UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number - 1-10184
ABATIX ENVIRONMENTAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 75-1908110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8311 Eastpoint Drive, Suite 400, Dallas, Texas 75227
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 381-1146
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
1,762,148 shares of common stock, $.001 par value, were issued and outstanding
on March 24, 1999.
The aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant as of the close of business on March 24, 1999
(an aggregate of 786,614 shares out of a total of 1,762,148 shares outstanding
at that time) was $2,556,496 computed by reference to the closing price of $3
1/4 on March 24, 1999.
Portions of the Registrant's proxy statement for its 1999 annual meeting of
stockholders are incorporated into Part III, herein, by this reference thereto.
<PAGE>
PART I
Item 1. Business
(a) Development of Business
Abatix Environmental Corp. ("Abatix" or the "Company") markets and distributes
personal protection and safety equipment, and durable and nondurable supplies to
the asbestos and lead abatement, industrial safety and hazardous materials
industries. In addition to these products, the Company also distributes tools
and tool supplies to the construction industry.
The Company began operations in May 1983 as an industrial safety supply company
located in Dallas, Texas, and was originally incorporated in Texas as T&T Supply
Company, Inc. ("T&T") in March 1984. T&T expanded its operations to become a
supplier to the asbestos abatement industry in January 1986. Abatix was
incorporated in Delaware on December 5, 1988 to effect and complete an Agreement
and Plan of Merger with T&T on December 9, 1988. Unless the context provides
otherwise, all references to the Company include T&T and the Company's wholly
owned subsidiary, International Enviroguard Systems, Inc. ("IESI").
The Company opened its Nederland, Texas sales office in May 1988 and its
Hayward, California distribution location in December 1988. During 1989, the
Company expanded its customer base to supply the hazardous materials remediation
industry.
In March 1989, the Company completed its initial public offering of its
securities with the sale of 300,000 units, each consisting of two shares of
common stock and one redeemable common stock purchase warrant, at a price of
$5.00 per unit. Net proceeds of $1,135,251 were realized from the offering.
Pursuant to provisions of the initial public offering, the Company issued, on
March 2, 1990, a notice of redemption to the warrantholders with respect to all
of its outstanding redeemable common stock purchase warrants, which were
exercisable at $3.00 per share. An aggregate of 231,983 of such warrants was
exercised pursuant to the notice. In total, 290,983 warrants were exercised,
8,917 were redeemed and 100 were not presented, resulting in net proceeds of
$805,616. Proceeds from the exercise of the warrants enabled the Company to
increase its capital base and expand its operations.
In February 1990, the Company expanded its Hayward location and opened its
Houston, Texas office/warehouse location. In August 1991, the Company opened its
Santa Fe Springs, California office/warehouse location and, in April 1992, the
Nederland, Texas location was converted to a warehouse location and was later
combined with the Houston, Texas location. In August 1992, sales and
administrative staff were added to the Santa Fe Springs facility to initiate
distribution services to the construction tools supply industry.
On October 5, 1992, the Company entered into and consummated an Asset Purchase
Agreement with International Enviroguard Systems, Inc. ("IES"), a Texas
corporation, pursuant to which the Company assumed the operation of this company
and issued 250,000 shares of the Company's $.001 par value common stock. IES,
based in Corpus Christi, Texas, was a manufacturer of sorbents, primarily for
the hazardous materials industry. The Company transferred the assets purchased
and liabilities assumed to IESI, a Delaware corporation wholly owned by the
Company.
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In response to improved competitive conditions, the Company began asbestos
abatement supply distribution operations in Phoenix and Denver in January and
February of 1993, respectively, and Seattle in January 1994. The Company opened
a distribution center in Corpus Christi, Texas in June 1994 as an attempt to
more fully utilize the IESI facilities.
During 1994, because of increased purchasing power, the Company, through IESI,
began to import certain products sold through not only the Company's
distribution channels, but also other distribution companies not in direct
competition with Abatix. The Company continues to evaluate the direct
importation of products to obtain a consistent supply of products at lower
costs.
In December 1994, because of the significant use of cash, the negative impact on
earnings and the limited potential for progress towards profitability, the
Company announced plans to discontinue the sorbent manufacturing business of
IESI. This process was completed during the second quarter of 1995; however,
IESI continues the importation of products.
The Corpus Christi location was closed as of September 30, 1995 primarily
because the projected costs to operate the facility exceeded the market
potential. As was done prior to opening the Corpus Christi location, Abatix's
Houston facility serves the central and south Texas area.
In December 1995, the Company opened its eighth facility in Las Vegas. Although
the Las Vegas operation handles the entire product line, its primary focus is
the construction tool industry.
The Company's lease agreement on the building that was occupied by both the
operations of IESI and the Corpus Christi branch included an option to purchase
the building. In March 1996, the Company purchased this facility and
simultaneously sold the building to a third party. This transaction terminated
the Company's lease obligation. Concurrent with the sale, the Company reversed
the remaining reserves resulting in the special credit and the earnings from
discontinued operations in 1996.
Effective January 1, 1999, the Company consummated an Asset Purchase Agreement
with Keliher Hardware Company ("Keliher"), a California corporation, pursuant to
which the Company assumed the operations of Keliher. Keliher, based in Los
Angeles, California, with a satellite facility in Long Beach, is a $3.5 million
industrial supply distributor, primarily for the construction and industrial
markets. The estimated fair value of the assets acquired was approximately
$1,000,000. The aggregate purchase price was settled with the assumption of
certain liabilities (approximately $900,000), the issuance of 23,500 shares of
the Company's $.001 par value common stock at a value of $3.375 per share and
the remainder in cash. This acquisition will be accounted using the purchase
method.
On March 22, 1999, the Company decided to close its Denver facility. The Denver
facility had sales of approximately $1,449,000, $1,076,000 and $1,544,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The Company does
not expect any significant charges related to the shutdown.
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The Company intends to expand and diversify the revenue base through the
expansion of product lines, hiring additional personnel, and acquisitions. In
addition, the Company is developing an e-commerce site to help solidify
relationships with the existing base of customers and expand our presence beyond
its local market presence.
(b) Financial Information About Operating Segments
Information about the Company's operating segments is included in the Notes to
the Consolidated Financial Statements at Item 14.
(c) Narrative Description of Business
Asbestos Abatement Industry Background
Between 1900 and the early 1970's, asbestos was extensively used for insulation
and fireproofing in industrial, commercial and governmental facilities as well
as private residences in the United States and in other industrialized
countries. It is estimated that in the United States, approximately 20 percent
of all buildings, excluding residences and schools, contain friable
asbestos-containing materials that are brittle, readily crumble and are
susceptible to the release of asbestos dust. Various diseases such as
asbestosis, lung cancer and mesothelioma, linked to the exposure to airborne
asbestos, and the presence of asbestos in insulation, service applications and
finishing materials have given rise to the concern about exposure to asbestos.
Public awareness of the health hazards posed by asbestos has increased as the
results of continuing medical studies have become widely known. Business and
other publications and studies have listed asbestos abatement as one of
America's critical problems, and legislation previously introduced to the U.S.
Congress refers to asbestos as "one of the most dangerous substances known to
science." A study performed in the 1980's, predicted that as many as 225,000
Americans will die of asbestos related ailments before the year 2000 and that
there are currently 65,000 known cases of asbestosis. Litigation involving
claimants exposed to asbestos has forced several firms to seek the protection of
the bankruptcy courts, and the volume of pending claims has inundated state and
Federal courts throughout the country, thus prompting many commentators to
propose legislative solutions.
The United States Environmental Protection Agency ("EPA") estimated, in a survey
conducted in 1984, that asbestos is present in 30 percent of the nation's
110,000 schools and in 20 percent of the nation's 3.6 million government and
commercial buildings. Maintenance, repair, renovation or other activities can
disturb asbestos-containing material and, if disturbed or damaged, asbestos
fibers become airborne and pose a hazard to building occupants and the
environment.
Prompted by such concerns, Congress, in 1984, authorized the EPA to spend $800
million for asbestos abatement in schools under the Asbestos School Hazard
Abatement Act. In October 1986, Congress passed the Asbestos Hazard Emergency
Response Act ("AHERA") which mandates inspections for asbestos, the adoption of
asbestos abatement plans and the removal of asbestos from schools and facilities
scheduled for demolition. In addition, state and local governments have also
adopted asbestos-related regulations.
4
<PAGE>
Notwithstanding such legislative impetus and continued awareness of health
related hazards associated with asbestos, the budgetary constraints and the lack
of improvement in the industrial sectors continue to limit the number and scope
of asbestos abatement projects. However, as the U.S. economy improves and
commercial real estate demand increases, the Company believes the overall
industry will also improve on a limited basis.
Lead Abatement Industry Background
The hazards of lead-based paint have been known for many years; however, the
federal and state regulations requiring identification, disclosure and cleanup
have been minimal. In early 1996, the EPA and the Department of Housing and
Urban Development unveiled rules regarding lead-based paint in the residential
markets. These rules give homebuyers the right to test for lead-based paint
before any contracts are signed. In addition, although a landlord or home seller
is not required to test for lead-based paint, the rules do require disclosure of
a known lead hazard.
Many asbestos abatement contractors added lead abatement to their range of
services in an attempt to enter a market considered to be in its infancy. The
asbestos abatement contractors bring equipment, a trained labor force, and
experience working in a regulatory environment to the lead abatement industry.
Although the Company does not anticipate a significant increase of lead
abatement projects, these rules and their opportunities encourage management.
Such rules could create a long-term positive impact on the Company through
expenditures for equipment and supplies to ensure the safe and proper removal
and disposal of lead paint.
Safety and Hazardous Materials Industries Background
The EPA and the Occupational Safety and Health Administration ("OSHA"), together
over time, have established numerous rules and regulations governing
environmental protection and worker safety and health. The demand for supplies
and equipment by U.S. businesses and governments to meet these rules and
regulations has resulted in the creation of a multi-billion dollar industry.
As research identifies the degree of environmental or health risk associated
with various substances and working conditions, new rules and regulations can be
expected. These actions inevitably will require more expenditures for supplies
and equipment for handling, remediation and disposal of hazardous substances and
the creation of safe living and working conditions.
Construction Tools Supply Industry Background
Besides the normal hand and power tools, and associated consumable parts,
supplied to the construction industry, the EPA and OSHA have also established
certain rules and regulations governing the protection of the environment and
the protection of workers in this industry.
5
<PAGE>
Currently, the Company supplies the construction tools industry in its Las
Vegas, Los Angeles, and, to a lesser degree, Phoenix facilities. This industry
is directly tied to the local economies and more specifically, the real estate
conditions within those markets. The real estate market in the Las Vegas area is
strong with vacancy rates for commercial properties low and rental rates high
and construction of hotels and casinos strong. The condition of the real estate
industry in the Los Angeles and Phoenix areas remains stable.
Geographic Distribution of Business
With the acquisition of Keliher, the Company distributes over 30,000 personal
protection, safety, hazardous waste remediation and construction tool products
to approximately 6,000 customers primarily located in the Southwest, Midwest and
Pacific Coast. Approximately 48 percent of its products are sold to asbestos and
lead abatement contractors, 23 percent to the industrial safety market, 12
percent to construction related firms and 17 percent to other firms, including
hazardous material contractors and other distributors. The Company believes a
majority of its sales for the foreseeable future will continue to be made to
asbestos and lead abatement contractors, project organizers and managers. At
present, the Company estimates its share of the asbestos abatement supply market
to be approximately 15 to 20 percent in the geographic markets served by the
Company. The Company considers its relationship with its customers to be
excellent.
The Company maintains 24-hours-a-day/7-days-a-week telephone service for its
customers and typically delivers supplies and equipment within two or three days
of receipt of an order. The Company is prepared to provide products on an
expedited basis in response to requests from abatement contractors who require
immediate deliveries because their work is often performed during non-business
hours, involves substantial costs because of the specialized labor crews
involved or may arise on short notice as a result of exigent conditions.
The Company maintains sales, distribution and warehouse centers in Santa Fe
Springs, Los Angeles, Long Beach and Hayward, California, in Dallas and Houston,
Texas, in Phoenix, Arizona, in Las Vegas, Nevada, and in Kent, Washington.
Equipment and Supplies
The Company buys products from manufacturers based on orders received from its
customers as well as anticipated needs based on prior buying patterns, customer
inquiries and industry experiences. The Company maintains an inventory of
disposable products and commodities as well as low cost equipment items.
Approximately 85 percent of the Company's sales for 1998 and 1997 are of
disposable items and commodity products, which are sold to customers at prices
ranging from under $1.00 to $50.00. The balance of sales is attributable to
items consisting of lower priced equipment beginning at $20.00 to major product
assemblies such as decontamination trailers which retail for approximately
$15,000. The Company currently does not manufacture or lease any products and
does not perform any repairs thereon. The Company distributes, on a limited
basis, disposable items under its own private label.
6
<PAGE>
Except with regard to certain specialty equipment associated with asbestos
abatement activities such as filtration, vacuum and pressure differential
systems, many of the Company's products can be used interchangeably within many
of the industries it supplies. Equipment distributed by the Company includes
manufacturers' product descriptions and instructions pertaining to use.
Marketing
The Company's marketing program is conducted by its sales representatives, as
well as by senior management and the general managers at each of its operating
facilities. These sales representatives are compensated by a combination of
salary and/or commission, which is based upon, negotiated sales standards.
Backlog
Substantially all the Company's products are shipped to customers within 48
hours following receipt of the order, therefore backlog is not material to the
Company's operations.
Inflation
The inflation rate for the U.S. economy has averaged approximately 3 percent
annually over the past several years, with the 1998 inflation rate below 2
percent. The 1999 inflation rate is projected to be in the 2 to 3 percent range.
The Company believes inflation has not been a substantial concern nor will
inflation have a material impact to the Company's operations or profitability in
the near term, if inflation remains stable. In the event of increased inflation,
the Company anticipates it would be able to pass along increases in product
costs to its customers in the form of higher selling prices, thereby having no
effect on product margins.
Environmental Impact
The Company distributes a variety of products in the asbestos abatement industry
all of which require the Company to maintain on file Material Safety Data Sheets
("MSDS") that inform all purchasers and users of any potential hazards which
could occur if the products spilled or leaked. Although the Company provides no
assurance, it reviews all products that could have a potential for environmental
hazards and tries to ensure the products are safe for on site storage and
distribution. The Company currently distributes no products it believes would
create an environmental hazard if leaked or spilled. The Company has safety
procedures in place to minimize any impact if a product were to leak or spill.
Seasonality
Historically, the asbestos abatement services and supply business has been
seasonal as a result of the substantial number of abatement contracts performed
in educational facilities during the summer months or during other vacation
periods. The Company believes the non-educational or private sector, which
includes the industrial, commercial and residential markets, is an area of
potential growth, and that seasonality is not a major characteristic of these
markets. In addition to the private sector asbestos business, the Company's
expansion of the hazardous material remediation, industrial safety and
construction tools supply markets have mitigated any seasonal impacts of
government asbestos projects.
7
<PAGE>
Government Regulation
As a supplier of products manufactured by others to the asbestos and lead
abatement, industrial safety and hazardous materials industry, the Company's
internal operations are not substantially affected by federal laws and
regulations including those promulgated by the EPA and OSHA. Most of the
contractors and other purchasers of the Company's equipment and supplies are
subject to various government regulations, and developments in legislation and
regulations affecting manufacturers and purchasers of the Company's products
could have a substantial effect on the Company.
Competition
The asbestos and lead abatement, industrial safety, hazardous materials and
construction tools supply businesses are highly competitive. These markets are
served by a limited number of large national firms as well as many local firms,
none of who can be characterized as controlling the market. The Company competes
on the basis of price, delivery, credit arrangements and product variety and
quality. Substantial regulatory or economic barriers to entry do not
characterize the Company's business. Additional companies could enter the
asbestos and lead abatement, industrial safety, hazardous materials and
construction tools supply industries and may have greater financial, marketing
and technical resources than the Company
Employees
As of February 28, 1999, the Company employed a total of 103 full time employees
including 4 executive officers, 8 managers, 53 administrative and marketing
personnel and 38 clerical and warehouse personnel. The Company believes
relations with its employees are excellent.
Item 2. Description of Properties
The Company's headquarters are located in Dallas, Texas and occupy approximately
3,200 square feet of leased general office space in conjunction with the Dallas
branch. This lease expires in July 1999. The Company is currently negotiating
for additional lease space in the Dallas area. As of December 31, 1998, the
eight distribution facilities lease a total of 105,145 square feet of general
office and warehouse space. These facilities range in size from 6,875 square
feet to 24,000 with leases expiring between January 1999 and March 2002. In
March 1999, the Company decided to close its Denver facility, which lease of
6,875 square feet expired in February 1999.
Item 3. Legal Proceedings
The Company was named as a defendant in a product liability lawsuit filed in the
Superior Court of the State of California for the County of Los Angeles -
Central District (Placido Alvarez vs. Abatix Environmental Corp., et al, Case
No. BC133537). The Company was receiving indemnification under the
manufacturer's insurance and legal representation at the cost of the
manufacturer. The Company received notification this lawsuit was dismissed
without prejudice in August 1998.
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<PAGE>
In December 1998, the Company was named as a defendant in a lawsuit filed in the
District Court of Harris County, Texas (Asbestos Handlers, Inc. ("AHI") vs.
Abatix Environmental Corp., et al). The lawsuit alleges the Company and other
defendants together participated in the conversion and unauthorized sale of AHI
inventory totaling $27,756. The plaintiff seeks actual damages, exemplary
damages, interest and attorney's fees. The Company purchased the inventory in
good faith and believed that the manager of AHI's Houston facility was
representing AHI's interests. Management intends to vigorously defend against
this claim.
Item 4. Submission of Matters to a Vote of Security Holders
None
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) The Company's common stock trades on The Nasdaq SmallCap Market tier of The
Nasdaq Stock Market under the symbol "ABIX". The following table sets forth the
high and low prices for the common stock for the periods indicated. These
quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
Common Stock
Price
----------------------------
1997 High Low
- ------------------------- ----------- -----------
First Quarter $ 3 3/8 $ 2 1/2
Second Quarter 3 15/16 2 3/16
Third Quarter 3 3/8 2
Fourth Quarter 3 7/16 2 1/2
1998
- -------------------------
First Quarter $ 3 7/8 $ 2 5/8
Second Quarter 4 1/2 3 3/8
Third Quarter 4 1/4 2 3/4
Fourth Quarter 3 15/16 2 3/4
On March 24, 1999, the closing bid price for the common stock was $3 1/4.
(b) As of March 24, 1999, the approximate number of holders of record of the
Company's common stock was 700.
(c) The Company has never paid cash dividends on its common stock. The Company
presently intends to retain any future earnings to finance the expansion of its
business or repay borrowings on its lines of credit and does not anticipate that
any cash dividends will be paid in the foreseeable future. Future dividend
policy will depend on the Company's earnings, capital requirements, expansion
plans, financial conditions, and other relevant factors.
(d) In November 1998, the Board of Directors authorized an additional purchase
of up to 250,000 shares of the Company's common stock. With this additional
authorization, management has the authority to purchase up to 726,500 shares. As
of March 24, 1999, the Company has purchased 652,400 shares, including a block
of 102,600 shares in March 1999. In addition to the purchased shares, the
Company received 22,766 shares from an officer of the Company as payment for
monies owed to the Company of approximately $80,000 in January 1999. Both the
block purchase and the shares received from the officer of the Company are held
as treasury shares.
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Item 6. Selected Financial Data
The tables below set forth, in summary form, selected financial data of the
Company. This data, which is not covered by the independent auditors' report,
should be read in conjunction with the consolidated financial statements and
notes thereto which are included elsewhere herein (amounts in thousands except
per share amounts).
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Selected Operating Results:
Net sales $ 37,328 $ 34,955 $ 33,067 $ 27,632 $ 25,982
Gross profit $ 10,481 $ 9,651 $ 9,202 $ 7,977 $ 7,164
Earnings from continuing operations $ 1,167 $ 841 $ 734 $ 813 $ 580
Earnings (loss) from discontinued
operations, net of income taxes - - 22 - (363)
---------- ---------- ---------- ---------- ----------
Net earnings $ 1,167 $ 841 $ 756 $ 813 $ 217
========== ========== ========== ========== ==========
Basic earnings per common share:
Earnings from continuing operations $ .60 $ .43 $ .35 $ .37 $ .25
Earnings (loss) from discontinued
operations - - .01 - (.16)
---------- ---------- ---------- ---------- ----------
Net earnings $ .60 $ .43 $ .36 $ .37 $ .09
========== ========== ========== ========== ==========
Diluted earnings per common share:
Earnings from continuing operations $ .60 $ .43 $ .35 $ .36 $ .25
Earnings (loss) from discontinued
operations - - .01 - (.16)
---------- ---------- ---------- ---------- ----------
Net earnings $ .60 $ .43 $ .36 $ .36 $ .09
========== ========== ========== ========== ==========
Weighted average shares outstanding:
Basic 1,934 1,934 2,076 2,207 2,311
========== ========== ========== ========== ==========
Diluted 1,934 1,934 2,111 2,238 2,330
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Current assets $ 9,918 $ 9,003 $ 9,722 $ 8,230 $ 7,426
Current liabilities 4,408 4,676 6,219 4,659 4,208
Total assets 10,596 9,854 10,678 8,977 8,184
Total liabilities 4,408 4,676 6,219 4,659 4,283
Retained earnings 5,252 4,085 3,244 2,488 1,674
Stockholders' equity 6,187 5,178 4,459 4,318 3,901
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Consolidated net sales for the year ended December 31, 1998 increased 7 percent
to $37,328,000 from $34,955,000 in 1997. The Abatix operating segment net sales
grew 4 percent to $34,928,000 in 1998 and the IESI operating segment net sales
increased 70 percent to $2,400,000 in 1998. The increase in consolidated net
sales resulted from efforts to further expand and diversify the customer base.
The increase is also a result of the stable economic conditions in the
geographic regions serviced by the Company's facilities. These economic
conditions, if maintained, should provide the ability for the Company to grow
its revenues in 1999. In addition, the acquisition of Keliher, an industrial
supply distributor, in January 1999 provides a larger customer base and the
ability to cross sell products to both Keliher and Abatix customers. These
efforts also provide the groundwork for broadening the Company's revenues among
its different product markets, thereby decreasing its dependence on any one of
its markets.
On March 22, 1999, the Company decided to close its Denver facility. The Denver
facility had sales of approximately $1,449,000 and $1,076,000 for the years
ended December 31, 1998 and 1997, respectively. The Company will serve the
Denver market primarily from its Phoenix and Dallas locations.
Industry-wide sales of asbestos abatement products are expected to remain
relatively flat for the foreseeable future. The Company believes the current
U.S. economic expansion will positively impact its operations. However, the
asbestos abatement industry will likely diminish over time as asbestos
containing materials, last used in construction during 1977-1980, are removed
from schools, office buildings, homes and factories. A 1992 estimate by an
industry analyst predicted that as much as $80 billion may be spent nationwide
over a 20 year period for asbestos removal, of which the Company estimates $8
billion relates to abatement supplies. Approximately $2 billion in abatement
supplies is estimated to be spent during this 20 year period in the geographic
areas served by the Company's eight distribution centers. At this potential rate
of expenditure, and at a presently estimated 15 to 20 percent market share of
the asbestos abatement markets served by the Company, the current and
intermediate term effects of the diminishing market are not expected to have a
material adverse impact on the Company.
Sales to the hazardous materials remediation, industrial safety and construction
tools supply markets are increasing both in absolute amounts and as a percentage
of revenues to the Company. The acquisition of Keliher, other potential
acquisitions, additional salespeople and internal growth in these markets should
decrease the dependency of the Company on any one product or geographic market.
Gross profit in 1998 of $10,481,000 increased 9 percent from gross profit in
1997 of $9,651,000 due to increased sales volume. As expected, margins varied
from location to location due to sales mix and local market conditions. The
Company's gross profit margins, expressed as a percentage of sales, were
approximately 28 percent for 1998 and 1997. Overall margins are expected to
remain at their current levels in 1999. However, competitive pressures could
negatively impact any and all efforts by the Company to maintain or improve
product margins.
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<PAGE>
Selling, general and administrative expenses for 1998 of $8,373,000 increased 5
percent over 1997 expenses of $7,953,000. The increase was attributable
primarily to higher employment costs as a result of additional marketing and
support personnel. Selling, general and administrative expenses were 22 percent
of sales for 1998 and 23 percent of sales for 1997. These expenses are expected
to remain in their current range for 1999. The Company does not expect any
significant charges related to the shutdown of its Denver facility.
Other expense, net, of $220,000 in 1998 decreased 40 percent from 1997 expense
of $365,000. This decrease is primarily due to lower interest expense resulting
from lower borrowings on the Company's working capital line of credit and lower
interest rates. The lower borrowings are due to improved receivables and
inventory management. Since the Company's lines of credit are tied to the prime
rate, any increases in the prime rate would negatively affect the Company's
earnings.
Net earnings in 1998 of $1,167,000 or $.60 per share increased $326,000 from net
earnings of $841,000 or $.43 per share in 1997. The 39 percent increase in net
earnings is primarily due to increased sales volume and lower interest expense,
partially offset by higher general and administrative expenses.
The Company's credit policies remain stringent, and accounts receivable written
off are below industry experience. Monthly average days of sales in net accounts
receivable decreased slightly from 1997 to 1998. The Company believes the
reserve for doubtful accounts is adequate.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Results of Continuing Operations
Consolidated net sales from continuing operations for the year ended December
31, 1997 increased 6 percent to $34,955,000 from $33,067,000 in 1996. The Abatix
operating segment net sales grew 4 percent to $33,544,000 in 1997 and the IESI
operating segment net sales increased 66 percent to $1,412,000 in 1997. The
Denver facility had sales of approximately $1,076,000 and $1,544,000 for the
years ended December 31, 1997 and 1996, respectively.
Gross profit in 1997 of $9,651,000 increased 5 percent from gross profit in 1996
of $9,202,000 due to increased volume. As expected, margins varied somewhat from
location to location due to sales mix and local market conditions. The Company's
gross profit margins, expressed as a percentage of sales, were 28 percent for
1997 and 1996.
Selling, general and administrative expenses for 1997 of $7,953,000 increased 3
percent over 1996 expenses of $7,708,000. The increase was attributable
primarily to higher employment costs as a result of additional marketing and
support personnel. Selling, general and administrative expenses were 23 percent
of sales for both 1997 and 1996.
13
<PAGE>
In March 1996, the Company's lease obligation for its closed Corpus Christi
branch was terminated. This lease termination enabled the Company to reverse all
remaining reserves, resulting in the 1996 special credit.
Other expense, net, of $365,000 in 1997 increased 2 percent over 1996 expense of
$356,000. This increase is primarily due to increased interest expense resulting
from higher borrowings on the Company's working capital line of credit to fund
the growth in inventory and the growth in receivables during the first nine
months of the year.
Results of Discontinued Operations
The Company realized earnings of $22,000 or $.01 per share from discontinued
operations in 1996, resulting from the termination of the lease obligation.
Net Results
Net earnings in 1997 of $841,000 or $.43 per share increased $85,000 from net
earnings of $756,000 or $.36 per share in 1996. The 11 percent increase in net
earnings is primarily due to increased volume, partially offset by higher
general and administrative expenses. In addition, the 1996 net earnings included
a special credit and income from discontinued operations.
Liquidity and Capital Resources
The Company's working capital requirements historically result from the growth
of its accounts receivable and inventories, partially offset by increased
accounts payable and accrued expenses, associated with significant increases in
sales volume and/or the addition of new locations. Net cash provided by
operations during 1998 of $420,000 resulted principally from net earnings
adjusted for non-cash charges and the decrease in inventories, all of which were
partially offset by the increase in accounts receivable. The increase in
receivables as of December 31, 1998 is due to unusually strong sales in December
1998 as compared to December 1997.
Cash requirements for non-operating activities during 1998 resulted primarily
from the working capital line of credit payments, the purchases of property and
equipment amounting to $192,000 and the repurchase of the Company's common stock
totaling $158,000. The working capital line of credit payments, net of
borrowings, occurred as a result of reductions in inventory and better
management of accounts receivable. The equipment purchases in 1998 were
primarily delivery vehicles and computer equipment. The Company repurchased its
common stock because of the Board of Directors' belief that it was undervalued
in the marketplace. The repurchase of common stock and purchases of property and
equipment were funded by borrowings on the Company's lines of credit.
Cash flow from operations for the entire year of 1999 is expected to be
break-even, although at any given point, it may be negative. Break-even cash
flow from operations is expected because the rate of revenue growth in 1999 is
projected to be higher than 1998, but not at a level that will require
significant net cash flows from sources other than operations.
14
<PAGE>
Capital requirements for 1999 are expected to be higher than in 1998 primarily
due to the Company's plans to develop an e-commerce site on the internet and to
invest in other technology solutions. In addition, the Company's acquisition
strategy for increasing the standard of service to the customer base could
require higher capital expenditures.
The Company has continued to purchase common stock in open market and privately
negotiated transactions. The Company has purchased 134,700 shares of common
stock for approximately $443,000 from January 1, 1999 through March 24, 1999,
including a 102,600 share block purchase in March 1999. Management has
authorization from the Board of Directors to purchase an additional 51,000
shares. The Company will use cash flow from operations and borrowings on the
working capital line of credit to fund the purchases of stock.
The Company maintains a $5,500,000 working capital line of credit at a
commercial lending institution that allows the Company to borrow up to 80
percent of the book value of eligible trade receivables plus the lesser of 40
percent of eligible inventory or $1,500,000. As of March 24, 1999, there are
advances outstanding under this credit facility of $3,337,000. Based on the
borrowing formula, the Company had the capacity to borrow an additional
$2,163,000 as of March 24, 1999. The Company also maintains a $550,000 capital
equipment credit facility providing for borrowings at 80 percent of cost on
purchases. The advances outstanding under this credit facility as of March 24,
1999 were $360,000. Both credit facilities are payable on demand and bear a
variable rate of interest computed at the prime rate.
Management believes, that based on its equity position, the Company's current
credit facilities can be expanded during the next twelve months, if necessary,
and that these facilities, together with cash provided by operations, will be
sufficient for its capital and liquidity requirements for the next twelve
months.
Year 2000 Compliance
The Company relies on information technology, such as computer and
telecommunications hardware and software systems, in every aspect of its
business. In addition, the Company relies on non-information system technology,
such as facsimile machines, photocopiers, and similar equipment that typically
includes embedded technology such as microcontrollers, to function effectively
on a day to day basis. A plan has been developed to assess the impact of the
Year 2000 issues on the Company's operations and to replace or repair all
critical information technology and non-information technology systems that are
not Year 2000 compliant.
The Company is currently assessing the impact of Year 2000 issues on its
information technology systems, and has begun remediation efforts in certain
areas, principally in the application software used for the day to day
operations of the Company. This software package also integrates the accounting
system. In addition, the Company has begun testing and remediation efforts of
the personal computers and software used by the employees for day to day
operational tasks. The anticipated completion date for the assessment,
implementation and testing phases of the information technology systems is July
31, 1999. The Company will not begin its assessment of the non-information
technology systems until the second quarter of 1999, and anticipates completion
by September 30, 1999. In addition, the Company has begun requesting that third
parties, with which the Company has material relationships, confirm in writing
their plans for Year 2000 compliance. The Company anticipates response from
these business partners no later than May 31, 1999. After testing the
information technology systems and non-information technology systems and
evaluation of the third party responses, the Company will prepare, if necessary,
a contingency plan to minimize Year 2000 issues.
15
<PAGE>
To date, the Company has incurred less than $10,000 in costs related to this
project. The total cost to complete this project is not known at this time, but
is not expected to exceed $200,000. It is anticipated the cost to complete this
project will be funded through cash flow from operations or borrowings on the
lines of credit. The inability of the Company or the aforementioned third
parties to successfully complete their Year 2000 projects could prevent delivery
of products to customers, receipt of products from suppliers, payment for these
products and collection of monies owed to the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Since the Company's working capital and equipment lines of credit are variable
rate notes, the Company is exposed to interest rate risk. An increase of 100
basis points in the United States prime rate would have a $18,000 negative
impact on the net earnings of the Company.
Except for the historical information contained herein, the matters set forth in
this Form 10-K are forward looking and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are the following: federal funding of environmental related projects,
general economic and commercial real estate conditions in the local markets,
changes in interest rates, inability to pass on price increases to customers,
unavailability of products, strong competition and loss of key personnel. In
addition, increases in oil prices or shortages in oil supply could significantly
impact the Company's petroleum based products and its ability to supply those
products at a reasonable price. Among the factors that could impact the
Company's ability to continue a successful acquisition strategy are: general
economic conditions, adequate capital resources, and retention of key personnel.
Unanticipated Year 2000 problems in the Company's information technology
systems, the inability of third parties to be compliant by December 31, 1999, or
unavailable financial or non-financial resources to remedy the Year 2000
problems could also cause actual results to differ materially.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 is effective for fiscal
quarters of all fiscal years beginning after June 15, 1999 and establishes
accounting and reporting standards for derivative instruments. Management of the
Company does not expect the adoption of Statement 133 to have a material impact
on the Company's financial condition or results of operations.
16
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data are included under
Item 14(a)(l) and (2) of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant
This Item 10 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1998.
Item 11. Executive Compensation
This Item 11 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This Item 12 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1998.
Item 13. Certain Relationships and Related Transactions
This Item 13 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. Consolidated Financial Statements and Financial Statement Schedule
The consolidated financial statements and financial statement schedule listed on
the index to consolidated financial statements on page F-l are filed as part of
this Form l0-K.
17
<PAGE>
(b) Reports on Form 8-K
None
(c) Exhibits
(1)(a) Form of Underwriting Agreement (filed as Exhibit (1)(a) to the
Registration Statement on Form S-18, filed February 9, 1989).
(1)(b) Form of Selected Dealer Agreement (filed as Exhibit (1)(b) to
the Registration Statement on Form S-18, filed January 11, 1989).
(1)(c) Warrant Solicitation Agent and Exercise Fee Agreement (filed as
Exhibit (l)(c) to the Report on Form 10-K for the year ended
December 31, 1989).
(2)(a) Agreement of Merger (filed as Exhibit (2) to the Registration
Statement on Form S-18, filed January 11, 1989).
(2)(b) Asset Purchase Agreement (filed as Exhibit (2)(b) to the Report
on Form 8-K, filed October 19, 1992).
(2)(c) Asset Purchase Agreement for Keliher Hardware Company.*
(3)(a)(1) Certificate of Incorporation (filed as Exhibit (3)(a)(1) to the
Registration Statement on Form S-18, filed January 11, 1989;
filed electronically as Exhibit 3(i)(a) to the Form 10-Q for the
quarter ended September 30, 1995, filed on November 9, 1995).
(3)(a)(2) Certificate of Amendment of Certificate of Incorporation (filed
as Exhibit (3)(a)(2) to the Registration Statement on Form S-18,
filed January 11, 1989; filed electronically as Exhibit 3(i)(b)
to the Form 10-Q for the quarter ended September 30, 1995, filed
on November 9, 1995).
(3)(a)(3) Certificate of Amendment of Certificate of Incorporation (filed
as Exhibit (3)(i)(c) to the Form 10-Q for the quarter ended
September 30, 1995, filed November 9, 1995; filed electronically
as Exhibit 3(i)(c) to the Form 10-Q for the quarter ended
September 30, 1995, filed on November 9, 1995).
(3)(b) Bylaws (filed as Exhibit (3)(b) to the Registration Statement
on Form S-18, filed January 11, 1989; filed electronically as
Exhibit 3(ii) to the Form 10-Q for the quarter ended September
30, 1995, filed on November 9, 1995).
(4)(a) Specimen Certificate of Common Stock (filed as Exhibit (4)(a) to
the Registration Statement on Form S-18, filed January 8, 1989).
18
<PAGE>
(4)(b) Specimen of Redeemable Common Stock Purchase Warrant (filed as
Exhibit (4)(b) to the Registration Statement on Form S-18, filed
February 9, 1989).
(4)(c) Form of Warrant to be sold to Culverwell & Co., Inc. (filed as
Exhibit (4)(c) to the Registration Statement on Form S-18, filed
February 9, 1989).
(4)(d) Warrant Agency Agreement between the Registrant and North
American Transfer Company (filed as Exhibit (4)(d) to the
Registration Statement on Form S-18, filed February 9, 1989).
(9)(a)(ii) Form of Escrow Agreement with State Street Bank and Trust
Company (filed as Exhibit (9)(a)(ii) to the Registration
Statement on Form S-18, filed January 11, 1989).
(10)(a) Employment Agreement with Terry W. Shaver (filed as Exhibit
(10)(a) to the Registration Statement on Form S-18, filed
January 11, 1989).
(10)(a)(i) Employment Agreement with Terry W. Shaver effective January 2,
1991 (filed as Exhibit (10)(a)(i) to the Report on Form 10-K for
the year ended December 31, 1990).
(10)(a)(ii) Employment Agreement with Terry W. Shaver effective January 4,
1993 (filed as Exhibit (10)(a)(ii) to the Report on Form 10-K
for the year ended December 31, 1992).
(10)(a)(iii) Employment Agreement with Terry W. Shaver effective January 1,
1995 (filed as Exhibit (10)(a)(iii) to the Report on Form 10-K
for the year ended December 31, 1994).
(10)(a)(iv) Employment Agreement with Terry W. Shaver effective January 1,
1997 (filed as Exhibit (10)(a)(iv) to the Report on Form 10-K
for the year ended December 31, 1996).
(10)(a)(v) Employment Agreement with Terry W. Shaver effective January 1,
1999.*
(10)(b) Employment Agreement with Gary L. Cox (filed as Exhibit (10)(b)
to the Registration Statement on Form S-18, filed January 11,
1989).
(10)(b)(i) Employment Agreement with Gary L. Cox effective January 2, 1991
(filed as Exhibit (10)(b)(i) to the Report on Form 10-K for the
year ended December 31, 1990).
(10)(b)(ii) Employment Agreement with Gary L. Cox effective January 4, 1993
(filed as Exhibit (10)(b)(ii) to the Report on Form 10-K for the
year ended December 31, 1992).
19
<PAGE>
(10)(b)(iii) Employment Agreement with Gary L. Cox effective January 1, 1995
(filed as Exhibit (10)(b)(iii) to the Report on Form 10-K for
the year ended December 31, 1994).
(10)(b)(iv) Employment Agreement with Gary L. Cox effective January 1, 1997
(filed as Exhibit (10)(b)(iv) to the Report on Form 10-K for the
year ended December 31, 1996).
(10)(b)(iv) Employment Agreement with Gary L. Cox effective January 1, 1999.*
(10)(c) Revolving Credit Agreement with Texas American Bank/Duncanville,
N.A. (filed as Exhibit (10)(c) to the Registration Statement on
Form S-18, filed January 11, 1989).
(10)(d) Demand Credit Facility with Comerica Bank-Texas dated February
15, 1989 (filed as Exhibit (10)(d) to the Report on Form 10-Q
for the Quarter ended March 31, 1989, filed May 15,1989).
(10)(e) Demand Credit Facility with Comerica Bank-Texas dated June 15,
1989 (filed as Exhibit (10)(e) to the Report on Form 10-Q for
the Quarter ended June 30, 1989, filed August 11, 1989).
(10)(e)(i) Demand Credit Facility with Comerica Bank-Texas dated March 1,
1993 (filed as Exhibit (10)(e)(i) to the Report on Form 10-K for
the year ended December 31, 1992).
(10)(e)(ii) Demand Credit Facility with Comerica Bank-Texas extension,
renewal and increase dated June 1, 1993 (filed as Exhibit
(10)(e)(ii) to the Report on Form 10-K for the year ended
December 31, 1993).
(10)(e)(iii) Demand Credit Facility with Comerica Bank-Texas extension,
renewal and increase dated September 22, 1994 (filed as Exhibit
(10)(e)(iii) to the Report on Form 10-K for the year ended
December 31, 1994).
(10)(f) Employment Agreement with S. Stanley French effective October 1,
1992 (filed as Exhibit (10)(f) to the Report on Form 8-K, filed
October 19, 1992).
(22) Information Statement dated September 1, 1995 (filed as Exhibit
(22) to the Report on Form 10-K for the year ended December 31,
1995).
(23) Consent of Independent Auditors (filed as Exhibit (23) to the
Report on Form 10-K for the year ended December 31, 1997).
(27) Financial Data Schedule for the twelve months ended December 31,
1998.*
* Filed herewith as part of the Company's electronic filing.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 26th day of March,
1999.
ABATIX ENVIRONMENTAL CORP.
By: /s/ Terry W. Shaver
Terry W. Shaver
President, Chief Executive Officer
and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signatures Title Date
/s/ Terry W. Shaver President, Chief Executive Officer March 26, 1999
Terry W. Shaver and Director (Principal Executive Officer)
/s/ Gary L. Cox Executive Vice President, March 26, 1999
Gary L. Cox Chief Operating Officer and Director
/s/ Lamont C. Laue Director March 26, 1999
Lamont C. Laue
/s/ Donald N. Black Director March 26, 1999
Donald N. Black
/s/ Frank J. Cinatl Vice President, Chief Financial Officer March 26, 1999
Frank J. Cinatl, IV and Director (Principal Accounting Officer)
21
<PAGE>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996 S-1
All other schedules have been omitted as the required information is
inapplicable or the information required is presented in the consolidated
financial statements or the notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Abatix Environmental Corp.:
We have audited the consolidated financial statements of Abatix Environmental
Corp. and subsidiary as listed in the accompanying index. In connection with our
audits of the consolidated financial statements we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abatix Environmental
Corp. and subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Dallas, Texas
February 19, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 223,997 $ 304,947
Trade accounts receivable, net of allowance for doubtful accounts of
$514,696 in 1998 and $495,092 in 1997 (note 4) 5,701,314 4,768,279
Inventories (note 4) 3,424,914 3,538,355
Prepaid expenses and other assets 424,865 249,426
Deferred income taxes (note 5) 143,299 142,466
------------ ------------
Total current assets 9,918,389 9,003,473
Receivables from officers and employees 79,505 73,729
Property and equipment, net (notes 3 and 4) 450,991 632,120
Deferred income taxes (note 5) 120,324 115,531
Other assets 26,296 29,396
------------ ------------
$10,595,505 $ 9,854,249
============ ============
Liabilities and Stockholders' Equity Current liabilities
Notes payable to bank (note 4) $ 2,854,206 $ 3,010,733
Accounts payable 958,656 1,230,107
Accrued compensation 181,071 107,272
Other accrued expenses 414,416 328,460
------------ ------------
Total current liabilities 4,408,349 4,676,572
------------ ------------
Stockholders' equity (note 6):
Preferred stock - $1 par value, 500,000 shares authorized; none issued - -
Common stock - $.001 par value, 5,000,000 shares authorized; issued
2,413,814 shares 2,414 2,414
Additional paid-in capital 2,498,508 2,498,508
Retained earnings 5,252,301 4,084,892
Treasury stock at cost, 517,700 common shares in 1998 and 476,250
common shares in 1997 (1,566,067) (1,408,137)
------------ ------------
Total stockholders' equity 6,187,156 5,177,677
Commitments and contingencies (note 10)
------------ ------------
$10,595,505 $ 9,854,249
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $37,327,629 $34,955,477 $33,066,831
Cost of sales 26,846,279 25,304,902 23,864,836
------------ ------------ ------------
Gross profit 10,481,350 9,650,575 9,201,995
Selling, general and administrative expenses (8,373,030) (7,953,179) (7,707,546)
Special credit (note 2) - - 56,711
------------ ------------ ------------
Operating profit 2,108,320 1,697,396 1,551,160
Other income (expense):
Interest income 15,824 36,187 19,840
Interest expense (238,706) (381,655) (359,712)
Other, net 2,400 (19,215) (15,944)
------------ ------------ ------------
Earnings from continuing operations before
income taxes 1,887,838 1,332,713 1,195,344
Income tax expense (note 5) (720,429) (491,607) (460,941)
------------ ------------ ------------
Earnings from continuing operations 1,167,409 841,106 734,403
Discontinued operations - earnings on discontinuance
of business, net of tax expense of $8,348 (note 2) - - 21,545
------------ ------------ ------------
Net earnings $ 1,167,409 $ 841,106 $ 755,948
============ ============ ============
Basic earnings per common share:
Earnings from continuing operations $ .60 $ .43 $ .35
Earnings from discontinued operations - - .01
------------ ------------ ------------
Net earnings $ .60 $ .43 $ .36
============ ============ ============
Diluted earnings per common share:
Earnings from continuing operations $ .60 $ .43 $ .35
Earnings from discontinued operations - - .01
------------ ------------ ------------
Net earnings $ .60 $ .43 $ .36
============ ============ ============
Weighted average shares outstanding (note 1(f)):
Basic 1,933,769 1,933,896 2,076,241
============ ============ ============
Diluted 1,933,769 1,933,896 2,110,582
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
Additional
Common Stock Treasury Stock
----------------------- Paid-in Retained ----------------------- Total
Shares Amount Capital Earnings Shares Amount Equity
----------- ---------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,366,314 $ 2,366 $ 2,365,118 $ 2,487,838 207,100 $ (537,544) $ 4,317,778
Purchase of treasury stock - - - - 185,650 (657,703) (657,703)
Exercise of stock options 15,000 15 42,485 - - - 42,500
Net earnings - - - 755,948 - - 755,948
----------- --------- ------------ ------------ ---------- ------------ ------------
Balance at December 31, 1996 2,381,314 2,381 2,407,603 3,243,786 392,750 (1,195,247) 4,458,523
Purchase of treasury stock - - - - 83,500 (212,890) (212,890)
Exercise of stock options 32,500 33 90,905 - - - 90,938
Net earnings - - - 841,106 - - 841,106
----------- --------- ------------ ------------ ---------- ------------ -----------
Balance at December 31, 1997 2,413,814 2,414 2,498,508 4,084,892 476,250 (1,408,137) 5,177,677
Purchase of treasury stock - - - - 41,450 (157,930) (157,930)
Net earnings - - - 1,167,409 - - 1,167,409
----------- ---------- ------------ ------------ ---------- ------------ ------------
Balance at December 31, 1998 2,413,814 $ 2,414 $ 2,498,508 $ 5,252,301 517,700 $(1,566,067) $ 6,187,156
=========== ========== ============ ============ ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,167,409 $ 841,106 $ 755,948
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 367,789 378,076 392,019
Deferred income taxes (5,626) (74,106)
(7,515)
Loss (gain) on disposal of assets (3,310) 2,681 15,805
Changes in assets and liabilities:
Receivables (933,035) 527,570 (925,254)
Inventories 113,441 (97,798) (352,281)
Refundable income taxes - 285,784 (285,784)
Prepaid expenses and other assets (175,439) 36,365 (62,604)
Net liabilities of discontinued operations - - (56,813)
Accounts payable (271,451) 163,680 (474,877)
Accrued expenses 159,755 69,645 (63,121)
------------ ------------ ------------
Net cash provided by (used in) operating activities 419,533 2,133,003 (1,064,477)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (191,850) (285,900) (611,407)
Proceeds from sale of property and equipment 8,500 36,666 33,000
Advances to officers and employees (40,609) (25,647) (51,270)
Collection of advances to officers and employees 34,833 28,265 45,500
Other assets, primarily deposits 3,100 6,426 3,171
------------ ------------ ------------
Net cash used in investing activities (186,026) (240,190) (581,006)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of stock options - 90,938 42,500
Purchase of treasury stock (157,930) (212,890) (657,703)
Borrowings on notes payable to bank 36,258,601 34,600,365 36,133,863
Repayments on notes payable to bank (36,415,128) (36,376,567) (33,978,756)
------------ ------------ ------------
Net cash (used in) provided by financing activities (314,457) (1,898,154) 1,539,904
------------ ------------ ------------
Net decrease in cash (80,950) (5,341) (105,579)
Cash at beginning of year 304,947 310,288 415,867
------------ ------------ ------------
Cash at end of year $ 223,997 $ 304,947 $ 310,288
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) General
Abatix Environmental Corp. ("Abatix") and subsidiary
(collectively, the "Company") market and distribute personal
protection and safety equipment and durable and nondurable
supplies predominantly, based on revenues, to the asbestos
abatement industry. The Company also supplies these products to
the industrial safety and hazardous materials industries and,
combined with tools and tool supplies, to the construction
industry. At December 31, 1998, the Company operated eight
distribution centers in six states. The Company discontinued the
sorbent manufacturing business of its wholly owned subsidiary,
International Enviroguard Systems, Inc. ("IESI"), a Delaware
corporation, in December 1994 (see note 2). However, IESI
continues to import disposable products sold primarily through the
Company's distribution channels.
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.
The accompanying consolidated financial statements include the
accounts of Abatix and IESI. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain
prior year amounts have been reclassified for consistency in
presentation.
(b) Inventories
Inventories consist of materials and equipment for resale and are
stated at the lower of cost, determined by a method that
approximates the first-in, first-out method, or market.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation for
financial statement purposes is provided by the straight-line
method over the estimated useful lives of the depreciable
properties.
(d) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
F-7
<PAGE>
(e) Revenue Recognition
Revenue is recognized when the goods are shipped.
(f) Earnings per Share
Basic earnings per share is calculated using the weighted average
number of common shares outstanding during each year, while
diluted earnings per share includes the effects of all dilutive
securities. As of December 31, 1998 and 1997, there were no
dilutive securities outstanding. The following table reconciles
the weighted average shares used for basic and diluted earnings
per share for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average shares outstanding - basic 1,933,769 1,933,896 2,076,241
Dilutive effects of stock options and
warrants - - 34,341
------------ ------------ ------------
Weighted average shares outstanding -
diluted 1,933,769 1,933,896 2,110,582
============ ============ ============
</TABLE>
(g) Statements of Cash Flows
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The
Company held no cash equivalents at December 31, 1998 or 1997.
The Company paid interest of $247,298, $383,735 and $351,645 in
1998, 1997 and 1996, respectively, and income taxes of $667,963,
$524,635 and $736,544 in 1998, 1997 and 1996, respectively.
(h) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under this method the Company records deferred
income taxes for the temporary differences between the financial
reporting basis and the tax basis of assets and liabilities at
F-8
<PAGE>
enacted tax rates expected to be in effect when such amounts are
realized or settled. The resulting deferred tax liabilities and
assets are adjusted to reflect changes in tax laws or rates in the
period that includes the enactment date.
(i) Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), the Company applies the accounting provisions
of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees ("Opinion 25"), and related
interpretations and provides pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as
if the fair-value-based method defined in Statement 123 had been
applied. Compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds
the exercise price.
(j) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" ("Statement 130"),
requires companies to report all components of comprehensive
income in a financial statement that is displayed with the same
prominence as other financial statements. The Company has no
"other comprehensive income."
(2) Restructuring and Discontinued Operations
On December 15, 1994, the Company announced a formal plan to
discontinue the sorbent manufacturing business of IESI and recorded an
estimated loss on disposal of IESI in 1994 of $139,487, net of taxes.
This estimated loss on disposal primarily included costs related to the
remaining lease obligation on the facility, the writedown of fixed
assets and inventory to net realizable value and the estimated loss
from operations up to the expected disposal date. Except for the
remaining lease obligation discussed below, actual costs through
December 31, 1996 approximated management's estimate.
The Company's lease agreement on the building that was occupied by both
the operations of IESI and the Corpus Christi branch included an option
enabling the Company to purchase the building. In March 1996, the
Company purchased this facility and simultaneously sold the building to
a third party. This transaction terminated the Company's lease
obligation. Reversal of the liability for the remaining lease
obligation resulted in the special credit and earnings from
discontinued operations in 1996.
F-9
<PAGE>
(3) Property and Equipment
A summary of property and equipment at December 31, 1998 and 1997
follows:
<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1997
--------------- ------------ ------------
<S> <C> <C> <C>
Furniture and equipment 3 - 10 years $ 1,767,738 $ 1,676,136
Transportation equipment 3 - 5 years 423,890 359,006
Leasehold improvements 3 - 5 years 71,715 70,915
------------ ------------
2,263,343 2,106,057
Less accumulated depreciation and
amortization 1,812,352 1,473,937
------------ ------------
Net property and equipment $ 450,991 $ 632,120
============ ============
</TABLE>
(4) Notes Payable to Bank
At December 31, 1998, the Company had two lines of credit with a bank
that are due on demand. A working capital facility allows the Company
to borrow up to 80 percent of the book value of eligible trade
receivables plus the lesser of 40 percent of eligible inventory or
$1,500,000, up to a maximum of $5,500,000. Under this formula, the
Company had the capability to borrow $5,500,000 at December 31, 1998,
of which approximately $2,516,000 was used. A capital equipment
facility provides for individual borrowings, aggregating up to
$550,000, at 80 percent of the purchased equipment's cost. At December
31, 1998, the Company had borrowed approximately $338,000 on this
facility. Each borrowing under the capital equipment line is due on the
earlier of demand or in terms ranging from thirty-six to sixty monthly
installments of principal and interest. During 1998, the Company
negotiated a one-quarter of one percent reduction in its rate, thereby
reducing the rate of interest on its agreements to prime. As of
December 31, 1998 and 1997, the Company's rate of interest on these
agreements was 7.75 percent and 8.75 percent, respectively. These
credit facilities are secured by accounts receivable, inventories and
equipment.
F-10
<PAGE>
(5) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 consists of:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal $ 605,621 $ 483,323 $ 413,759
State 120,433 82,390 72,083
Deferred:
Federal (5,766) (63,253) (23,775)
State 141 (10,853) (1,126)
------------ ------------ ------------
Income tax expense related
to continuing operations 720,429 491,607 460,941
Discontinued operations:
Current - - (9,038)
Deferred - - 17,386
------------ ------------ ------------
Total income tax expense $ 720,429 $ 491,607 $ 469,289
============ ============ ============
</TABLE>
A reconciliation of expected federal income tax expense relating to
continuing operations (based on the U.S. corporate income tax rate of
34 percent) to actual income tax expense for the years ended December
31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Expected income tax expense $ 641,865 $ 453,122 $ 406,417
State income taxes, net of related federal
tax benefit 79,579 47,215 46,832
Nondeductible meals and entertainment expense
6,479 11,119 13,047
Other (7,494) (19,849) (5,355)
------------ ------------ ------------
Actual income tax expense relating to
continuing operations $ 720,429 $ 491,607 $ 460,941
============ ============ ============
</TABLE>
F-11
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1998 and 1997 follow:
1998 1997
------------ ------------
Deferred tax assets:
Allowance for doubtful accounts $ 196,283 $ 188,499
Inventory reserve 25,921 -
Property and equipment, principally due to
differences in depreciation 120,324 115,531
------------ ------------
Total gross deferred tax assets 342,528 304,030
Deferred tax liabilities - prepaid expenses (78,905) (46,033)
------------ ------------
Net deferred tax assets $ 263,623 $ 257,997
============ ============
Management has determined, based on the Company's history of prior
operating earnings and its expectations for the future, operating
earnings will more likely than not be sufficient to realize the benefit
of the deferred tax assets. Accordingly, the Company has not provided a
valuation allowance for deferred tax assets in any period presented.
(6) Stockholders' Equity
Pursuant to a 1993 employment agreement, an employee was entitled to
purchase 10,000 shares of common stock in each of the three years
covered by the agreement if certain gross profit levels were obtained.
The exercise price for these options was established as the bid price
of the Company's stock on the day after the employee achieved the
established gross profit level and expired one year from the vesting
date. In 1994, 1995 and 1996, the employee met the predetermined gross
profit levels and vested in these options. No additional shares are
available for grant under this plan.
In 1994, the Company adopted a stock option plan (the "Plan") pursuant
to which the Company's Board of Directors could grant stock options to
officers and key employees. The Plan authorized grants of up to 140,000
shares of authorized but unissued common stock. Stock options were
granted with an exercise price equal to or greater than the stock's
fair market value at the date of grant. All options vested on the grant
date. At December 31, 1998 and 1997, there were no additional shares
available for grant under the Plan. The per share weighted average fair
value of stock options granted during 1996 was $1.14 on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 7.0%, expected
volatility of 58%, expected dividend yield of 0%, and an expected life
ranging from one to two years.
F-12
<PAGE>
The Company applies Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company recognized
compensation cost based on the fair value at the grant date for its
stock options under Statement 123, there would be no effect on the
Company's net earnings and earnings per share in 1998 and 1997 and the
Company's net earnings and earnings per share for 1996 would be reduced
to the following pro forma amounts:
1996
-----------------
Net earnings:
As reported $755,948
Pro forma $743,609
Diluted earnings per share:
As reported $.36
Pro forma $.36
Options activity for the three years ended December 31, 1998 is as
follows:
Weighted
Number of Average
Shares Under Price Per
Option Share
------------ ----------
Outstanding at December 31, 1995 145,000 $ 2.71
Granted 7,500 3.88
Exercised (15,000) 2.83
Expired (70,000) 2.46
------------
Outstanding at December 31, 1996 67,500 3.06
Exercised (32,500) 2.80
Expired (35,000) 2.99
------------
Outstanding at December 31, 1997 and 1998 -
============
Shares exercisable at December 31, 1996 67,500 $ 3.06
============
The Company granted various consultants warrants to purchase shares of
common stock as part of an agreement to secure their services. These
warrants were granted with exercise prices equal to or greater than the
fair market value of the Company's common
F-13
<PAGE>
stock on the date of grant and were exercisable immediately. The
activity of warrants granted to various consultants is summarized in
the following table:
Weighted
Average
Number of Price Per
Shares Share
------------ ----------
Outstanding at December 31, 1995 10,000 $ 4.50
Expired (10,000) 4.50
------------
Outstanding at December 31, 1996 -
============
Since November 1994, the Board of Directors approved the repurchase of
726,500 shares of the Company's common stock, of which the Company has
purchased 517,700 shares, including 41,450 shares during 1998.
(7) Benefit Plans
The Company has a 401(k) profit sharing plan, under which eligible
employees may request the Company to deduct and contribute a portion of
their salary to the plan. The Company may also, at its discretion,
match a portion of employee contributions to the plan. Contributions by
the Company to the 401(k) plan aggregated $38,154, $59,195 and $46,549
during 1998, 1997 and 1996, respectively.
(8) Fair Value of Financial Instruments
The reported amounts of financial instruments such as cash, accounts
receivable, accounts payable and accrued expenses approximate fair
value because of their short maturity. The carrying value of notes
payable to bank approximates fair value because these instruments bear
interest at current market rates.
(9) Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. Identification of
operating segments was based principally upon differences in the types
and distribution channel of products. The Company's reportable segments
consist of Abatix and IESI. The Abatix operating segment includes eight
aggregated branches, principally engaged in distributing environmental,
safety and construction supplies to contractors and industrial
manufacturing facilities in the western half of the United States and
the Company's corporate operations. The IESI operating segment, which
consists of the Company's wholly-owned subsidiary, International
Enviroguard Systems, Inc., is engaged in the wholesale distribution of
disposable clothing to companies similar to, and including, Abatix. The
IESI operating segment distributes products throughout the United
States.
F-14
<PAGE>
The accounting policies of the operating segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements.
The Company evaluates the performance of its operating segments based
on income before income taxes and accounting changes, and after an
allocation of corporate expenses. Intersegment sales are at agreed upon
pricing and intersegment profits are eliminated in consolidation.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. There are no other
significant noncash items.
<TABLE>
<CAPTION>
Abatix IESI Totals
------------ ------------ ------------
1998
- ----------------------------------------
<S> <C> <C> <C>
Sales from external customers $34,928,236 $ 2,399,393 $37,327,629
Intersegment sales - 872,332 872,332
Interest revenue 15,767 57 15,824
Interest expense 238,706 - 238,706
Depreciation and amortization 363,089 4,700 367,789
Segment profit 1,585,546 305,333 1,890,879
Segment assets 10,706,982 993,048 11,700,030
Capital expenditures 177,670 14,180 191,850
1997
- ----------------------------------------
Sales from external customers $33,543,501 $ 1,411,976 $34,955,477
Intersegment sales - 822,721 822,721
Interest revenue 36,001 186 36,187
Interest expense 381,655 - 381,655
Depreciation and amortization 374,940 3,136 378,076
Segment profit 1,155,745 182,471 1,338,216
Segment assets 10,011,038 997,816 11,008,854
Capital expenditures 285,029 871 285,900
1996
- ----------------------------------------
Sales from external customers $32,214,119 $ 852,712 $33,066,831
Intersegment sales - 807,422 807,422
Interest revenue 19,840 - 19,840
Interest expense 359,712 - 359,712
Depreciation and amortization 390,865 1,154 392,019
Segment profit 1,052,294 (a) 171,330 (b) 1,223,624
Segment assets 10,847,222 598,642 11,445,864
Capital expenditures 603,946 7,461 611,407
<FN>
(a) Amount includes a special credit of $56,711 related to the termination of a
lease from a closed branch location. See Note 2.
(b) Amount includes a special credit of $29,893 related to the termination of a
lease from a discontinued line of business. See Note 2.
</FN>
</TABLE>
F-15
<PAGE>
Below is a reconciliation of (i) total segment profit to earnings from
continuing operations before income taxes on the Consolidated
Statements of Operations, and (ii) total segment assets to total assets
on the Consolidated Balance Sheets for all periods presented. The sales
from external customers represent the net sales on the Consolidated
Statements of Operations.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Profit for reportable segments $ 1,890,879 $ 1,338,216 $ 1,223,624
Elimination of intersegment profits (3,041) (5,503) 1,613
Pretax earnings from discontinued
operations - - (29,893)
------------ ------------ ------------
Income from continuing operations before
income taxes $ 1,887,838 $ 1,332,713 $ 1,195,344
============ ============ ============
Total assets for reportable segments $11,700,030 $11,008,854 $11,445,864
Elimination of intersegment assets (1,104,525) (1,154,605) (767,892)
------------ ------------ ------------
Total assets $10,595,505 $ 9,854,249 $10,677,972
============ ============ ============
</TABLE>
The Company's sales, substantially all of which are on an unsecured
credit basis, are to various customers from its distribution centers in
Texas, California, Arizona, Colorado, Washington and Nevada. The
Company evaluates credit risks on an individual basis before extending
credit to its customers and it believes the allowance for doubtful
accounts adequately provides for loss on uncollectible accounts. During
1998, 1997 and 1996, no single customer accounted for more than 10
percent of net sales, although sales to asbestos and lead abatement
contractors was approximately 48% of consolidated net sales in 1998,
1997 and 1996. A reduction in spending on asbestos or lead abatement
projects could significantly impact sales.
Although no vendor accounted for more than 8% of purchases, one product
class accounted for approximately 18% of net sales during the last
three years. A major component of these products is petroleum.
Increases in oil prices or shortages in supply could significantly
impact sales and the Company's ability to supply its customers with
certain products at a reasonable price.
F-16
<PAGE>
(10) Commitments and Contingencies
The Company leases warehouse and office facilities under long-term
noncancelable operating leases expiring at various dates through March
2002. The following is a schedule of future minimum lease payments
under these leases as of December 31, 1998:
1999 $ 415,637
2000 227,825
2001 128,964
2002 32,241
------------
$ 804,667
============
Rental expense for continuing operations under operating leases for the
years ended December 31, 1998, 1997 and 1996 was $589,658, $549,612 and
$491,374, respectively.
The Company has employment agreements with four key employees. The
agreements provide for minimum aggregate cash compensation as follows:
1999 $ 533,325
2000 451,600
2001 111,600
2002 9,300
------------
$ 1,105,825
============
The Company was named as a defendant in a product liability lawsuit
resulting in injury. The Company received indemnification under the
manufacturer's insurance and legal representation at the cost of the
manufacturer. The Company received notification this lawsuit was
dismissed without prejudice in August 1998.
In December 1998, the Company was named as a defendant in a lawsuit
alleging the Company and other defendants together participated in the
conversion and unauthorized purchase of inventory totaling $27,756 from
a customer of the Company. The plaintiff seeks actual damages,
exemplary damages, interest and attorney's fees. The Company purchased
the inventory in good faith and believed that the manager of the
customer's Houston facility was representing the customers' interests.
Management intends to vigorously defend against this claim.
(11) Subsequent Events
In January 1999, the Company received 22,766 shares of common stock
from an officer of the Company as payment for approximately $80,000
owed to the Company. The shares received from the officer of the
Company are held as treasury shares.
F-17
<PAGE>
Effective January 1, 1999, the Company consummated an Asset Purchase
Agreement with Keliher Hardware Company ("Keliher"), a California
corporation, pursuant to which the Company assumed the operations of
Keliher. Keliher, based in Los Angeles, California, with a satellite
facility in Long Beach, is an industrial supply distributor, primarily
for the construction and industrial markets. The estimated fair value
of the assets acquired was approximately $1,000,000. The aggregate
purchase price was settled with the assumption of certain liabilities
(approximately $900,000), the issuance of 23,500 shares of the
Company's $.001 par value common stock at a value of $3.375 per share
and the remainder in cash. This acquisition will be accounted using the
purchase method.
F-18
<PAGE>
<TABLE>
<CAPTION>
Schedule II
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
Additions
Balance at charged to
beginning of costs and Balance at
year expenses Deductions end of year
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year ended December 31:
Allowance for Doubtful Accounts:
1998 $ 495,092 114,515 94,911 A 514,696
============ ============ ============ ============
1997 $ 376,117 215,396 96,421 A 495,092
============ ============ ============ ============
1996 $ 343,750 196,772 164,405 A 376,117
============ ============ ============ ============
Inventory Reserve:
1998 $ - 69,321 - 69,321
============ ============ ============ ============
Reserve for Loss on Discontinuance of
Business:
1996 $ 54,050 - 54,050 B -
============ ============ ============ ============
Reserve for Loss on Closure of Branch
Location:
1996 $ 72,298 - 72,298 B -
============ ============ ============ ============
<FN>
A Represents the write-off of uncollectible accounts.
B Primarily represents the reversal of the reserves due to the termination
of the Company's lease obligation. See Note 2 to the consolidated
financial statements.
</FN>
</TABLE>
S-1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into to be effective as of the 31st day of December, 1998, by and among ABATIX
ENVIRONMENTAL CORP., a Delaware corporation (hereinafter referred to as
"Buyer"), KELIHER HARDWARE COMPANY, a California corporation (hereinafter
referred to as "Seller"), GEORGE W. KELIHER (hereinafter referred to as
"George") and JOHN KELIHER (hereinafter referred to as "John").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of selling, marketing, and
distributing construction and industrial supplies, materials, equipment and
other businesses, activities and endeavors related thereto (the businesses,
activities and endeavors described herein are hereinafter collectively referred
to as the "Business"); and
WHEREAS, pursuant to the terms and provisions contained herein, Seller
desires to sell to Buyer and Buyer desires to purchase from Seller, the Business
as a going concern and certain properties, assets and rights of Seller's
Business as provided herein; and
WHEREAS, George is a stockholder, director and officer of Seller, and
he joins such parties solely for the purposes stated herein; and
WHEREAS, John is a stockholder, director and officer of Seller, and he
joins such parties solely for the purposes stated herein; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
Section 1.1 Purchase and Sale of Assets.
(a) Pursuant to the terms and provisions contained herein, Seller
hereby agrees to sell, assign, transfer and convey to Buyer at Closing (as
defined hereafter), and Buyer hereby agrees to purchase from Seller at Closing,
certain properties, assets and rights of Seller as described as follows, and as
identified on Exhibit A attached hereto and incorporated herein by reference:
(i) All cash and cash equivalents of Seller;
(ii) All Seller's trade accounts receivable as of the date
of Closing;
<PAGE>
(iii) All of Seller's inventory (the "Disposable Inventory")
of industrial hardware supplies and samples;
(iv) All of Seller's equipment inventory (the "Equipment
Inventory"; the Disposable Inventory and the Equipment Inventory are
sometimes hereinafter collectively referred to as the "Inventory");
(v) All right, title and interest, if any and of whatever kind
or character, of Seller in and to all customer lists, customer files,
customer information, marketing and promotional materials, manuals,
marketing studies or analysis or any other records or memorandum
relating in any manner whatsoever to Seller's customers (the
"Customers") or sales of the Inventory (hereinafter collectively
referred to as the "Customer Lists");
(vi) All original files, books and records of Seller with
respect to the Customers and Customer Lists including, without
limitation, all Customer files, Customer account histories, Customer
purchasing and payment history, Customer credit files, etc., as well as
a list of all current and previous suppliers or manufacturers to the
Business within the past two (2) years with sales in excess of Five
Thousand and 00/100 Dollars ($5,000.00) per year;
(vii) To the extent such are assumable, all right, title and
interest of Seller as of the date of Closing in, to and under the
contracts, leases, franchises, agreements, arrangements,
understandings, commitments and business relationships and all of
Seller's rights (including rights of refund and offset), deposits,
privileges, claims, causes of action and options relating to or
pertaining to the Contract Rights; provided, however, except as is
provided otherwise herein, Buyer does not assume any liability or
responsibility relating to, or arising in connection hereby with any
such Contract Rights;
(viii) All of Seller's right, title and interest in and to any
and all income and payments due Seller arising out of the Business as
of the date of Closing;
(ix) To the extent transferable, all right, title and interest
of Seller as of the date of Closing in, to and under all permits and
licenses relating to the Business or all or any of the Assets (as
defined below);
(x) All right, title and interest of Seller in and to all
prepaid rentals and other prepaid expenses, bonds, deposits and
financial assurance requirements relating to any of the Assets or the
Business;
(xi) All right, title and interest of Seller in and to any
benefit of and the right to enforce the covenants and warranties, if
any, the Seller is entitled to enforce with respect to the Assets
against Seller's predecessors and title to the Assets;
(xii) All of Seller's right, title and interest in the name
"KELIHER HARDWARE COMPANY," "KELIHER HARDWARE" and all related and
similar names, logos and
<PAGE>
trade names including, without limitation, any of Seller's corporate,
copyright, trademark, trade name and service mark rights and interest
in such names, logos and trade names; provided, however, that Buyer
hereby grants to Seller or its designee the right to repurchase the
name "Keliher Hardware Company" as set forth in Section 7.1(b) below;
(xiii) All right, title and interest of Seller in, to and
under all rights, privileges, claims, causes of actions and options
relating or pertaining to the Business or the Assets;
(xiv) All right, title and interest of Seller in and to the
goodwill of the Business and Seller;
(xv) Seller's satellite Long Beach, California and Vernon,
California business addresses;
(xvi) Seller's "800" and "888" telephone numbers and all
business telephone numbers;
(xvii) All right, title and interest of Seller in and to the
leasehold interest of Seller's satellite Long Beach, California
commercial lease and Seller's Vernon, California commercial lease (the
"Real Property Leases"), copies of which are attached hereto as
Schedule 1.1(a)(xvii).
All of the assets, properties and rights listed in this subparagraph
(a) shall hereinafter be referred to collectively as the "Assets."
(b) Notwithstanding anything to the contrary contained herein, the
Assets shall not include (i) the original corporate minute book of Seller; (ii)
all claims of Seller for refunds for any income taxes (whether federal, state,
local, foreign or other) applicable to periods prior to the or after the date of
Closing; (iii) any rights accruing as a result of, or any proceeds paid or
payable in accordance with the Agreement; (iv) any and all insurance proceeds
and insurance claims of Seller, except for proceeds and claims relating to any
damage, loss or casualty to the Assets accruing after the execution of this
Agreement but prior to the date of Closing; or (v) the assets and contracts
specifically listed on Schedule 1.1(b) hereto (hereinafter collectively referred
to as the "Excluded Assets").
(c) It is expressly understood and agreed among the parties hereto that
Buyer is not assuming, and shall not be deemed to assume, any liabilities of
Seller relating to the Assets or arising out of the Business, except those
specifically listed on Schedule 1.1(c) hereto (the "Assumed Liabilities").
Section 1.2 Purchase Price and Other Consideration.
(a) The total consideration to be paid by Buyer to Seller (the
"Purchase Price") for all of the Assets purchased hereunder shall be equal to
(i) Thirty-Three Thousand Five Hundred (33,500) shares of Buyer's common stock,
(ii) the payment of Seller's outstanding loan (the
<PAGE>
"Keliher Loan") from George in the amount of Twenty Thousand and No/100 Dollars
($20,000.00), together with the payment at Closing or, at Buyer's sole option,
the assumption by Buyer of those other liabilities and obligations of Seller
identified on Schedule 1.1(c) hereto, as may be adjusted by Buyer upon Buyer's
determination of a material change in the Business, as set forth in Section
1.2(b) below. Buyer hereby grants the option to Seller to receive, at Seller's
sole option, a portion of the Purchase Price in cash at Closing in an amount not
to exceed Thirty-Five Thousand and No/100 Dollars ($35,000.00) in lieu in a
portion of the Buyer's common stock set forth above. In the event Seller elects
for a portion of the Purchase Price to be paid in cash, the number of shares of
Buyer's common stock to be issued to Seller shall be proportionately decreased
by a number of shares equal to the cash Purchase Price divided by the fair
market value of a share of Buyer's common stock as of the Closing Date, which
fractional number shall be rounded to the nearest whole share. The Purchase
Price shall be payable at or before Closing by (a) the issuance to Seller or
Seller's designee(s)of certain common stock of Buyer, and, if Seller so elects,
(b) delivery by Buyer of one or more certified checks or wire transfers drawn on
Buyer's bank account of an amount not to exceed Thirty-Five Thousand and No/100
Dollars ($35,000.00), either payable to Seller, and (c) assumption of certain
obligations of Seller as set forth specifically on Schedule 1.1(c) hereto.
(b) In addition, Buyer and Seller agree and acknowledge that, at the
sole option of Buyer, (i) the Purchase Price may be adjusted by Buyer, or (ii)
Buyer may elect to terminate all of its obligations under this Agreement with no
further obligation of Buyer, in the event of a material change in the Business
prior to the Closing; for purposes of illustration but not for purposes of
exclusion, a "material change" in the Business would include but shall not be
limited to (x) a loss of a one or more customer relationship(s) which constitute
individually or in the aggregate more than ten percent (10%) by gross revenue of
Seller or (y) a decrease in the "net asset value" of Seller's November 30, 1998
financial statements which were previously provided to Buyer below the amount of
Two Hundred Fifty and 50/100 Dollars ($250,000.00). For purposes of this Section
1.2(b) and Section 3.1 below, the term "net asset value" shall mean the book
value of Seller's cash, accounts receivables and Inventory, less accounts
payable, the Union Bank of California Loan (as defined below) and the
shareholders loans set forth on Seller's November 30, 1998 financial statements.
The parties agree and acknowledge that Seller's loss of Morrow-Mealows as a
customer shall be an exception to this Section 1.2(b).
(c) After the Closing, Buyer (i) shall offer employment to George and
John, and such parties agree to be employed by Buyer, subject to the terms and
conditions set forth in the Employment Agreements on Exhibits B and C,
respectively, which are incorporated herein for all purposes, and (ii) may, but
shall not be obligated to, offer employment on a temporary or permanent basis to
the other employees of Seller. Seller shall encourage all employees offered
employment by Buyer to accept employment with Buyer and Seller shall not,
directly or indirectly solicit the employment of or seek to retain the services
of any such employee without the prior consent of Buyer.
(d) The parties hereto acknowledge and agree that Buyer shall not be
required to, nor shall Buyer assume, adopt or accept any other employee benefit
plan, contract, practice, program, policy or arrangement or any kind of Seller,
including without limitation, any stock option, bonus,
<PAGE>
compensation, retirement, profit sharing, vacation, retirement, medical,
disability benefit, life insurance or severance pay plan, contract, practice,
program or policy or arrangement and shall have no liability whatsoever under
any such employee benefit plan, contract, practice, program, policy or
arrangement.
Section 1.3 Physical Inventory. Buyer and Seller hereby acknowledge and
agree that after the close of business of Seller on December 31, 1998 and within
fifteen (15) days of the date of Closing, Buyer or its designee may perform a
physical inventory of Seller's Inventory to compare the actual Inventory to the
list set forth on Exhibit A.
Section 1.4 Compliance with Uniform Commercial Code - Bulk Transfers.
Seller and Buyer acknowledge and agree that the purchase and sale of the Assets
may be subject to Chapter 6 of the Uniform Commercial Code enacted in the State
of California regarding bulk transfer. In that regard, Seller hereby agrees to
indemnify, defend and hold harmless Buyer, and Buyer's directors, officers and
agents from and against any and all demands, claims, actions or causes of
actions, assessments, losses, damages, liabilities, costs and expenses,
including reasonable attorney's fees, asserted against or imposed upon or
incurred by Buyer, its directors, officers and agents, as the case may be,
directly or indirectly, in whole or in part, resulting from any alleged
noncompliance of such former provisions by Seller.
Section 1.5 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in a schedule to be delivered
by Buyer to Seller within thirty (30) days of the Closing Date, subject to
adjustments, as provided in Section 1.2(a) hereof; and the parties agree (a) to
comply with all filing, notice and reporting requirements described in Section
1060 of the Internal Revenue Code of 1986, as amended (the "Code") and (b) that,
without the consent of both parties, neither party will make any representation
to any party as to such allocation that is at variance with the allocation set
forth on such schedule.
ARTICLE II
REPRESENTATIONS AND
WARRANTIES OF SELLER, GEORGE AND JOHN
Seller, George and John hereby jointly and severally represent and
warrant to Buyer as follows, and acknowledge that Buyer is relying on such
representations and warranties, in connection with the purchase by Buyer of the
Assets and consummation of the other transactions described herein.
Section 2.1 Title to and Ownership and Condition of Assets.
(a) Seller has, at the Closing, and shall convey to Buyer, good and
indefeasible title to the Assets, free and clear of all liens, security
interests, claims, demands, charges or other encumbrances of any kind and
character whatsoever, save and except for any lien burdening the Assets as a
result of the Assumed Liabilities.
<PAGE>
(b) There are no outstanding contractual or other rights of third
parties to acquire any portion of the Assets, and there are no outstanding
agreements, options or other arrangements or commitments which would require
Seller to obtain the consent of any party to effect the consummation of the
transactions contemplated hereby, except for any notification or consent
required from Union Bank of California relating to the bank indebtedness (the
"Union Bank of California Loan").
(c) Seller shall pay its remaining liabilities (other than the Assumed
Liabilities) that exist as of the date of Closing in the ordinary course of
business, and shall fulfill and satisfy, during the period after the Closing,
all of its debts, obligations and liabilities (other than the Assumed
Liabilities) existing as of the Closing Date, in order to ensure that the
purchase of the Assets by Buyer is effective against any and all persons holding
claims against Seller based on transactions or events occurring prior to the
Closing.
Section 2.2 Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Seller conducts its Business and maintains its properties in such jurisdiction
and is presently qualified as a foreign or domestic entity under the laws of all
jurisdictions in which it conducts its Business. Seller has the requisite power
and authority to own or lease its properties and to carry on its Business as,
and in the places where, such properties are owned or leased and such Business
is conducted. There are 3025 issued and outstanding shares of Seller's $10 per
share common stock.
Section 2.3 Power and Authority. Seller has the power, authority and
legal right to enter into and perform this Agreement and all other documents or
instruments contemplated herein, and the execution, delivery and performance of
such agreements and the consummation of the transactions contemplated thereby
will not (i) result in any breach of, default under, violation of, or conflict
with or require consent under any term or provision of Seller's Articles of
Incorporation or Bylaws, (ii) result in any material breach or default under any
mortgage, loan agreement, deed of trust, indenture or other loan-related
instrument to which Seller is a party or by which it is bound (except for the
Union Bank of California Loan), (iii) violate any order, writ, injunction or
decree applicable to any Seller, or (iv) violate any provisions of laws, rules
or regulations to which any Seller is subject. This Agreement constitutes, and
all other agreements and documents executed in connection herewith by Seller,
upon due execution and delivery by Seller, shall constitute valid and binding
obligations of Seller, enforceable against Seller in accordance with their
terms, except insofar as enforcement hereof may be limited by bankruptcy,
insolvency or similar laws for general equitable principles, or as otherwise set
forth herein.
Section 2.4 Inventory. Seller shall be present during, and shall
warrant the results of, the Physical Inventory as of the Closing Date. No items
included in Inventory are or will be pledged as collateral (other than in
connection with the Union Bank of California Loan) or held by Seller, as
applicable, on consignment from others.
Section 2.5 Accounts Receivable. Except as set forth in Schedule 2.5
attached hereto and incorporated herein for all purposes, all the receivables of
Seller reflected in the financial statements of Seller dated November 30, 1998
(the "Financial Statements"), arising after the
<PAGE>
applicable dates of the Financial Statements, or recorded on the books of the
Company as of the Closing Date relating thereto (i) did or will represent bona
fide indebtedness, (ii) arose or will have arisen on or prior to the Closing
Date in the ordinary course of business, and (iii) were or will be subject to no
prior assignment, claim, lien or security interest (other than liens as
disclosed in Schedule 1.1(c) attached hereto for all purposes). The bad debt
reserves, if any, established in connection with such receivables are in
conformity with generally accepted accounting principles.
Section 2.6 Liabilities and Litigation. At Closing, there shall be no
liabilities of any kind whatsoever (except for the Union Bank of California
Loan), whether accrued, absolute, contingent, determined or determinable, which
would encumber the Assets or title thereto or result in any liability to Buyer
with respect thereto. At Closing there shall exist no claim, circumstances or
matter whatsoever, of or relating to the Assets or the Business (other than in
connection with the Assumed Liabilities) which would encumber the title thereto
or result in any liability to Buyer with respect thereto; provided, however,
Seller shall be permitted to discharge such obligations within a commercially
reasonable period of time after the Closing but shall not permit any
encumbrances or liens to attach to the Assets. There are no actions, proceedings
or investigations pending or, to the best of Seller's knowledge, threatened
against Seller or any shareholder of Seller or any of their respective
properties or rights, at law or in equity or before or by any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (collectively, "Agent" and "Agency").
Seller is not, nor is any shareholder of Seller, directly or indirectly, subject
to any continuing court or Agency order, writ, in junction or decree applicable
specifically to it, the Assets or the Business. Seller shall continue to be
solely liable for, and Buyer is not assuming responsibility or liability for,
all matters described in this Section 2.6, unless specifically set forth as the
Assumed Liabilities.
Section 2.7 Breach of Other Agreements. Except as set forth on Schedule
2.7, Seller warrants that the execution of this Agreement or any documents
contemplated herein, and the consummation of the transactions contemplated
herein, will not violate, conflict with, modify or breach (i) any material term
or provision of, or cause a default under, or be an event which, with notice
and/or lapse of time, would constitute a default under, or result in the
acceleration of, or result in the creation of any encumbrance upon any of the
Assets pursuant to any material contract or agreement to which Seller is a
party, (ii) any judgment, decree, writ, order or injunction of any court or
arbitration body relating to the Assets or Seller, or (iii) any order or other
action of any governmental authority, commission, bureau or administrative
agency.
Section 2.8 Taxes. Seller has duly filed all federal, state, local and
other tax returns, including, without limitation, all federal and state payroll
tax returns, all federal and state income and/or franchise tax returns and state
or local sales tax returns, which are or were required to be filed by it as of
Closing. Seller has paid all taxes that have become due, have accrued or have
been or will be assessed against it, including all taxes, penalties and interest
which any taxing authority has proposed or asserted to be owing on or relating
to its Business or Assets for all periods through the Effective Date; provided,
however, that Buyer shall cooperate with Seller in assuming Seller's obligation
for December sales taxes and providing sufficient information to Seller to allow
Seller to file its December sales tax returns. There are no tax deficiencies or
claims
<PAGE>
presently being asserted against any Seller relating to the Assets or the
operation of its Business. There is no pending or threatened claim by any
federal, state or local taxing authority against or with respect to any Seller
for payment of additional taxes for any period prior to the date hereof. No
Seller has executed any waiver or extension of any statute of limitations
relating to assessment or collection of taxes, and neither has any such waiver
or extension been executed on behalf of it nor is any such waiver or extension
in force with respect to or applicable to Seller. Notwithstanding anything to
the contrary contained herein, all risk and liability with respect to any tax
obligation or liability of Seller relating to or arising with respect to its
ownership, use, control or operation of the Assets or the Business during any
period up to and including the Closing Date, or arising as of a result of the
transactions contemplated herein, shall be borne exclusively by Seller.
Section 2.9 Compliance with Laws. To the best of its knowledge, Seller
has not violated and is not now in violation of, any federal, state or municipal
law, ordinance, order, regulation or requirement affecting the Assets, and no
written notice of any such violation has been issued by any governmental
authority.
Section 2.10 Prior Bulk Sales. During the period beginning four (4)
years prior to the Closing Date and continuing through the Closing Date, Seller
has not transferred in bulk or otherwise not in the ordinary course of its
business all or any major part of the materials, supplies, merchandise or other
inventory of the Business, or any substantial portion of the equipment of the
Business, in connection with a bulk transfer of its Inventory.
Section 2.11 No Finder's Fees. Seller has not made any agreement with
any broker or other person or entity or taken any action which would cause any
broker or other person or entity to become entitled to any fee or commission in
connection with the transactions contemplated hereby.
Section 2.12 Attachments and Other Proceedings. There are no
attachments, executions, assignments for the benefit of creditors, receiverships
or voluntary or involuntary proceedings in bankruptcy or pursuant to any debtor
relief laws contemplated or filed by or against Seller relating to the Business
or the Assets.
Section 2.13 Governmental and Other Consents. No consent, approval or
other authorization of any governmental authority or other third party is
required in connection with the execution or delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated hereby.
Section 2.14 Employees and Benefits.
(a) Seller is not a party to, or bound by, any collective bargaining
agreements or other labor agreements. Schedule 2.14 contains a list of all
written and oral employment, profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consultant, retirement, benefit or
incentive plans or similar contracts to which Seller is a party or by which it
is bound. Furthermore, Seller is not in default with respect to any of such
agreements, which default would materially and adversely effect the Business or
the Assets of Seller, and all such
<PAGE>
plans and contracts, if any, are in compliance with all federal, state and local
laws, the violation of which would materially and adversely effect the Business
or Assets of Seller (including minimum funding requirements). All returns and
reports with respect to such plans and contracts required to be filed by Seller
have been filed with all appropriate governmental offices or departments in a
timely manner.
(b) Schedule 2.14 sets forth all oral and written plans or agreements
to which Seller is a party and which constitute "fringe benefits" to its
employees, including without limitation, vacation plans or programs, sick leave
plans or programs, employee discounts and related benefits. Correct copies of
all written agreements, plans and programs, certified by Seller, George and
John, will be made available to Buyer prior to the Closing. Seller is in
compliance with all federal, state and local laws respecting employment, wages
and hours and occupational safety and health standards. Seller is not engaged in
the unfair or unsafe labor practices nor have any unfair or unsafe labor
practices or other complaints been filed against Seller or threatened to be
filed against Seller with or by any agency or instrumentality of any state or
local government. Seller is in full compliance with the terms of all contracts,
agreements, plans and programs described herein.
Section 2.15 Environmental Matters.
(a) Seller, and the properties and Assets of Seller, are in compliance
with all material respects with all existing Environmental Laws (as hereinafter
defined);
(b) To the best knowledge of Seller, George or John, there are no
present or past Environmental Conditions (as hereinafter defined) or violations
of any existing Environmental Law in any way relating to Seller or any of its
present or former assets or properties that is likely to lead to the imposition
of any liability or that Seller should reasonably expect would give rise to any
civil or criminal litigation, suit, action, claim, proceeding or investigation
by any person, including any Governmental Authority (as hereinafter defined);
(c) There are no aboveground or underground waste disposal units,
including landfills, surface impoundments, pits, ponds or lagoons, whether or
not in use or to the knowledge of Seller, formerly used and still containing
Contaminants (as hereinafter defined), or any underground storage tanks, or
subsurface disposal systems, including injection wells, dry wells, leach field
or septic systems on any property of Seller;
(d) There is no pending, or to the best knowledge of Seller, George or
John, threatened civil or criminal litigation or suit, action, claim, proceeding
or investigation by any person, including any Governmental Authority, or written
notice of violation of, or formal administrative proceedings relating to, any
existing Environmental Laws involving Seller of any of its Assets or properties;
(e) "Contaminants" shall mean any material, pollutant, substance or
waste which is defined in, regulated by or subject to any Environmental Law,
including asbestos and asbestos containing materials;
<PAGE>
(f) "Environmental Conditions" shall mean the ambient state of (1) the
surface, sub-surface, soil, air, surface waters, including streams, channels,
marshes and wetlands, groundwater, wastewater, leachate and run-on and run-off
of precipitation beneath, interior or exterior to any building or improvements;
(2) any and all structures above and below ground, improvements, appurtenances,
pipes, pumps, valves, fittings, tanks, vessels and containers; and (3) any and
all systems for the collection, treatment, storage or disposal of Contaminants;
(g) "Environmental Laws" shall mean all Governmental Rules relating to
the protection or pollution of the environment or community health and safety,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, the Federal Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act and the Hazardous and Solid Waste
Amendments, the Clean Air Act, the Clean Water Act, the Toxic Substances Control
Act, the Safe Drinking Water Act and any similar or analogous statutes,
regulations and decisional law of any Governmental Authority, as now exist; and
(h) "Governmental Authority" shall mean any governmental department,
commission, board, bureau, agency, court or other instrumentality of the United
States or any jurisdiction, municipality or other political subdivision thereof
where the Company is now operating or has operated.
Section 2.16 Investment Representations. Seller, George, John and all
other shareholders of Seller, jointly and severally, hereby make the following
representations and warranties to Buyer with regard to Buyer's common stock
which will make up all or a part of the Purchase Price:
(a) The stock of Buyer to be issued to Seller will be acquired for
investment for Seller's own account for investment only, not as a nominee or
agent, and not with a view to or for resale in connection with, any distribution
or public offering of securities within the meaning of the Securities Act of
1933, as amended, or any other applicable securities law, and Seller has no
present intention of selling, granting a participation in or otherwise
distributing the same. Seller represents that the entire legal and beneficial
interest of the common stock of Buyer will be held for Seller's account only,
neither in whole or in part for any other person. By executing this Agreement
and related certificates required by Buyer, the undersigned further represents
that it has no present contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person with respect to any of the common stock of Buyer. Seller understands that
the common stock of Buyer to be issued hereunder has not been registered under
the Securities Act of 1933, as amended, or applicable state securities laws, and
that such common stock may not be transferred without an effective registration
statement covering such shares under such securities laws, or an opinion of
counsel or other evidence satisfactory to Buyer in its sole discretion that
registration is not required under the applicable securities laws. These
restrictions under the applicable securities laws are in addition to those
restrictions contained in this Agreement. Seller represents and warrants that
it, along with its advisors, is knowledgeable in making investments similar to
the purchase of the common stock of Buyer, and is able to bear the risk of such
illiquidity in its investment and the economic risk of such investment. Seller
hereby additionally represents, warrants and acknowledges that it has been given
the opportunity to review such information about Buyer so as to make a
fully-informed
<PAGE>
decision to purchase the common stock of Buyer, and further that no guarantees
have been given by Buyer about the value of the common stock of Buyer.
(b) Seller understands and acknowledges that the common stock of Buyer
to be issued pursuant to the Agreement has not been registered under the
Securities Act of 1933, as amended, (the "Securities Act") or any other
applicable state securities laws.
(c) The share certificate(s) issued to Seller representing common stock
of Buyer or any share certificate(s) issued or issuable in respect of any such
common stock of Buyer upon any stock split, stock dividend, recapitalization or
similar event, shall contain the following restrictive legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ("SHARES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ENACTED IN
THE UNITED STATES OF AMERICA (THE "U.S. ACT"), THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES ("STATE ACT") OR THE LAWS OF ANY OTHER
COUNTRY OR LAWFUL JURISDICTION (THE "OTHER APPLICABLE LAWS").
ACCORDINGLY, THE HOLDER OF THIS CERTIFICATE MAY NOT OFFER, SELL,
RENOUNCE OR TRANSFER THE SHARES DIRECTLY OR INDIRECTLY IN THE UNITED
STATES OR TO A UNITED STATES CITIZEN, RESIDENT, OR RESIDENT ALIEN
("AMERICAN NATIONAL") UNLESS DONE IN COMPLIANCE WITH THE REGISTRATION
REQUIREMENTS OF THE U.S. ACT, RULE 144 UNDER THE U.S. ACT, ANY
APPLICABLE STATE ACT, AND ALL OTHER APPLICABLE LAWS OR AS PART OF A
TRANSACTION IN CONNECTION WITH WHICH THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL WHICH SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM SUCH REGISTRATION
REQUIREMENTS OR THAT COMPLIANCE WITH SUCH REGISTRATION REQUIREMENTS IS
NOT REQUIRED."
"THE SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, TO ANY PURCHASER
OUTSIDE THE UNITED STATES OR WHO IS NOT AN AMERICAN NATIONAL UNLESS THE
TRANSACTION IS IN COMPLIANCE WITH THE U.S. ACT, THE SECURITIES LAWS OF
THE JURISDICTIONS IN WHICH THE OFFER AND/OR SALE TAKES PLACE AND ALL
OTHER APPLICABLE LAWS AND REGULATIONS."
(d) Seller acknowledges that the common stock of Buyer held by the
undersigned must be held subject to Rule 144 and other applicable provisions of
the Securities Act. Seller, George and John represent, warrant and acknowledge
that the common stock of Buyer shall not be transferrable except on the
conditions specified in this Agreement and Rule 144 of the Securities Act, and
accordingly, any intended transfer, assignment or sale by Seller prior to such
applicable waiting period under Rule 144 or in violation of other applicable
provisions of the Securities Act shall be null and void.
(e) The certificates evidencing the common stock of Buyer shall also
bear any legend required pursuant to any state, local or foreign law governing
such securities.
(f) Buyer shall use its reasonable best efforts to file a registration
statement or secondary registration under the Securities Act with the Securities
Exchange Commission within
<PAGE>
twelve (12) months after the Closing Date of the transaction contemplated in
this Agreement. It is the intention of Buyer to cover all shares of common stock
of Buyer issued to Seller; provided, however, that the obligations of Seller set
forth in this Section 2.16 (f) are expressly conditioned on the following
obligations of Seller:
(i) Seller shall promptly furnish all information requested by
Buyer regarding Seller to the extent such information is requested in
connection with the registration or qualification of the common stock
of Buyer with the Securities Exchange Commission or any state
securities commission;
(ii) Seller shall comply with all provisions of federal and
state securities laws in connection with an offer, sale and
distribution of the common stock of Buyer; and Seller shall indemnify
Buyer, its directors and officers, its underwriters, if any, any
experts set forth on the applicable registration statement and any
person who controls Buyer within the meaning of the Securities Act
against any and all claims, losses, damages and liabilities arising out
of and based on any untrue statement (or alleged untrue statement) and
any registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse Buyer, such
directors, officers, persons, experts or underwriters for any and all
legal or any other expenses reasonably incurred in connection with the
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, and only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission), is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
information furnished to any such party by Seller specifically for the
use therein.
(g) Seller has had the opportunity to review with its own tax advisors
the tax consequences to the undersigned of the Agreement and transactions
contemplated thereby. Seller understands that it must solely rely on its
advisors and not on any statements or representations by Buyer or any of its
agents. Seller understands that it (and not Buyer) shall be responsible for any
such tax liability that may arise as a result of the Agreement or any
transactions contemplated thereby.
Section 2.17 Enforceability. This Agreement and any other agreement to
be entered into pursuant to the terms hereof or as contemplated hereby by Seller
constitute valid and binding obligations of Seller, enforceable in accordance
with their respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors rights generally and the application of general principles of
equity.
Section 2.18 Full Disclosure. No representation or warranty of Seller
made in this Agreement, nor any written statement or certificate furnished or to
be furnished by Seller to Buyer pursuant hereto, or in connection with the
transactions contemplated hereby, contains, or will contain, any untrue
statement of a material fact, or omits, or will omit to state, a material fact
necessary to make the statement or facts contained herein or therein not
misleading. No Seller has
<PAGE>
withheld, and no Seller will withhold, from Buyer knowledge of any events,
conditions or facts of which Seller has knowledge which could materially and
adversely affect the Assets or Buyer.
ARTICLE III
COVENANTS OF SELLER, GEORGE AND JOHN
Seller, George and John hereby jointly and severally covenant and agree
with Buyer as follows:
Section 3.1 Conduct of Business. From November 30, 1998 to the Closing,
Seller will, in all material respects, and will cause such entities to, conduct
its Business in the ordinary course and use good faith and commercially
reasonable efforts to preserve such Business, and shall not, without Buyer's
prior written consent, impair or fail to use its best efforts to preserve its
relationships with employees, suppliers, Customers, creditors and others having
business relationships with Seller. In this regard, Seller's net asset value
shall not decrease below the amount of Two Hundred Fifty and No/100 Dollars
($250,000.00) based upon Seller's November 30, 1998 financial statements which
were provided to Buyer.
Section 3.2 Notices and Approvals. Prior to the Closing, Seller shall,
at its sole expense, promptly give all notices to and use its best efforts to
obtain all consents from third parties which may be necessary or deemed
desirable by Buyer in connection with this Agreement and the consummation of the
transactions contemplated hereby, including without limitation, those shown on
Schedule 3.2 hereto. If all such consents are not forthcoming by the date of
Closing, Seller shall continue to use their best efforts to obtain all such
consents, at the sole expense of Buyer.
Section 3.3 Fulfillment of All Covenants and Obligations. Seller shall
satisfy and fulfill all of its other obligations and covenants set forth in this
Agreement or as may otherwise be contemplated herein or necessary or appropriate
to consummate the transactions set forth herein.
Section 3.4 Certified Corporate Documents. At or prior to the Closing,
Seller shall deliver to Buyer certified copies of the resolutions of its Board
of Directors and shareholders authorizing this Agreement and the consummation of
the transactions contemplated hereby and Certificates of Incumbency of George
and John, who shall be authorized to sign and execute this Agreement and all
ancillary documents on behalf of Seller.
Section 3.5 Good Standing. At the Closing, Seller shall deliver to
Buyer a current certificate of good standing from the State of California and
all other jurisdictions in which Seller is qualified to do business.
Section 3.6 Termination of Seller's Business. Seller shall use its best
efforts to sell and/or close all remaining portions of its Business which are
not acquired by the Buyer pursuant hereto and which would otherwise violate the
Covenants Not to Compete, Trade Secrets or
<PAGE>
Confidentiality set forth in Sections 3.11, 3.12 or 3.13 hereto as soon as
possible after the Closing Date.
Section 3.7 Material Change. From December 1, 1998 to the date of
Closing, Seller shall promptly inform Buyer in writing of any material adverse
change to the Business or the Assets. Notwithstanding the disclosure to Buyer of
any such material adverse change, Seller shall not be relieved of any liability
to Buyer pursuant to this Agreement or, nor shall provide such information by
Seller to Buyer be deemed a waiver by Buyer of, the breach of any representation
or warranty of Seller contained in this Agreement.
Section 3.8 Material Contracts. From December 1, 1998, Seller shall
not, without the prior written consent of Buyer, incur any obligation in excess
of $5,000.00; make any purchases in excess of $5,000.00 in the aggregate;
increase the compensation paid or payable to any officer, director, employee or
agent of any Seller; or otherwise take any action outside the ordinary course of
business.
Section 3.9 Contracts. Except with Buyer's prior written consent,
Seller shall not waive any material right or cancel any material contract, debt
or claim that constitutes an Asset.
Section 3.10 Non-Competition; Confidentiality.
(a) Seller recognizes and acknowledges that it will derive substantial
benefit from the consummation of the transactions contemplated by this
Agreement. Seller further recognizes and acknowledges that Buyer is making a
substantial investment pursuant to this Agreement in reliance upon the fact that
the knowledge and expertise developed by Seller and its management of the
affairs of Seller and in the Business will be preserved and will not be used in
competition with the Business purchased by Buyer. Seller hereby agrees that it
is reasonable and necessary for the protection of Buyer and the Business to be
purchased by Buyer that Seller agrees to take all necessary actions to assure
that Seller will not, directly or indirectly, except for the benefit of Buyer or
with the prior written consent of Buyer, which consent may be granted or
withheld at Buyer's sole discretion:
(i) Own, manage, engage in, control, be employed by,
participate in or be connected with, in any manner whatsoever, the
ownership, management, operation or control of any business which
sells, promotes or distributes products or services, or which otherwise
performs services, which are reasonably like and which may reasonably
compete with those products or services previously offered by the
Seller, any affiliate or subsidiary of Seller or the Buyer at any time
during the term of this Agreement;
(ii) Canvas, solicit or accept business from "Customers of the
Buyer" after the Closing (except on behalf of the Buyer) which, for
purposes of this Agreement, shall mean any person or entity which has
been contacted by Seller or its affiliates or subsidiaries, or has
engaged in business with Seller or any of its affiliates or
subsidiaries, during the two (2) year period prior to the effective
date of this Agreement;
<PAGE>
(iii) Directly or indirectly request or advise any Customer of
the Buyer to withdraw, curtail or cancel such Customer's business with
the Buyer, or otherwise interfere with the business relationship
between such Customers and the Buyer, or any of its affiliates or
subsidiaries;
(iv) Otherwise aid, consult or assist anyone engaged in any
business which is competitive with the "Business of the Buyer," which
"Business of the Buyer" shall include all business activities in which
the Buyer or any of its affiliates or subsidiaries is engaged at any
time after the date of Closing (including, but not limited to, the
manufacturing of print band equipment, operation of the business of
print band engineering, sales and the acquisition of such types of
business) or in which the Buyer or any of its affiliates or
subsidiaries plans to engage after the date of Closing; or
(v) communicate to any person or entity any trade secrets,
customer lists, information (financial or otherwise), strategies,
systems, methods or any other business data or secrets of the Buyer,
any of the Buyer's affiliates or subsidiaries.
(b) Seller's covenants against competition as set forth in subparagraph
(a) above shall commence on the date of this Agreement and shall continue for a
period of two (2) years after the Effective Date of this Agreement. The
restraints against competition imposed on and agreed to by each Seller hereunder
shall apply to, and be enforceable in, the State of California, and/or an area
within fifty (50) miles of any location where the Buyer, or any of its
affiliates or subsidiaries, or any Acquisition Candidate, is doing business.
(c) The restrictions set forth in this Section 3.10 shall apply only to
Seller and shall not apply to either George, individually, or John,
individually. Any restrictions on competition regarding George and John shall be
limited to those restrictions as set forth in the respective Employment
Agreements of these individuals.
Section 3.11 Trade Secrets.
(a) In consideration of the employment of George and John under the
terms of the Employment Agreements and in consideration of the exhaustive
benefits derived by Seller under the terms of this Agreement, Seller covenants
and agrees that it will not, directly or indirectly, for its own account or
benefit, or for the account or benefit of any other person or party, communicate
to any person or entity any trade secrets, customer lists, information
(financial or otherwise), strategies or any other business data or secrets of
Buyer.
(b) Seller's covenant against disclosure as set forth in subparagraph
(a) above shall commence on the date of this Agreement and shall continue for a
period of two (2) years from the Effective Date of this Agreement.
<PAGE>
Section 3.12 Nondisclosure of Confidential Information.
(a) Seller acknowledges that Buyer may disclose or has previously
disclosed certain confidential information to such party. Seller hereby
covenants and agrees that it will not, without prior written consent of Buyer,
at the closing or at any time thereafter, disclose or permit to be disclosed to
any third party by any method whatsoever any of the confidential information of
Buyer whether acquired prior to or after the Closing Date. For purposes of this
Agreement, "confidential information" shall include, but not be limited to, any
and all records, notes, memoranda, data, ideas, processes, methods, techniques,
systems, formulas, patents, models, devices, programs, computer software,
writings, research, personnel information, plans, or any other information of
whatever nature in the possession or control of Buyer which has not been
published or disclosed to the general public, or which gives to Buyer an
opportunity to obtain an advantage over competitors who do not know of or use
it.
(b) The foregoing paragraph shall not be applicable if and to the
extent Seller is required to testify in a judicial or regulatory proceeding
pursuant to an order of a judge or administrative law judge issued after such
party and his legal counsel urge that the aforementioned confidentiality be
preserved.
(c) Any breach of this nondisclosure covenant will result in the waiver
by Seller of any and all rights to compensation, if any, unpaid at the time of
the breach. In such event Buyer shall have no further obligation to pay any
amounts related thereto.
Section 3.13 Remedy for Breach.
(a) The parties hereto, recognizing that irreparable injury will result
to Buyer, its business and property in the event of a breach or threatened
breach of any of the above covenants in Section 3.10, 3.11 or 3.12,
respectively, by Seller and that Buyer's purchase of the Assets pursuant hereto,
agree that in the event of a violation of any of the covenants herein against
competition or disclosure of confidential information by Seller:
(i) George's and John's employment described hereunder may be
terminated in the sole discretion of Buyer;
(ii) all payments otherwise due hereunder to Seller, including
without limitation the Deferred Purchase Price, may be immediately
terminated without further obligation to the Buyer in the sole
discretion of the Buyer; and
(iii) in addition to any other legal or equitable remedies and
damages available, the Buyer shall be entitled to the issuance of
restraining orders or injunctions, both temporary and permanent, in
order to restrict the violation thereof by Seller, its partners,
agents, servants, employees and employers, and all persons acting
directly or indirectly for or with it.
<PAGE>
(b) The restrictive covenants contained in this Agreement shall survive
the date of Closing and any termination of George's or John's employment
provided under the terms of the respective Employment Agreements and provided
under the terms of this Agreement and any termination of this Agreement, and
shall be enforceable according to their respective terms.
(c) If any court of competent jurisdiction should hereinafter determine
in the course of litigation that the provisions of this paragraph are
unreasonable with respect to length of time, geographical area, or activities so
restrained, then this clause shall be construed to operate for such period of
time and such geographical area or areas and in respect of such activities as
said court shall determine to be the maximum reasonable restraint in the
circumstances, and the parties agree to submit such question or questions to
such court in the event of any such determination of unreasonableness.
(d) The waiver of any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by either such party. The failure to enforce any provision(s) of the Agreement
shall not be construed as a waiver of such provision(s).
(e) The covenants of Sections 3.10, 3.11, 3.12 or 3.13 hereof shall
survive the Closing of this Agreement, and be enforceable according to their
terms.
Section 3.14 Conflict with Employment Agreement. In the event of any
conflict between the terms and provisions of Sections 3.10, 3.11, 3.12 or 3.13
and those of Article IV of the Employment Agreement, the terms and provisions of
Sections 3.10, 3.11, 3.12 or 3.13, as the case may be, of the Agreement shall
govern; provided, however, that the invalidity or unenforceabilty of all or a
part of such Article IV shall not have any effect upon the validity or
enforceability of Sections 3.10, 3.11, 3.12 or 3.13, as the case may be.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to purchase the Assets and consummate the
transactions at the Closing shall be subject to the satisfaction on or prior to
the Closing Date (as defined below) of all of the following conditions, except
such conditions as Buyer may waive in writing:
Section 4.1 Representations, Warranties and Covenants of Seller. All of
the representations and warranties of Seller contained herein shall be accurate
in all material respects when made and as of the Closing Date with the same
effect as though such representations and warranties (in the exact language
contained herein with appropriate modification of tense in the case of
representations and warranties relating to statements of fact as of specified
dates) had been made as of the Closing Date, and Seller shall have complied in
all material respects with all of its respective agreements and covenants
contained herein to be performed on or prior to the Closing Date.
<PAGE>
Section 4.2 Further Action. All action that shall be required to be
taken by Seller in order to effect the sale and transfer of the Assets to Buyer
and to consummate the other transactions contemplated herein shall have been
taken.
Section 4.3 Authorizing Resolutions. Seller shall have delivered
to Buyer copies of evidence of authority for Seller relating to consummation of
the transactions contemplated herein.
Section 4.4 Opinion of Counsel of Seller. Seller's counsel shall have
delivered to Buyer an opinion of counsel in the form shown on Exhibit D attached
hereto and incorporated herein for all purposes.
ARTICLE V
REPRESENTATIONS OF BUYER
Buyer hereby represents and warrants to Seller as follows, and
acknowledges that Seller is relying upon such representations and warranties, in
connection with the purchase by Buyer of the Assets and the consummation of the
other transactions described herein.
Section 5.1 Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Buyer conducts its business and maintains its properties in each jurisdiction
and is presently qualified as a foreign or domestic entity under the laws of all
jurisdictions in which it conducts its business. Buyer has the requisite power
and authority to own or lease properties and to carry on its businesses as, and
in the places where, such properties are owned or leased and such business is
conducted.
Section 5.2 Power and Authority. Buyer has the power, authority and
legal right to enter into and perform this Agreement and all other documents or
instruments contemplated herein, and the execution, delivery and performance of
such agreements and the consummation of the transactions contemplated thereby
will not (i) result in any breach of, default under, violation of, or conflict
with or require consent under any term or provision of Buyer's Certificate of
Incorporation or Bylaws, (ii) result in any material breach or default under any
mortgage, loan agreement, deed of trust, indenture or other loan-related
instrument to which any Buyer is a party or by which it is bound, (iii) violate
any order, writ, injunction or decree applicable to any Buyer, or (iv) violate
any provisions of laws, rules or regulations to which any Buyer is subject. This
Agreement constitutes, and all other agreements and documents executed in
connection herewith by Buyer upon due execution and delivery by Buyer shall
constitute valid and binding obligations of Buyer, enforceable against it in
accordance with their terms, except insofar as enforcement hereof may be limited
by bankruptcy, insolvency or other similar laws for general equitable
principles, or as otherwise set forth herein.
Section 5.3 Breach of Other Agreements. The execution of this Agreement
or any documents contemplated herein, and the consummation of the transactions
contemplated herein, will not violate, conflict with, modify or breach (i) any
material term or provision of, or cause a default under, or be an event which,
with notice and/or lapse of time, would constitute a default under, or result in
the acceleration of, or result in the creation of any encumbrance upon any of
<PAGE>
the Assets pursuant to any material contract or agreement to which Buyer is a
party, (ii) any judgment, decree, writ, order or injunction of any court or
arbitration body relating to the Assets, or (iii) any order or other action of
any governmental authority, commission, bureau or administrative agency.
Section 5.4 Taxes. Buyer has duly filed all federal, state, local and
other tax returns, including, without limitation, all federal and state payroll
tax returns, all federal and state income and/or franchise tax returns and state
or local sales tax returns, which are or were required to be filed by it as of
Closing. Buyer has paid all taxes that have become due, have accrued or have
been or will be assessed against it for all periods through the date of Closing.
There are no tax deficiencies or claims presently being asserted against Buyer
relating to the operations of its business.
Section 5.5 Finder's Fees. Buyer has not made any agreement with any
person or entity or taken any action which would cause any person or entity to
become entitled to any fee or commission in connection with the transactions
contemplated hereby.
Section 5.6 Attachments and Other Proceedings. There are no
attachments, executions, assignments for the benefit of creditors, receiverships
or voluntary or involuntary proceedings in bankruptcy or pursuant to any debtor
relief laws contemplated or filed by or against Buyer.
Section 5.7 Governmental and Other Consents. No consent, approval or
other authorization of any governmental authority or other third party is
required in connection with the execution or delivery of this Agreement by Buyer
or the consummation by Buyer of the transactions contemplated hereby.
Section 5.8 Full Disclosure. No representation or warranty of Buyer
made in this Agreement, nor any written statement or certificate furnished or to
be furnished by Buyer to Seller pursuant hereto, or in connection with the
transactions contemplated hereby, contains, or will contain, any untrue
statement of a material fact, or omits, or will omit to state, a material fact
necessary to make the statement or facts contained herein or therein not
misleading. Buyer has withheld, nor will it withhold, from Seller knowledge of
any events, conditions or facts of which Buyer has knowledge which could
materially and adversely affect the Assets or Seller.
ARTICLE VI
COVENANTS OF BUYER
Section 6.1 Assumption of Liabilities. Buyer hereby covenants to,
effective with the date of Closing, assume the Assumed Liabilities as set forth
in Schedule 1.1(c). Buyer shall undertake to remit payment for the Assumed
Liabilities, including without limitation the accounts payable assumed by Buyer,
to be paid in the normal course of business on a basis consistent with its
normal business practices.
<PAGE>
Section 6.2 Fulfillment of all Covenants and Obligations. Buyer shall
satisfy and fulfill all of its other obligations and covenants set forth in this
Agreement or as may otherwise be contemplated herein or necessary or appropriate
to consummate the transactions set forth herein.
Section 6.3 Certified Corporate Documents. At or prior to the Closing,
Buyer shall deliver to Seller or its representative certified copies of the
resolutions of its Board of Directors authorizing this Agreement and the
consummation of the transactions contemplated hereby.
ARTICLE VII
CLOSING
Section 7.1 Closing. (a) The closing (the "Closing") of the purchase
and sale of the Assets and the other transactions contemplated hereby shall take
place at the offices of Buyer beginning at 10:00 a.m. on January 15, 1999 (the
"Closing Date"), or at such other place, date and time as the parties may agree
upon in writing. The Closing of the transactions contemplated herein shall be
effective as of the close of business on December 31, 1998 ("Effective Date").
In particular, the parties hereto shall deliver the following at the Closing:
(i) Seller shall deliver to Buyer fully and validly executed
bills of sale, filings, assignments, licenses, consents and all other
documents contemplated or specifically identified in this Agreement or
which are otherwise necessary or appropriate to fully effectuate the
transfer of the Assets to Buyer as contemplated herein.
(ii) Buyer shall deliver to Seller the Purchase Price as
specified in Section 1.2 hereof, including any certificates of Seller
deemed necessary by Buyer to issue the applicable certificates of stock
and cash, as applicable.
(iii) Seller shall deliver to Buyer possession of all books,
accounts, records, documents, agreements and reports (excluding any
original minute books) held by Seller with respect to the Customers.
(iv) Buyer shall deliver to George and John, respectively, the
Employment Agreements.
(v) Seller's counsel shall deliver to Buyer the opinion of
counsel as set forth in Section 4.4 hereof.
(b) Following the Closing Date, Buyer and Seller hereby agree to
provide for the following:
(i) Seller shall, as soon as possible following the Closing
Date, but in no event later than thirty (30) days following the Closing
Date, change the name of Seller to a name other than "Keliher Hardware
Company" which is not deceptively similar to such name;
<PAGE>
(ii) The fiscal inventory set forth in Section 1.3 shall take
place within fifteen (15) days of the Closing Date, as provided in
Section 1.3 above;
(iii) The Purchase Price shall be allocated among the Assets
as set forth in Section 1.5 within thirty (30) days of the Closing
Date; and
(iv) Following the expiration of two (2) years from the
Closing Date, Seller or its desginee shall have the right to repurchase
from Buyer the name "Keliher Hardware Company", upon written demand of
Buyer, for the agreed purchase price of One and No/100 Dollars ($1.00).
ARTICLE VIII
INDEMNIFICATION AND ARBITRATION
Section 8.1 Agreement to Indemnify.
(a) Subject to the conditions and provisions set forth in this Article
VIII, Seller, George and John agree, upon the lapse of the thirty (30) day
period after Seller is notified in writing of such a demand, claim, action or
cause of action, to indemnify, defend and hold harmless the Buyer from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including reasonable attorney's fees,
asserted against or imposed upon or incurred by the Buyer, as the case may be,
directly or indirectly, in whole or in part, resulting from (i) all debts,
liabilities and obligations, actual or alleged, arising at any time from or
related to the ownership, control or operation of the Assets or Business by
Seller prior to Closing, (ii) sales taxes imposed upon Seller and arising out of
the operation of the Businesses or with respect to Seller's ownership, use,
control, operation or sale of the Assets, (iii) any obligation of Seller
pertaining to interest on the shareholder loans whether directly to the
shareholder advancing funds to Seller or to any federal, state or local tax
authority, (iv) a breach of any covenant, or the inaccuracy in any respect of
any representation or warranty, of Seller contained in or made pursuant to this
Agreement and (v) all other liabilities for which the Buyer may become liable
and which are covered by this indemnity, including, without limitation, all
federal, state and local taxes applicable to the ownership, control or operation
of the Assets on and prior to the Closing Date and liabilities arising as a
result of the calculation of same.
(b) Subject to the conditions and provisions of this Article VIII,
Buyer agrees, upon the lapse of the thirty (30) day period after Buyer is
notified in writing of such a demand, claim, action or cause of action, to
indemnify, defend and hold harmless the Seller from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
cost and expenses, including reasonable attorney fees, asserted against or
imposed upon or incurred by the Seller, as the case may be, directly or
indirectly, in whole or in part, resulting from (i) the failure of Buyer to pay
any of the Assumed Liabilities (except as may be set forth in Section 1.2
above), (ii) a breach of any covenant, or other inaccuracy in any respect of any
representation or warranty, of Buyer contained in or made pursuant to this
Agreement, (iii) all other liabilities for which Seller may become liable and
which are covered by this indemnity, including, without limitation, all
<PAGE>
federal, state and local taxes applicable to the ownership, control or operation
of the Assets after the Closing Date and liabilities arising as a result of the
calculation of same.
(c) All of the adjustments, demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses to which a
party may be entitled to recover or for which such party may be entitled to
indemnification pursuant to this Agreement shall hereinafter be referred to as
the "Indemnification Claims".
Section 8.2 Arbitration. Any and all disputes arising between the
parties with respect to the validity and/or payment of any Indemnification Claim
as provided by this Article VIII shall be finally settled by binding arbitration
pursuant to the commercial rules of the American Arbitration Association
following the Federal Rules of Civil Procedure. If the parties cannot agree on a
single arbitrator for purposes of settling such a dispute, the indemnifying
party and the indemnified party shall each appoint an arbitrator and so advise
the other party, and these two arbitrators will appoint a third arbitrator. If
either party fails to appoint an arbitrator within thirty (30) days after
receipt of written request to do so, the decision of the appointed arbitrator
shall be final. If an arbitrator fails or is unable to act, his successor will
be appointed in the same manner as the arbitrator whom he succeeds. The
arbitrators appointed as aforesaid shall immediately proceed to arbitrate the
dispute between the indemnified party and the indemnifying party, and they
shall, within fifteen (15) days of the arbitration proceeding, or as soon
thereafter as may be practicable, render their decision in writing and transmit
such written decision to the parties hereto. The forum for such proceeding shall
be in the city of Dallas, Texas and the arbitrators shall be entitled to such
information, including the business records of Buyer and Seller, as they deem
necessary or desirable for purposes of determining or resolving the dispute. The
decision of the majority of the arbitrators then serving shall be binding and
final upon the parties, and judgment made upon the order may be entered in any
court having appropriate jurisdiction. The arbitrator shall determine which
party shall bear the costs, including attorney's fees, of the proceedings or the
portion of such cost which each party should bear.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Date of Agreement. The term "date of this Agreement" as
used herein shall mean the date this Agreement has been fully executed by Seller
and the Buyer as indicated by their signatures below.
Section 9.2 Date of Performance. In the event the Closing Date or any
other date or provision provided herein should fall, expire or be due on a legal
holiday, Saturday or Sunday, such date or provision shall be extended to the
next working day which is not a legal holiday, Saturday or Sunday, and such next
working day shall be considered to be the due date, performance date or
expiration date for all purposes hereunder. Similarly, upon the occurrence of
any act of God or any other event which is out of either party's control or
otherwise considered to be a condition of force majeure, the performance
hereunder including the Closing hereunder shall be extended until such time as
performance is possible.
<PAGE>
Section 9.3 Entire Agreement. This Agreement contains the complete
agreement between the parties hereto and cannot be varied, modified or altered
except by the written agreement of the parties hereto. The parties agree that
there are no oral agreements, understandings, representations or warranties
which are not expressly set forth herein. This Agreement (including the Exhibits
and Schedules hereto) shall supersede all prior agreements and understandings,
both written and oral, between the parties hereto with respect to the subject
matter hereof and no party shall be liable or bound to the other in any manner
by any warranties, representations or covenants not set forth herein or
contemplated hereby.
Section 9.4 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
parties hereto and their successors, representatives, heirs, administrators,
executors and assigns. This Agreement may not be assigned by any party without
the prior written consent of the other party hereto.
Section 9.5 Third Party Beneficiary. Nothing in this Agreement shall be
deemed to create any right in any creditor or other person not a party hereto,
and this instrument shall not be construed in any respect to be a contract in
whole or in part for the benefit of any other party except as aforesaid.
Section 9.6 Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original and all of which shall constitute the same instrument, but only one
of which need be produced to evidence the agreement of the parties hereto.
Section 9.7 Headings. The captions and headings of the paragraphs and
subparagraphs of this Agreement are inserted for convenience only and shall not
be deemed to constitute part of, or to construe or limit the meaning of, this
Agreement or to affect the construction hereof.
Section 9.8 Use of Certain Terms. As used in this Agreement, the words
"herein", "hereof", and "hereunder" and the other words of similar import refer
to this Agreement as a whole and not to any particular paragraph, subparagraph
or other subdivision.
Section 9.9 Consent and Waiver. No consent or waiver, express or
implied, by any party hereto of any breach or default by any other party hereto
in the performance of its obligations hereunder shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the performance
by such party of the same or any other obligations of such party hereunder.
Failure on the part of any party to complain of any act or failure to act of the
other party or to declare the other party in default, irrespective of how long
such failure continues, shall not constitute a waiver by such party of its
rights hereunder.
Section 9.10 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be held invalid or
unenforceable to any extent, such illegality or unenforceability shall extend to
that provision solely, and the remainder of this Agreement shall be enforced to
the greatest extent permitted by law as if such illegal or unenforceable
provision were not incorporated herein.
<PAGE>
Section 9.11 Exhibits, Schedules, Etc. All statements contained in any
Exhibit, Schedule, certificate or other instrument delivered by or on behalf of
the parties hereto, or in connection with the transactions contemplated hereby,
are an integral part of this Agreement, and shall be deemed to be incorporated
herein by reference. The Parties agree that certain schedules may be delivered
after Closing.
Section 9.12 Notices. Any notice or communication required or permitted
hereunder shall be deemed to be delivered and received when actually received by
the intended recipient or, whether actually received or not, on the third (3rd)
day after it is deposited in the United States mail, postage fully prepaid,
registered or certified mail, return receipt requested, addressed to the
intended recipient at the address shown below:
If to the Buyer, to: Abatix Environmental Corp.
8311 Eastpoint Drive, Suite 400
Dallas, Texas 75227
Attn: Terry W. Shaver
with a copy to: Bellinger & DeWolf, L.L.P.
750 North St. Paul, Suite 900
Dallas, Texas 75201
Attn: Glen A. Bellinger, Esq.
If to Seller, to: Keliher Hardware Company
1375 Caspian Avenue
Long Beach, California 90813
Attn: George W. Keliher
with a copy to: Petillon & Hansen
21515 Hawthorne Blvd.
1260 Union Tower
Torrence, California 90503
Attn: Ray Seto, Esq.
or at such other address for a party as shall be specified by like notice.
Section 9.13 Survival. The representations and warranties of the
parties contained herein shall survive the Closing for the period specified
herein. All covenants and agreements made in this Agreement shall survive, and
shall not be extinguished by, the Closing for the period specified herein.
Section 9.14 Expenses. Except as otherwise expressly provided herein,
each party will pay all of its expenses, including attorneys' fees, in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder and the consummation of the transactions contemplated by
this Agreement.
<PAGE>
Section 9.15 Further Assurances. The parties hereto will execute and
deliver such further instruments of conveyance and transfer and take such
additional actions as the other party may reasonably request to effect,
consummate, confirm or evidence the transfer to the Buyer of the Assets. Seller
will execute such documents as may be necessary to assist the Buyer in
preserving or perfecting its rights in the Assets and will also do such acts as
are necessary to fully perform any Seller's representations, warranties and
agreements contained herein.
Section 9.16 Governing Law. This agreement and the obligations of the
parties hereto shall be governed by and interpreted, construed and enforced in
accordance with the laws of the State of Texas. Each of the parties hereto
agrees that any suit, action or proceeding for the enforcement of this Agreement
shall be brought only in the State courts or Federal courts in the State of
Texas, County of Dallas, and each party hereby consents to the jurisdiction of
such courts.
Section 9.17 Knowledge. As used herein, the term "to the best of their
knowledge" or "to the best of its knowledge", and all similar terms or phrases
shall mean all facts and information presently known to such person and any
facts and information which such person should have known in the exercise of
such care as a reasonable and prudent person would exercise under the same or
similar circumstances, without the need for any independent investigation.
Section 9.18 Time.The parties hereto agree that time is of the essence.
Section 9.19 Facsimile Signatures. The parties hereto agree that the
Closing may occur simultaneously, with facsimile signatures of each party
serving for purposes of the Closing, with the understanding that the parties
shall obtain fully executed original signatures following the Closing.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
SELLER:
KELIHER HARDWARE COMPANY
a California corporation
By:
Name:
Its:
------------------------------------
George W. Keliher
------------------------------------
John Keliher
<PAGE>
BUYER:
ABATIX ENVIRONMENTAL CORP.
a Delaware corporation
By:
Terry W. Shaver, President
<PAGE>
EXHIBIT A
ASSETS SUBJECT TO PURCHASE
(i) all cash and cash equivalents of Seller;
(ii) All Seller's trade accounts receivable as of the date of
Closing;
(iii) All of Seller's inventory (the "Disposable Inventory")
of building supplies and samples;
(iv) All of Seller's equipment inventory (the "Equipment
Inventory"; the Disposable Inventory and the Equipment Inventory are
sometimes hereinafter collectively referred to as the "Inventory");
(v) All right, title and interest, if any and of whatever kind
or character, of Seller in and to all customer lists, customer files,
customer information, marketing and promotional materials, manuals,
marketing studies or analysis or any other records or memorandum
relating in any manner whatsoever to Seller's customers (the
"Customers") or sales of the Inventory (hereinafter collectively
referred to as the "Customer Lists");
(vi) All original files, books and records of Seller with
respect to the Customers and Customer Lists including, without
limitation, all Customer files, Customer account histories, Customer
purchasing and payment history, Customer credit files, etc., as well as
a list of all current and previous suppliers or manufacturers to the
Business within the past two (2) years with sales in excess of Five
Thousand and 00/100 Dollars ($5,000.00) per year;
(vii) To the extent such are assumable, all right, title and
interest of Seller as of the date of Closing in, to and under the
contracts, leases, franchises, agreements, arrangements,
understandings, commitments and business relationships described on
Schedule 1.1(a)(vii) attached hereto (the "Contract Rights") and all of
Seller's rights (including rights of refund and offset), deposits,
privileges, claims, causes of action and options relating to or
pertaining to the Contract Rights; provided, however, except as is
provided otherwise herein, Buyer does not assume any liability or
responsibility relating to, or arising in connection hereby with any
such Contract Rights;
(viii) All of Seller's right, title and interest in and to any
and all income and payments due Seller arising out of the Business as
of the date of Closing;
(ix) To the extent transferable, all right, title and interest
of Seller as of the date of Closing in, to and under all permits and
licenses relating to the Business or all or any of the Assets (as
defined below);
<PAGE>
(x) All right, title and interest of Seller in and to all
prepaid rentals and other prepaid expenses, bonds, deposits and
financial assurance requirements relating to any of the Assets or the
Business;
(xi) All right, title and interest of Seller in and to any
benefit of and the right to enforce the covenants and warranties, if
any, the Seller is entitled to enforce with respect to the Assets
against Seller's predecessors and title to the Assets;
(xii) All of Seller's right, title and interest in the name
"KELIHER HARDWARE COMPANY," "KELIHER HARDWARE" and all related and
similar names, logos and trade names including, without limitation, any
of Seller's corporate, copyright, trademark, trade name and service
mark rights and interest in such names, logos and trade names;
(xiii) All right, title and interest of Seller in, to and
under all rights, privileges, claims, causes of actions and options
relating or pertaining to the Business or the Assets;
(xiv) All right, title and interest of Seller in and to the
goodwill of the Business and Seller;
(xv) Seller's satellite Long Beach, California and Vernon,
California business addresses;
(xvi) Seller's "800" and "888" telephone numbers and all
business telephone numbers;
(xvii) All right, title and interest of Seller in and to the
leasehold interest of Seller's satellite Long Beach, California
commercial lease and Seller's Vernon, California commercial lease (the
"Real Property Leases"), copies of which are attached hereto as
Schedule 1.1(a)(xvii).
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
George W. Keliher
<PAGE>
EXHIBIT C
EMPLOYMENT AGREEMENT
John Keliher
<PAGE>
EXHIBIT D
SELLER'S OPINION OF COUNSEL
<PAGE>
SCHEDULE 1.1(a)(xvii)
REAL PROPERTY LEASES
<PAGE>
SCHEDULE 1.1(b)
EXCLUDED ASSETS
- - Interest Receivable, Stockholder
- - Deferred Income Tax
- - Note from Keliher de Mexico
<PAGE>
SCHEDULE 1.1(c)
ASSUMED LIABILITIES
1) Union Bank of California Loan and line of credit not to exceed the amount of
$450,000.00, which shall be satisfied by Buyer's wire transfer at Closing.
2) Outstanding trade payables incurred in the ordinary course of business not
to exceed, in the aggregate, the amount of $366,000.00.
3) Outstanding loans from shareholders not to exceed, in the aggregate, the
amount of $60,000.00.
[NOTE: Seller's loan from George Keliher not to exceed $20,000.00 shall be
paid by Buyer at Closing.]
4) Long Beach, California Real Property Lease.
5) Vernon, California Real Property Lease (currently on a month-to-month basis).
6) Accrued expenses not to exceed, in the aggregate, the amount of 35,000.00.
<PAGE>
SCHEDULE 2.5
ACCOUNTS RECEIVABLE RESERVES
None
<PAGE>
SCHEDULE 2.7
AGREEMENTS REQUIRING NOTICE AND/OR CONSENT
1. The Union Bank of California Loan.
2. The Real Property Lease(s).
<PAGE>
SCHEDULE 2.14
EMPLOYEES AND BENEFITS
<PAGE>
SCHEDULE 3.2
NOTICES AND APPROVALS
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of December, 1998 between
ABATIX ENVIRONMENTAL CORP. ("Employer") and TERRY W. SHAVER ("Executive").
PRELIMINARY STATEMENT
Employer is a Delaware corporation with its principle place of business
in Dallas, Texas. Employer is engaged in the sale and distribution of personal
protection and safety equipment and durable and nondurable supplies to the
asbestos abatement, industrial safety and hazardous materials industries.
Executive has substantial business experience and related business skills which
can be utilized in Employer's business. Employer desires to employ Executive
upon the terms and conditions hereinafter set forth, and the Executive desires
to accept such employment. Employer and Executive desire to set forth in writing
the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
I. DEFINITIONS
A. Executive. The term "Executive" as used herein shall mean TERRY W.
SHAVER.
B. Annual Salary. For purposes of this Agreement, the term "Annual
Salary" shall mean the compensation payable to Executive as provided for in
Section VI (A) hereof.
C. Disabled. For purposes of this Agreement, Executive shall be deemed
to be "disabled" when, in the reasonable judgment of the Employer, he is unable
to perform substantially all of the duties by reason of him in connection with
his employment hereunder required of physical or mental illness or of injury for
ninety (90) consecutive days.
D. Cause. For purposes of this Agreement, the term "cause" is defined
to include the conviction by a court of law for acts of moral turpitude of
Executive or fraud of Executive relating to the business of the Employer;
bankruptcy or insolvency of the Executive if, in such an event, Executive is
unable to perform substantially all of the duties required of him as described
in Section V of this Agreement; the determination that Executive has become
disabled as described herein; material breach by Executive of the terms and
conditions of this Employment Agreement, or Executive's refusal to follow
Employer's reasonable orders and directions in connection with the performance
of Executive's duties as described in Section V of this Agreement, or any act or
action of executive which materially damages the business interests, reputation
or goodwill of Employer.
II. EMPLOYMENT
Employer hereby employs Executive, and Executive hereby accepts
employment by the Employer upon all the terms and conditions as are hereinafter
set forth.
III. TERM
Subject to the provisions for termination, pursuant to Section XIII
hereof, the term of this Employment Agreement shall commence as of January 1,
1999 and shall terminate on December 31, 2000 (the "Employment Term").
IV. EXECUTIVE'S REPRESENTATION AND WARRANTIES
Executive represents and warrants to Employer that he is free to accept
employment with Employer as contemplated herein, and he has no other prior
obligation or commitments of any kind to anyone which would in any way interfere
with his acceptance, or the full performance of his obligations, under this
Agreement, or the exercise of his best efforts to his employment hereunder.
V. DUTIES AND EXTENT OF SERVICE
A. Efforts. Executive agrees to devote such working time, energy,
knowledge, and efforts as Employer deems necessary to the performance and
discharge of Executive's duties and responsibilities hereunder and such other
reasonable duties and responsibilities as are assigned to him from time to time
by the Board of Directors of Employer. Executive's duties hereunder shall be
performed at the business offices of Employer, but may also be performed at the
business offices of Employer, but may also be performed at such other places as
may be designated by Employer.
B. Position and Responsibilities. The Executive shall serve as
President and Chief Executive Officer of Employer, with such duties as are
assigned to him by the Board of Directors of Employer consistent with his status
and capacity as an executive of Employer. Following the term of this Agreement,
Employer and Executive shall negotiate in good faith the terms of renewal
hereof.
VI. COMPENSATION
As his entire compensation for services rendered to the Employer during
the Employment Term, in whatever capacity rendered, the Executive shall receive:
A. Annual Salary. Minimum Annual Salary shall be at an annual
rate of $170,000 payable semi-monthly and continuing until termination of
Executive's employment.
B. Bonus. Executive may receive such incentive bonus compensation, if
any, as the Board of Directors shall deem appropriate.
C. Automobile. Employer shall provide Executive an automobile, and
provide all expenses and repairs to such auto.
D. Fringe Benefits. Employer shall provide Executive with normal fringe
benefits provided to its senior executive personnel including a medical program,
automobile, term life insurance, keyman disability, corporate country club
membership and such other fringe benefits as Employer may determine from time to
time.
Health benefits for the Executive and his dependents are to be paid by Employer.
E. Termination Benefits. Employer shall pay Executive semi-monthly his
standard salary for a period of up to ninety (90) days, not to exceed the
termination date of this Agreement, following termination of Executive's
employment hereunder, for reasons other than disability.
VII. DEDUCTIONS
Deductions shall be made from Executive's total annual compensation and
any bonuses for withholding tax and other such taxes as may from time to time be
required by governmental authority.
VIII. EXPENSES
Executive is expected, from time to time, to incur reasonable
entertainment, travel and other expenses for promoting the business of Employer
which will be reimbursed by Employer. Reimbursement for such expenses however
shall be subject to such regulations and procedures as the Employer may from
time to time establish.
IX. FACILITIES
Employer shall provide and maintain such facilities, equipment and
supplies as it deems necessary for the Executive's performance of his duties
under this Employment Agreement.
X. EMPLOYER RECORDS
All books, records and documents relating to Employer's business shall
be the sole and permanent property of the Employer. An employee shall not be
entitled to retain any copies thereof, notwithstanding his participation
therein.
Unless required by service of legal process, no other Employer records
shall be displaced or delivered to, or any information therefrom displaced or
delivered to, or any information therefrom disclosed, to any person not
connected with the Employer except in strict accordance with the rules of the
Employer from time to time established. Employer shall provide Executive
reasonable access to all personnel records relating to Executive's employment
hereunder.
XI. PAID DAYS OFF
During the term of this Employment Agreement, Executive shall be
entitled to twenty four (24) paid days off which may be utilized at the
Executive's discretion.
XII. STANDARDS
The Executive shall perform his duties under this Agreement in
accordance with the highest standards of professional ethics and practices as
may from time to time be applicable during the Employment Term.
XIII. TERMINATION OF EMPLOYMENT
A. Events of Termination. The Employment Term may, at the option of
the Board of Directors of the Employer, be terminated upon the happening of any
of the following events:
(1) Whenever the Executive accepts (without having obtained
the prior written consent of Employer) employment with any other company.
(2) Whenever the Executive shall become, without having
obtained the prior written consent of the Employer, a holder of five (5%)
percent of the issued and outstanding Common Stock of a competitor of the
Employer, a director of a competitor of Employer, or an officer, agent, or
employee of any other company.
(3) Whenever the Executive and the Employer shall mutually
agree in writing to terminate this Agreement.
(4) At Employer's option at any time for cause, as that term
is defined in Section I.(D)hereof.
(5) If Executive shall suffer a disability as that term is
defined in Section I.(C) hereof provided that Executive shall be entitled to 30
days notice prior to such termination.
B. Notice of Termination. The Employment Term, may upon 30 days notice
at the option of the Executive, be terminated upon the happening of any of the
following events:
(1) Whenever the Executive and the Employer shall mutually
agree in writing to terminate this Agreement.
(2) Acts of material breach of any provision of this
Agreement.
C. Amounts Due Executive/Employer. Within sixty (60) days of
termination of this Agreement for whatever reason, all amounts owing to either
party will be due and payable in full.
XIV. DISCLOSURE OF INFORMATION
Executive acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential or
proprietary information developed by Employer and of a special and unique nature
and value to Employ- Employer, including, but not limited to, the nature and
material terms of business opportunities and proposals available to Employer,
Employer's products, methods, systems and research, the names and addresses of
its customers and suppliers, prices charges and paid by Employer or its
customers, designs and specifications, record cards, customers' and suppliers'
records, customer files, services, operating procedures, methods and systems,
financial records of the Employer and of customers, and other information, data,
and documents now existing or later acquired by Executive or Employer,
regardless of whether any such information, data or documents, qualify as a
"trade secret" under applicable Federal or State law (collectively, the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement, and to pay to Executive the compensation referred to in Section
VI hereof, along with other considerations provided herein, Executive covenants
and agrees that he shall not at any time during the Employment Term or following
any termination thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit of Employer,
as reasonably required in connection with his duties to or as otherwise required
by law), any Confidential Information which has been obtained by or disclosed to
him as a result of his employment with Employer. In accordance with the
foregoing, the Executive further agrees that he will at no time retain or remove
from the premises of the Employer records of any kind or description whatsoever
for any purpose whatsoever unless authorized by Employer, and will return all of
the foregoing to Employer upon Employer's request or any termination of his
employment. In the event of a breach or threatened breach by the Executive of
any of the provisions of this Section XIV, Employer, in addition to and not in
limitation of any other rights, remedies, or damages available to Employer at
law or in equity, shall be entitled to a permanent injunction in order to
prevent or to restrain any such breach by Executive, or by Executive's partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with him.
XV. COVENANT AGAINST COMPETITION
A. Executive acknowledges that his services to be rendered hereunder
are of a special and unusual character which have a unique value to Employer,
the loss of which cannot adequately be compensated by damages in an action at
law. In view of the unique value to Employer of the services of Executive for
which Employer has contracted hereunder, and because of the Confidential
Information to be obtained by or disclosed to Executive as herein above set
forth, and as a material inducement to Employer to enter into this Employment
Agreement and to pay to Executive the compensation referred to in Section VI
hereof and other consideration provided herein, Executive covenants and agrees
that he will not during the term hereof and for a period of twelve (12) months
from the date of termination of this Agreement for any reason (i) engage,
directly or indirectly, in any business directly competitive with the asbestos
abatement industrial safety or hazardous material remediation supply business of
Employer (the "Activities") in any area within the states that the Company
presently is conducting business or subsequently is conducting business at the
time of the termination of this Agreement; (ii) call upon any customer or
customers of the Employer for the purposes of engaging in any activities for any
person, corporation, or entity other than Employer competitive with the
Activities of the Employer; or (iii) divert, solicit or take away any customer
or customers of the Employer for the purpose of engaging in any activities
competitive with the Activities of the Employer.
B. Executive covenants and agrees that if he shall violate any of his
covenants or agreements provided for pursuant to this Section, Employer shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which Executive, directly or indirectly,
has realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which
Employer may be entitled to at law or in equity or under this Employment
Agreement.
XVI. REASONABLENESS OF RESTRICTIONS
A. Executive has carefully read and considered the provisions of
Section XIV and XV hereof, and having done so, agrees the restrictions set forth
in such Sections (including, but not limited to, the time period of restriction
and the geographical areas of restriction set forth in Section XV hereof) are
fair and reasonable and are reasonably required for the protection of the
interests of the Employer, its officers, directors, and other employees.
B. In the event that, notwithstanding the foregoing, any of the
provisions of Sections XIV and XV shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of Section XV hereof relating to time
period and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become, and thereafter be, the maximum time period and/or area
which such court deems reasonable and enforceable.
XVII. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed by and construed pursuant to the laws
of the State of Texas, where it is made and executed. If any terms or part of
this Agreement shall be determined to be invalid, illegal, or unenforceable in
whole or in part, the validity of the remaining part of such term or the
validity of any other term of this Agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and enforceable
to the full extent permitted by law.
XVIII. NOTICE
Any notices required or permitted to be given pursuant to this
Agreement to the Employer or Executive shall be in writing and shall be deemed
given upon deposit of same in the U.S., certified mail or registered mail,
return receipt requested, first class postage and registration fees prepaid, and
addressed to the principle office of Employer and the most recent address of
Executive shown in the Employer's records, respectively, or such other addresses
as is most recently designated for the respective parties by notice given as
aforesaid.
XIV. BINDING PROVISIONS AND PERFORMANCE
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and all such parties agree to be bound by the provisions
contained herein.
XX. AMENDMENT
No amendment or variation of the terms of this Employment Agreement
shall be valid made in writing and signed by the parties hereto.
XXI. ENTIRE EMPLOYMENT AGREEMENT
This Employment Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof.
XXII. WAIVER OF VIOLATION NOT CONTINUING
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
subsequent breach.
XXIII. ASSIGNMENT
This Agreement is personal to each of the parties hereto. Employer may
not assign its rights and obligations hereunder without the prior written
consent of Executive.
XIV. HEADINGS AND GENDER
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement. All references to him or her shall be deemed
reference to the Executive regardless of gender.
XXV. COUNTERPARTS
This Employment Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall be deemed to
constitute one instrument.
In WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals on the day and year first above written.
ABATIX ENVIRONMENTAL CORP.
By:
Authorized Signatory
By:
Terry W. Shaver
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of December, 1998 between
ABATIX ENVIRONMENTAL CORP. ("Employer") and GARY L. COX ("Executive").
PRELIMINARY STATEMENT
Employer is a Delaware corporation with its principle place of business
in Dallas, Texas. Employer is engaged in the sale and distribution of personal
protection and safety equipment and durable and nondurable supplies to the
asbestos abatement, industrial safety and hazardous materials industries.
Executive has substantial business experience and related business skills which
can be utilized in Employer's business. Employer desires to employ Executive
upon the terms and conditions hereinafter set forth, and the Executive desires
to accept such employment. Employer and Executive desire to set forth in writing
the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
I. DEFINITIONS
A. Executive. The term "Executive" as used herein shall mean GARY L.
COX.
B. Annual Salary. For purposes of this Agreement, the term "Annual
Salary" shall mean the compensation payable to Executive as provided for in
Section VI (A) hereof.
C. Disabled. For purposes of this Agreement, Executive shall be deemed
to be "disabled" when, in the reasonable judgment of the Employer, he is unable
to perform substantially all of the duties by reason of him in connection with
his employment hereunder required of physical or mental illness or of injury for
ninety (90) consecutive days.
D. Cause. For purposes of this Agreement, the term "cause" is defined
to include the conviction by a court of law for acts of moral turpitude of
Executive or fraud of Executive relating to the business of the Employer;
bankruptcy or insolvency of the Executive if, in such an event, Executive is
unable to perform substantially all of the duties required of him as described
in Section V of this Agreement; the determination that Executive has become
disabled as described herein; material breach by Executive of the terms and
conditions of this Employment Agreement, or Executive's refusal to follow
Employer's reasonable orders and directions in connection with the performance
of Executive's duties as described in Section V of this Agreement, or any act or
action of executive which materially damages the business interests, reputation
or goodwill of Employer.
II. EMPLOYMENT
Employer hereby employs Executive, and Executive hereby accepts
employment by the Employer upon all the terms and conditions as are hereinafter
set forth.
III. TERM
Subject to the provisions for termination, pursuant to Section XIII
hereof, the term of this Employment Agreement shall commence as of January 1,
1999 and shall terminate on December 31, 2000 (the "Employment Term").
IV. EXECUTIVE'S REPRESENTATION AND WARRANTIES
Executive represents and warrants to Employer that he is free to accept
employment with Employer as contemplated herein, and he has no other prior
obligation or commitments of any kind to anyone which would in any way interfere
with his acceptance, or the full performance of his obligations, under this
Agreement, or the exercise of his best efforts to his employment hereunder.
V. DUTIES AND EXTENT OF SERVICE
A. Efforts. Executive agrees to devote such working time, energy,
knowledge, and efforts as Employer deems necessary to the performance and
discharge of Executive's duties and responsibilities hereunder and such other
reasonable duties and responsibilities as are assigned to him from time to time
by the Board of Directors of Employer. Executive's duties hereunder shall be
performed at the business offices of Employer, but may also be performed at the
business offices of Employer, but may also be performed at such other places as
may be designated by Employer.
B. Position and Responsibilities. The Executive shall serve as
Executive Vice President and Chief Operating Officer of Employer, with such
duties as are assigned to him by the Board of Directors of Employer consistent
with his status and capacity as an executive of Employer. Following the term of
this Agreement, Employer and Executive shall negotiate in good faith the terms
of renewal hereof.
VI. COMPENSATION
As his entire compensation for services rendered to the Employer during
the Employment Term, in whatever capacity rendered, the Executive shall receive:
A. Annual Salary. Minimum Annual Salary shall be at an annual
rate of $170,000 payable semi-monthly and continuing until termination of
Executive's employment.
B. Bonus. Executive may receive such incentive bonus compensation, if
any, as the Board of Directors shall deem appropriate.
C. Automobile. Employer shall provide Executive an automobile, and
provide all expenses and repairs to such auto.
D. Fringe Benefits. Employer shall provide Executive with normal fringe
benefits provided to its senior executive personnel including a medical program,
automobile, term life insurance, keyman disability, corporate country club
membership and such other fringe benefits as Employer may determine from time to
time.
Health benefits for the Executive and his dependents are to be paid by Employer.
E. Termination Benefits. Employer shall pay Executive semi-monthly his
standard salary for a period of up to ninety (90) days, not to exceed the
termination date of this Agreement, following termination of Executive's
employment hereunder, for reasons other than disability.
VII. DEDUCTIONS
Deductions shall be made from Executive's total annual compensation and
any bonuses for withholding tax and other such taxes as may from time to time be
required by governmental authority.
VIII. EXPENSES
Executive is expected, from time to time, to incur reasonable
entertainment, travel and other expenses for promoting the business of Employer
which will be reimbursed by Employer. Reimbursement for such expenses however
shall be subject to such regulations and procedures as the Employer may from
time to time establish.
IX. FACILITIES
Employer shall provide and maintain such facilities, equipment and
supplies as it deems necessary for the Executive's performance of his duties
under this Employment Agreement.
X. EMPLOYER RECORDS
All books, records and documents relating to Employer's business shall
be the sole and permanent property of the Employer. An employee shall not be
entitled to retain any copies thereof, notwithstanding his participation
therein.
Unless required by service of legal process, no other Employer records
shall be displaced or delivered to, or any information therefrom displaced or
delivered to, or any information therefrom disclosed, to any person not
connected with the Employer except in strict accordance with the rules of the
Employer from time to time established. Employer shall provide Executive
reasonable access to all personnel records relating to Executive's employment
hereunder.
XI. PAID DAYS OFF
During the term of this Employment Agreement, Executive shall be
entitled to twenty four (24) paid days off which may be utilized at the
Executive's discretion.
XII. STANDARDS
The Executive shall perform his duties under this Agreement in
accordance with the highest standards of professional ethics and practices as
may from time to time be applicable during the Employment Term.
XIII. TERMINATION OF EMPLOYMENT
A. Events of Termination. The Employment Term may, at the option of
the Board of Directors of the Employer, be terminated upon the happening of any
of the following events:
(1) Whenever the Executive accepts (without having obtained
the prior written consent of Employer) employment with any other company.
(2) Whenever the Executive shall become, without having
obtained the prior written consent of the Employer, a holder of five (5%)
percent of the issued and outstanding Common Stock of a competitor of the
Employer, a director of a competitor of Employer, or an officer, agent, or
employee of any other company.
(3) Whenever the Executive and the Employer shall mutually
agree in writing to terminate this Agreement.
(4) At Employer's option at any time for cause, as that term
is defined in Section I.(D) hereof.
(5) If Executive shall suffer a disability as that term is
defined in Section I.(C) hereof provided that Executive shall be entitled to 30
days notice prior to such termination.
B. Notice of Termination. The Employment Term, may upon 30 days notice
at the option of the Executive, be terminated upon the happening of any of the
following events:
(1) Whenever the Executive and the Employer shall mutually
agree in writing to terminate this Agreement.
(2) Acts of material breach of any provision of this
Agreement.
C. Amounts Due Executive/Employer. Within sixty (60) days of
termination of this Agreement for whatever reason, all amounts owing to either
party will be due and payable in full.
XIV. DISCLOSURE OF INFORMATION
Executive acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential or
proprietary information developed by Employer and of a special and unique nature
and value to Employ- Employer, including, but not limited to, the nature and
material terms of business opportunities and proposals available to Employer,
Employer's products, methods, systems and research, the names and addresses of
its customers and suppliers, prices charges and paid by Employer or its
customers, designs and specifications, record cards, customers' and suppliers'
records, customer files, services, operating procedures, methods and systems,
financial records of the Employer and of customers, and other information, data,
and documents now existing or later acquired by Executive or Employer,
regardless of whether any such information, data or documents, qualify as a
"trade secret" under applicable Federal or State law (collectively, the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement, and to pay to Executive the compensation referred to in Section
VI hereof, along with other considerations provided herein, Executive covenants
and agrees that he shall not at any time during the Employment Term or following
any termination thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit of Employer,
as reasonably required in connection with his duties to or as otherwise required
by law), any Confidential Information which has been obtained by or disclosed to
him as a result of his employment with Employer. In accordance with the
foregoing, the Executive further agrees that he will at no time retain or remove
from the premises of the Employer records of any kind or description whatsoever
for any purpose whatsoever unless authorized by Employer, and will return all of
the foregoing to Employer upon Employer's request or any termination of his
employment. In the event of a breach or threatened breach by the Executive of
any of the provisions of this Section XIV, Employer, in addition to and not in
limitation of any other rights, remedies, or damages available to Employer at
law or in equity, shall be entitled to a permanent injunction in order to
prevent or to restrain any such breach by Executive, or by Executive's partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with him.
XV. COVENANT AGAINST COMPETITION
A. Executive acknowledges that his services to be rendered hereunder
are of a special and unusual character which have a unique value to Employer,
the loss of which cannot adequately be compensated by damages in an action at
law. In view of the unique value to Employer of the services of Executive for
which Employer has contracted hereunder, and because of the Confidential
Information to be obtained by or disclosed to Executive as herein above set
forth, and as a material inducement to Employer to enter into this Employment
Agreement and to pay to Executive the compensation referred to in Section VI
hereof and other consideration provided herein, Executive covenants and agrees
that he will not during the term hereof and for a period of twelve (12) months
from the date of termination of this Agreement for any reason (i) engage,
directly or indirectly, in any business directly competitive with the asbestos
abatement industrial safety or hazardous material remediation supply business of
Employer (the "Activities") in any area within the states that the Company
presently is conducting business or subsequently is conducting business at the
time of the termination of this Agreement; (ii) call upon any customer or
customers of the Employer for the purposes of engaging in any activities for any
person, corporation, or entity other than Employer competitive with the
Activities of the Employer; or (iii) divert, solicit or take away any customer
or customers of the Employer for the purpose of engaging in any activities
competitive with the Activities of the Employer.
B. Executive covenants and agrees that if he shall violate any of his
covenants or agreements provided for pursuant to this Section, Employer shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which Executive, directly or indirectly,
has realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which
Employer may be entitled to at law or in equity or under this Employment
Agreement.
XVI. REASONABLENESS OF RESTRICTIONS
A. Executive has carefully read and considered the provisions of
Section XIV and XV hereof, and having done so, agrees the restrictions set forth
in such Sections (including, but not limited to, the time period of restriction
and the geographical areas of restriction set forth in Section XV hereof) are
fair and reasonable and are reasonably required for the protection of the
interests of the Employer, its officers, directors, and other employees.
B. In the event that, notwithstanding the foregoing, any of the
provisions of Sections XIV and XV shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of Section XV hereof relating to time
period and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become, and thereafter be, the maximum time period and/or area
which such court deems reasonable and enforceable.
XVII. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed by and construed pursuant to the laws
of the State of Texas, where it is made and executed. If any terms or part of
this Agreement shall be determined to be invalid, illegal, or unenforceable in
whole or in part, the validity of the remaining part of such term or the
validity of any other term of this Agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and enforceable
to the full extent permitted by law.
XVIII. NOTICE
Any notices required or permitted to be given pursuant to this
Agreement to the Employer or Executive shall be in writing and shall be deemed
given upon deposit of same in the U.S., certified mail or registered mail,
return receipt requested, first class postage and registration fees prepaid, and
addressed to the principle office of Employer and the most recent address of
Executive shown in the Employer's records, respectively, or such other addresses
as is most recently designated for the respective parties by notice given as
aforesaid.
XIV. BINDING PROVISIONS AND PERFORMANCE
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and all such parties agree to be bound by the provisions
contained herein.
XX. AMENDMENT
No amendment or variation of the terms of this Employment Agreement
shall be valid made in writing and signed by the parties hereto.
XXI. ENTIRE EMPLOYMENT AGREEMENT
This Employment Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof.
XXII. WAIVER OF VIOLATION NOT CONTINUING
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
subsequent breach.
XXIII. ASSIGNMENT
This Agreement is personal to each of the parties hereto. Employer may
not assign its rights and obligations hereunder without the prior written
consent of Executive.
XIV. HEADINGS AND GENDER
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement. All references to him or her shall be deemed
reference to the Executive regardless of gender.
XXV. COUNTERPARTS
This Employment Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall be deemed to
constitute one instrument.
In WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals on the day and year first above written.
ABATIX ENVIRONMENTAL CORP.
By:
Authorized Signatory
By:
Gary L. Cox
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000845779
<NAME> Abatix Environmental Corp.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 223,997
<SECURITIES> 0
<RECEIVABLES> 6,216,010
<ALLOWANCES> (514,696)
<INVENTORY> 3,424,914
<CURRENT-ASSETS> 9,918,389<F1>
<PP&E> 2,263,343
<DEPRECIATION> (1,812,352)
<TOTAL-ASSETS> 10,595,505
<CURRENT-LIABILITIES> 4,408,349
<BONDS> 0
0
0
<COMMON> 2,414
<OTHER-SE> 6,184,742<F2>
<TOTAL-LIABILITY-AND-EQUITY> 10,595,505
<SALES> 37,327,629
<TOTAL-REVENUES> 37,327,629
<CGS> 26,846,279
<TOTAL-COSTS> 26,846,279
<OTHER-EXPENSES> 8,373,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220,482<F3>
<INCOME-PRETAX> 1,887,838
<INCOME-TAX> 720,429
<INCOME-CONTINUING> 1,167,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,167,409
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<FN>
<F1> AMOUNT REPRESENTS TOTAL CURRENT ASSETS.
<F2> INCLUDES THE COST OF 517,700 OF COMMON SHARES IN TREASURY OF $1,566,067.
<F3> INCLUDES INTEREST EXPENSE OF $238,706, NET OF INTEREST INCOME OF $15,824
AND OTHER INCOME OF $2,400.
</FN>
</TABLE>
