise price of $1.56 per share to thirteen employees, including
10,000 to Joyce A. Rizzo and 5,000 to Robert D. Goldman.
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 $54,000 has been amortized as of December
31, 1996. These options expired December 31, 1997.
NOTE 7 - ACCOUNTING FOR EMPLOYEE STOCK OPTIONS
In Fiscal 1997, the Company adopted the disclosure provisions SFAS No.
123, "Accounting for Stock-Based Compensation". For disclosure purposes, the
fair value of options is estimated on the date of grant using Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during the years ended December 31, 1997 and 1996:
annual dividends of $0; expected volatility of 50%; risk-free interest rate
of 7% and expected life of five years. The weighted average fair value of stock
options granted and vested during the years ended December 31, 1997 and 1996
was $0.05 and $0.05, respectively. If the Company had recognized
compensation cost for stock options in accordance with SFAS No. 123, the
Company's proforma net loss and net loss per share would have been $1,902,863
and $1.56 per share for the fiscal year ended December 31, 1997 and $853,403
and $0.73 per share for the fiscal year ended December 31, 1996. The proforma
compensation expenses per the Black Scholes formula for the years ended
December 31, 1998, 1999, 2000, and 2001 will be $29,896, $27,319, $20,773,
and $12,599, respectively.
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, 1997, the Company had
available net operating loss carry forwards of approximately $5,000,000
expiring throughout 2017, 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 1997 and 1996, GRS had revenues of approximately $239,929
and $60,092, respectively, from one entity that is primarily owned by the
President of GRS. In Fiscal 1997 and Fiscal 1996, GRS also had purchases of
$36,536 and $9,583, respectively, from the same entity. As of December 31,
1997 and 1996, GRS had accounts receivable from this related entity of
$142,616 and $50,612, respectively. There is also $54,308 recorded as
unearned revenues as of December 31, 1997 related to the aforementioned
accounts receivable.
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, 1997 and 1996 were
$13,885 and $15,418, 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):
1997 1996
Number of major customers 1 1
Aggregate sales to major customers $6,820 $5,520
Percent of total revenues
to major customers 68% 69%
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>
<S> <C> <C>
Sales 1997 1996
Environmental services $ 7,550 $ 6,267
Equipment manufacturer 2,549 1,802
Corporate and eliminations ( 4) ( 94)
$ 10,095 $ 7,975
Operating Profit (Loss)
Environmental services $ 399 $ 342
Equipment manufacturer ( 22) ( 724)
Corporate and eliminations ( 478) ( 353)
($ 101) ($ 735)
Identifiable Assets
Environmental services $ 1,955 $ 1,511
Equipment manufacturer 1,097 1,384
Corporate and Disc Ops 504 2,558
$ 3,556 $ 6,124
Depreciation Expense
Environmental services $ 35 $ 39
Equipment manufacturer 31 34
Corporate and Disc Ops --- ---
$ 66 $ 73
Capital Expenditures
Environmental services $ 29 $ 34
Equipment manufacturer 6 25
$ 35 $ 59
</TABLE>
The Company does not allocate interest expense to each industry segment.
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 $131,698
1998 $ 36,342
1999 $ 27,159
2000 $ 27,812
2001 $ 4,950
Rent expense amounted to approximately $199,839 in 1997 and $166,976 in
1996.
Litigation
A legal proceeding captioned Douglas B. Tom and Joanne Tom, Plaintiffs
against New York Telephone Company, Inc., Lexicon Environmental Associates,
Inc. and Cranes, Inc., Defendants, was settled with no liability to the
Company.
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 Gaservice at an Exxon service station under construction in
October 1994. Responsibility for the defense of this lawsuit has been
assumed by Gaservice'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 Gaservice'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.
Gaservice and Exxon are actively negotiating settlement of this matter.
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. Responsibility for the defense of this
lawsuit has been assumed by Yellowstone's insurance carrier.
Pursuant to two third-party complaints served on 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.
Employment Agreements
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
$154,500 until December 31, 1997 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, 1998,
Ms. Rizzo's annual salary was increased to $159,135. 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. In the event of a change in control of the Company which she
opposes, Ms. Rizzo may become entitled to up to 2.9 times her then current
compensation.
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.
Under the agreements, Messrs. Nolan and Warburton's respective annual salaries
were $152,440 until December 31, 1997. 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.
Effective January 1, 1998, Messrs. Nolan and Warburton's respective annual
salaries were increased to $157,013. 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 in home office allowance to which they were entitled to under these
agreements.
On May 12, 1997, the Company entered into two agreements with George A.
Nolan and James G. Warburton, Directors of the Company and Officers of GRS, a
wholly-owned subsidiary of the Company, to waive a total of $52,005 each in
salary and expense payments for the period January 1, 1997 through September
30, 1997. The agreements required aggregate principal payments of $61,770 to
be made on the 1996 Notes for the same period. Through December 31, 1997,
Messrs. Nolan and Warburton waived a total of $95,730 in salary and $7,800 in
home office expense reimbursement and received an aggregate amount of $61,770
in payment on the 1996 Notes. Under the agreements, the Company also granted
15,000 incentive stock options each to George Nolan and James Warburton at an
exercise price of $1.50 per share. In addition, the agreements provided for
the granting of 5,000 options each if certain operating profits are met for
the fiscal year ended December 31, 1997. Such additional options have not
been granted since the operating profits have not been met.
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 through December 31, 1998. The Company
also granted 15,385 incentive stock options each to John and William Gelles to
purchase 15,385 shares of Common Stock at an exercise price of $3.445. These
options were subsequently canceled and regranted in May 1997 at an exercise
price of $1.56 per share.
NOTE 12 - FOURTH QUARTER (UNAUDITED)
The fourth quarter includes the write-off of $1,750,325 in goodwill
associated with the acquisition of the Company's GRS subsidiary.
NOTE 13 - SUBSEQUENT EVENTS
On February 26, 1998, the Company received a notice from The Nasdaq
Stock Market, Inc. stating that the Company was not in compliance with the new
tangible net worth requirement, pursuant to the NASD Marketplace Rules, which
became effective on February 23, 1998. The Company is seeking a temporary
exception to the new requirements by requesting a hearing which requires a
written submission. If the Company's written submission supporting the
argument in favor of an exception is not satisfactory, the Company's common
stock will be scheduled for delisting from the Nasdaq Stock Market subject to
the Company's opportunity to request an oral hearing.
On February 20, 1998, the Company granted 10,000 options each to Raymond
W. Kane and Timothy J. Mayette, Directors of the Company. The options are
exercisable at $2.125 per share after a one year vesting period.
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 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. All stock prices have been adjusted to reflect the Company's
1:13 reverse stock split (January 31, 1997):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period High Bid Low Bid Period High Bid Low Bid
1996 First Quarter $4.88 $1.22 1997 First Quarter $2.03 $1.50
1996 Second Quarter $4.48 $2.44 1997 Second Quarter $2.63 $1.50
1996 Third Quarter $3.66 $1.63 1997 Third Quarter $2.88 $2.00
1996 Fourth Quarter $3.55 $1.22 1997 Fourth Quarter $3.00 $2.25
</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 March 20, 1998, there were 192 holders of record of the Company's
Common Stock and approximately 2,005 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 Chief Executive Officer 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
President of Lexicon Environmental Associates, Inc.
Eileen E. Bartoli Chief Financial Officer
Timothy J. Mayette Director
Raymond W. Kane Director
GENERAL COUNSEL
Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New York, NY 10022
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 OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statements
on Form S-8 of our report dated March 2, 1998, with respect to the financial
statements of Leak-X Environmental Corporation included in its annual report
on Form 10-KSB for the year ended December 31, 1997.
/s/ Mazars & Guerard, LLP
Mazars & Guerard, LLP
Certified Public Accountants
New York, New York
March 30, 1998
